[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
FRAUD IN THE HUD HOME PROGRAM
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
AND THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 2, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-81
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Oversight and Investigations
RANDY NEUGEBAUER, Texas, Chairman
MICHAEL G. FITZPATRICK, MICHAEL E. CAPUANO, Massachusetts,
Pennsylvania, Vice Chairman Ranking Member
PETER T. KING, New York STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota MAXINE WATERS, California
STEVAN PEARCE, New Mexico JOE BACA, California
BILL POSEY, Florida BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio JAMES A. HIMES, Connecticut
FRANCISCO ``QUICO'' CANSECO, Texas JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee
Subcommittee on Insurance, Housing and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
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Page
Hearing held on:
November 2, 2011............................................. 1
Appendix:
November 2, 2011............................................. 67
WITNESSES
Wednesday, November 2, 2011
Beaudette, James M., Deputy Director, Departmental Enforcement
Center, Office of General Counsel, U.S. Department of Housing
and Urban Development.......................................... 41
Donohue, Kenneth M., former Inspector General, U.S. Department of
Housing and Urban Development.................................. 39
Handelman, Ethan, Vice President for Policy and Advocacy,
National Housing Conference.................................... 43
McCarty, John P., Acting Deputy Inspector General, Office of
Inspector General, U.S. Department of Housing and Urban
Development.................................................... 38
``Smith, Jane'', convicted of defrauding organizations that
received funds from the U.S. Department of Housing and Urban
Development's HOME Investment Partnerships Program............. 8
Truax, Timothy, convicted of defrauding organizations that
received funds from the U.S. Department of Housing and Urban
Development's HOME Investment Partnerships Program............. 12
APPENDIX
Prepared statements:
Beaudette, James M........................................... 68
Donohue, Kenneth............................................. 72
Handelman, Ethan............................................. 77
McCarty, John P.............................................. 80
``Smith, Jane''.............................................. 87
Truax, Timothy............................................... 92
Additional Material Submitted for the Record
Biggert, Hon. Judy:
Letter from a coalition of housing industries................ 102
Letter from Enterprise Community Partners, Inc............... 104
Letter from Enterprise Community Partners, Inc............... 106
Letter from The Housing Trust of Santa Clara County.......... 108
Letter from SWJ Housing...................................... 109
Biggert, Hon. Judy; and Gutierrez, Hon. Luis:
Letter from Daniel Solomon Design Partners................... 110
Written statement of Deborah DeSantis, Corporation for
Supportive Housing......................................... 112
Letter from LINC Housing..................................... 115
Letter from MidPen Housing................................... 117
Letter from the National Housing Conference.................. 119
Letter from Resources for Community Development.............. 123
Gutierrez, Hon. Luis:
Letter from the National Association of Home Builders (NAHB). 125
Letter from the National Council of State Housing Agencies
(NCSHA).................................................... 126
FRAUD IN THE HUD HOME PROGRAM
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Wednesday, November 2, 2011
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations, and
Subcommittee on Insurance, Housing
and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittees met, pursuant to notice, at 2:38 p.m., in
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer
[chairman of the Subcommittee on Oversight and Investigations]
presiding.
Members present from the Subcommittee on Oversight and
Investigations: Representatives Neugebauer, Fitzpatrick, Posey,
Renacci, Canseco; Capuano, Waters, Baca, and Miller of North
Carolina.
Members present from the Subcommittee on Insurance, Housing
and Community Opportunity: Representatives Biggert, Hurt,
Capito, Garrett, McHenry, Westmoreland, Dold, Stivers;
Gutierrez, Waters, Cleaver, Velazquez, Watt, and Sherman.
Also present: Representatives Royce, Huizenga, and Green.
Chairman Neugebauer. Good afternoon. This joint hearing of
the Subcommittee on Oversight and Investigations and the
Subcommittee on Insurance, Housing and Community Opportunity of
the Committee on Financial Services will come to order.
I would let all of of the Members know that all Members'
opening statements will be made a part of the record. Each side
has agreed to limit themselves to 10 minutes. And with that, I
will yield to myself for an opening statement.
We had a hearing on the HOME Program in the past, back in
the summer. I think from the conversations I have had with a
number of Members, it left more questions than answers because
it still appears to us as, we have done more investigation,
that there is not a sufficient amount of oversight going on for
this particular program. And hopefully, this is not indicative
of what is going on with other programs.
Now let me be clear, because I think there has been some
confusion about the purpose of these hearings. These hearings
are not about the worthiness of the HOME Program. These
hearings are about oversight, and accountability. When we take
American taxpayers' money, they expect us to spend it in an
appropriate way.
They also expect us to guard and make sure that those funds
are expended in the appropriate way, and more importantly, that
none of that money is lost to fraud.
What we are going to hear today--we have two witnesses who
have actually been convicted of fraud in these programs. And
unfortunately, that is a crime, and they are going to pay the
price for that.
But the other issue is, is they are going to detail how
easy it was for these particular programs to be defrauded, and
they are also going to detail that very little oversight about
HUD was made for these programs. For me, personally, and I
think for members of this committee, we find that troubling.
And so our purpose today for this hearing is to ascertain
what happened and hopefully stop it from happening in the
future, but also, I think, more importantly, to send a message
to the Administration that when you are spending American
taxpayers' money, there is accountability that goes with that,
and if the procedures are not in place, they need to be put in
place to prevent this kind of behavior in the future.
I think one of the other things we are going to ascertain
is that very little due diligence has been performed when these
monies are granted to certain entities. We are going to hear
that people who got some of this money were probably as
surprised as anybody that their grant was actually awarded,
because they didn't have the background or the experience to,
in many cases, execute these programs.
So I look forward to the hearing today, and to our
witnesses. And with that, I yield to the distinguished ranking
member of the Subcommittee on Oversight and Investigations, Mr.
Capuano.
Mr. Capuano. Thank you, Mr. Chairman. Mr. Chairman, I would
like to start out by saying that I have not been happy with
what has led up to this hearing. Up until now, I think that the
Democratic side of this subcommittee has been incredibly
cooperative on every hearing thus far. I have shared your
general goals and your general approach to various issues,
including this one.
I totally agree that oversight is an important thing, and
that we want to make sure that every tax dollar is well
accounted for, to the best of our ability.
Nonetheless, I believe that our side has been treated
unfairly, and I think especially, up until this point, to my
knowledge, we have not done anything to deserve it. And I kind
of hope that this is the last time that this happens.
As far as the witnesses go, my hope is that we will be
swearing in these witnesses. Even though there is a law on the
books that says you cannot lie to Congress, I think it is
appropriate when we have people who have been convicted of
serious crimes, that they understand very clearly and
unequivocally that they can't lie in court. I know they know
that. They can't lie here either.
And the other aspect of it, I would like to make sure that
the witnesses know that if they intend to use this as some sort
of attempt or forum to say, I didn't do it, the dog ate my
lunch, or I was forced to do it or whatever their other reason
was, this is not the place and that is not why we are here.
First of all, it is the wrong forum. Second of all, we are
the wrong people. They need to understand very clearly that
they are here for the specific purposes that the chairman has
outlined, which I agree with. And that is it. If they intend to
use any other names, our own rules call for those names to be
subjected in public. They need to be done in executive session.
So I am hoping that we can avoid all that.
As far as the substance of the hearing goes, again, I think
everyone here--you won't find anybody who thinks oversight is
not an important thing, and that we don't need to protect our
tax dollars. We all want that, particularly those of us who
actually think that these programs are important.
The worst possible thing that can happen to people like me
is to have these programs abused by anyone, for any reason,
because it then empowers people who don't like the programs in
the first place to say, let us shut down the program or let us
dramatically reduce the program.
So, in fact, I have always been the person who wants more
oversight and more accountability, and I welcome this hearing,
and I thank the chairman for calling it.
Chairman Neugebauer. And I thank the gentleman. Now, I
would like to yield to the chairman of the Subcommittee on
Insurance, Housing and Community Opportunity, the gentlewoman
from Illinois, Mrs. Biggert.
Chairwoman Biggert. Thank you, Mr. Chairman, and good
afternoon.
I would like to welcome today's witnesses. Today's hearing
is a continuation of the committee's work to examine HUD's
oversight of the HOME Program. HOME is the government's largest
affordable housing construction program. HUD is in charge of
the program, and ultimately accountable to the Congress and
taxpayers for the program's outcome.
In June, the full Financial Services Committee held the
first hearing on HUD's HOME oversight. During that hearing,
what we learned was extremely troubling: inaccurate and
incomplete information in HUD's database, as well as
insufficient monitoring of participating jurisdictions,
projects and individuals in charge of HOME funds which allow
waste, fraud, and abuse.
Millions and possibly billions of taxpayer dollars intended
to fund affordable housing for people in need may have been
loosely expended, or worse, swindled by criminals. We have
uncovered that, in some cases, individuals and organizations
readily took taxpayer-funded HOME dollars, but never actually
built a unit of housing, or only built a few units where many
units had been pledged.
For example, my staff recently took pictures of a Chicago
property that was funded with HOME dollars. HUD's database
reported that 65 units of housing were built with the funds of
this project. The pictures clearly indicate that there are not
even close to 65 units of housing at this location. In fact, it
looked more like four units.
So that begs the questions: who has the money; where are
the units that were promised; has HUD demanded repayment for
the units that were not built; and has the developer been cited
or sanctioned by HUD for not completing the job?
Today, we will examine what steps HUD must take to close
the door on any further abuse of taxpayer dollars. HUD's
current ``Trust but don't verify'' approach to oversight is
unacceptable. Taxpayers who are paying for this program deserve
better. And families in need of housing, whom the program was
intended to help, deserve better too.
With that, I look forward to hearing from today's
witnesses, and to holding future hearings on this and other HUD
programs as we do the oversight. I yield back.
Chairman Neugebauer. I thank the gentlewoman.
Mr. Gutierrez is recognized.
Mr. Gutierrez. Thank you, Chairman Neugebauer, Chairwoman
Biggert, and Ranking Member Capuano for working to organize
this joint hearing today. This is indeed a very unusual
hearing, because, in my 20 years in Congress, I have never had
the primary first witnesses who come before the committee be
two convicted felons.
I have certainly never had testimony from a felon, who
donated more than $5,000 to the National Republican
Congressional Campaign Committee during the height of the
embezzlement and the fraud that she committed to the Federal
program.
I am going to ask the witness about that donation. I am
going to ask her if embezzling from the HOME Program helped to
free up extra cash to help Republicans in Congress. And I am
going to ask whether my Republican colleagues have looked into
this, and made sure those funds have been returned to the
proper source.
I think the absurdity of this hearing speaks to the
difficulty the Majority is having in making the points they
seem determined to make about the HUD HOME Program, whether the
facts support those points or not. The embezzlement that we are
going to hear about from the convicted felons began under
George Bush's Administration, while he was President of the
United States, and when my colleagues who are in the Majority,
were in the Majority.
It is highly irregular to send and to need convicted felons
to explain how the HOME Program is susceptible to fraud.
Usually, we have experts or law enforcement come to speak
before us.
I have seen whistleblowers testify, honest Americans who
are concerned about potential abuse, who risk their well-being
to help us fix programs. I have listened intently to community
organizers, advocates, consumers, academics--these are credible
witnesses who help us to improve our programs.
I have 11 letters in support of the HOME Program, and I ask
unanimous consent to submit them for the record, Mr. Chairman.
Chairman Neugebauer. Without objection, it is so ordered.
Mr. Gutierrez. One of the letters is signed by 23 different
organizations, including Habitat for Humanity, the National
Association of REALTORS, the U.S. Conference of Mayors, and
even the YMCA. These groups have experience implementing HOME
honestly.
Why didn't we ask any of them to come and testify before
us? I am really not here today to blame the witnesses. That is
up to the legal system. And while I am sure that both of these
individuals are very knowledgeable regarding the crimes they
have committed, I can't help but wonder what the Majority hopes
we will learn from them.
It seems to me that a logical explanation of their presence
is that the witnesses are here as examples of how our system
works. Two people broke the law, violated the rules of the HOME
Program for personal gain, and they got caught.
They were prosecuted. One has been sent to jail. The other
one will certainly soon go to jail. It seems to me the system
worked. We can and should make sure every Federal program is
run well, and that anyone who abuses the system or breaks the
law is caught and punished.
However, we can't hope to stop people from attempting to
break the law. We can strengthen and improve our efforts to
catch people who break the law. If that were the purpose of
today's hearing, then I would happily and willingly
participate.
Any weaknesses or vulnerabilities in the HOME Program
should be addressed. But let us not be fooled. One way to judge
the strength of the accusations against the HOME Program is to
judge the quality of the witnesses.
I believe the way this hearing is being conducted makes
clear that the purpose today is to score political points and
generate exciting headlines. I hope in the future we can do
better. Now, let us talk about what the HOME Program really is.
In my district in Chicago, the HOME Program has created 15,000
new housing units for low-income households. It has helped low-
income families stay in their homes and preserved the only real
financial asset that many of them have, and I certainly hope
that we will delve into those issues.
Chairman Neugebauer. I thank the gentleman.
Mr. Fitzpatrick is recognized for 1 minute.
Mr. Fitzpatrick. Thank you, Mr. Chairman, for reconvening
on this important issue of taxpayer protection and
congressional oversight.
In my county, Bucks County, Pennsylvania, HOME funds have
been used to complete worthy projects. The local Department of
Community Development has leveraged the funds with other
private and public resources to provide needed affordable
housing. This is how the system is supposed to work, and it is
probably the rule and not the exception.
However, in this environment, with the deficit crisis and
the kinds of fiscal restraints that we are under, no program
can be immune from examination, especially where there are
reports of waste and examples of fraud.
In this day and age, with the technological capabilities
becoming more user-friendly and more adaptive, there is no
excuse for a lack of monitoring and reporting with these
projects. We saw examples during the last hearing of other
Departments that have managed to develop a way of tracking
their projects, so I think it is a reasonable expectation that
HUD can figure it out as well.
We should be able to track the actual progress of HOME
projects and not simply the money that is being spent. Part of
our job as Representatives is to ensure that every dollar that
is sent down here--that constituents are receiving value.
We are not here today to debate the merits of the HOME
Program, but rather we are here to make sure that the necessary
internal controls are in place and that they guarantee a good
return on the investments.
Thank you, Mr. Chairman.
Chairman Neugebauer. I thank the gentleman.
The gentleman from Virginia, Mr. Hurt, is recognized for 1
minute.
Mr. Hurt. Thank you, Mr. Chairman. I want to thank
Chairwoman Biggert and you, Mr. Chairman, for holding today's
hearing and for your continued commitment to conducting
rigorous oversight of the programs within the committee's
jurisdiction.
Today's hearing is a continuation of this committee's
effort to improve the management of HUD's HOME Program. As we
learned at our last hearing on this subject in June, HUD is not
taking the steps necessary to hold HOME grantees sufficiently
accountable for the funds that they receive.
We also discovered that HUD is not utilizing the best
available management practices and that the agency lacks
sufficient internal controls to stop fraud and abuse in the
HOME Program.
Today, we will hear from witnesses who understand how
flawed this program is and have exploited the Program's
weaknesses at the expense of the American taxpayer. With our
Nation over $14 trillion in debt, the citizens of my district,
Virginia's 5th district, will not accept mismanagement of
taxpayer resources. My constituents expect Congress to closely
scrutinize Federal programs to identify and eliminate waste,
fraud, and abuse.
Again, I want to thank Chairwoman Biggert and Chairman
Neugebauer for holding this hearing today, and I look forward
to the testimony from our witnesses. And I yield back the
balance of my time.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman, Mr. Westmoreland, is recognized for
1 minute.
Mr. Westmoreland. Thank you, Mr. Chairman, and I, too, want
to thank you and Chairwoman Biggert for having the hearing. And
I want to compliment you on the witnesses, because I don't
think there is any better way to find out the holes in a
program than to have people who have found those holes, and
know how the system works, give us a better idea of what we can
do to prevent this type of fraud.
There are instances where HUD does not even have the
complete addresses for some of the HOME projects. Even if it is
new construction projects and they haven't even been assigned
an address, completed projects should have an address. We
should know where these projects are located so we can at least
have the ability to ride by and to see the progress of it
rather than having the supervisor give us all the files. I hope
the committee will continue this tough oversight into this and
all the HUD programs and continue to bring about the best
witnesses possible who can testify as to where these holes are.
I yield back.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman, Mr. Dold, is recognized for 1
minute.
Mr. Dold. Thank you, Mr. Chairman.
Clearly, this hearing is not about terminating or defunding
HUD's HOME Program. As my colleague from Illinois aptly pointed
out, the HOME Program does actually fund some very important
projects. And I would just simply say that if we are able to
root out some of the waste and the fraud, think about how many
more programs we would actually be able to fund, to the benefit
of the taxpayers.
When I look at--as a small business owner, one thing I do
know is that those who manage an organization, those who spend
other's money must create and maintain adequate systems and
controls, checks and balances if we are going to have these
types of programs succeed.
The witnesses that we have today--Congressman Westmoreland
noted that one of the best ways to do it is to identify the
holes. These witnesses have identified the holes.
If we look at our credit cards, we look at our checks, the
people who helped devise these security systems that we have in
place today were not law enforcement; in fact, they averted law
enforcement for years and years. They were the criminals who
actually got around those systems.
So I think we, as Congress, need to use this oversight
authority to be able to find out how we can strengthen this
program for the taxpayers, because surely the American people,
the taxpayers and Congress will demand no less. I yield back.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman from Texas, Mr. Canseco, for 1
minute.
Mr. Canseco. Thank you, Mr. Chairman.
Our Nation has a debt of just over $14.9 trillion; over
$126,700 per American household on average. This is a spending-
driven debt crisis that has us borrowing approximately 40 cents
of every dollar. And every time the Federal Government spends a
dollar on its priorities, that is a dollar that could have been
spent on priorities of the American people, such as purchasing
a home, starting a small business, or sending a kid to college.
When we are deficit spending, we are borrowing it from the
future opportunities of our children and our grandchildren,
thus we must ensure that each and every dollar that the Federal
Government spends is not needlessly spent. The purpose of
today's hearing is as a follow-up on an earlier hearing that we
had with the full committee, and it is to look at whether or
not HUD has in place policies and procedures to ensure that
precious taxpayer dollars are not being wasted on the HOME
Program.
Serious allegations of waste, fraud, and abuse have been
leveled against the HOME Program, and given our Nation's
serious fiscal challenges, we cannot afford to allow wasteful
spending to occur. I look forward to hearing from our witnesses
today, as we attempt to discover answers to the serious
questions that have been raised by the HOME Program. Thank you.
Chairman Neugebauer. I thank the gentleman.
Chairwoman Biggert. Mr. Chairman?
Chairman Neugebauer. The gentlewoman is recognized.
Chairwoman Biggert. Mr. Chairman, I ask unanimous consent
to insert the following material into the record: a November 1,
2001, letter from SWJ Housing Development and Consulting; a
November 1st letter from a coalition of housing industries, a
November 1st letter from the LINC Housing Corporation; a
November 1st letter from MidPen Housing; an October 31, 2011,
letter from the National Housing Conference; a November 1st
letter from Daniel Solomon Design Partners; a November 1st
letter from Enterprise Community Partners; a November 1st
letter--a second letter from Enterprise Community Partners; a
November 1st letter from the Housing Trust of Santa Clara
County; written testimony of Deborah DeSantis, president and
CEO, Corporation for Supportive Housing; and a November 1st
letter from Resources for Community Development.
Chairman Neugebauer. Without objection, it is so ordered.
We will now go to our first panel. The first witness will
be ``Ms. Smith.'' She will be joining us remotely, and I don't
know if she is--or do we have her--``Ms. Smith'', are you
there? We will see if we can fix that.
The second witness will be Mr. Truax.
And, Mr. Truax, I would ask you a question. Were you
promised anything in order to induce you to testify today and
are you here of your own free will and volition?
Mr. Truax. I am here of my own free will.
Chairman Neugebauer. Yes. But you were not promised
anything in return for your testimony, is that correct?
Mr. Truax. No.
Chairman Neugebauer. Thank you.
Do we know if we have ``Ms. Smith?'' Okay, I think we have
``Ms. Smith.''
Can you hear me, ``Ms. Smith?'' ``Ms. Smith'', can you hear
me?
Ms. Smith. Yes, sir, I can hear you.
Chairman Neugebauer. Thank you very much for being here.
``Ms. Smith'', I need to ask you a few questions before you
give your testimony.
Are you voluntarily testifying today?
Ms. Smith. Yes, sir, I am.
Chairman Neugebauer. Can you tell us why you are testifying
today?
Ms. Smith. Yes, sir. One of the things that you experience,
especially from--I hear a little feedback.
Chairman Neugebauer. And were you promised anything to
induce you to testify to this committee today?
Ms. Smith. No, I was not.
Chairman Neugebauer. Thank you for making yourself
available. ``Ms. Smith'', your written testimony will be made a
part of the record.
At this time, the committee will recognize you to give your
oral testimony. And you may begin now. You have 5 minutes.
STATEMENT OF ``JANE SMITH'', CONVICTED OF DEFRAUDING
ORGANIZATIONS THAT RECEIVED FUNDS FROM THE U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT'S HOME INVESTMENT PARTNERSHIPS
PROGRAM
Ms. Smith. Thank you, sir.
Thank you, everyone on the committee for allowing me the
opportunity to speak to you today.
As I said in my written testimony, I started working for a
nonprofit not because I sought out the work. It was actually
something that I kind of tripped into, and was actually
promoted to the executive director position about a year, maybe
2\1/2\ years after getting there.
I was not necessarily formally trained on how to do it, but
the organization was--
Chairman Neugebauer. ``Ms. Smith'', I am going to ask you
to suspend just for a minute. We are going to work on a little
technical detail here.
Ms. Smith. Yes, sir.
Chairman Neugebauer. ``Ms. Smith'', this is the first time
we have done this, and so I am kind of winging this a little
bit. But I need to swear you in as a witness.
Do you mind me doing that?
Ms. Smith. No, sir.
[Witness sworn.]
Chairman Neugebauer. Thank you very much.
And Mr. Truax, let's go ahead and get this out of the way
with you as well.
[Witness sworn.]
Chairman Neugebauer. Thank you.
``Ms. Smith'', I apologize for that. You can now resume
your testimony. Thank you.
Ms. Smith. Okay. As I was saying, I started working for a
nonprofit. I definitely was not necessarily equipped to run a
nonprofit. I didn't have a lot of knowledge on what it was a
nonprofit was to do.
I was afforded to go to a couple of conferences there in
Washington, D.C., for community development work, and actually
got a chance to see what nonprofits were doing in terms of
workforce development and community development work. I then
went back to my respective community and started working on
that.
Our board at the time was not equipped either to understand
what it was that community development was all about. But we
started doing some really good work in terms of workforce
development, and then we kind of moved into housing. And,
again, we were not equipped at all to be in housing, but we got
started. And we actually rehabbed a lot of houses, and we also
had an opportunity to develop a residential property from the
ground up of affordable housing.
But there are a lot of things that did not happen well on
our part in making that a reality. One of the things that did
happen well was that we were able to help a lot of young people
get job training and actually get work in the construction
field. Some of the things that I encountered were a lot of
bumps and holes in the road as it relates to doing development
in a community and a lot of political things that kind of
hindered the process from going the way it should have.
[The prepared statement of ``Ms. Smith'' can be found on
page 87 of the appendix.]
Chairman Neugebauer. I thank you, ``Ms. Smith.'' And we
will come back to you in just a few minutes with some
questions.
We are now going to recognize Mr. Truax for 5 minutes for
your summary of your testimony.
Mr. Truax. Chairwoman Biggert, Chairman Neugebauer--
Mr. Capuano. Mr. Chairman, could we swear Mr. Truax in
first?
Chairman Neugebauer. We already did.
Mr. Capuano. He has been sworn in, as well?
Chairman Neugebauer. Yes.
Mr. Capuano. All right.
Mr. Chairman, I would like to make a motion that we strike
15 different paragraphs of the 30 paragraphs Mr. Truax
submitted in his written testimony. I did not do this with the
other witness because the other witness only had a few things.
Of the 30 paragraphs of testimony, 15 of them have no
pertinence whatsoever to this. It is a litany of: ``I am sorry
I did this; I didn't mean it; I won't do it again; I didn't
have any intent to do any wrongdoing,'' which is all well and
good, but my fear is that this gentleman has not yet been
sentenced, to my knowledge.
My fear is that if this goes into the hearing record as
written, the next thing that will happen is we will see this at
a sentencing hearing that somehow Congress approved that he
didn't mean it, he--and I am not saying whether he did or he
didn't. I have no opinion on the matter. I just don't think
that this hearing record should be used by anyone to build
their record relative to whatever sentence they may or may not
get out of the prisons.
It has nothing to do with the pertinent information that
Mr. Truax may or may not be able to give us. But 15 of these
written paragraphs have nothing to do with the items that you
personally stated--and I agree with--are the purpose of this
hearing.
I am not here to determine whether Mr. Truax did or did not
commit a crime. I am not here to determine whether he meant to,
what his intent was, whether he is sorry, or any of those other
items. That is for the courts; that is for the people who are
going to sentence him; and that is the appropriate place.
So I would make a motion that we strike these 15 irrelevant
paragraphs. And I have a list here if you would like to see it.
Chairman Neugebauer. There was a unanimous consent request?
Mr. Capuano. That is fine by me.
Chairman Neugebauer. I am going to object. I hear what the
gentleman is saying, but I think it is a dangerous precedent
for this committee to start determining what parts that they
like about witnesses' testimony and what they don't like about
witnesses' testimony.
We ask witnesses to submit their testimony, and then they
will have a chance to summarize it.
The gentleman will have an opportunity to question Mr.
Truax. If he wants to question his motives for being here, that
is certainly his prerogative.
But I find it definitely a dangerous precedent for us to
start ascertaining what parts of someone's testimony we are
going to make a part of the record and what we are not going to
make a part of the record.
Mr. Capuano. Mr. Chairman, I respect that. That is why I
did not make the same motion, though I thought there were parts
of the previous witness's testimony.
But on this particular case of the entire 30 paragraphs:
``I felt I wasn't doing anything really wrong''; ``It was never
my intent to defraud or steal from anyone''; ``I was hoping
that contractor number two would honor the arrangement''; ``I
repeatedly told them both that I had realized what I was doing
in the terms was wrong''; ``I was sincerely sorry for getting
involved''; ``I am truly sorry for what I did''; ``I truly and
sincerely regret my''--all of which may be true, and I don't
suggest that they are not. But I don't see how they shed an
ounce of light onto this or relate to his testimony on the
relevant matter.
And the only thing I am asking is that this Congress not be
used as a tool for someone else to, at a later time, use the
testimony that they submitted that suggests that somehow
Congress thinks that they were right. That is all I am
suggesting.
It has nothing to do with the substance of what we will
hear. It has simply to do with, that is not what the Congress
does. We don't determine intent by someone who is about to be
sentenced. That is not our role. That is not our purpose here
today, at least not as I understand it.
Chairman Neugebauer. No, the purpose here of this hearing
is to ascertain where the holes are in the system; that appear
to continue to be in this program--
Mr. Capuano. I agree.
Chairman Neugebauer. --and it is not to ascertain the
motives of why the witnesses are coming. These witnesses have
both stated they came here freely, of their own will. They were
promised nothing in return.
We asked them to come and share with this committee how
easy it was for them to game this system, which I find
troubling, and I know the gentleman finds troubling. It is much
like the counterfeit--when the FBI wants to figure out who is
producing the best counterfeit bills, they go to the people who
have produced counterfeit money.
And when you go--we have gone to the crime scene here, and
we found that there was a crime being committed--
Mr. Capuano. Mr. Chairman, that has nothing to do with my
motion. My motion is simply to strike impertinent, irrelevant
testimony.
Chairman Neugebauer. And the Chair rules that we will not
accept the gentleman's--
Mr. Westmoreland. Would the Chair yield?
Chairman Neugebauer. Gentleman?
Mr. Westmoreland. Mr. Chairman, I think that when somebody
goes through--and I have read the testimony--goes through it, I
think the good point is to be made--
Chairman Neugebauer. Does the gentleman have a point of
order?
Mr. Westmoreland. No--I just had a comment.
Mr. Gutierrez. Mr. Chairman?
Chairman Neugebauer. Yes.
Mr. Gutierrez. Continuing with the point of order, on page
4, the second paragraph--or the first paragraph at the
beginning of--``Before I continue, I would like to state in
my''--I am listening to the chairman what the purpose of the
hearing is, and then I am reading the testimony.
And it says, ``Before I continue, I would like to state in
my defense''--it is not for them to come and state what their
defense is. This is to come and learn about the program. He is
going to have a chance as a convicted felon to go before a
judge and to plead clemency or in his defense. We are not a
jury here. We are not judges. We are just a congressional
hearing.
It says, ``My original intent through all my criminal
activity was to simply get a few dollars as compensation for
helping them get work. It was my intent to manage the
individual--but finally the payment would come to me and would
absorb that during a later time. The concept was at the time
that we would have enough work to be''--in other words, he is
excusing himself. I just think this should be stricken from the
record. It is not pertinent.
Ms. Waters. Will the gentleman yield?
Mr. Gutierrez. Surely.
Ms. Waters. Has this witness been convicted already?
Mr. Gutierrez. Yes.
Ms. Waters. Did he need the permission--is he on bail? Is
this witness out on bail?
Chairman Neugebauer. I think what we need to do is, the
gentleman made a point of order. I ruled on the point of order.
If you want to ask the gentleman--you are going to have an
opportunity to ask the gentleman questions about where he is in
his legal issues. But what we really need to do is--I have
ruled on the point of order, so we really need to proceed with
the hearing, and the gentlewoman will have an opportunity--
Ms. Waters. Will the gentleman yield?
What is being requested is prior to the gentleman's
testimony that we find out--
Chairman Neugebauer. And the Chair has ruled on the issue.
And so, we need to proceed with the hearing.
Mr. Truax, you are recognized for 5 minutes.
STATEMENT OF TIMOTHY TRUAX, CONVICTED OF DEFRAUDING
ORGANIZATIONS THAT RECEIVED FUNDS FROM THE U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT'S HOME INVESTMENT PARTNERSHIPS
PROGRAM
Mr. Truax. I first want to thank you for the opportunity to
come before you today and assist in your awareness of the
potential for fraud within the HUD program. Let me state at the
outset that I know the program has its flaws. It can be
defrauded, as I possess this knowledge because I sit before you
as a man convicted in front of the Federal middle district
court and who awaits his trial, but I also believe the program
has its merits.
It is not easy to admit that I have engaged in a criminal
act and it is a fact of no particular pride in presenting to
you today. And I can say with a certainty that is imputed to a
person such as myself, who has defrauded the HOME Program, that
I am willing to bet that such fraud continues at the hands of
others who hold the position I once held.
In appearing before you today, I am a man who engaged in a
criminal act, was caught, and awaits his payment to society.
However, through my testimony before you, I would like to find
a way to improve the system, to close the loopholes that I
exploited, so that the program will be much better, much
stronger and more effective in its achievements.
My experience in the construction industry began in 1994 as
a heavy-equipment operator; 10 years later, I became employed
by Dolphin County in facility maintenance, where I engaged in
all aspects of construction and remodeling.
When the position of HOME rehabilitation opened, I applied
for the position, and was employed until my resignation in
2010. My duties as a HOME rehab specialist included: soliciting
applications from homeowners who qualified for government
assistance in repairing their residences; soliciting the
contractors for work to be completed; awarding the contracts;
and verifying that the work had been completed before the
contractor was paid.
Essentially, I was the master of my own domain in that I
rarely was supervised, and I was inspected by HUD only once
every 3 years. When HUD had determined it wanted to audit the
HOME Program, a representative from the Philadelphia office
would contact me to request that I select files and homes for
inspection when the representative visited.
Being the primary person in charge of the entire process,
it was my sole decision what homes or related files would be
selected. The examiner would review the files and only
sometimes complete a home visit.
Whenever an applicant submitted an application for HOME
rehabilitation, I would review it. And as the process should
work, the application would be publicized for bids and
submitted by contractors interested in completing the work. In
the early portion of my employment, that is how it was done.
However, when I began abusing the system, I would forward
the homeowner's applications to certain selected contractors
and keep them informed of the lowest bids I received at any one
point, ultimately providing the chosen contractor with the
lowest external bid information so that he could submit an even
lower bid and thereby be awarded the work.
Many times, because I had no oversight, I would simply
provide the selected contractor with the application and take
the bid he submitted as being the lowest, ultimately awarding
the work to the contractor. Given that the Philadelphia
examiner would only visit once every 3 years, and review only
the files that I selected for the review, the process was
virtually foolproof, or so I thought.
As to how I selected contractors in my particular activity,
I met one of the three individuals with whom I took the money
in the course of my work. Because I have not received their
permission to represent the contractors' individual names, I
will refer to them as contractors one, two, and three.
Contractor one was referred to me by way of a third party
as a contractor who might be interested in getting involved
with the Program. I contacted him to come to the office, fill
out an application for the Program, which he did and for which
he was approved as a contractor.
Contractor one completed roughly four to five jobs and
appeared to do more than acceptable work. Throughout that time,
and because of my ongoing contact, we developed a relationship.
On one occasion, when contractor one and I were socializing
after work, he turned the conversation to the state of his
financial situation.
I know I am running out of time. I am going to conclude
here.
Unfortunately, the process was entirely too simple to
defraud merely by way of its own setup. With examination by the
supervising Philadelphia HUD representative taking place only
once every 3 years, and relying upon me to choose the files for
review, I knew my wrongdoings might never be revealed.
Obviously, I never considered getting caught, and I took
advantage of the Program's total lack of proper oversight.
When the investigating officer came to me to ask questions
about the situation, I realized at that point that I was
caught, and I completely agreed with everything and completely
cooperated.
[The prepared statement of Mr. Truax can be found on page
92 of the appendix.]
Chairman Neugebauer. I thank the gentleman for his
testimony--and we will have an opportunity for some Q&A here in
a minute.
``Ms. Smith'', we are now going to go to you for questions.
And I will be asking you the first question.
We may not have the video, but ``Ms. Smith'', can you hear
me?
Ms. Smith. Yes, sir, I can.
Chairman Neugebauer. Okay. ``Ms. Smith'', after reading
your testimony, I was struck how quickly you went from a
temporary receptionist in your organization to the executive
director who managed affordable housing projects overseeing
millions of dollars of Federal funds.
I was further intrigued that you said you had no idea what
it meant to operate a nonprofit and that your board of
directors was, in many cases, just as clueless, that there was
really nobody within the organization who understood how to
develop affordable housing.
You went on to say that even the contractors you worked
with did not have the capacity to carry out the work.
Did HUD ever raise any concerns about your organization and
the fact that it had no experience in doing building and
development prior to committing these millions of dollars to
these projects?
Ms. Smith. One of the things that is very easy--
Mr. Gutierrez. Mr. Chairman? Before the witness continues,
I thought the agreement was that we were going to see her, that
this was going to be a video conference. Is it only an audio
conference?
Chairman Neugebauer. We are having video technical
difficulties, and so we are only able to get audio at this
time.
Mr. Gutierrez. It is very difficult, and very unusual to
have this kind of hearing. And it says the committee is, ``To
the maximum extent feasible, the committee shall make its
publications available in electronic form''--okay?--``Audio and
visual coverage of the committee hearing--to the maximum extent
feasible, the committee shall provide audio and video coverage
of each hearing or meeting for the transaction of business in a
manner that allows the public to easily listen and view the
proceedings.''
We can't view these proceedings. It is impossible to view
these proceedings.
Chairman Neugebauer. I appreciate the gentleman. Due to the
fact that we are having technical difficulties, this is the
maximum that we can provide. This hearing is being covered by
audio and video. We are just unable to get the video--
Ms. Waters. Will the gentleman yield?
Chairman Neugebauer. Certainly.
Ms. Waters. How do we know who is talking?
Chairman Neugebauer. The gentlewoman did see ``Ms. Smith''
a while ago, and so--
Ms. Waters. I didn't see her and she didn't answer the
questions that you asked. You asked her if she had been induced
in some way--
Chairman Neugebauer. And the answer was no.
Ms. Waters. No, there was noise on the audio, and we did
not hear her answer those questions, and we can't see her now.
What are we listening to? Who is this?
Chairman Neugebauer. I respect the gentlewoman, but we are
going to proceed with the hearing with the technology that we
have available.
And so, ``Ms. Smith'', if you would go ahead and answer the
question. Did you have any interface with HUD and did they ever
question the ability of you or your board to be able to take on
a fairly complex housing project?
Ms. Smith. As I was saying before, Mr. Chairman, when we
started doing affordable housing, we were not asked by HUD
about our capacity.
One of the reasons we weren't asked is because we hired the
expertise, if you will. We brought in a consultant who could
lend us the understanding that we needed. And we included that
in all of our applications. But HUD never came and had a face-
to-face interview with any of us to verify that what we put in
that application was in fact accurate.
If you read the application, we looked like we knew what we
were doing, but in fact, again, nobody knew. We just hired a
consultant who understood the process to actually do the
application for us.
Chairman Neugebauer. And so in the 3-year history of that
project, from when you started that project until you were
caught in this situation, did HUD ever visit this site?
Ms. Smith. I was out there on the site quite often, and we
never got any visitations from HUD.
Quarterly, we were asked to do reports, and, again, we did
not do the reports. We had the consultant come in and do the
reports for us, and they were sent, and everything was fine as
far as HUD was concerned.
Chairman Neugebauer. Mr. Truax, in the last HOME hearing we
had, there was a number of projects that were identified,
records that were opened and some of them were closed. Some of
them were dropped from the books. That would indicate that some
of those projects were closed out.
But when people made site inspections, they found vacant
lots there.
Can you explain how in the system, projects that hadn't
been completed, maybe haven't even been started, were actually
put on the books or then closed out? Did you have the ability
to go to the Web site or to the database and mark projects
closed-out?
Mr. Truax. In the IDA system?
Chairman Neugebauer. Yes.
Mr. Truax. Yes, I had the ability to do that.
Chairman Neugebauer. Could you hold the microphone just a
little bit closer to you?
Mr. Truax. Yes, I had the ability to do that.
Chairman Neugebauer. Can you just walk us through that
process a little bit?
Mr. Truax. I am not quite sure the question and the process
of--
Chairman Neugebauer. If you were trying to hide that a
project wasn't completed, but the time was running out on when
you should have finished that project, could you just go to the
system and say that project is closed out?
Mr. Truax. Yes.
Chairman Neugebauer. And did you do that?
Mr. Truax. Yes, because I knew that it was usually a 3-year
period before I would be audited. Like I said in my statement,
they would ask me to select the files.
Chairman Neugebauer. So they would call up and say, ``Hey,
we are going to come out and look at some of your projects.''
And, obviously, you didn't pick the ones that you were
shuffling around.
Mr. Truax. Correct.
Chairman Neugebauer. And how long would that visit
typically last?
Mr. Truax. They were usually there for a week, because they
would actually audit the CDBG program as well as the HOME
Program and first-time homebuyers.
Chairman Neugebauer. How long would they spend with you
particularly?
Mr. Truax. It would be just a couple of days.
Chairman Neugebauer. How many visits while you were in that
capacity did you actually have?
Mr. Truax. We only had one visit from HUD while I was
there. It was after the first year I was there.
Chairman Neugebauer. And what would be that time period
that you only had one visit?
Mr. Truax. It would have been in 2008.
Chairman Neugebauer. But when did you start--
Mr. Truax. Oh, I am sorry. What was--
Chairman Neugebauer. Was that a 10-year period--you had one
visit in 10 years, 5 years?
Mr. Truax. My length of employment was only for 3 years.
Chairman Neugebauer. Okay. And so you had one visit in a 3-
year period?
Mr. Truax. Yes.
Chairman Neugebauer. All right. I am going to yield 5
minutes to Mr. Capuano.
We will say that you can continue to ask questions of ``Ms.
Smith.'' We tried everything possible to get her video back up.
Her audio is still working. So if you choose to direct
questions to her, you may, but we still can't get--now, we have
the video up.
I yield to the gentleman for 5 minutes.
Mr. Capuano. Thank you, Mr. Chairman
First of all, I would like to point out for the audience
that ``Ms. Smith''--that is not her real name. We have agreed
to withhold her name because the Bureau of Prisons has asked us
to do so. That is why I agreed, and because the chairman asked,
and I thought it was the respectful thing to do.
But I want people to know that ``Ms. Smith'' is not her
real name. ``Ms. Smith'', did you work for HUD?
We lost the--
Ms. Smith. No, sir, I did not.
Mr. Capuano. As I understand it, you worked for a nonprofit
organization, is that correct?
Ms. Smith. Yes, sir, that is correct.
Mr. Capuano. And did you have any other funds other than
HOME funds that flowed through that organization?
Ms. Smith. Yes, sir, we did.
Mr. Capuano. Did you steal those too?
Ms. Smith. I am sorry?
Mr. Capuano. Did you steal that money too?
Ms. Smith. There were funds that were mismanaged, yes, sir.
Mr. Capuano. So you stole that money too. So you stole
anything you could get your hands on, I respect that.
At one point in your testimony, you stated--I think it was
testimony or maybe the news reports--that you were pressured by
politicians. And I do not want you to name those here today,
because that is not the purpose of this hearing. But I would
like to know, did you pass those names along to the Justice
Department?
Ms. Smith. Yes, sir.
Mr. Capuano. And have there been any prosecutions as a
result of that?
Ms. Smith. There were some.
Mr. Capuano. And were they convicted?
Ms. Smith. There were a couple who were, sir.
Mr. Capuano. That is good to hear. I am glad to hear that.
As I understand it--again, I think this was news reports--
your activity was basically from, give or take, the year 2000
and give or take the year 2005, is that correct?
Ms. Smith. No. It was prior to then, sir.
Mr. Capuano. Say it again, I am sorry?
Ms. Smith. It was prior to 2005.
Mr. Capuano. But between the years 2000 and 2005, is that
right?
Ms. Smith. Yes, sir.
Mr. Capuano. And do you know who the President of the
United States was then?
Ms. Smith. It would have been George Bush.
Mr. Capuano. That is what I thought.
And do you know who the Secretary of HUD would have been at
that time?
Ms. Smith. No, sir, I don't know--
Mr. Capuano. It was Mr. Martinez and Mr. Jackson.
Do you know who the Speaker of the House was at that time?
Ms. Smith. I don't recall.
Mr. Capuano. That would be Mr. Hastert.
Mr. Truax, were you hired at any time by HUD? Were you paid
or employed by HUD at any time?
Mr. Truax. No.
Mr. Capuano. You worked for another governmental entity, is
that correct?
Mr. Truax. Correct.
Mr. Capuano. And did that governmental entity provide any
oversight whatsoever to you?
Mr. Truax. Just a supervisor.
Mr. Capuano. Did that supervisor oversee you?
Mr. Truax. Yes.
Mr. Capuano. I guess, as I read your testimony, honestly,
it sounds like old-fashioned bid-rigging and kick-back scheme,
if you want the truth.
Was there anything special about what you were doing other
than the fact that you were stealing money?
Mr. Truax. No.
Mr. Capuano. And ``Ms. Smith'', it strikes me that what I
saw of yours, it was just old-fashioned taking anything that
was on the table.
Is there any special, secret thing that you can enlighten
us with as to what kind of crime that we could be able to stop
in the future?
Ms. Smith. I am not sure that I understand your question.
Mr. Capuano. Because when we went through the Wall Street
thing, a lot of us--I don't know about anybody else--but I
learned a lot about some of the ways that Wall Street operated
because we didn't know it. But the truth is here in these
testimonies--I am not suggesting it is good, but what I have
read is just pretty much plain, old-fashioned, straight-up
crime that could happen and does happen anywhere.
Now, I am more than happy to find ways--and I actually
appreciate that there is no way in the world that any auditor
at any level should allow the person being audited to pick the
projects that they get audited on. That is a very substantive
commentary that should not happen, and I would hope that we
would be able to address that issue.
But, nonetheless, bid-rigging, kickbacks--I don't know how
we will ever stop those. It is not just the HOME Program. Every
single program in the history of mankind has been subject to
that type of fraud.
And I am really interested in some insight as to what we
can do. Do either of the witnesses suggest somehow that we
should have a HUD auditor at all of the 15,000 people who
utilize HOME Programs? Is that your suggestion, Mr. Truax?
Mr. Truax. No.
Mr. Capuano. ``Ms. Smith'', do you suggest that we have a
HUD auditor sitting at the shoulder of each of the 15,000
people who receive HOME money?
Ms. Smith. I am not suggesting that you have an auditor,
but I am suggesting that there should be more hands-on
interaction.
As it stands today, HUD only requires applications. Anybody
can put anything on paper and make it look good.
Mr. Capuano. I am having a hard time hearing you. I did
read at some point, ``Ms. Smith'', that you said that if you
had more training, that would have been good.
Is that something that you said at one point?
Ms. Smith. Sir, if HUD had provided more training to the
organizations that it selects to fund--because every
organization that comes to the table, they are not thinking,
``Oh, let me just go to HUD and get a couple of dollars.'' They
start off with good intentions, but if the organization that is
giving them the funds takes for granted that this organization
knows what it is doing--
Mr. Capuano. No, and I respect the fact that HUD should
have more of a--I have no problem with that concept. I don't
think you will find anybody who disagrees with that. But at
some point, I am just wondering if you had received more
training, would that have stopped your criminal activity? Or
would that just made you better at it?
Ms. Smith. I don't know that I necessarily understand the
way you are wording your question. If there was more training,
maybe there would be better understanding of how things should
have been done, especially for an organization that didn't have
any clue whatsoever.
Mr. Capuano. My time has run out and I appreciate--
Mr. Gutierrez. Point of parliamentary inquiry, Mr.
Chairman?
Chairman Neugebauer. The gentleman will state his inquiry.
Mr. Gutierrez. Thank you.
Is it appropriate to ask the witness who the two elected
officials who were indicted and convicted were?
Chairman Neugebauer. We don't think that is--
Mr. Gutierrez. No, I am just--I am just going to see what
the chairman--are we keeping that a secret?
Chairman Neugebauer. Yes, I think--
Mr. Gutierrez. It seems to me if we want to know, we should
find out who they were and call them and they can tell us--
Chairman Neugebauer. The gentleman certainly is welcome to
do that--
Mr. Gutierrez. And is it appropriate to ask who the
consultant was that ``Ms. Smith'' says was hired and was the
primary reason, according to her testimony, in getting these
HUD contractors? Is it appropriate to ask who that consultant
was?
Chairman Neugebauer. I think what we have asked the
witnesses to do is not to recount the acts themselves, but to
focus on the purpose of this hearing, and that purpose is to
identify that it is--it seems to be fairly easy to game the
HOME Program. And that when there is a situation where the
program is defrauded, there are two losers: the American
taxpayers; and the intended beneficiaries.
And as the gentleman outlined, in his district they have
had a number of projects that were beneficial to his district.
But when someone takes an opportunity to defraud the system,
then the system suffers from that and the taxpayers. So what we
are trying to focus on, in order to get back to this hearing,
is not to defend the HOME Program, not to tear down the HOME
Program--
Mr. Gutierrez. Mr. Chairman, if I might--
Chairman Neugebauer. But--
Mr. Gutierrez. --just continue, it is just that I
understand that to be the goal and it just seems to me since
``Ms. Smith'' stated that she--the organization would not--that
they didn't fill out anything; that the only reason they got
the money--I am paraphrasing what she says--they got the money
was because they hired the right--
So it seems to me if you are going to find out, we should
find out what consultants do so that we can intervene at that
level.
Chairman Neugebauer. The gentleman made a point of order--
was it appropriate? The Chair rules that it is not appropriate
to ask for the specific names.
I now recognize Mrs. Biggert for 5 minutes.
Ms. Waters. Will the chairman yield?
Chairwoman Biggert. Thank you, Mr. Chairman.
I would first ask ``Ms. Smith''--did HUD officials
physically inspect the projects or conduct on-site visits?
Ms. Smith. No, ma'am, they did not. We provided reports and
pictures to them.
Chairwoman Biggert. Did they review the paperwork?
Ms. Smith. I was not present when they received the
paperwork. I assume that they did.
Chairwoman Biggert. Did they ever come back and say to you,
``This doesn't seem to be complete. Do you have more
information?''
Ms. Smith. Never.
Chairwoman Biggert. Okay. You testified that there was a
large HUD HOME project, Emerson, that had many cost overruns.
Ms. Smith. Yes, ma'am.
Chairwoman Biggert. Do you recall that?
Ms. Smith. Yes.
Chairwoman Biggert. How many of the units was the project
supposed to deliver?
Ms. Smith. We delivered the final application, and what
we--the first application had about nine more units, but
because of the cost, we cut nine out and that was approved. But
we delivered what we said we were going to deliver.
Chairwoman Biggert. Okay. So there was no problem with that
project?
Ms. Smith. There was no problem with the amount of units
that we said that we would deliver. We did deliver those. But
there was an enormous amount of cost overruns. We could not
take it out of the actual project budget because that was
pretty much set in stone. What we did was we had to take it
from other funds from within the organization.
Chairwoman Biggert. All right. Should that project have
been stopped due to budget overruns?
Ms. Smith. Oh, absolutely, without question, it should have
been stopped.
Chairwoman Biggert. But you didn't propose that.
Ms. Smith. Actually, politically, it was not suitable to
propose doing that.
Chairwoman Biggert. Okay. Mr. Truax, did HUD ever
physically inspect the projects or conduct on-site visits?
Mr. Truax. Yes, but only at the direction of myself as far
as the units--on what units to see.
Chairwoman Biggert. Okay. And that was with the 3 years,
did it--
Mr. Truax. Yes.
Chairwoman Biggert. Only once--
Mr. Truax. Only one time.
Chairwoman Biggert. --in 3 years.
Did they review the paperwork?
Mr. Truax. Yes.
Chairwoman Biggert. And did they ever come back and say
that it wasn't complete enough?
Mr. Truax. No.
Chairwoman Biggert. All right. Did you have incomplete
projects?
Mr. Truax. When I left, yes.
Chairwoman Biggert. Do you think that HUD would have
flagged your incomplete projects if they had had more random
and frequent inspections?
Mr. Truax. Absolutely.
Chairwoman Biggert. But you still would have just told them
which ones to go to?
Mr. Truax. Yes, if they gave me that opportunity.
Chairwoman Biggert. And did they ever say, ``I want to see
something else?''
Mr. Truax. No.
Chairwoman Biggert. Okay. Did anyone from HUD ever question
the information that you included in the HUD database about
completed projects?
Mr. Truax. No.
Chairwoman Biggert. Did anyone ever question the accuracy
of the information?
Mr. Truax. No.
Chairwoman Biggert. Okay.
``Ms. Smith'', same question to you. Did anyone from HUD
ever question the information that you included in the HUD
database about completed projects?
Ms. Smith. No, never.
Chairwoman Biggert. Did anyone question the accuracy of the
information?
Ms. Smith. Absolutely not.
Chairwoman Biggert. Mr. Truax, I think that law enforcement
uncovered this scheme?
Mr. Truax. Yes.
Chairwoman Biggert. And was HUD involved in that, too?
Mr. Truax. No.
Chairwoman Biggert. So did HUD ever uncover your fraud?
Mr. Truax. No.
Chairwoman Biggert. But law enforcement did?
Mr. Truax. Yes.
Chairwoman Biggert. Could you tell us how?
Mr. Truax. Somebody in the county did ask the investigating
officers of our Criminal Investigation Department to look into
me receiving kickbacks. Upon that time, the U.S. investigating
office came in. They went over a few files, and saw that I did
do that. I admitted it openly, and I helped them throughout the
entire investigation on everyone involved.
Chairwoman Biggert. Okay. Thank you.
``Ms. Smith'', what happened? Did HUD discover your fraud
scheme?
Ms. Smith. No, ma'am. There was an investigation that took
place with a couple of my board members, and it was sort of a
snowball effect, but HUD was never involved in any of the
investigations.
Chairwoman Biggert. Thank you. My time is up. I yield back.
Chairman Neugebauer. I thank the gentlewoman.
And now, Mr. Gutierrez is recognized for 5 minutes.
Mr. Gutierrez. Thank you so much.
Let me first of all, ``Ms. Smith'', so you defrauded the
HOME Program and embezzled the HOME Program between 2000 and
2005. Is that correct?
Ms. Smith. We had HOME Program dollars, but--
Mr. Gutierrez. When did you steal the money--in 2000 and
2005?
Ms. Smith. Yes, but the actual--
Mr. Gutierrez. Okay.
Ms. Smith. --had nothing to do with HUD funds.
Mr. Gutierrez. It had nothing to do--no HOME funds?
Ms. Smith. No.
Mr. Gutierrez. So, but this is a HOME fund hearing. You are
here to tell us about the HOME fund, aren't you?
Ms. Smith. Absolutely.
Mr. Gutierrez. So you didn't take steal any money from the
HOME Program?
Ms. Smith. No.
Mr. Gutierrez. Okay. What program did you steal the money
and embezzle it from?
Ms. Smith. We mismanaged funds from the actual
organization.
Mr. Gutierrez. From the actual organization. Okay.
So, let me ask you something. You worked at the Urban
Enterprise Association as an executive?
Ms. Smith. Yes, sir, I did.
Mr. Gutierrez. Okay. And that is in Gary, Indiana?
Ms. Smith. Yes, sir.
Mr. Gutierrez. Okay. Are you the same person from the Gary
Urban Enterprise Association who made a $300 contribution on 3/
10/2003 and a $5,000 contribution on 3/14/2003 to the National
Republican Congressional Campaign Committee?
Ms. Smith. Yes, sir, I am.
Mr. Gutierrez. And did those funds that you gave come from
the money that you embezzled from the organization that you
worked at?
Ms. Smith. It came from my salary, sir.
Mr. Gutierrez. It came from your salary?
Ms. Smith. Yes.
Mr. Gutierrez. You kept two separate accounts--the money
you stole and the money you earned?
Ms. Smith. It came from my personal account.
Mr. Gutierrez. So while you were embezzling money, you were
being charitable to the Congressional Republican Campaign
Committee, you thought that would be your largess, to give them
$5,000. So you are a thief on the one hand but you are very
generous with the National Republican Congressional Campaign
Committee. Is that what we are to believe?
Ms. Smith. If those are the words that you want to use,
sir.
Mr. Gutierrez. No. Okay. Who asked you and who invited you
to contribute? Because this is pretty extraordinary, for
somebody who is stealing money, $5,000 is a pretty
extraordinary amount of money. Who asked you to contribute and
invited you to contribute to the National Republican
Congressional Campaign Committee?
Ms. Smith. I don't actually recall how I--
Mr. Gutierrez. You know you are under oath, right?
Ms. Smith. I do realize that I am under oath, sir. I
remember everything--
Mr. Gutierrez. And you don't remember who asked you to give
$5,000?
Ms. Smith. No, sir. It was maybe 10 years ago. So--
Mr. Gutierrez. 10 years ago? I mean, 20 years ago, if
somebody asked me if I could contribute $5,000 to something, I
think I would remember, so let me ask you something. How much
were you earning in salary in 2003?
Ms. Smith. In 2003?
Mr. Gutierrez. And you are under oath.
Ms. Smith. I understand that, sir--probably $65,000.
Mr. Gutierrez. Excuse me?
Ms. Smith. I am sorry?
Mr. Gutierrez. How much was your salary?
Ms. Smith. I am sorry, I guess I got cut off, because I
said $65,000.
Mr. Gutierrez. So, $65,000. And as the Republicans keep
telling us all the time, there is a lot of taxes on all that
money, so you were probably getting about $45,000.
So you just had an--at a $45,000 salary, and I am being a
little generous, take-home pay, you just had an extra $5,000
lying around to give to the National Republican Congressional
Campaign Committee, but you don't remember who asked you for
it. Is that right?
Ms. Smith. I don't really remember who actually asked.
Mr. Gutierrez. Let me ask you something. Since you used the
money--and I know you are trying to--you are telling me that
your salary had nothing to do with HUD or Federal Government
programs; that your salary had nothing to do with governmental
programs at this not-for-profit institution, and that your
salary--not a penny of that salary, came from governmental
funds.
Ms. Smith. No, sir, it did not.
Mr. Gutierrez. It didn't? All right, we will check into
that real shortly.
Let me ask you something: Have they sent you the money back
now that they know you are a convicted felon and a fraud and
you were stealing money at the very same time from the Federal
Government that you gave this money, did they give the money
back to you, send you back a check?
Ms. Smith. No, sir, they didn't.
Mr. Gutierrez. Thank you. That is all the questions I have.
Chairman Neugebauer. I thank the gentleman. And now the
gentleman, Mr. Fitzpatrick, is recognized for 5 minutes.
Mr. Fitzpatrick. Thank you, Mr. Chairman.
``Ms. Smith'', the purpose of this hearing is to do some
oversight with HUD and specifically in the HOME Program, to
make certain that every dollar that the taxpayers send to HUD,
send to Washington, are dollars that are well spent and that
the taxpayers get value for every dollar.
At your organization, ``Ms. Smith'', were HOME Program
funds through HUD sent to your nonprofit?
Ms. Smith. Actually, when we did the project, we set up an
additional organization, because the HOME funds were not the
only funds that made that project a reality. We also used the
low-income housing tax credit funds as well.
The HUD HOME funds were--was sort of like mezzanine
financing. So there was a separate entity away from my
organization that received those funds.
Mr. Fitzpatrick. Did you oversee that separate
organization?
Ms. Smith. Yes, sir, I did.
Mr. Fitzpatrick. And so, between your nonprofit and the
separate organization that you oversaw, there were HOME Program
funds and other low-income housing tax credit funds, also
Federal funds?
Ms. Smith. Yes, sir, there were.
Mr. Fitzpatrick. And you oversaw the management of all
those funds?
Ms. Smith. Yes, sir, I did.
Mr. Fitzpatrick. And were the HOME funds, in your opinion,
mismanaged or stolen from the program and away from the
intended recipients, the beneficiaries?
Ms. Smith. Mismanaged, yes, in terms of the construction
overruns, yes, it was completely mismanaged.
Mr. Fitzpatrick. So were HUD HOME Program dollars lost?
Ms. Smith. Yes, sir. We probably could have built--if we
didn't run into the cost overruns that we experienced, we
probably could have built more. We could have built more units.
Mr. Fitzpatrick. ``Ms. Smith'', you indicated in your
testimony that you started out with good intentions, but as a
result of your lack of any experience and lack of any training,
things went awry, correct? ``Ms. Smith?''
Ms. Smith. Yes, sir. I am sorry. I don't know if my
microphone has given out or what, but yes, sir, I did--
Mr. Fitzpatrick. ``Ms. Smith'', did you indicate that your
board also lacked any direction or training or any real
experience in the area of community and housing development?
Ms. Smith. I am sorry, did you hear me? I said, ``yes,
sir.''
Mr. Fitzpatrick. Okay. So you indicated that you were able
to hire consultants to provide the experience that both you and
your board lacked. Is that correct?
Ms. Smith. Yes, sir, that is correct.
Mr. Fitzpatrick. Did the consultants deal directly with HUD
or was that you, ma'am?
Ms. Smith. No one actually dealt directly with HUD. We went
through the application process, and once the award came
through, we didn't have any contact with HUD at all. We just
submitted the reports as we were asked to.
Mr. Fitzpatrick. ``Ms. Smith'', do you believe as a result
of your lack of experience and training and your board's lack
of experience and management training in community and housing
development that HUD should have been more skeptical of you and
your nonprofit?
Ms. Smith. From my personal experience, because I learned a
lot during the process of getting that project done and
afterwards, I think that HUD should have looked into the fact
that we, at the time of the application, we could not speak of
any historical work that we had done.
Hindsight is 20/20--that should have raised a red flag for
HUD to say, ``Okay, what makes you think that--or what would
lead us to believe that you have the capacity to do a project
when you have no experience to speak of? And not only do you,
yourself, as the executive director, not have experience, but
there is absolutely no experience on your board either.''
Because I do realize that sometimes nonprofits, the
director may not have experience, but there could be members of
the board who do actually have some experience to speak of.
When they saw that there was nothing there, it should have
raised a red flag to HUD to, not to discourage this
organization from doing the work, but maybe we should be
marrying this organization up with someone that we know has the
track record to do the work that HUD loves to have done.
Mr. Fitzpatrick. So, ``Ms. Smith'', you are saying that HUD
never raised a red flag on your lack of experience?
Ms. Smith. No, sir.
Mr. Fitzpatrick. Did HUD ever ask any tough questions?
Ms. Smith. There were no questions at all. Sometimes, these
things are more politicized than we probably care to talk
about. When you are in certain communities and you can put
together a great application and you have some political
support behind you, it doesn't lead to any questioning at all.
Chairman Neugebauer. I thank the gentleman.
And now the gentleman--
Mr. Gutierrez. Mr. Chairman?
Chairman Neugebauer. Yes?
Mr. Gutierrez. I have a question. It seems to me that we
might want to go into executive session, because the witness
just answered my question saying she got no money from HUD, she
got no Federal money when I asked her directly that question.
Now, she is testifying that she didn't have any supervision
from HUD, that they never asked her. Well, why would they?
Chairman Neugebauer. Does the--
Mr. Gutierrez. Either she was or she wasn't. Where is the
truth here?
Chairman Neugebauer. Does the gentleman have a point of
order?
Mr. Gutierrez. Yes, I would like to go into executive
session, because I would like to ask this witness questions,
and specific questions, about what she is telling the truth
about and who was telling her about these truths. Because it is
confounding to me. I have to be very honest. She lied. She has
lied. She is a convicted felon, so she lied already. She has
already agreed that she lied on forms. But--
Chairman Neugebauer. The gentleman has not made a point of
order.
The gentlewoman from California, Ms. Waters, is recognized
for 5 minutes.
Ms. Waters. Is there a motion before us for executive
session?
Mr. Gutierrez. Yes, I would like to go into executive
session. I would like to ask her about the other elected
officials. I would like to ask her who these consultants were.
Questions that the chairman has already ruled she could not
relate to us in direct evidence, but she can in executive
session.
Chairman Neugebauer. We have a motion to go into executive
session. Is there a second?
Voices. Second.
Chairman Neugebauer. All right. The Chair will pose the
question. All in favor of going into executive session, say
``aye.''
[A chorus of ayes.]
Chairman Neugebauer. All opposed, say ``nay.''
[A chorus of noes.]
Chairman Neugebauer. The ``nays'' have it, and the motion
is denied.
Mr. Gutierrez. I ask for a recorded vote.
Chairman Neugebauer. Would the gentleman agree to a show of
hands, since we don't have the clerk here to read the roll?
Mr. Gutierrez. No, I asked for a recorded vote to see if
there is a quorum present.
Chairman Neugebauer. Stand by. We will get that done. We
will make it happen.
The clerk will call the roll.
The Clerk. Mrs. Biggert?
Chairwoman Biggert. No.
The Clerk. Mrs. Biggert votes no.
Mr. Fitzpatrick?
Mr. Fitzpatrick. No.
The Clerk. Mr. Fitzpatrick votes no.
Mr. Hurt?
[No response.]
Mr. King?
[No response.]
Mr. Miller?
[No response.]
Mrs. Capito?
[No response.]
Mr. Garrett?
[No response.]
Mr. McHenry?
Mr. McHenry. No.
The Clerk. Mr. McHenry votes no.
Mrs. Bachmann?
[No response.]
Mr. Pierce?
[No response.]
Mr. Posey?
[No response.]
Mr. Westmoreland?
[No response.]
Mr. Duffy?
[No response.]
Ms. Hayworth?
[No response.]
Mr. Renacci?
Mr. Renacci. No.
The Clerk. Mr. Renacci votes no.
Mr. Dold?
Mr. Dold. No.
The Clerk. Mr. Dold votes no.
Mr. Canseco?
[No response.]
Mr. Stivers?
[No response.]
Mr. Fincher?
[No response.]
The Clerk. Mr. Capuano?
Mr. Capuano. Aye.
The Clerk. Mr. Capuano votes aye.
Mr. Gutierrez?
Mr. Gutierrez. Aye.
The Clerk. Mr. Gutierrez votes aye.
Ms. Waters?
Ms. Waters. Aye.
The Clerk. Ms. Waters votes aye.
Ms. Velazquez?
[No response.]
Mr. Watt?
[No response.]
Mr. Sherman?
[No response.]
Mr. Clay?
[No response.]
Mr. Baca?
[No response.]
Mr. Lynch?
[No response.]
Mr. Miller?
[No response.]
Mr. Cleaver?
Mr. Cleaver. Aye.
The Clerk. Mr. Cleaver votes aye.
Mr. Ellison?
[No response.]
Mr. Himes?
[No response.]
Mr. Carney?
[No response.]
Mr. Chairman?
Chairman Neugebauer. No.
The Clerk. Mr. Chairman votes no.
Chairman Neugebauer. The clerk will report.
The Clerk. Mr. Chairman, the ayes are four and the noes are
six.
Chairman Neugebauer. And the motion is not agreed to.
The gentlewoman from California is recognized for 5
minutes.
Ms. Waters. Thank you very much.
Mr. Truax, you have been convicted, but you have not been
sentenced yet. So, are you out on bail?
Mr. Truax. Yes.
Ms. Waters. And what State are you from?
Mr. Truax. Pennsylvania.
Ms. Waters. And in order to come here, you had to have
permission from someone?
Mr. Truax. Yes.
Ms. Waters. Who gave you permission?
Mr. Truax. The U.S. attorney who is prosecuting.
Ms. Waters. And did you have any conversations with the
U.S. attorney, that perhaps your cooperation would be--you
would get a lighter sentence, or the possibility of it?
Mr. Truax. No.
Ms. Waters. Did you have that conversation with anybody?
Mr. Truax. No.
Ms. Waters. Did you have that conversation with your lawyer
that--was it suggested that you may get a lighter sentence if
you come here?
Mr. Sheldon. I am sorry, ma'am. I am going to have to
object to that. That is attorney/client privilege, as to what
my client and I discussed. That is an improper question.
Ms. Waters. I didn't ask you what it was.
Mr. Sheldon. You didn't. You asked my client.
Ms. Waters. You can object if I was asking you. I didn't
ask you.
Mr. Sheldon. You are asking my client for an answer--
Ms. Waters. I asked the witness who volunteered to come
here today.
Mr. Sheldon. He will not be--
Ms. Waters. On my time, you don't get a chance to do that.
I am asking the witness who appeared here today whether or not
you had that conversation with your attorney where you
discussed that your coming here may get you a lighter sentence?
Mr. Truax. I am not going to answer that. It pertains to
the attorney and--
Ms. Waters. You are under oath, and I am asking you whether
or not you had that conversation with your attorney.
Mr. Truax. With all due respect, I refuse to answer on the
grounds that it is attorney-client privilege.
Ms. Waters. How long were you involved in the fraud and
deception that you were convicted for? How many years?
Mr. Truax. I was employed there for 3 years.
Ms. Waters. Three years. About how many contractors
competed for the contracts that you gave out that you steered
to your three friends or people who were giving you kickbacks?
Mr. Truax. There was an average of three contractors per
project who were able to bid.
Ms. Waters. These were contractors who put in a bid, whose
bids went in the trash can or did not get considered because
you knew where you were going to direct the contracts. Is that
right?
Mr. Truax. Correct.
Ms. Waters. How many were those--
Mr. Truax. Five.
Ms. Waters. Over a 3-year period of time?
Mr. Truax. Five projects.
Ms. Waters. About five? Did any of these contractors sue
you or the city or HUD or anybody--
Mr. Truax. No.
Ms. Waters. --for the deception that you were involved in?
Mr. Truax. No.
Ms. Waters. So would you think they have a cause of action?
Mr. Truax. I am not a lawyer. I can't answer that.
Ms. Waters. Do you have assets? Do you have a home?
Mr. Truax. Yes.
Ms. Waters. Do you have a bank account?
Mr. Truax. No.
Ms. Waters. Do you have any other assets?
Mr. Truax. My home is in foreclosure. I have no bank
account. I have no money.
Ms. Waters. Do you know you could be liable--in addition to
the money that you stole, you could be liable for having
defrauded those contractors who competed in an open process
where you steered the contracts to other contractors?
Mr. Truax. I am not a lawyer. I can't answer that.
Ms. Waters. So for those contractors who bid for these
contracts, and their contracts were not even considered because
you steered them to your friends or others who were giving you
kickbacks, they may have a cause of action where they could sue
you; they could sue the city; or they could sue HUD because you
denied them an honest opportunity to compete. And if you have
assets, then those assets may be available to them.
So, on the record, what you said here today is you have no
assets. Is that what you are saying?
Mr. Truax. Correct.
Ms. Waters. I didn't hear you.
Mr. Truax. Correct.
Ms. Waters. You have no assets?
Mr. Truax. Correct.
Ms. Waters. Okay. And so for 3 years, you were involved in
defrauding the HOME program and others. I don't know how many
others. Would you say that you were deceptive, at all? Would
you say you lied? Would you say you cheated?
Mr. Truax. Which one do you want me to answer?
Ms. Waters. The first one. Have you lied? In all of this,
were you telling lots of lies to people?
Mr. Truax. No.
Ms. Waters. You didn't lie to anyone?
Mr. Truax. No.
Ms. Waters. You are under oath, sir.
Mr. Truax. I understand that.
Ms. Waters. If you deceived them; if you took kickbacks; if
you told the other contractors--unanimous consent for at least
30 seconds. This lawyer whispering in his ear is taking up all
of my time.
Chairman Neugebauer. If the gentleman can answer that
specific question, and then we will move on--the gentlewoman's
time will expire.
Ms. Waters. Did you lie when you deceived the contractors
and/or the government? Did you lie?
Mr. Truax. Yes.
Ms. Waters. So you lied; you deceived--
Chairman Neugebauer. The gentlewoman's time has expired.
Ms. Waters. And you are before us today. Why should we
think you are telling us the truth if you are a liar?
Chairman Neugebauer. The gentlewoman's time has expired.
Mr. Renacci?
Mr. Truax. To my knowledge, I have nothing to gain from
this. I am going to jail.
Ms. Waters. Except what your lawyer directed you to do.
Chairman Neugebauer. The gentlewoman's time has expired.
Ms. Waters. I yield back the balance of my time.
Chairman Neugebauer. Mr. Renacci is recognized for 5
minutes.
Mr. Renacci. Thank you, Mr. Chairman.
I want to get to the point of HUD, more than the point of
what you guys did. Because it appears you had some wrongdoings
here.
But first off, let us start with ``Ms. Smith.''
``Ms. Smith,'' did you work for an agency that did--I want
to make sure--did you work for an agency that took monies under
the HOME Program through HUD?
``Ms. Smith?''
We must have lost her.
Ms. Smith. Can you hear me?
Mr. Renacci. ``Ms. Smith?'' Yes, did you work for an
organization that actually received funds under the HUD HOME
Program?
Ms. Smith. The organization that I worked for set up a sub-
organization that received those funds, yes, sir.
Mr. Renacci. Okay. So you were involved in the HOME Program
through your organization as an executive director?
Ms. Smith. Yes, sir.
Mr. Renacci. Thank you.
Mr. Truax, did you work for an organization that received
HUD dollars through the HOME Program?
Mr. Truax. Yes.
Mr. Renacci. Okay. Mr. Truax, you said you had a number of
projects. How many projects in total came through your
organization?
Mr. Truax. Throughout my tenure?
Mr. Renacci. Yes, just an estimate.
Mr. Truax. Under 50 in a 3-year period.
Mr. Renacci. Okay, under 50. Under those programs, you
actually went out and took bids. If HUD would have asked you to
submit three bids for each program, would that have caused you
not to be able to do what you did? If they would have actually
used an internal control that most other banks and businesses
use, if they would have asked you for three bids, would you
have been able to do what you did?
Mr. Truax. No.
Mr. Renacci. Thank you.
``Ms. Smith'', if HUD would have asked you for three bids
on all the projects that you worked on, would you have been
able to do some of the things you did? ``Ms. Smith?''
Ms. Smith. Hello? Can you hear me?
Mr. Renacci. Yes. If HUD would have asked you for three
bids for every project that you worked on, would you have been
able to do some of the things you did as far as taking dollars?
Ms. Smith. I think so, because some of the bids--we did
take bids, but, again, some of those bids were politically
driven.
Mr. Renacci. But if they would have asked you to take three
bids, and you were required to use the lowest bid, would you
have been able to perform and take the dollars you did?
Ms. Smith. If HUD had received those bids, then no.
Mr. Renacci. Exactly. That is what normally happens in the
banking world, in many cases.
Now, I am going to move to another internal control. If HUD
would have come into your organization, Mr. Truax, and done an
unannounced, random selection, including site visits on even
one or two of your projects, would you have been inclined to do
what you did and take dollars?
Mr. Truax. No.
Mr. Renacci. ``Ms. Smith'', if HUD would have done the
exact same thing with your organization, if they would have
come in, done unannounced, random selections to review the
sites on the buildings you did, would you have been prone to
take the money you did?
Ms. Smith. No.
Mr. Renacci. Thank you.
Mr. Truax, one other thing--which is another internal
control, a normal internal control--I am a CPA, I have seen
internal controls like this--if there was an unannounced third
party that was able to come in and randomly select, which
happens in many cases, some of your projects, would you have
been prone to take the dollars you did?
Mr. Truax. No.
Mr. Renacci. Thank you.
``Ms. Smith'', if there was an unannounced third party that
was required to come in and on an unannounced basis take a look
at your projects and determine percentage of completion and be
able to determine how much of the project was completed, would
you have been able to take the dollars you did through the HUD
HOME Program indirectly?
Ms. Smith. No.
Mr. Renacci. Thank you.
So it does appear that if HUD's internal controls were up
to a higher standard, neither of you would have been able to do
some of the things you did as far as taking the dollars you
did?
Mr. Truax. Correct.
Mr. Renacci. Thank you. I yield back my time.
Chairman Neugebauer. I thank the gentleman.
The gentleman from Missouri, Mr. Cleaver, is recognized for
5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman.
Sir, I am curious about how your criminal enterprise was
detected.
Mr. Truax. I am sorry?
Mr. Cleaver. How were you found out?
Mr. Truax. Somebody thought that I was possibly receiving
kickbacks, and they contacted our criminal investigation
department of Dauphin County, which in turn got ahold of the
United States investigation department, and they came to me
asking questions. I knew what I did was wrong, and then, that
is how they found out.
Mr. Cleaver. Was HUD notified?
Mr. Truax. After the investigations, yes; after the
clarification of what was going on.
Mr. Cleaver. Did you have any contact with the I.G.?
Mr. Truax. Just through the interviews.
Mr. Cleaver. The contact with the I.G., and when you were
identified as allegedly having committed fraud, what was the
time period between your contact with HUD, even through the
I.G. or--
Mr. Truax. I am not sure the exact time that they got ahold
of HUD. When the I.G. came to me then, that is when it was all
laid out on the table. It was instantly.
Mr. Cleaver. Yes, I guess where I am trying to go is, do
you think you were given permission to do this?
Mr. Truax. Was I given permission?
Mr. Cleaver. Yes.
Mr. Truax. No.
Mr. Cleaver. So you don't think HUD turned a blind eye that
would allow criminal activity to take place?
Mr. Truax. I don't believe so.
Mr. Cleaver. And you have no reason to believe that, right?
Mr. Truax. With the once-every-3-year inspection--
Mr. Cleaver. It opened the door.
Mr. Truax. Yes.
Mr. Cleaver. So as best as you can recall, did you ever
think, ``Well, we have every-3-year inspection, so this gives
me a chance?'' As best as you can recall, did you actually
consciously wonder how much time you had before the next
inspection to commit fraud?
Mr. Truax. Yes.
Mr. Cleaver. And so you thought, ``I can get away with it,
because HUD has an every-3-year inspection?''
Mr. Truax. Because of the oversight, correct.
Mr. Cleaver. How long have they had that procedure?
Mr. Truax. I am not sure. I was only there for 3 years.
Mr. Cleaver. But it was there when you arrived, right?
Mr. Truax. Yes.
Mr. Cleaver. Okay. So we have to assume that it has been
around a while.
Mr. Truax. Yes.
Mr. Cleaver. It is possible that somebody else could have
done something like this and gotten away with it 5 years ago,
or 6 years ago.
Mr. Truax. Sure.
Mr. Cleaver. And your recommendation to HUD would be?
Mr. Truax. Just to have a little tighter oversight on
monitoring the administrators of the program.
Mr. Cleaver. The problem, of course, is--you took a job
that apparently had great temptation, right?
Mr. Truax. Correct.
Mr. Cleaver. Did you know that when you took the job?
Mr. Truax. Pardon me?
Mr. Cleaver. Did you realize, ``I am taking a job, but,
man, the temptation here is going to be--''
Mr. Truax. No. I didn't think about that--
Mr. Cleaver. Because you had no intention--
Mr. Truax. I had no idea--
Mr. Cleaver. And so when HUD--when you were hired, nobody
could have possibly assumed that you were going to commit
fraud.
Mr. Truax. Correct.
Mr. Cleaver. You didn't think about fraud, the people who
hired you didn't think about fraud. If it has happened before,
they probably didn't think about it, the employer didn't think
about it, right?
Mr. Truax. Right.
Mr. Cleaver. So what is the corrective step now?
Mr. Truax. It is, like I said, a little tighter oversight.
Mr. Cleaver. I am sorry?
Mr. Truax. Maybe not having one person in charge of the
entire program. The more people that you have involved in the
program, the more it will deter any kind of fraudulence.
Mr. Cleaver. Okay. So the whole issue of trust has to be
discarded, right? In other words--Al Green, who is to my left--
Congressman Green, I trust him, so I don't need anybody to be
an intermediary or check on him because I trust him. So I am
wondering if you are saying that henceforth we should eliminate
trust--
Mr. Truax. No, but don't put--the files, for example. Go in
and randomly pick the files during an audit or inspection.
Mr. Cleaver. Yes.
Chairman Neugebauer. The gentleman's time has expired.
Mr. Cleaver. Thank you, Mr. Chairman.
Chairman Neugebauer. Does anybody on the--
Ms. Waters. Mr. Chairman, a point of order. Could you
reiterate every now and then to the committee that there is a
woman, faceless and nameless, who is also a witness who can be
questioned? Because we don't see her, and we don't hear her, we
kind of forget she is there.
Chairman Neugebauer. That is right; very good. And I thank
the gentlewoman.
``Ms. Smith'' is still with us. And we periodically get
video and she is still available for questions.
Is there anybody else on the Minority who would like to
question any of these witnesses?
Mr. Green. May I have time, Mr. Chairman?
Chairman Neugebauer. Mr. Green, you are recognized for 5
minutes.
Mr. Green. Thank you. I would like to yield to Mr.
Gutierrez.
Mr. Gutierrez. Thank you very much, Mr. Green.
So, ``Ms. Smith'', we have conflicting testimony here. You
never worked for HUD, did you?
Ms. Smith. No, sir, I never worked for HUD.
Mr. Gutierrez. Thank you.
You worked for an organization that received HUD funds, did
you not?
Ms. Smith. Yes, sir.
Mr. Gutierrez. Thank you. And that is why you are here to
tell us about how you stole those HUD funds, and how in the
future we can stop HUD funds from being stolen.
Yes? No?
Ms. Smith. Was that a question?
Mr. Gutierrez. Yes, that is a question. Is that your
purpose here, to tell us how you stole the HUD funds?
Ms. Smith. I am here to tell you how HUD's funds were
mismanaged and--
Mr. Gutierrez. Were stolen and embezzled. Is that not
correct?
Ms. Smith. Were mismanaged. Yes, sir.
Mr. Gutierrez. But ``mismanage''--did you pay off your car
debt? Did you pay off a car debt with those ``mismanaged''
funds?
Ms. Smith. No, sir, I did not.
Mr. Gutierrez. Okay. Did you increase your salary with
those mismanaged funds?
Ms. Smith. Did I do what?
Mr. Gutierrez. Did you increase your salary with those
mismanaged funds?
Ms. Smith. Yes, sir, I did.
Mr. Gutierrez. Okay. So you increased your salary with
those mismanaged funds, which we agree came from HUD.
Ms. Smith. No, sir; again, no, sir. Those funds did not
come from HUD. That organization had its own revenue source.
Those funds came from that revenue source.
Mr. Gutierrez. Then what are you doing here? This is an
investigation into the HOME Program conducted by HUD, which you
have nothing to do with. You never received any money from that
Program, according to you.
Ms. Smith. My organization, again, sir--
Mr. Gutierrez. Your organization that you were the
executive director of received money from HUD, did it not?
Ms. Smith. The organization that I was the executive
director of set up a sub-organization that received money from
HUD.
Mr. Gutierrez. And you managed that sub-organization, did
you not?
Ms. Smith. Yes, sir, I did.
Mr. Gutierrez. There you go. So you were getting paid to
manage that sub-organization which was receiving HUD funds.
Ms. Smith. Yes, sir, but--
Mr. Gutierrez. Okay. Good. We finally got to the HUD funds,
and why you are here.
Now, let me ask you just one more question--and I will give
the time back to the gentleman from Texas--now that we have
established that you were running an organization and
supervising an organization and getting paid--right?--with HUD
proceeds--right?--did any of those HUD proceeds go to make up
the $5,000 contribution that you made in 2003 to the National
Republican Congressional Campaign Committee?
Ms. Smith. No, sir, it didn't.
Mr. Gutierrez. You segregated the money.
Ms. Smith. My salary did not come from those HUD--
Mr. Gutierrez. Your salary did not, so you supervised an
organization, but your salary didn't come from it. I am sorry.
It is like this doesn't pass any remote test. The money came
from there. You don't want to admit it. The Majority won't let
us go into executive session so we can find out who the
consultant was that designed this program.
We can't find out who the politicians were that consult
this program. We want to find out how all these happened, but
we are going to be limited to asking questions of two convicted
felons, one of whom is saying she didn't steal anything. She
just like borrowed it and got caught before she paid it back.
I return the time to my friend from Texas, Mr. Green.
Mr. Green. Thank you.
And I do want to ask just a limited number of questions. I
will start with the lady since it is difficult to get her on
and off.
Ma'am, do you agree that you are a criminal?
Ms. Smith. I agree that I conducted some unfortunate--
Mr. Green. I am sorry. I didn't quite understand. Could you
just answer yes or no, are you a criminal?
Ms. Smith. I participated in some criminal acts. Yes, sir.
Mr. Green. And you were convicted?
Ms. Smith. Yes, sir.
Mr. Green. Usually, when people are convicted of criminal
acts, and they are felons, they are called ``criminals.'' You
would not label yourself a criminal?
Ms. Smith. How you choose to label yourself is not
something--society can't label you. You can only label
yourself. I choose not to label myself as that.
Mr. Green. Let me just ask you about the definition of a
person who has committed a crime. Let me just make this
comment. You bring some concern to your credibility when you
don't own up to the fact that you have committed a crime and
that you engaged in criminal conduct, and as a result you are a
criminal.
That causes some disbelief in some of what you say, and I
am sorry I didn't get to say more.
But thank you, Mr. Chairman.
Chairman Neugebauer. The gentleman's time has expired.
The gentleman, Mr. Miller, is recognized for 5 minutes.
Mr. Miller of North Carolina. Thank you. I yield my time to
Mr. Capuano.
Mr. Capuano. Thank you, Mr. Miller.
Thank you, Mr. Chairman.
Mr. Truax, first of all, I want to say, thank you. I know
this is probably not easy for you, and I respect that.
I also want to thank you because in this, I don't know, we
have been here about a couple of hours now, you provided the
one point of light so far which, to me, was the only thing that
I think I have heard that I could act on, which is to make sure
that when HUD does inspect, that they don't let you or people
like you pick their own projects to be reviewed. That is a good
point, and I think a point that we can follow up on, and I
intend to do so. So thank you for providing that single point
of light.
But I do want to ask you, on the 50-odd projects that you
had, in the final analysis, how much Federal HOME money did you
steal?
Mr. Truax. I didn't steal any Federal HOME money.
Mr. Capuano. You didn't steal any Federal HOME money?
Mr. Truax. Not personally.
Mr. Capuano. ``Ms. Smith'', are you still there? ``Ms.
Smith?'' In and out--on the presumption that she is not there,
I thought I heard her say that she did not steal any HOME
money. I am not sure of that. That is why I wanted to ask, but
that is what I heard.
``Ms. Smith'', if you come back, would you let us know
because I don't want to put words in your mouth.
But if I have heard that correctly, we now have two people
here testifying as some sort of experts on how to fix the HOME
Program, which I want to hear, yet neither of them stole any
HOME money.
Mr. Truax. Sir, if I may add to that?
Mr. Capuano. Go right ahead.
Mr. Truax. I received the money that I admitted to through
kickbacks. I defrauded the system.
Mr. Capuano. I understand that. But you didn't steal HOME
money. I get that.
And by the way, when one of my colleagues asked you if you
had gotten three bids, would that have stopped you, in all the
time that you did this, did you ever inform the contractors
with whom you were working what the low bid was that they had
to undercut?
Mr. Truax. Yes.
Mr. Capuano. So you told them, ``If you bid $10,000, you
will get the contract.''
Mr. Truax. Yes.
Mr. Capuano. So if you had to get three of those bids,
would you somehow not have told them what the lowest of the
third bid was?
Mr. Truax. Correct.
Mr. Capuano. You would not have told them?
Mr. Truax. Right.
Mr. Capuano. So by simply getting three--what if you had
gotten two bids, would you have told them?
Mr. Truax. No.
Mr. Capuano. What were you comparing it to? Was there a
sole bidder?
Mr. Truax. Sometimes.
Mr. Capuano. But when there was a sole bidder, why would
you have to tell them the number to bid?
Mr. Truax. I wouldn't have to, at that point.
Mr. Capuano. So what you did when there were competitive
bids is you would get on the phone or in person with your co-
conspirator and say, ``This contractor over here has already
bid $10,000, so you have to bid $9,000.''
Mr. Truax. Yes.
Mr. Capuano. And somehow, miraculously, if you got three of
those, you wouldn't do that anymore? Is that what you are
suggesting?
Mr. Truax. No. I believe what he was asking is if we had to
turn those bids into HUD themselves.
Mr. Capuano. That is not the way I heard it. I heard if you
had had to get three bids, would you do it.
Mr. Truax. It states in here in my statement--
Mr. Renacci. Will the gentleman yield?
Mr. Capuano. And would you have given those bids if they
had--
Mr. Renacci. Would the gentleman yield?
Mr. Capuano. Sure, I will.
Mr. Renacci. As a CPA and what I was talking about--
Mr. Capuano. I am a tax accountant, so you are not the only
person here who is a--
Mr. Renacci. Three--
Mr. Capuano. And I am a former mayor just like you.
Mr. Renacci. Great. When three bids come in separate and
individual and you turn them into HUD, you don't have the
opportunity to make--
Mr. Capuano. Yes, that is true if you do it right, but it
is not true if you are in conspiracy with a co-conspirator
outside. You tell them what the other bids are. You open them
up. And you re-seal them if you are a criminal. If you are not
a criminal, you do it your way. If you are a criminal, you do
it another way.
All I am suggesting is if you are criminally oriented,
which is fine, you are going to find a way. That is all I am
suggesting.
So we have two people here who haven't stolen HUD funds, as
far as they have said. And we have people here who claim to be
experts on how to fix it, yet to my knowledge, I have only
heard one suggestion that we can bring to HUD that we can act
on, that is a good one, and I intend to follow up on.
And I simply wanted to use my time to say thank you, and
with that I appreciate the gentleman yielding, and I yield back
the remainder of my time.
Chairman Neugebauer. The gentleman yields his time?
Mr. Miller of North Carolina. I yield back the balance of
my time.
Chairman Neugebauer. I thank the gentleman.
We are at this particular point in time--I want to thank
these two witnesses. We appreciate you taking your time and
your insight on this issue.
And with that, this panel is excused, and we will now call
up the second panel of witnesses.
Chairwoman Biggert. [presiding]. I will now introduce the
second panel of witnesses.
We have Mr. John McCarty, acting Deputy Inspector General,
Office of the Inspector General, U.S. Department of Housing and
Urban Development; Mr. Kenneth Donohue, former Inspector
General, U.S. Department of Housing and Urban Development; Mr.
James Beaudette, Deputy Director, Departmental Enforcement
Center, U.S. Department of Housing and Urban Development; and
Mr. Ethan Handelman, vice president for policy and advocacy,
National Housing Conference.
Thank you; and thank you for your patience--having had a
vote and then quite a long questioning period for the first
panel. Without objection, your written statements will be made
a part of the record, and you will each be recognized for a 5-
minute summary of your testimony. We will start with Mr.
McCarty.
You are recognized for 5 minutes.
STATEMENT OF JOHN P. MCCARTY, ACTING DEPUTY INSPECTOR GENERAL,
OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Mr. McCarty. Thank you. Good afternoon, Chairman
Neugebauer, Chairwoman Biggert, Ranking Members Capuano and
Gutierrez, and members of the subcommittees. I am John McCarty,
Acting Deputy Inspector General for the Department of Housing
and Urban Development, Office of Inspector General (OIG). I
thank you for this opportunity to discuss our investigations of
HUD's HOME Program.
My testimony on our investigative work builds upon prior
OIG testimony in June of this year, which related to audit
findings, internal controls, and administration of the HOME
Program.
Over the past 3 years, we have opened 51 investigations
based on allegations of fraud in the HOME Program. Subjects of
our investigations have included executive directors of
community development departments and nonprofit entities,
elected officials, construction companies, employees,
contractors, developers, and investment companies.
Typically, our HOME Program cases involve fraud schemes
associated with embezzlement of funds, bribery, theft, false
billing, and kickbacks. The Office of Investigations works
closely with our many law enforcement partners in most of our
cases, including investigations involving the HOME Program. Our
relationships with State and local law enforcement entities,
the FBI, the IRS, and other Federal agencies help to leverage
our investigative resources.
Many of our HOME cases are initiated based on information
received from confidential informants. Often, these are
contractors or developers who feel that they should have gotten
contracts received by others or have come forward to reveal
bid-rigging kickbacks.
We also receive referrals from our Office of Audit and the
Department itself. Typical charges in HOME cases involve
conspiracy, bribery, tax violation, wire and mail fraud,
embezzlement, money laundering, false statements, and theft of
government funds.
Since October of 2008, our criminal investigations have
resulted in 21 convictions of individuals who used HOME funds
for their own personal gain. It is clear that the penalties
received by these wrongdoers represent the seriousness with
which these cases are handled.
Additionally, the impact on local jurisdictions which are
victims of HOME fraud can be significant in terms of the loss
of limited rehabilitation funds to a local community.
In addition to these convictions, we routinely refer
individuals indicted or convicted of any HUD program fraud to
the Departmental Enforcement Center for administrative actions.
We maintain a well-established rapport with the Departmental
Enforcement Center and work closely with them to facilitate
timely and thorough referrals for administrative action to
mitigate further wrongful use of program dollars.
We feel that removing these bad actors from participating
in the HOME and other government programs is imperative to
protecting important taxpayer dollars. It also sends a strong
message to the others in the industry that this type of
fraudulent activity will not be tolerated.
O.I. believes that HOME is an important program which
provides affordable housing to low-income Americans. Given the
current economic and housing crisis in our country, the need
for affordable housing may never have been greater than in
these tumultuous times. With this crisis comes fraudulent
activity to compete against the good work of how HOME funds are
to be used for their intended purposes.
Since our investigative work focuses on areas of high risk
and egregious actions in the program, our cases highlight areas
where improvements need to be made, especially in the area of
monitoring.
O.I. believes that increased monitoring would have a
deterrent effect on fraud in HUD's HOME Program. We look
forward to working with the Department and the Congress in
addressing ways to improve the effectiveness of this vital
program.
I want to thank you for this opportunity to speak to you
today about our investigations in the HOME Program. I am happy
to answer any questions you may have. Thank you.
[The prepared statement of Mr. McCarty can be found on page
80 of the appendix.]
Chairwoman Biggert. Thank you, Mr. McCarty.
Mr. Donohue, you are recognized for 5 minutes.
TESTIMONY OF KENNETH M. DONOHUE, FORMER INSPECTOR GENERAL, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Donohue. Thank you very much, Chairman Neugebauer,
Chairwoman Biggert, Ranking Member Capuano, and Ranking Member
Gutierrez. I am Kenneth M. Donohue, former Inspector General of
HUD, and principal at the Resident Group firm. I am no stranger
to this committee, and it is great to come back and get a
chance to talk to you all with my 9 years of experience at the
I.G.'s office.
I am also delighted to have my colleague John McCarty join
me. John was the Head of Investigations while I was the
Inspector General and he holds a very important position at
this time.
It is rare that the Inspector General gets a chance to come
back and speak on this type of activity, but I am delighted to
do so. I would be remiss if I didn't recognize the former
colleagues that I served with for 9 years and the great job
they did in many of these investigations.
My mission was independent, objective reporting to the
Secretary and Congress for the purpose of supporting a positive
change in integrity, efficiency, and effectiveness of HUD
programs. That was my mandate and I took that very seriously.
During my time, as John indicated, the number of
investigations--we did 60 audits relating to the HOME Programs.
By the way, when we were doing this, you might recall we had an
enormous amount of mandated congressional oversight involving
the redevelopment of Lower Manhattan after the 9/11 disaster.
We had oversight of FHA and Ginnie Mae, the affected Gulf
States via Hurricanes Wilma, Katrina, and Rita. And, quite
frankly, you can imagine the amount of activity that was going
on certainly with the mortgage-fraud activity.
During my tenure, I was proactive. I had a proactive sense
of urgency in everything I did. And my position was zero
tolerance with those wrongdoers who might attempt to commit
fraud and abuse their authority. I would often express my
concerns to the Department. And the Department would receive
that in a very formal sort of way. And the fact of the matter
is, I expressed my concern about recapturing current and future
funds due to compliance.
I further expressed my concerns about compliance, controls,
and information systems relating to the HOME Program.
Of those 60 audits, on 12 separate cases, HUD came to us
and asked me to address their concerns with regard to some of
these programs. And in fact, I directed audits to be completed
on those very 12 cases.
The Secretary often expressed the importance of HOME
Programs, based on his positive experience that he had
involving his New York practice.
The answer and sum up is the fact aggressive monitoring in
my estimation has to occur with the sub-grantees on these
programs. HUD had 42 local field offices with enormous
undertaking to oversee these programs. Unfortunately, there
were frequent incidences of noncompliance and, as John had
recorded, criminal fraud, particularly in the sub-grantee
level.
The HUD information systems were self-reporting. And I was
pleased to hear most recently the Assistant Secretary speaking
in the June-July hearing where they said they are addressing
such issues, as well.
Yes, it is true that the Inspector General--there is never
enough compliance and oversight to satisfy such programs that
distribute precious tax dollars. I do, however, believe there
is needed balance between program efficiency and oversight to
be applied collectively between the programs and these
oversight agencies.
I believe, after 35 years in Federal law enforcement, that
without an effective compliance and monitoring practice, we
unfortunately encourage those wrongdoers, some we saw today,
who would seize upon the system and use Federal funds for
unintended purposes--their own self-gain, as stated in several
examples in these hearings.
Criminal cases like this could be considered anomalies, or
are they a pattern of behavior?
In my experience, I think when we don't have effective
monitoring, we in fact encourage those people who would take
the big step and get involved in criminal activity. And I think
we owe it to ensure that we have aggressive compliance.
I am pleased with the comments the Assistant Secretary made
in June and the fact that I look forward to those aggressive
actions that they are planning on following up and I think may
very well might have occurred since that time.
It is primarily to compliance responsibilities on local
grant levels. HUD and Congress might consider reforming the
legislation to expand the role and responsibilities of HUD to
ensure a more active compliance program.
I enjoyed a very positive relationship with the
Department's enforcement center and Jim Beaudette. Past
Secretaries have often talked to me about the role and the
placement of the enforcement center within HUD's structure.
In my opinion, over those 9 years, I felt they did not have
adequate resources and the question of an independent role in
addressing matters not only just for the grant activities but
the sub-grantees as well.
As stated earlier, an effective Inspector General must be
diligent, encouraging, and at times insisting on strong
oversight and transparency within government programs.
The practice of monitoring State and local government
entities is paramount, as discussed today. And such programs do
exist and are available.
One such example is following the 9/11 disaster in New
York, where the importance of New York City and New York State
went back and hired monitors, recognized monitors to go back
and look at real-time issues to see, in fact, whether grantees
or the sub-grantees were, in fact, doing things
inappropriately.
Chairwoman Biggert. If the gentleman could conclude?
Mr. Donohue. Yes.
Finally, I am at a disadvantage of knowing the constructive
changes made by the HUD in the past year or so, but I do look
forward to their continuation. Thank you.
[The prepared statement of Mr. Donohue can be found on page
72 of the appendix.]
Chairwoman Biggert. Thank you.
Mr. Beaudette, you are recognized for 5 minutes.
STATEMENT OF JAMES M. BEAUDETTE, DEPUTY DIRECTOR, DEPARTMENTAL
ENFORCEMENT CENTER, OFFICE OF GENERAL COUNSEL, U.S. DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT
Mr. Beaudette. Thank you.
Chairmen Neugebauer and Biggert, Ranking Members Capuano
and Gutierrez, and members of the subcommittees, thank you for
inviting me to testify about efforts by HUD to prevent and
combat fraud against government programs, including HOME.
I am the Deputy Director of HUD's Departmental Enforcement
Center, or DEC, in HUD's Office of General Counsel. The DEC is
responsible for the Department's suspension and debarment
program and other civil enforcement actions against individuals
who violate HUD rules and commit fraud.
My career has been devoted to law enforcement and related
anti-fraud efforts. I served for 9 years in HUD's Office of
Inspector General, where my work involved virtually all HUD
programs, including HOME.
I also worked for 16 years for the U.S. Border Patrol in
anti-fraud enforcement at the Department of the Interior.
Throughout the course of my career, I am not aware of any
fraud by any HUD or other Federal official in connection with
the HOME Program. Overall, in my experience, there has been
relatively little fraud by private individuals or more rarely
by State or local officials with respect to HOME funds.
I agree with Assistant Inspector General Jim Heist's
testimony that there is a very good relationship between the
OIG and HOME, that the program's Administration is probably
better than most and that HUD has been very responsive in the
last couple of years and agreed with OIG audits 95 percent of
the time about HOME.
The vast majority of people involved with HOME and other
Federal programs and private institutions are honest and
trustworthy. Unfortunately, dishonest and greedy people do
exist. We strongly condemn fraudulent activity relating to HUD
programs and place a high priority on preventing, uncovering,
and punishing such activity.
But attempted fraud relating to funds provided under HOME
and other programs, just as in private institutions like banks,
has sometimes occurred and will continue. This is just as true
with respect to non-Block Grant as well as with Block Grant
Programs.
A key anti-fraud component is aggressive enforcement. That
is a HUD focus. Secretary Donovan and others have made it clear
that there is zero tolerance for fraud.
Just last week, the DEC suspended a contractor who was
recently indicted for fraudulently obtaining HOME funds from
Lewiston, Maine, starting in 2005.
The working relationship between OIG and HUD ensures that
we can begin debarment or other actions against a violator as
soon as possible. Another important approach is improved
monitoring and oversight. A congressionally created Block Grant
Program like HOME, by definition, involves local control and
implementation.
With some 30,000 HOME projects at any time, it would
require significant additional funding to enable HUD to conduct
day-to-day monitoring of each of these projects.
But HUD recognizes its fiduciary responsibility as a
steward of taxpayer funds. A critical part of that is
monitoring State and local government grantees and referring
suspected problems to the OIG for more investigation.
In my experience, this is exactly the approach taken by HUD
with respect to HOME. Within the last few years in particular,
HUD has improved HOME monitoring and oversight such as through
the additional reports that Assistant Secretary Marquez
testified about in June.
In addition, HUD has been working since 2009 on revisions
to the HOME regulations that are designed in part to improve
accountability and performance.
Although the improvements are in the final stages of review
by OMB, the Acting Inspector General concluded in a letter to
Senators Murray and Collins, after an OIG review of the
proposed rule changes in August, that they should help ensure
the timely completion of future program activities and
strengthen HUD's future enforcement authority.
HUD is also making key enhancements to the IDIS system to
ensure better project reporting, tracking, including more
financial and project risk mitigation controls.
In short, it is unfortunately likely that attempted fraud
by private developers and others will continue with respect to
HOME funds as with virtually any government program or private
activity.
In my opinion, based on a career in anti-fraud efforts,
however, it is incorrect to single out HOME as being
particularly susceptible to fraud. To the contrary, based on my
experience at the DEC and OIG, HUD continues to take important
steps to improve monitoring, oversight, and enforcement that
can prevent and combat fraud with respect to HOME and other
programs.
Thank you again for the opportunity to testify. I would be
pleased to answer any questions.
[The prepared statement of Deputy Director Beaudette can be
found on page 68 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Beaudette. Mr.
Handelman, you are recognized for 5 minutes.
TESTIMONY OF ETHAN HANDELMAN, VICE PRESIDENT FOR POLICY AND
ADVOCACY, NATIONAL HOUSING CONFERENCE
Mr. Handelman. Thank you very much. My name is Ethan
Handelman, and I am the vice president for policy and advocacy
at the National Housing Conference. I am grateful to all the
members of the committee for inviting me here to testify. I
hope that, as part of the discussion of the need for strong
regulatory and financial controls, we can remember the central
work of the HOME Program in creating affordable housing.
Since 1931, the National Housing Conference has been
dedicated to ensuring safe, decent, and affordable housing for
all in America. We are a nonpartisan, nonprofit group that
brings together a diverse membership of housing stakeholders,
including tenant advocates, mortgage bankers, nonprofit and
for-profit homebuilders, property managers, policy
practitioners, REALTORS, equity investors and more; all of
whom share a commitment to balanced housing policy.
Some of our members administer HOME funds or work on
projects that receive HOME funds, but most do not. We all,
however, support the important work HOME does as part of our
national commitment to safe, decent, and affordable housing for
all in America.
The first way HOME does that is simply by creating
affordable housing. For 20 years, this Federal Block Grant
Program has provided critical funding to State and local
governments exclusively to provide affordable housing for low-
income families.
Over 1 million units have been produced, including those
for new homebuyers, some for owner-occupied rehabilitations,
and some for rental housing units.
Above and beyond those units created, over 240,000 tenants
have received direct rental assistance to make private market
apartments more affordable.
Second, HOME leverages other resources. For every HOME
dollar expended, $3.94 in other public and private investment
has been leveraged, resulting in more than $80 billion in other
funding for affordable housing since the program began.
As just one example, the county of Orange in New York since
1992 has leveraged over $350 million in other funds using less
than $16 million in HOME funds to construct and preserve
affordable housing, often in properties with just a few
apartments, sometimes in larger developments.
In particular, HOME dollars are often the early money
necessary to get projects off the ground, while private
lenders, equity investors, low-income housing tax credit
allocations and other resources come together.
Third, HOME creates jobs. HOME funds frequently provide
essential gap financing for low-income housing tax credit
properties. Those developments create jobs.
In the first year, construction of a typical 100-unit
property results in 116 jobs, about half of which are in the
construction sector. Other HOME Program activities, such as the
development and renovation of owner-occupied homes also produce
employment. Now more than ever, such jobs are essential.
Fourth, HOME sustained projects during the downturn. The
recession and financial crisis disrupted real estate
development across the country. In a survey of homebuilders
from the beginning of this year, 45 percent reported placing
multifamily projects on hold, and 60 percent reported placing
single family projects on hold until the financing climate gets
better.
Housing starts and completions have slowed dramatically as
a result of the crisis by as much as 75 percent nationally from
the height in 2005 to the bottom in 2010. HOME-funded projects,
however, outperformed the broader real estate market. In June,
HUD reported that only 2.5 percent of 28,000 active projects
were delayed. So, against the backdrop of disrupted real estate
markets, HOME projects stand out for completion.
Fifth, HOME reaches many communities. The flexibility of
the HOME Program provides urban, rural, and suburban
communities across the country with the ability to both produce
and rehabilitate single-family homes, many for new homeowners,
while also providing and rehabilitating rental housing from
low- to extremely low-income families.
In addition, the HOME Program provides critical resources
for housing persons with special needs including the homeless,
disabled veterans, and persons with HIV/AIDS. I share as one
example the Silver Star Apartments project in Battle Creek,
Michigan, which used HOME funds as both first mortgage loan and
gap financing to create 75 apartments on the campus of a VA
hospital, allowing homeless veterans: one, to be housed; and
two, to have access to the medical care they need.
Lastly, HOME empowers State and local governments. Local
communities can target the flexible HOME funds to the
particular needs of their communities and housing market. HUD
provides the essential oversight function, making sure that
communities follow program requirements, verifying project
completion, and when necessary bringing enforcement action to
recapture funds.
HUD's enforcement is strong, and must continue to ensure
the continued success of HOME. The HOME Program is a proven
solution that is part of our national commitment to creating
housing opportunities for all Americans.
Thank you again for the opportunity to be here, and I am
glad to answer questions.
[The prepared statement of Mr. Handelman can be found on
page 77 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Handelman.
We will now recognize Members for 5 minutes each to ask
questions. And we will begin with the gentleman from Illinois.
Mr. Dold is recognized for 5 minutes.
Mr. Dold. Thank you, Madam Chairwoman. And I certainly
appreciate the opportunity to ask some questions.
And thank you all for being here. We had an interesting
first panel. And I think really the goal of this hearing is to
try and find out where we can make things better.
Obviously, the intended result is to make sure that the
HOME Program has the dollars that stretch further for the
intended beneficiaries and for the American taxpayer. And
unfortunately, we see dollars that are mismanaged, not just in
the HOME Program, but across the sector and throughout the
entire government.
Our job in the oversight is to try to get that right,
because if HUD doesn't get it right, then beneficiaries suffer
by not receiving the intended benefits and also making the
American taxpayer more reluctant to fund additional programs,
which we do believe are important.
So, Mr. Beaudette, one thing that I just wanted to go at
first is, we look at--according to the Washington Post, we had
700 projects in a sample of about 5,100 multifamily projects
that were undeveloped, indefinitely delayed or abandoned. This
represents about 14 percent of the multifamily projects that
were susceptible to waste, fraud, and abuse. Can you talk to me
about this 14 percent, especially in light of what you had
mentioned in your testimony about a zero tolerance policy for
fraud?
In fact, let me back up just 1 more second, because I do
want to get a better understanding of how you are aware of the
fraud in your role.
Mr. Beaudette. In my particular role it is after the fact.
It is coming from the I.G.'s office to the DEC (Departmental
Enforcement Center).
Mr. Dold. So, the I.G.'s office is giving you that
information. I am just trying to--in layman's terms, the
Departmental Enforcement Center, you investigate whether a
person who has already committed fraud or broken HUD rules
should be barred from receiving HUD money?
Mr. Beaudette. That is incorrect.
Mr. Dold. Okay. Can you tell me about--
Mr. Beaudette. The Departmental Enforcement Center handles
the suspension or debarment of individuals who do business with
HUD.
Mr. Dold. Okay. In the scope of the hearing that we are
having here today--I am just trying to get a better handle. You
are the best person in terms of HUD to be here to be answering
the questions about fraud and abuse?
Mr. Beaudette. From HUD, I probably am, yes.
Mr. Dold. Okay. Can you go back then, and we talked about
the 700 cases, the 14 percent and the zero tolerance policy.
Can you focus on that for us a little bit because we are
interested in terms of how do we make it better--because 14
percent, to me, does that sound like a bigger number or a
smaller number?
Mr. Beaudette. That sounds like a smaller number.
Mr. Dold. Fourteen percent of waste, fraud, and abuse is
small. Okay? Please elaborate.
Mr. Beaudette. I don't think it is a good number. I believe
it is a smaller number.
Mr. Dold. Smaller than what?
Mr. Beaudette. Smaller than 15 percent.
Mr. Dold. Okay. Historically, it is smaller than 17 percent
as well. It is certainly greater than 13 percent. I am glad we
don't have to go down this path.
But what I am interested in is, it is certainly from my
perspective as a taxpayer, as someone who is over here trying
to do some oversight, 14 percent when you have--correct me if I
am wrong--a zero tolerance policy, not a 14 percent tolerance
policy. So, am I correct in thinking that it is the zero
tolerance policy or 14 percent tolerance policy?
Mr. Beaudette. There is a zero percent tolerance policy.
There is no evidence of fraud in this particular 14 percent we
are talking about.
Mr. Dold. Okay. In the 14 percent that I am specifically
referring to, we have monies that have gone out there in the
programs that have not been spent. We have vacant lots. So, I
guess I am having a difficult time saying there is not fraud
involved with that.
Mr. Beaudette. I am not aware of it myself.
Mr. Dold. Okay. Is there anybody that we should be talking
to at HUD who would be aware of those?
Mr. Beaudette. I am sorry?
Mr. Dold. Is there anybody at HUD who would be aware of
those?
Mr. Beaudette. Actually, the Deputy Assistant Secretary is
with me today, who could speak to the program aspect of it.
Mr. Dold. Madam Chairwoman? I don't want to mess up your
panel, but I would be happy to just try to find out if there is
someone more appropriate to speak with.
With just a short period of time, we will let you sit down,
Mr. Beaudette. We will go to another thought.
And Mr. Donohue, based on your years as Inspector General,
can you please describe your greatest concern about oversight
or lack thereof? Because I am sure I am confident that
regardless of the Administration, we have had problems with
regard to oversight.
We want to make sure that it gets stronger and better for
the future. Can you talk to me about what your greatest problem
was in the past and what will fix it?
Mr. Donohue. Quite frankly, I transcend Administrations in
my capacity as Inspector General. And I might say that the
Secretaries, all of the Secretaries I served under were
sensitive to the issue of oversight and monitoring all the
programs.
HUD by itself has systemic problems, I believe, in a lot of
different programs as far as exposure to fraud. That is why my
office is so engaged, as I indicated in my testimony.
But to answer your questions specifically, I think the key
here comes down to is that when these formula grants go back
out, the issue, the key issue on most of these activities is at
the sub-grantee level. And until you get to that sub-grantee
level, you really don't really know or find out necessarily as
to what might be going on wrong.
And we rely upon--as an Inspector General we rely upon, as
Mr. McCarty indicated, the support of other Federal agencies,
good stewards, colleagues within these housing programs and HUD
programs to sort of give us the tips, let us know, hotlines or
whatever else to come back. And we investigate those on a case-
by-case basis, with the exception of my audits.
I did 60 audits. That is a significant number. Audits are
due in the HOME Program, and there is good reason to do so.
Chairwoman Biggert. The gentleman's time has expired.
Mr. Dold. Thank you.
Chairwoman Biggert. Just as a reminder, we have an orderly
process for witnesses. And so, we will continue.
The gentleman from Massachusetts is recognized for 5
minutes.
Mr. Capuano. Thank you, Madam Chairwoman.
Thank you, gentlemen, for being here. Were you all here for
the earlier panel to listen? Do you agree that it was probably
a very good point that when someone is being audited, they
should not be allowed to select the portion of their portfolio
to get audited? Does anybody disagree with that statement? Did
anybody here have anything else substantive that you learned
that you didn't know before you walked into the room, relative
to the auditing HUD or anybody else does? The answer is no,
right? It was a nice show, but you didn't learn anything.
Mr. Donohue. Sir, I think my standpoint is--being an I.G.,
I think it was very informative to hear. Anytime I hear
criminal wrongdoers speak to that, the issues of how they do
that and collect their fraud and do their fraud--
Mr. Capuano. Did you hear anything today that was unique or
something you hadn't heard before?
Mr. Donohue. You know, in 35 years, I have probably heard
it all.
Mr. Capuano. That is what I figured. I didn't hear anything
here that I haven't heard before, and I haven't been doing it
that long. So, I mean, though it was fun, I don't see why we--I
would have rather gone right to this panel. I think you
gentlemen have more to offer to the things we really want to do
than we just did.
And I would like to know specifically--not today, but I
would ask each of you in writing, as soon as you can--I would
like specific recommendations about what you think we should be
doing to increase and enhance the oversight of the HOME
Program.
There is nothing that I wouldn't be open to. But, at the
same time, though it is very interesting to hear we should have
more, I need to hear specific proposals, as I am sure you all
respect.
So when you get a chance--this isn't the time or place--I
would appreciate more specificity as to either what we could
have HUD do under current law or, if you think we should be
changing the law to, say, something, suggest that as well
because I would be more than happy to do that.
I guess I would also like to ask--Mr. Beaudette, in his
testimony, said there was, in his estimation, very little fraud
in the HOME Program.
Mr. McCarty, would you generally agree with that?
And, again, that is not no fraud. Every program has
something. Would you agree with the general statement?
Mr. McCarty. Generally, like Mr. Donohue said, any fraud is
too much fraud.
Mr. Capuano. I agree with that.
Mr. McCarty. So I think, from what we have seen over the
last 3 years, the numbers I gave you, that is what we have been
provided to work with.
Mr. Capuano. Fair enough.
Mr. McCarty. Not knowing what is out there is what troubles
us.
Mr. Capuano. That is always the trouble.
And I guess the other question that I really want to know
is, during your term, Mr. McCarty--and I will ask you the same
thing in a minute, Mr. Donohue and Mr. Beaudette--when you go
to HUD with proposals, do they generally accept your
proposals--not proposals but suggestions on how to improve
something?
Do they generally accept those suggestions and implement
your suggestions?
Mr. McCarty. I think my colleague, Jim Heist, testified in
June that the Department's HOME Program has been very receptive
to our audits.
Mr. Capuano. Yes, he did, but I want to know if you agree
with him.
Mr. McCarty. I think so. Yes, sir.
Mr. Capuano. Mr. Donohue, would you agree with that, in
your estimation, that HUD has been open to suggestions from the
I.G. when you were there?
Mr. Donohue. Not only do I believe all the Secretaries are
quite sensitive to the issue of appropriate monitoring, making
sure the monitoring goes--
Mr. Capuano. So when you made a suggestion, they would try
to implement it. Mr. Beaudette, have you found that to be true
as well?
Mr. Beaudette. Absolutely.
Mr. Capuano. So that, as people find new ways to do it and
they go to suggest it, in general, the people at HUD, not just
this Administration but past Administrations--they are good
people trying to do the right thing. And if somebody comes up
with a good idea, they do it. Is that a fair estimate of what
you just said?
I guess the other thing is, have there been any times when
you have suggested, Mr. McCarty, that you really need to do
this; it is an important issue--not details, but an important
issue; you really need to do this to enhance your oversight,
that HUD has said no, we won't do it; we refuse to do it?
Mr. McCarty. We have been asking them for awhile to do more
monitoring, to implement a real-time surprise monitoring system
that was mentioned earlier here. And that started back when I
was Assistant Inspector General for Investigations, for the
most part right after 9/11, where it was successful, but we--
Mr. Capuano. And they said, no, they won't do it?
Mr. McCarty. I think they tried to implement it in other
ways.
Mr. Capuano. But they haven't said no?
Mr. McCarty. No, sir.
Mr. Capuano. Mr. Donohue, did you have the experience of
them saying no to you?
Mr. Donohue. I have presented in the past with regard to my
past years as monitoring--that I put in my written testimony--
to be applied in New York. It is a very effective program, but
what it does is it gets down, a monitoring practice, to the
sub-grantee level. And to me, that is the key to make this
monitoring effective.
Mr. Capuano. Have you suggested that to HUD, and they said
no, when you were the I.G.?
Mr. Donohue. I have made suggestions to HUD in past years,
and they weren't carried out.
Mr. Capuano. Mr. Beaudette, have you had that experience,
where you have made suggestions to HUD and they said no?
Mr. Beaudette. No, I have not. And I think, given the
resources to do so, HUD would love to enhance their monitoring
program.
Mr. Capuano. Mr. Donohue, in your testimony, which I
actually appreciated very much, I just want to read one
sentence back to you: ``As stated earlier, an effective
Inspector General must be diligent and encouraging and at times
insisting on strong oversight and transparency with any
government.''
I think that is a wonderful statement. Did you insist that
your proposals be adopted?
Mr. Donohue. Sir, if you knew me for 9 years, I insist
quite a bit about the actions on these, my concerns. And I
would make it very vocal, whether it is this matter or mortgage
fraud or whatever else. Yes, I did.
Mr. Capuano. I guess I don't--what is the difference
between suggesting and insisting?
Mr. Donohue. I am sorry?
Mr. Capuano. What is the difference, then, between
suggesting and insisting?
Mr. Donohue. It is probably synonymous, probably the same
thing.
Mr. Capuano. Fair enough. Thank you very much.
And I look forward to your written comments on specificity
because I would like to follow up on them. Thank you.
Chairwoman Biggert. Thank you, Mr. Capuano.
I think that we are here to really look at the future and
how we can solve any of the problems both from the first panel
and from the second panel.
And with that, I would recognize the gentleman from Ohio,
Mr. Stivers, for 5 minutes.
Mr. Stivers. Thank you, Madam Chairwoman. I would like to
thank the Chairs of the two subcommittees for calling this
hearing. I would also like to thank these witnesses from panel
two, as well as the witnesses from panel one, for your time,
because we all want to make the Program much more accountable
and root out waste, fraud, and abuse.
My first question is for Mr. McCarty. Were you here for the
first panel in which Mr. Renacci, the gentleman from Ohio,
asked about internal controls, specifically random inspections,
multiple bids, and taking the lowest bid?
Mr. McCarty. Yes, sir, I was.
Mr. Stivers. Has your organization, as Inspector General,
ever recommended these steps to HUD for the HOME Program?
Mr. McCarty. I am certain we have through our audits, yes,
sir.
Mr. Stivers. So to follow up on the gentleman's question
from Massachusetts, while you have recommended them, they have
not been adopted. Is that correct?
Mr. McCarty. I am not certain I could answer that right
now, sir.
Mr. Stivers. It sure appears they have not been adopted, I
guess we will--
Mr. McCarty. At that sub-grantee level, probably not.
Mr. Stivers. At the sub-grantee level.
Next, another question for Mr. McCarty about the
information systems--because you brought up those in your
testimony a bit.
So the way the information system works today is grantees
and sub-grantees can go in and change numbers at any point in
the system. So it is really hard for the computer system to
have a reconcilable audit trail that you can use in your
investigations. Is that correct?
Mr. McCarty. Yes, sir. That is what our audits have shown.
And I think Mr. Truax testified to that also.
Mr. Stivers. He did. Has the Inspector General's Department
ever suggested that HUD fix that?
Mr. McCarty. Yes, sir, we have.
Mr. Stivers. Okay. Again, and I know Mr. Capuano, the
gentleman from Massachusetts, asked about specific actions. It
sounds like we have four specific actions already. I appreciate
you answering those questions.
The next question is for Mr. Donohue. You suggested in your
testimony some real-time monitoring fixes that HUD should adopt
for the HOME Program. Can you quickly elaborate, knowing that
we have 2 minutes and 50 seconds left, on specifically what
those are?
Mr. Donohue. Right. The one I saw most effective was
implemented in New York and is currently in play with regard to
redevelopment of Lower Manhattan.
And what happens is, in effect, in concert with the grant
recipient and the Inspector General, they hire a reputable
monitor that goes back and, real-time, a la carte, real-time,
goes back and looks at the disbursement of funds. It could be
any matter that they ask upon. But the person goes on site at a
sub-grantee level. Their reimbursement for those costs are
provided for within the administrative cost of the grant.
Mr. Stivers. Great, thank you.
Mr. Beaudette, you talked about how you had never seen an
issue when HUD didn't adopt the recommendations from the
Inspector General's office. Have you heard about the four
recommendations that I just talked about with Mr. McCarty?
And I won't get to the second one with Mr. Donohue yet. Is
this the first time you have ever heard of those four
recommendations?
Mr. Beaudette. In this kind of setting, yes, in that the--
Mr. Stivers. In any setting, really. I am just curious if
you have read them in a report, if you have seen them as a
requirement?
This is the first time you have ever heard about these four
ideas for fixing--
Mr. Beaudette. I believe these four ideas are in place. I
don't know if that was from the Inspector General's office. But
I believe the auditing standards are--
Mr. Stivers. So there are random inspections where the
grantees and sub-grantees don't pick the programs now?
Mr. Beaudette. I believe so. Don't quote me on the random
inspection.
Mr. Stivers. And the grantees and sub-grantees can no
longer update the system on their own?
Mr. Beaudette. I don't know that.
Mr. Stivers. Okay.
Mr. Beaudette. Actually, I thought you were referring to
the internal controls and--
Mr. Stivers. The first three were the internal controls.
The fourth is the systems issue. And so, you are saying all
four of those issues are fixed. I will follow up with your
office in writing on that. But I really appreciate--I would
love to get a full report. That is what we are here for today.
The last question is for Mr. Handelman. And I will just
follow up on something that I think Mr. Dold asked. He talked
about 14 percent of fraud. And let us assume for a second--I
don't know if that is the right number. Let us assume there is
14 percent fraud, waste, and abuse. Because if you spend money
on something, even if it is not fraud and they don't build the
stuff they are supposed to build, it might not be fraud but it
is at least waste.
If there is 14 percent fraud and waste in this program that
you and I agree is an important program, what is the impact on
this important program?
Mr. Handelman. You and I certainly agree that this is an
important program. I understand that you have asked me to
hypothetically assume the 14 percent number. I will say, for
the benefit of the committee, we looked at the numbers produced
by The Washington Post, were unable to replicate them, and The
Post did not release its analysis. So I have no confidence in
that number.
Mr. Stivers. If there is that kind of waste, is it bad for
the program?
Mr. Handelman. Yes.
Mr. Stivers. Okay. That is really what I was looking for
is, we all want to agree--when we agree there is a worthy
program, we want the money in that program to be spent wisely
and efficiently. I think my time has expired. Thank you--
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Missouri, Mr. Cleaver, is recognized for
5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman.
Mr. McCarty, we had the two individuals on earlier, and
both of them appear to be headed toward serving time in prison
for what they did. So that means the system worked. Does that
mean the system worked?
Mr. McCarty. It means the criminal justice system worked.
Mr. Cleaver. Yes.
Mr. McCarty. Yes.
Mr. Cleaver. When people do that, what is supposed to
happen? A combination of whistleblowers and good investigatory
work done by the U.S. attorney, the I.G., all of that played
into catching people who were committing fraud in the HOME
Program. Is that correct?
Mr. McCarty. Yes, sir.
Mr. Cleaver. Okay. So if the system is working, and people
get into the system, like the gentleman who was here earlier,
who said he didn't go into the program to commit a crime, and
the people who hired him didn't see that. No human being can
see into somebody else's mind and soul. So they hired him.
What else can we do? You try to hire the best people you
can. And when people commit a crime, they get caught. What else
do we do?
Mr. McCarty. Speaking for law enforcement, we like to get
the word out through fraud awareness briefings. We want to make
sure that we have an ear to the ground for the people who are
running the programs and possibly manipulating them.
Those who are confronted with opportunities of fraud, it is
done out of desperation, greed. And where we can reach those
people before that happens, in prevention rather than in
enforcement, we are all better off.
Mr. Cleaver. Yes. The human condition would be as such that
we can't stop people from doing wrong. Correct?
Mr. McCarty. Correct.
Mr. Cleaver. And so all we can do is try to minimize it,
and then punish people when they do so, so that others might be
hesitant or reluctant to do the same.
Mr. McCarty. Yes, sir.
Mr. Cleaver. Mr. Donohue?
Mr. Donohue. Yes, sir. I want to go back to your reference
of the two people. I think what I would--how I would phrase
that is, in those two cases, the system worked perfectly. The
system, the environment we deal is the ones we don't know about
or the ones we don't--and I think as Mr. McCarty has
specifically stated, that I think, in Federal law enforcement,
a key issue is prevention.
And I think how you prevent that--I have seen this in the
mortgage fraud world--is that how you prevent that is having
strong requirements, good oversight compliance and monitoring.
So I think you can't have one without the other to be
effective.
Mr. Cleaver. So one of the most significant steps we can
take now would be to cut funds from the HOME Program?
Mr. Donohue. Are you asking me that?
Mr. Cleaver. Yes.
Mr. Donohue. I am not suggesting that at all.
Mr. Cleaver. No, I know you didn't.
Mr. Donohue. Oh.
Mr. Cleaver. I am asking, does it make sense now to--
because we have a problem, let us cut the budget in the HOME
Program, which probably would result in cutting people who
would be in a position to do some of the monitoring. Do any of
you disagree with what I just said?
Did any of you understand what I just said?
[laughter]
Mr. Beaudette. I don't think the idea is to shut down HOME.
I think the idea is to provide a deterrence to where an
individual is relatively confident that if he defrauds the
program, he is going to get caught. And not to mimic Mr.
McCarty, but pursuing that sort of angle is going to be the
best possible route to take.
Mr. Cleaver. Sir?
Mr. Handelman. I would further agree that shutting down
HOME is not the answer to this problem.
Mr. Cleaver. Yes. I think anytime we start talking about a
program like this--sometimes people think, okay, we had a
problem there, so let us eliminate the program. I never will
forget--we had a problem with somebody misusing their access to
the Pages here in Congress a short time ago. And so there were
people who said, ``Let us cut out the Page Program,'' instead
of saying, ``Let us cut out Congress.'' But the point that I
think is important is that when there is a problem, we always
decide, let us cut something, instead of trying to figure out
ways to strengthen the system so that fraud becomes
increasingly difficult to commit.
Do all four of you agree with me?
Does anybody disagree?
Thank you, Madam Chairwoman.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Texas, Mr. Neugebauer?
Chairman Neugebauer. Yes, I thank the chairwoman.
Mr. McCarty, does HUD track whether funds are used for the
intended purposes--in other words, if I received a grant of
HOME funds for 100 units, but only built 60, does HUD have a
way of tracking whether I built 60 or 100 units?
Mr. McCarty. I don't think I would be able to answer that,
sir. It would be a program question, how they run the program,
how they track it.
Chairman Neugebauer. Let me ask you a question. I want to
use an example up here. It is hard to see that, but that is a
kind of a model that somebody did of a project that was going
to be built here in the Washington, D.C., area. It was supposed
to be 106 units, which was in--$6.8 million was spent.
The next slide is actually the property. And as you can
see, some of the units were built in the back, but this
property has been like this for 2 years. So do you think it
would be appropriate for HUD to have some knowledge that, if
they extended a grant for 106 units, they got 106 units?
Mr. McCarty. Yes, sir, I do. But I think, in your example,
real-time surprise monitoring would pick something like that up
immediately.
Chairman Neugebauer. Yes. But today, does a system exist at
HUD where they could pull up that project and determine whether
that was 106 or 40 or 30 units built?
Mr. McCarty. I am not certain about that, sir, how IDIS
might draw that up.
Chairman Neugebauer. But you would agree they should have a
system like that?
Mr. McCarty. Yes, sir.
Chairman Neugebauer. Yes. And I want to go back to this
computer system, where the recipients can manipulate that data.
Would you agree that is not good internal control, that people
who are receiving the money can go in and make entries into the
records?
Mr. McCarty. No, that should never happen. There has to be
some control.
Chairman Neugebauer. Because I was thinking, if I was using
this analogy, it would be like me being able to log in to my--I
do online banking, because I don't get the chance to go to the
bank a lot; not that I have a lot in the bank to do anything
with.
But I was just thinking, if I could go into the bank, for
example, and erase the checks and keep the deposits, it would
be a good thing for me, wouldn't it?
Mr. McCarty. Certainly.
Chairman Neugebauer. Yes. And I kind of relate that to this
system that is in place at HUD now, is that basically they can
go in--and one of the examples that we have seen is, we saw
examples where projects were closed when we brought those to
HUD's attention. Then, they were mysteriously reopened.
Now, how would that happen? How would projects that were in
the system that said they are closed, but all of a sudden we
bring it to HUD's attention, and all of a sudden they--when we
go back and look in those records again, then they are open
again. How does that happen?
Mr. McCarty. --the data.
Chairman Neugebauer. And that is probably not good, is it?
Mr. McCarty. No, that is not good. There needs to be
transparency built into all the data.
Chairman Neugebauer. Because my credit card company, if I
do a number of different transactions that are out of my usual
pattern, they call me up. And sometimes, they cut my credit
card off. They will say, we suspect something is going on.
Should HUD have systems to be able to track--that we keep--
that we are making disbursements for a project and it seems
irregular?
Mr. McCarty. I believe IDIS is supposed to do that in this
particular program.
Chairman Neugebauer. But do you believe it is operating in
an effective way?
Mr. McCarty. No, sir, I do not.
Chairman Neugebauer. Yes. And so I think that the question
here--we have been talking about suggestions. One of the things
that--and I heard both of you say that, hey, when we say
something to the Secretary or to the people in the
organization, they are receptive to it.
But, there is--sometimes, my wife asks me to empty the
trash. I am receptive to it, but I don't always empty the
trash. And there is a penalty for that, by the way, as well.
I don't think anybody is questioning whether these people
are receptive. I think what we are talking about here, I think,
is a very serious issue, is that being receptive and putting in
place these internal controls to keep this from happening in
the future are important. And this is just one example. We have
other examples where when we pulled up the records, we went out
and found vacant lots.
Some people say, we may not have given you the right
address. I think it would be appropriate for HUD to at least
have the correct address for where they are spending millions
of dollars. Wouldn't you agree?
Mr. McCarty. Yes, sir.
Chairman Neugebauer. Yes. I think some folks wanted to
discredit some of the first panel witnesses. I think they
painted a picture that is not a pretty picture. And that is a
picture that inside the system today, the taxpayers' money may
not--we may not be the best stewards of it.
It is my job; it is your job; it is HUD's job to make sure
that when we take money from taxpayers to use for other
purposes, that we be good stewards of that. And I would hope
the panel would agree with that. And so I think where we have
it, we have some work to do.
And I would hope that--from this hearing today, I would
hope that the Secretary and others understand that we intend
for this to stop. And we are trying to send a message here that
we need to fix this.
I thank the Chair.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Texas, Mr. Green, is recognized for 5
minutes.
Mr. Green. Thank you very much, Madam Chairwoman. And I
thank you for allowing me to be a part of the subcommittee.
And I thank the witnesses for appearing. I just want to
make a comment about the witnesses that testified previously. I
think that persons who commit crimes should be caught. I think
they should be appropriately prosecuted. And I think that they
should be appropriately punished.
So, I think that I speak for everybody on the committee
when I say this. I rarely will take an opportunity to say I
speak for everybody. But it is my belief that the committee
would as a whole, with unanimous consent, agree that this is
the case.
My concerns with reference to them have little to do with
their credibility as much as it has to do with the fact that
they are criminals. I don't participate in oversight hearings
as much as I would like to because this is not my subcommittee.
But as such, once we start setting this precedent of bringing
the criminals in to act as experts. I guess at some point,
Madoff will come in, and we will try to find out how we can
better strengthen the SEC to make sure that we can prevent
crimes from occurring. And if there is anybody who is an expert
on how to defraud folks, probably Madoff may be one. I don't
know how he gets qualified. I am sure the process that we use
to qualify these folks would probably work with him as well.
And I had a concern about just the specific thing that was
being called to our attention about the three bids. It makes
sense to get three. It makes sense that it might help. But it
also makes sense to me that a determined criminal will find a
way to manipulate the system.
And these people, whether they admit it or not, are
criminals. And whether they admit it or not, they may have
found other ways to manipulate the system to their advantage.
Criminals do this. That is why they are criminals, I guess,
because they do these types of dastardly things.
So, now to the gentlemen with HUD, I just want to make sure
that you are on the record. And you may have said this. My
assumption is that you want to catch all the criminals that you
can if they are trying to defraud HUD in some way. Is this a
fair statement?
Mr. McCarty. Yes, sir.
Mr. Green. Okay. And you are willing to change rules and
make reasonable adjustments so that you will be in a position
to prevent crimes from occurring. Is that a fair statement?
Mr. McCarty. The rules need to prevent crimes from
occurring.
Mr. Green. Yes. So you are not--HUD is not trying to in
some way declare that you have a perfect system that needs no
adjustments, are you?
Mr. McCarty. I can't speak for HUD, but I know that they
don't have a perfect system--
Mr. Green. Okay. Let me ask the HUD representative.
Mr. McCarty. Could you repeat that, please?
Mr. Green. You are not implying that HUD has a perfect
system, and that you can't make some adjustments, are you?
Mr. McCarty. No.
Mr. Green. And you want to see that criminals are caught,
don't you?
Mr. McCarty. Yes, we do.
Mr. Green. And it does not offend you to know that the
system worked and criminals were caught this time. And you
would like to make sure that it works every time. Is that a
fair statement?
Mr. McCarty. That is a fair statement.
Mr. Green. Okay. I am saying this to you and to all who are
within viewing and earshot of this because sometimes people do
allow these things to metamorphose from an investigation into a
desire to end the program. And I don't--this is not something I
am placing with any of my colleagues, but that can become the
next hue and cry that the whole Program should be eliminated.
Is there anyone who is of the opinion that this program
should be eliminated because we caught two criminals who were
trying to perform some sort of dastardly deed? Sir, do you--I
see you moving forward. Is it Mr. Handelman? Are you of the
opinion that the Program should be eliminated?
Mr. Handelman. The Program is one of the strongest housing
programs we have. We should keep it.
Mr. Green. Okay. Does anybody think it should be
eliminated? Okay.
So, I want the record to reflect that all of the members of
this panel are of the opinion that this Program should not be
eliminated.
And to be fair to you, you believe that if there are some
places where we need to strengthen the regulations that we
should do so to prevent criminals from preventing crimes. Would
everybody agree with this? Okay.
So, I think that the point I would like to make is I know
how these programs benefit people. This is a good program. And
I just don't want this to metamorphose into a later time when
you are not here that we need to eliminate it because there was
fraud.
I thank all of you for appearing. And I yield back.
Chairwoman Biggert. Thank you.
Mr. Canseco is recognized for 5 minutes.
Mr. Canseco. Thank you, Madam Chairwoman.
Let me address this question to Mr. McCarty and Mr.
Donohue, but one at a time. In your investigations into the
HOME Program, did HUD personnel charged with oversight seem
more concerned with achieving the mission of the HOME Program
or ensuring that HOME Program funds were being spent correctly?
Mr. McCarty. I believe that the HUD program people were
concerned about both. That is their job.
Mr. Canseco. On making sure that the funds were being
applied correctly and at the same time making sure that the
mission of HOME was being taken care of?
Mr. McCarty. Yes, sir.
Mr. Canseco. All right.
Mr. Donohue?
Mr. Donohue. In a manner of speaking, I agree with you. I
think there are times as an I.G., when you are dealing with a
Department for 9 years, that you have concerns. And you voice
those concerns.
But to fundamentally answer your question, I believe--
listen, I believe these people come to work to do a good job,
and I think they are trying to help people in need. And they
are trying to do it the best way they can. But it all comes
down to--I mentioned this balance between oversight,
constructive oversight and the application of the programs
themselves. Therein lies the challenges.
Mr. Canseco. Still to both of you, HUD relies on its
participating jurisdictions for program management of the HOME
Program. What policies or procedures does HUD have in place to
verify that participants actually have adequate policies in
place?
Mr. McCarty. I would defer to the program on that. I don't
know the program that well at that level.
Mr. Canseco. Okay.
Mr. Donohue, the same answer for you?
Mr. Donohue. I believe the same answer would apply. You
have to ask that question of the--
Mr. Canseco. Mr. Beaudette, do you have--
Mr. Beaudette. Same answer, I would have to defer to the
program. We could get you that.
Mr. Canseco. All right. And you, sir?
Mr. Handelman. I am going to defer even further since I
don't work for HUD.
Mr. Canseco. All right. I just thought you might have an
opinion on that.
Mr. Handelman. Fair enough.
Mr. Canseco. So, we have learned that the HOME Program
database is riddled with inaccuracies. Would you say that these
inaccuracies stem from the database being difficult to enter
information into?
Mr. McCarty. I don't believe so. No.
Mr. Canseco. Mr. Donohue?
Mr. Donohue. I will say no. My answer is that the audits
have indicated, as you suggest. I will state, however, that I
believe in June, Assistant Secretary Marquez did speak to
improvements with regard to that database program. I don't know
what the status of those are.
Mr. Canseco. Mr. Beaudette, can you weigh in on that?
Mr. Beaudette. I would hope it is easy to enter data into
those. In this regard the grand tea, the State and local
governments are the enterers of information into the Integrated
Disbursement Information System (IDIS.) I suspect that HUD
provides them with sufficient information to put the
information in there.
Mr. Canseco. What policies does HUD have in place for
auditing its database and flagging projects for review that
obviously need more follow-up such as those with ``address
unknown?''
Mr. Donohue, yes?
Mr. Donohue. Oh, sure. And, again I am going to have to
defer to--in that regard. If you get into these areas with me,
I have lost any objectivity. I believe oversight is so
paramount. My suggestion is, if it doesn't exist, I would say
it needs to exist. But I don't know what the status of that is
now.
Mr. Canseco. Mr. McCarty?
Mr. McCarty. I don't know what the status is.
Mr. Canseco. Mr. Beaudette?
Mr. Beaudette. Same.
Mr. Canseco. Okay.
I yield back the balance of my time.
Chairwoman Biggert. Thank you.
The gentleman from North Carolina, Mr. McHenry, is
recognized for 5 minutes.
Mr. McHenry. I thank the Chair.
Mr. McCarty, how does monitoring--or lack of monitoring--
affect fraud in the HOME Program? For instance, additional site
visits, and the fact that grantees--I guess the additional
question is, the lack of monitoring, how does that effect
fraud?
And an additional question would be: Are grantees allowed
to select which HOME projects they show and when the site
visits occur?
Mr. McCarty. The lack of monitoring provides an opportunity
for fraud and criminal activity. As you heard Mr. Truax
testify, he knew when the inspectors were coming, when the
monitors would come. And he knew that, because of, probably,
the lackadaisical implementation of the oversight guidelines
that should have been applied, they allowed him to pick which
projects would be inspected.
Mr. McHenry. Is that commonplace?
Mr. McCarty. We have heard that throughout our
investigations, yes, sir.
Mr. McHenry. Okay--so not only the scheduling of it, but
also which sites to show?
Mr. McCarty. The grantees have been able to manipulate the
monitoring system, the oversight system.
Mr. McHenry. Okay. Are there apparent rules for how this is
done, how the site visits are done or how the monitoring--
Mr. McCarty. Yes, sir, I believe there is a checklist that
the monitors go through.
Mr. McHenry. Do you have issues with that checklist? Do you
have--
Mr. McCarty. Not if applied properly.
Mr. McHenry. And it appears that it is not being followed
properly.
Mr. McCarty. Yes, sir.
Mr. McHenry. Okay; all right. If we could put up on the
screen, HOME.
Mr. Beaudette, does HUD's approach to oversight in the HOME
Program leave the door open to fraud and abuse?
Mr. Beaudette. I believe anything pertaining to it would
provide the opportunity. You enhance it, it decreases. You
release it, the possibility of it goes up.
Mr. McHenry. No, no. I am asking, does the current approach
to oversight of the HOME Program leave the door open to fraud
and abuse?
Mr. Beaudette. I don't think so.
Mr. McHenry. Okay. Then, let me show you an example.
This is a duplex in the town I grew up in, not in my
district, but I am in a divided county with a redistricting
year, it will be in my new district, not in my current
district. But, anyway, suffice it to say, I grew up, actually,
just a couple of blocks from this house. You can see that it is
not that old.
That appears to be a duplex. Do you all agree? It looks
like a duplex. If you disagree, just tell me. But, according to
the grant information, this multi-family housing project was
supposed to be six units. You can see it is clearly two units.
First, I ask that your agency look into this, because this is a
very serious discrepancy. And I would be happy to provide you
with the exact address. But this is a big concern.
I have a staffer who grew up in a hometown in a different
State. She found the same thing. And this is not--we haven't
been working full-time on this. But the fact that we found this
is a really a bad indication for the program. And, technically,
I would like to know how this can happen.
Mr. Beaudette?
Mr. Beaudette. I don't know.
Mr. McHenry. You don't know how it could happen?
Mr. Beaudette. No, in this specific situation, I don't
know. I am sorry.
Mr. McHenry. But generally, how does this happen? Because
we have heard testimony from the first panel--there is a hue
and cry on the other side of the aisle that we bring folks who
are basically fraudsters in to give examples. Then, we have
another panel who says, ``I don't know how it happens.'' You
know?
Mr. McCarty, do you, you know, is there--
Mr. McCarty. It happens because there is no oversight.
There is no one out on the street looking at it. Your staff
went out and found this. If the Department were to go out
there, the grantees go out there, the sub-grantees go out
there, they will see this.
Mr. McHenry. So is it a failure of policy or is it a
failure of people to follow those policies?
Mr. McCarty. I believe it is a failure of the people to get
out there to do it.
Mr. McHenry. Okay.
Mr. McCarty. I think that when you have that many sub-
grantees, and you have 42 offices of HUD that do this, and they
probably all do it different ways, I think the numbers
overwhelm them.
Mr. McHenry. Okay.
Mr. Beaudette?
Mr. Beaudette. Can we get back to you on this and give you
specifics?
Mr. McHenry. I would much appreciate it. And I think the
taxpayers would appreciate it, too. I don't think the person
who did this would appreciate being found out, but we certainly
appreciate you doing that.
Mr. Beaudette. Thank you very much.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Arizona, Mr. Huizenga--I mean, from
Michigan. Sorry.
Mr. Huizenga. Thank you, Madam Chairwoman. And I appreciate
that.
Mr. Beaudette, I am curious. How much waste, fraud, and
abuse is present in the system? Because earlier, 14 percent was
referenced, and staff, much like they are doing now, are
shaking their heads and rolling their eyes and doing all those
things and pulling faces.
I am curious what number you are comfortable with citing?
Mr. Beaudette. I am comfortable with zero. And I don't
know--
Mr. Huizenga. No, no. How much exists? Because I believe in
the fallibility of mankind, so I know that there is some. But I
am curious what number you would settle on, or your staff who
are rolling their eyes behind you would settle on?
Mr. Beaudette. I don't know how much fraud does exist.
Mr. Huizenga. Okay. I would like to find out, then, from
our Inspectors General what they think. But I would also like
to know what internally you all believe is that number. So
please feel free to get back to me on that. In fact, I insist
that you get back to me on this.
Do you commonly not know where and what projects you are
funding, where they are? Is that common?
Mr. Beaudette. Is this for me?
Mr. Huizenga. Yes.
Mr. Beaudette. Once again, that is a program question. And
I can get that to you.
Mr. Huizenga. Okay. I would like to put up an example of
what is in my district. We just heard from my friend, Mr.
McHenry.
This is the address that you all provided to me, to my
office, to this committee. This is 400 136th Avenue in Grand
Haven. My staff went out, and this is what is at the corner.
When that was brought up, it was like, ``Oh, no, no, no.
Wait a minute. I guess it is the wrong city.'' The city,
granted, is in the same county, my home county, but about 20 to
25 miles south of there, in Holland.
So that address I am very familiar with, because it is
actually across the street from where my daughter takes her
ballet lessons. That would be the headquarters of Heritage
Home, Incorporated, the person who was doing the developing.
Now, you all couldn't tell me where their projects were, so
I called them. We called them and talked to them. And they
supplied us with the three different locations. I am just
curious why we are in that spot.
And I know that the ranking member has asked, ``What are
those specifics?'' I think we have started to hear a few of
those from Mr. McCarty. What are the specific action items that
we can do, because I fully believe that you all in HUD, when
you are told about fraud or you discover that fraud, you pursue
that. I have no doubts about that.
My problem is, I don't believe there are systems in place
to deter that fraud or that waste or that abuse of the system.
Now, earlier, Mr. McCarty, you were talking about not
knowing what is out there is what is troubling. That was your
quote, and I think on page 4 of your testimony, you go into
some of those problems.
Mr. Beaudette, you said, after my friend, Mr. Stivers, had
run through four different suggestions, you thought that those
suggestions were in place.
I don't want to put words in anybody's mouth, but Mr.
McCarty, the look on your face at that point gave me an answer
that contradicted that. I would like you to--if you want to
take a moment and voice what you actually think of that.
Mr. McCarty. Not to go into too great detail from my
position, but Jim Heist, our Assistant Inspector General for
audit, who testified in the June committee hearing, spoke very
well to that, in our audit work, 60-plus audits that we have
done, and the number of systemic problems within the controls,
the monitoring, the oversight of the HOME Program.
Mr. McHenry. Okay. HUD is not perfect. Our colleague from
Texas has left. That would not be the case, I think, based on
the context of what happened in that first panel, whether it
was him or our friend from Illinois. They defended the internal
systems of HUD. They defended the actions that have gone on.
And that, to me is unconscionable, all right?
We have an ability here to go in and change--
Mr. Capuano. If the gentleman would yield, could he tell me
about whom he is speaking?
Mr. McHenry. That would be Congressman Gutierrez, who was
talking about that, and Congressman Green.
So it seems to me that we have some areas that we need to
improve on. We have one side that is battling back on that. And
we are trying to get in place here some of those control
systems that are the simple basic things that you would do when
I am running my little gravel company back in Michigan or
whether you are running a major corporation like Mr. Renacci
has done or whether you are running GM.
You must know what your assets are, where they are, and the
status of them. Because I can tell you, when I was doing my
developing as well, the bank had a trust with my family for
about 50 years of business. But guess what? They drove past
every single one of my developments on a regular basis to make
sure we were actually doing the work. That is ``Trust, but
verify.'' And that is what we need.
Thank you, Madam Chairwoman.
Chairwoman Biggert. The gentleman's time has expired.
The gentleman from Ohio, Mr. Renacci, is recognized for 5
minutes.
Mr. Renacci. Thank you, Madam Chairwoman.
I am not going to go through a lot of the internal controls
that I already talked about. But I am a little shocked--and my
colleague indicated that we only learned one thing. One thing
about internal controls is one internal control does not fix
things. It is usually when you have three or four that give you
the opportunity to catch things.
So even though there would be a potential of three bids,
and maybe somebody could change or get the other person to
change his bid, if you still do site visits, which every--I
have done a lot of construction. Every bank I have ever worked
with went out and did site visits.
I have had third-party companies go out and do a reference,
unannounced review of my projects. And I have had random
visits.
All of these things are part of internal controls. You
can't pick just one thing. So here is what I learned today.
Here is what I learned today: We have some fraud. I don't know
what it is. And again, it sounds like none of you know what the
number is. We talked about 14 percent. It could be 2 percent,
or 5 percent.
If it is $1 and we can stop it, it is a problem, because
the taxpayers that I represent are not happy whether we waste
$1 or $10, especially if we can catch it.
Now, we know we are going to have issues with fraud. We
know that. So the question is, what procedures can we put in
place?
I don't know what the fraud is, but I know we have some of
that.
Mr. McCarty, you said you opened up 51 investigations. That
is great. But you also said that those came from confidential
informants.
Mr. McCarty. Some did, sir.
Mr. Renacci. Yes, so informants are giving you the answer.
But I think, if you had the internal controls in place, you
wouldn't have to worry about the informants. And if the
informants give you the answers, then the internal controls
will also help you.
So if you are only catching 14 percent fraud, maybe there
is 30 percent fraud. But you have to have internal controls.
What I have learned is I am not sure that any of you can
tell me that we have at least four minimal internal controls in
place. So I would like to get that answer.
And I am going to put a house up. This is in Ohio. This
facility was funded $212,000, I guess, through 2008. I will bet
you that, if somebody--of one of my four internal controls, if
somebody would have done a random visit and went out there and
looked at that, they would have had a hard time finding
$212,000 in funding to that house.
So the question is not whether the program is good. We can
talk all day as to whether the program is good. The question is
whether we can save some dollars that can be used in that
program to better other recipients.
So I would ask, somehow, some way because I am leaving here
today with this question mark: Do we have internal controls? I
would love to hear an answer.
Do we have multiple internal controls, not just one?
I did hear from the witnesses before; both of those
witnesses said, whether they are criminals or not, if these
four internal controls were in place, they would not have done
what they did.
So somehow, some way, I don't want to leave this hearing
and not get a follow up that tells me what the internal
controls are, and how they are using them.
Look, I understand it is a big Department, and I understand
there are a lot of good programs going on. But the American
people are counting on us and they are counting on you to
implement these programs properly and to make sure the proper
internal controls are in, not just one but all of them. Those
are not expensive internal controls to require the recipient to
pay for a third-party review, which could be done very simply.
Hopefully, my colleague can say that there is another thing
he learned. A third-party review, an inexpensive third party
review, could stop some of this.
So I appreciate your time, and I yield back. Thank you.
Chairwoman Biggert. Thank you. And I recognize myself for 5
minutes.
Mr. Donohue, in your testimony, you said that there is a
need in many of the HUD programs, including HOME for HUD, and
the grantee recipients, to aggressively monitor the sub-
grantees.
What other programs would you recommend that this committee
review?
Mr. Donohue. You mean programs other than HUD itself,
ma'am?
Chairwoman Biggert. Yes.
Mr. Donohue. I think any grant activity, be it HUD or, for
that matter, any other government agency--
Chairwoman Biggert. Or any other, if you really have--
[laughter]
Mr. Donohue. Yes, I think any activity where a grant
application is involved, I think it has to warrant, in my
estimation, a monitoring practice not just with the grantee but
at the sub-grantee level.
I think, without that, what in effect we are doing is we
are telling, in a sense--by not doing it aggressively, we are
telling the grantees, we are not going to look at you. Why
would they spend the cost to go back and monitor the sub-
grantees?
I think, in my estimation, we can encourage wrongdoing
rather than discouraging it, at times.
Chairwoman Biggert. Thank you. And we certainly don't want
to do that.
And that leads me into--Mr. Beaudette, in your testimony,
you state that with approximately 30,000 pending individual
HOME projects at any time, it would require an additional
appropriation of funds to reach the level of increased numbers
of HUD staff to literally allow monitoring of day-to-day
progress.
Is there a way to--as Mr. Donohue said about--we really
have to have the grantees and the sub-grantees--to have that
monitored--but is there a way to have that go down so that it
is not just HUD having to really monitor all of that?
Mr. Beaudette. I believe--
Chairwoman Biggert. Or do we really need more money to be
able to make sure that there isn't fraud?
Mr. Beaudette. I think we would probably need more funding.
Given State and local governments nowadays, I am not sure if
they would be ready to jump on the bandwagon to enhance their
monitoring.
We could certainly do it, too. It would require additional
funding.
Chairwoman Biggert. And that would be nice, but obviously
we can't spend money that we don't have right now. So we really
have to find other ways to do that.
Mr. Handelman, would you have any--I think we all recognize
that this is just a huge project. But it is a very important
project. And so we want to make it--if we can help to make it
work--better.
Mr. Handelman. And I agree improving the effectiveness of
the program is very important. What I would observe is that
cost-effectiveness needs to be part of the calculation. It does
not benefit us all collectively to spend $10 to save $1.
So as we look at ways to improve internal controls and
monitoring even at the sub-grantee level, which I think,
potentially, is useful, I would hope that we do it in a cost-
effective way to maximize how much of program funding goes to
creating affordable housing rather than enforcement.
As Mr. Donohue observed a few moments ago, you would build
the cost of enforcement into the grant, which necessarily means
it is taking away from funds that would go to create housing.
Chairwoman Biggert. Okay.
And then, Mr. McCarty, in your testimony it appears that
there is about 20 percent of your audits were conducted due to
recommendations from HUD. Would that be a way--why doesn't HUD
recommend more audits? And would that be necessary?
Mr. McCarty. I think, since they are the ones working the
programs and have firsthand knowledge of how they should be
working if they are effective enough, we would encourage them
to forward more to us that we could look at with our audit
staff around the country.
Chairwoman Biggert. And so that would be one way to try and
alleviate the fraud?
Mr. McCarty. Yes, ma'am.
Chairwoman Biggert. Okay.
I think I have finished my questioning. And I want to thank
all of the witnesses for your testimony. I think it has been
very enlightening. Thank you all.
Mr. Capuano. Madam Chairwoman?
Chairwoman Biggert. Yes.
Mr. Capuano. I don't want to interrupt you. Are you
finished?
Madam Chairwoman, thank you.
Madam Chairwoman, we have been here for about 3 hours now,
and we have had four professional gentlemen who I think have
some great and wonderful ideas and I am looking forward to
getting on how to actually accomplish what we say we want to
accomplish.
But we also spent an hour-and-a-half on a dog-and-pony
sideshow that in my opinion, wasted the time of Congress,
wasted taxpayers' money, and gave us no light into the issues.
These gentlemen have given us some light and hopefully will
give us more.
We had, even in the hearings, we had questions asked of
these people that they couldn't possibly answer. How much fraud
is in HUD? If they answered the question, the next question
would have been and should be, well, if you know there is 10
percent, 5 percent, 14 percent, 100 percent fraud, why didn't
you stop it? It is because they don't know how much because if
they knew it, they would have stopped it.
And we ask these kinds of questions even if that question
is to the wrong people on this panel. The reason I just wanted
to have a closing statement was simply because everybody here
wants to minimize and eliminate as much fraud as possible. No
one likes that. I actually would argue that those of us who
actually like the HOME Program have the most to gain by
limiting fraud the most. I want as much money put into these
programs as possible.
Yet, what do we get? Pictures of pretty homes put up on the
screen that no one knows where they are, they weren't asked
these questions beforehand. You want to chase a particular
issue of fraud, any Member here who has information of fraud
should let these gentlemen know so they can do their job, chase
them down, put more people in jail, not a problem.
What I am simply asking is that if we really are serious
about shutting down or limiting fraud, then we should act in a
serious manner, talking to professionals, getting their ideas
and implementing them to the best of our ability, and if they
cost money, we have to have the discussion about, is it worth
the money? Can we afford it? Where do we get it?
Good points, good issues, but for me, I am hoping that the
next time we do this, we do it in a more serious manner and
leave the dog- and-pony show to some other committees. We
haven't done that here up until now, and I regret that we went
through this. Not the second panel; the second panel was
useful. The first panel was a dog-and-pony show that shed no
light, and I am looking forward to receiving some thoughtful
information from these gentlemen so that maybe we can implement
some serious improvements to the HUD program.
Thank you, Madam Chairwoman; and thank you for your
indulgence.
Chairwoman Biggert. Thank you. Let me just say that I think
that we want to ensure that we can help to move forward and not
have the waste, fraud, and abuse that is there and to help HUD.
I think that we should use any type of measure to get to the
loopholes that we have here. And I think we are all very
serious about this, and I think that it was a serious first
panel to try and find out from people who have been involved in
that.
And so with that, I would disagree with you. But I think
that this has been a good hearing, and I thank the witnesses.
They are very professional, and I think that this has been a
very professional hearing.
The Chair notes that some Members may have additional
questions for the panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their response in the record.
With that, this hearing is adjourned.
[Whereupon, at 5:42 p.m., the hearing was adjourned.]
A P P E N D I X
November 2, 2011