program and as my colleague from illinois pointed out, the home program was actually found some very important projects and i would just simply say that if we are able to crawl out some of the waste and fraud think about how many programs we would actually be able to fund the benefit of the taxpayer. when i look at the small-business owner one thing i do know is those who manage an organization of those that spend other people's money must create and maintain adequate systems and controls, checks and balances if we are going to have these type of programs succeed. the witnesses that we have today, as congressman was marland pointed out of the ways is to identify the hold of the witnesses identified the holes. if we look at our credit cards and checks the people that helped devise these security systems we have in place today were not the law enforcement in fact they ever to law enforcement for years and years and they actually were the criminals that actually got around the systems. so i think that we s. con. res.

need to use the oversight authority to be able to find out how we can strengthen this program for the tax payers because surely the american people, the taxpayers and congress will demand no less. i yield back. >> i thank the gentleman and now the gentleman from texas for one minute. >> thank you mr. chairman. our nation has just over $14.9 trillion. over 126,700 or american households on average and we are spending -- this is a spending driven debt crisis that has a borrowing approximately 40 cents of every dollar and every time the federal government spends a dollar on its priorities that is a dollar that could be spent on priorities of the american people such as purchasing a home, starting a small business or send a kid to college. when we our deficit spending we are borrowing it from the future opportunities of our children and our grandchildren. we must ensure that each and

every dollar the federal government spends is not needlessly spent. the purpose of today's hearing is one as a follow-up on an earlier hearing that we had with the full committee and its to look at whether or not hud has in place policies and procedures to insure the precious tax payers' dollars are not being wasted on home programs. serious allegations of waste, fraud and abuse have been leveled against the program and given the nation's serious fiscal challenges we cannot afford to allow wasteful spending to occur. i look forward to hearing from the witnesses today, and as we attempt to discover answers to the serious questions that have been raised by the program. thank you. >> mr. chairman i ask unanimous consent to insert the following material into the record. november 1, 2011 from the housing development and consulting november 1st from a coalition of housing industries

day of november 1st letter from the housing corporation a november 1st letter from mid pen housing october 31st, 2011 a letter from the national housing conference, november 1st, a letter from daniel solomon to five per person on november 1st letter from enterprise community partners, november 1st letter to the second letter from enterprise community partners, november 1st letter from a housing trust of santa clara county. testimony president and ceo corporation for the support of housing and november 1st letter from resources for communities along that. >> without objection, so ordered. >> we will now go to the witness panels. the first panel witness is mrs. smith. she will be joining us remotely, and i don't know if she is --

mrs. smith, are you there? >> we will see if we fixed that. the second witness is mr. truax. mr. truax, i would ask a question or he promised anything in order to testify today are you here on your own free will? >> i'm here on my own free will. >> you were not promising anything in return for your testimony, is that correct? >> no. >> do we know if we have a mr. smith? >> [inaudible] can you hear me, mr. smith? can you hear me? >> yes, sir i can hear you. >> i need to ask a few questions

before you get your testimony. are you here voluntarily testify in today? >> yes, sir, i am. >> can you tell us why you are testifying today? >> yes, sir. one of the things experienced especially -- i hear feedback. >> were you promised anything to testify to this committee today? >> no, i was not. >> and so, thank you for making yourself available. you're written testimony will be made a part of the record. at this time the committee will recognize you to give your oral testimony and you may begin now. you have five minutes. >> thank you. thanks to everyone on the committee for allowing me the opportunity to come to speak to you today. i as i said in my written testimony started working for a

nonprofit not because i sought out the work, it was actually something that i tracked into and was actually promoted to the executive director position at about a year or two and a half years after getting their was not necessarily trained on how to. >> and we to ask you to spend just a minute we are going to work on a little technical detail. >> yes, sir. >> this is the first time that we've done this, so i'm kind of winning this a little bit, but i need to ask you to swear you and as a witness to you mind meeting that? >> no search.

>> do you solemnly swear or affirm that is the money you are about to give will be the truth, the whole truth and nothing but the truth? >> yes, sir i do. >> thank you very much. mr. truax to you from the testimony you're about to give will be the truth, the whole truth and nothing but the truth? >> yes. >> this is smith, i apologize. you can now resume your testimony. >> as i was saying, i started working for a nonprofit not necessarily equate to run a nonprofit, didn't have a lot of knowledge on what it was on the nonprofits to go to a couple of conferences there in d.c. for the community development work and actually got a chance to see what the nonprofits were doing in terms of work force

development and community development work. and then to the respective communities started working on that. our board of the time was not in place to understand why it was the community development was all about, but we started doing some really good work in the workforce development and then we kind of moved and again not tall to be in housing but we got started and we had an opportunity to develop a residential property from the ground up of affordable housing, but there are a lot of things that didn't happen well upon our part making that a reality things that it happened was we were able to help a lot of young people get job training and

actually did work in the construction bill. these are things that i encountered a lot of bumps and holes in the road as it relates to the development in the community and a lot of, you know, political things that kind of candor the process from going the way that it should have. >> thank you, we will come back to you in just a few minutes with some questions. we are now going to -- mr. truax for five minutes for a summary of your testimony. >> mr. chairman, can we swear mr. truax in? he has been sworn in as well? mr. chairman, i would like to make the notion that we strike 15 different paragraphs of the 30 paragraphs in the written testimony they do not do this with the other witness because

the other witness only had a few things. 30 of testimony 15 of them have no apartments whatsoever. it is a let me of lying sorry i did this, i didn't mean it, i won't do it again. i didn't have the intent to do any wrong doing which is well and good, but my fear is this gentleman hasn't been sentenced to my knowledge. if this goes into the congressional record as written, the next thing we will do with the sentencing hearing is somehow the congress approved he didn't mean it and i'm not saying whether he did or he didn't, i have no opinion on the matter i just don't think this congressional record should be used by anyone to build their record relative to whatever sentence they may or may not get and it has nothing to do with the information that mr. truax may or may not be able to give us. but 15 of the written paragraphs have nothing to do with the items you personally stated and i agree with is the purpose of this hearing. i am not here to determine

whether mr. truax did or did not commit a crime to read or to determine whether he meant to, but his intent was with 30 is sari or those other items. that's for the courts and the people who were going to sentence him and that is the appropriate place so i would make the notion that we strike these paragraphs and have a list here if you would like to expect there was a unanimous consent request. i'm going to object i hear the gentleman is saying it is a dangerous precedent for the committees to start determining what parts they like about the witness's testimony and what they don't like about the witness's testimony. we ask witnesses to submit their testimony then they have a chance to summarize it. the gentleman will have an opportunity to question mr. truax if he wants to question his motives that is certainly his prerogative but i find it a dangerous precedent to

start after hitting some peace testimony we are going to make a part of the record what we are not great to make a part of the record. >> that's why i didn't need the same notion i thought there were parts of the previous witnesses testimony in this particular case in the entire 30 seinfeld they were not doing anything wrong. it was never my intent to defraud or steal from anyone. i was hoping the contractor was to honor the arrangement and i've told them both i didn't realize i was doing in terms of it was long. i was sorry for getting involved. i'm truly sorry for related and charley and sincerely regret all of which may be true and i don't suggest they are not but i don't see how the shared on this all relates to the testimony on the matter and that is the only thing i'm asking is this congress not be used as a tool for someone else to use testimony they submitted the congress thinks they were right. that's all i'm suggesting.

it has nothing to do with the substance of what we will hear. it has simply to do with what congress does we don't determine the intent by somebody about to be sentenced this isn't our rule or purpose today. >> the purpose of this hearing is to ascertain where the holes are in the system that appear to continue to be in this program and it's not to ascertain the motives of why the witnesses are coming, these witnesses both state and they came on their own free will and they were promised nothing in return. we ask them to come and share with this committee how easy it was for them to gain this system which i find troubling and i know the gentleman finds it troubling. it's much like when the fbi figures out who is producing the

best counterfeit bills they go to people that have produced counterfeit money and when you go we've gone to the crime scene here and found there was a crime committed. >> my motion is simply to strike important and irrelevant testimony. >> the chair rules would not accept the gentleman -- >> would the chair yield mr. chairman? >> i think when somebody goes through, and i read the testimony, goes through, i think the good point is -- >> does the gentleman have a point of order? >> continuing on the point of order, on page four, the second pair of, the first paragraph, before i continue i would like to state -- and listening to what the purpose of the hearing is and then my reading the

testimony and this is i would like to state in my defense this is not for them to stick with their defense is this is to come learn about the program he's going to have a chance as a convicted felon to go before a judge and plead clemency. we are not a jury, we are not judges, we are just a congressional hearing. my original intent through criminal activity was to get a few dollars as compensation. it was my intent to manage individuals and finally the payment will come during a later time the concept was at the time we would have enough work in other words he's excusing himself. i think it should be stricken from the record. >> will the gentleman yield?

>> has this witness been convicted already the? did this witness need the permission was this witness' unveiled? odd on bill? the gentleman made a point of order if you are to ask the gentleman will have the opportunity to ask about where he is in his legal issues but what we really need to do is we have ruled on the point of order we need to proceed with the hearing is the gentleman would have an opportunity. >> what is being requested is to the gentleman's testimony that we find out -- >> the chair has ruled on the issue and so we need to proceed with the hearing.

>> i would ask mr. smith to continue -- i'm sorry, we've done mr. smith. mr. truax, you are recognized for five minutes. >> i first want to thank you for the opportunity to come before you today and the awareness of the potential for fraud within the hud program pilat me state of the outset i know the program has its flaws that can be defrauded as i possess this knowledge because i said before you a man convicted in front of the federal district court who awaits his trial boy also believe the program has its merits. it's not easy to admit i've engaged in a criminal act and no particular party in presenting to you today and i can say with certainty to a person such as myself who has defrauded the program that i'm willing to bet such fraud continues of the hands of others who held the position i once held.

appearing before you today i am a man who engaged in a criminal act caught in the way of society, however, for my testimony before you a bit like to find a way to improve the system come close the loophole by exploited and the program will be stronger and more effective in its achievements. my experience in the construction industry began in 94 as a heavy criminal law operator and a point of by a dolphin county in the maintenance where i engage in all aspects of the construction remodeling. when the position of the home rehabilitation open by applied for the position and was in played until my resignation of 2010. my duties as we have specialist included the home owners who qualify for government assistance and repairing the residence. soliciting the contractors for the work to be completed awarding the contracts and verifying the work had been completed before the contractor

was paid. essentially i was the master of my own demesne and that i was supervised and inspected by hud only once every three years. when hud wanted to audit the home program it represented from the philadelphia office would contact me to request a select files and homes for inspection when the representatives visited. being the primary person in charge of the process, it was my decision of homes and related files would be selected. the examiner would review the file and sometimes complete a home visit. whenever an applicant submitted an application for the home rehabilitation i would review it. and as the process should work the application would be publicized forbids and submitted by contractors interested in completing the work. in the early portion of my employment that is what was done however when i began abusing the system, i would forward the homeowners' applications to

certain selected contractors and keep them at the lowest bids i received any point. ultimately providing the chosen contractor with the lowest external information so that he could submit an even lower bid and thereby be awarded the work. many times because i have no oversight i would simply provide the selected contractor with the application and take the bid he submitted as being the lowest. ultimately awarded the work to the contractor. given that philadelphia examiner would only visit once every three years and review only the files i selected for their review, the process was virtually foolproof or so i thought. as to how i selected contractors in my activity i met one of the three individuals who might took the money in the course of my work because i have not received

their information to represent the contractors individuals names and i will refer to them as contractor one, too, and three. contractor one was referred to me by way of third party as a contractor who might be interested in getting involved in the program. i contacted him to come to the office, fill out an application for the program which he did and for which he was approved as a contractor. contractor one completed roughly four to five jobs and appeared to do more at acceptable work throughout the time because of my ongoing contact we developed a relationship. on one occasion the contractor one and by socializing he found the conversation from the state of his financial situation. >> i know i'm running out of time. i want to conclude. the process was too simple to defraud merely by the we have

it's own set up. when the examination of the sabrue is in philadelphia representative taking place only once every three years and then relying upon me to choose the file for the review, i knew my wrongdoing this may never get revealed. obviously i never considered the program's total lack of insight. when the investigating officer came to me to ask questions about such rich and i realized it was a point that i was caught and i completely agree with everything and told them all the corporations. >> i thank the gentleman. we have an opportunity for some q&a. mr. smith, we are now going to go to you for questions and i will be asking you the first question. we men out of the video but mr. smith, can you hear me? >> yes i can. >> after reading your testimony

i was struck by how quickly you read from a temporary recession is in your organization to the executive order to the managed affordable housing projects overseeing millions of dollars of federal funds. i was further intrigued that you said you have no idea what it meant to operate a non-profit and that the board of directors or in many cases just as clueless that there was nobody within the organization that understood how to develop affordable housing. to went on to say even the contractors did not have the capacity to carry out the work. did hud ever raised any concerns about your organization that the fact prior to these millions of dollars to the projects? >> one of the things -- >> mr. chairman? before the witness continues i thought the agreement was we were going to see her, this was going to be a video conference. is it only in audio conference?

>> we were having a video tech -- the didier technical tease so we are only able to get all the web this time. >> it's very difficult and a jury unusual to have this and the committee shall make their conversations available. audio and visual coverage of the committee hearing through the maximum extent the committee shall provide audio and visual coverage of each hearing or reading for the transaction of this in a matter that allows the public to easily listen and view the proceedings. we can't view these proceedings. it's impossible to prove to the coup view these proceedings. >> we are having technical difficulties this is the maximum we can provide it. this is being profitably audio and video we are just not able to get the

>> how we know who is talking? >> the gentlelady did see mrs. smith a while ago. >> i didn't see her and she didn't answer the questions he asked. you asked if she had been induced in some way. >> the answer was no. >> no, there was news on the audio. we didn't hear her answer those questions and can't see her now. what are we listening to? >> i respect the gentleman but we are going to proceed with of the technology we have available. mr. smith, if he would go ahead and the answer the question did you have any interface and did they question the ability of you or your board to be able to take on a fairly complex housing project? >> as i said before, chairman, when we started doing the affordable housing, we were not

asked by hud about our capacity. one of the reasons was because we hired the expertise with, we brought in a consultant that would lead in the us the understanding that we needed and we have included that in all of our applications but hud never had a face-to-face interview with us to verify what we put in the application. if you write the of the kitchen will look like we know what you're doing it again, nobody knew. we hired a consultant that understood the process to actually do the application for us. >> so in the three-year history of that project from when you started the project until when we were caught in this situation did hud ever visit this site?

>> i was out there on the side quite often coming and we never got any visitations from hud. we were asked to do reports the consultant would do the reports and everything was -- [inaudible] >> richard truax, in the last we did there was a number of projects identified and some of them were closed and dropped from the books. there would indicate some of those projects were closed out. when people made inspections, can you explain in the system that you were aware of how projects that haven't been

completed were actually put on the books but were closed down, do you have the ability to to the web to pledge your with the data base and move project closedowns to reduce the mcginn the hud system to dismiss yes. ceramica i have the ability to do that. spec yes. i had the ability to do that. >> can you just walk us through that process of a little bit. i'm not quite sure the process question. >> you're not trying to hide one project isn't completed but should you go to the system and say that this closed out and did you do that? yes because i knew it was usually a three year period before i -- no, you audited and

on with asked to select the files, so they say we are going to look at some of your projects and obviously you didn't do the ones who rush for shuffling around. how long would that does it typically last? >> they were usually there for a week because they would audit the program as well as the home program and first to read the first couple of days and how many visits while you were in that capacity we only had one visit. why you were there live when did you first start. >> in the tenure of period you

have room. >> i was going to yield fiveve minutes. we will continue to ask questions of mrs. smith who we . have tried everything possibleei to get her video backup.ideo her audio is still working, so r if you choose to direct questions to her we still can't get -- now we have the video up. .. 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. u> so you stole that. >> at one point in your testimony, you stated, i think it was testimony or maybe the news reports, that you were pressured by politicians, and i do not want you to name those here today, because that's not the purpose of this. did you pass the names along to the justice department? >> yes, sir. >> and have there been any prosecution as a result of that? >> some. >> were they convicted? >> there were a couple that were, sir. >> that's good to hear. glad to hear that.

as well as i understand it, i think there's news reports, your activity was from give or take the year 2000, or give or take the year 2005; is that correct? >> no. it was prior to that. >> say that again. >> prior to 2005. >> between the years 2000 and 2005; is that right? >> yes, sir. >> and do you know who the president of the united states was then? >> it would have been george bush. >> that's what i thought. do you know 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'd be mr. caster. mr. truax, were you hired at any time from hud? were you paid or employed by hud at any time? >> no. >> you worked for another governmental entity; is that correct?

>> correct. >> did they provide oversight whatsoever to you? >> just a supervisor. >> that supervisor oversee you? >> yes. >> do you -- i guess as i read your testimony, honestly, it sounds like old-fashioned rigging and kick back scheme to tell the truth. anything special about what you were doing other than the fact you were stealing money? >> no. >> ms. smith, strikes me that it was just old-fashioned taking anything on the table. any special secret thing that you could enlighten us with as to what kind of crime we can stop in the future? >> i'm not sure that i understand your question. >> when we went through the wall street thing, i learned a lot about the ways that wall street operated because we didn't know it, but the truth is here in these testimonies, i'm not suggesting it's good, but what i read is just pretty much plain old-fashioned straight up crime that could happen and does

happen anywhere. now, i'm more than happy to find ways, and i actually appreciate there's nowhere in the world that any auditor at any level should allow the person being audited to pick the projects they audit. that's a substantive commentary that should not happen, and i hope we can address that issue, but nonetheless, rigging, kick backs, i don't know how we'll ever stop those. it's not just the home program, but every single program in the history of mankind have been subjected to that type of fraud, age i'm really interested into insight of what we can do unless either of the witnesses suggest somehow that we should have a hud auditor at all of the 15,000 people that utilize home programs? >> no. >> ms. smith, do you suggest we have a hud auditor sitting at e shoulder of each of the 15,000 people who receive money? >> i'm not suggesting that you have an auditor, but i do

suggest there should be more hands-on interaction. how this requires as it stands today, hud only requires the application. anybody can put anything on paper and make it look good. >> i'm having a hard time hearing you. i read at some point, ms. smith, you said if you had more training, that would have been good. is that something you said at one point? >> sir, if hud had provided more training to the organizations that they collect the funds because every organization that comes to the table, they are not thinking, oh, let me go to hud to get a couple dollars, they start off with good intentions, but if the organization that is giving them the funds takes for granted that this organization knows what it's doing -- >> i respect the fact that hud -- i have no problem with the concept. i don't think you'll find anybody who disagrees with that, but at some point if you received more training, would

that have stopped your criminal activity or just made you better at it? >> i don't know that i'd necessarily understand the way you're wording your question. if there was more training, maybe there would be better understanding of how things should have been done especially for an organization that didn't have any clue whatsoever. >> well, i appreciate that. my time's run out. i appreciate it. >> the point of -- >> the gentleman state his inquiry. >> is it appropriate to ask the witness who the two elected officials who were indicted and convicted were? >> we don't think -- >> i'm just seeing what the chairman -- >> are we keeping that a secret? >> yeah. >> i think if we want to know, we should find out who they were and call them, and they can tell us. >> the gentleman certainly is welcome to do that if he choose z. >> is it appropriate to ask who the consultant was who was hired

and in getting the hud contractors, is it appropriate who that consultant was? >> well, i think what we asked the witnesses to do is not to recount the acts themselves, but focus on the purpose of this hearing is, and that's to identify that it is -- seems to be fairly easy to game the home program, and that we -- when there is a situation where the program is defrauded, there's two losers, there's the american taxpayers, and the american beneficiaries, and as outlined, there's been a number of projects beneficial to the district, but when someone takes an opportunity to defraud the system, then the system, you know, suffers from that, and the taxpayers, and so what we are trying to focus on to get back to the hearing 1 not to defend the program or tear it dun, but -- >> i understand that to be the goal, and it just seems to me

since mrs. smith stated that she -- the organization would not, that they didn't fill out anything, that the only reason they got the money, i'm paraphrasing, they got the money was because they hired -- >> the gentleman -- >> it seems to me if you're going to find out, we have to find out to intervene at that level. >> the point of order was appropriate. it's not appropriate to ask for the specific names, and i now recognize mrs. biggert for five minutes. >> thank you, mr. chairman, and i would first add ms. smait -- ms. smith, did hud conduct on-site visits? >> they did not. >> did they review the paperwork? >> i was not present when they

received the paperwork. >> 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. >> how many units was the project supposed to deliver? >> we delivered the final application, and what -- the first application had about nine more units, but because of the cost, we cut nine out, and that was recruited, but we delivered what we said we were going to deliver. >> okay, so there was no problem with that project?

>> there was no problem with the amount of units that we said we'd deliver. we delivered those, but there 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. >> all right. well, then should that project have been stopped due to budget overruns? >> oh, absolutely without question it should have been stopped. >> but you didn't propose that? >> well, actually, politically, it was not suitable to propose doing that. >> okay. mr. truax, so did hud ever physically inspect the projects on conduct on-site visits? >> yes, but only at the direction of myself as far as the units on what units to see. >> okay. and that was with the three

years? >> yes. >> only once? >> only one time p. >> in three years. >> did they review the paperwork? >> yes. >> did they ever come back and say this was not complete enough? >> no. >> all all all right. did you have incomplete projects? >> when i left, yes. >> did -- do you think that hud would have flagged your incomplete projects had they had more random and frequent inspections? >> absolutely. >> but you still would have just told them which ones to go to? >> yes, if they gave me that opportunity. >> did they ever say, well, i want to see something else? >> no. >> okay. did anyone from hud ever question the information that you included in the hud data base about completed projects? >> no. >> did anyone ever question the accuracy of the information? >> no. >> okay.

ms. smith. same questions to you. did anybody from hud question you about the information you had in the data base about completed projects? >> no, never. >> did they question the accuracy of the information? >> absolutely not. >>. there truax, i think that -- mr. truax, i think law enforcement uncovered the scheme? >> yes. >> and was hud involved in that too? >> no. >> so did hud ever uncover your fraud? >> no. >> but law enforcement did? >> yes. >> could you tell us how? >> somebody in the accounting did ask the up vest gaiting officers or criminal investigation department to look

into me receiving kickbacks. upon that time, the u.s. investigating office come in, they went over a few files, saw that i did do that. i admitted it openly, and i helped them throughout the entire investigation on every one involved. >> okay. thank you. ms. smith, what happened? did hud discover your fraud scheme? >> no, ma'am. there was an investigation that took place with a couple of my board members, and it was sort of a snowball effect, but hud was never involved in any of the investigations. >> thank you. my time's up. i yield back. >> i thank the gentlewoman. >> thank you so much. let me first of all, ms. smith, so you defrauded the home

program and embezzled the home program between 2000 and 2005; is that correct? >> we had home program dollar, but the -- >> when did you steal the money, between 2000 and 2005? >> yes, but the actual -- >> okay -- >> but that had nothing to do with hud funds. >> no home funds? >> no. >> this is a home fund hearing. you are here to tell us about the home fund, aren't you? >> absolutely. >> you didn't steal the money from the home program? >> no. >> okay. what program did you embezzle the money from? >> we mismanaged funds from the actual organization. >> from the actual organization? okay. let me ask you something, so you agreed that the urban enterprise association as an executive? >> yes, sir, i did. >> okay. that's in gary, indiana? >> yes, sir. >> okay.

so are you the same person from the gary urban enterprise association in gary, indiana, that made a $300 contribution on 3-10-2003, and a $5,000 contribution on 3-14-2003 to the national republican congressional campaign committee? >> yes, sir, i am. >> and did those funds that you gave come from the money that you embezzled from the organization that you worked at? >> it came from my salary. >> it came from your salary? >> yes. >> you kept two separate accounts, the money you stole and the money you earned? >> it came from my personal account. >> while you embezzled money, you were being charitable to the republican campaign committee? you thought that would be your gift to give them $5,000. so you're a thief on the one hand, but generous with the national republican congressional campaign committee. is that what we're to believe?

>> if those are the words that you want to use, sir. >> okay. who asked you and who invited you to contribute because this is a pretty extraordinary for somebody who is stealing money, $5,000 is an 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 -- >> you know you're under oath; right? >> i do realize i'm under oath, sir. >> you don't remember who asked you to give $5,000? >> no, sir. it was maybe like ten years ago -- >> ten years ago. i mean, 20 years ago if they asked if i contributed $5,000, i think i would remember. let me ask you something. how much were you rning in -- earning in salary in 2003? >> in 2003? >> uh-huh.

you're under oath. >> i understand that, sir. probably $65,000. >> excuse me? >> i'm sorry? >> how much was your salary. >> i guess i got cut off because i said $65,000. >> $65,000, and as the republicans say all the time, there's a lot of taxes on that money, so you get about $45,000. you had a $45,000 salary, and that's generous, take home pay, and you had an extra $5,000 to give to the national republican congressional campaign committee, but you don't remember who asked you for it? is that right? >> i don't really remember actually asked. >> let me ask you something

since you used the money, and i know -- you're telling me your salary had nothing to do with hud or federal government programs, that your salary had nothing to do with governmental programs at this non-for-profit institution? that your salary's not -- none of that came from government funds? >> no, sir, it did not. >> it didn't? all right. we'll check into that real shortly. they sent you the money back now they now you're a fraud, stealing money, at the same time from the federal government that you gave the money. did they give it back to you, send you a check? >> no, sir, they didn't. >> thank you, that's all the questions i have. >> i thank the gentleman, and now the gentleman mr. fits patrick is recognized for five minutes. >> thank you, mr. chairman. ms. smith, the purpose of the hearing is to do oversight with hud and the home program specifically to make certain

every tax dollar is well spent and the taxpayers get value for every dollar. at your organization, ms. smith, were home program funds through hud sent to your non-profit? >> they actually, when we did the project, we set up a different -- we set up an additional organization because the hud funds were not the only funds that made the project a reality. they used the low income tax credit funds as well. the hud home funds were sort of like financing, so there's a separate entity away from the organization that received those funds. >> did you oversee that separate organization? >> yes, sir, i did. >> between your non-federal profit organization that you oversaw, there were home program

funds and other low income funds and other federal funds? >> yes, sir, there were. >> you oversaw the management of all of those funds? >> yes, sir, i did. >> and were the home funds, in your opinion, mismanaged or stolen from the program and away from the intended recipients, the beneficiaries? >> mismanaged, yes. in terms of the loans, yeses the dollars lost? >> yes, sir. if they didn't have the cost overruns we experienced, we could have built more units. >> you indicated in your testimony that what started as good intentions but as a result of your lack of experience and lack of any training that things went awry; correct?

ms. smith? >> yes, sir. i'm sorry. i don't know if my mic is given out or what, but, yes, sir. >> ms. smith, did you indicate that your board also lacked 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, sir. >> okay. so you indicated that you're able to hire consultants to provide that experience that both you and your board lacked; is that correct? >> yes, sir, that's correct. >> did the consultants deal directly with hud, or was that you, ma'am? >> no one actually dealt directly with hud. it was -- we went through the application process and once the award came through, we didn't have any contact with hud at all and just submitted the reports

as we were asked to. >> ms. smith, do you believe as a result of your lack of experience and training and your board's lack of experience and management training in community and housing development that hud should have been more susceptible to you and your non-profit? >> well, my -- from my personal experience, because i learned a lot, you know, during the process of getting that project done and afterwards, i think that hud should have looked into the fact at the time of the application that we could not speak of any historical work we had done, and hindsight of 20/20, that should have raised a red flag for hud to say, okay, what makes you think that -- or what leads us to believe that you have the capacity to do a project when you have no experience to speak of, and not only do you, yourself, as the

executive director not have experience, but there is absolutely no experience on your board either because i do realize that sometimes non-profits, the director may not have experience, but there could be members of the board that do 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 said well, not to discourage the organization from the doing the work, but maybe we should be marrying the organization up with someone we know has the track record to do the work that hud loves to have done. >> so, miss, you're saying hud never raised the red flag on your lack of experience? >> no, sir. >> did hud ever ask any tough questions? >> there were no questions at all. sometimes these things are more politicized than what we care to talk about when you're in

certain communities and you can put together a great application and you have some political support behind you, it doesn't -- it doesn't lead to any questioning at all. >> mr. chairman? >> i thank the gentleman -- >> i have a question. >> yes. >> 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, no federal money when i asked her directly that question, and now she's testifying she didn't have supervision from hud, that she didn't -- they never asked her. well, why would they? either she was or wasn't. where's the truth here? >> do you have a point of order? >> i want executive session because i want to ask the witness specific questions about what is she telling the truth about and who was telling her about the truths because it is just confounding to me.

i have to be very honest about it. she lied. she has lied. she's a convicted felon, so she's already agreed that she lied on the forms. >> he's not made a point of order. the gentle lady is recognized for five minutes. >> is there a motion before us for executive session? >> yes, i want to go into executive session and ask her about the other elected officials. i would like to ask her who the consult at that particular times were, questions that the chairman already ruled she could not relate to us in direct evidence, but she can in executive order. >> we have a motion for exec sieve session. is there a second? >> second. >> the chair proposes the question all in favor of executive session say aye. opposed nay, the nays have it. the motion is denied. >> i ask for a recorded vote.

>> would the gentleman use a show of hands. >> i asked for a recorded vote. >> stand by, we'll get that done. make it happen. >> all right. >> the clerk will call the roll. >> mrs. biggert? >> no. [roll call] roll call] [roll call]

[roll call] [roll call] [roll call] [roll call] [roll call] [roll call]

>> the ayes are four and the no's are six. the motion is not agreed 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. >> and in order to come here, you had to have permission from someone? >> yes. >> who gave you permission? >> the u.s. attorney that is prosecuting. >> did the u.s. attorney and you have any conversation about perhaps your cooperation, you would get a lighter sentence or the possibility of it? >> no. >> did you have that conversation with anybody? >> no. >> did you have that conversation with your lawyer,

that was is suggested you could get a lighter sentence if you come here? >> i have to object to that, that's attorney-client -- >> you can object if i was asking you, i did ask you. >> you're asking the client for a witness. >> i asked the witness who volunteered here to come here today 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 discussed your coming here may get you a lighter sentence. >> i'm not going to answer that. it pertains to the attorney -- >> you're under oath, and i'm asking you whether or not you had that conversation with your attorney. >> [inaudible] >> with all do respect, i refuse to answer on grounds that it's 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 giving you kickbacks. >> an average of three contractors per project that were able to bid. >> these contractors who put in bids, the bids went into the trash can and not considered because you knew where you were going to deliver the contracts; correct? >> five projects. >> about five. did any of these contractors sue you and the organization you

were involved in? >> no. >> do you think they have a cause of action? >> i'm -- i'm not a lawyer, i can't answer that. >> do you have assets? >> do you have a home? >> yes. >> do you have a bank account? >> no. >> do you have any other assets? >> 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 stole? you could be liable for having defrauded these contractors who competed in an open process where you steered the contracts to other contractors? >> i'm not a lawyer, i can't answer that. >> so for those contractors who

bidded for these contracts, and their contracts were not even considered because you steered them to your friends or others who were giving you kickbacks, they may have a cause of action where they could sue you, they could sue the city, or they could sue hud because you denied them an honest opportunity to compete, and if you have assets, then both assets are available to them, and on the record what you said here today is you have no assets, is that what you're saying. >> correct. >> i didn't hear you. >> correct. >> you have no assets? >> correct. >> okay. and so for three years, you were involved in defrauding the home program and others. i don't know how many others. you were -- would you say that you were deceptive?

at all? would you say you lied? would you say you cheated? >> yeah. >> which one do i answer? >> the first one. have you lied in all of this, were you telling lots of lies to people? >> no. >> you didn't lie to anyone? >> no. >> you're under oath, sir. >> i understand this. >> if you deceived them, if you took kickbacks, if you told the other contractors, i would unanimous concept for at least 30 seconds, this lawyer whispering in his ear is taking up my time. >> the gentleman can -- >> did you lie when you deceived the contractors and/or the government, did you lie? >> yes. >> so you lied -- >> the time expired. >> you're before us today, why

should we think you're telling us the tryst -- truth if you're a liar? >> the time expired. >> to my knowledge, i have nothing to gain from this. i'm going to jail. >> except that your lawyer -- >> the gentlewoman's time expired. >> i yield back. >> thank you, mr. chairman. i want to get to the point of hud more than the point of what you guys did because it appears you had some wrong doing here, but first off, let's start with mrs. smith. mrs. smith, did you work for an agency that did -- i want to make sure, did you work for an agency that took moneys under the home program through hud? mrs. smith? >> can you hear me? >> did we lose her? >> did you hear me?

>> mrs. smith, yeah, did you work for an organization that the organization actually received funds under the hud home program? >> the organization that i work for set up a sub organization that received those funds, yes, sir. >> okay. so you were involved in the home program through your organization as an executive directer? >> yes, sir. >> thank you. mr. tr uax, did you work for an organization that received hud dollars through the home program? >> yes. >> okay. mr. truax, you said you had a number of projects. how many projects in total came through through your organization? >> through my tenure in >> yes, estimate. >> under 50. >> okay. under 50. under those programs, you actually went out and took bids. if hud would have asked you to

submit three bids for each program, would that have caused you not to be able to to do what you did? if they would have used an internal control that most other banks and businesses use, if they would have asked you for three bids, would you have been able to do what you did? >> no. >> thank you. mrs. smith, if hud would have asked you for three bids on all the projects that you worked on, would you have been able to do some of the things you did? mrs. smith? >> sir? hello, can you hear me? >> yes. if hud would have asked you for three bids for every project that you worked on, would you have been able to do 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 have asked you to take three bids and you're

required to use the lowest bid, would you have been able to perform and take the dollars you did? >> if hud received those bids then no. >> exactly. >> that's what normally happens in the banking world in many cases. now, i'm going to move to another internal control. if hud would have come in to your organization, mr. truax and done an unannounced land of selection, including site visits on even one or two of your projects, would you have been inclined to do what you did and take dollars? >> no. >> mrs. smith, if hud would have done the exact same thing with your organization, if they would have come in unannounced, random selections to review the sites on a business, on the buildings you did, would you have been prone to take the money you did? >> no. >> thank you. one other things, a normal internal control. i'm a cpa, i've seen controls like this. if there was an unannounced

third party that was able to come in and randomly select, which happens in many cases, some of your projects, mr. truax, would you have been prone to take the dollars that you did? >> no. >> thank you. mrs. smith, if there was an un announced third party coming in to look at your projects to determine percentage of completion and determine how much of the project was completed, would you have been able to take the dollars you did through the hud home program up directly? >> no. >> thank you. so it does appear that if hud's internal controls were up to a higher standard, neither of you would have been able to do some of the things you did as far as taking the dollars you did? >> correct. >> correct. thank you, i yield back the time. >> i thank the gentleman, and now the gentleman from missouri 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 contracted our criminal investigation department of dawson county, which in turn got a hold of the united states investigation department, and they came to me asking questions, and i knew what i did was wrong, and then that's how they found out. >> was hud notified? >> after the investigations, yes. after the clarification of what was going on. >> okay. did you have any contact with the ig?

>> just through the interviews. >> the contact with the ig and when you were identified as allegedly having committed fraud was the time period between your contract with hud either through the ig or -- >> i'm not sure the exact time that they got a hold of hud. when the ig came to me, you know, that's when it was all 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? >> 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? >> i -- you know, with the once every three year inspection, you know -- >> it opens a door. >> yes. >> so as best as you can recall, did you ever think, well, we have every three year inspections, so this gives me a chance? as best as you can recall, did you -- i mean, did you actually consciously wonder how much time you had before the next inspection to commit fraud in >> yeah. >> and so you thought i can get away with it because hud has a three year inspection. >> because of the oversight; correct. >> how long have they had that? that procedure? >> i'm not sure. i was just there for three years. >> but it was there when you arrived; right? >> yes. >> okay. we have to assume it's been

around awhile. >> yes. >> so you -- i mean, it's possible that somebody else could have done something like this and gotten away with it five years ago, six years ago. >> sure. >> and your recommendation to hud would be? >> i just say have a little tighter oversight on monitoring of the administers of the program. >> well, the problem, of course, is you took a job that apparently had great temptation; right? >> correct. >> did you know that when you took the job? >> pardon me? >> did you realize i'm taking a

job, but, man, the temptation there -- >> no, i didn't think about that. >> you had no intention? >> no idea. >> when you were hired, no one could have assumed you were going to commit fraud? >> correct. >> you didn't think about fraud, the people who hired you didn't think about fraud, and the employer didn't think about it? >> right. >> what's the corrective step now? >> a little tighter oversight. >> sorry? >> maybe not having one person is going to detour fraudulence. >> the whole issue of trust has to be discourted; right? >> no. >> you know, in other words, al

green to the left, congressman green, i trust him, so i don't need anybody to be a intermediary to check on him because i trust him. i'm wondering if you're saying that henceforth we should eliminate trust -- >> no, but don't put the files, for example, you know, go in and randomly pick the files during an audit or inspection. >> right. >> the gentleman's time expired. >> thank you, mr. chairman. >> anybody on the -- >> mr. chairman, court of order. >> yes. >> could you reiterate every now and then in 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 don't hear her. we kind of forget. >> i thank you for that.

she's still with us, and we periodically get video. anybody else who wants to question either of the witnesses? >> may i have time, mr. chairman? >> you're recognized for five minutes. >> thank you. i'd like to yield. >> thank you very much, mr. green. mrs. smith, we have conflicting testimony here. the -- you never worked for hud, did you? >> no, sir, i never worked for hud. >> thank you. you worked for an organization that received hud funds, did you not? >> yes, sir. >> thank you. and that's why you're here to tell us about how you stole those hud funds and how in the future we can stop hud funds from being stolen? yes, no? >> was that a question or -- >> yes, that is a question. is that your purpose here to tell us how you stole the hud funds in >> i'm here to tell you

how hud's funds were mismanaged -- >> were stolen and embezzled, is that not correct? >> mismanaged, yes, sir. >> but mismanage -- did you pay off a car debt? did you pay off a car debt with those mismanaged funds? >> no, sir, i did not. >> okay. 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 did. >> okay. you increased your salary with those mismanaged funds which we agree came from hud. >> no, sir. >> well -- >> again, no, sir, they did not come from hud. that organization had its own revenue source. those funds came from a revenue source. >> then what are you doing here? this is an investigation into the home program conducted by

hud which you have nothing to do with. you never received any money from that program according to you. >> my organization, again, sir -- >> your organization that you weres executive director of received money from hud, did it not? >> the organization that i was the executive director of set up a suborganization that received money from hud. >> and you managed that sub organization, did you not? >> yes, sir, i did. >> there you go. you were getting paid to manage that sub organization which was receiving hud funds? >> yes, sir. >> okay. good. we finally got to the hud funds and why you are here. let me ask you one more question, and i'll give the time back to the gentleman from texas. now that we have established that you were running an organization and supervising an organization and getting bait with hud proceeds, did any of them go to make up the

contributions in 2003 to the national campaign committee? >> no, sir, it did not. >> you segregated the money? >> any sally did not -- >> you supervised the organization, but the sally did not come from that? i'm sorry, but this is not passing any test, any remote test. the money came from there. you don't want to admit it. the majority won't let us go into executive session to find out who the contractors were, i'm sorry, the consultant was that designed the program, can't find out the politicians, but we want to find out how it happened, but we are limited to asking questions of two convicted felons, one who whom says she didn't steal it but just like borrowed it and got caught before she paid it back. i return the time to my friend from texas. >> thank you, eni do want --

and i do want to ask a limited number of questions. i'll start with the lady because it's difficult to get her on and off. ma'am, do you agree you are a criminal? >> i agree that i -- >> sorry? didn't understand. could you answer yes or no. are you a criminal? >> i participated in some criminal agents, yes, sir. >> and you were convicted? >> yes, sir. >> usually when people are convicted of criminal acts and they are felons, they're called criminals. you would not label yourself a criminal? >> how you choose to label yourself is not something -- society can't label you. you only label yourself. i choose not to label myself as

that. >> well, let me just ask about the definition of a person who's committed a crime. let me make this comment. you bring some concern to your credibility when you don't own up to the fact that you've committed a crime and that you engaged in criminal conduct, and as a result, you're a criminal. that causes some disbelief in some of what you say, and i'm sorry i didn't get to say more, but thank you, mr. chairman. >> the gentleman's time expired. mr. miller is recognized for five minutes. mr. miller, recognized for five minutes. >> thank you. i yield my time. >> thank you, thank you, mr. chairman. mr. truax, i want to say thank you. i know this is not easy for you, and i respect that. i thank you also because -- i don't know, we've been here, oh, a couple hours now. you provided the one point of

light so far which to me is the only thing i 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 it's a point we can follow-up on, and i intend to do so, so thank you for providing that single point of light. i do want to ask you with 50-odd projects you had, in the final analysis, how much federal home money did you steal? >> i didn't steal any federal home money. >> you didn't steal any family home money. >> not personally. >> okay. mrs. smith, are you still there? mrs. smith? no. on the presumption she's not there, i thought i heard her say she didn't steal any home money. i'm not sure of that, that's why i wanted to ask, but that's what i heard. if you come back, would you let us know? i don't want to put words in your mouth, but if i heard that

correctly, we have two people here testifying as some sort of experts on how to fix the home program, which i want to hear, yet neither of them stole any home money. >> sir, if i may add to that -- >> go ahead. >> i received the money that i admitted to through kickbacks. it was not -- i defrauded the system -- >> i understand that. you didn't steal home money. i get that. by the way, when a colleague asked if you got three bids and if that'd stop you, but in all the time you did this, did you ever inform the contractors whom you were working what the low bid was that they had to undercut? >> yes. >> you told them if you bid $10,000, you get the contract? >> yes. >> if you got three bids, would you somehow not have told them what the lowest of the third bids was?

>> correct. >> you would not have told them. >> right. >> so by getting -- what if there's two bids, would you have told them in >> no. >> so then how -- what were you comparing it to? was there a sole bidder? >> sometimes. >> but when there was a sole bidder, why did you tell them a number to bid. >> i didn't have to at that point. >> when there were competitive bids, you got on the phone or in person with your co-con conspirator and say this contract over here has already bid 10 grand, and you have to bid nine grand? >> yes. >> if you got three of those, you didn't do that anymore? is that what you're suggesting. if we have had to turn the bids into hud themselves. >> i heard if there's three bids would you do it? >> it's on the statement. >> would the gentleman yield? >> sure i would. >> as a cpa -- >> on the tax accountant. you're not the only person here. [laughter]

>> that's good. >> i'm a former mayor just like you. >> great. when three bids are separate and individual, you don't have the opportunity to make -- >> that's true if you do it right, but it's not true if you're in conspiracy with a co-conspirator outside. you tell them the bids, open them up, and reseal them. if you're a criminal, if not, you do it your way. if you're a criminal, you do it another way. i'm suggesting if you are criminally oriented, that's fine, you're going to find a way. that's awl i'm suggesting. we have two people here who have not stolen hud funds as far as they've said, and we've got people here who claim to be experts, yet to my knowledge, i heard one suggestion that we request bring to hud to act on, and it's a good one, and i intend to follow up on it, and i just wanted to use my time to say thank you, and with that, i appreciate the gentleman's yielding, and i yield back the remaining amount of time.

>> the gentleman yields back. >> i yield the balance of my time. >> i thank the gentleman. i appreciate the two witnesses and thank you for your time and insight on this issue, and with that, this panel is excused, and we will now call up the second panel of witnesses. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> this is the second panel, and introduce the witnesses. we have mr. john mccarty, office of the inspector general, department of housing and urban

develop. mr. kenneth donohue, former inspector general department of housing and urban development, and mr. james beaudette; is that correct? good. deputy director department enforcement center, department of housing and urban development, and mr. ethan handelman, vice president for policy and advocacy national conference. thank you for you patience having had a vote and then quite a long questioning period for the first panel. without objection, your written statements will be part of the record, and you're now each recognized for a five minute summary of your testimony starting with mr. mccarty who is recognized for five minutes. >> thank you. good afternoon chairman, chairwoman, ranking members, and members of the subcommittees. i'm john mccarty, acting

deputy inspector general for the department of housing and i thank you for the opportunity to discuss our investigations -- >> could you pull that just a little bit closer to you? thank you. >> my testimony and work builds upon prior testimony in june of this year which related to findings, internal controls, and administration of the home program. over the past three years, we have opened 51 investigations based on allegations of fraud and home programs. subject to the investigations including executive directer of commune development departments and non-profit entities, elected officials, construction company, employees, contractors, developer, and investment companies. typically, our home program cases involve fraud schemes associated with embezzlement of

funds, bribery, theft, false billings, and kickbacks. the office of of investigations works closely with law enforcement partners including investigations involving the home program. our relationships with state and local law enforcement entities, the fbi, irs, and other federal agencies leverage our investigative resources. many 6 our home cases are initiated based on information received from confidential informants, often contractors or developers who feel they should have gotten contracts received by others or come toward to reveal bid rigging or kickbacks. we have referrals from the department itself. typical charges in home cases involve conspiracy, bribery, tax violation, mail fraud, embezzlement, money laundering, false statements, and theft of government funds. since october of 2008, our criminal investigations have resulted in 21 convictions of individuals who used home funds

for their own personal gain. it is clear that the penalties received by the wrong doers represent the seriousness of which the cases are handled. additionally, the impact of home fraud can be significant in terms of a loss of limited rehabilitation funds to a local community. in addition to these convictions, we routinely refer individuals indicted or convicted of any hud program fraud to departmental enforcement center for administrative actions. we maintain a well-established repore with the center and work with them to facility timely and thorough refeferls for action to mitigate further use of program dollars. we feel removing bad actors from participating in the home and other government programs is imperative to protecting important taxpayer dollars. it also sends a strong message to the others in the industry this type of fraudulent activity will not be tolerated.

we believe that home is an important program providing affordable housing to low income americans. gimp the current economic crisis in the country, the need for a affordable housing may never have been greater than in these times. with this crisis comes fraudulent activity to compete against the good work of how home funds are to be used for their intended purposes. ..

former inspector general of hud and principal at the resident group firm. i'm no stranger to this committee and it's great to come back and get a chance to talk with you all with my nine years of experience of the ig office michael leedy joined me, john was the head of investigations while i was the inspector general and he holds a important position at this time. it's rare the inspector general gets a chance to come back and speak in this type of activity but i'm delighted to do so. i must -- i would be remiss if i didn't recognize the former colleagues and served nine years and the great job they did in these investigations. my mission as independent in converse the purpose of bringing

a positive change in the integrity, efficiency and effectiveness of programs. that was my mandate and i took them very seriously. during my time as john indicated the number of investigations we did 60 audits in the home programs. by the way, when we're doing this, you might recall we had an enormous amount of mandated congressional oversight involving the reed ifill bet wally after 9/11 disaster which had oversight of fha and the ginnie mae, the effect of gulf states, katrina and rita and quite frankly you can imagine the amount of activity going on certainly with a mortgage from activity new everything i did my position was a zero tolerance when the wrongdoers that might attempt to commit fraud and abuse their authority. i was often express my concerns to the department and the department received that in a very formal sort of way and the fact of the matter is, experts are concerned about the current

and future funds deutsch to compliance. i further express my concerns about the compliance controls and information systems related to the home program. although 60 of its on 12 separate occasions they came to us and asked me to trust their concerns with some of these programs and in fact i directed the audits to be completed on those. the secretary of the expressed the importance of home programs based on the positive experience that he had done involving his new york practice. the answer to sum up is the fact aggressive monitoring in my estimation has to occur with a some guarantees on these programs. hud had 42 local to offices with the enormous undertaking is to oversee these programs. unfortunately there were frequent instances of noncompliance and a strong record criminal fraud. particularly in the subcommittee

level. this piece of information systems was self reporting, and i was pleased to hear recently the assistant secretary speaking in the june and july hearing when they said they were addressing such issues as well. yes it is true the inspector general was never enough compliance and oversight to satisfy such programs that distribute precious tax dollars. i do believe there's neither balance between progress efficiency and oversight to be applied collectively between the programs and these oversight agencies. i believe after 35 years of federal law enforcement with compliance and monitoring practice and in forcing the wrongdoers, we saw today to use federal funds to unintended purposes with this example in the hearings. a criminal case like this can be considered anomalies or a pattern of behavior. in my experience five think when we don't have effective monitoring the in fact encourage

those people that would take a big step and get involved in criminal activity and i think we'll wait and i am sure we have aggressive compliance. i'm pleased with the comment the assistant secretary and in fact i look forward to those aggressive actions they are planning on following up with and i think we might well have occurred since that time. the response of the these are local grant levels. hud might consider reforming the legislation's to expand the role and responsibilities of hud to ensure active compliance programs. i enjoyed it very positive relationship with the department went enforcement center. the past secretaries who often talked about the role and placement of the enforcement center within the structure. in my opinion over the nine years i felt they did not have adequate resources and the question of the independent role in addressing the matters not only for the grant activities

but those of guarantees as well. as stated earlier the general must be diligent and encouraging at times insisting on strong oversight transparency within government programs. the practice of the state and local government entities is paramount when as was discussed today and such programs to exist and are available. one such example is the following of the 9/11 disaster in new york where the importance of fendrich city and new york state went back and hired monitors, recognized monitors to go back and look at real time issues to see in fact with the guarantees are the sub guarantees were doing things and appropriately. >> the gentleman could conclude. >> i'm at a disadvantage knowing the change made by the hud in the past year or so but i look forward to the continuation. >> thank you.

mr. beaudette, you are recognized for five minutes. >> thank you. >> brank numerous capano, gutierez and members of the subcommittee think you for inviting me to justify a vote efforts by hud to prevent and combat fraud against government programs including homes. and the deputy director of hud department one for some center. in hud's office of general counsel. the responsible for the department suspension in the environment program and other civil offers that 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. when my work involved virtually all programs including homes i also worked for 16 years on the u.s. border patrol and antifraud enforcement at the department of interior. throughout the course of my career, i'm not aware of any fraud by any hud or any other

federal officials in connection with the home program. over all, in my experience, they're has been relatively little fraud by private individuals, or more rarely by state or local officials with respect to the home funds. i agree with the assistant inspector general's testimony that there is a very good relationship between the oig and the home and the program's administration is probably rather than most hud has been responsive and agree 95% of the time about homes the vast majority of people and involved in homes or other federal programs and private institutions are honest and trustworthy. unfortunately, dishonest and greedy people do exist. we strongly condemn fraudulent activity related to the hud programs in place a high priority on preventing, uncovering and punishing such activity. attempted fraud related funds provided under helm and other

provinces and private institutions like banks have sometimes occurred and will continue. this is true with mom block programs. the key component as aggressive enforcement. that is the hud focus. secretary daven and others have made it clear that there's a zero tolerance for fraud. just last week they suspended a contractor recently indicted for fraudulently obtaining funds from maine starting in 2005. the working relationship between hud and beaudette that we can begin their apartment or others as soon as possible. another is improve monitoring and oversight. a congressional leak created program like home by definition involves local control and communication. but some 30,000 projects would require additional funding to

enable hud to conduct day-to-day monitoring of each of these projects. but hud recognizes its fiduciary responsibility of taxpayer funds in this monitoring of the guarantees and referring the suspected problems to the oig for more investigation. in my experience this is the approach taken rice he hud to read the last few years in particular hud improved the oversight such as through the additional reports that assistant secretary has testified about in june. in addition, hud has been working since 2009 on revisions to the regulations the year designed in part to improve accountability and performance. although the improvements are in the final stages of the review by the omb the acting inspector general concluded in a letter to senator murray and senator collins after an oig report of the proposed changes in august

said they should help ensure the timely confucian and strengthen the future enforcement authority. hud nussle making key enhancements to the system to ensure better project reporting, tracking including financial and cost litigation tools to read some fortunately likely the attempted fraud by the private developers and others will continue with respect to home funds. in my opinion it is incorrect to single out "home" as being particularly susceptible to fraud. on the contrary based on my experience hud continues to importance of still improve monitoring, oversight and enforcement that can prevent and combat fraud with respect.

i would be pleased to answer any questions. >> thank you mr. beaudette. mr. handelman, you are recognized for five minutes. >> i'm the vice president of advocacy at the national housing conference. wollman as part of the discussion of the need for the financial controls we can remember the essential work and create ample housing. since 1931 national conference has been dedicated to ensure safe, decent and affordable housing for all of america. we are a nonpartisan, nonprofit group that brings together a diverse era in clinton the advocates, mortgage come policy practitioners, realtors, equity investors and more all of whom share the commitment to balance the policy. some were members of the funds will get projects that received but most do not.

we all holders of with the important work they do as part of raw natural commitment in the safe and decent affordable housing in america. the first way home does that. simply by creating affordable housing. for 20 years the federal block grant program provided critical funding to state and local governments exclusively to provide affordable housing for low-income families. over 1 million units have been produced, including those for the new home buyers, some for the owner occupied rehabilitation and some for the rental housing units. above and beyond those units created come over to hundred 40,000 tenants received direct rental assistance to make the apartment more affordable. second home leverages other resources. every dollar expended, $3.94 and other public investments have been leverage resulting in more and $80 billion other funding for affordable housing since the program began.

just one example the country or in june new york over three injured 50 million in 16. you've been looking to construct and for affordable housing. often it is just a few apartments and sometimes a marvel of development. in particular home dollars or the first money necessary to get projects off the ground while private lenders, equity investors, low-income and other resources come together. third come home creates jobs. home funds provide essentials gaps. those developments create jobs. in the first year construction of the typical 100 of property rights results in 116 jobs half of which are the construction sector and other activities such as the development and i also produce.

the recession and financial crisis disrupted real-estate development across the country. in the survey of home builders that began of this year 45% request and and 60% reported putting that entel climate gets a letter to the housing starts in the completion to show as a result of the crisis point as much as 75% from a high in june reported only 25% of the 28,000 after project was delayed. so against the backdrop of the destructive market home programs standout for completion. fifth, home reaches many communities. the flexibility provides urban, rural and suburban communities across the country with the ability to produce single-family homes for many homeowners put rebuilding of the low-income families.

the in addition it provides critical resources for housing% including homeless, disabled veterans and persons with hiv/aids. as one example, this is all star apartment project in battle creek michigan which used home fund set to could do one minute. on the campus of a va hospital allowing homeless veterans aid to the house and have access to the medical care they need. last, hollen powers of the state and local government, local communities have targeted those the the need of their communities. what is the central oversight function making sure the communities will of the requirements bringing them to find. hud's of course that is wrong and you must continue the success of walking. it is a proven solution that is part of our national commitment to create housing opportunities for all americans. thank you again for the

opportunity to be here and i'm glad to answer questions. >> we will recognize members for five minutes to ask questions and we will begin with the gentleman from illinois recognized for five minutes. >> thank you have some questions. did you for being here. i think the goal of this hearing is to try to find out where we can make things better. the result is to make sure the home program has the dollars that stretch further for the intended beneficiaries and for the american tax payer. unfortunately we see dollars mismanaged not just in the home program that across the sector through the entire government. our job in the oversight is to try to get that right because if hud doesn't get it right than beneficiaries suffer by not receiving the intended benefits and taking the american taxpayer to fund additional programs which we do believe are important.

so, mr. beaudette, one thing i just wanted to go to first is we will get it according to "the washington post" 700 projects in a sample of about 5100 multifamily projects the were undeveloped, indefinitely delayed or abandoned. this represents about 14% of the multifamily projects susceptible to waste, fraud and abuse. can you talk about the 14% especially in light of what you mentioned during your testimony about the zero tolerance for fraud. >> let me back up one more second because i do want to get a better understanding of how you are 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 deck. >> so they are giving you the information. in layman's terms you

investigate a person who's already committed fraud or has broken the rule should be barred from receiving hud money? >> that's correct. estimate the enforcement center handles the suspension and the department of individuals who do business with hud. in the scope of the hearing the we've got today, just trying to get a better handle. you're the best one in terms of answering questions about fraud and abuse. from hud i probably am. >> guest: can we talk about the 700 cases, the 14%. can you focus on what will but because we are interested. the does that sound like a complete number to you or a smaller number? >> that sounds like a smaller number. 14% of waste, fraud and abuse is small. please elaborate. >> i don't think it's a good

number. i believe it is a small number. >> smaller than what? >> smaller than 50. >> it's smaller than handelman as well. i am sure you were going to good on the path of the plan to most of it from my perspective to what be someone over here doing 14% correct me if i'm wrong, zero tolerance policy. 14% policy am i correct in thinking it is the zeros on policy? there is a zero percentage tolerance policy. there's no evidence of fraud in this particular 14% we are talking about. >> in the 14% specifically referring to, we've got money that have gone out in the programs. we've got vacant lots so i guess i'm having a difficult time saying there is no fraud involved in that. >> i'm not aware of it myself.

>> is their anybody we should be talking to act hud petraeus de - hari. >> fitted to the assistant secretary could speak to the program aspect of it. madam chair -- i'm sorry, i don't mean to -- i don't want to mess up your panel of that would be fun if we find more appropriate -- with just a short period of time we will set you sit down mr. beaudette and go to another fault mr. donohue based on the inspector general, can you please describe your greatest concern about hud's oversight or lack there of? i'm sure -- i'm confident regardless of the administration we've had problems with regard to oversight. we want to make sure to get

stronger and better for the future. can you talk about what's your greatest problem was? >> i transcend the administration's in my capacity as inspector general and i might say that the secretaries i were for the issue of hud by itself has problems i believe and a lot of the different programs as far as exposure to fraud that is why my office is engaged as i indicated in my testimony to answer the question specifically, i think the key for comes down to when the grants go back up the issue, the key issue, most of these activities is at the sub guarantee level. until you get to this of guarantee level you don't really know where you'll find out necessarily has to what might be going on and we in my as the

inspector general as ms. mccarthy indicated the supreme or other federal agencies, good stew words, colleagues within the programs will want to know what ever else we need. with the exception knighted 60 of its, this is significant number to do in the home program and with this great use. the gentleman's time is expired. just a remind you, we have an orderly present for witnesses. they will continue. the gentleman from massachusetts is recognized. >> thank you. we all hear from their earlier panel? do you agree that was probably a very good point that when someone is being audited, they should not be allowed. a portion of their portfolio does everyone does agree with that statement? if we walked into the room to

the auditing hud or anybody else. the answer is no, right? it was a nice show you didn't learn anything. >> i think my standpoint is it's informative to hear any kind of i hear any criminal wrongdoing i speak to that, the issue is how do they do that and collect their fraud. >> did you hear anything today that was unique thing you haven't heard before? >> 35 years i've probably heard it all. >> the what was done i would rather have gone right -- you have more to offer to the things we really want to do and i would like to know specifically, not today but i would ask each of you in writing as soon as you can i would like specific recommendations when you think we should be doing to increase and enhance the oversight of the home program. there's nothing i wouldn't be open to the the same time though it's interesting i need to hear

specific proposals as i am sure you all respect. this isn't the time or the place but i would appreciate more specificity as to either what we can have hud do under the current law or if you think we should change the law because i would be more than happy to do that. i guess i would also like to ask mr. beaudette in his testimony said in his estimation very little fraud in the home program. would you generally agree and that isn't no fraud, would you agree with the general statement? >> generally like mr. donahue said any fraud is too much. >> i agree. >> what we've seen over the last three years,, the numbers i gave you, that is what we have been provided to work with, not knowing what is out there is what troubles us. >> the other question that i really want to know is during

your term and i will ask you the same thing in a moment. when you go with proposals to the generally accept them? suggestions on how to improve something to the generally accept those and implement your suggestions will? >> i think my colleague testified in june that the department's program has been very well receptive. >> but i want to know if you agree with it was the mick yes, sir. >> they've been open to suggestions when you there? >> the secretaries are quite sensitive the issues of making sure -- >> so they would try to implement it. mr. beaudette, have you found to be true as well? as people find new ways to do with and they go with a suggestion in general the people not just the situation the past administrations are good people trying to do a good thing and if someone comes up with a good arabia is that a fair estimate

on what you just said? >> terrapin times you've suggested you need to do this it's important issue, not details but it's in the important issue to enhance your oversight and they said we refuse to do it. >> we've been asking them for awhile to do more monitoring to represent the instant here and then started back when i was assistant inspector general for investigations for the most part rain after 9/11. >> did they say they won't do it. >> we tried to implement others. >> but they haven't said know. have you had an experience? >> with regard to my past years as monitoring that i put on my written testimony to be applied in new york. it's a very effective program, but what it does is it gets down to the sub guaranteed level and

to me what is the key to making this. >> have you suggested and they say they bring it up. >> if you had that sweater -- >> i think given the resources to do so, he would have loved to enhance the program. >> in your testimony which i actually brigitte grimm a tree just want to read one sentence back to you as stated earlier in general must be diligent and encouraging in times insisting on strong movers and transparency with any government i think that is a wonderful statement. did you insist your proposals be adopted? >> tuna me fervor nine years i knew quite a bit of the concerns and i would make it a total to become vocal the difference then between suggesting and insisting

fair enough, thank you from a gentleman and i look for to the comments on the specificity because i would like to follow on them. thank you. >> thank you mr. capuano. we are here to look at the future and how we can solve any of the problems both from the first panel and from the second panel. i would recognize the gentleman from ohio mr. stivers. >> thank you madame chairwoman i would like to thank the shares of the subcommittee for calling the hearing and the witnesses from panel to because we want to make the program much more accountable and ruled out waste fraud and abuse and my question is for mr. mccarthy. did you were here for the panel in which mr. hud asked about internal controls specifically random inspections come multiple bids and taking the lowest bid? >> has your organization as inspector general ever mentioned these steps to hud for the home

program? >> i'm certainly we have, yes, sir. >> to allow the question for massachusetts, while you recommend them they have not been adopted, is that correct? spec i'm not certain i can answer that right now. as the mecca got to the coup appears they haven't been leveled. >> another question about the information systems because you brought up those in your testimony a bit so the way the information system works today is the duke guarantees and sub guarantees can go in and change members at any point in the systems of its hard for the computer system to have a reconcilable audit trail you can use in your investigation. that is what the audits have shown and i think that mr. truax testified to that also. islamic he did. and as the inspector general's to part of her suggested that

hud fixed? >> yes, sir, we have. >> i know mr. cibula from massachusetts asked about the actions it sounds like we have got four specific actions already. i appreciate you answering those questions. the next question is for mr. donohue. usurp justin in your testimony some real time monitoring fixes that hud should adopt for the home program can you quickly leverage knowing we of two minutes and 50 seconds left and specifically with those are. >> the one implemented in new york and is currently in place of the redevelopment act and what happens is ineffective concert with a grant recipient and the inspector general, the higher a reputable monitor and it goes back and real-time data back and look at the disbursement of funds it could be any manner the asked upon the

person goes on site at a 70 level. the reimbursement for the courses provided for in the administration of course. >> mr. beaudette, you talked about how you had never seen an issue when hud didn't adopt the recommendations for the general's office. have you heard what the recommendations i just talked about with mr. mccurdy and i will get into the one with mr. donohue, yet putative have you heard of those recommendations? >> in this kind of setting, yes. >> in any setting really. i'm curious if you've read them in a report or have seen them as a requirement this is the first time we've ever heard about these ideas for fixing -- >> i believe that it is just in place. i don't think it was from the inspector general's office the standards are random inspections where what the guarantees and some guarantees don't pick and

the programs now. >> brand of inspection. >> and the securities can no longer update the system on their own. >> i don't know that. i thought you were referring to the internal controls. >> the fourth is the systems issue so you are saying all of those are fixed. i will follow if you're riding on that but i really appreciate. i would love to get that and that's what we are here for today. then next question is for -- and i will fall one something mr. dole asked. he lets us assume for a second dhaka of that is the right number but let's assume 14% fraud and waste and abuse because if you spend money on something he fits not fraud and they don't know they're supposed to go it might be fraud, it might look the least. of course 13% if you and i agree as an abortion program what's

the impact on the suppression program? >> you and i certainly agree this is an important program. anderson and the you've got and hypothetically to the 14% number i will say for the betterment of the committee, we looked at the numbers produced by "the washington post" and were unable to replicate them and the cost did not release its analysis, so i have no confidence in that number. even if it is, it doesn't matter >> that's really what i was looking for. we all want to agree. we want the money in that program to be spent wisely and efficiently. >> the gentleman from missouri is recognized. >> we had the individuals on

earlier and both of them appear to be serving time in prison for what they did. that means the system worked. >> it means the justice system worked. when people are talking -- the combination of whistle-blowers and unrest tory work done by the u.s. attorney, the ig and how all of that played into catching people who were committing fraud and all programs, that when the >> if the system is working, and

people will get into the system like the gentleman that was here earlier people who hired him didn't see that no human being can see so they hired him but what else can we do? to try to hire the best people you can and when people commit a crime they get caught. what else do we do? >> for law enforcement we like to get the word out through fraud awareness week. we want to make sure we have been here to the ground for people manipulating who are running the program and possibly manipulating them. those confronted with opportunities of fraud it's done of desperation and greed and we can reach those people behind that happens in prevention rather than enforcement we are all better off.

>> the human condition we can't stop it from doing wrong. all we can do is try to minimize it and then punish people when they do so that they sort of others might be hesitant or reluctant to do the same thing. >> , who mr. d'aspin line. in those cases it was perfect through the environment we get is the ones and i think as mr. beaudette stated nothing in federal law enforcement was prevention and i think that how you prevent that, i've seen this is how you have a good recycling , i think you can have one without the other, so effective. one of the most important things we could take place now is to cut firms from the program.

i'm not suggesting that at all. >> i am asking. does it make sense now because we had a problem, let's cut the budget in the program which really would result in cutting people who would be in the position to do some of the monitoring. to any of you agree with what i just said. did any of you understand what i just said. [laughter] i joined the idea was to shut down homes. i think that she provide it, like she was relatively confident they could use to go out and play on the program mr. beaudette and pursuing that sort of name was going to be with best possible and eric says arn those money.

shut down homes is not the answer. let's talk about a program like this some people eliminate the program or i will never forget we have a problem with somebody said it was using their access to the pages you're in congress, short time ago. that is people who steered. that's cut out. so let's cut out, person. but the point i think is important is when they always decide let's cut something instead of ways to figuring out how to strengthen the system, broad becomes increasingly difficult to come with you, come with me, and the gentleman's times expired. the gentleman is it is over.

>> i'm going to put a track where the funds sleep for the intended purposes. a whole club units but those hud have a way of tracking with ed phill 60 or 100? >> i don't know if i would be able to answer that program question period estimates with the skip a question. after 20 years it is kind of hard to see that the that this kind of a model somebody did of a project that was going to be built in the washington, d.c. area. there are 100 the issue $6.8 million was spent and the next slide the property as you

can see so many were built in the back but to this property has been for two years, so do you think it would be appropriate for hud to have some knowledge they are extending the grant she has said he hasn't got 106 units. i didn't know what to expect. in europe sable we've prada your small believe to be running things like that. but today does the system exist where they could pull of the project and determine whether there was 106 or 140 or 30 bill. >> i'm not sure about how the iowa es would agree they should have a system like that. >> i want to go back to this computer system, where the recipients can maneuver that

data. that's not in control but people that are receiving the money can go in and get three it make entries into the record. >> i was using this and now we're analysis t do online banking and sime sure i don't get the chance to go to the bank a lot, not that i have a lot of this i could go to the bank for a simple and race the checks and then come home and see my count seven would be a good thing. basically they can go in and one of the examples we have seen is we saw examples where projects were closed and we put that hud's attention and then reopened. how would that have happened.

how would projects in the system simply we bring it to their attention and all of a sudden when we go back and look at the records again in their opening again. how does that happen. hud hud. >> that's not good of s these things, my credit card company if i do remember of different transactions of this kind of out of a pattern even they call me up and say they have my credit card. we expect something is going on. does hud have systems to be able to track -- br. if you believe it is operating in an effective way? >> no sir i do not. >> the question here we've been talking about suggestions, and of the things i've heard both of

you say we should eat with mehdi and then go to the secretary or the people and the ordering section they are returned to it, but you got to order him sometimes my wife asks me to empty the trash on receptive to it but i always empty the trash and there is a penalty by the way. i don't think anybody is questioning whether these people are receptive. what once was. there is the putting in places internal controls to keep this from happening in the in the future and this is just. other samples. they found out second fought, not when you're giving it the right address happen to live. the appropriate practice. he said millions of spending on here so, on those looking at some folks but i think that

sometimes adopted the tax payers money may not to use for other purposes we be good stewards of that and i would hope the panel would agree with that and i think we have got some work to do, and i would hope that from this hearing today, i would hope that the secretary. we intend for this to stop and we were trying to send a message here we need to think about this. >> the gentleman's's time is expired. the gentleman mr. reed and think you for allowing me to be a part of and the witnesses who were

appearing can't just want to make a quick comment about you previously the person who commit crimes should be. i think that i speak for everybody on the committee when i say i will take an opportunity to speak for everybody would i do not believe the committee would, as a whole, i raise demand that this is the over. they are building as much as it has to do with the fact they are criminals and as such, i don't participate in oversight hearings as much as i would like to because as such. john bricker so much.

and we would try to find out how we can better strengthen the fec to make sure that we can prevent that crimes from occurring. if it felt like anybody like an expert on them to defraud and probably just a. i'm sure we used to qualify those, and i had a concern about it makes sense that that might help but it also makes sense to me that a determined criminal would find a way to eliminate the system and these people what to the ed met it or not and whether they admit it or not it had found other ways to manipulate the system to the

advantage. they do these kind of things. so, no to hit my assumption is you want to catch of the criminals you can and they are copying to define d.o.e. as a misstatement. >> and you're willing to change rules when he will be in a position to prevent crime from occurring. is that if a statement? >> the rules need to apply great standing for. you have a perfect system that needs no adjustment. are you? >> i know that they don't have a purpose. >> let me ask the

representative, could you of bullying of the hud has a system and you can't make a judgment. even though the criminals work hard and you would like to make sure that it works every time. if that is a fair statement, everything else. i'm saying this to you and those who are viewing on your side of this because if people do an investigation into the desire to end a program and. the next cry should be eliminated. is their anyone over the opinion that the crew should be eliminated because we talk to beat kroyt to insure we need a

sort of dinosaur trying to read you have the opportunity to show them and is one of the programs we had and we should keep it. i want the record to reflect that all of the members of this panel of the opinion that this program should not be eliminated to be fair to you, you believe if there is some place where we need to strengthen the regulation though we should do so to prevent criminals from committing crimes. the server but the agree with this? okay. so i think that the point i would like to make is i know how it's going to benefit people. this is a good program and i just don't want this to metamorphosis. all have to look get those

creston. mr. cunego was recognized for five minutes. a spirit with me address this question. in your investigations into the home program, did beaudette's personnel seem more concerned achieving the issue of the home program or insuring the funds were being there correctly. >> i believe that the program were concerned about both. >> i was making sure the funds were applied correctly in the same time making sure that the mission of home was being taken care of.

>> usurp. >> all right. mr. beaudette? >> this times when you're dealing with the department for nine years you somehow -- you have concerns and they will go concerns but to fundamentally. it all comes down to, i mentioned this, balance between over constructive oversight of the progress of to read a lot of this the challenge. >> still, it relies on its participating. what policies or procedures to us hud have to verify that those participants actually have adequately policy. >> i would defer the program that.

i don't know the program that level and that level. spend the same would apply to well. >> as mr. >> and i -- >> i'm going to be free to even further. the database is riddled with inaccuracies. would you see that these inaccuracies stabbed to the custom from the database to enter information to. i will say no my answer should indicate that as you suggest the assistant secretary had improvements with the -- mr. robot, can you weigh in on

hope it's easier to. the state and local governments enter and on a dis. i would expect with so light has the information already there. >> what hud does he have in place, it's database, and flogging, crop scheck's a renewable lee, and maybe some i would address unknown, wow. >> sure. again, i'm going to have to remind to you it tells you. my suggestion if it doesn't, it needs to fit but don't know the stability of this stopped for the line i yield back the balance of my time.

>> the gentleman from rf mchenry so, out of the monitoring or lack of, effect, fraud, and on tuesday me, they're additional suits, use the fact that. how does that affect fraga, and additional question would be to the guarantees, are they allowed to select which projects they showed. as you heard mr. truax testified to, he knew when the inspectors were coming in the white to had

my head that. the lack of data was going to the oversight by declines that should have been applied. they allowed him to. is that a common place? >> we've heard that throughout our investigations, sir. >> not only the scheduling of it, but also this show. >> the guarantees have been able to manipulate confabulate the system. are there apparent rules for how this is done the slide of visits are done or alabama, and there's a checklist. do you have issues with a that checklist? >> not multiplied properly to the hispanic and it appears it is not in their properly.

>> mr. beaudette, did the a program. >> i believe anything pertaining to it would provide an opportunity, it decreases, if really is the possibility of it goes up. stomachs, no, no, i'm asking does the current approach to oversight leave the door open to fraud and abuse. in the town i grew up in, not in my district but in a divided accounting with the redistricting era not the end but the current district. despite.

that's not old. that appears to be a duplex. dewaal every? it looks like a duplex. if you disagree just tommy. but according to the grand and formation. this moment of the family project was opposed the six units. >> you can see it's clearly to units. i asked that you are 8 inches look ahead because this is a very scrappy. this is a big concern. i grew up in a different. this is not really we haven't been working full-time. but the fact that we found this is a -- really at bat and fusion for the program, and ms. hud?

>> i don't know. >> i don't know how you could have happen. spec i go unarmed, gentlemen. >> fine then, the other side of the ogle list but it is an example so you have been whether there is no oversight looking at it. pure stuff wind end early, there is. to get out there and do it and when you have that many some guarantees and you have the 44 offices of hud then they probably will do it in different

ways. if the member is overwhelming. mr. beaudette? >> can i get back to you on that? >> i think the taxpayers would appreciate. the person who did this with appreciate being found out, but would certainly appreciate you doing that. thanks very much. >> gentlemen nasa.com in side. >> thank you come madam chair, and i appreciate that. i'm curious how much waste, fraud and abuse is present in the system? because earlier 14% was reference and staff of which what you're doing now are shaking their heads and rolling their eyes and everything. i'm curious with what number you are comfortable citing. ..

>> is this for me? >> yes. >> once again, that's a program question, and i can get that to you. >> okay. well, i have an example of my district. we just heard from my friend, mr. mchenry. this is the address that you all provided to me, to my office, to this committee. this is 400, 136th avenue in grand hatch. well, my staff went out to that corner. when that was brought up, it was like oh, no, no, no, no, wait a

minute, i guess it's the wrong city. granted it's in the same county, by 25 miles south of there in holland, so that address, i'm familiar with because it's across the street from where my daughter has bay lay lessons which is the herdquarters of heritage who does the develops. i called them. we called them and talked to them, and they supplied us with the three different locations. now, i'm -- i'm just curious why we're in that spot? i know that the ranking member has asked what are those specifics? i think we started to hear a few of those from mr. mccarty. what are the action items we can do? i believe fully in hud when you are told about fraud or discover that fraud, you pursue that. i have no doubts about that.

my problem is i don't believe that there's systems in place to detour that fraud or that waste or that abuse of the system. now, earlier, mr. mccarty, you were talking about not knowing what is out there is what is troubling. that was your quote, and i think on page 4 of your testimony, you go into some of those problems. mr. beaudette, you said after my friend ran through four suggestions, you thought they were already in place. mr. mccarty, the look on your face at that point gave me an answer that contradicted that. i'd like you to, if you want to take that moment and voice what you think about that. >> not to go into great detail from my position, but those who testified in the june committee hearing spoke very well to that in our audit work of 60-plus

audit works we've done and the number of problems within the controls, the monitoring, the oversight of the home program. >> okay. well, hud's not perfect, and it's our colleague from texas left. that would not be the case based on the context of what happened in the first panel whether it was him or our friend from illinois. they defended the internal systems of hud. they defended the actions that have gone on, and that, to me, is unconscionable, all right? we have an ability here to go in -- >> would the gentleman yield and tell who you are speaking? >> yeah, that would be congressman good who was talking about that and congressman green. >> [inaudible] >> it seems to me that we have areas we need to improve on. we've got one side that is battling back on that, and we are trying to get in place here some of those control systems that are the simple, basic

things that you would do when i'm running my little gravel company back in michigan or whether you're running a major corporation or whether you're running gm, you must know what your assets are, where they are, and the status of them. i tell you when i did developing as well, the bank had a lot of trust with my family for 50 years of business, but guess what? they drove past every development on a regular basis to ensure we were doing the work. that's trustings but verified, and that's what we need. thank you, madam chair. >> the gentleman's time expired. the gentleman from ohio is recognized for five minutes. >> thank you, madam chairwoman. i won't go through the internal controls talked about, but i am shocked, and my colleague indicated we only learned one thing. one thing about internal controls is one internal control does not fix things. it's usually when there's three or four that give you the opportunity to catch things.

even though there's a potential of three bids and maybe somebody could, you know, change or get the other person to change his bid, if you still do site visits, which i've done a lot of construction, every bank i worked with did site visits. i've had third party companies go out and do a reference unannounced review of my projects, and i've had, you know, random visits, all of these things are part of internal controls. you can't just pick one thing. here's what i learned today. we have some fraud. i don't know what it is, and, again, it sounds like none of you know the number. it could be 14%, 2%, 5%. if it's a dollar and we can stop it, it's a problem. the taxpayers i represent are not happy if we waste anything, especially if we can catch it. we know there's issues with fraud. we know that. the question is what procedures can we put in place? i don't know what the fraud is, but i know we have some of

that. mr. mccarty, you said you opened up 51 investigations which is great, but you also said those came from confidential informants -- >> some did, sir. >> yeah, so informants give you the answer, but i think if you had the internal controls in place, you wouldn't have to worry about informants, and 23 they give you the answers, then the internal controls help you. if you catch 14% fraud, maybe there's 30% fraud, but you have to have internal controls so what i've learned is i'm not sure that any of you can tell me that we have these four minimum internal controls in place. i would like to get that answer, and i'm going to put a house up. this is in ohio. this facility was funded $212,000 in 2008. i'll bet you that if somebody, one of my foreign internal controls, if they would have done a random visit and looked

at it, they would have had a hard time finding $212,000 in funding to that house, so the question is not whether the program's good. you know, we can talk all day as to whether the program's good. the question is whether we can save some dollars that can be used in that program to bet ore other recipients, so i would ask somehow, some way because i'm leaving here today with this question mark. do we have internal controls? i'd love to hear an answer. do we have multiple internal controls, not just one? i heard from the witnesses before, both witnesses said whether they are criminals or not, if these four internal controls were in place, they would not have done what they did, so somehow, some way, i don't want to leave this hearing and not get a follow-up that tells me what the internal controls are, how they are using them. look, i understand it's a big department, and i understand there's a lot of good programs

going on, but the american people are counting on us and their are counting on you to implement these programs properly and to make sure the proper internal controls are in, not just one, but all of them. those are not expensive internal controls to require the recipient to send to pay for a third party review which could be done very simply, and that, hopefully, my colleague can say there's another thing he learned, a third party review, and inexpensive third party review could stop some of this. i appreciate your time, and i yield back. thank you. >> thank you, and i would recognize myself for five minutes. >> mr. donohue, you in your testimony said there's a need in many of the hud programs, including home for hud and the grantee recipients to aggressively monitor the subgrantees. what other programs would you

recommend this committee review? >> you mean programs within hud itself, ma'am? >> yes. >> i think any grant activity, be it hud for that matter any government agency -- >> or any other if you have -- >> yeah, i think any activity where a grant application are involved, i think it warrants -- it has to warrant in my estimation a monitoring practice not just with the grantee, but with the subgrantee level, and i think without that, i mean, what in effect we're doing is we're telling, in a sense by not doing it aggressively, telling the grantees we're not looking at you. why would they spend the cost to monitor the subgrantees? i think in my estimation we can encourage wrong doing rather than discouraging it. >> we certainly don't want to do that. thank you. that leads me into

mr. beaudette, in your testimony with 30,000 pending home projects at any time, it would require additional appropriation of funds to reach the level of increased number of hud staff to allow monitoring of day-to-day progress. is there a way, as mr. donohue has said about we really have to have the grantees and the subgrantees to have that monitor, but is there a way to have that go down so that it's not just hud having to really monitor all of that? >> i believe -- >> or do we really need more financial money to be able to make sure that there is the fraud? >> i think we would probably need more funding given state and local governments nowadays. i'm not sure if they are ready to jump on to enhance their monitoring.

we could certainly do it too. it would require additional funding. >> and that would be nice, but obviously we can't spend the money we don't have right now, so we really have to find other ways to do that. mr. handelman, do you have any -- i think we recognize this is a huge project, but a very important project, and so we want to make it -- if we can help to make it work better. >> and i agree improving the effectiveness of the program is very important. what i would observe is cost effectiveness needs to be part of the calculation. it does not benefit itself collectively to spend $10 to save $1. as we look at ways to improve internal controls and monitoring, even at the subgrantee level which i think potentially is useful, but i would hope it's in a cost effective way to maximize how much funding goes to improve housing. as was observed a few moments ago, you build the cost of

enforcement into the grant which necessarily means it's taking away from funds that would go to create housing. >> okay. mr. mccarty, in your testimony it appears there's 20% of your audits were conducted due to recommendations from hud. would that be away? why doesn't hud recommend more audit, and would that be necessary? >> well, i think since they are the ones working the programs and have firsthand knowledge of how they should be working, if they are effective enough, we would encourage them to afford more to us, that we can look at with our audit staff around the country. >> and so that would be one way to try to alleviate the fraud? >> yes, ma'am. >> well, i finished my questioning, and i want to thank all the witnesses for your testimony. i think it's been very een lightening, and -- enlightening, and thank you,

all. some members may have additional questions for the panel which they may wish to submit in writing, and without objections the hearing record is open for 30 days to submit written questions and the witnesses can place their responses in the record. >> madam chair? >> yes? >> thank you. we have been here for three hours now, and there's three hours we had four professional gentleman who had great and wonderful ideas looking forwards to getting on how to accomplish what we want, but we spent an hour and a half on a dog and pony side show that in my opinion wasted the time of congress, taxpayers' money, and gave us no light into the issues. these gentlemen gave us light and will hopefully give more. we had, even in the hearings, we had questions asked of these people that they couldn't possibly answer how much fraud is in hud. if they answered the question, the next question would have been and should be well, if you know this 10 #%, 5%, 14%, 100%

fraud, why didn't you stop it? they don't know how much because if they knew it, they would have stopped it. we asked these questions, and even if that question is the wrong people, the wrong people on the panel. the reason i just wanted to have a closing statement was simply because everybody here wants to minimize and eliminate as much fraud as possible. no one likes that. i actually would argue that those of us who like the home program have the most to gain by limiting fraud the most. i want as much money put into the programs as possible, yet what do we get? pictures of pretty homes put up on the screen that no one knows where they are. they were not asked the questions beforehand. you want to change the issue of fraud, any member here who has information of fraud should let these gentlemen know so they can do their job, chase them down, put more people in jail. not a problem. what i'm simply asking is that if we really are serious about shutting down or limiting fraud,

we should act in a serious manner talking to professionals, getting new ideas, and implementing them to the best of our ability. if they cost money, we have the discussion about is it worth the money? can we afford it? where do we get it? good point, good issues, but for me, i hope the next time we do this it's in a serious manner and leave the dog and pony show to other committees. we have not done that here up until now, and i regret we went through this, not the second pam. that was useful, but the first panel was a dog and pony show shedding no light, and i'm looking forward for thoughtful information from these gentlemen. thank you, madam chair. >> thank you. i think that we want to ensure that we can help to move forward and not have the waste, fraud, and abuse that's there and help hud, and i think we use any type of measure to get to the

loopholes that we have here, and i think we're all very serious about this, and i think that it was a serious first panel to try to find out from people that have been involved in this, and so with that, i would disagree with you, but i think this has been a good hearing, and i thank the witnesses, and they are professional, and this has been helpful. with that, this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] >> earlier tonight, secretary of state clinton spoke about u.s. support of democracy in the middle east. her remarks are next on

c-span2.

[applause] >> the national democratic institute annual awards dinner last night included remarks by secretary of state hillary clinton. this 40 minute event began with an introduction by madeleine al bright. >> we're not unaware of hillary clinton's existence. she's a best selling author, a grammy award winner, a former first lady, a former senator, from the great state of the new york, and currently serving as america's 67th secretary of state. if there were not enough, she's also a prior recipient of the heraman award. we all know her well, and we're

all aware that she has been doing an absolutely outstanding job in a world that refuses even for a minute to standstill. in less than three years, she's helped president obama restore our nation's reputation and leadership, lent fresh energy to partnerships around the globe, and work on issues ranging from terrorism to arms control to human development and the empowerment of women. in the process, she has assembled a stellar state department team made creative use of every available foreign policy tool, earned the abiding respect of our armed forces, and generated enthusiasm wherever she's traveled. those of us who have seen her abroad know that she's an incomparable representative for our country. she doesn't just make appearances, but she makes connections.

by explaning the goals that guide our actions and the interests that we share with law-abiding people on every continue innocent. what you may not know is that our secretary of state has also been a defender of ndi and a number of countries where our work has been challenged and our status placed in jeopardy. given her position, it would have been easy for her to point to the press of other business and priorities, but instead, she has made clear that defending the truth about what we do is a priority, and that our her watch, supporting democratic institutions and values is at the very heart of american foreign policy. the arab democracy movement is only one area among many where our secretary of state has acted in a timely and effective way to keep our alliances together, maintain our nation's commitments, defend our security, and uphold our ideals.

it gives me great pleasure to introduce one friend to many others. please welcome secretary of state, hillary rodham clinton. [applause] [applause] >> i might say, everybody in this room supports you, and offers our sympathy for the death of your really remarkable mother. welcome. >> thank you, thank you very much. [applause] >> thank you. well, it's a great pleasure for me to be here this evening, and i thank my friend and my predecessor, madeleine albright for not only that kind introduction, but for her extraordinary leadership and in

particular, of ndi. thanks, also to sherry brian and ken wallock for inviting me here today, and i want to wish two muslims here tonight and around the world. it's important to recognize that back when the streets of arab cities were quiet, the national democratic institute was already on the ground building relationships, supporting the voices that would turn a long arab winter into a new arab spring. now, we may not know where and when brave people will claim their rights next, but it's a safe bet that ndi is there now because freedom knows no better champion. more than a quarter century old, ndi and its siblings in the national endowment for democracy

family have become vital elements of america's engagement with the world. tonight, i want particularly to congratulate the winners of ndi's 2011 madeleine albright award, the women of appropriate communication techniques for development. women risks everything to demand their rights for the egyptian people, and they deserve those rights extended to them, and so we're grateful for their work, and we hope to see the rights that they fought for and advocated for enshrined in egypt's new constitution, and we're proud to support this through our partnerships like this initiative. [applause] tonight is also a singular

special hop nor for me -- honor for me to join with you in remembers three friends of ndi. three people i was lucky enough to call my friends as well. gerald ferrao, a trail blazing pioneer who lived to the fullest that women belong at the heart of democracy. chuck manad, a passionate chairman of the democratic national committee who understood that some things are too important to belong to any one party, and with his counterpart at the rnc, frank, who put together a bipartisan coalition to found the national endowment for democracy, and, of course, the indomedomeble, unforgettable, richard holbrooke.

now, richard has many reasons why those of us here tonight applaud and remember him. he died just four days before the desperate act of a tunisian fruit vender set the arab uprisings in motion, and e often wonder what richard would have made all that's happened sense. i'm sure he would have had a lot to say and even more that he wanted to do to promote the principles that we all cherish, and so these three individuals are very worthy of the awards that you have granted them this evening. what a year 2011 has been for freedom in the middle east and north africa. we have seen what may well have been the first arab revolution for democracy, then the second, then the third, and in yemen, people are demanding a transition to democracy that they deserve to see delivered,

and syria is refusing to relent until they, too, can decide their own future. throughout the arab world this year, people have given each other courage. old fears have melted away, and men and women have begun making their demands in broad daylight. they have given many of our diplomats courage too, and i want to single out someone who is here with us tonight. when our ambassador to syria was mobbed, assaulted, and threatened, just for meeting with peaceful protesters, he put his personal safety on the line to let the people know that america stands with them, and he said he was inspired by their bravery, and as he drove into hamas, a city under assault by asad's regime, the people of the city covered his car with

flowers. please join me in welcoming ambassador robert ford, his wife, and fellow foreign service officer, alison barkley. [applause] [applause] >> thanks to you, robert, and to you, alison, for your dedicated service to our country. now, in tunis, cairo, and a newly free tripoli, i have met people lifted by a sense that their futures actually do belong to them, and in my travels across the region, i have heard joy, purpose, and newfound pride, but i've also heard questions. i've heard speck schism about

american -- skepticism about american motives and commitments, and people wondering after decades of our working with the governments of the region, america doesn't in our heart of hearts actually long for the old days. i've heard from activists who think we are not pushing hards enough for -- hard enough for democratic change, and i've heard from government officials who think we are pushing too hard. i've heard from people asking why our policies vary from country to country, and what would happen if elections bring to power parties we don't agree with or people who just don't like us very much. i've heard people asking america to solve all their problems, and others wondering whether we have any role to play at all. beneath our excitement for the millions claiming the rights and freedoms we