[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]







                        HEARING TO REVIEW RECENT
                  INVESTIGATIONS AND AUDITS CONDUCTED
                     BY THE USDA INSPECTOR GENERAL

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

                                HEARING

                               BEFORE THE

      SUBCOMMITTEE ON DEPARTMENT OPERATIONS, OVERSIGHT, AND CREDIT

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 2, 2011

                               __________

                           Serial No. 112-18








          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov




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                        COMMITTEE ON AGRICULTURE

                   FRANK D. LUCAS, Oklahoma, Chairman

BOB GOODLATTE, Virginia,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
TIMOTHY V. JOHNSON, Illinois         TIM HOLDEN, Pennsylvania
STEVE KING, Iowa                     MIKE McINTYRE, North Carolina
RANDY NEUGEBAUER, Texas              LEONARD L. BOSWELL, Iowa
K. MICHAEL CONAWAY, Texas            JOE BACA, California
JEFF FORTENBERRY, Nebraska           DENNIS A. CARDOZA, California
JEAN SCHMIDT, Ohio                   DAVID SCOTT, Georgia
GLENN THOMPSON, Pennsylvania         HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida            JIM COSTA, California
MARLIN A. STUTZMAN, Indiana          TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      KURT SCHRADER, Oregon
AUSTIN SCOTT, Georgia                LARRY KISSELL, North Carolina
SCOTT R. TIPTON, Colorado            WILLIAM L. OWENS, New York
STEVE SOUTHERLAND II, Florida        CHELLIE PINGREE, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas  JOE COURTNEY, Connecticut
MARTHA ROBY, Alabama                 PETER WELCH, Vermont
TIM HUELSKAMP, Kansas                MARCIA L. FUDGE, Ohio
SCOTT DesJARLAIS, Tennessee          GREGORIO KILILI CAMACHO SABLAN, 
RENEE L. ELLMERS, North Carolina     Northern Mariana Islands
CHRISTOPHER P. GIBSON, New York      TERRI A. SEWELL, Alabama
RANDY HULTGREN, Illinois             JAMES P. McGOVERN, Massachusetts
VICKY HARTZLER, Missouri
ROBERT T. SCHILLING, Illinois
REID J. RIBBLE, Wisconsin
------

                                 ______

                           Professional Staff

                      Nicole Scott, Staff Director

                     Kevin J. Kramp, Chief Counsel

                 Tamara Hinton, Communications Director

                Robert L. Larew, Minority Staff Director

                                 ______

      Subcommittee on Department Operations, Oversight, and Credit

                  JEFF FORTENBERRY, Nebraska, Chairman

TIMOTHY V. JOHNSON, Illinois         MARCIA L. FUDGE, Ohio, Ranking 
STEVE KING, Iowa                     Minority Member
ERIC A. ``RICK'' CRAWFORD, Arkansas  JAMES P. McGOVERN, Massachusetts
------                               JOE BACA, California

               Brandon Lipps, Subcommittee Staff Director

                                  (ii)










                             C O N T E N T S

                              ----------                              
                                                                   Page
Fortenberry, Hon. Jeff, a Representative in Congress from 
  Nebraska, opening statement....................................     1
    Prepared statement...........................................     2
Fudge, Hon. Marcia L., a Representative in Congress from Ohio, 
  opening statement..............................................     2

                                Witness

Fong, Hon. Phyllis K., Inspector General, U.S. Department of 
  Agriculture, Washington, D.C.; accompanied by Karen Ellis, 
  Assistant Inspector General for Investigations, OIG, USDA; 
  Steven Rickrode, Deputy Assistant Inspector General for Audit, 
  OIG, USDA; Robert Young, Special Assistant to the Inspector 
  General on the Recovery Act, OIG, USDA.........................     3
    Prepared statement...........................................     6
    Supplementary material.......................................    27

 
                        HEARING TO REVIEW RECENT
                  INVESTIGATIONS AND AUDITS CONDUCTED
                     BY THE USDA INSPECTOR GENERAL

                              ----------                              


                         THURSDAY, JUNE 2, 2011

                  House of Representatives,
 Subcommittee on Department Operations, Oversight, 
                                        and Credit,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Jeff 
Fortenberry [Chairman of the Subcommittee] presiding.
    Members present: Representatives Fortenberry, Crawford, 
Fudge, McGovern, and Peterson (ex officio).
    Staff present: Tamara Hinton, John Konya, Brandon Lipps, 
Pam Miller, John Porter, Debbie Smith, Heather Vaughan, Suzanne 
Watson, Liz Friedlander, Lisa Shelton, and Jamie Mitchell.

OPENING STATEMENT OF HON. JEFF FORTENBERRY, A REPRESENTATIVE IN 
                     CONGRESS FROM NEBRASKA

    The Chairman. Good morning. The hearing of the Subcommittee 
on Department Operations, Oversight, and Credit to review 
recent investigations and audits conducted by the USDA's 
Inspector General will now come to order.
    Thank you all for coming. I would like to thank Ms. Fong 
for joining us to discuss the work being done by the Department 
of Agriculture's Office of the Inspector General. The Office of 
the Inspector General was established in 1978 to serve as an 
independent and objective body to audit and investigate 
departmental programs and operations. Through these audits and 
investigations, the Office of the Inspector General should 
ensure that taxpayer funds are being used properly. Further, 
these audits and investigations help Congress ensure that 
programs are being delivered as the law intended.
    As the Subcommittee tasked with the oversight of the 
Department's operations, we have responsibility to monitor the 
activity of the Office of the Inspector General and to examine 
the results of its audits and investigations. Fundamentally, 
today's hearing is about good government. We want to be sure 
that the Agriculture Department's programs are being delivered 
effectively and efficiently to the citizens of the United 
States.
    To that end, we want to learn more about the recent audits 
and investigations conducted by you as well as the Department's 
responses to your conclusions. In addition to reviewing the 
recommendations, the hearing is also intended to assess the 
operations of your office itself, the Office of the Inspector 
General. We want to ensure that your office is performing the 
tasks for which it was created and making good use of taxpayer 
money to determine which programs should be prioritized for 
auditing.
    Ms. Fong, again, I thank you and your staff for being here 
today. We look forward to learning more about your recent 
audits and investigations.
    [The prepared statement of Mr. Fortenberry follows:]

   Prepared Statement of Hon. Jeff Fortenberry, a Representative in 
                         Congress from Nebraska
    Good morning. I'd like to thank Ms. Fong for joining us today to 
discuss the work being done by the Department of Agriculture's Office 
of the Inspector General.
    The Office of the Inspector General was established in 1978 to 
serve as an independent and objective body to audit and investigate 
departmental programs and operations.
    Through these audits and investigations, the Office of the 
Inspector General should ensure that taxpayer funds are being used 
properly. Further, these audits and investigations should help Congress 
ensure that programs are being delivered as intended.
    As the Subcommittee tasked with oversight of the Department of 
Agriculture's operations, we have a responsibility to monitor the 
activity of the Office of the Inspector General and to examine the 
results of its audits and investigations.
    Today's hearing is about good government. We want to be sure that 
the Department of Agriculture's programs are being delivered 
effectively and efficiently to our constituents. To that end, we want 
to learn more about the recent audits and investigations conducted by 
the Office of the Inspector General, as well as the Department's 
responses to your conclusions.
    In addition to reviewing your recommendations to the Department, 
this hearing is also intended to assess the operations of the Office of 
the Inspector General itself. We want to be sure that the Office of the 
Inspector General is performing the tasks for which it was created, and 
making good use of taxpayer money in determining which programs to 
audit.
    Ms. Fong, I thank you and your staff once again for being here 
today, and I look forward to learning more about your recent audits and 
investigations.

    The Chairman. With that, I would like to turn to our 
Ranking Member, Ms. Fudge from Ohio, for her statement.

OPENING STATEMENT OF HON. MARCIA L. FUDGE, A REPRESENTATIVE IN 
                       CONGRESS FROM OHIO

    Ms. Fudge. Thank you, Mr. Chairman. Before I begin my 
remarks, I want to say thank you to our full Committee Ranking 
Member for joining us today. He is an ex officio Member of the 
Subcommittee and it is a pleasure to see him.
    Mr. Chairman, I thank you for holding this hearing on 
USDA's Office of Inspector General. This is a very important 
step in my understanding as to how USDA operates, and I look 
forward to hearing from Inspector General Fong to learn how 
their office functions, particularly her efforts to eliminate 
fraud and abuse in the SNAP program and ongoing oversight of 
civil rights issues.
    Ohio's 11th district, like other urban areas, has suffered 
disproportionately from the recession. As a result, in Cuyahoga 
County, which I represent, we have seen a 25 percent increase 
in SNAP recipients in the past few years. This is significant 
for any county but especially in a state like Ohio, that has 
seen a sustained high rate of food insecurity.
    With all the pressure on Federal funding today, plus the 
importance of providing a safety net to those in great need in 
my district, I am committed to making sure that every penny of 
Federal money is going where it should. There is no room in the 
budget for abuse, for fraud or wasteful spending. I am 
interested to learn how the Office of the Inspector General is 
working toward this very necessary goal and how we in Congress 
can be helpful to you.
    I thank the witness for her testimony. I look forward to 
learning from you today. Welcome.
    Thank you. I yield back.
    The Chairman. Thank you, Ms. Fudge. I would also like to 
recognize our full Committee Ranking Member, Mr. Peterson from 
Minnesota, and see if you have an opening statement. Thank you, 
sir, for joining us today.
    The chair would request that Members submit their 
statements for the record so the witness may begin her 
testimony and to ensure that there is ample time for 
questioning.
    First I would like to welcome our first panel to the table. 
The Honorable Phyllis Fong is the Inspector General of the 
United States Department of Agriculture. She is accompanied by 
Ms. Karen Ellis, who is an Assistant Inspector General, Mr. 
Steven Rickrode, who is the Deputy Assistant Inspector General 
for Audit, and Mr. Robert Young, who is a Special Assistant to 
the Inspector General on the Recovery Act. Ms. Fong, please 
begin your testimony.

          STATEMENT OF HON. PHYLLIS K. FONG, INSPECTOR
            GENERAL, U.S. DEPARTMENT OF AGRICULTURE,
         WASHINGTON, D.C.; ACCOMPANIED BY KAREN ELLIS,
  ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, OIG, USDA; 
               STEVEN RICKRODE, DEPUTY ASSISTANT
 INSPECTOR GENERAL FOR AUDIT, OIG, USDA; ROBERT YOUNG, SPECIAL 
 ASSISTANT TO THE INSPECTOR GENERAL ON THE RECOVERY ACT, OIG, 
                              USDA

    Ms. Fong. Thank you. Good morning, Mr. Chairman, Ranking 
Member Fudge, and all the Members of the Subcommittee. We 
really appreciate the opportunity to be here today to talk 
about our oversight work at USDA and we look forward to working 
with both of you in your oversight and leadership roles on this 
Subcommittee, we welcome the chance to address the interests of 
all the Members of the Subcommittee. You introduced my 
colleagues, so I just want to tell you that they are experts in 
their fields of responsibility, and they will handle all the 
tough questions today.
    You have my full written statement for the record, so I 
want to just offer a few brief comments this morning about the 
nature of our work and three key areas where we have been 
focusing a lot of our time over the past year: oversight of the 
Recovery Act funding within USDA, our work to strengthen food 
safety, and our work to address improper payments across the 
board in USDA programs.
    So let me start out with a few remarks about our mission 
and what we do. Simply stated, our job is to help USDA deliver 
programs as effectively as possible. As you know, we perform 
audits to see if programs are functioning effectively, if 
payments are going to the right people, and if funds are 
achieving their intended purpose, their intended Congressional 
purpose. When we find problems, we make recommendations to USDA 
to help the agencies better fulfill their missions, but it is 
up to the agencies themselves to take actions to correct any 
issues that we find. We do not have the authority or the role 
to implement our own recommendations.
    We also conduct investigations, as you know, of people who 
abuse USDA programs, and these investigations can result in 
criminal prosecutions, fines, imprisonment for those who are 
convicted, and disciplinary action for USDA employees who may 
have engaged in misconduct. Over the last 18 months, our audit 
and investigative work led to potential monetary results of 
about $256 million. We issued about 89 audit reports and our 
investigations led to 740+ criminal convictions.
    So let me spend a little time talking about our Recovery 
Act work. As you know, the Department received $28 billion in a 
range of programs, including nutritional assistance, SNAP, in 
particular. The Recovery Act also charged our office with 
overseeing the expenditures of those funds and so to implement 
our responsibilities, we have looked and are looking and will 
look at every USDA program that received Recovery money. 
Currently, we are evaluating program delivery, namely whether 
USDA programs have given the money to participants who are 
eligible, whether the funds are being used for their intended 
purposes. We finished our work on internal controls in the 
programs. Next year, we will be looking at the effectiveness of 
the Recovery Act money, whether the program performance 
measures that USDA agencies established have been met, whether 
the jobs have been created, and the money has truly gone back 
into the economy.
    Some of our most significant Recovery Act work this year 
has addressed the Single Family Housing Guaranteed Loan 
program, in Rural Development, and in some of our initial work, 
we found that of a sample of 100 loans, 28 were made to 
ineligible borrowers. We are in the process of finalizing that 
audit.
    In the Supplemental Nutrition Assistance Program, we looked 
at the quality control process and found that FNS was not 
effectively reviewing and using state fraud detection units, 
and that report is out as well.
    Let me turn next to our work on food safety. That remains a 
top priority for us in both audits and investigations, and our 
goal there is to improve the USDA programs that safeguard the 
food supply. One example of our work in this area deals with 
the situation that arose last year with the multi-state egg 
recall. Because of that situation, we started an audit of 
USDA's system for detecting Salmonella in shell eggs and we are 
looking at the effectiveness of USDA's coordination with FDA to 
make sure that the whole process is working as effectively as 
it should. We have already issued one interim audit report to 
the Department because we found that over 270,000 of the 
288,000 shell eggs that were recalled had been stamped with an 
official USDA grade mark, even though they had been considered 
adulterated with Salmonella. This happened because the egg 
producers are not required to notify AMS when there are 
indications of contamination that might make the eggs unfit for 
human consumption. We are still working with that audit and we 
anticipate having a full report on that later this year.
    Finally, I want to talk a little bit about our work on 
improper payments. Our work in this area is intended to save 
taxpayers money by ensuring that USDA programs deliver the 
correct benefits in the right amounts to eligible people. We 
issued a series of reports over the past year looking at 
improper payments from a variety of perspectives. We audited 
USDA's suspension and debarment program and basically found 
that the Department should better protect its programs by 
debarring individuals and entities that abuse them. Although 
the Department has the ability to exclude people who commit 
crimes against these programs, we have found that in many cases 
convicted program violators were rarely suspended or debarred.
    In another area, we have done a lot of work on the Biomass 
Crop Assistance Program. We have an ongoing audit there. Part 
of our audit work resulted in an interim audit report that 
found that BCAP, as it is known, suffers from hasty 
implementation. The program agency was very concerned with 
getting the money out quickly and did not take the time, in our 
opinion, to include management controls adequate to prevent 
erroneous work and potentially improper payments. We are 
continuing our work on that program.
    Finally, in the SNAP program, which is of course one of 
USDA's largest programs, we spend a lot of our time looking at 
and investigating fraud that is committed by retailers. We 
found that the most prevalent crime in the SNAP program 
involves benefits trafficking which occurs when a recipient 
exchanges his or her benefits for less than face value with a 
retailer, the retailer pays the recipient a certain amount of 
money which is less than the face value of the benefit, and 
then the retailer goes back to FNS to claim reimbursement for 
the full amount of the benefit.
    We have a large number of cases in our investigative 
inventory involving these kinds of frauds. The money can be 
very significant. For example, in the last year we looked at 
two Florida stores involving retailers and it resulted in a 
criminal prosecution for approximately $6.2 million in 
trafficking by owners of those stores and their co-
conspirators. We are actually seeing those kinds of frauds 
across the country, it is not confined to any one geographical 
area.
    Finally, we are doing work in SNAP and the school lunch 
program to review FNS's efforts to reduce the level of improper 
payments. Under the Improper Payment Information Act of 2002, 
we have to do a number of audits each year, and USDA has 
reported, as you know, that the level of improper payments in 
those programs has been going down. Our initial audit work has 
found that FNS has correctly reported that trend and has been 
making significant progress in reducing improper payments. We 
do recommend that FNS work aggressively to continue to reduce 
the rate of improper payments, which is currently around four 
percent in the SNAP program, and we think that FNS should 
continue to be aggressive about this. We are continuing our 
work as well in this area.
    So in conclusion, the Office of Inspector General remains 
committed to providing effective oversight to the Department 
and its programs. We are involved in the full range of USDA 
activities and we look forward to working with this 
Subcommittee to answer your questions and to explore areas of 
mutual interest. So thank you.
    [The prepared statement of Ms. Fong follows:]

  Prepared Statement of Hon. Phyllis K. Fong, Inspector General, U.S. 
              Department of Agriculture, Washington, D.C.
    Good morning, Chairman Fortenberry, Ranking Member Fudge, and 
Members of the Subcommittee. Thank you for the opportunity to testify 
about the Office of Inspector General's (OIG) recent oversight 
activities concerning Department of Agriculture (USDA) programs.
    I will begin my testimony with a brief overview of OIG's mission 
and the work we do. Next, I will summarize our efforts to assess and 
improve the Department's programs and operations under the American 
Recovery and Reinvestment Act of 2009 (Recovery Act).\1\ Then I will 
summarize, according to our major strategic goals, a number of the most 
important oversight projects and investigations we performed in Fiscal 
Years (FY) 2010 and 2011 to date.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 111-5, 123 Stat. 115.
---------------------------------------------------------------------------
OIG's Mission
    As you know, OIG's mission is to promote the efficiency and 
effectiveness of USDA programs by performing audits and investigations 
to reduce fraud, waste, and abuse. The Inspector General (IG) Act 
established a dual reporting responsibility, whereby IGs report both to 
the head of their respective agencies and to Congress.\2\ This unique 
relationship provides the legislative safety net that protects OIGs' 
independence and objectivity while carrying out our oversight 
responsibilities.
---------------------------------------------------------------------------
    \2\ 5 U.S.C. app. 3,  1-13.
---------------------------------------------------------------------------
    We perform audits designed to ascertain if a program is functioning 
as intended, if program payments are reaching those they are intended 
to reach, and if funds are achieving the purpose they were intended to 
accomplish. When we find problems with the programs we oversee, we make 
recommendations we believe will help the agency better fulfill its 
mission. The agencies are responsible for implementing the recommended 
corrective actions. We also conduct investigations of individuals who 
abuse USDA programs--these investigations can result in fines and 
imprisonment for those convicted of wrongdoing, or agency disciplinary 
actions for USDA employees who are found to have engaged in misconduct.
    In FY 2010 through June 1, 2011, our audit and investigative work 
obtained potential monetary results totaling nearly $256 million.\3\ We 
issued 89 audit reports to strengthen the Department's programs and 
operations, which produced over $46 million in potential results when 
program officials agreed with our recommendations. During the same 
period, OIG investigations led to 743 convictions, with potential 
results totaling almost $210 million.
---------------------------------------------------------------------------
    \3\ Audit monetary impacts derive from funds put to better use and 
questioned/unsupported costs as established by Congress in the IG Act, 
5 U.S.C. app. 3  5. Investigation monetary impacts come from 
recoveries, court-ordered fines, restitutions, administrative 
penalties, and asset forfeitures.
---------------------------------------------------------------------------
OIG Oversight of USDA's Recovery Act Work
    As part of the Recovery Act, USDA received $28 billion in 
additional funding for areas including rural development, farm loans, 
and nutrition assistance. The Recovery Act also provided OIG with $22.5 
million over 5 years to oversee programs funded by the Act and 
administered by USDA.
    In response, OIG initiated a number of short- and long-term actions 
to provide timely and effective oversight of the Department's 
expenditure of Recovery Act funds. As of June 1, 2011, we have issued 
29 audit and 11 investigative Recovery Act reports. Since providing 
timely information is a priority, we are also issuing short turnaround 
reports, known as Fast Reports, so USDA program managers can take 
corrective action as soon as we identify problems. As of June 1, 2011, 
we have issued 53 Fast Reports covering issues such as loan and grant 
program administration, conservation work, and Forest Service (FS) 
capital improvement and maintenance projects. We will incorporate these 
into formal audit reports once we complete our work.
    Our audit division is approaching its review of Recovery Act-funded 
programs in three phases. In the first phase, which we have nearly 
completed, we are reviewing USDA agencies' documented internal control 
procedures relating to Recovery Act programs. In the second phase, 
which is in progress, we are evaluating program delivery, reviewing 
participant eligibility, and ensuring that Recovery Act funds are being 
used for their intended purposes. To accomplish this, we are using 
statistical sampling where possible and cost effective. In the third 
phase, which will start in FY 2012, we will evaluate program 
performance measures, and accomplishments and results reporting.
    Examples of our findings to date involving Recovery Act-funded 
programs include:
Eligibility Determinations for Single Family Housing (SFH) Guaranteed 
        Loans
    The Recovery Act included $133 million to finance over $10 billion 
in SFH loan guarantees in rural areas. Our statistical sample of 100 
loans identified 28 loans where lenders had not fully complied with 
Federal regulations or Recovery Act directives in determining borrower 
eligibility.\4\ We found borrowers who were ineligible for a variety of 
reasons such as having annual incomes that exceeded program limits or 
being able to secure credit without a government loan guarantee. By 
guaranteeing loans for ineligible borrowers, other eligible borrowers 
may not have received guarantees that could have better achieved the 
goals of the Recovery Act. Based on the interim results of our 
statistical analysis, we estimate that 27,206 loans were ineligible for 
the program (over 33 percent of the portfolio)--with a projected total 
value of $4 billion.\5\
---------------------------------------------------------------------------
    \4\ 04703-0002-Ch(1), Rural Development Guaranteed Single-Family 
Housing Loans Made by Lenders to Ineligible Borrowers, Dec. 2010.
    \5\ We chose a sample size of 100 because we expected a moderate 
error rate and wanted the ability to report findings with a R10 percent 
precision (confidence interval) at a 95 percent confidence level.
---------------------------------------------------------------------------
States' Supplemental Nutrition Assistance Program (SNAP) Fraud 
        Detection
    USDA's Food and Nutrition Service (FNS) administers SNAP through 
state agencies, which are primarily responsible for monitoring 
recipients' compliance with SNAP requirements along with investigating 
cases of alleged intentional program violation.\6\ We evaluated FNS' 
state-level controls to mitigate SNAP fraud, an area related to FNS' 
increased Recovery Act funding.\7\ We determined that although FNS 
performed reviews to evaluate how states manage SNAP, the agency's 
reviews did not target state fraud detection units. FNS indicated that 
such reviews were unnecessary because state annual activity reports 
were adequate to oversee state fraud detection; however, we found that 
these reports contained unreliable and unverified data. We also found 
that while FNS and state agency officials relied on hotline complaints 
and outside referrals to identify SNAP fraud, they did not make use of 
reports from electronic benefit processors that track participant and 
retailer activity to show potential fraud and misuse. FNS generally 
agreed with our findings and recommendations for those states we 
reviewed, but disagreed that they applied nationally. However, the 
agency did agree to review the electronic benefit reports and to 
encourage states to use them to identify SNAP fraud.
---------------------------------------------------------------------------
    \6\ SNAP, 7 U.S.C.  2011 et seq., is still known as the ``food 
stamp program'' to many in the public, although it was officially 
renamed in 2008.
    \7\ The SNAP Recovery Act work summarized here can be found in: 
27703-2-HY(1), State Fraud Detection Efforts for the Supplemental 
Nutrition Assistance Program, Jul. 2010; and 27703-2-HY(2), State Fraud 
Detection Efforts for the Supplemental Nutrition Assistance Program--
Use of EBT Management Reports, Sep. 2010.
---------------------------------------------------------------------------
    Our investigation division is also working to ensure the integrity 
of Recovery Act programs by taking up potential cases of fraud, 
pursuing prosecution where warranted, and investigating whistleblower 
allegations. As of June 1, 2011, OIG investigations staff have received 
29 referrals relating to USDA Recovery Act contract awards and 54 
hotline complaints.
OIG's Major Strategic Goals
Goal 1: Strengthen USDA's Safety and Security Measures for Public 
        Health
    One of OIG's most important goals is strengthening USDA's ability 
to protect public health and provide wholesome food for consumers. To 
achieve this objective, our audit and investigative work in FYs 2010 
and 2011 to date has focused on helping to improve the programs that 
safeguard our food.
    For example, we audited FSIS' Food Emergency Response Network 
(FERN), which integrates the nation's food-testing laboratories into a 
network that can respond to food contamination emergencies.\8\ We 
concluded that FSIS has made progress with FERN, including establishing 
standardized diagnostic protocols, but needs to take more steps to 
implement the program fully. We recommended that FSIS ensure that there 
are enough laboratories to handle large-scale emergencies and that the 
agency use targeted surveillance to improve FERN's readiness to respond 
to threats to the nation's food supply. FSIS agreed with our 
recommendations.
---------------------------------------------------------------------------
    \8\ 24601-6-AT, Food Emergency Response Network, Mar. 2011.
---------------------------------------------------------------------------
    As a result of the nationwide recall of over 500 million shell eggs 
in August 2010, we are assessing the controls USDA has in place to 
inspect them. Officials with the Agricultural Marketing Service (AMS, 
which shares inspection responsibilities) informed us during our review 
that over 270,000 adulterated shell eggs included in a November 2010 
recall were granted an official USDA grademark by the agency.\9\ The 
producer had mistakenly shipped the eggs to another state's packing 
plant where an AMS official graded them without knowing they were under 
recall. In February 2011, we issued a Fast Report which recommended 
that the agency issue a notice to shell egg producers requiring them to 
inform AMS grading officials at their establishments when there are 
indications of contaminated eggs.\10\ AMS agreed with our 
recommendations.
---------------------------------------------------------------------------
    \9\ USDA and the Food and Drug Administration are responsible for 
ensuring the wholesomeness of shell eggs and egg products.
    \10\ 50601-1-23, Agricultural Marketing Service Needs Stronger 
Controls To Ensure the Wholesomeness of Shell Eggs Bearing USDA's 
Grademark, Feb. 2011.
---------------------------------------------------------------------------
    Since knowing where food comes from and what it contains is 
critical to ensuring its safety, our investigations have addressed 
cases where companies resorted to a variety of schemes to mislead the 
public and the government about the origin of marketed food. For 
example, we determined that one California company falsely claimed its 
products--chili peppers--were grown in the United States in order to 
obtain Federal clean health certificates from USDA. In fact, the 
peppers were imported from India and China, which would have made them 
subject to more stringent USDA inspections to ensure they did not carry 
foreign pests or diseases that could harm native species. In July 2010, 
a court fined the company $50,000 and ordered 3 years' probation for 
making false statements.
Goal 2: Strengthening Program Integrity and Improving Benefit Delivery
    OIG's work in this area is intended to save taxpayers' money by 
helping USDA programs deliver the correct benefits in the right amounts 
to eligible participants. Our efforts in achieving this objective range 
from advocating that USDA take vigorous enforcement action against 
those who abuse its programs to evaluating how effectively agencies are 
reducing improper payments.
    For example, in our audit of USDA's suspension and debarment 
program, we determined that the Department should better protect its 
programs by debarring those individuals and entities that abuse 
them.\11\ Although the Department has authority to exclude those who 
commit crimes against its programs from doing business with the 
government, we found that convicted program violators were rarely 
suspended or debarred. Between FYs 2004 and 2007, only 38 of 1,073 
individuals convicted of crimes against USDA programs were debarred--
less than four percent. Since debarred individuals or entities are 
prohibited from participating in Federal programs outside USDA, 
vigorous and appropriate use of suspension and debarment provides for 
program integrity government-wide. USDA officials agree that suspension 
and debarment should be considered for convicted program abusers. 
Accordingly, we continue to work with the Department and its agencies 
to reach agreement on the corrective actions needed to employ 
suspension and debarment more effectively.
---------------------------------------------------------------------------
    \11\ 50601-14-AT, Effectiveness and Enforcement of Suspension and 
Debarment Regulations in the U.S. Department of Agriculture, Aug. 2010.
---------------------------------------------------------------------------
    Our ongoing assessment of a recently implemented program, the 
Biomass Crop Assistance Program (BCAP), indicates that it suffered from 
hasty implementation that did not include management controls adequate 
to prevent abuses particular to the program.\12\ The 2008 Farm Bill 
authorized BCAP, administered by the Farm Service Agency (FSA), to 
support renewable crops that can be used to produce energy.\13\ Despite 
spending over $243 million to implement the handling aspects of the 
program, such as collecting and transporting biomass, FSA did not 
institute a suitable system to provide oversight and ensure program 
integrity.
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    \12\ 03601-28-KC(1), Recommendations for Improving Basic CHST 
Program Administration, Biomass Crop Assistance Program Controls over 
Collection, Harvest, Storage, and Transportation Matching Payments 
Program, Dec. 2010; and 03601-28-KC(2), Recommendations for Preventing 
or Detecting Schemes or Devices, Biomass Crop Assistance Program 
Controls over Collection, Harvest, Storage, and Transportation Matching 
Payments Program, Feb. 2011.
    \13\ The Food, Conservation, and Energy Act of 2008, Pub. L. No. 
110-234, 122 Stat. 923; also known as the 2008 Farm Bill.
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    We found wide-ranging problems with BCAP, including inequitable 
treatment of program participants and improper payments. These issues 
occurred largely because FSA, in an effort to implement the program 
quickly, did not develop tools specific to the program's needs, such as 
specialized guidance. Instead, FSA attempted to use guidance and 
oversight mechanisms designed for other programs, which left BCAP 
vulnerable. For example, we found three cases where biomass suppliers 
and conversion facilities circumvented poorly written agreements to 
obtain payments to which they were not entitled. FSA has taken 
corrective action in response to our recommendations to develop 
program-specific guidance and to specify prohibited practices in its 
BCAP agreements.
    Our audit work can also have ramifications outside USDA. For 
example, we determined that the Animal and Plant Health Inspection 
Service (APHIS) did not inform the Internal Revenue Service of nearly 
$291 million in payments it made over several years to producers whose 
groves were contaminated by citrus canker, a plant disease that infects 
orange and other citrus trees.\14\ As a result, the government lacks 
assurance that producers reported the payments, which may be taxable. 
In calculating payments, APHIS also did not fully account for insurance 
indemnities that producers may have received from the Risk Management 
Agency (RMA) for the same losses. Instead of verifying the indemnities 
with RMA, APHIS relied on producers who sometimes supplied incorrect 
information, which led APHIS to make over $1 million in erroneous 
citrus-canker payments. APHIS agreed with our findings and 
recommendations and has begun to take corrective action.
---------------------------------------------------------------------------
    \14\ APHIS made the unreported payments between FYs 2001 and 2007. 
(50099-45-AT, USDA Payments for 2005 Citrus Canker Tree Losses, Mar. 
2011.)
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    OIG is also working to help USDA respond efficiently to future 
disasters by reviewing the adequacy of RMA's management controls over 
indemnity payments made to citrus growers in the wake of Hurricane 
Wilma. We have focused our work on how insurance providers processed 
the growers' claims and calculated the indemnity payments. Our work 
with the agency should offer an opportunity to strengthen how private 
insurance providers work with USDA to ensure accurate indemnity 
payments.
    Additionally, several noteworthy OIG investigations involving USDA 
benefit programs resulted in significant sentences in FY 2010. OIG's 
investigations into fraudulent activities involving RMA and FSA are 
some of our most complex investigations because they often involve 
large monetary amounts and voluminous documentation. In FY 2010, for 
both agencies combined, we opened 76 cases and issued 49 investigative 
reports, which led to 35 convictions and over $45 million in monetary 
results. In a particularly complex FSA case, we determined that a woman 
who owned a grain trucking and marketing company in Missouri defrauded 
over 180 farmers out of at least $27 million. Between 2002 and 2009, 
she marketed and sold grain for farmers above market prices. As a 
result, she quickly became one of the largest grain dealers in her 
state. However, we uncovered evidence to prove that she was operating 
what is known as a ``Ponzi Scheme''--essentially, she was using the 
money from later sales to cover her previous above market prices. She 
eventually ran out of money and left her later customers unpaid. Due to 
our investigation, she pled guilty to fraud and transporting stolen 
property across state lines among other crimes. In February 2010, she 
was sentenced to serve 108 months in Federal prison followed by 36 
months' supervised release, and ordered to pay $27.4 million in 
restitution.
    Unfortunately, there are also individuals who seek to defraud USDA 
programs designed to provide basic nutrition assistance to those most 
in need, such as the Special Supplemental Nutrition Program for Women, 
Infants, and Children (WIC) and the Child and Adult Care Food Program 
(CACFP), which are both administered by FNS. In FY 2010, we opened 26 
investigations in these areas and issued nine investigative reports. 
This work led to 28 convictions and almost $3 million in monetary 
results.
    Since these programs work by reimbursing individuals or entities 
who provide benefits, one common abuse involves submitting inflated 
claims. For example, one investigation disclosed that an Oklahoma CACFP 
day care sponsor systematically claimed reimbursement for more meals 
than were served. The court ordered $1.6 million in restitution and 
sentenced the sponsor to 41 months' incarceration.
    OIG investigations of criminal activity into another food program, 
FNS' SNAP, resulted in 212 convictions and approximately $36 million in 
monetary results in FY 2010. SNAP is USDA's largest program, both in 
terms of the dollars spent and the number of participants. In FY 2010, 
recipients redeemed close to $65 billion in benefits. The latest 
available data show that in February 2011 more than 40 million people 
received almost $6 billion in SNAP benefits. SNAP is also an important 
part of the food safety net for Americans, especially during times of 
economic hardship. During the recent recession, SNAP participation 
increased by about 20,000 persons daily--the program helped feed one in 
eight Americans and one in four children.
    Given the considerable participation and funds involved, OIG 
devoted about 40 percent of its investigative resources in FY 2010 to 
SNAP-related criminal investigations--this was our largest allocation 
of investigative resources. Our main focus is on fraud committed by 
retailers, primarily because FNS directly reimburses retailers while 
states are responsible for ensuring that recipients are eligible. With 
few exceptions, our investigations yield tangible and direct benefits 
to the government, including criminal prosecution, significant fines 
and penalties, and restitution.
    The most prevalent crime against SNAP is benefits trafficking, 
which involves a recipient exchanging benefits for less than face value 
with someone who then claims reimbursement for the full amount. The 
money involved in this type of SNAP fraud can be significant. For 
example, our analysis of two Florida stores' SNAP transactions 
identified approximately $6.2 million in trafficking by their owners 
and other co-conspirators. Between March and May 2010, four defendants 
pled guilty to wire fraud and SNAP fraud, and were sentenced to prison 
terms ranging from 8 to 48 months along with restitution orders ranging 
from about $350,000 to $2.2 million.
    In providing oversight to SNAP, OIG audit staff conducts reviews 
designed to improve FNS' overall management controls for this program 
and others. For example, after the President issued an executive order 
in 2009 to reduce improper payments in Federal programs, we evaluated 
FNS' compliance with reporting requirements as they relate to SNAP and 
the National School Lunch Program (NSLP).\15\ According to the 
Department, improper payments for these programs in FY 2009 cost 
taxpayers nearly $2.2 billion for SNAP and $1.5 billion for NSLP.\16\ 
In general, we concluded that FNS reported its improper payments 
correctly and has made significant progress in reducing them. For 
example, the agency has improved its controls over eligibility and 
payments in both programs to better ensure that qualified participants 
receive the correct benefits. We recommended that FNS continue to set 
aggressive reduction targets and work to refine the precision of its 
model for determining NSLP's improper payment rate. The agency agreed 
with our findings and recommendations for both programs.
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    \15\ Exec. Order No. 13,520, 74 Fed. Reg. 62101 (Nov. 20, 2009).
    \16\ USDA's FY 2010 Performance and Accountability Report.
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Goal 3: OIG Work in Support of Management Improvement Initiatives
    OIG continuously monitors risks to USDA programs in order to help 
the Department address programmatic concerns, and to improve overall 
Department management. For example, OIG is required to annually audit 
USDA and some of its agencies' financial statements as well as USDA's 
information technology system security.

   Pursuant to the Chief Financial Officers Act of 1990 \17\ 
        and guidance from the Office of Management and Budget, Federal 
        OIGs are responsible for annual audits of Departmental and 
        agency financial statements in order to provide reasonable 
        assurance that the financial statements are free of material 
        misstatements. USDA's FYs 2009 and 2010 consolidated financial 
        statements received an unqualified opinion,\18\ as did the 
        financial statements for five of six other USDA entities that 
        are required to undergo a financial statement audit.\19\ The 
        sixth lacked sufficient support for transactions and account 
        balances, and so received a disclaimer on its financial 
        statements because an audit opinion could not be given.\20\
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    \17\ Chief Financial Officers Act of 1990, 101 Pub. L. No. 576; 104 
Stat. 2838.
    \18\ 50401-70-FM, Department of Agriculture's Consolidated 
Financial Statements for Fiscal Years 2010 and 2009, Nov. 2010.
    \19\ We issued the following financial statement audits in November 
2010: 85401-18-FM, Rural Development's Financial Statements for Fiscal 
Years 2010 and 2009; 06401-25-FM, Commodity Credit Corporation's 
Financial Statements for Fiscal Years 2010 and 2009; 08401-11-FM, 
Forest Service's Financial Statements for Fiscal Years 2010 and 2009; 
27401-35-Hy, Food and Nutrition Service's Financial Statements for 
Fiscal Years 2010 and 2009; and 05401-19-FM, Federal Crop Insurance 
Corporation/Risk Management Agency's Financial Statements for Fiscal 
Years 2010 and 2009 (RMA operates and manages the Corporation, so they 
are included as a single entity for financial statement audits).
    \20\ 10401-4-FM, Natural Resources Conservation Service's Financial 
Statements for Fiscal Year 2010, Nov. 2010.

   As required by the Federal Information Security Management 
        Act,\21\ OIG examined the security of USDA's information 
        technology in FY 2010.\22\ We found that improvements have been 
        made, but weaknesses remain. For example, the Department has 
        not established a program to secure remote access to USDA 
        information systems, or to oversee systems operated on USDA's 
        behalf by contractors and other entities. In order to mitigate 
        continuing material weaknesses, we recommended, and USDA 
        agreed, that the Department rethink its policy of attempting to 
        achieve numerous goals at the same time in short timeframes. 
        Instead, USDA and its agencies should accomplish one or two 
        critical objectives before moving on to the next set of 
        priorities.
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    \21\ 44 U.S.C.  3541 et seq.
    \22\ 50501-02-IT, U.S. Department of Agriculture, Office of the 
Chief Information Officer, Fiscal Year 2010 Federal Information 
Security Management Act, Nov. 2010.

    The Secretary of Agriculture also requested that we examine the 
Department's civil rights program. Accordingly, we recently initiated 
an audit of USDA's progress in addressing civil rights complaints 
related to alleged discrimination in its programs. Specifically, we 
will assess USDA's decision-making process for settling with 
complainants who allege discrimination. We will also follow-up on our 
prior recommendations to improve USDA's civil rights process.
    In addition, OIG investigates potential criminal activity and 
allegations of employee misconduct. In FY 2010, our investigations 
included the following cases involving USDA employees and entities 
working with the Department.

   Our investigations uncovered a scheme by a Nebraska FSA 
        employee to embezzle funds. The employee entered false 
        repayment rates and backdated repayment dates when servicing 
        FSA loans made to her and her husband. In total, she defrauded 
        the agency of more than $44,000, which she agreed to repay as 
        part of a plea agreement. In June 2010, she was sentenced to 8 
        months of house arrest and 36 months of probation. FSA no 
        longer employs her.

   Working with other Federal investigators, OIG determined 
        that a Massachusetts corporation collected millions of dollars 
        from several government agencies for services it never 
        provided. The corporation offered training on computer software 
        and other information technology. Using a pre-paid voucher 
        system, several USDA agencies paid up front for training that 
        the company never delivered. In April 2010, the corporation 
        agreed in a settlement to return a total of $4.5 million to the 
        government.

   In a joint investigation with other law enforcement units, 
        we disclosed that, since 2001, a major shipping company had 
        been miscoding its reasons for making late deliveries to USDA 
        and several other Federal agencies in order to avoid penalty 
        fees. The company falsely claimed that the delays were due to 
        security measures. In April 2011, the company agreed to pay the 
        United States $8 million to resolve its alleged violations of 
        the Federal False Claims Act.\23\
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    \23\ 31 U.S.C.  3729-3733.
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Goal 4: Improving USDA's Stewardship of Natural Resources
    USDA provides leadership to help America's private landowners and 
managers conserve soil, water, and other natural resources. Our goal in 
auditing these activities is to increase the efficiency and 
effectiveness of USDA stewardship over natural resources.
    For example, FS is responsible for preventing the introduction of 
invasive species into the lands it manages and combating those that are 
already there. Though this affects hundreds of millions of acres, OIG 
determined that FS' invasive species program lacks many of the internal 
controls ordinarily associated with the effective stewardship of 
Federal resources, such as an overall risk assessment.\24\ FS agreed 
with OIG's recommendation to establish a sound internal control 
structure. In addition, over the last decade, FS has dealt with 
increasingly severe fire seasons and its firefighting costs have more 
than doubled, rising over $1 billion in FY 2009. Thus, OIG has 
conducted a number of reviews intended to help FS better combat these 
natural disasters. In one audit, OIG assessed FS' succession plans for 
critical fire management positions, such as fire incident 
commanders.\25\ In 2009, approximately 26 percent of these critical 
personnel were eligible to retire; in 5 years, 64 percent will be 
eligible; and in 10 years, 86 percent. We found that FS has not 
developed an adequate plan and training program to replace these 
critical personnel. We recommended that FS develop a national workforce 
plan that would proactively address openings in the agency's 
firefighting ranks. FS generally concurred.
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    \24\ 08601-7-AT, Forest Service Invasive Species Program, Sep. 
2010.
    \25\ 08601-54-SF, Forest Service's Firefighting Succession Planning 
Process, Mar. 2010.
---------------------------------------------------------------------------
    OIG is also required to investigate the deaths of FS employees 
resulting from wildfire entrapment or burnover.\26\ Our most recent 
investigation in this area addressed the deaths of five firefighters 
during the Esperanza Fire in California. Our report--published in 
December 2009--found no issues related to potential misconduct or 
unauthorized actions by FS personnel.
---------------------------------------------------------------------------
    \26\ See 7 U.S.C.  2270b.
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Conclusion
    In summary, OIG's work ranges from overseeing Recovery Act funds to 
helping USDA promote public health and safety, strengthen programs, 
save taxpayer dollars, improve management, and conserve natural 
resources. Our audits and investigations illustrate OIG's continuing 
commitment to work collaboratively with the Department to improve 
program effectiveness and integrity. We focus our work to meet our 
mandated mission of promoting economy, efficiency, and effectiveness in 
USDA by preventing fraud, waste, and abuse.
    This concludes my testimony. Thank you again for inviting me to 
testify before the Subcommittee. We would be pleased to address any 
questions you may have.

    The Chairman. Thank you again for appearing today and for 
your testimony. I will begin with questions.
    Let us go to the SNAP program and the improper payment 
issue and in Fiscal Year 2009, I have information that $2.2 
billion in improper payments were made. Of course, as you 
mentioned, this is the largest USDA program approximately last 
year spent about $65 billion. You have spent a significant 
amount of resources on looking at this problem of benefits 
trafficking at the retail end. At the conclusion of your 
testimony, you were admonishing the Food & Nutrition Service to 
look at improper payments, I assume you mean to individuals who 
may not be eligible or who may have some potentially fraudulent 
claim for eligibility. Why the emphasis primarily on the 
retailer? Which, don't get me wrong, that is important, but 
given that the largest areas for potential fraud may be in 
terms of eligibility requirement, why not focus a significant 
amount of resources there as well?
    Ms. Fong. Well, that is a very good and interesting 
question, and I am going to ask Karen to comment in a second. 
Let me just start out by noting that, as you recognized, fraud 
can occur at two levels, both the retailer level and at the 
individual recipient level. The way the program is structured 
is that the states have responsibility primarily for ensuring--
--
    The Chairman. Let me go back to something you said. You 
said the FNS is not effectively using state data in terms of 
its own investigations into fraud, and I assume you mean in 
regards to eligibility requirements of individuals.
    Ms. Fong. Exactly, yes, what our audit concluded was that 
FNS should be working more effectively and ensuring that states 
use this data to really make sure that individual recipients 
are eligible, and that is the safeguard in the system, in the 
structure.
    The Chairman. Should some of your emphasis in your office 
shift to that aspect of investigation?
    Ms. Ellis. What we focus on in the criminal investigation 
side is building a criminal case and working with the 
Department of Justice to make an impact in the trafficking 
aspects. In trafficking, we concentrate on the retailers 
because those are the folks that are authorized by FNS to 
legally take food stamps and SNAP benefits.
    The Chairman. My intention is not to under-emphasize the 
importance of that work. I was simply asking how you determine 
the balance as to where you are applying your efforts in 
looking at improper expenditures in the entire system. Retail 
trafficking is an important part of it, and frankly I would 
like to go there in perhaps a second round of questioning as to 
how a person actually commits fraud and how we can do a better 
job ensuring that at the retail level, but to my other question 
where clearly there is some level of gap, in your own 
testimony, by saying that we are not effectively using the 
state data to determine, perhaps, the ineligibility in these 
programs, and that is one area of fraud. I just want to 
understand clearly, that was only a sentence that you had 
saying we need the Food & Nutrition Service to better use state 
data.
    Ms. Fong. And let me just add something. We have actually 
this past year initiated our own work to start looking at 
eligibility of individual recipients, and we have----
    The Chairman. Okay, now this is----I think we are to the 
point.
    Ms. Fong. Yes, and let me see if I can elaborate on this. 
We have created a unit in our audit group that analyzes data to 
see if there are perhaps indications at the state level of 
people who may be getting duplicative payments from more than 
one state, or who may have erroneous payments. We are in the 
process right now of looking at four or five different states, 
comparing their data and trying to find out where the erroneous 
or improper payments may have occurred.
    The Chairman. What is the reason that you picked those 
states is another question that I have. Is there a 
concentration of problems in the system, any particular region 
or state or is it simply just widespread abuse that is a subset 
for analysis?
    Ms. Fong. We had five states, and I think there is a 
geographical spread. We can find out why we picked those five, 
but we have been working with both FNS and the state government 
entities that oversee the SNAP programs, and we are starting to 
find some results.
    The Chairman. In the interest of letting other Members 
speak, I will probably return to this line of questioning after 
we hear from other Members. I will now turn to our Ranking 
Member, Ms. Fudge.
    Ms. Fudge. Thank you, Mr. Chairman. I will now yield to our 
full Committee Ranking Member, Mr. Peterson.
    Mr. Peterson. I thank the gentlelady for yielding. I want 
to follow up on this.
    What I hear about is retailers, as you mentioned in your 
testimony, and what I want to understand is that some are 
ringing up the sale and charging it against the card but there 
is actually not a sale and then they take the cash and they 
split it between the retailer and the recipient. I hear about 
it a lot in my district. We just have a problem where we have 
these stamps where people will sell them outside the grocery 
store. The question I have is, how do they do this? Do they 
actually ring up the groceries and then don't give them to the 
customer, how do they access this money on the card if they 
don't actually ring up purchases? If they ring up phony 
purchases, how does that fit within their books? I mean, that 
can't work. Can you explain to me how they do this?
    Ms. Ellis. Yes, I am happy to explain that to you. It is 
pretty similar to what happened with the coupons, and what 
happens is, you have the recipients selling the benefits to 
store owners at a lower amount. So say the EBT card has $100 of 
benefits on it. They may sell it to an authorized grocery store 
for half of that, $50----
    Mr. Peterson. And how can they do that?
    Ms. Ellis. Well, what they do is, they give the card as 
well as the PIN number to the store owner and then the store 
owner slides it through. They slide it through just like a 
credit card transaction and they get the full amount, the full 
$100 back, the store owner does.
    Mr. Peterson. So in order to access these benefits, you 
don't actually have to ring up the groceries?
    Ms. Ellis. No.
    Mr. Peterson. Well, why not? I mean, every one of these 
stores has electronic capabilities, and records when each item 
is scanned. Why don't you require that you cannot access this 
money unless you actually access it like a regular credit card? 
Why would you allow this if they have a PIN number to access 
the benefits? I mean, I think you have left a hole in this 
thing unless it is more complicated than I understand.
    Mr. Young. Well, in answer to that question, what happens, 
the problems aren't with your big supermarkets.
    Mr. Peterson. No, I understand it is with the mom and pops.
    Mr. Young. And these small little stores when they ring up 
things, they don't have the sophisticated computer systems to 
identify what was sold.
    Mr. Peterson. So the fraud isn't happening in the big 
stores that are electronically capable?
    Mr. Young. Right. So what happens is, you just have a total 
amount. I mean, they might take an adding machine and add that 
up of what groceries you have, then they input $50, $75, 
whatever the sale might be.
    Mr. Peterson. Well, why do we allow that?
    Mr. Rickrode. It is tough to catch. I mean----
    Mr. Peterson. To be honest with you, you go in these 
convenience stores and buy your groceries, you are getting 
ripped off. You are paying two or three times as much as you 
should. I sometimes wonder why we even let people use these in 
convenience stores. If you eliminated small stores, it may 
force people to go in the grocery store. I know we have some 
places that don't have good access to food centers and so 
forth, but it just seems like we have found another hole in 
this thing.
    Mr. Young. Well, the same question you are asking is the 
question that we have asked over the years. The problem is that 
a lot of food stamp recipients or SNAP recipients, they don't 
have transportation, they don't have any way to get to a big 
supermarket. Oftentimes in rural areas, there is not a larger 
supermarket for miles so they go to these small convenience 
stores to buy their groceries. Then as a result, some of these 
stores, don't have the sophisticated accounting systems to be 
able to track purchases. There are many stores like that that 
are very honest and do a good job, but there are those few that 
aren't that are causing problems.
    Mr. Peterson. Most convenience stores in my area have the 
same kind of electronic system that the big grocery stores 
have. But, it is a problem and I hear about this in my 
district. I think we ought to look at if there is some way of 
cutting down on fraud to less than five percent. My 
understanding it is four percent. Is it climbing back up again?
    Ms. Fong. I believe four percent is the latest reported.
    Mr. Peterson. That is the lowest it has ever been?
    Ms. Fong. Excuse me?
    Mr. Peterson. That is the lowest it has ever been?
    Ms. Fong. It is, I believe.
    Mr. Peterson. Well, we need to zero in on this a little bit 
and make sure that people are doing the right thing.
    The Chairman. I thank the Ranking Member for his comments. 
I will turn to the gentleman from Arkansas, Mr. Crawford.
    Mr. Crawford. Thank you, Mr. Chairman.
    I want to continue along the line that the Ranking Member--
down the road he was going. First I would like to clarify how 
the states administer the benefits. Are they--do you defer to 
the states to determine eligibility requirements and so on?
    Ms. Fong. That is the role that a state plays under any 
program. That is the way the program is structured. USDA and 
FNS provide the funding for each state, and the state 
implements the funding by verifying eligibility of individual 
applicants, so they run the application and certification 
process.
    Mr. Crawford. Along the lines of what the Ranking Member 
was saying, we are issued credit cards for travel purposes that 
only recognizes purchases for travel. I can buy an airplane 
ticket, I can buy a train ticket or a bus ticket or whatever. 
But, it only works for travel. Could there not be a similar 
measure on these SNAP cards that only recognizes purchases of 
approved food, number one? Number two, does someone who is 
eligible for these benefits, do they have to go every month and 
renew and reapply and restate their eligibility, and would that 
not be an effective way to help manage some of that potential 
fraud?
    Ms. Fong. Well, I think you have a very good idea there 
about whether the card system itself could be structured so 
that it only recognizes certain transactions. That would 
certainly be an idea worth exploring with FNS. That has some 
merit to it.
    In terms of eligibility, I don't believe that applicants 
are recertified every month but I think there is a regular 
process to make sure that the applicants continue to be 
eligible.
    Mr. Young. I think it is every 6 weeks they have to go 
back, it is less than a year, I am not sure of the exact amount 
of time. They are approved for SNAP and then after a period of 
time they have to go back and recertify.
    Mr. Crawford. Okay, and as I understand it, they issue a 
SNAP card. There is a PIN number associated with that card. Is 
that individual card reloaded every month? Do you have to go 
back and reload that individual card?
    Mr. Young. Yes.
    Mr. Crawford. I would suggest that a PIN number is not 
sufficient for security purposes, and that can be compromised 
as the Ranking Member indicated. It can be easily compromised 
and lend itself to fraudulent activity at virtually every 
level, whether it be on the street or whether it be through the 
retailer. So I am hoping that we can work on a solution to 
streamline security measures that are implemented with the SNAP 
program.
    I want to switch gears real quick on to BCAP. The provision 
was created in the 2008 Farm Bill to encourage producers to 
establish new dedicated cellulosic and biomass crops by way of 
President Obama in May 2009, Department of Agriculture began 
eating into the BCAP program contracts before establishing 
program rules. As you noted, this resulted in excessive and 
improper spending as a result there were no new biomass crops 
to show for the $\1/4\ billion that was spent first. I 
understand the Department of Agriculture is taking corrective 
actions to better administer the Biomass Crop Assistance 
Program, but there are still many concerns. Will the Office of 
Inspector General be following up with the administration of 
BCAP now that the program is operating under new rules.
    Mr. Rickrode. Yes, we will be following up on that, and we 
have performed audit work on BCAP, as you mentioned. That work 
is concluding currently. We did issue one report about what we 
found, and as we go forth, we will complete the work we are 
doing and then issue a final report.
    Mr. Crawford. Okay. Are there any other cases where the 
Office of Inspector General has found an agency moving forward 
without program rules?
    Ms. Fong. In general?
    Mr. Crawford. In general.
    Ms. Fong. I am not recalling anything off the bat, but, 
periodically, as you know, when you pass a law that creates new 
programs, frequently there are requirements that agencies 
implement in a certain amount of time. So agencies have to move 
very, very expeditiously to do that. Sometimes the rulemaking 
process can take longer than implementation schedules, and so 
that always creates a challenge for agencies.
    Mr. Peterson. Will the gentleman yield?
    Mr. Crawford. Sure.
    Mr. Peterson. You know, I think I am somewhat responsible 
for this fiasco, and what happened. The timber industry saw an 
opportunity here. They were in trouble and they needed to make 
money and so they saw opportunity here to supplement their 
income, and I was under a lot of pressure to open this up to 
the timber and pulp industry. So, that is where the money went. 
These people that added it wrote it, to support the forest 
economy. The rules were so specific that they didn't have the 
right rules because it said exactly what they had to do so they 
implemented it, and then of course, everybody was sitting there 
waiting for that. Then things got out of control. But, the 
reason that was given to me by FSA was because the language was 
so specific that their lawyer said that we need to follow the 
law. Hopefully they won't do anything like that again. The BCAP 
program was designed to create new crops, and it hasn't done 
that at all. It is really worthless, and frankly, at this 
point, I don't support extending it. I'm not sure it is ever 
going to work.
    Mr. Crawford. I have some issues in my district with the 
BCAP project where we are running into problems with, so I 
thank you for your----
    The Chairman. I thank the gentleman from Arkansas, and I 
want to thank Ranking Member Peterson for his frankness. I 
don't think these words have ever been uttered in the halls of 
Congress, ``I think I'm responsible for this fiasco.'' Then he 
mitigated his culpability by saying the Senate forced it upon 
me.
    Let me turn now to the gentleman from Massachusetts, Mr. 
McGovern.
    Mr. McGovern. Thank you very much.
    When you talk about a four percent error rate in the SNAP 
program, does that also include underpayments or is that just 
fraud?
    Ms. Fong. I believe the four percent rate is for any kind 
of improper payment including under, and over----
    Mr. McGovern. So an improper payment could be somebody who 
is eligible for a particular amount and is paid less?
    Ms. Fong. Exactly.
    Mr. McGovern. Just doesn't get what he or she deserves.
    Ms. Fong. Exactly.
    Mr. McGovern. So it is not just somebody taking advantage 
of the system. Based on your oversight, would it be accurate to 
say that the SNAP program is in general run well and effective, 
or would you have a different characterization?
    Ms. Fong. My sense, and we have been doing oversight for 
many years, is that overall the program is a well-run program.
    Mr. McGovern. Do you have any idea of how many people who 
are eligible for SNAP currently but are not taking advantage of 
it?
    Ms. Fong. I don't believe we have done any work in that 
area.
    Mr. McGovern. My understanding is that there are a 
considerable number of people who are eligible for the benefits 
but don't know they are eligible for the benefits, don't know 
they can take advantage of it, including a lot of working 
families who are struggling in this economy, who are trying to 
get by. You know, I have to put this in a little bit of 
perspective. I agree with what everybody said here in terms of 
cracking down on fraud, and I believe in finding more effective 
ways to do it and you said it is related to small stores. I 
mean, I am not sure how practical it is to require all the 
small stores to put in the storewide electronic equipment to be 
able to--so that we could do better oversight--that is a cost 
in and of itself. But what happens if you found out a small 
store abuses the system? Do they lose their ability to serve 
people with food stamps, or what happens?
    Ms. Ellis. What happens is, when we are finished with our 
criminal investigation, we refer them back to the agency to FNS 
and have them take administrative action, and what we generally 
find is that FNS does disqualify the store.
    Mr. McGovern. I will go back to what was mentioned before. 
For a lot of people, food deserts are a reality, they don't 
have a choice to go to big supermarkets. They have their choice 
of small stores because they are limited by transportation or 
because of--where they happen to be, unfortunately they rely on 
convenience stores as opposed to the supermarket. I am new on 
this Committee, so how do you determine what to prioritize and 
what to investigate? How do you determine what to look at?
    Ms. Fong. Well, as you know, we do both audits and 
investigations so we have a priority-setting process on each 
side of the house. On the audit side, first of all, we look at 
our mandatory work, and that is the work that Congress has 
required us to perform. That includes things like the annual 
financial statement audits, IT security audits, some other 
statutorily required audits in the farm bill, for example. Then 
after that, we start looking based on our experience, where we 
believe the vulnerabilities exist and we look at high dollar 
amounts that could be a risk. We ask agency program managers, 
the Secretary, and Members on the Hill for input as to where 
you think we should be focusing our priorities. We put all that 
into the hopper and we look at our past work where we believe 
that there are areas that need further follow-up. Then we 
develop a list of planned audits, which we publish on our 
website.
    Mr. McGovern. Last question here. The reason why I asked 
that is because one of the things I am very concerned about is 
the increasing hunger in the United States, and to be able to 
deal with that issue effectively obviously relies on the 
effectiveness of programs like SNAP but a whole bunch of other 
programs, many of which are within the USDA. The President has 
now said he wants to eliminate child hunger in America by 2015. 
I am not convinced we are going to get there, based on what we 
are doing right now. But I think it would be helpful to me, for 
example, to know the overall effectiveness of some of our anti-
hunger programs. I worry that during this time of difficult 
budgets that it is convenient to look at the SNAP program as a 
way to save money because we point to examples of abuse, yet 
the bigger problem is hunger and food insecurity. In some cases 
we may need to expand some of these programs as to the 
effectiveness of the food nutrition programs within the 
Department of Agriculture to see whether or not we are making 
progress on the President's goal of eliminating childhood 
hunger by 2015.
    Ms. Fong. Okay. We will factor that into our planning 
process.
    Mr. McGovern. Thank you very much.
    The Chairman. I thank the gentleman. I will turn now to our 
Ranking Member, Ms. Fudge.
    Ms. Fudge. Thank you, Mr. Chairman. I just want to make a 
couple comments. I mean, certainly, the problem is not just in 
the SNAP program. In neighborhoods like mine, we talk about 
earned income tax credit. I know people who take other kids' 
Social Security Numbers, and others who take farm subsidies. I 
am trying to track down this one farmer who literally called my 
office, and indicated that his family had a farm and it went 
belly-up. Shortly after that he started receiving farm 
subsidies from the Federal Government and then shortly after 
that he heard from his state saying we want you to grow this 
crop. Of course, he is scared to death. He doesn't know what to 
do. So I am trying to get him to calm down. But I mean, it is 
everywhere. It is everywhere. We have to continue to try to 
catch as many of those as we can, and I think punish them more 
than we have in some instances because I think that becomes a 
real deterrent. If you are in a neighborhood and you go into 
these stores and the store owner goes to jail for 5 years, the 
next store owner that comes behind him might not be willing to 
take that same risk.
    Under the Inspector General Act, Ms. Fong, you clearly do 
have statutory authority to initiate investigations independent 
of the Secretary asking you to do it. So with this in mind, 
could you please explain to me why the Secretary had to request 
your office to conduct an investigation of the operation of 
civil rights procedures and why you didn't take the initiative 
on your own?
    Ms. Fong. Okay. Let me just talk a little bit about our 
work in civil rights programs over the last 5 or 10 years. We 
have always viewed the civil rights programs as a priority 
within USDA, and we have done a wide range of audits in both 
Title VI and Title VII arenas. I believe we issued the baseline 
set of audits 10 years ago. Since then, we have been keeping 
very close track of the Department's progress. We issued 
another report about 3 or 4 years ago, and then the new 
Administration came in and took office with a new Assistant 
Secretary for Civil Rights. At that time the Assistant 
Secretary and the Secretary both announced initiatives to 
address some of the longstanding issues that we had been 
finding in terms of the long amount of time it takes to address 
complaints in both Title VI and Title VII areas. We had 
initially considered starting work in 2009 and 2010 but after 
evaluating that, evaluating the need for the agency to have 
enough time to implement some of those initiatives, we decided 
to hold some of our work until this year.
    Now, you mentioned that the Secretary made a request to us 
to initiate that. He did, and we are very supportive of that. 
If he had not asked us to initiate it, we had planned to 
initiate it, and so it was a situation where both of us were 
recognizing the need for that work. As you also know, we have 
responsibilities under the Pigford provisions of the Claims 
Resolution Act of 2010 and we will be carrying out those 
responsibilities. Under the last farm bill, we had a mandate to 
do a review of socially disadvantaged farmers and whether the 
loan programs were being delivered effectively and we issued 
that report a year or so ago. I found that there was no 
statistically significant issue or problem there, that the USDA 
actually treated those farmers in a fair way and so we----
    Ms. Fudge. I don't want to interrupt, but I think I got my 
answer.
    I want to ask you one other question before my time is up. 
The 2005 audit clearly reports some very disturbing findings; 
chief among them was that the audit liaison at the Office of 
the Assistant Secretary for Civil Rights, ``was not responsible 
for monitoring corrective actions or reporting [the status of 
those actions.]'' Currently, the OIG is performing another 
audit of the Office of the Assistant Secretary for Civil 
Rights. Has there been any appreciable improvement from the 
last audit both in terms of employment discrimination and 
administration of Federal programs that you are aware of?
    Ms. Fong. We are in the beginning stages of our current 
audit and so I don't believe we have reached any conclusions 
yet, and I am looking to my colleagues just to verify that.
    Ms. Fudge. Certainly, tell me how the Assistant Secretary 
for Civil Rights cannot be held responsible for monitoring 
corrective actions you suggested. I don't understand that.
    Ms. Fong. Well, I think we probably need to discuss what 
happens when we issue an audit recommendation. The program 
manager looks at that recommendation, to either agree or 
disagree, and in this case, I believe the Civil Rights Office 
did agree with our recommendations. At this point, it is up to 
them to implement the action to correct the problem. The reason 
we are going in now is because we want to see whether or not 
they actually implemented their actions, and whether or not it 
has been effective, so that is the issue we are looking at.
    Ms. Fudge. Thank you, Mr. Chairman.
    The Chairman. Thank you, Ms. Fudge.
    Let me turn to the second round of questions now but let me 
make a brief comment. I don't want this to appear to be an 
inordinate focus on the poor among us or those with reduced 
capacities who are receiving SNAP benefits. This is an 
important social safety net program in the United States. We 
made a decision to help people who may have difficulty for a 
variety of reasons with one of the most basic human needs, and 
that is food supply. The reason we are starting out with a 
focus on the SNAP program in terms of improper payment and 
retail store trafficking is, it is our biggest area of 
expenditure in the USDA and in tight budgetary times, when we 
are looking at potential savings or opportunities to shift 
monies properly to those who are eligible, but are potentially 
being robbed by those who may be getting them improperly, I 
think it is important to focus here. Fraud is fraud, improper 
payments are improper payments whether that is the SNAP program 
or to a grain farmer with thousand of acres. I just wanted to 
get that on the record.
    Going back to the SNAP program, to the question that we 
didn't get a full answer to earlier, you said we are not 
effectively using the state fraud data, Food & Nutrition 
Service is not effectively using that data. Then you said we 
are opening up a new investigative arm to look into that issue. 
Would you unpack your statement a little further please?
    Ms. Fong. Thank you. My staff has given me some additional 
information here. As I mentioned, we are starting to test the 
databases in 11 states, actually 11, not five, to see whether 
there are potentially improper payments being made. We are 
looking to see, for example, if people who are dead are 
receiving payments--there has been that issue--whether people 
are receiving payments from more than one state, whether there 
are invalid Social Security Numbers, or perhaps the date of 
birth may not be the correct date of birth. Now, we selected 
those 11 states--I will just run through that for you. We 
started out looking at Florida and Texas because of a large 
amount of SNAP dollars in those programs, and then we added the 
surrounding States of Louisiana, Mississippi, and Alabama 
because we were looking at potential dual payments for 
participants who may cross state lines.
    The Chairman. So that is not necessarily an indicator of a 
higher level of fraud there, it is just----
    Ms. Fong. Yes.
    The Chairman.--a subset.
    Ms. Fong. It is just the proximity, the geographical 
proximity. Then after we started doing those tests we decided 
to look at New York, New Jersey, Pennsylvania and Connecticut. 
Again, those states have large dollar amounts in that program. 
Depending on what we find out, we may go to other states.
    The Chairman. When do you anticipate some data back from 
this investigation?
    Ms. Fong. I would say early fall. We are really making good 
progress on this.
    The Chairman. Why don't you think about following up on 
that and maybe at the same time, Mr. Peterson, as well as the 
gentleman from Arkansas, raised some important points about why 
don't you think about some policy recommendations to ensure 
that this retail trafficking issue or retail fraud issue, how 
difficult that may be to enforce on stores that don't have 
electronic accounting system. I think we should think about 
that and look forward to any recommendations you could provide 
there as well.
    Ms. Fong. We will give some thought to that, and also 
discuss that with FNS.
    The Chairman. I would appreciate that. I think it is 
important to point out that the improper payment rate in the 
SNAP program has fallen significantly. Now, four percent of $65 
billion is still a lot of money and the more we can do to 
ensure that there isn't fraud, underpayment, overpayment, make 
it as tight as possible. That saves a lot of taxpayer money and 
it also takes pressures off of programs that--if you want to 
create a public relations problem--if there is a large pool of 
dead people who are receiving SNAP payments, that creates a 
real nightmare for USDA, for you and for us. We want to ensure 
that audit mechanisms are in place and are as tight as possible 
to maintain the integrity of the program, we should point out 
that this has fallen dramatically, significantly, let me put it 
that way, particularly since the implementation of the 
electronic benefit card. It got rid of basically a black market 
in the trading of food stamps. This retail issue is important 
to focus on--but in terms of potential savings also shifting 
some of the emphasis, which appears that you are already doing 
to the improper payment issue and ensuring the Food & Nutrition 
Service is actively engaged in that process, I think would be 
very helpful.
    Ms. Fong. Thank you.
    The Chairman. Mr. Peterson.
    Mr. Peterson. Thank you, Mr. Chairman.
    I have a couple of questions. This Eastern Livestock 
situation, have you done any investigation of that or do you 
intend to? Do you have any authority to do that?
    Ms. Ellis. I am happy to brief you when it is done but 
right after that became public my agents were involved. We are 
working very closely with the United States Attorney's Office, 
the FBI and U.S. Postal Inspection Service and it is a very 
active investigation.
    Mr. Peterson. As I understand it--this might not be 
appropriate--but apparently there is no requirement for these 
kind of outfits to have bonding, or the Department doesn't have 
the authority to require that they have bonding, so that if 
something goes wrong that the people that do business with them 
will get their money? Are you looking into that, or not?
    Ms. Ellis. I am sure that will be part of what we look at, 
but right now we just want to build the criminal case, and I 
couldn't answer with regard to the bonding as I don't know.
    Mr. Peterson. Well, I guess I would be interested as you go 
through this process. We get so focused on criminalizing 
everything, sometimes we miss the policy changes that need to 
be made. What got us into this in the first place? If you have 
recommendations, I would appreciate it. And when is this going 
to get done?
    Ms. Ellis. We don't have a time frame. We just started the 
investigations. We initiated it right away but where we are 
right now is going through a lot of records review. We are 
going through a number of bank records and other documents.
    Mr. Peterson. I understand it, you were able to give an 
audit opinion on all the USDA components with the exception of 
NRCS, that you weren't able to give a clean opinion on NRCS. 
What is the problem there? They don't have adequate records?
    Ms. Fong. You are talking about the financial statement 
audit?
    Mr. Peterson. Yes.
    Ms. Fong. We were able to issue a clean opinion on all of 
the agencies that we looked at with the exception of NRCS, 
which we had to disclaim because the records were not in a 
shape that we could even render an audit opinion.
    Mr. Peterson. And what do you mean? What kind of shape were 
they in? What was the problem? I am a CPA so I am interested.
    Ms. Fong. Oh, we have a list.
    Mr. Peterson. Is it because they were all on paper or they 
are not computerized, or what is the problem?
    Mr. Rickrode. I think the key problem was the level of 
documentation and the state of those records.
    Mr. Peterson. What?
    Mr. Rickrode. The key problem was the state of those 
records and the amount of preparation done for those 
reconciliations. Making sure that information was pulled 
together in a correct and a supportable process to meet the 
intent of creating the financial statements, and having the 
records for us to review them in proper format.
    Mr. Peterson. Is part of the problem that we made these 
conservation programs so complicated that there is no way to 
pull them together so you can actually audit them?
    Mr. Rickrode. No, I----
    Mr. Peterson. Like the CSP program. They have 30 different 
practices and you view three of them different on every farm. 
Is that what the problem is?
    Mr. Rickrode. I wouldn't say that is the problem because we 
have other entities who receive a financial audit who have 
conservation programs along those lines. A lot of the situation 
too is NRCS was required in the past few years to have a 
financial statement audit; and just to come in and do the audit 
and for the agency to go through the rigor and discipline of 
creating financial statements takes a period of time. Most of 
the Federal agencies did not come out their first year and have 
a clean opinion, and that is the same with this entity. It is 
going to take a little while. But also too, there has been 
turnover in key management positions, and that inconsistency 
will also not facilitate getting financial statements that we 
can render a clean opinion on.
    Mr. Peterson. Do you do those audits here in USDA or are 
you actually going out in the field and auditing NRCS county or 
district offices?
    Mr. Rickrode. It is both. They are full scope audits, and 
we look at the required areas. We have to consider materiality 
and that will include looking at operations at the department 
level, as well as the actual programs as they are working in 
the state agencies and the field offices.
    Mr. Peterson. But you do go out to county offices?
    Mr. Rickrode. Yes.
    Mr. Peterson. How many do you do?
    Mr. Rickrode. How many offices do we go out to?
    Mr. Peterson. Yes, how many offices do you audit?
    Mr. Rickrode. For the past audit and what we have been 
working on this year, it is about a dozen.
    Mr. Peterson. A dozen? Out of what? Thousands?
    Mr. Rickrode. We have been testing controls and what is 
going on in the accounting records, and we select based an 
adequate amount that gives us a cross-section to be able to say 
these are how many controls have been applied, and from there, 
the individual transactions that support the amounts provided 
to us with the financial statements. That is a process based on 
different risk factors and characteristics in our selection.
    Mr. Peterson. So you go into a county office, you check 
their internal controls and depending on that, do you do sample 
tests of different transactions based on those internal 
controls and so forth?
    Mr. Rickrode. Yes, based on internal controls and based on 
materiality of that dollar amount to the total financial 
statements.
    Mr. Peterson. But, it is only twelve.
    Mr. Rickrode. There is only----
    Mr. Peterson. You only go to twelve county offices.
    Mr. Rickrode. Much more----
    Mr. Peterson. So it seems pretty thin.
    Ms. Fong. Well, we also sample from the headquarters 
perspective and we make sure that the sample that we take is 
indicative of the full scale of the statement.
    Mr. Peterson. So when do you think you will be able to give 
an opinion, will the have things in order to give an opinion 
next year?
    Mr. Rickrode. Well, a lot of this depends on NRCS. It 
depends----
    Mr. Peterson. I think the Chief is focused on trying to get 
this in order but I am just trying to get an understanding of 
the magnitude of the job we have to get this straightened out.
    Ms. Fong. I think if you compare it to the Forest Service, 
we believe that NRCS is where the Forest Service was about 5 or 
6 years ago. It took a concentrated effort by both the 
Department CFO and the Forest Service; a lot of resources and 
the hiring of the right staff with the right skills, and a CFO 
who would remain in place for a length of time. That took the 
Forest Service about 5 years to get from where they were to a 
clean opinion, and we see the same process for NRCS.
    Mr. Peterson. Thank you. Thank you, Mr. Chairman.
    The Chairman. Ms. Fudge is recognized.
    Ms. Fudge. Thank you, Mr. Chairman.
    Ms. Fong, your testimony refers to potential monetary 
results of about $256 million over the past year. Help me just 
get a sense of where that--those resources, where that money 
comes from looking at whether it is a result of SNAP, or if it 
is commodity programs or conservation programs. Give us some 
idea of what that $256 million encompasses.
    Ms. Fong. That is a good question. As you mentioned $256 
million. Forty-six million dollars was the result of audits and 
$210 million is the result of criminal investigations, and I 
would say that generally speaking, both sides of the house, 
that would be from a range of programs in USDA. It is not in 
one program.
    In our testimony, if you look through it, are examples that 
you might see on the audit side, we issued a report on the 
citrus canker program in Florida when we found that APHIS made 
a million dollars in payments that perhaps were erroneous 
because they didn't take into account the fact that RMA had 
already made payments. That would be an example of a million 
dollars of that $46 million on the audit side.
    On the investigation side, there are a couple of examples 
in our testimony. There is a case of a Missouri woman in the 
Farm Services Administration program area who had a Ponzi 
scheme and a criminal conviction led to $27 million in ordered 
restitution. Then there are of course the SNAP cases, which 
involve trafficking. So that gives you a sense of the spread 
and range of our work.
    Ms. Fudge. Is it possible for someone on your staff send to 
me at some point a breakdown just in general categories? 
Because I think there is some belief that most of the fraud 
does in fact come from SNAP. I would like to show what those 
broad categories show.
    Ms. Fong. I would be happy to do that.
    [The information referred to is located on p. 27.]
    Ms. Fudge. To go back to when you find whether it be at a 
grocery store or a convenience store or a farm or whatever it 
is, if you find someone who you bring criminal prosecutions 
against and those persons are convicted, are those persons 
forever barred from doing business with the Federal Government 
again? Not just in that particular program, but, so often in 
the government, the right hand doesn't know what the left hand 
is doing, so you may get convicted of fraud for being a mom-
and-pop store, then get millions of dollars to do something 
else. How does that work?
    Mr. Rickrode. That is a good question, and the specific 
answer is based on work that we did on suspension or debarment. 
It varies. Basically, some agencies at USDA are real proficient 
with suspension debarment. They use it as a deterrence tool as 
well as a tool to restrict other recipients from getting 
entitlements or benefits or whatever the action is. Whereas 
other parts of USDA are not. From our perspective, we have done 
prior work in this area and our prior work found that at the 
time USDA did not implement an adequate system of suspension or 
debarment. We have come back and done more work, and at this 
point we have found that they still have not fully implemented 
a suspension or debarment program for the full Department. The 
other issue we found is that some agencies had reasons for 
certain programs not being subject to suspension or debarment 
and some of those reasons were maybe not as justified as they 
need to be. We asked for additional justification. So it kind 
of depends on the agency.
    Ms. Fudge. So the answer to my question is no?
    Mr. Rickrode. No.
    Ms. Fudge. Okay. Thank you.
    Ms. Fong, just looking at your background, I know that you 
were Inspector General for the SBA as well, so you know why 
agencies in general, why do agencies not communicate these 
kinds of things? I don't understand.
    Ms. Fong. Communicate in terms of suspension or debarment?
    Ms. Fudge. Yes.
    Ms. Fong. This is an issue that the whole IG community is 
involved in. It is an issue that cuts across many departments, 
and what we frequently hear from the IG perspective is that if 
somebody is convicted, say, a bank or a retailer, the agency 
depends on that bank or retailer to deliver its programs. 
Agencies really don't want to lose those entities because they 
worked hard to develop a relationship. They feel that those 
entities understand how to deliver the programs so there is a 
real reluctance to push them out of the program. We are, in 
many different departments, having this challenge of trying to 
work with the agencies to say, yes, we understand that that is 
a challenge for program delivery but you also need to take into 
consideration the integrity of the programs. It is a tough one.
    Ms. Fudge. Thank you, Mr. Chairman. Thank you, Ms. Fong.
    The Chairman. Thank you.
    Let me turn briefly as well to another area regarding the 
implementation of information technology. We spent a 
significant amount of money and had oversight hearings on the 
Department's efforts to implement new information technologies. 
Can you comment on their efforts to update information 
technology, and if it has resulted in better delivery of 
programs to the citizens of the country?
    Ms. Fong. Well, I think IT poses a lot of challenges for 
all of us. Every agency is so dependent on good IT systems to 
deliver benefits, and as you know from your work, there have 
been challenges at USDA, particularly in the farm program 
arena. There have been situations in the past few years where 
that whole system had gone down for a month or so and benefits 
were not getting out as they needed to get out. In response, 
Congress appropriated some funds to FSA to address that. We are 
currently in the middle of auditing that situation to see if 
the funds that were provided have been used effectively. I 
don't think we have any preliminary findings but based on my 
briefings from staff, we understand that the Department has 
invested the money. The question is whether that investment has 
been effective, and that is what we are looking at.
    The Chairman. When will you have that information?
    Ms. Fong. We are looking at the fall of this year for a 
final report.
    The Chairman. I think we are going to have you back in, in 
fall. You talked about the fall as we were talking, so----
    Ms. Fong. I look forward to that.
    The Chairman. The other issue I would like to raise with 
you is, I would like for you to give an honest assessment of 
your own efforts. A question was raised earlier about how you 
go about prioritizing what you audit and what you investigate 
if you could elaborate on that a little further. I assume this 
type of hearing is helpful to you in terms of feedback as to 
what policymakers believe is a priority. Clearly, you have your 
own limitations in terms of staff and you have to prioritize, 
so I would like to hear an assessment of your own internal 
office workings.
    Ms. Fong. Well, I think you have made some very good points 
in your question. We do very much appreciate hearing from 
Members as to what programs and issues are on your minds 
because it helps us to look at a bigger context and find out 
where we believe the risks are. We also do our own risk 
assessment every year, and we depend on staff who are very 
expert in a lot of the programs to say we have done 
recommendations on this program, we need to really go back and 
see if that is working.
    My sense is that we do a good job. We could always do 
better, which is why this hearing has been so useful to me. I 
think you raised some very interesting issues about how we can 
better target our SNAP work. We are facing a potential decrease 
in our resources in the coming years, as is every other USDA 
program, and so we are going to have to get even better at 
prioritizing and trying to figure out ways to carry out our 
mandatory work so it doesn't take over our efforts. We were 
just talking yesterday about the mandatory portfolio: financial 
statement audits, IT security, and some of the other 
requirements we have. Currently, that uses up about 20 percent 
of our resources, which is a fairly significant portion, and so 
we have to ask ourselves if we continue to do this work, can we 
do it in a better way or streamline.
    The Chairman. You can also communicate with us and the 
mandatory requirements are decades old and no longer fit 
particular dynamics of administering new public policies that 
recommended changes to us could also be helpful so that you 
could better prioritize your limited resources.
    Ms. Fong. Thank you. The other thought that occurs to me is 
that as we do some of the work in SNAP and we are looking at 
whether improper payments are being made, we need to work with 
state governments, perhaps with other Federal agencies, to 
match up databases so we can use technology more effectively 
and be more efficient. I think a tool that would be very useful 
to us would be to see if IGs as a whole can get that authority 
to match databases without going through a months-long process 
to get that. There are some legislative proposals pending on 
the Hill, and to the extent that you are interested in hearing 
about those, we would be happy to share those with you.
    The Chairman. Well, I think we are under very tight 
constraints. We want to assure every dollar is well used, and 
also that you don't exclude persons who are actually in need of 
particular assistance because the dollars are limited and maybe 
are going to people who are receiving them improperly. There 
are two sides to this. So that would be helpful if you could 
forward that information.
    Ms. Fong. I would be happy to.
    [The information referred to is located on p. 31.]
    The Chairman. I would like to thank you all for coming 
today. This concludes our hearing.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 calendar days to receive 
additional material and supplementary written responses from 
the witness to any questions posed by a Member.
    This hearing of the Subcommittee on Department Operations, 
Oversight, and Credit is adjourned.
    [Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
  Supplementary Material Submitted by Hon. Phyllis K. Fong, Inspector 
                General, U.S. Department of Agriculture
    During the June 2, 2011 hearing entitled, Hearing To Review Recent 
Investigations and Audits Conducted by the USDA Inspector General, 
requests for information were made to the USDA OIG. The following are 
their information submissions for the record.
Insert 1
          Ms. Fudge. Thank you, Mr. Chairman.
          Ms. Fong, your testimony refers to potential monetary results 
        of about $256 million over the past year. Help me just get a 
        sense of where that--those resources, where that money comes 
        from looking at whether it is a result of SNAP, or if it is 
        commodity programs or conservation programs. Give us some idea 
        of what that $256 million encompasses.
          Ms. Fong. That is a good question. As you mentioned $256 
        million. Forty-six million dollars was the result of audits and 
        $210 million is the result of criminal investigations, and I 
        would say that generally speaking, both sides of the house, 
        that would be from a range of programs in USDA. It is not in 
        one program.
          In our testimony, if you look through it, are examples that 
        you might see on the audit side, we issued a report on the 
        citrus canker program in Florida when we found that APHIS made 
        a million dollars in payments that perhaps were erroneous 
        because they didn't take into account the fact that RMA had 
        already made payments. That would be an example of a million 
        dollars of that $46 million on the audit side.
          On the investigation side, there are a couple of examples in 
        our testimony. There is a case of a Missouri woman in the Farm 
        Services Administration program area who had a Ponzi scheme and 
        a criminal conviction led to $27 million in ordered 
        restitution. Then there are of course the SNAP cases, which 
        involve trafficking. So that gives you a sense of the spread 
        and range of our work.
          Ms. Fudge. Is it possible for someone on your staff send to 
        me at some point a breakdown just in general categories? 
        Because I think there is some belief that most of the fraud 
        does in fact come from SNAP. I would like to show what those 
        broad categories show.
          Ms. Fong. I would be happy to do that.

    The table immediately below summarizes the $46.4 million in 
potential monetary results agreed to by auditee agencies at the time of 
management decision for the period of October 1, 2010 through June 1, 
2011. A detailed breakout of the 16 audits that contained monetary 
results follows.

        Summary of Audit Activities--October 1, 2010-June 1, 2011
------------------------------------------------------------------------

------------------------------------------------------------------------
Management Decisions Made:
  Number of Reports including both monetary findings and              63
   program improvements
  Number of Reports with reportable monetary findings                 16
  Number of Recommendations including both monetary                  452
   findings and program improvements
  Number of Recommendations with reportable monetary                 113
   findings
------------------------------------------------------------------------
Dollar Impact (Millions) of Management-Decided Reports:
  Questioned Costs/Recommended for Recovery (1)                  * $11.8
  Questioned Costs/Recovery Waived (2)                            * $0.6
  Funds To Be Put to Better Use (3)                                $34.0
                                                            ============
    Total Dollar Impact (Millions) of Management-Decided           $46.4
     Reports
------------------------------------------------------------------------
* Auditees agreed to the amount at the time of management decision. The
  recoveries realized could change as the auditees implement the agreed
  upon corrective action plan and seek recovery of amounts recorded as
  debts due the Department.
(1) Questioned Costs--Included in this category are questioned cost
  amounts that the auditee has expended when OIG recommends recovery and
  expects a claim to be established. This also includes questioned loan
  amounts or guaranteed amounts that the auditee has disbursed or
  guaranteed for which OIG recommends recovery.
(2) Recovery Waived--Included in this category are monetary amounts that
  the auditee has expended when a recommendation to recover the funds is
  not feasible and/or appropriate. For example, amounts questioned due
  to improper agency action may, in some cases, be unrecoverable.
(3) Funds to be Put to Better Use--Included in this category are
  recommendations by OIG that funds could be used more efficiently if
  the auditee took actions to implement and complete the recommendation.
  Monetary amounts recorded represent future savings from cost
  reductions, revenue increases, improved receivable collections, or
  more efficient fund usage.


                                                      Audits Issued with Monetary Management Decisions (FY 2010-2011) through June 1, 2011
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                         Questioned Costs/  Questioned Costs/
  Audit Number                  Audit Title                             Program Name               Total No. of Recs   Mgmt.  Decision        Recovery       Recovery Waived    Funds to be Put
                                                                                                                             Date         Recommended (1)          (2)         to Better Use (3)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    106010001AT   Rehabilitation of Flood Control Dams     Watershed Rehabilitation Program                       13           12/16/09                                              $15,208,002
    036010013SF   Emergency Loan Reductions                Crop Disaster Program                                   2           12/15/09          a $29,092
                  Emergency Loan Program
                  Noninsured Crop Disaster Assistance
                   Program
    046010020CH   Rural Rental Housing Program--Midwest    Rural Rental Housing Program                            5           05/19/11           $152,970
                   Management Company
    046010019CH   Controls Over Rural Housing Service      Single Family Housing and Rural Rental                  5           02/07/11                                                 $452,449
                   Disaster Assistance Payments             Housing Programs
    106010006KC   Natural Resources Conservation Service-- Emergency Watershed Protection Program                  2           03/30/11                                                  $29,777
                   Emergency Disaster Assistance:
                   Emergency Watershed Protection Program
    506010015AT   Hurricane Indemnity Program--Integrity   Farm Service Agency's Hurricane                         7           03/23/11           $774,325            $41,287
                   of Data Provided by the Risk             Indemnity Program
                   Management Agency (RMA)
    130110003AT   Tribal Land Grant Institutions           Tribal College Endowment Fund Program                   8           10/15/09          b $76,359                              $619,354
                                                           Tribal College Educational Equity
                                                            Grant Program
                                                           Tribal College Research Grant Program
                                                           Tribal College Extension Service Grant
                                                            Program
                                                           Grant Program
                                                           Tribal College Extension Service Grant
                                                            Program
    037020001TE   Emergency Disaster Assistance for the    Emergency Conservation Program                          4           11/23/10                               $22,578           $264,524
                   2008 Natural Disasters: Emergency
                   Conservation Program
    340990011TE   Review of Lender with Business and       Business and Industry Guaranteed                        2           03/04/11         $4,019,657
                   Industry (B&I) Guaranteed Loan in        Program
                   Louisiana
    340990009TE   Review of Lender with B&I Guaranteed     Business and Industry Guaranteed                        1           06/24/10                              $544,000
                   Loan in Maryland                         Program
    086010054SF   Forest Service Firefighting Succession   Wildland Fire Management                               20           08/03/10                                              $11,800,000
                   Plans
    330020004SF   Animal and Plant Health Inspection       Animal Care Program                                    14           06/30/10                                                 $177,980
                   Service, Animal Care Program--
                   Inspections of Problematic Dealers
    090990002SF   Rural Utilities Service (RUS) Rural or   Water and Waste Disposal Grants                         8           03/31/11            $84,730                            $4,593,991
                   Native Alaskan Village Grants
    040990211TE   Request Audit of Colorado Rural Rental   Rural Rental Housing Program                           15           11/19/09                                                  $83,373
                   Housing Management Company
    050990027AT   Evaluation of RMA Indemnity Payments     Citrus Crop Insurance Program                           1           05/10/10         $6,667,707
                   for 2004 Florida Hurricanes
    096010001AT   RUS Controls over Water and Waste        Water and Waste Disposal Direct and                     6           02/24/11                                                 $800,000
                   Disposal Loan and Grant Program          Guaranteed Loans Program
                                                                                                  -------------------                   --------------------------------------------------------
                                                                                                                 113                           $11,804,840           $607,865        $34,029,450
                 ===============================================================================================================================================================================
                                                                  Total Monetary Results
                                                              $46,442,155
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Questioned Costs--Included in this category are questioned cost amounts that the auditee has expended when OIG recommends recovery and expects a claim to be established. This also includes
  questioned loan amounts or guaranteed amounts that the auditee has disbursed or guaranteed for which OIG recommends recovery.
(2) Recovery Waived--Included in this category are monetary amounts that the auditee has expended when a recommendation to recover the funds is not feasible and/or appropriate. For example,
  amounts questioned due to improper agency action may, in some cases, be unrecoverable.
(3) Funds to be Put to Better Use--Included in this category are recommendations by OIG that funds could be used more efficiently if the auditee took actions to implement and complete the
  recommendation. Monetary amounts recorded represent future savings from cost reductions, revenue increases, improved receivable collections, or more efficient fund usage.
a Questioned funds were from the Emergency Loan Program.
b Questioned funds were from the Tribal College Educational Equity Grant Program.

    The table below summarizes the monetary impact of USDA OIG 
investigative activities, by program/activity, from October 1, 2010 
through June 1, 2011.

         Summary of Monetary Impact of Investigative Activities
                      October 1, 2010-June 1, 2011
------------------------------------------------------------------------
                               Program/Activity         Total  Monetary
      USDA Agency                Investigated               Results
------------------------------------------------------------------------
Agricultural Marketing   Employee Misconduct                     $17,000
 Service
                         Marketing Orders                         $5,125
                         Other *                                $525,892
Agricultural Research    Employee Misconduct                        $260
 Service
                         Other                                $4,534,231
Farm Service Agency      Employee Misconduct                  $3,130,274
                         Exceeding Maximum Payment            $3,695,816
                          Limits
                         Commodity Credit Corporation         $1,435,115
                          Loan & Purchase Programs
                         Farm-Stored Commodity Loan          $29,739,114
                          Program
                         Emergency & Disaster                   $345,316
                          Programs
                         Indemnity Payment Program              $376,783
                         Farmer Program Borrower              $3,977,530
                         Other                                $3,389,252
Rural Housing Service    Employee Misconduct                      $1,025
                         Workplace Violence                         $350
                         Single Family Housing Loans          $5,496,788
                         Rural Rental Housing Project           $101,133
                          Manager
                         Other                                   $18,389
Risk Management Agency   Reinsurance Program                 $21,901,294
Foreign Agricultural     Other Foreign Commodity                $136,073
 Service                  Donation Program
Forest Service           Employee Misconduct **              $44,647,057
                         Assaults                                   $520
                         Other                                   $69,075
Rural Utilities Service  Rural Telephone and                  $2,916,342
                          Community Antenna
                          Television Programs
Natural Resources        Employee Misconduct                        $960
 Conservation Service
                         Soil Conservation Programs               $8,025
                         Soil Water Conservation                $254,760
                          Program
                         Other                                  $837,604
National Food and        Other                                  $100,500
 Agriculture Institute
Food Safety and          Employee Misconduct                      $3,938
 Inspection
                         Assaults                                 $1,200
                         Anti-Tampering                          $64,431
                         Federal Meat Inspection                $652,525
                          Program
                         Meat & Poultry Import                    $1,100
                          Inspection Program
                         Other                                  $135,181
Food and Nutrition       Employee Misconduct                      $2,633
 Service
                         Supplemental Nutrition              $47,132,957
                          Assistance Program (SNAP)
                         National School Lunch                $1,419,995
                          Program
                         Child Care Food Program              $4,587,051
                         Special Supplemental Food              $699,004
                          Program for Women, Infants
                          & Children
                         Summer Food Service Program             $79,484
                         Other Child Nutrition                  $195,815
                          Programs
                         Other                                  $271,471
Grain Inspection         Other                                    $1,110
 Packers and Stockyards
 Administration
Animal and Plant Health  Employee Misconduct                     $24,121
 Inspection Service
 (APHIS)
                         Assaults                                   $235
                         Animal Welfare Act                     $851,571
                         Dog and Cock Fighting                  $539,779
                         Quarantine Programs--Animals            $38,385
                         Quarantine Programs--Plants            $101,900
                         Other                               $17,372,899
Office of Inspector      Assaults                                   $300
 General
Multi Agency             Procurement Fraud                    $8,000,000
                        ------------------------------------------------
    Total Monetary                                          $209,838,688
     Results
------------------------------------------------------------------------
* Due to the numerous programs within USDA which provide assistance to
  the public, OIG created program categories for tracking our
  investigative work in the larger programs such as SNAP. To ensure that
  all of our investigative work is captured we created a code called
  ``Other.'' The ``Other'' category encompasses all investigations that
  involve fraud against a USDA agency that is not associated with a
  specific program operated by the agency, or for which a separate
  investigative program category has not been identified or established
  at the time the investigation is initiated. Typically they involve
  false claims or false statements made to obtain monies from USDA
  agencies (e.g., one APHIS ``other'' investigation that resulted in
  approximately $15 million in monetary results involved false
  exportation certificates for the shipment of food out of the United
  States.)
** Note: The monetary results listed for the Forest Service reflect the
  court-ordered restitution awarded in an investigation involving a
  former Forest Service employee who was convicted of arson several
  years ago. The amount of restitution had been under appeal in the
  court system for several years and a final decision was issued on this
  matter in 2010.

Insert 2
          The Chairman. You can also communicate with us and the 
        mandatory requirements are decades old and no longer fit 
        particular dynamics of administering new public policies that 
        recommended changes to us could also be helpful so that you 
        could better prioritize your limited resources.
          Ms. Fong. Thank you. The other thought that occurs to me is 
        that as we do some of the work in SNAP and we are looking at 
        whether improper payments are being made, we need to work with 
        state governments, perhaps with other Federal agencies, to 
        match up databases so we can use technology more effectively 
        and be more efficient. I think a tool that would be very useful 
        to us would be to see if IGs as a whole can get that authority 
        to match databases without going through a months-long process 
        to get that. There are some legislative proposals pending on 
        the Hill, and to the extent that you are interested in hearing 
        about those, we would be happy to share those with you.
          The Chairman. Well, I think we are under very tight 
        constraints. We want to assure every dollar is well used, and 
        also that you don't exclude persons who are actually in need of 
        particular assistance because the dollars are limited and maybe 
        are going to people who are receiving them improperly. There 
        are two sides to this. So that would be helpful if you could 
        forward that information.
          Ms. Fong. I would be happy to.
Proposed Legislation for Enhanced IG Authority for Computer Matching
Proposed Language
    Section 6(a) of the Inspector General Act of 1978 (5 U.S.C. App.) 
is amended--

          (1) in paragraph (8), by striking ``and'';
          (2) by redesignating paragraph (9) as paragraph (10); and
          (3) by inserting after paragraph (8) the following new 
        paragraph:

                  ``(9) notwithstanding subsections (o), (p), (q), (r), 
                and (u) of section 552a of title 5, United States Code, 
                to compare, through a matching program (as defined in 
                such section), any Federal records with other Federal 
                or non-Federal records, while conducting an audit, 
                investigation, inspection, evaluation, or other review 
                authorized under this Act to identify weaknesses that 
                may lead to fraud, waste, or abuse and to detect 
                improper payments and fraud; and''.

    On June 13, 2011, Chairman Issa submitted the proposed language in 
H.R. 2146, the ``Digital Accountability and Transparency Act of 2011.'' 
There are currently 8 cosponsors of the legislation. The proposed 
language is based on an earlier version submitted by the Council of 
Inspectors General for Integrity and Efficiency to the House Oversight 
and Government Reform Committee during the 111th Congress. The IG 
community is strongly supportive of this proposal and has sought 
enhanced IG authority for computer matching for many years.

    Explanation/Justification:

    The Computer Matching and Privacy Protection Act of 1988 (P.L. 100-
503) (Computer Matching Act), as amended, revised the Privacy Act to 
add procedural requirements that agencies must follow when matching 
electronic databases, including those of non-Federal agencies (i.e., 
State and local governments, as defined by the Computer Matching Act). 
The requirements include formal matching agreements between agencies, 
notice in the Federal Register of the agreement before matching may 
occur, and review of the agreements by Data Integrity Boards at both 
agencies. While the Computer Matching Act provides an exemption for law 
enforcement investigative matches from these administrative 
requirements, the exemption applies only when a specific target of an 
investigation has been identified. Moreover, the Government 
Accountability Office, as an arm of the Legislative Branch, is not 
subject to the Computer Matching Act.
    The legislative history of the Computer Matching Act identifies 
Inspectors General as among the earliest users of computer matching as 
an audit tool to detect fraud, error, or abuse in Federal benefit 
programs. Interagency sharing of information about individuals can be 
an important tool in improving the integrity and efficiency of 
government programs. By sharing data, agencies can often reduce errors, 
improve program efficiency, identify and prevent fraud and improper 
payments, evaluate program performance, and reduce the information 
collection burden on the public by using information already within 
government databases. Because many federally funded programs are 
administered at the State and local level, such as unemployment 
compensation, food and nutrition assistance, and public housing, the 
ability to match data with State and local governments is as important 
as the ability to match with other Federal agencies. Computer matching 
between Federal agencies and State or local governments is governed by 
the Computer Matching Act.
    The work of the Inspectors General in identifying control 
weaknesses within agency programs, identifying and preventing improper 
payments, and detecting and preventing fraud would be facilitated by 
expanding the current law enforcement exemption to permit an Inspector 
General, as part of audits or inspections, not only targeted 
investigations, to match computer databases of Federal and non-Federal 
records. Because the Inspector General rarely controls the databases to 
be matched, much effort and time is involved now in encouraging the 
agency system managers to understand that matching is appropriate and 
necessary and to cooperate with the Office of Inspector General (OIG) 
to fulfill the Computer Matching Act administrative requirements. This 
allows agencies to delay, and even obstruct, legitimate OIG oversight 
because the OIG is dependent on the cooperation of the agencies to meet 
the Computer Matching Act requirements.
    Even though the Inspectors General at the Department of Homeland 
Security, Department of Agriculture, Department of Housing and Urban 
Development (HUD), and the Small Business Administration pursued 
computer matching agreements in the aftermath of Hurricane Katrina to 
facilitate audits and investigations, there were long delays before 
agreements could be finalized. For example, the first computer matching 
agreement to be executed was between HUD and the Federal Emergency 
Management Administration and it was not finalized until June 2006, 
almost 10 months after Hurricane Katrina struck. The absence of 
computer matching agreements forced the Hurricane Katrina Fraud Task 
Force to rely on manual record comparisons to detect improper payments 
and fraud. The authority to conduct data matching would have greatly 
enhanced the ability of the Inspectors General to quickly begin review 
of hurricane victim assistance programs to detect internal control 
weaknesses and fraud before benefits were issued.
    This change would not authorize greater access to records than 
Inspectors General have under existing law. It would, instead, allow 
computerized comparison of records, which would be less time consuming 
than manual analysis and impose fewer administrative burdens. For 
example, section 6103 of the Internal Revenue Code provides that tax 
returns and return information are confidential and not subject to 
access or disclosure, except in limited circumstances delineated in the 
Internal Revenue Code. This change to the Computer Matching Act would 
not provide Inspectors General with greater access to tax returns or 
return information, but would, if the Inspectors General are authorized 
to have access to such records, allow Inspectors General to perform 
computerized matches of the data.
    Lastly, the requested authority would not diminish any of the due 
process rights accorded recipients of Federal benefits. The Computer 
Matching Act presently provides that government agencies will not take 
adverse action against any citizen based on a computer match without 
independent verification of the information, and giving the individual 
involved an opportunity to contest an adverse finding. See 5 U.S.C.  
552a(p).

                                  
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