>> i was just going to yield five minutes to mr. capuano. you can continue to ask questions of ms. smith. we tried everything possible to get her video backup. her audio is still working. if you choose to direct

questions to her, we still can't get -- now we have the video up. i yield to the gentleman for five minutes. >> thank you, mr. chairman. first of all i'd like to point out that ms. smith, that's not her real name. we have agreed to withhold her name because the bureau of prisons has asked us to do so. that's what agreed. i thought it was a respect thing to do. ms. smith, did you work for hud? >> no, sir, i did not. >> you work for a nonprofit organization, is that correct? >> yes, sir, that is correct. >> do you any other sons other than hallowed -- home funds that flowed through that organization? >> yes, we did. >> did you steal those, to? >> i'm sorry? >> did you steal that money, to? >> there were funds, yes, sir. >> so you stole that.

you could steal anything to get hands-on. i respect that. at one point you stated, maybe news report, that you were pressured by politicians. and i do not want you to name those here today because that's not the purpose of this but i would like to know, did you pass those names along to the justice department? >> yes, sir. >> has there been any prosecutions as a result of the? >> there were some. >> were they convicted? >> there were a couple that were. >> that's good to hear. i'm 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, give or take the year 2005, is that correct? >> no. prior. >> say it again. >> it was prior to 2005. >> but between 2000-2005, is that right? >> yes, sir. >> do you know who the president of the united states was then?

>> it would have been george bush. >> that's what i thought. you know who the secretary of hud would have been at that time? >> no, sir. i don't know. >> it was mr. martinez and mr. jackson. do you know who the speaker of the house was at that time? >> i don't recall. >> that would be mr. hazard. mr. truax, were you hired at any time by hud? were you employed by hud at any time? >> no. >> you work for another government entity? >> correct. >> to that entity provide any oversight whatsoever to you? >> just a supervisor. >> did the supervisor overseeing? >> yeah. >> as i read your testimony, honestly it sounds like old-fashioned bid rigging and kick backs, if you want the truth. was there anything special about what you were doing other than the fact you were stealing my? >> no. >> ned smith, it strikes me what

i saw of yours, it was just old-fashioned taking anything that was on the table. is there any special secret thing you can enlighten us to what kind of crime we can stop in the future? >> i'm not sure i understand your question. >> when we went to the wall street, a lot of us, i learned a lot about some of the ways that wall street operator, but because we did know but the truth is here in these testimonies i'm not suggesting it is good but what i have read is just pretty much plain old-fashioned straight up crime. it could happen and does happen anywhere. i am more than happy to find ways, i appreciate there's no in the world any auditor at any level should be allowed to pick the projects they get audited. that should not happen. i would hope we would address that issue. but nontheless, bid rigging, kickbacks, i don't know how we'll ever stop those. it's not just the home program. it's everything a program in the history of mankind have been

subject to that type of fraud. i'm interested in insight as to what we can do. to either of the witnesses suggest somehow that we should have a hud auditor at all of the 15,000 people that utilize home programs? is that your suggestion, mr. truax? >> no. >> ms. smith, do you suggest we have an auditor sitting at the shoulder of each of the 15,000 people who received all my? >> i'm not suggesting have an auditor. i am suggesting -- [inaudible] pad only requires application. anybody can put anything on paper and make it look good. >> i did read at some point, ms. smith, you said if you had more training that would've been good. is that something you said at some point the? >> if hud had provided more training to the organizations

that select funds, because of every organization that comes to the table, they're not thinking let me just go to hud and get a couple dollars. they start off with good intentions, but it's the organization that is getting the funds, takes for granted that this organization knows what it's doing -- >> i respect the fact that hud, i have no problem with that concept. i don't think you'll find anyone who disagrees with that. at some point i'm just wondering if you had received more training with that is doctor criminal activity or without just made you better at it? >> i don't know that i necessarily understand the way you're working your question. if there was more training maybe there would be better understanding of how it should have been done. especially for an organization that didn't have any clue whatsoever. >> i appreciate. my time has run out. i appreciate it spent for a

parliamentary inquiry, mr. chairman,. >> would the gentleman stages and cori? >> is it appropriate to ask the witness who the elected officials were indicted and convicted were? >> we don't think -- >> i just -- >> are we keeping that he secret? >> it seems to me if you want to know we should find the work and call them and they can tell us. >> the gentleman and certainly welcome to do that. >> is it appropriate to ask the focus, ms. smith, what the primary reason according to her testimony in getting these contractors, who that consultant was? >> i think what we have asked the witnesses to do is not recount the acts themselves, but just focus on what the purpose of this hearing is, and the purpose of this hearing is to identify that it is, seems to be fairly easy to gain the home program. and that when there is a

situation with the program is defrauded, there's two losers, the american taxpayers and the intended beneficiaries. as the gentleman outlined in his district, he had a number of projects that were beneficial to his district, but when someone takes opportunity to defraud the system, then the system suffers from the and the taxpayers. so what we're trying to focus on, get back to the string, is not to defend home program, not tear gas -- >> if i might, i understand that be the gold, and it just seems to me that ms. smith stated that the organization would not come if they didn't fill out anything, that the only reason they got the money, i'm paraphrasing, was because -- [talking over each other] 's. we should find out [talking over each other] >> the gentleman made a point of order was it appropriate. the chair rules it's not appropriate to ask for the

specific names, and that recognizes ms. biggert for five minutes. >> will the chairman yield? >> thank you, mr. chairman. i would first ask ms. smith, did hud officials physically inspect the projects or on site visits? >> no, ma'am. no, ma'am. they did not. we provide reports for them. >> did they review the paperwork? >> i was not present when they receive the paperwork. [inaudible] >> did they ever come back and say to you, this doesn't seem to be complete? do you have more information? >> never. >> okay. you testified that there was a large hud home project, emerson, that had many cost overruns? >> yes, ma'am.

>> how many of the units in the project, how many units was the project supposed to deliver? >> we delivered, as the final application, the first application had about nine more units, but because of the cost we cut nine out. we delivered what we said we're going to deliver. >> so there was no problem with that project? >> there was no problem with the amount of units that we said we would deliver. we did deliver those, but it was an enormous amount of cost overrun. 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. >> if that project stopped due to budget overrun?

>> absolutely without question it should have been stopped. >> but you didn't, you didn't propose that? >> well, actually politically it was not suitable to propose doing that. >> okay. mr. truax, so did hud ever physical inspect the projects or conduct on site visits? >> yes, but only at the direction of myself as far as the units on what units to see. >> okay. that was with the three years? >> yes spent only once? >> only one time. >> did they use paperwork? >> yes. >> data ever come back and say this wasn't completely not? >> no. >> you had incomplete projects of? >> when i left, yes. >> do you think hud would have liked your incomplete projects

if they had had more random and frequent inspection? >> absolutely. >> but you still would've just told and which ones to go to? >> yes. if they gave me that opportunity. >> did ever say i want to see something of? >> no. >> did anyone from hud ever questioned the information you include in the hud database of completed projects? >> no. >> did anyone ever question the accuracy of the information? >> no. >> ms. smith, same question to you. did anyone from hud ever questioned the information included in the high database about completed projects? >> no, never. >> did anyone question the agassi of information? >> absolutely not. >> mr. truax i think that law enforcement uncovered this scheme?

>> yes. >> was hud involved in that? >> no. >> so did hud ever uncover your broad? >> no. >> but law enforcement it? >> yes. >> could you tell us how? >> somebody in the county did ask the investigating officers or criminal investigation department to look into me receiving kickbacks. upon that time, the u.s. investigating office, in, they went over a few files, saw that i did. i admitted openly, and i help them throughout the entire investigation on everyone involved. >> thank you. ms. smith, what happened, did

hud to discover your fraud scheme? >> no, ma'am. there was an investigation that took place when a couple of my board members, and it was sort of a snowball effect, but hud was never involved in any of the investigation. >> thank you. my time is up. i yield back i yield back spent i thank the gentlewoman. now mr. gutierrez is recognized for five minutes. >> thank you so much. let me first of all, ms. smith, so you defrauded the home program and embezzle the home program between 2000, 2005, is that correct? >> we had home programs knowledge, but -- >> when did you steal money? >> yes, but the actual -- spent had nothing, no home funds the? >> no. spirit but this is a home fun hearing. you are here to tell us about

the home front, aren't you? >> absolutely come yes. >> you didn't steal any money from the home program? >> no. >> okay. what program did you steal the money and embezzle it from? >> we mismanaged funds from the actual organization. >> from the actual organization. okay. me ask you something. you worked at the urban enterprise association as an executive? >> yes, sir i did. >> and that is in gary, indiana? >> yes, sir. >> are you the same person from lake erie urban enterprise association executive at gary, indiana, that made a $300 contribution in 2003, and a $5000 contribution in 2003 to the national republican congressional campaign committee? >> yes, sir i am. >> did those funds that you gave come from the money you embezzle from the organization that she worked at?

>> it came from my salary. >> it came from your salary? >> yes. >> you kept to separate accounts of money you stole and the money you earned? >> they came from a personal account. >> while you were embezzling money, you would being charitable to the congressional republican campaign committee. you thought that would be, give them $5000. you're a thief on the one hand, but you're very generous with the national republican congressional campaign committee. is that what we are to believe? >> if those of the work you want to use. >> okay. who asked you and who invited you to contribute? this is a pretty extraordinary, for somebody stealing money, $5000 is pretty extraordinary amount of money. who asked you to contribute and who invited you to contribute to the national republican congressional campaign committee? >> i don't actually recall how i

-- >> you know you're under oath, by? >> i do realize i am under oath. >> and you don't remember who asked you to give $5000? >> no, sir. it was maybe 10 years ago spent 10 years ago, 20 years ago summit asked me if i conjured $5000, i think -- so they ask you something. how much will you earned in salary in 2003 in? >> in 2003? spin and you're under oath. >> i understand that. [inaudible] >> excuse me? >> i'm sorry? >> how much was your salary? >> i'm sorry, i guess i got cut off because i said -- [inaudible] >> $65,000. and as a republican few times

all the time there's a lot of taxes on all that money so you're probably getting about 45. so you just had $45,000 salary, and the ninjas, take-home pay. you just have an x. $5000 laying around to give to the national republican congressional campaign committee, but you don't remember who asked you for it? is that tried? >> -- is that right? >> i don't really remember who actually asked. >> let me ask you something. since he uses the money, and i know you're trying, you are telling me that your salary had nothing to do with hud our federal government programming, that you're selling had nothing to do with governmental program, the non-for-profit institution and that your salary, not a penny of that saudi kingdom government on? >> no, sir i did not. >> we will check into that real short. let me ask you something. did they send the money back now

that they know you're a convicted felon, stealing money from the federal government, did they give the money back to you, send you back a check? >> no, sir, they didn't. >> that's all the questions i have. >> i thank the gentleman. now the gentleman, mr. fitzpatrick is recognized for five minutes. >> 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 seem to hud, send washington, are dollars that are well spent and that taxpayers get value or every dollar. at your organization, ms. smith, were home program funds through hud sent to your nonprofit? >> actually when we did the process we set up a different organization.

because the home funds were not the only funds that made that project a reality. we also use the low income housing tax credit funds as well. the hud home funds were sort of like mezzanine finance is. so there was a separate entity away from our organization that received those funds. >> did you oversee that separate organization? >> yes, sir, i did spend some between your nonprofit and a separate or decision that you saw there were home program funds and other low income housing tax credit funds, also federal funds? >> yes, sir, there were. >> you oversaw the management of all those funds? >> yes, sir, i did. >> where the home funds come in your opinion, mismanaged or stolen from the program and away from the intended recipients, the beneficiary's? >> mismanage, yes. in terms of overruns, yes. it was completely mismanaged.

>> so there were hud home program dollars lost? >> yes, sir. we probably could've bill, if we didn't run it to the cost overruns that we experience we probably could have built more. what could have built more units. >> ms. smith, you indicated in your testimony that was started as good intentions, but as result of your lack of any experience and lack of any training, that things went awry, correct? ms. smith? >> i'm sorry. i don't know if i mic is getting out of a, but yes, sir, i did. >> did you indicate your board also lacked any direction or training or any real experience in the area of community and housing development? >> i'm sorry.

did you hear me? i said yes or. >> okay. so you indicated you were able to hire consultants to provide that experience for both you and your board lacked, is that correct? >> yes, sir, that's correct. >> did a consulting deal directly with hud or was that you? >> no one actually dealt directly with hud. we went to the application process and once the award came through, we didn't have any contact with hud at all. which is admitted the reports as we were asked. >> ms. smith, do you believe as result of the lack of experience and training and your boards lack of experience in management training and community and housing development that hud should've been more skeptical of you and your nonprofit? >> well, my, from my personal experience, because i learnt a lot during the process of

getting the project done and afterwards, i think that hud should have looked into the fact that we come at the time of application, we could not speak of any historical work that we have done. and, in hindsight is 2020, that should have raised a red flag for hud to say okay, what makes you think that, 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's absolutely no experience on your board either. because i do realize that sometimes nonprofit director may not have experience but it could be members of the board that you actually have some experience to speak of. when they saw this there was nothing there that should have raised a red flag for hud to say well, you know, not to discourage this organization

from doing the work, but maybe we should be marrying this organization up with someone that we know has a track record to do the work that hud loves to have done. >> ms. smith, you were sitting hud never raised a red flag on your lack of experienced? >> no, sir. >> to hud ever asked any tough questions? on? >> there were no questions at all. sometimes these things are more politicized than we probably care to talk about. when you in certain communities, and you can put together a great application and have some political support behind you. it doesn't, it doesn't lead to any questioning at all. >> mr. chairman, i would like -- >> now the gentleman, gentlewoman -- >> 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's testifying that she didn't have any supervision from hud, that they never asked her. well, why would they? either she was or cash that were is the truth of? >> does the gentleman have a point of order? >> i would like to go into executive session because i'd like to ask this witness a specific question about what is she telling the truth about and who was telling her about these. it's compounding -- on founding to me. i have to be very honest. she lied. she has lied. she's a convicted felon, so she lied already. agreed that she lied on form. >> the gentleman has made a point of order. the gentle woman is recognized for five minutes. >> is there a motion before us for executive session? >> i would like to go into executive session. i would like to ask 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 indirect evidence but she can in executive session. >> is there a second? >> seconds. all right. the chair will propose the question to all in favor and going into executive session say i go. all opposed? the nays have it. the motion is denied. >> i ask for a recorded vote. >> would the gentleman certified by a show of hands? >> i asked for a recorded vote. >> stand by and we'll get that done. make it happen. [inaudible conversations]

>> the clerk will call the roll. [roll call] [roll call] [roll call] [roll call] [roll call]

[roll call] [roll call] >> the motion does not agree to. the gentleman from california is recognized for five minutes. >> thank you very much. mr. truax, you have been convicted but you have not been sentenced yet. so are you out on bail? >> yes. >> and what state are you from?

>> pennsylvania. >> in order to come you, you have to have permission from someone? >> yes. >> who gave you permission to? >> the u.s. attorney. that is prosecuting. >> and did the u.s. attorney and you had any conversations about perhaps your cooperation with, you would get a lighter sentence so the possibility of a? >> no. >> did you have that conversation with anybody? >> no. >> did you have a conversation with your lawyer, was a suggested you might get a lighter sentence if you come. >> i'm sorry. i'm going to have to object to the. that is attorney-client privilege as to what we discussed. >> i didn't ask you what it was. you can object if i was asking you. i didn't ask you. i asked the witness who volunteered to come here today. >> you will not be -- >> on my time. you don't get a chance to do that. i'm asking the witness who

appeared here today whether or not you had that conversation with your attorney where you discuss your coming year may get you a lighter sentence. >> i'm not going to answer that. it -- >> you are under oath, and i'm asking you whether or not you had that conversation with your attorney. >> with all due respect, i refuse to answer o on the grouns that it is attorney-client privilege. >> how long were you involved in the fraud and deception that you were convicted for? how many years? >> three years i was employed there. >> three years. about how many contractors competed for the contracts that you gave out that you steered to

your three friends, or people that we're giving you kickbacks to? >> there was an average of three contractors per project that were able to bid. >> these were contractors who put in a bid, whose bits went in the trashcan or did not get considered because you knew where you're going to direct the contract, is that right? >> correct. >> how many were those over a three-year period on? >> five projects. >> did any of these contractors sued you or the city or hud or anybody for the deception that you were involved in? >> no. >> what you think they have a cause of action? >> i'm, i'm not a lawyer. i can't answer. >> do you have assets? do you have a on? >> yes. >> do you have a bank account? >> no. >> do you have any other assets?

>> in my home is in foreclosure. i have no bank account. i have no money. >> do you know you could be liable in addition to the money that you still, you could be liable for having defrauded these contractors who competed in an open process where you steered the contract to other contractors? >> i'm not a lawyer. i can't answer that. >> 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 are 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 think? >> correct. >> i didn't hear you? >> correct. >> you have no assets of? >> correct. >> okay. sell for three years you were involved -- so, for three years you were involved in defrauding the whole program and other, i don't know how many others. would you say you were deceptive at all? would you say you lied? would you say you cheated? >> yeah. which one do you want me to enter? >> the first one. were you telling odds applies to people? >> no. >> you didn't like to anyone? >> no. >> you are under oath. >> i understand that. >> a few deseeded them, if you

took kickbacks, if you told other contractors, i would unanimous consent for at least 30 seconds, this lawyer whispering in his ear is taking my time spent the gentleman can ask specific questions and the gentlewoman's time will expire. >> did you lied when you deseeded the contractors and other government? did you like? >> yes. >> so you lied, and year before us today, why should we think you are telling us the truth if you are a liar and? >> the gentle woman's time has expired. stick to my knowledge i have nothing to gain. i'm going to jail spent except what your lawyer is instructing you to do. >> the gentle woman's time has expired. mr. renacci is recognized for five minutes. >> thank you, mr. chairman. i want to get to the point of hud more than a point of what you guys did because it appears you have some wrongdoings here.

first off let's start with ms. smith. ms. smith, did you work for an agency that, i want to make sure, did you work for an agency that took money under the home program through hud and? and? ms. smith? we must have lost her. >> can you hear me? >> ms. smith, did you work for an organization that the organization actually received funds under the hud home program? >> the organization that i worked for set up a sub organization that received those funds. yes, sir. >> so you were involved in the home program through your organization as an executive

director? >> yes, sir. >> thank you. mr. truax, did you work for in our decision that received hud dollars through the home program? >> yes. >> okay. mr. truax, you had, you said you had a number of projects. how many projects in total came to your organization? >> throughout my tenure? >> yes, estimate. >> under 50. >> okay, under 50. under those programs you actually went out and took bids. if hud would've 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 use a control that most of the banks and businesses use, if they would've asked you for three bits, would you have been able to do what you get? >> no. >> thank you. ms. smith, if hud would've 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? [inaudible] >> hello, can you hear me? >> yes. if hud would've asked you for three bids for every project that you worked on, would you have been able to do some of things you did as far as taking dollars? >> i think so. because some of the bids we did take bids, but again, some of those bids were politically driven. >> if they would've asked you to take three bids and you will require to use the lower bid which have been able to perform and take the dollars you did? >> if hud had received those bids, then no. >> exactly. that's what i'm happens in the banking world in many cases. i'm going to move to another internal control. if hud would've come into your organization, mr. truax, and done and announced random selection, including site visits on even one or two of your projects, and would you have

been inclined to do what you did and take dollars? >> no. >> ms. smith, if hud would've done the exact same thing with your organization, if they would've come in unannounced, random selections to review the sites on the buildings you did, would you have been prone to take the money you did? >> no. >> thank you. one other thing which is another internal control, normal internal control. i'm a cpa. icing controls like this. if it wasn't unannounced third party that was able to come in and randomly select, which happens in many cases, some of your projects, mr. truax, which have been prone to take the dollars you did? >> no. >> thank you. ms. smith, if there wasn't unannounced third party that was required to come in and, on an unannounced basis, take a look at your projects and determine the 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 to the hud home program in directly? >> no. >> thank you. so it does appear that if hud's input controls were up to a higher standard, neither of you with a been able to do some of things you did as first taking the dollars you did? >> correct. >> thank you to i yield back. >> mr. cleaver is recognized for five minutes. >> thank you, mr. chairman. sir, i'm curious about how your criminal enterprise was detected. >> i'm sorry? >> how were you found out? >> somebody thought that i was possibly receiving kickbacks,

which in turn contacted our criminal investigation department, which in turn got a hold of the united states investigation department. and they came to me asking questions, and i knew, you know, what i did was wrong. and then that's how they found out. >> was hud notify? >> after the investigations, yes. after the clarification of what was going on. >> do you have any contact with the aichi? >> just through the interviews. >> the contact with the ig and when you were identified as allegedly having committed fraud, what was the time period between your contact with hud either through the ig or -- >> i'm not sure the exact time they got hold of hud. when the ig came to me, you

know, that's when it was all laid out on the table. it was instantly. >> i guess where i'm trying to go is, do you think you were given permission to do this? >> given permission to? >> yes. >> no. >> so you don't think hud turned a blind eye that would allow criminal activity to take place? >> no, i don't believe so. >> you have no reason to believe that, right? >> you know, with the once every three year inspection, you know -- >> it opened the door. >> yes. >> so as best as you can recall, did you ever think well, we have every three-year inspection, so this gives me a chance?

as best as you can recall, i mean, did you actually consciously wonder how much time you had before the next inspection to commit fraud? >> yeah. >> and so you thought i can get away with it because hud has and every three-year inspections because because of the oversight, right. >> how long have they had that? that procedure. >> i'm not sure. i was only there for three years. >> but it was there when you are right? >> yeah. >> so we have to assume it's been around a while. >> yes. >> so, i mean, it's possible that somebody else could have done something like this and gotten away with it i just ago, six years ago? >> sure. >> and your recommendation to hud would be --

>> just to have a little tighter oversight on monitoring the administers of the program. >> well, the problem of course is, i mean, you took a job that apparently had great temptation, right? >> correct. >> did you know that when you took the job of? >> pardon me? >> did you realize taking the job -- >> no, i didn't think about the. >> to get you had no intention -- >> i had no idea. >> so when you were hired, nobody could have possibly assumed that you're going to commit fraud? >> correct. >> you didn't think about fraud, the people who hired you didn't think about fraud or they probably didn't think about it, the employer didn't think about it, right? >> right. >> so what is the correct step

now? >> like i said, a little tighter oversight. >> i'm sorry. >> you know, maybe not having one person in charge of the entire program. more people you have involved in the program is going to deter any kind of fraudulent. >> okay, so the whole issue of trust then was discarded, right? in other words, al green to my left, congressman green, i trust him but i don't need anybody to check on him because i trust him. so i'm wondering if you're saying that henceforth we should eliminate trust. >> no. but don't put, the files for example, go in and randomly pick the files.

during an audit or inspection. >> the gentleman's time has expired. >> thank you, mr. chair. >> does anybody on -- >> mr. chairman, point of order. could you reiterate every now and then to the committee that there's a woman, faceless and nameless, that is also a witness, can be questioned because we don't see her, we kind of forget. >> very good. i thank the gentlewoman. ms. smith, is still with us. we periodically get video and she is still available for questions but is there anybody else on the minority that would like to question either of these witnesses? >> i have time, mr. chairman. >> you are recognize for five minutes. >> i would like to yield to mr. gutierrez spectacular much, mr. green. ms. smith, we have conflicting testimony here. you've never worked for hud? >> no, sir i never worked for

hud's spanky work for an organization that received hud funds, did you not? >> yes, sir. >> that's why you are here, to tell us about how you stole those hud funds and how in the future we could stop hud funds from being stolen. yes, no? >> was that a question of? >> that is a question. is that your purpose year, to tell us how you stole the hud funds? >> i'm here to tell you have hud funds were mismanaged and -- >> were stolen and embezzled. is that not correct? >> were mismanaged, yes or spent mismanaged. did you pay off a car, did you pay off a car debt with those mismanaged funds? >> no, sir, i did not spent did you increase your salary with those mismanaged funds? >> did i do what? >> did you increase your salary with those mismanaged funds?

>> yes, sir, i get. >> so you increased your salary with those mismanaged funds. which we agree the came from hud. >> no, sir. again, no, sir, those funds did not come from hud. that organization had its own revenue source. those funds came at revenue source. >> then what are you doing here? this is an investigation into the home program conducted by hud, which have nothing to do with. you never received any money from the program, according to you. >> might organization him again, sir -- >> your organization that you executive director of received money from hud, did it not? >> the organization that i received, set up a subtle organization that received money from hud spent and you managed that some organization, did you

not? >> yes, sir. i did. >> so there you go. you were getting paid to manage that some organization that was receiving hud funds? >> yes, sir spent we finally got to the hud funds and why you're here. let me ask you just one more question. i will give time back to the gentleman from texas. now that we've established that you're running an organization and supervising an organization and getting paid, right, with hud proceeds, right, did any of those hud proceeds make up the $5000 contribution you made in 2003 to the national republican congressional campaign committee. >> no, sir it did not. >> desegregated the money? >> my salary did not come from those -- >> you supervise an organization but your salary didn't, -- i'm sorry. this is, this doesn't cast any remote -- the money came from the pic you don't want to admit it. the majority will not let us go

into executive session so we can find out who the contractors were, i'm sorry, th the consultt was that designed this program. we can't find out who the politicians with a consulted program. we want to find out how all these things happened but we are going to be limited to asking questions of two convicted felons, one of the missing 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. >> thank you, and i do want to ask just a limited number of questions. i will start with a lady since it's difficult to get her on and off. ma'am do you agree that you are a criminal? >> i agree that i conducted some -- [inaudible] >> i didn't quite understand or did you say, could you just answer yes or no? are you a criminal?

>> i participated in some criminal acts. yes, sir. >> and you were convicted? >> yes, sir. >> usually when people are convicted of criminal acts and they are felons, they are called criminals. you would not label yourself a criminal? >> 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 that. >> well, let me just, the definition of a person has committed a crime deck that let me 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 integrate in criminal conduct and as a result you're a criminal. that causes some disbelief in some of what you say.

thank you, mr. chairman spent the gentleman's time -- mr. miller is recognized for five minutes. >> mr. miller, recognize a five minute. >> thank you but i yield my time to mr. capuano. >> thank you. thank you, mr. chairman. mr. truax, for so 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've been here a couple hours now. you provided the one point of light so far which to me was the only thing that i think i've heard that i can 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 the point we can follow-up on. i intend to do so. so thank you for providing that single point of light. but i do want to ask you, 50 odd projects that you had, the final analysis, how much federal home money e.g. steel?

>> i didn't steal any federal home money? >> you didn't steal any. ms. smith, are used to the? -- are you still there? on every sunday she is not there, i thought i heard her say that she did not steal any home money. i'm not sure that someone to ask but that's what heard ms. smith, if you come back let us know because i don't want to put words in your mouth. but if i've 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 still any home money. >> if i may add to that, i received the money that i admitted to through kickbacks. it was not -- i defrauded the

system. >> i understand. but you didn't steal money. i get there. by the way, when with my colleagues asked if he got treated without of stuff to come in all the time you did this, did you ever inform the contractors with whom you were working with a low bid was that they had to undercut? >> yes. >> so you told them if you did 10 grand you will get the contact? >> yes. >> so if you had to get three of those bits, which is somehow not have told them was the lowest of the third bid was? >> correct. >> you would not have told and? >> right specs of simply getting three -- what are you getting cash that what you're getting to be its? >> no. >> what we are comparing it to? what they've sold there? >> sometimes. >> when there was a sole bidder why would you have to tell them to number too big? >> i wouldn't have to at that point. >> when they were competitive bids you would get on the phone, or in person, with your

co-conspirator and say, this contract over here has already did 10 grand. you've got to did nine grand? >> yes. >> and somehow miraculous if you get three of those you wouldn't do that anymore, is that what you're suggesting? >> if we had to turn those bids into hud themselves. >> i heard if you had to get three bits would you do it the? >> would the gentleman yield? >> which have given those bids if you had to -- >> would the gentleman yield? >> sure spent as a cpa -- >> i'm a tax accountant. so you're not the only one. >> great. went three bits come in separate and determine income you know had the opportunity to make -- >> that's true if you do it right but it's not true if you're in conspiracy with the co-conspirator outside. you tell them with other guitar, you opened them up and you be sealed and if you're a criminal. if you're not a criminal. all i'm suggesting is if you are criminally oriented, which is fine, you are going to find a

way. that's all i'm suggesting. so we have got two people here who have not stolen hud funds, and we have people here who claim to be experts how to fix it. it to my knowledge i have heard one suggestion that we can bring to hud that we can act on, and it is a good one and i intend to follow-up on, and has everyone to use my time to say thank you. without i appreciate the gentleman shielding and i get back the remainder of my time. >> the gentleman yield his times because i times because i yield back the balance of my time spent i thank the gentleman. we are at this particular time, i want to thank these two particular witnesses. we thank you for taking your time and your insight on this issue. with that, this band is excuse and will now call of the second panel of witnesses. [inaudible conversations]

>> this is the second panel. i will introduce the witnesses. we have mr. john mccarty, acting deputy inspector general, inspector general, office of the inspector general department of housing and urban development. mr. kenneth donahoe, department housing and urban developer. and mr. james beaudette, is that correct? deputy director, department enforcement center, department and urban development, and mr. ethan handelman, vice president for policy and advocacy national housing conference. thank you. thank you for your patience. we have having had a vote and a long question period for the first panel. without objection or written statements will be made part of the record and he went out each be recognized for five minutes for a summary of your testimony. we'll start with mr. mcgarry.

you're recognized for five minutes. >> thank you. good afternoon. i am john mccarty, acting director for housing and urban development office of inspector general. i thank you for this opportunity to discuss our investigation -- >> could you pull that just a little closer to you? >> my testimony builds upon prior oig testimony in june of this year would lead to audit findings in turn controls and administration of the home program. over the past three years with open 51 investigations based on allegations of fraud in the home program. subjects of our investigation

have included executive directors can you develop projects and nonprofit entities, elected officials, construction companies, employees, contractors, developers and investment companies. typically our home program cases involve fraud schemes associate with embezzlement of funds, bribery, theft, false billing and kickbacks. the office of investigations were closed with our many law enforcement partners in most of our cases including investigations involving the home program. our relationship with state and local law enforcement entities and the fbi, irs and other federal agencies help to leverage our resources. many of our home cases are initiative based on information received from confidential informants. often these are contractors or developers who feel that they should've gotten the contracts received by others or revealed kickbacks. we also receive referrals from our audit in the department itself.

typical charges in home cases involve conspiracy, bribery, tax violation, wire and mail fraud, investment, money laundering, false statements and theft of government funds. since october of 2008, our criminal investigations have resulted in 21 convictions, of individuals who use on funds for the own personal gain. it is clear the penalties we see by these wrongdoers represent the seriousness with which these cases are handled. additionally, the impact on local jurisdictions or victims of home fraud can be significant in terms of the loss of limited rehabilitation funds to local community. in addition to the convictions we routinely refer individuals indicted of any hud program fraud to department enforcement center for administrative actions. we maintain a well establish rapport with the department enforcement center and work closely with him to facilitate timely and thorough referrals for administrative action to mitigate for the wrongful use of program dollars.

we feel removing these bad actors from participating in the home and other government programs is imperative to protect an important taxpayer dollars. but also sends a strong message to the others in the industry that this type of fraudulent activity will not be taught rita. we believe home is an important program which provides affordable housing to low income americans. given the current economic and housing prices in our country the need for affordable housing may never have been greater than in its tumultuous times. with this crisis comes fraudulent activity to compete against the good work of how home funds are to be use for their intended purposes. since our investigative work focuses on areas of high risk and the egregious actions in the program our cases highlight areas where improvements need to be made, especially in the area of monitoring. oie believes that increased monitoring would have a deterrent effect on their own program. we look forward to working with the department and the congress

and addressing ways to improve the effectiveness of this vital program. i want to thank you for this opportunity speak to today about our investigation in home program. am happy to answer any questions you may have. thank you spent thank you, mr. mccarty. mr. donohue. you're recognized for five minutes. >> thank you very much, chairman of the bar, and chairwoman biggert, ranking member copy on them, and ranking member dictators. i am kenneth donahue, former inspector general of hud and principal at the resident group firm. ..

>> and the great job they did in many of these informations. my mission is independent objective reporting for the secretary and congress for the purpose of supporting a positive change in integrity, effectiveness of hud programs. that was my mandate, and i took that seriously. during my time, as john indicated, a number of investigations, but we did 60 audits of the home programs. by the way, you might recall we had an enormous amount of mandated congressional oversight after the 9/11 disaster, we had oversight of fha and ginny may, the affected gulf states of katrina and rita, and you can imagine the amount of activity that was going on, certainly, with the mortgage fraud activity. i was proactive, i had a proactive sense of urgency, and my position was zero tolerance when those wrongdoers who might

attempt to commit fraud and abuse their authority. i would often address my concerns to the didn't, and the fact of the matter is -- to the department, and the fact of the matter is 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 occasions hud came to us and asked me to address their concerns with regard to some of a -- some of these rams. i directed orders problem completed on those 12. the secretary off expressed the importance of home programs based on the positive experience he had done involving his new york practice. the answer, in sum up, is aggressive monitoring in my estimation has to occur with the subgrantees on these programs. hud had 42 local field offices with enormous undertaking to

oversee these programs. unfortunately, there was frequent incidences of noncompliance, and as john had reported, criminal fraud. particularly in the subgrantee level. the hud information systems were self-reporting, and i was pleased to hear most recently the former -- the assistant secretary speak anything the june-july hearing where they said they're addressing such issues as well. yes, it is true that the inspector general has 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 without an effective monitoring and compliance practice, we encourage those wrongdoers -- some we saw today -- to seize upon federal funds for intended

purposes as their own self-gain. 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 that would take the big step and get involved in criminal activity, and i think we owe it to insure we have aggressive compliance. i am pleased with the comments the assistant secretary made in june and the fact i look forward to those aggressive actions that they're planning on following up, and i think very well may have occurred since that time. compliance responsibilities on local grant levels, hud and congress might consider reforming the legislation to expand the role and responsibilities of hud to insure more active compliance program. i enjoyed a very positive relationship with the department's enforcement center in jimbo debt. jim debt.

jim beaudette. in my telephone opinion, over those nine years i felt they did not have adequate resources in addressing matters not only for the grant activities, but the subgrantees as well. as stated earlier, an effective inspector general must be dill gent and encouraging at times and insisting with strong transparency within government programs. such programs do exist and are available. one such example is following the 9/11 disaster in new york where the importance of or new york city and new york state went back and hired monitors, recognized monitors to go back and look at realtime issues to see, in fact, whether grantees or the subgrantees were, in fact, doing things inappropriately. >> if gentleman could conclude. >> yes.

finally, i'm at a disadvantage of knowing that constructive change made by hud in the past year or so, but i do look forward to their continuation. thank you. >> thank you. mr. beaudette, you're recognized for five minutes. >> thank you. chairman neugebauerer and biggert, members of the subcommittee, thank you for inviting me to testify about efforts by hud to prevent and combat fraud against government programs including home. i'm the deputy director of hud's department enforcement center or dec. the dec is responsible for the didn't's suspension, 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 nine 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 and at the didn't of interior. i'm not aware of any fraud by hud or federal official in connection with the home program. overall, in my experience there's been relatively little fraud by private individuals, or more rarely, by state or local officials with respect to home funds. i agree with the assistant inspector general's testimony that there's very good relationship between 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 90% of the time about home. the vast majority of people involved with home and other programs and 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 with block grant programs. a key anti-fraud component is aggressive enforcement. that is a hud focus. secretary con van and others -- donovan and others have made it clear there is zero tolerance for fraud. just last week the dec suspended a contractor who was recently indicted from lewiston, maine, starting in 2005. the working relationship between oig and hud insures that we can begin debarment or other actions against the violater 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 implementationment 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 respondent 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 l 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 insure 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 insure better project reporting, tracking -- including more financial and 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 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'd be pleased to answer any questions. >> thank you, mr. beaudette. mr. handelman, you're recognized for five minutes. >> thank you very much. by name is ethan handelman, and i'm the vice president for policy and advocacy at the national housing conference. i'm grateful to the members of the committee for inviting me here to testify. i hope that as part of the discussion of the need for strong financial and regulatory 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 insuring 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 advocates, mortgage bankers, nonprofit and for-profit home

builders, 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 if 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 exclusively to provide affordable housing for low-income families. over one million units have been produced, including those for new home buyers, some for owner-occupied rehabilitations and some for rental housing units. above and beyond those units created, over 240,000 tenants have received direct assistance to make private market participants more affordable -- apartments more affordable.

for every home dollar expended $3.94 in public and private investment has been leveraged resulting in over $80 billion in other funding for affordable housing since the program began. 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, sometimes in larger developments. in particular, home dollars are often the early money necessary to get prompts off the ground -- project off the ground while other resources come together. thirdly, home creates jobs. home funds frequently provide essential gap financing for low-income housing tax credit properties. those developments create jobs. construction of a typical property result in 116 jobs, about of 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. fourthly, home sustained projects during the downturn. the recession and financial crisis disrupted real estate development across the country n. a survey of home builders from the beginning of this year, 45% reported putting multifamily projects on home and 60% reported putting single-family projects on hold. housing starts have decreased nationally from the height in 2005 to the bottom in 2010. home-funded prompts, however, outperformed the broader real estate market. in june hud reported that only 2.5% of 28,000 active projects were delayed. so against the backdrop of disrupted real estate markets, home projects stand out for completion. fifthly, home reaches many communities. the flexibility of the home program provides urban, rural

and suburban commitments across the country with the ability to reproduce and rehabilitate single-family homes while also providing and rehabilitating rental housing for 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'd share as one example the silver star apartments project in battle creek, michigan, which used home funds as gap financing to create 75 apartments on the campus of a va hospital allowing homeless veterans, a, to be housed and, b, to have access to the medical care they need. lastly, home empowers state and local government. local communities can target the flexible home funds to the particular needs of their communities and housing market. hud provides the central oversight function verifying project colleague and, when necessary, bringing enforcement

action to capture funds. hud's enforcement is strong and must continue. 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'm glad to answer questions. >> thank you, mr. handelman, and we will now recognize members five minutes each to ask questions, and we will begin with the gentleman from illinois, mr. dold, that's recognized for five minutes. >> thank you, madam chair, and i certain appreciate the opportunity to ask is 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 to 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 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 prompts in a sample of about 5100 multifamily projects that were undeveloped, indefinitely delayed or abandoned. this represents about 14% of the multifamily projects that were susceptible to waste, trade and abuse. can you talk to me about this 14%, 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 one more second because i do want to get a better understanding of how you're aware of the fraud in your role. >> in my particular role, it's

after the fact. it's coming from the ig's office to the dec. >> so the ig's office is giving you that information. so i'm just trying to -- in layman's terms, you investigate whether a person who has already committed fraud or broken hud rules should be barred from receiving hud money? >> that's incorrect. >> okay. can you tell me -- >> the departmental enforcement center handles the suspension and debarment of vims who do -- individuals who do business with hud. >> okay. in the scope of the hearing that we've got here today, just trying to get a better handle. you're the best person in terms of hud to be here to be answering questions about fraud and abuse? >> from hud i probably am, yes. >> okay. can you go back then and we talked about the 700 cases, the 14% and the zero tolerance policy. can you focus on that for us a little bit? because we are interested in the terms of how to we make it better because 14% to me, does that sound like a big number to

you or a smaller number? >> that sounds like a smaller number. >> 14% of waste, fraud and abuse is small. okay. please elaborate. >> i don't think it's a good number. i believe it's a smaller number. >> smaller than what? >> smaller than 15. >> okay. historically, it's smaller than 1 as -- 17 as well. it's certainly greater than 13. i'm glad we're going down this path. certainly from my perspective as a taxpayer, 14% when you've got -- and correct me if i'm wrong, zero tolerance policy. not a 14% tolerance policy. so am i correct in thinking that it's a zero tolerance policy or a 14% -- >> there is a zero percent toll lance policy. there's no fd of fraud in this particular 14% we're talking about. >> okay. in the 14% that i'm specifically referring to, we've got monies that have gone out there in the programs that have, that has not

been spent, we've got vacant lots. so i guess i'm having a difficult time saying there's not fraud involves with that. >> i'm not ware of it -- aware of it myself. >> okay. um, is there anybody that we should be talking to at hud that would be aware of those? >> i'm sorry. >> is there anybody at hud that would be aware of those? >> actually, the deputy assistant secretary is with me today who could speak to the program aspect of it. >> madam chair, i mean, i'm happy to -- i don't want to mess up your panel but would be happy to just try to find out if there is someone more appropriate to speak with. [inaudible conversations] with just a short period of time, we'll let you sit down, mr. beaudette. we'll go to another thought and, mr. donahue, based on your years as the hud inspector general, can you, please, describe your

greatest concern about hud's oversight or lack thereof? because it's, i'm sure, i'm confident that regardless of administration we've 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 the, what your greatest problem was in the past -- >> yeah, more than happy. quite frankly, you know, transcend administrations, in my capacity as inspector general, and i might say all the secretaries that 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 the different programs as far as exposure to fraud. that's why my office was so engaged, as i indicated in my testimony. but to answer your question 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 subgrantee level. and until you get to that

subgrantee level, you really don't really know or find out necessarily as to, as to what might be going on wrong. and we rely upon as inspector general, we rely upon, as ms. 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, hotlines and whatever else, to come back, and we investigate on a case-by-case basis. with the exception of audits. i did 60 awd audits, that's a significant number of audits to do. >> gentleman's time has expired. >> thank you. >> we have an orderly process for witnesses, so we will continue. the gentleman from massachusetts is recognized for five minutes. >> thank you, gentlemen, for being here. i -- were you all here for the earlier panel? to listen? do you agree that it was probably a very good point that when someone's being audited, they should not be allowed to

collect 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 doesn't know before you walked into the room relative to the auditing hud or anybody else? the answer is, no, right? it was a nice show, but you didn't learn anything. >> well, sir, i think it was very informative to hear anytime i hear a criminal wrongdoer speak to that, the issues of how they collect their fraud -- >> did you hear anything today that was unique or hadn't heard before? >> you know, in this 35 years, i probably heard it all. >> that's what i figured. i didn't hear anything, and i haven't been doing it that long. though it was fun, i would have rather gone right to this panel. i think you gentlemen have more to offer to the things we want to do, and i'd 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. i mean, there is nothing that i wouldn't be open to. but at the same time, though it's very interesting, and we should have more, i need to hear specific proposals as i'm 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 something, suggest that as well because i'd be more than happy to do that. i guess i'd also like to ask mr. beaudette in his testimony said there was, in his stills, very little fraud in the home program. mr. mccarty, would you agree with the general statement? >> well, generally, like mr. donahue said, any fraud is too much for us. >> i agree with that. >> i think from what we've seen over the last three years, the numbers i gave you, that is what

we have been provided to work with. >> fair enough. >> not knowing what is out there is what troubles me. >> well, that's owls -- always the trouble. i guess the other question that i really want to know is during your term, mr. mccarty, and i'll ask you the same thing in a minute, mr. done high and -- donahue and mr. beaudette, do they generally accept your suggestions and implement your suggestions? >> i think my colleague testified in june that the department's home program has been very receptive to our audits. >> yes, he did. but i want to know if you agree with it. >> i think so, yes, sir. >> mr. donahue, would you agree with that? >> not only do i believe all the secretaries are quite sensitive -- >> so when you made a suggestion, they would try to implement it? mr. beaudette, have you found that to be true as well? >> absolutely. >> so as people find new ways to

do it and they go to suggest it, in general -- not just this administration, but past administrations -- they're 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, have there been times when you have suggested, mr. mccarty, you really need to do this on an important issue to enhance your oversight, the hud has said, no, we refuse to do it? >> we've been asking them for a while to do more monitoring, to implement a realtime, surprise monitoring system that was mentioned earlier here. that started back when i was assistant inspector general for investigations. for the most part, right after 9/11 where it was success. , but -- >> have they said, no, they won't do it? >> i think they tried to implement it other ways. >> but they haven't said no? >> no, sir. >> mr. donahue, did you have the experience of -- >> i have present inside the past with regard to my past

years as monitoring that i put in my written testimony to be implied in new york, it's a very effective program, but what it does is it gets down, a monitoring practice, to the subgrantee level and, to me, that's the key to make this monitoring effective. >> have you suggested that to hud and they said no when you were the ig? >> i've suggested it, and it didn't occur. >> mr. beaudette, have you had that experience where you suggested to hud and they said no? >> no, i have not. and i think given the resources to do so, hud would love to enhance their monitoring program. >> mr. donahue, in your testimony which i actually appreciate very much, i just want to read one sentence back to you. an effective inspector general must be dill gent in covering and at times ip cysting on -- insisting on strong oversight. i think that's a wonderful statement. did you inthat your proposals be adopted? >> well, sir, if you knew me for nine year, i used to make it

very vocal whether this matter is mortgage fraud. >> i guess i don't understand, what's the difference between suggesting and ip cysting? >> i'm sorry? >> what's the difference between suggesting and insisting? >> probably the same thing. >> fair enough. thank you, gentlemen. i look forward to your written comments on specificity, because i'd like to follow up on them. >> thank you. i think 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. stiefers, for five minutes. >> thank you, madam chairwoman. i'd like to thank the chairs of the two subcommittees for calling this hearing, i'd like to thank the panels for your time because we all want to make the program much more accountable and root out waste, fraud and abuse. my first question's for mr. mccarty. were you here for the first panel in which mr. renacci asked

about internal controls, specifically random inspections, multiple bids and taking the lowest bid? >> yes, sir, i was. >> has your organization as inspector general ever rended these -- recommended these steps to hud for the home program? >> i'm certain we have to our audits, yes, sir. >> so to follow up on the gentleman's questions from montana, while you've recommended them, they have not been adopted, is that correct? >> i'm not certain i could answer that right now, sir. >> sure appears they vice president been adopted -- >> at the subgrantee level. >> at the subgrantee level. >> next another question for mr. mccarty about the information systems because you brought up those in your testimony a bit. um, so the way the information system works today is grantees and subgrantees can go in and change numbers at any point in the system so it's really hard a for the computer system to have a reconcilable audit trail that you can use in your investigations, is that correct?

>> yes, sir. that's what our audits have shown, and i think mr. truax testify today that also. >> he did. and has the inspector general's department ever suggested that hud fixed that? >> yes, sir, we have. >> okay. well, again, and i know mr. capuano, the gentleman from massachusetts, asked about specific actions. it sounds like we've got four specific actions already. i appreciate you answering those questions. the, um, next question is from mr. donahue. you suggested in your testimony some realtime monitoring fixes that hud should adopt for the home program. can you quickly elaborate knowing that we have 2:50 left on, specifically, what those are? >> right. the one i saw most effective was implemented in new york and is currently in play with regard or to redevelopment on manhattan. and in concert with the grant recipient and the inspector general, they hire a reputable

monitor that goes back in realtime a la carte looks back at the, looks at the dispersement of funds, it could be any matter they ask upon, but the person goes on site at a subgrantee program. their reimbursements are provided for within the cost of the grant. >> great. mr. beaudette, you talked about you'd never seen an issue when the 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. donahue yet? is in the fist time you've -- first time you've ever heard of those recommendations? is. >> this kind of setting, yes, in that -- >> in any setting. i'm curious if you've read them in a report, if you seen them as a requirement. this is the first time you've ever heard about these four ideas -- >> 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 standards -- >> so there are random inspections where the grantees and subgrantees don't pick the programs now? >> i believe so. don't quote me on the random inspection -- >> and the grantees and subgrantees can no longer update the system on their own? is. >> i don't know that. >> okay. >> actually, i thought you were referring to the internal controls and -- >> well, the first three were the internal controls. the fourth was the systems issue. so you're saying all four of those issues were fixed. i'll follow up with your office in writing on that, but i'd love to get a full report. that's what we're here for be today. the last question is for mr. handelman, and i'll just follow up on something that i think mr. dold asked. he talked about 14% fraud, and let's assume for a second there is 14% fraud. and waste. fraud, waste and abuse because if you spend money on something,

even if it's not fraud and they don't build the stuff they're supposed to build, it might not be fraud, but it's at least waste. if there's 14% fraud and waste in this program that you and i agree is an important program, what's the impact on this important program? >> you and i certainly agree that this is an important program. um, i understand that you've asked me to hypothetically assume that the 14% number, i'll say for benefit of the committee, we looked at the numbers produced by "the washington post," we're unable to replicate them, and the post did not release its analysis, so i have no confidence this that program. >> okay. if there is that kind of waste, is it bad for the program? >> yes. >> that's really what i was looking for is, you know, we all want to agree when we agree that there's a worthy program, we want the money in that program to be spent wisely and efficiently. i think my time has expired. thank you. >> gentleman's time has expired. the gentleman from missouri, mr. cleaver, is recognized for five minutes. >> thank you, madam chair.

mr. mccarty, we have 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? >> it means the criminal justice system worked. >> yes. >> yes. >> i mean, when people do that, what's supposed to happen? a combination of whistleblowers and good investigatory work done by, you know, the u.s. attorney, the ig and all that played into catching people who were

committing fraud in the home program, is that correct? >> yes, sir. >> okay. so if system is working, um, and people get into the system like the gentleman who was here earlier who, um, said he didn't go into the program to commit a crime and the people who hired him didn't see, no human being can see in somebody else's mind and soul, so they hired him, so what else can we do? i mean, you try to hire the best people you can, and when people commit a crime, they get caught, what, what else do we do? >> well, speaking for law enforcement, we like to get the word out through fraud awareness briefings. we wallet to make sure that we have an ear to the ground for the people that are manipulating, who are running the programs and possibly manipulating them.

those who are confronted with opportunities of fraud, it's done out of desperation, greed, and where we can reach those people before that happens in prevention rather than in enforcement, we're all better off. >> yeah. the human condition would be such that we can't stop people from doing wrong. >> correct. >> 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 thing. >> yes, sir. >> mr. donahue? >> yes, sir. i want to go back to your reference to the two people. i think how i would phrase that in those two cases the system worked perfectly. the system, the environment we deal with is the ones we don't know about or the ones we don't, and i think as mr. mccarty as specifically stated, i think in federal law enforcement a key issue is prevention, and i think how you prevent that -- i've seen in the in the fraud world -- is that how you prevent that is having strong requirements, good oversight,

compliance and monitoring. i think you can't have one without the other to be effective. >> so one of the most significant steps we can take now would be to cut funds from the home program. >> are you asking me that, sir? >> yes. >> no, i am not suggesting that at all. >> i know you didn't. >> oh. >> i'm asking, you know, i mean, does it make sense now to because we had a problem, let's cut the budget in the home program which probably would result in cutting people who would be in position to do some of the monitoring, is that -- do any of you disagree with what i just said? did any of you understand what i just said? [laughter] >> i don't think the idea is to shut down home. i think to provide a deterrence to where an individual is relatively confident that if fraud's the program, he's 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. >> sir? >> i would further agree that shutting down home is shot the answer to this -- is not the answer to this problem. >> yeah. i think anytime we start talking about a program like this, sometimes people think, okay, we had a problem there, so let's eliminate the program or, i mean, um, i never forget we had a problem with somebody misusing access to the pages here in congress a short time ago, and so there were people who said, let's cut out the page program. instead of saying let's cut out congress. [laughter] but the point that i think is important, i mean, when this is a problem, we always decide to 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? anybody disagree? thank you, madam chair. >> gentleman's time has expired. the gentleman from texas. >> yeah, thank the chairwoman. i'm going to put, mr. mccarty, does hud track whether funds used for the intended purposes, in other words, if i received a grant of home loans for 100 units but i only built 60, does hud have a way of tracking whether i build 60 or 100? >> i don't think i would be able to answer that, sir. that would be a program question, how they run the program, how they track it. >> so let me ask you a question, i wallet yo use an -- want to use an example. it's hard to see that, but that's 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 two years. so do you think, do you think it would be appropriate for hud to have some knowledge that if they extended a grant for 106 units, that they got 106 units? >> yes, sir, i do. but i think in your example realtime surprise monitoring would pick something like that up immediately. >> yeah. 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? >> i'm not certain about that, sir, how idis might draw that up. >> but you would agree they

should have a system like this that. >> yes, sir. >> yeah. and i want to go back to this computer system where the recipients can manipulate that data. would you agree that that's not good internal control, that people that are receiving the money can go in and make entries into the records? >> no, that should never happen. there has to be some control. >> because i was thinking, you know, if i was using this analogy, it would be like me being able to log into -- 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? >> certainly. >> yeah. i kind of relate that to this system that's in place at hud now. basically, they can go in, and one of the examples that we've seen is we saw examples where

projects were closed when we brought those to hud's attention, and they mysteriously were then reopened. now, how would that happen? how would projects that were in the system were closed, all of a sudden we bring it to hud's attention, and all of a sudden we go back and look in those records again -- >> i don't know, sir, maybe the data. >> that's probably not good, is it? >> no, that's not good. there needs to be transparency built in to all the data. >> yeah. my credit card company, if i kind of do a number of different transactions that's kind of out of a pattern, they call me up. and sometime they cut my credit card off. they'll say, we suspect something's going on. does hud have systems to be able to track, you know, that we keep -- that we're making disbursements for a project and it seems irregular?

>> i believe idis is supposed to do that in this particular program. >> do you believe it's operating in an effective way? >> no, sir, i do not. >> yeah. so i think the question we've been talking about, suggestions, i heard both of you say, hey, when we say something to the secretary or to the people in the organization, they're receptive to it. but there's, you know, sometimes my wife asks me to empty the trash. i'm receptive to it, but i don't always empty the trash. and there's a penalty for that, by the way, as well. so i don't think anybody's questioning whether these people are receptive, i think what we're talking about here, i think, is a very serious issue, is that being receptive and put anything places interim 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 record, we went out and found vacant lots. now, some people say, well, we may not have given you the right address. i think it would be appropriate for hud at least to have the

correct address, you know, whether spending million of dollars. would you agree? >> yes, sir. >> yeah. so i, while i think some folks wanted to discredit some of the first panel of witnesses, i think they, i think they painted a picture that's not a pretty picture. and that's a picture that inside the system today the taxpayers' money may not, we may not be the best stewards of it. it's my job, it's your job, it's 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. i would hope that the panel would agree with that. and so i think we've got some work to do, and i would hope that from this hearing today, and i would hope that the secretary and others are understand that we intend for this to stop. and we are trying to send a message here that we need to fix this, and i thank the chair. >> gentleman's time has expired.

the gentleman from texas, mr. green s recognized for five minutes. >> thank you very much, madam chair. i thank you for allowing me to be a part of the committee, and i thank the witnesses for appearing. just want to make a comment about the witnesses that testified previously. i think that persons who commit crimes should be caught, i think that 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's my belief that the committee would, as a whole, with unanimous consent, agree that this is the case. my concerns with reference to them were little to do with their credibility as much as it has to do with the fact that they are criminals, and as such i don't want participate in oversight hearings as much as i

would like to because this is not my subcommittee. but as such, um, once we start bringing the criminals in to act as experts, i guess at some point madoff comes in, and we try to find out how we can better strengthen the sec to make sure that we can prevent crimes from occurring. and if there's anybody who's an expert on how to defraud folk, probably madoff may be one. i don't know how he gets qualified. i'm sure the process that we used to qualify these folk would probably work with him as well. and i had a concern about just a specific thing that was being called to our attention about the three bids. it makes sense to get three. it makes sense that that 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's, that's why they're criminals, i guess, because they do these kinds of dastardly things. so, now, to the gentleman with hud, i just want to make sure that you are on the record, and you may have said this, but my assumption is that you want to catch all the criminals that you can if they're trying to defraud hud in some way. is this a fair statement? >> yes, sir. >> okay. and you're willing to change rules and make reasonable adjustments so that you'll be in a position to prevent crimes from occurring, is that a fair statement? >> the rules these to prevent crimes from occurring. >> yes. so you're not, hud is not trying to in some way declare that you

have a perfect system that needs to adjustments, are you? >> i can't speak for hud, but i know that they don't have a perfect system. >> okay. let me ask the hud representative. >> could you repeat that, please? >> you're not implying that hud has a perfect system and that you can't make some adjustments, are you? >> no. >> and you want to see that criminals are caught, don't you? >> yes, we do. >> and it does not offend you to know that the system worked and criminals were caught this time, and you'd like to make sure that it works every time, is that a fair statement? >> that's a fair statement. >> okay. well, i'm saying this to you and to all who are within viewing and earshot of this because sometimes people do allow these things to met morephose from an information into a desire to end the program, and this is not something i'm placing with any of my colleagues, but that can

become the next human cry, that the whole program should be eliminated. is there anyone who's 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 the program should be eliminated? is. >> the program is one of the strongest housing programs we have. we should keep it. >> okay. anybody think it should be eliminated? >> okay. so i want the record to reflect that all of the member of this panel are of the opinion that this program should not be eliminated. and to be fair to you, you believe that the if there's some places where we need to strengthen the regulations, that we should do so to prevent criminals from committing 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 metamorphosis into a later time when you're not here we need to eliminate it because there was fraud. i thank all of you for appearing, and i yield back. >> thank you. mr. canseco is recognized for five minutes. >> thank you, madam chair. let me address this question to many mccarty and mr. donahue one at a time. um, in your investigations into home program, did hud personnel chargeed with oversight seem more concern with the achieving the mission of home program or insuring that home program funds were being spent correctly? >> i believe that the hud program people were concerned about both. >> uh-huh. >> that's their job. >> uh-huh.

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? >> yes, sir. >> all right. mr. donahue? >> in a matter of speaking, i agree. i think there's times as an ig when you're dealing with the didn't for nine years that you sometimes have, you have concerns. and you voice those concerns. and, but to fundamentally answer your question, i believe, listen, i believe these people come to work, do a good job, and i think they're trying to help programs, help people in need, and they try to do it the best way they can. but it all comes down i mentioned this balance between constructive oversight and the applications of programs themself. there lies the challenges. >> uh-huh. well, still to both of you, um, hud relies on it participating jurisdictions for management of the home program. what policies or procedures does hud have in place to verify that

apartments actually -- participants actually have adequate policies in place? >> sir, i'd defer to the program on that. i don't know the program that well at that level. >> okay. same answer for you. >> can i believe the same answer would apply. you have to ask that question of -- >> mr. beaudette? >> same answer. we could get you that. >> all right. and you, sir. >> i'm going to defer you even further since i don't want work for hud. >> okay, all right. just thought you might have an opinion on that. >> fair enough. >> so we've learned that home program database is riddled with inaccuracies. would you say that these inaccuracies stem from if database being difficult to enter the information into? >> i don't believe so, no. >> no? mr. donahue? is. >> well, i mean, i will say, no. my answer, the audits have indicated, as you suggest. i do, however, will state that i

believe in june the assistant secretary marquez did speak to improvements with regard to that database program. i don't know what the status of those are. >> mr. beaudette, can you weigh in on that? >> i would hope it's easy to enter data into those. in this regard, the grantees, the state and local governments, are the interrerrers of information -- enterers of information. i suspect that hud provides them with specific information to put the information in there. >> what policies does hud have in place for auditing it database and flagging projects for review that, obviously, need more follow-up such as those with address unknown, quote-unquote? mr. donahue? yeah. >> again, i'm going to have to refer you in that regard. if you get into these areas with me, i've lost any objectivity. i believe oversight is so

paramount, my suggest if it doesn't exist, i'd tell you it needs to exist, but i don't know what the status of that is now. >> mr. mccarty? >> i don't know the status. >> mr. beaudette? >> same. >> okay. i yield back the balance of my time. >> thank you. the gentleman from north carolina, mr. mchenry, is recognized for five minutes. >> i thank the chair. um, mr. mccarty, um, so how does monitoring or lack of monitoring of, effect fraud in the home program? for instance, additional site visits and the fact that grantees, um -- well, i guess the additional question. so the lack of monitoring, how does that effect fraud? and additional question would be do grantees, um, are they allowed to select which home projects they show and when the site visits occur? >> the lack of monitoring is, provides opportunity for fraud

and criminal activity. as you heard mr. truax testify to, he knew when the inspectors were coming, 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. so -- >> is that common place? >> we've heard that throughout our investigations,s yes, sir. >> okay. so not only the scheduling of it, but also the show -- which sites to show? >> the grantees have been able to manipulate the monitoring system, the oversight system. >> okay. are there, are there apart rules for how -- apart rules for thousand this is done, how the site visits are done -- >> yes, sir. i believe there's a checklist that the monitors go through. >> do you have issues with that checklist? >> not if applied properly.

>> okay. and it aappears that it's not being followed properly. >> yes, sir. >> okay, all right. if we could put up on the screen, um, home. mr. beaudette, um, does husband's approach to overnight in the home program leave the door open to fraud and abuse? >> i believe anything pertaining to it would provide the opportunity. you enhance it, it decreases. you release it, the possibility of it goes up. um -- >> so, no, no. i'm asking does the current approach to oversight of the home program leave the door open to fraud and abuse. >> i don't think so. >> okay. well, then let me show you an example. um, this is a duplex in the town i grew up in. not in my district, but i'm in a

divided county with a redistricting year, it'll be in my new district. not in my current district, but anyway, suffice it to say i grew up, actually, just a couple blocks from this house. you can see it's not that old. um, that appear 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. um, this is, you know, you can see it's clearly two units. first, i ask that your agency look into this, um, because this is a very serious discrepancy, and i'd be happy to provide you with the exact address. but, um, 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, you know, this is not -- we didn't spend, we haven't been working full time

on this. but the fact that we found this is a bad, really bad indication for the program. and, um, technically, i'd like to know how this can happen. mr. beaudette? >> i don't know. >> you don't know how it could happen? >> no. this specific situation, i don't know. i'm sorry. >> but generally, how does it happen? because we have heard testimony from the first panel there's a human cry on the other side of the aisle that we bring folks that are basically fraudsters to give examples, and we have another panel that says, ah, i don't know how it happens, you know? mr. mccarty, you know, is there -- >> this happens because there's no oversight. there's no one out on the street looking at it. your staff went out and found this. if didn't were to go out there, the grantees go out there, the subgrantees go out there, they'll see this. >> so is it a failure or policy, or is it a failure of people to follow those policies?

>> i believe it's the people. to get out there to do it. >> okay. >> i think that when you have that many subgrantees and you have 42 offices of hud that do this, and they probably all do it different ways, i think the numbers overwhelm them. >> okay. mr. beaudette? is. >> can we get back to you on this and give you some specifics? >> 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'd certainly appreciate you doing that. >> thank you cell very much. >> gentleman's time has expired. the gentleman from arizona -- from michigan, sorry. >> thank you, madam chair. i appreciate that. mr. beaudette, i'm curious, how much waste, fraud and abuse is present in the system? because earlier 14% was referenced, and staff -- much like they're doing now -- are shaking their heads and rolling their eyes and pulling faces. i'm curious what numbers ar