[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW RECENT
INVESTIGATIONS AND AUDITS CONDUCTED
BY THE USDA INSPECTOR GENERAL
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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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67-063 PDF WASHINGTON : 2011
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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
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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
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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.
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\1\ Pub. L. No. 111-5, 123 Stat. 115.
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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.
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\2\ 5 U.S.C. app. 3, 1-13.
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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.
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\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.
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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\
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\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.
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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.
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\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.
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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.
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\8\ 24601-6-AT, Food Emergency Response Network, Mar. 2011.
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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.
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\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.
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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.
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\11\ 50601-14-AT, Effectiveness and Enforcement of Suspension and
Debarment Regulations in the U.S. Department of Agriculture, Aug. 2010.
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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.
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\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.
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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.
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\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).