[Senate Hearing 118-242]
[From the U.S. Government Publishing Office]
S. Hrg. 118-242
EXAMINING FEDERAL COVID-ERA
SPENDING AND PREVENTING FUTURE FRAUD
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HEARING
BEFORE THE
SUBCOMMITTEE ON
EMERGING THREATS AND SPENDING OVERSIGHT
OF THE
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 14, 2023
__________
Available via the World Wide Web: http://www.govinfo.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
54-421 PDF WASHINGTON : 2024
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
GARY C. PETERS, Michigan, Chairman
THOMAS R. CARPER, Delaware RAND PAUL, Kentucky
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
KYRSTEN SINEMA, Arizona JAMES LANKFORD, Oklahoma
JACKY ROSEN, Nevada MITT ROMNEY, Utah
JON OSSOFF, Georgia RICK SCOTT, Florida
RICHARD BLUMENTHAL, Connecticut JOSH HAWLEY, Missouri
LAPHONZA BUTLER, California ROGER MARSHALL, Kansas
David M. Weinberg, Majority Staff Director
William E. Henderson III, Minority Staff Director
Laura W. Kilbride, Chief Clerk
Ashley A. Gonzalez, Hearing Clerk
SUBCOMMITTEE ON EMERGING THREATS AND SPENDING OVERSIGHT
MAGGIE HASSAN, New Hampshire, Chairman
KYRSTEN SINEMA, Arizona MITT ROMNEY, Utah
JACKY ROSEN, Nevada JAMES LANKFORD, Oklahoma
JON OSSOFF, Georgia RICK SCOTT, Florida
Jason M. Yanussi, Majority Staff Director
Allison Tinsey, Majority Senior Counsel
Scott Maclean Richardson, Minority Staff Director
John Poulson, Minority Professional Staff Member
Kate Kielceski, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Hassan............................................... 1
Senator Romney............................................... 2
Senator Scott................................................ 13
Senator Ernst................................................ 15
Senator Ossoff............................................... 21
Prepared statements:
Senator Hassan............................................... 29
WITNESS
TUESDAY, NOVEMBER 14, 2023
Hon. Michael E. Horowitz, Chair, Pandemic Response Accountability
Committee Inspector General, U.S. Department of Justice........ 4
Hon. Hannibal ``Mike'' Ware, Inspector General, U.S. Small
Business Administration........................................ 6
Hon. Brian D. Miller, Special Inspector General for Pandemic
Recovery U.S. Department of The Treasury....................... 7
Rebecca Shea, Director, Forensic Audits and Investigative Service
U.S. Government Accountability Office.......................... 9
Alphabetical List of Witnesses
Horowitz, Hon. Michael E.:
Testimony.................................................... 4
Prepared statement........................................... 31
Miller, Hon. Brian D.:
Testimony.................................................... 7
Prepared statement........................................... 59
Shea, Rebecca:
Testimony.................................................... 9
Prepared statement........................................... 67
Ware, Hon. Hannibal ``Mike'':
Testimony.................................................... 6
Prepared statement........................................... 45
APPENDIX
Minority Report.................................................. 94
Flush with COVID-19 aid, schools steer funding to sports exhibit. 112
Vaccine bonuses, aid to businesses and a golf course?............ 113
Documents: CT City used COVID relief funds to hire a marching
band........................................................... 114
Biden Admin to Fund Crack Pipe Distribution to Advance Racial
Equity......................................................... 115
Follow-up to SIGPR Subcommittee Appearance....................... 116
EXAMINING FEDERAL COVID-ERA SPENDING AND PREVENTING FUTURE FRAUD
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TUESDAY, NOVEMBER 14 2023
U.S. Senate,
Subcommittee on Emerging Threats and
Spending Oversight,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:46 p.m., in
room SD-562, Dirksen Senate Office Building, Hon. Maggie
Hassan, presiding.
Present: Senators Hassan [presiding], Ossoff, Romney, and
Scott.
Also present: Senator Ernst.
OPENING STATEMENT OF SENATOR HASSAN\1\
Senator Hassan. Good afternoon. Our hearing today focuses
on Federal spending in response to the Coronavirus Disease 2019
(COVID-19) pandemic, efforts to conduct oversight of those
funds, and opportunities to work together to prevent fraud in
the future. I want to begin by thanking Ranking Member Romney
for his work on these critical issues and for his proposal to
hear from our distinguished panel of witnesses on how Congress
and the Federal Government can strengthen efforts to prevent
waste, fraud, and abuse of emergency spending.
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\1\ The prepared statement of Senator Hassan appears in the
Appendix on page 29.
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In early 2020, few could have imagined the impact that the
Coronavirus would have had on global health and our economy. It
quickly became apparent, however, that Congress had an
obligation to respond. In those early days, Congress came
together to pass the bipartisan Coronavirus Aid, Relief, and
Economic Security Act (CARES Act). This package included the
first round of economic stimulus payments to individuals and
families.
It also established the Paycheck Protection Program (PPP)
designed to provide loans to small businesses to ensure that
they could stay afloat and continue to pay their employees. It
expanded access to healthcare and life-saving personal
protective equipment (PPE). As the world grappled with the
fallout of the global pandemic, over the next 2 years, our
country faced additional medical and economic challenges
requiring additional emergency relief packages that we passed
into law. The majority of those funds were provided in the
forms of loans, grants, and direct financial assistance.
These programs were overwhelmingly successful. Investing in
our economy during the pandemic helped limit negative effects
on our economy and prevent a recession. These programs also
shored up supplies and resources for hospitals, expanded access
to crucial medical care, and deployed COVID-19 vaccines to slow
the disease's rapid spread and save lives. All of that allowed
us to get back to work and to school.
The Federal Government's response to the pandemic was
obviously unprecedented though in its size and scope. Because
of that, Congress also put in place mechanisms for strong
oversight. Toward that end, Congress provided funding for the
Government Accountability Office (GAO) and inspectors general
(IG) across the government to oversee COVID-19 spending.
Congress also established the Special Inspector General for
Pandemic Recovery (SIGPR), as well as the Pandemic Response
Accountability Committee (PRAC) to better coordinate oversight
and promote transparency among COVID-19 relief programs.
These oversight entities have uncovered hundreds of
billions of dollars in scams, fraud, and improper payments
involving pandemic relief programs, and are working with law
enforcement officials to hold fraudsters accountable. The
staggering amount of fraud that they have uncovered is
outrageous and unacceptable. With what we know now, it's
incumbent upon agencies and Congress to improve our stewardship
of taxpayer dollars. We can and we must do better.
Again, I thank our witnesses and all of their colleagues
for their tireless work and for appearing today. I look forward
to a robust bipartisan discussion on the Federal Government's
response to COVID-19, and how we can work together to hold
criminals accountable for stealing taxpayer dollars, and how we
can prevent fraud in the future. With that, I will now
recognize Ranking Member Romney for his opening remarks.
OPENING STATEMENT OF SENATOR ROMNEY
Senator Romney. Thank you, Chair Hassan. I am pleased to
see a number of colleagues that I respect enormously who are
here telling us how we can use our money better and, assure
that it is being spent wisely. I hate taking you away from your
work and having you have to sit here and speak with us, and yet
this becomes part of our record. As part of that, I guess we
each get a chance to speak, and I apologize for slowing you
down by listening to me speak, but I also want to make this
part of the record. Far be it for me to change the traditions
of the U.S. Senate.
We agreed that the CARES Act was critically important for
the country at a critical time. I applaud the efforts that were
carried out then as I do today, but it has become clear,
particularly as a result of the work that you all have done,
that the oversight of funds tied to the CARES Act and other
COVID relief legislation was lacking.
I looked just that better to understand how we can recover
some of the things which have been fraudulently taken, but what
we can do to prevent mistakes like this in the future. In April
2020, a week after the passage of the CARES Act, Senator Tester
and I wrote a letter to then President Trump, asking him to
provide Congress with a detailed plan on how the government
would execute the use of those funds and accountability
measures that would be put in place to ensure that our dollars
were spent efficiently and effectively. We also noted the vital
role played by inspectors general in ensuring the public's
trust in our government.
Chief among those concerns was the level of fraud reported
by the Small Business Administration (SBA). It concluded there
was some $36 billion of waste, fraud, and abuse in the Pandemic
Assistance loan programs. But General Ware and his team have
estimated the true number closer to $200 billion. What the true
number is, we won't know precisely, but it is an alarming
figure in and of itself.
I am also concerned about the pending expiration. The
Treasury Department's Special Inspector General for Pandemic
Recovery, currently scheduled to sunset at the end of March
2025. Considering this timeline also coincides with the
maturing of loans at the Treasury Department's Main Street
Lending Program (MSLP). It would be wise to have these
authorities expire at that time.
The COVID pandemic was, of course, a unique crisis. It
upended much in our country. But I believe we have much to
learn for how we can do a better job in the future when there
are tragedies of that nature. That is the purpose I believe of,
at least for me in our hearing today. I look forward to hearing
you with regards to your testimony from what you have learned,
but also your advice on what you think we can do in the future
to be better guardians of the people's money.
I know that it is not your job to tell Congress how to do
our job better. That is not why you are inspectors general, but
nonetheless you have been around long enough to say, ``Why did
these guys not do this? They should have done that instead.''
We want to learn from that, that experience. With that Madam
Chair, I am happy to turn back to our testimony.
Senator Hassan. Thank you Ranking Member Romney. It is the
practice of the Homeland Security and Government Affairs
Committee (HSGAC) to swear in witnesses. If you will all please
stand and raise your right hand.
Do you swear that the testimony you give before this
Subcommittee will be the truth, the whole truth, and nothing
but the truth, so help you, God?
Mr. Horowitz. I do.
Mr. Ware. I do.
Mr. Miller. I do.
Ms. Shea. I do.
Thank you very much. Please be seated. We will now proceed
to each witness. I will introduce you and then you will go for
5 minutes of testimony in turn.
We will start with our first witness, who is Michael
Horowitz, who serves as Inspector General for the Department of
Justice (DOJ) and the Chair of the Pandemic Response
Accountability Committee. Mr. Horowitz was confirmed to be the
Inspector General of DOJ in 2012 and was tapped to lead the
PRAC in 2020.
Prior to becoming an IG, he served a 6-year term as the
Commissioner on the US Sentencing Commission, worked as an
attorney in private practice, and spent several years as an
Assistant United States Attorney (AUSA). Welcome Inspector
General Horowitz, you are now recognized for your opening
statement.
TESTIMONY OF HON. MICHAEL E. HOROWITZ,\1\ CHAIR, PANDEMIC
RESPONSE ACCOUNTABILITY COMMITTEE, INSPECTOR GENERAL, U.S.
DEPARTMENT OF JUSTICE
Mr. Horowitz. Thank you, Chair Hassan, Ranking Member
Romney, Members of the Subcommittee. Thank you for inviting me
to testify at this very important hearing and for the
Committee's continued support of the IG community and
independent oversight.
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\1\ The prepared statement of Mr. Horowitz appears in the Appendix
on page 31.
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The Pandemic Response Accountability Committee partners
with IGs to oversee more than $5 trillion in Federal pandemic
relief emergency spending. Over the past 3\1/2\ years, the PRAC
and its partner IGs have, among other things, promoted
transparency by developing a state-of-the-art website,
pandemicoversight.gov, that allows the public to see how its
money has been spent, and provides links to over 1000 audits
and reviews by Federal IGs, the GAO, and our State and local
oversight partners.
We have also established close working relationships and
shared information with our State and local oversight partners
at a level not previously seen in Federal oversight efforts. We
have also used advanced data analytics to improve program
integrity, prevent and detect fraud, and hold accountable those
who have defrauded public programs. The PRAC has issued two
lessons learned reports to date, detailing how to improve
program integrity and prevent fraud--I am looking forward to
talking about those during today's hearing--and we have heard
repeatedly from individuals in our work about the important
role pandemic programs have played in helping individuals,
businesses, and communities respond to the pandemic.
However, we have also reported on the serious failures that
occurred in implementing many of these programs, including at
the outset of the pandemic, failing to use even the most basic
fraud prevention controls. These failures resulted in hundreds
of billions of dollars in taxpayer funds going to fraudsters,
instead of the small businesses, unemployed, and other
individuals and entities for whom that money was intended. It
also resulted in historic levels of identity fraud, leaving
scores of identity theft victims.
How do we prevent fraud in the future? In addition to
implementing basic program controls, agencies must collect and
make public complete data on how money is being spent. There
are far too many data gaps currently, which we will talk about
I am sure today. Additionally, existing data sources and data
analytics must be used to improve program integrity, and
prevent fraud before funds are sent out.
Unfortunately, when the pandemic hit in March, 2020 and the
PRAC was created, we did not have a data analytics tool because
in 2015 when the Recovery and Accountability Transparency Board
sunset, the IG community's highly successful Analytics Pro
Platform also sunset, despite controller General Gene Dodaro's
plea to Congress and the administration at the time.
Six years later in 2021, Congress had to appropriate $40
million for the PRAC to build a new analytics center, the
Pandemic Analytics Center of Excellence (PACE), and give us the
funding, which it did, to operate it through our sunset in
September, 2025. Congress also importantly provided us with
special hiring authority that enabled us to attract remarkably
talented data scientists, that was critical to our efforts. The
PACE has been instrumental in advancing our efforts to improve
program integrity.
Earlier this year, we used the PACE to analyze over 33
million PPP and Economic Injury Disaster Loan (EIDL)
applications to identify questionable social security numbers
(SSNs). We then had the Social Security Administration (SSA)
tell us, pursuant to legal authorities Congress gave us in the
CARES Act, whether the names, dates of birth, and social
security numbers used in those PPP and EIDL applications match
the information in the Social Security administration's
database.
As we publicly reported at the time, we determined that
over 69,000 questionable SSNs had been used to obtain $5.4
billion in PPP and EIDL funds, and that another 175,000
questionable social security numbers had been used in
applications that were ultimately not paid. We identified
another $38 million in funds that were sent to applicants using
social security numbers of deceased individuals, all of that
through our effort to match data using the PACE.
Had the PACE been available to us at the outset of the
pandemic, we could have worked with SBA and the Small Business
Administration's Office of Inspector General (SBAOIG) to flag
these suspicious applications before the money went out. By the
way, the $5.4 billion is over 300 times the annual cost for the
operation of the PACE, which is $16 million. The PACE is also
providing investigative support to more than 600 pandemic
related investigations that are currently ongoing, with an
estimated fraud loss of about $1.8 billion.
The PACE's ability to prevent and detect improper payments
and reduce the instance of fraud cannot be overstated. That is
why it is critical for Congress to pass legislation, allowing
IGs to use it to oversee all Federal spending and to make it
permanent. The extension would not create a super IG that
duplicates the audit, investigative, and oversight efforts of
IGs. Rather, it would simply ensure that IGs continue to have
access to this critical fraud prevention tool.
Thank you for your time, for holding the hearing, and I
look forward to answering your questions.
Senator Hassan. Thank you very much. Our next witness is
Mike Ware, who serves as the Inspector General of the Small
Business Administration. During the COVID-19 pandemic, SBA
played an important role in distributing emergency grants and
loans to small businesses during the pandemic. The SBA Office
of Inspector General led by Mr. Ware was tasked with ensuring
that those funds were used to help small businesses continue to
operate in the face of a historic economic downturn.
The Senate confirmed Mr. Ware to be the Inspector General
of SBA in 2018. In total, he has 30 years of experience in the
Inspector General community, including as Deputy Assistant
Inspector General for Management at the Department of the
Interior (DOI), and before assuming his current role as deputy
and later Acting Inspector General of SBA. Welcome Inspector
General Ware. You are now recognized for your opening
statement.
TESTIMONY OF HON. HANNIBAL ``MIKE'' WARE,\1\ INSPECTOR GENERAL,
U.S. SMALL BUSINESS ADMINISTRATION
Mr. Ware. Thank you, Chair Hassan, Ranking Member Romney,
Senator Ernst, and distinguished Members of the Subcommittee.
Thank you for the privilege of testifying before you today and
for your continued support of the Small Business
Administration's Office of Inspector General.
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\1\ The prepared statement of Mr. Ware appears in the Appendix on
page 45.
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I am proud of the dedication of the men and women of my
office who work hard every day to detect, deter, and combat
fraud in SBAs programs for the benefit of the American people,
particularly their work in providing oversight of SBAs more
than $1.2 trillion in pandemic assistance programs. Since 2020,
SBAOIG has been leading the charge to uncover pandemic fraud
and hold fraudsters accountable, providing an exponential
return on investment.
Our work has resulted in more than $13 billion in dollar
accomplishments, including investigative recoveries, fines, and
forfeitures, representing a nearly 200 full return on
investment (ROI) to the taxpayer. Additionally, our work has
resulted in another more than $8 billion in EIDL funds returned
to SBA by financial institutions, $20 billion in EIDL funds
returned by borrowers, and over $1 billion in United States
Secret Service (USSS) bulk seizures.
Our investigations involving SBAs pandemic programs have
resulted in almost 1,200 indictments, 940 arrests and 630
convictions as of October 31st of this year. We have issued 37
pandemic related reports, with 95 recommended corrective
actions to strengthen internal controls and promote integrity,
efficiency, and effectiveness within SBAs programs.
Our recommendations for corrective action to the agency
have resulted in SBA tightening their internal control systems,
and our work continues to focus on ensuring only eligible
recipients received funds, facilitating the return of funds
received by ineligible recipients, and bringing those who
willfully exploited the programs to justice.
We have leveraged data analytics to prioritize our
investigative efforts in conjunction with our law enforcement
partners. To date, hotline complaints have exceeded more than
270,000 from which our office has identified more than 104,000
actionable leads. This represents more than 100 years of
investigative case work with our available resources.
Now, this was possible through data analytics that
leveraged machine learning as well as our partnership with the
PRAC. The unprecedented level of fraud in SBAs pandemic
programs led us to publish our fraud landscape report in June
of this year. In our comprehensive review of potential fraud in
SBAs pandemic assistance loan programs, we estimate that SBA
disbursed more than $200 billion in potentially fraudulent
COVID-19 EIDLs and PPP loans, representing approximately 17
percent of disbursed funds.
Specifically, more than 4 million loans totaling 136
billion COVID-19 EIDLs, and $64 billion in PPP funds. Now, the
growth of SBAs programs coupled with an estimated 200 billion
in potential pandemic related fraud, has significantly expanded
SBAOIG's oversight responsibilities. Our oversight capacity is
very much dependent upon the availability of sufficient
budgetary resources.
Support of the President's proposed Fiscal Year (FY) 2024
budget of 63.3 million is vital, since it would allow our
office to maintain its current staffing levels, while also
allowing for much needed increase in our investigative
resources. Absent the proposed budget for fiscal year 2024, we
will be unable to capitalize on the laws that extended the
statute of limitations for fraud in the PPP and EIDL programs
to 10 years, as well as provide effective oversight of SBAs
flagship programs that present significant management and
performance challenges.
Quite simply, more resources to my office means more
investigative capacity and more wrongdoers brought to justice.
We have the authority, the proven track record, the expertise,
and an engaged workforce that is singularly focused on this
mission. We will continue leading the fight against fraud along
with our law enforcement partners. We will leverage data
analytics, agile methodology, and our expertise in SBAs
programs, to course correct and bring those who abused the
programs to justice.
Rest assured, with these additional resources, taxpayers
will continue to receive significant return on investment as
well as benefit from a more efficient and effective SBA. Thank
you for the opportunity to speak to you today. I am happy to
answer any questions you may have of me.
Senator Hassan. Thank you very much, Mr. Ware. Our next
witness is Brian Miller, who serves as the Special Inspector
General for Pandemic Recovery. Before being confirmed to be the
Inspector General in 2020, Mr. Miller held positions as
Inspector General of the General Services Administration (GSA),
Senior Associate White House Counsel, and as an Assistant
United States Attorney. Welcome Inspector General Miller. You
are now recognized for your opening statement.
TESTIMONY OF HON. BRIAN D. MILLER,\1\ SPECIAL INSPECTOR GENERAL
FOR PANDEMIC RECOVERY, U.S. DEPARTMENT OF THE TREASURY
Mr. Miller. Good afternoon Chair Hassan, Ranking Member
Romney, and Members of the Subcommittee, I am Brian Miller,
Special Inspector General for Pandemic Recovery. Thank you for
the opportunity to appear here today. We appreciate it. We
appreciate your support for our office.
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\1\ The prepared statement of Mr. Miller appears in the Appendix on
page 59.
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As I explained in my submitted written testimony, it is
essential for Congress to promptly extend SIGPR beyond the
current sunset date of March, 2025. SIGPR is investigating
cases nationwide with potential fraud totaling over $565
million. So far, SIGPR has opened a total of 64 complex fraud
investigations, with 130 potential defendants. SIGPR's
investigations have resulted in multiple arrests, indictments,
guilty pleas, in addition to millions in court ordered
restitution, forfeiture, seizure orders, and a large civil
settlement.
We have made 22 recommendations for suspension and
debarment to the Treasury debarring official. In addition,
approximately $21 million in multiple Main Street Loan Program
funds have been returned and repaid by borrowers because we
contacted them notifying them that we were looking into their
loan and they immediately repaid.
What is particularly notable about SIGPR is that we have
developed these cases by our own initiative. It is our own
proactive work in developing these cases. 89 percent of our
investigations were started by our office. SIGPR has also
completed several audits related to Treasury's direct loans to
air carriers and businesses critical to national security, and
is in the process of auditing the Main Street Lending Program
and the effects the program's loan losses are having on
Treasury's investment in the program.
Borrowers who received direct loans or Main Street Lending
Program loans, were not required to make payments whatsoever in
the beginning. That is, no principal, no interest, for the
first year of the loan. Even before principal became due in
year three, SIGPR observed an alarming rate of defaults by
borrowers who failed to make interest payments. Interest
payments became due in year two. Even the interest payments
people were defaulting on.
As a result, SIGPR is concerned that the default rate will
grow exponentially in years three through five of the MSLP
program, as repayment of principle becomes due. The MSLP
program loss figure reported by the Federal Reserve has
steadily increased and even this morning, they reported $310
million in loan losses. We believe that this trend of
increasing defaults will not only continue, but is likely to
accelerate as MSLP loans reach their 5-year maturity date when
borrowers must repay 70 percent of the loan principal. These
balloon payments will undoubtedly lead to significant numbers
of borrower defaults, just as my office sunsets.
Not all the defaults will necessarily indicate fraud, but a
default is a red flag that merits further investigation. SIGPRs
recent review of information about MSLP loans that are either
in default or considered impaired resulted in the opening of
criminal investigations. Thus, in mid-2025, we are going to
enter a period in which an even larger number of frauds may be
revealed. But by the terms of our authorizing statute, SIGPR is
scheduled a sunset in March, 2025. At the time when SIGPR is
needed most. We will not be able to undertake the thorough and
effective investigations that will be warranted at that time.
For this reason, I ask Congress to move quickly to
authorize extending SIGPRs operations to September 30, 2030.
SIGPR is the only agency that focuses specifically on potential
fraud that has been committed by Treasury's direct loan
programs and the Main Street Lending Program, and it should be
permitted to continue doing that. For these reasons, I urge
this Subcommittee and Congress in general to move quickly as
possible to extend SIGPRs operations. I welcome any questions,
and thank you for the opportunity to be here.
Senator Hassan. Thank you very much. Last, testifying on
behalf of the Government Accountability Office, is Rebecca
Shea. Congress authorized GAO to conduct sweeping oversight and
analysis of pandemic relief programs. To date, GAO has authored
more than 200 reports on the pandemic, and made nearly 400
recommendations to improve service delivery and prevent waste,
fraud, and abuse of pandemic relief funds.
Ms. Shea is a director of the GAO's forensic audits and
investigative service team, which conducts audits to identify
waste, fraud, abuse, and mismanagement of taxpayer dollars
across numerous Federal programs, including those created to
provide relief during the pandemic.
Ms. Shea has more than 20 years of audit experience, and
she and her team frequently employ advanced data analytics to
help agencies predict and prevent fraud. Welcome, Ms. Shea. You
are now recognized for your opening statement.
TESTIMONY OF MS. REBECCA SHEA DIRECTOR,\1\ FORENSIC AUDITS AND
INVESTIGATIVE SERVICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Shea. Thank you, and good afternoon. Chairwoman Hassan,
Member Romney, and Members of the Subcommittee, thank you for
inviting me to discuss insights into fraud prevention, based on
cases of COVID-19 fraud and the recommendations and resources
GAO has developed to address fraud and payment integrity risks.
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\1\ The prepared statement of Ms. Shea appears in the Appendix on
page 67.
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Congress and the Administration have provided trillions in
COVID-19 relief funds to help the Nation respond to and recover
from the pandemic. Many of these funds went to the right
recipients in the right amounts, providing needed assistance to
unemployed workers, small businesses, and many others. These
programs were critical for assuring public health and economic
stability.
Along with the good these programs offered, comes the fact
that fraud is inevitable where there is opportunity for gain,
and with the trillions of dollars in program benefits, along
with certain risk factors present in many of these relief
programs, there is an unprecedented opportunity for fraudsters
to gain.
For example, many of the COVID-19 relief programs had known
risk factors for fraud, such as those that were new, expanded,
or significantly changed, that made a large volume of payments
and quick disbursements that involve payment or eligibility
decisions made outside of the agency, such as by grantees or
States; or lacked information or data systems to confirm
eligibility, along with a reliance on self-certification.
Although we will never know the full extent of fraud
associated with these programs, estimates for the two largest,
SBA and Department of Labor (DOL) programs, indicate hundreds
of billions lost to fraud. Given its inevitability, finding
fraud when it does occur, is a good thing, and preventing it
from occurring in the first place is the goal, to avoid costly
pay and chase.
Looking at fraud schemes from pandemic programs to identify
where things went wrong, can provide insights into better
controls, analytic readiness, and policy design choices for
normal operations, as well as emergency situations. For
example, misrepresentation is the hallmark of fraud, and many
cases saw falsified eligibility and identity information.
This is the basis for two insights from GAO's written
statement. Self-certification alone is not sufficient as a
fraud control, and agencies should assume identity information
is compromised and apply upfront verification controls.
Data analytics are a key way agencies can move beyond
insufficient controls like self-certification, but the cases
reflect challenges in doing so. This is the basis for another
two insights, that agencies need to address interoperability
issues to support data analytics, and use free resources for
fraud prevention and detection like Treasury's Do Not Pay
system for flagging ineligible recipients, as well as data
available across their own programs.
All of the cases and challenges associated with preventing
COVID-19 fraud--reinforce the importance of strategic fraud
risk management, the basis for two other insights. These
include agencies consider emerging and complex fraud schemes
affecting similar programs when developing their fraud risk
assessments, and ensuring payment integrity checks and fraud
controls are part of program design, with an emphasis on
assuring data access and use.
Congress and agencies can learn from and act on these
insights as well as from the numerous recommendations and
resources GAO has provided for fraud risk management. For
example, GAO has suggested actions Congress can take, including
increasing oversight by reinstating requirements for agencies
to report on their progress with fraud prevention, making
permanent a data analytics function in the oversight community,
and making permanent Treasury's access to Social Security's
full death data to help prevent payments to deceased
individuals.
Requirements have been in place for many years for agencies
to manage fraud risk and the importance of prevention is the
cornerstone of GAO's Fraud Risk Framework that we issued in
2015. Using that framework as a guide, we have made 173
recommendations to over 40 program offices for improving fraud
prevention and detection. 95 of those remain open. Implementing
these recommendations would help ensure programs safeguard
taxpayer dollars.
In addition, GAO has developed resources like our web-based
Antifraud Resource, and the recent Framework for Managing
Improper Payments, in Emergency Assistance Programs which
provide a roadmap for fraud prevention and payment integrity.
We have also started examining the challenges agencies face in
strategically managing fraud risk, and possible incentives to
do this better. We will be exploring this in greater depth in
the coming year.
With insights from past fraud schemes, taking actions GAO
has recommended to agencies and Congress leveraging available
resources to prevent fraud, and by considering possible
incentives for fraud prevention, the Federal Government as a
whole will be better able and positioned to prevent fraud in
any environment. I thank you for this opportunity and I look
forward to answering your questions.
Senator Hassan. Thank you very much, Ms. Shea. We are now
going to start with a round of questions for each senator. I am
going to begin and then we will alternate off and some other
senators may be in and welcome Senator Ernst, who is not
generally a Member of this Subcommittee, but who asked to
participate and we are very glad to have her here.
I am going to start with a question to Inspector General
Ware. As I mentioned in my opening statement, Congress moved
quickly in the early days of the pandemic to provide critical
relief for healthcare facilities, businesses, schools, and
families. However, while Congress intentionally strengthened
oversight over COVID spending, criminal fraudsters, were able
to take advantage of COVID relief programs and steal billions
of taxpayer dollars.
With the benefit of hindsight, what could Congress do
differently in the future to strengthen oversight and
accountability with regard to emergency spending, even when we
need to act quickly?
Mr. Ware. Thank you. It is interesting in that with the
benefit of hindsight, often everybody at this table says that
we are in the hindsight business. But I tried from the very
beginning to get way out of the hindsight business. I am going
to get there, but to put what we thought should be done at the
onset of the programs, which we did with the first two lesson
learned reports that went out before the first loan went out,
and we kind of detailed at that point what we thought should be
done on the onset.
It is the same thing that IG Horowitz and myself and many
others in the community have been discussing. It is one of the
things I know that he probably will speak about is leaving a
legacy document that defines just that. Many of us are already
working on that very document at this moment.
But relative to hindsight, I believe one of the things that
has to be a critical part of our thought process, is internal
controls as a primary ingredient when baking, if you will, the
Bills and the Acts. In this case, the controls that would have
normally been in place, let us say for the flagship programs--
and I know this was not designed to be that, right--were gutted
and removed from the onset.
Many of the control mechanisms that would have been in
place to catch things on the onset simply were not there. That
is why about, 14, 30 days later, I was sounding the alarm
saying, we have a problem. We have to improve the control
environment. But that is one of the primary things. One other
is also ensuring that we have the ability to share data across
government agencies. I understand the Privacy Act concerns, I
get that. But it could be for key reasons at key times. In my
opinion, I feel that this would have been a key time. It would
have allowed us to set up controls in the beginning, and not
end up in the pay and chase model that we are in currently. It
would allow us to more quickly catch wrong doers as well, if we
were able to share that information.
Senator Hassan. I appreciate that. Then of course, one of
the key issues here is making sure that as we exercise internal
controls, we have the resources to do it quickly and
effectively in this kind of setting.
Ms. Shea, a question for you. As Inspectors General and GAO
have pursued their important oversight work, they have made
hundreds of recommendations to Federal agencies and to Congress
to improve program operations and avoid additional fraud.
Earlier this year, GAO issued a report that included several
recommendations to Congress for preventing improper payments
and other forms of waste, fraud, and abuse of taxpayer dollars,
specifically by mandating stricter anti-fraud controls within
agencies.
How would congressional action on these recommendations
help improve program delivery and prevent fraud in future
emergency spending efforts?
Ms. Shea. Yes. Thank you. So the Comptroller General in our
previous testimony talked about 10 matters for Congress. I will
mention two here that could help address these payment
integrity issues. The first is partly what IG Ware was talking
about the preparedness issue. One of the matters that we have
recommended is helping agencies get better prepared by Congress
reinstating reporting requirements for agencies in their annual
financial reports to report on their progress with fraud risk
management.
That requirement sunset in 2020, right as we were entering
the pandemic, and agencies had not made significant progress on
that. Had they been better prepared, had they established
dedicated entities for fraud risk management, had they assessed
their fraud risk, had they identified data sets and got them in
place and addressed some of those interoperability issues prior
to the emergency situation, they would have been better able to
pivot when they had to plus up those programs.
Reinstating that reporting requirement, we think would help
with that. That provides needed transparency for oversight for
the IG and the GAO community, but also for Congress. I also
think that having that reporting requirement each year they
have to report it, kind of, nudges the behavior that you are
looking for. That would be one significant thing.
Another thing that we have recommended Congress do, is to
continue the oversight and analytic capability of the PACE. As
Chair Horowitz mentioned earlier, that capability existed in
our experiences with the Recovery Act. When we had that
capability, there were data Memorandum of Understanding (MOUs),
there were expertise in place, and all of that sunset right
before the pandemic and all of that expertise was lost. This
expertise exists now. They were able to accomplish 95 MOUs,
data sharing MOUs, all of that would be lost.
There's a significant upfront investment that was made in
the PACE. We think it is cost effective to continue that. The
capability exists there, with Council of the Inspectors General
on Integrity and Efficiency (CIGIE) to be able to carry forward
those MOUs and those data analytic capabilities.
Senator Hassan. Thank you. I think one of the concerns
people express is that sometimes the concern is implementing
stricter controls prevent or slow down relief from reaching
those in need. Can you explain why that may not be the case?
Ms. Shea. Yes. I won't say it isn't the case. There is
always a friction there when you think about eligibility and
identity verification versus getting things out quickly. But I
think the important thing to think about is: there is a
distinction between getting any payment out the door and
getting reasonably accurate payments out the door. You do want
a little bit of friction there.
I think also it is important to think about how because of
the scope and scale of identity theft, there were a large
number of people who legitimately deserved unemployment and
other benefits. When they went to try and claim those benefits,
the benefits had already been claimed by fraudsters. When you
think about that friction, it is actually in the benefit of the
taxpayers to have a little bit of friction there so that they
can make sure that they access their needed benefits, that they
are rightly deserved.
Senator Hassan. I will follow up a little bit more, but
there is obviously technology that can help us do some of those
fraud prevention measures very quickly in this day and age.
Senator Romney.
Senator Romney. Thank you. I am going to yield my time to
Senator Scott.
OPENING STATEMENT OF SENATOR SCOTT
Senator Scott. Thank you, Senator Romney. First of all, I
want to thank you for what you do. I have been up here 5 years,
and I think the Inspector Generals, the Independent Inspector
Generals, the GAO, the control and currency, they actually give
us pretty good information to be able to do our oversight job.
I want to thank you for that.
In my State, people are sort of sick and tired of the
Federal Government. There is not a lot of trust left in the
Federal Government. It was not before, but with the pandemic,
they just see this unbelievable waste. I have talked to people
that say, ``We got money when we are not supposed to get, and
they told us, 'Eh, just keep it.'''
This stuff's crazy. From the day we looked at the CARES
Act, I opposed the State and local bailouts because I did not
believe the revenues were going to go down that much. I had
been a Governor, and I knew where my tax base was going to be,
and it was not going away. But it happened. I think the State
and local bailouts total about $500 billion. $500 billion. I
think the total revenue under the State budgets, the collection
by the States is about a trillion dollars.
That is a lot of darn money. But here is some of the
headlines. ``Biden administration to fund crack pipe
distribution to advance ``racial equity''. Out of State and
local bailout money. That is one. ``Vaccine bonuses aid to
businesses and a golf course.'' I thought the money was
supposed to go over COVID and to save people's lives. ``Cities
and States put $350 billion stimulus windfall to widely varied
use.'' ``Flash with COVID-19 aid schools steer funding to
sports.'' That's interesting. ``Connecticut City used COVID
relief funds to hire a marching band.'' Probably we all like
marching bands but does not seem smart.
I have a list. I have a mile long of different things.
Examples, luxury hotels, golf courses, boathouse construction,
aquarium maintenance, basketball hall of fame, art festivals,
municipal anniversary celebrations, weeded eaters, weed eaters,
auto repairs, horse feed, sea urchin hatcheries, walkways at
zoos, fire hydrants and trash cans and swag bags. State and
local bailout for to save people's lives.
Now, here I try to think about how my voters think about
this. I think we have been in a rush, we went to a fast food
place, and we ordered a meal through the darn line. We rushed
out, we got our food, and we got on the highway, and we found
out those darn French fries were not there. Sort of way I think
a lot of people think of the Federal Government now.
They say, ``I am willing to pay my taxes, but I am not
getting what I paid for.'' Then I also thought about we have
all bought houses, right? Remember how we always hire those
darn inspectors that cost us money? We think we are going to
know what we got. Then afterwards we find that the pool does
not work. It was, ``Oh, they did not check that.'' Oh gosh,
there is a leak in the roof.
You guys bust your butts. You do. I like all your reports
and everything. So put yourself in my position. I got the
people in my State saying, why do we spend the money like this?
You guys are trying to do your job. Why does this not work?
First off, have you guys had the experience with the fast food
place? Probably have, right? Houses? We all have.
I just talked to a friend of mine that said she had no
idea, they did not even check her pool, and she just bought a
house. But what would your response be to people in Florida?
Any of you. Because this fraud is just rampant.
Mr. Horowitz. Yes. Look, I think this is something we have
seen over and over again. Particularly, the problem here was,
as the legislation was put forward and the agencies implemented
it, the legislation did not require, for example, certain
checks and controls. The legislation could have been tightened
up to do that. Then the agency's view was going back to the
chair's question all about speed. It was, we just need to get
the money out. The country is shut down. This is particularly
in March and April of 2020. We just need to get the money out.
You IGs, you law enforcement folks, go figure it out later
where the fraudsters are, we are just going to get the money
out.
That resulted in tens, hundreds of billions of dollars in
fraud. Two overlaying concepts I will say is, I think Congress
as it legislates, needs to think about with a program like the
Coronavirus Relief Fund (CRF), the first $150 billion, which
was in the CARES Act for State and local entities, and then the
State and local fiscal recovery fund, which was the $350
billion in the ARP bill, both of those had very little
parameters as to what they could be used for. They were
lawfully used for certain things that people would ask the
questions, ``Those do not seem tied into the pandemic?''
Congress can legislate better, and agencies certainly can
do a much better job. We have written all of us here, hundreds
of recommendations, probably thousands at this point, of
recommendations, on how the Executive Branch and agencies can
do a better job in implementing these programs. I have talked
about this over and over again, the problem with sending this
money out, is the hundreds of billions of dollars that did not
go to the small businesses, that did not go to the unemployed
from the unemployment insurance (UI) programs, that did not go
to various folks that State and locals perhaps we think should
have funded. They did not get the money.
This was not an unlimited sum of money. It was a large sum
of money, but it was not unlimited. Every dollar that went
somewhere else did not go to the people who really needed it or
the businesses that really needed it.
Senator Scott. Did you guys even have the power to, to look
at the State and local bailout money?
Mr. Horowitz. Yes, we did.
Senator Scott. You did?
Mr. Horowitz. We have. We have worked with the Treasury
Inspector General. They have created, for example, with our
analytics platform, a risk scoring model taking 27 variables
and helping them have that information, so they could assess
the risk in both the CRF and the State and Local Fiscal
Recovery Funds (SLFRF) program, the two State and local
programs.
They have identified in the latest numbers, 2.24 billion in
question costs from their work and relying in part on our data.
Senator Scott. Ms. Shea, go ahead.
Ms. Shea. Thank you. We know that requirements for
strategic fraud risk management have been in place since 2016
for the agencies. We also know that the lag in implementing
those requirements in normal operations led to some of the
large gaps in what we saw in the pandemic. We wanted to get
behind that, right? What is going on? Why are the these lags
continuing?
In a recent survey that we did of the 24 Chief Financial
Officers Act (CFO) ACT Agencies, we asked them about the
challenges and what might incentivize them to take these
actions that we want. Behavioral economics we think is the way
to go. Try to figure out what is going on. What is preventing
them, what are the barriers, and what can nudge them in the
direction that we want.
Now, the challenges are not going to be super surprising.
It has access to data, and resources, and analytic
capabilities, and tools and techniques. Which we think that a
centralized government entity like Treasury's Office of Payment
Integrity can address some of those issues.
On the incentive side, there are a number of things that
the CFO ACT Agencies mentioned. Like, congressionally directed
funding for payment integrity, ability to demonstrate return on
investment from fraud risk management activities, a couple of
other things. One of the things that we are going to be doing
in the new year in GAO is delving into some of these incentives
and these barriers to taking a strategic approach to fraud risk
management.
Senator Hassan. Thank you. Senator Ernst, I will yield to
you.
OPENING STATEMENT OF SENATOR ERNST
Senator Ernst. Thank you very much, Madam Chair. Thanks to
all of our witnesses for being here today as well. I do not
typically sit on this Subcommittee, so I do want to thank Chair
Hassan and Ranking Member Romney for allowing me to join you
today.
To our witnesses, thank you all very much for your efforts
to hold these Federal agencies accountable, including the Small
Business Administration, and to protect our American taxpayers.
All the work you do really does deserve recognition. Thank you.
As a Ranking Member of the Senate Committee on Small
Business and Entrepreneurship, it is one of my top priorities
to ensure that the Federal Government is addressing the more
than $200 billion in SBA COVID-19 relief that was fraudulently
paid to scammers. However, the Biden SBA has discounted the
full extent of fraud, and instead tried to cast doubt on the
legitimacy of fraud estimates made by expert investigators.
This new status quo at SBA is unacceptable. This flagrant
fraud within government programs, especially when it goes
unpunished, hurts taxpayers and harms small businesses the
most. Today I ask for unanimous consent (UC) to include in the
record my Small Business and Entrepreneurship Committee report
titled Small Business COVID-19 Fraud: Three Years Later, State
of Play.\1\
---------------------------------------------------------------------------
\1\ The report refernced by Senator Ernst appears in the Appendix
on page 94.
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Senator Hassan. Without objection.
Senator Ernst. Thank you, Madam Chair. The report details
SBAs refusal at every turn to fully go after fraud and recover
taxpayer dollars. I recommend Congress acts immediately to
increase investigators' capacity to recover taxpayer funds
quickly, ensure loans are paid back, and strengthen Federal
Government controls when dispersing funding in the future.
I would like to move into my questions, and I am going to
start with Mr. Ware. Thank you so much. I appreciate your work.
Your tireless efforts to hold the SBA accountable are
commendable. Biden's SBA is in violation of Federal law by
prematurely ending active collection activities on more than
$63 billion delinquent, EIDL and PPP loans with balances of up
to $100,000.
Federal law prohibits agencies from ending collections on
fraudulent false or misrepresented claims. When your office
recommended for the SBA to not end active collections on
fraudulent, false, or misrepresentative claims, the SBA did not
fully agree. How many instances of fraudulent, false, or
misrepresented loans are you aware of that the SBA has ended
collections on?
Mr. Ware. Thank you for the question. It is a significant
amount. The exact amount I could get back to you with in terms
of in details. We definitely have it, and we share your concern
and they know that we share the concern relative to ending
collections on those amounts.
Senator Ernst. Thank you. Further, your office reported
that SBA did not conduct sufficient analysis to support its
decision to end the collections. My Strengthening Taxpayer
Recoveries Act would follow your recommendations and require
the SBA to simply refer loans over to the Treasury Department,
so it can decide the kind of collections that are necessary for
the loan. Can you tell us why it is so important that the SBA
refer those delinquent loans over to Treasury?
Mr. Ware. Yes. First off, they have a requirement to. That
is the most important.
Senator Ernst. Is it the law?
Mr. Ware. It is the law, yes. But second, I think that it
sets a poor precedent that--I promise I will not get too much
on my soapbox on this--but it sets a bad precedent in that it
tells folks that you do not always have to pay the government
back. I think that that is central to some of the issues we saw
with Senator Scott's concerns that he brought up.
The type of controls that you would have in place for a
regular loan, does not have to be in place for the government
because it is the government. It is the same thing here. Less
than a 100,000 you know, I might be willing to pay it back, but
if I do not, what is the penalty?
Senator Ernst. That is the truth of the matter, and that is
why we are going after this. Again, I appreciate your work. I
am going to move to Inspector General Miller. Thank you very
much, sir. I am sure during this hearing, there has been an
extensive discussion around the unfair DOJ opinion, which
hampered your ability to fully investigate all CARES Act
programs.
As a Ranking Member of the Senate Small Business Committee,
I would like to see SIGPR fully in the fight on small business
fraud. We need to take your already existing skilled
investigators with the SBA IG to tackle the more than $200
billion worth of small business fraud. My bill would extend the
SIGPR, and make clear we need as many folks across our
government to help claw back funds.
How would restoring the SIGPRs authorities contribute to
recovery efforts for the unprecedented scale of fraud within
the SBAs pandemic programs?
Mr. Miller. I think we could contribute a lot. We stand
ready, able, and willing to assist General Ware in the fight
against fraud in those programs. We have a number of very
experienced prosecutors. Senator Scott mentioned CRF. That was
originally one of my initiatives when I became SIGPR, and I
recruited very experienced prosecutors. For example, the chief
of the fraud section at the U.S. Attorney's Office in the
Eastern District of Virginia had been chief of the fraud
section for a decade. He has 35 years' experience prosecuting
fraud cases. He is now part of our office.
I have a number of experienced Federal prosecutors on
staff, because I think I am old fashioned enough. I am a former
Federal prosecutor too. I am old fashioned enough to think the
answer is criminal prosecution. That will deter others from
taking advantage of these programs. We have had a lot of
success with criminal prosecution and getting indictments.
Even in the CRF, we had a number of open cases, some
accepted at U.S. Attorneys' offices. We had one involving
Stonecrest, Georgia. We had to pull out after the Department of
Justice says, ``You don't have jurisdiction in that area.'' The
Federal Bureau of Investigation (FBI) took over the case. The
mayor of Stonecrest, Georgia pleaded guilty.
I think we could contribute a lot in a lot of areas. But
specifically, we are happy doing the Main Street Lending
Program and the direct loans from Treasury, and I think we are
doing a great job. I would be happy to--under the leadership of
General Ware, I am subordinate to him--assisting with PPP
cases. We do PPP cases through the PRAC task force, and General
Horowitz has highlighted one of the cases we did recently down
in Texas. I think it is the largest PPP case that the task
force is doing. That is in his written testimony. We led that
investigation as well.
We are happy, we are able, and willing, and eager to jump
in and do these cases. That is what excites the people in my
office and me.
Senator Ernst. I appreciate it. I appreciate the time as
well to our Chair and our Ranking Member. Thank you very much
for allowing me to join in and thanks to all of our witnesses
for the great work that you do for our agencies. Thank you.
Senator Hassan. Thank you, Senator Ernst. I will just note
that one of the issues that this all raises is, how do we make
sure SBA has the resources to both pursue collections and do
the essential work to serve small businesses all around the
country? I think that that is something that our appropriators
are looking at so that the cost benefit analysis that SBA needs
to do when it decides not to collect some cases, is not as
pressing for them. I appreciate your line of questioning.
Senator Romney.
Senator Romney. Thank you. General Ware with his comment
about repaying government loans and being honest with funds
that one receives of the government reminded me of a movie. I
do not think I would have ever imagined the circumstance I
would be bringing up a movie named Nacho Libre. But in that
humorous comedy there was an occasion when someone was stealing
the chips that were going to be going to the orphanage. The
main character, Jack Black said, ``These are the Lord's chips,
so you cannot steal the Lord's chips.'' He said it with a most
interesting accent, which I will not try and imitate.
Senator Ernst. Did you actually watch that movie?
Senator Romney. Of course, I watched that movie more than
once. [Laughter.]
Somehow, I understand the sense that taking money from a
church is stealing from God, and the Book of Malachi talks
about the punishments for that. But I also think stealing from
the government falls not far behind, in that we are stealing
the resources of people who have worked and have put aside what
they have earned to help our government. For people to steal
from that, either by not paying back a loan or by being
dishonest in their use of the funds, is something I find quite
extraordinary.
We have a responsibility to try and minimize that. I am
going to ask about who it is that is doing it? From your
experience, is it small time individuals that like, ``Oh, look,
I can make $25,000. I can make $50,000.'' Is it organized
criminals that have a system for doing this? Is it foreign
entities organized or disorganized? Who? I presume it is going
to be different for different programs, different for SBA than
it might have been for unemployment insurance and so forth.
But based on your experience, who are the folks doing this
today in these programs? It may be different than other
government programs, but for those associated with the COVID
relief programs, who is doing it? Mr. Horowitz.
Mr. Horowitz. Yes, thank you, Senator. It is sort of all of
the above. Yes, and the problem is, it was so easy for some of
these programs that it was almost an invitation to come in. We
have foreign entities. Nobody checked foreign Internet Protocol
(IP) addresses to see if they were foreign IP addresses. We
have state actors.
Senator Romney. They did not even have to put a U.S.
address and so forth now. They could even put in anything and
we just said, ``Oh, OK. Here's the money.''
Mr. Horowitz. Nobody checked. In fact, to the point of
controls we are trying to look at SBA data to see the IP
addresses. They did not keep the IP addresses because it was
not required for them to maintain it. We do not even have a way
of going back to try and figure that out. So that, just for
example, a basic issue.
Senator Romney. Mind numbing.
What proportion would you think is foreign entities or is
it just impossible to know at this stage?
Mr. Ware. We issued a report on loans that went to foreign
IP addresses. I cannot recall what the number was, but it was
significant enough that I led a U.S. delegation earlier this
year that went to Nigeria to discuss partnerships in getting
some of our money back that went to bad actors over there.
Senator Romney. I wondered why I had stopped receiving
investment opportunities from Nigeria. [Laughter.]
I think I know now.
Mr. Horowitz. To give you a sense also of the opportunistic
nature of this. For the UI program, we have identified a bunch
of social security numbers that were used across various
States. We have one number that was used in more than 40 States
because the States did not speak to one another. That program
is so decentralized.
We see this in a large and a small scale. One of the
concerns I think we all have, is we have trained people at some
level to say, go try and defraud a Federal program because it
is easy to do it, and that is a bad message.
Senator Romney. Mr. Miller.
Mr. Miller. Yes. We participate in the Department of
Justice COVID-19 task force. In that capacity we look at a
number of cases, and our staff member, a prosecutor of course,
has told me in my notes, he says, we have seen volumes of
overseas IP addresses identified and associated with unworthy
individuals obtaining CARES Act funds.
It is hard to quantify, but we are seeing money going to IP
addresses overseas. In some of our other programs, Main Street
Lending, for example, we have seen money going to South
America, to the Middle East, and to China.
Mr. Ware. I found the figure was 5 billion. 5 billion was
what we reported that went to foreign IP addresses.
Senator Romney. 5 billion?
Mr. Ware. $5 billion.
Senator Romney. That is extraordinary. Why is it, do you
believe that people are so willing to defraud the government,
to steal from the government? Are our penalties too small?
Should we have far more punitive measures to go after people
who, who steal from our government?
Mr. Ware. Perhaps. I have two examples of this. One is, in
one of the cases our agents was working, as they started to
pull the text messages and the emails, they were saying, ``They
are not checking anything,'' is what was routinely being said
across the board. There was a second one that when questioned
as to why would you do this? He said, ``I would do it again.''
He said, ``It was worth it. It was highly unlikely that I would
be caught doing this.''
Which brings me back to the beginning in talking about the
importance of having a proper control and risk framework in
place to mitigate this. There were folks that committed fraud
probably, who would not normally commit fraud, and they were
being told things. We see this in the record, like the
government is just giving away money.
Senator Romney. I want to underscore the outrage and
frustration that you all feel, that I feel, and that the people
in our country feel as this goes on. I just note that if
something like this were attempted with a credit card, your
visa, or if you are trying to do a charge account at a store of
some kind, this could not happen or they wouldd be out of
business. Yet it happens with our government all the time. I
wonder why we are singularly ineffective in being able to
control this to the extent that basically every corporation is
able to control, or they would be out of business, or their
Chief Executive Officer (CEO) would be out of a job.
I want to conclude by saying, I concur that we need to
continue the PACE program and to continue to get data and I
also believe we need to get the Social Security data and other
data. I recognize privacy concerns, but when we are losing
through fraud, hundreds of billions of dollars--that is the
number that I have heard from you today, hundreds of billions
of dollars--we have to recognize that is money that could go to
Americans in need, it could go to help Israel and their defense
of their land, it could help the Ukrainians.
The idea that we are using this money for fraud, is just
simply outrageous. I also agree that we should extend the life
of SIGPR, well beyond 3/25 because the timing is not
propitious. Thank you, Madam Chair.
Senator Hassan. Thank you, Ranking Member Romney. Before I
move to Senator Ossoff, I was noticing that Mr. Horowitz seemed
to want to say something in response, so I just wanted to give
you the opportunity if----
Mr. Horowitz. No, that's fine. I was going to echo what IG
Ware said, which is, I am not sure the penalties are the
problem, because we, for example, recently got a 25-year
sentence on a fraudster and tried to get the news out about
that. The problem are the opportunities that were presented,
and having basic controls, like you said.
When an individual tries to commit small dollar fraud and
get stopped, they usually do not try again because they
understand there is something there. That does not help,
perhaps with organized crime that are more sophisticated. But
we could have stopped a lot, I think, of the lower dollar
frauds, the non-organized crime, which is probably most of what
occurred, because they would not have had the attitude that IG
Ware mentioned, of this is easy. The government is saying, come
in, just take the money. We are not going to ask any questions.
If you tell people that, sadly, as you said, even in the
worst pandemic, even when their citizens need the money, they
are willing to come in and take the money.
Senator Romney. Yes. Americans are not stupid. If we are
handing out free money, they will be willing to take some.
Senator Hassan. Yes. We also have to invest in the capacity
for those controls. Senator Ossoff.
OPENING STATEMENT OF SENATOR OSSOFF
Senator Ossoff. Thank you, Madam Chair, and I want to thank
you and Senator Romney for working together so vigorously to
protect taxpayer dollars, and for holding this hearing on these
extraordinary abuses, a level of fraud, but I think is shocking
to the whole Subcommittee.
With the benefit of your attendance, Inspector General
Horowitz, and given the extended conversations that you and I
have had on a range of issues over the last few years, I am
going to range a bit out of the direct focus of this hearing
and into some of your other jurisdiction.
I want to begin with a discussion of the Bureau of Prisons
(BOP). As you all recall Mr. Horowitz, when I chaired the
Permanent Subcommittee on Investigations (PSI) last Congress,
led multiple bipartisan investigations of the Bureau of Prisons
and issues related to incarceration. We found, for example,
that at U.S. Penitentiary (USP) Atlanta that serious long-term
security breaches that put the community and the whole
southeast region at risk were left unaddressed.
We found pretty extreme cases of abuse and neglect of
incarcerated people, including pretrial detainees held at the
jail there. We found detainees and inmates lacking access to
clean drinking water, hygiene products, medical care. A whole
range of serious problems that had gone on for a long time. I
noticed that your office's recent work has found serious
deficiencies at other facilities like Federal Correctional
Institution (FCI) Tallahassee, an unannounced inspection that
you led, which found moldy, rotten, pest infested food, serious
maintenance issues, putting health and safety at risk.
Senators Braun, Durbin, and I introduced the Bipartisan
Federal Prison Oversight Act earlier this year, which provides
for unannounced investigations by the Office of a DOJ Inspector
General. Can you explain please, why those unannounced prison
investigations are so important?
Mr. Horowitz. Absolutely. Thank you, Senator for the
question. By the way, I am going this Friday to visit USP
Atlanta with the new BOP Director to get a tour of the reopened
facility.
Senator Ossoff. I appreciate that. In the future, you
should also consider an unannounced inspection.
Mr. Horowitz. That, now getting to the unannounced
inspections. One of the things Congress did last year in
funding us, and a critical part of the Appropriations Bill, was
to give us additional money to do these unannounced
inspections. It is the first time we have ever done them. What
happens is we are showing up at a prison on a Monday morning at
8 a.m., we are calling the warden and saying, ``We are coming
at noon with our team, and we are going to spend the week there
to inspect your prison.''
We did the first one at the Federal prison in Waseca,
Minnesota earlier this year. We selected Waseca because it was
an all-women's institution. We have had, as you know from your
leadership on the Subcommittee, serious issues with sexual
assaults against women in prison. You and Senator Johnson
issued a very important bipartisan report in that regard. We
went to Waseca to see what was going on there, because it had
scored as a low risk. It was our first one. We wanted to see
what happened.
We got there. We found holes in the roofs of the buildings,
pipes running across beds that were leaking, and camera
issues--which again, you have helped lead, I know on that
effort to get the Camera Bill passed--and all sorts of problems
in an institution that was relatively low risk about whom we
had gotten fewer complaints. We let the BOP know about the
crumbling facilities. For example, cascading problems, by the
way, was staffing First Step Act.
One of the things Congress passed was the First Step Act to
give inmates a chance to rehabilitate, huge wait lists because
the educators were being pulled off educating to do
correctional officer duty, because they were short staffed.
They were short-staffed in healthcare. They were short staffed
in facilities management. All of the things we would not have
appreciated until we got on the ground. That was our first
report, and that's public on our website.
Our second one was at a higher risk prison, FCI
Tallahassee, we went to at the end of May, we issued a report
last week. What we found there was--stunning is a nice word. We
got there and on day two, we went to the kitchen to observe
food service. As you mentioned, bread with mold on it, rotting
vegetables, all being served to inmates.
We went to the warehouse to look at the food. What appeared
to be rodent droppings. We did not actually see the rodents. We
saw bugs crawling in the boxes of cereal. We saw the damaged
containers in the rotting containers. It was stunning to see
that. It was not a humane place to be. We went to the living
facilities. Again, leaking windows, again, a primarily a female
institution. Feminine hygiene products were being used to stop
the leaks into the facility. We published pictures. By the way,
anybody who wants to see this, there are pictures of this,
extraordinary pictures on our website.
Senator Ossoff. I want to return to prisons in a moment,
but I first want to raise another DOJ related issue with you.
The Subcommittee I chair now received testimony from the
National Center for Missing and Exploited Children (NCMEC),
which found that from 2018 to 2022 in my home State of Georgia,
there were nearly 1,800 reports to NCMEC of children missing
from foster care. According to NCMEC's analysis, they believe
that over 400 of those children were likely victims of sex
trafficking.
It is crucial that DOJ have the resources and
infrastructure to work with NCMEC to track and locate missing
foster children and to hold accountable those who traffick
them. Can you and I sit down to discuss a plan of attack on
that?
Mr. Horowitz. Absolutely. NCMEC has done great work. As
CIGI chair, they have done a lot of work with us and the
community on helping with missing children.
Senator Ossoff. I would note for the purposes of that work
that we will do together, that DOJ's Office of Juvenile Justice
and Delinquency Prevention (OJJDP), which administers Federal
grants to States under the Juvenile Justice and Delinquency
Prevention Act, there are conditions on those grants to receive
full funding. State grantees have to comply with certain core
requirements. Here is one of them.
That children who commit what are known as status offenses,
or offenses that would not be criminal if committed by adults,
like running away from a foster care placement, cannot be
placed in juvenile detention or correctional facilities. Is
your office currently undertaking any work to oversee the
implementation of that legislation or other issues related to
foster kids?
Mr. Horowitz. We are not doing anything currently, and I
would be happy to sit down with you talk about that. We have
done work in the past about the issue you mentioned about
detention facilities and how OJJDP, which is the acronym for
the entity in the Justice Department that manages those grants.
We are handling that with States, and we have found some
serious issues with that before. This is an important issue,
and I would be happy to talk with you further about it.
Senator Ossoff. I appreciate that. Thank you, Madam Chair
for indulging some questions that strayed from the focus of
your hearing. I appreciate it.
Senator Hassan. Thank you, Senator Ossoff, and thank you
for your focus on really important issues here and to Inspector
General Horowitz, thank you for the continued work you and your
team do in that area.
I have one more round of questions, and then you know, if
something else occurs to Senator Romney, he will have another
go at it and then we will wrap up. But to Inspector General
Horowitz, the Pandemic Response Accountability Committee was
established in part to improve coordination within the
oversight community.
One of the key tools that the PRAC developed to aid this
kind of coordination is something that you have been talking
about the Pandemic Analytics Center of Excellence, which, as
you noted, allows data from many different agencies to be
analyzed side by side to help investigators spot patterns or
anomalies indicative of fraud, that they might not see if they
only had a narrow view of just one agency's program.
Many in the oversight law enforcement community have called
for the Congress to make this type of tool permanent. You have
echoed that call today. How could the PACE or other data
sharing improvements contribute to the future work of the
oversight community and the ability to prosecute fraud?
Mr. Horowitz. Thank you for the question. I think it is
very important that we all talk about prevention. That is what
I want to focus on as I think about analytics going forward.
Because of the failures that occurred at the outset of the
pandemic, we are all about chasing the money. This was this pay
and chase model. The analytics were being used to try and catch
the bad guys.
Anybody who is in this area will tell you that once the
money goes out to fraudsters, good luck finding it. Right? It
is going overseas, it is going into crypto, it is going into
other places. We are chasing it, and you have heard from IG
Miller, IG Ware, the great work that's being done to collect,
but we are talking hundreds of billions of dollars of fraud,
and we are talking about billions, which is a big number, but
still a very small percentage.
It is very important because what has to happen is, we have
to work with Executive Branch agencies, the Office of
Management and Budget (OMB) Leadership, and Congress, to make
sure agencies use an analytics platform to prevent fraud before
it happens. This notion that we had two choices, which I have
heard over and over again at the outset of the pandemic, either
get the money out today, or wait weeks and weeks and weeks and
weeks to verify.
That was nonsense. There is always an alternative choice,
as we have heard, it is a balance of risks. The work I
mentioned, we sent 2.7 million Social Security numbers to
Social Security Administration. In about 2 weeks, we got the
information back from them. Is it a real number? Does the name,
date of birth that they put on their application match what you
have in the official records? Is the person living or dead?
You do not need much more than that to right away figure
out is this a problem? Right? If we had this upfront, which is
the problem with it expiring in 2015, we had to build it anew.
By the way, Congress spent millions--I was on the recovery
board--to support that analytics platform. It went away. The
taxpayers got essentially nothing for their money. Six years
later, $40 million had to be invested to run this program for 4
years or so.
It would be, I think, an awful outcome if the taxpayers,
again, in 2 years ended up with nothing to show for that, when
it could save literally billions of dollars, and importantly,
Congress should make it applicable across the board to all
Federal spending. There is no reason it should only be limited
to pandemic funding.
Senator Hassan. Thank you for that. I want to follow up
with Inspector General Ware a little bit on this issue of
prevention. We have discussed today, technology can be a
critical tool for identifying and preventing fraud. However,
many agencies, including the SBA, struggled to roll out
pandemic relief programs due to their aging technology
infrastructure. How did existing challenges, such as legacy
information technology (IT) impact the overall success of the
pandemic relief programs or exacerbate fraud at critical
agencies? Can you speak to how SBA overcame some of its legacy
IT challenges?
Mr. Ware. Sure. We have been reporting the IT challenge as
one of the top management challenges facing SBA for a number of
years. With that being said, they were running the seven A
program, right, using the technology that they had existing and
the relationships they had in place with the banks. I believe
that is why they were selected to run PPP and EIDL because
those things existed. They existed in a way that they were
working. They had some work to be done, but they were working.
The issue was, when you had 14 years' worth of lending
running through the door in 14 days, then I think maybe anybody
would have had issues with that. But relative to the IT
platform, what they did to mitigate those issues was they
contracted it out to a private contractor who had a lot of
experience in moving large volumes of loans. That is what they
did. Now still, we would have appreciated seeing the type of
controlled infrastructure that I recommended before the first
loan went out, but that was not done as speed was the only
thing considered.
Senator Hassan. Thank you. Ms. Shea, State and local
governments were important partners in disbursing Federal aid
during the pandemic. They were also overwhelmed by numerous
attempts to defraud pandemic programs. However, States that
successfully implemented tools such as identity verification
technology as part of their application processes, were much
more successful in identifying attempted fraud.
For example, early implementation of identity verification
technology in Arizona, is credited with preventing more than
$75 billion in unemployment insurance fraud. What prevented
more States from implementing similar measures? How can
Congress encourage States to adopt identity verification
technology or other anti-fraud tools?
Ms. Shea. Yes. States had some of the same issues with
legacy IT that IG Ware just mentioned for SBA and some of the
other agencies. Early on, some of them had the legacy IT
systems, so it did not enable them to address cybersecurity
issues, identify fraudulent and stolen identities, to be able
to connect with the Integrity Data Hub, which is the multi-
state Department of Labor funded program that enabled States to
see and crosscheck against all of the other State data, whether
or not people are applying for multiple States, and then also
had an identity verification control in that.
Early in the pandemic, only about three States were
enrolled in that. But as we progressed, we identified some of
these issues. By 2022, about 34 to 43 States were signed up
with in the Data Integrity hub. One of the key things that I
think is important there is, us continuing to focus on
Department of Labor's progress, trying to get States signed up
for that so they can leverage that capability of the multi-
state data.
We have been reporting on that and checking their progress,
and at this point, all of the States have agreement with
Integrity Data Hub to use those services.
Senator Hassan. Great. One of the things we can do as we
think about this is try to provide incentives for States to
participate in this kind of data sharing and verification,
identify identity technology.
Two more questions, one to Inspector General Horowitz, and
then I will ask a wrap up question to the whole panel. Mr.
Horowitz efforts to prevent fraud and recover stolen taxpayer
dollars are made more difficult when these crimes are
perpetrated by foreign criminal organizations, as we have
talked a little bit about. For example, Federal investigations
revealed that Chinese hackers stole millions of dollars in
pandemic relief funds. What actions can the United States take
to go after fraud perpetrated by foreign criminal
organizations?
Mr. Horowitz. I think there are a few things. The most
obvious being look for foreign IP addresses when you are doing
things online or as these were, look for masking of addresses
using Virtual Private Networks (VPNs). Look for multi dipping.
This is one of the challenges we have seen, and this is one of
the reasons why the PACE has been so successful, because we
have gotten the data from across agencies. We are able to look
for that multi dipping in a way that frankly, agencies have not
been able to, in part because of data sharing limitations.
As mentioned, we have 90 plus agreements in place where we
can do this. Those are a couple of the examples. But we are
also part of the International Organized Crime International
Operations Center at the PRAC. We have an analyst sitting
there, and so we are working with those folks who understand
what's happening globally. I think that is a critical part, and
frankly, that is why agencies struggle sometimes in this space.
That is why it is so critical that we are the ones as IGs who
have these tools to be able to undertake these efforts.
Senator Hassan. Excellent. Thank you. My wrap up question
to all of you is to ask each of you to provide a lesson learned
from the response to COVID-19 and how it can inform the Federal
Government's response to future crises. If you feel like you
have already said it, feel free to say that too. But why don't
we start with Ms. Shea, and we will go right down the line
there.
Ms. Shea. Yes. I think this is a lesson relearned not
necessarily learned, and that is when you try to attempt to
recover funds lost through fraud and improper payments, you get
pennies on the dollar. Prevention is absolutely critical. We
need to ensure that agencies are taking the steps to assess
their fraud risk, that they have figured out what their risk
tolerance is going to be for normal operations and emergencies.
Then if they are going to lower the tolerance, that they
have a robust post-payment recovery plan in place, and that
they have identified the data sources that they need, and they
have those MOUs in place to be able to do those checks. All of
those preventive activities need to be in place so that we are
not chasing the funds after they go out the door.
Senator Hassan. Thank you very much. Mr. Miller.
Mr. Miller. We all agree that more controls and checks and
anti-fraud provisions need to be in place to prevent fraud. But
I also have some mundane recommendations. Our first
recommendation was to Treasury, and that was to add audit
rights to contracts. When you give out the money, when you make
the loans, you put a clause in the contract that says the IG
has the right to inspect your records. If you are going to take
our money, we have the right to look at what you are doing with
it. That is a simple non-glamorous recommendation.
The other recommendation that I would make very quickly is
that when Congress--and I am not a policymaker, so please
forgive me.
Senator Hassan. No, it is fine.
Mr. Miller. But when Congress decides to give money out in
the form of loans, I think that it needs to think about how to
prepare the Federal agency to be a lender. The Department of
the Treasury became a lender under the CARES Act. That is
unusual. It is not a commercial lender, but it was making
loans.
It needed to build an infrastructure to help them know how
to be a lender, how to be an effective lender. We deal with
banks and lenders all the time. We deal with treasury. Banks
and lenders approach things differently, they have due
diligence. They will do due diligence on assets. You all know,
you are business and professional people. But even in the
meantime, when there is not a crisis, if you are thinking of
using a Federal agency as a lender, it may make some sense to
buildup an infrastructure and training in that agency so that
when it does lend, it can actually make good decisions about
lending, it has a program of review, it knows how to analyze
assets and financial documents.
I understand that they can hire contractors to do some of
that, but I think the agency itself needs to do that. Even when
you have contractors and even in the Main Street Lending
Program, it is a complicated program. You have Treasury funding
it, you have Federal Reserve partially managing it, and you
have Federal Reserve banks involved in it, but you have
commercial lenders actually lending the money.
In the Main Street Lending Program, they will make a loan
and they are on the hook. If the loan goes bad, they are on the
hook for 5 percent. Right? Treasury pays 95 if it goes bad. Of
course, you have to remember that commercial lenders, they also
charge interest, they charge transaction fees, they have all
sorts of fees to try and make up that 5 percent. I do not think
going to outside organizations is always the answer. When you
do, I think they have to have more skin in the game.
Because you know, if they are making money off these loans,
even when they default, they are not going to be that careful
with it. That is one of my concerns. But we will come out with
a lessons learned, and I do not want monopolize the time.
Senator Hassan. I appreciate those lessons very much, and I
look forward to the further expansion of that. Mr. Ware
Mr. Ware. I will be real quick here, because I always
wanted to say that I am going to punt to Mike Horowitz.
[Laughter.]
I have been waiting on saying that, so I am going to say it
today. But timely data sharing agreements between agencies and
the onset of programs like this, I feel should be baked in to
getting them started up. Because like IG Horowitz mentioned,
prevention is where we need to be on this from the outset.
One other thing on that, I am on record on this. I am
generally opposed to self-certification as a rule. I do not
believe that that has served us well at all. Now I will punt.
Mr. Horowitz.
Senator Hassan. Mr. Horowitz.
Mr. Horowitz. I will say ditto to what IG Ware just said.
It is about prevention. We have to think about how to prevent
the fraud on the front end. One of the things we have not had a
chance to mention to my testimony is one of the things we
started, which was brand new in 2021, was what have come to be
called gold standard meetings at some level, which is, we got
in the room before money went out the door, the PRAC, the IG,
the agency, the OMB leadership, and the ARP implementation team
leadership.
The agency was required to present to all of us what its
controls were, so that we could kick the tires and give our
views, and this was on the understanding, we were not pre-clear
anything as IGs. We were not giving up our independence. It was
our ability to say, we have seen this play before and here are
the problems, here are the challenges, here are the things you
need to think about. It has been very valuable. I think we have
done 30 or so of those over the last couple years. It went so
well, OMB put out a memorandum 22-04, which puts that in
writing as a best practice.
For the infrastructure bill said agencies should follow
that model as well. That's, again, a way to do the prevention
upfront, not a perfect way, because the controls still have to
get implemented, they have to move forward. But that has been a
very valuable, I think, tool. It also has helped bring together
in ways that sometimes did not exist, the IGs and the agencies
and put them in the same room, which was, or at least in the
same video screen, which was critical.
Then the other thing I just want to mention is the
importance of coordination with our State and local partners.
We have, I think, done an extraordinary effort. It is something
we thought about from day one, that with all that money going
out the door and all that money going to local communities,
some directly through the various funds that Senator Scott
mentioned, some through other mechanisms, we had to partner
with State auditors, with local auditors, with State IGs, with
local IGs.
We have done that. We have had dozens of listening post
sessions with them. We have done fraud alerts for them, so they
knew what to look for. We have partnered in a way that I think
is critical, and we have to keep doing that. The Federal
Government does not have the best reputation, as you all know,
as former Governors of States in partnering with our State
counterparts. I think that is very critical in this space.
Senator Hassan. I appreciate that very much, and I
appreciate not only the expertise that you all bring to today's
hearing, but the expertise and leadership you all bring to your
entire teams. Senator Romney said at the outset, he felt bad
asking you guys to spend this much time when you have so much
critical work to do. But I think we are both hopeful that with
your input, this time will be valuable as we go forward and try
to make sure that we are strengthening oversight and
accountability and protecting taxpayer dollars.
Thank you for being here, for the important work you do. I
look forward to continuing to work with all of you and my
colleagues to help prevent waste, fraud, and abuse of taxpayer
dollars in relief programs.
This hearing record will remain open for 15 days until 5
p.m. on December 1st, for submissions of statements and
questions for the record. The hearing is now adjourned. Thank
you. [Whereupon, at 4:17 p.m., the hearing was adjourned.]
A P P E N D I X
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