mr. reid reid: thanks, mr. pres. i ask consent the bills be read a third time and passed en bloc, the notion re, laid on the table en bloc and that there be no intervening action or debate and any related states be place in the record as if given. the presiding officer: without objection. mr. reid know: i ask we proceed to calendar number 4806789. the presiding officer: the clerk will report. the clerk: h.r. 1560, an act to amend the yuseta de pueblo and the yuketta indian tribes restoration act and so forth. the presiding officer: without objection, the senate will proceed to the measure. many reid: i ask that the bill be read a third time and passed, the motion to reconsider be laid on the table, there be no intervening action or debate and any statements related to this matter be placed in the record at the appropriate place as if read. the presiding officer: without objection. mr. reid: i now ask that we proceed to calendar number 449. the presiding officer: the clerk will report. the clerk: calendar number 449, s. 1409, a bill to intensify efforts to identify, prevent and recover payment, error, waste,

fraud and abuse within federal spending. the presiding officer: without objection, the senate shall proceed to the measure. mr. reid: i ask unanimous consent the committee-reported substitute amendment be considered, the carper amendment, which is at the desk, be agreed to, the committee-reported amendment as amend be agreed to, and the bill as amend be read a third time, passed and the motion to reconsider be laid on the table with no intervening action or debate and any related statements be printed in the record as if read. the presiding officer: without objection. mr. reid: i now ask that we proceed to s. j. res. 49. the presiding officer: the clerk will report. the clerk: s. j. res. 49, joint resolution providing for the appointment of barbara barrett as a citizen regent of the board of regents of the smithsonian institution. the presiding officer: without objection, the senate shall proceed to the measure. mr. reid: i ask unanimous consent the joint resolution be passed, and the motion to reconsider be laid on the table, there be no intervening action or debate and that if there are any statements on this matter they be placed in the record at the appropriate place as if read. the presiding officer: without objection. mr. reid: i now ask the judiciary committee be

discharged from further consideration of s. res. 519 and that we proceed to this matter. the presiding officer: the clerk will report. the clerk: senate resolution 5 519, designating october 30, 2012, as a national day of remembrance for nuclear weapons program workers. the presiding officer: without objection, the committee is discharged and the senate will proceed to the measure. mr. reid: i ask unanimous consent the resolution be agreed to, the preamble be agreed to, the motion to reconsider be laid on the table, there be no intervening action or debate and any related statements be printed in the record at the as if read. the presiding officer: without objection. mr. reid: i ask unanimous consent the senate proceed to the consideration of the following resolutions, s. res. 536, 537, 538, 53 and 540. -- 353539 and 540. the presiding officer: without objection, the senate will proceed to the measures. mr. reid: i ask unanimous consent the resolutions be agreed torque the prebam he wills be agreed to, the motions to reconsider be laid on the

table and that be done en bloc for all of these, there be no intervening action or debate and any statements related to this matter appear in the record at the appropriate place as if read. the presiding officer: without objection. mr. reid: i now ask, mr. president, that we -- when the senate completes its business today, it adjourn until 9:30 a.m. tomorrow, thursday, a 2. following the prayer and the prejudice, the journal of proceedings be approved to date, the morning hour be deemed expired and the time for the leaders be reserved for their use later in the day. that the majority leader be recognized and that the following -- and that following his remarks, the senate begin consideration of s. 3326, the agoa-burma sanctions bill and the coburn amendment under the previous order. mr. president, i think it's important to note, because we're on a tight time frame in the morning, senator mcconnell and i -- i'll just very briefly announce the business of the day in the morning but he and i will give no opening statements tomorrow. and that following the debate on the coburn amendment, the time until 11:00 a.m. be equally confidedivided and controlled bn

the two leaders their designees prior to the cloture vote on s. 3314, the cybersecurity bill. further, that notwithstanding the outcome of the cloture vote, the senate then proceed to vote in relation to the coburn amendment to s. 3326 and the remaining provisions of the previous order be executed. finally i ask consent that the filing deadline for second-degree amendments to s. 3414 be at 1:00 a.m. on thursday morning -- at 10:00 a.m. on thursday morning. the presiding officer: without objection. mr. reid: mr. president, there will be two roll come votes tomorrow at 11:00 a.m. the chair has -- roll call votes tomorrow at 11:00 a.m. chair has granted my consent request is that right just now? the presiding officer: correct. mr. reid: the first will be a cloture vote on the cybersecurity bill and the second will object the coburn amendment to the burma sanctions legislation. additional votes are possible

tomorrow. senators will be notified as soon as we know. if there's further business to come before the senate, i ask that we adjourn under the previous order. the presiding officer: the senate will stand adjourned until august 2, thursday, 9:30 until august 2, thursday, 9:30

the house transportation and infrastructure committee held a hearing wednesday on overspending at the general services administration. the committee focused on a number, 2010 awards banquet which cost close to $270,000. members also look into reports of $44 million in bonuses and executive compensation being awarded to the gsa employees. this hearing comes three months

after they attempted to testify about excessive spending at a loss vegas conference. this hearing is an hour and 50 minutes. >> the house transportation and infrastructure committee to order. this morning's hearing is going to address the general service administration and is a review of management is spending entitled part ii. join pleased to have members join us and for the slight delay in the start i told ms. for ten someone should do something about traffic in washington, but we are pleased to have you here today, and also to be holding this important oversight hearing and investigative hearing regarding the latest round of

gsa spending abuses, which has seriously called into question gsa's ability to safeguard taxpayers' money. and the order of business will be i will start with my opening statement and then i will recognize other members. then we will get to our panel of two witnesses and we will proceed with questions after we hear from those witnesses. this, again, we are focusing on some of the problems that we've had in waste and abuse of taxpayer funds and the general services administration. that's particularly alarming because the general services administration has a sheaf procurement agency for the federal government also responsible for maintaining many of the public assets, trustees

of public assets and when you have abuses in an agency where that mission you have some serious problems and we will address them today. first of all, i think everyone was appalled coming and we appreciate the work of the inspector general who is with us today that they were appalled when we saw 800 million-dollar loss vegas conference unfortunately featured clowns and mind readers and the infamous image that all of us recall of one of the administrators and a hot tub thumbing his nose at both congress and the american taxpayer. we are hopeful that this is a limited occurrence that was not

indicative of the behavior, the actions or the management of the agency. from the beginning i asked mr. dinham, the chair of the economic development public buildings and the emergency management subcommittee that oversees gsa that from the very first hearings week requested information on soaring administrative costs that had ballooned some 300 per cent so we knew something was wrong and i think mr. denham and i have almost every hearing and in communications with the agency have tried to ascertain why these expenses were so high and was going on. our focus also from the committee is just something related to what we found with these conferences one of our intense both of the minority when we published entitled the

federal government must stop sitting on its assets, and that was in october of october 2010, the same months that this first conference was so abused it was held taxpayer revenues and potential utilization of the assets. we found that it gsa and the federal government have 14,000 properties or buildings across the nation that are either vacant or underutilized. we went down and other members and misfortune was there at the old post office and the amex, the genex had been vacant i'm sorry, for 15 years and it's two blocks from the white house i just came from the white house a few minutes ago this property is

costing taxpayers a loss of $8 million a year it was 32 degrees outside and we held a hearing in the amex that had been vacant was 38 degrees inside. most of the people who testified before us or worked with us than the administrators unfortunately were also involved in some of the abuses and almost all of them have been removed or replaced or resigned. in the meantime with the help in a bipartisan fashion we've turned that first property from a money-losing asset to where a thousand people will be employed , and potential significant revenue from the taxpayers but that took us over a year. since that we have done to

subsequent hearings in vacant buildings in the nation's capital, one in the annex, a huge swath of land and that the building was vacant for five years and then several weeks ago we conducted another hearing in an empty power facility behind the ritz-carlton georgetown on 2.0 acres of vacant for 11 years just examples of some of the huge waste these conferences are significant abuses and waste but they are even more dramatic problems. next week we will be giving a hearing in miami and if there is a federal court house that has been vacant for a number of years and we will continue during the august recess i think we are going to be los angeles with mr. dinham to look at the situation there with underutilized or excess property

sitting idle we read so that sort of sets the stage for today's hearing. we have been working diligently with inspector general. we have a very limited investigative staff on the committee and the inspector general is doing as good a job as he can. unfortunately, ladies and gentlemen, and i told some folks that we've now received information that there may be as many as 77 conferences and award ceremonies that are now under review by the inspector general and the investigative committee of the staff. that's quite disturbing. we of course were told in addition to the october conference which was $800,000 but now there is a one day in

excess of a quarter of a million-dollar virginia conference and people have already seen the video of $20,000 worth of drumsticks' that were purchased $35,000 picture frames and $104,000 for consulting on a one day conference the was paid. all of that is disturbing. now we are finding there may be as many as 77. i think i will address one particular that we have heard of in the last actually at this continues even in the last 24 hours. we are now examining the cost per attendee and some of that is over the top, and it does raise new concerns but it's going to take a while to sort through the good, the bad and the ugly of what's taking place.

not a pretty picture for tax payers. then i have to raise next before the kennedy question of the bonuses we were informed by gsa after about bonuses from the administration the president asked not to issue bonuses were they would be limited and we discovered about $10 million of law was reported from gsa in bonuses. now it appears that -- and i have to think the media particularly fox news, and i guess what was it cbs who also pursued this matter for some time for congressional panel when you do in ann curry and you can ask an agency in question and get back an answer and they

give back a ten million-dollar answer to this bonus. the media discovered what is at, for 30? its 34 million on top of it. $44 million on top. so we have $44 million in bonuses absolutely stunning amount. now, to put this in context, and again i think the media for also working this and i see also the "the washington times" had a request. so all of these combined with now uncovered about $44 million in bonuses. do we have a spreadsheet on that? okay. this is absolutely incredible amount of money.

put it in context, the entire federal government, the entire federal government paid 43 -- i'm sorry, four injured $39 million in bonuses to 1.3 million federal employees last year. now, gsa has 1% of the employees of the federal government. of one per cent, and they've received 10% of the bonuses to show you how dramatically out of kilter this is. that's absolutely outrageous. and furthermore, we went through some of the expenditures on bonuses and payments to some of the gsa employees and who got them? a 50,000-dollar bonus went to the regional commissioner who is under investigation for the loss vegas conference.

so not only were they getting out an incredible and inordinate amount of bonuses to. those that got them or some of the abusers so the regional commissioner under investigation about the 50,000-dollar bonus and then the up with almost a quarter of a million dollars int this pocket, $240,000. an employee with a base salary of $84,000 listen to this got o 50,000 overtime pay to a t number of employees that were a so investigated. a 79,000-dollar bonus for one employee of the totalth compensn compensation with $260,000. there's something wrong when you have to pay an employee $115,00n in overtime.

the conferences are one thing, multimillion-dollar losses, the bonuses absolutely outrageous the specific guidance by thend administration in 2011 and let th read it,le the bonuses for ts extra compensation would be awarded in a manner that is cost-effective for agencies and successfully motivates strong employee performance. this is a little bit longer, bue again, i want to highlight some of what we found today. the media that was involved in asking for these requests, thist wasn't a coordinated effort i thght say these were independent

atherl of this is sort of come together and a credible a way tf the ticker array of waste, abuse and possible fraudulent activite and to respect the work of the e inspector general and he will be somewhat of a limited how in some commentary ha commentary. his responsibility and our responsibility will be after this investigationing to make criminal referrals to the department of justice for their review. we want to make certain that our investigations comply with proper protocol and we respect him and at any point our at any question we respect your

position and ongoing investigation. we will continue to work hand in hand with the inspector general and our investigative staff. to one, uncover balance of this waste, fraud and abuse. two, to tiends out wfind out wh responsible and hold them accountable. >> we're determined to make certain this is cleaned up. it does not happen again. if we need to change administrative procedures or the law, we will do that. you have my commitment that we will continue to pursue this to this mess is cleaned up. finally, let me say this. i do not have witnesses in any of those other chairs today because what we wanted to do was hear from the inspector general from gsa. i asked other gsa officials to

come here. most of the first tier has been removed, resigned or left. the second tier is not as cooperative as i hoped. we had one take a medical leave last week who possibly was involved and others are not coming forward today. additionally, not having gsa here today, i do not have witnesses which i would like to have from the private sector. there are people who are professionals who have management skills and can handle the it in a fast fashion. the management, sale and better utilization of these incredible assets. we have thousands of federal properties, buildings vacant or

under yutilized. all of those potential participants are so intimidated by gsa that they have stayed away and are not with us. each one has backed out of hearing, participating in this hearing. that's unfortunate. they have so much power and control the rental market. i intend to find another way and other witnesses to come in and guide our committee in trying to reform this whole process. i know this is a very long statement.

i appreciate it. with those comments i'd like to yield to ms. norton. >> thank you. this is addressing a conference that's gone off rails. much like the october 2010 western regions conference, a conference that ran amuck near las vegas, nevada, we now have another conference closer to home that occurred just a month later. this time in crystal, virginia, where there are serious allegations of excessive spending.

he's already bearing fruit. administrator tangellina said he would conduct a top to bottom review of the agency when he appeared before us. we will need a careful inspector general report like the one received concerning the western regions conference. administrator tangelini's action indicate he's trying to get to the root of the issues at gsa. the acting administrator quickly implemented some common sense reforms in the wake of the prior embarrassing gsa scandal. particularly, consolidating conference oversight in the new office of administrative services, which is now

responsible for oversight of contracting for conferences, related activities and amenities and for review and approval of proposed conferences for their relation to gsa's mission. i am also pleased that gsa has brought all public buildings service regional budgets under the direct authority of gsa's chief financial officer centralizing authority over these accounts to ensure there are checks and balances and how gsa prioritizes spending. this change alone might have had the affect of putting a stop to the overspending of the gsa conferences in las vegas and crystal city. i look forward to hearing the

testimony this morning about how we can continue to make improve at gsa and going forward. i yield back. >> thank you. mr. denim. >> thank you. certainly it's frustrating to have yet one more hearing on some of the frauds and waste that's happening in gsa. the agency that is supposed to be tasked with setting an example, setting the standard for every other agency. after the las vegas celebration that they had, you would have thought that things would have changed. yet we see conference after conference and not just conferences, we found out now that rather than call them as conferences, they call them as celebrations so they can get around the executive order of calling it a conference.

we see the outrageous bonuses that aren't just performance bonuses which are bad enough which under an executive order were supposed to be stopped and we find out there's not only performances bonuses but tier bonus bonuses. there are special act bonuses. there are huge overtime payments, employees department heads receiving hundreds of thousands of dollars in additional pay. this was supposed to be hearing focused on yet one more conference dealing with the celebration, the key bridge award ceremony where awards were passed out at $3.7 million at one award ceremony alone. after the president issued his executive order we found there were 77 more conferences around the nation. i think the question the taxpayer wants answered is why?

why are these agencies ignoring the president of the united states? now what's most outrageous is the administration feels they can bypass congress breaking three different laws written in statute. i think there are many members of this committee and of congress that will have a lot of questions about that. if you can get around the prospectus here in this committee and this body of government that does control the pursestrings for the world trade center then you can do it in ms. norton's district and ms. edwards district. there's a $2 billion lease on the fbi building coming up. billions of dollars of taxpayers dollars. if you can't manage conferences and bonuses, how do you expect congress will allow you to handle billions of dollars worth

of leases. >> mr. denham would you yield for a second? i want to explain the issue he is raising right now and because we have leadership of the committee here. this is a very important issue and ms. norton, our committee is responsible basically under law and for years any lease that gsa signs over $2.7 million needs to come back for our approval and then we approve them. we had pending $350 million lease of the world trade center. the administration, gsa signed that lease without approval. how long is the term? 20 years.

signed a 20-year, on top of everything else you've heard today with the kvrconferences, bonuses, waste and abuse. now they have just stuck the finger in the eye of the committee. i want to make sure everybody hears what mr. denham is saying. $350 million subverting this committee. we have major crisis. they went ahead and signed that without approval of this committee. thank you. i yield back. >> thank you, mr. chair. if you can sense my frustration and outrage, it is not partisan. this is about an agency that is ignoring the commander in chief. whether it's republican or democrat, this body has a

responsibility to make sure that the law is being upheld. i want to just conclude, at a time when so many american families are struging to make ends meet, i'm committed to making sure they are spending money wisely. i'm committed to ending programs that do not work, streamlining those that do and bringing a new responsibility for stewardship of tax dollars. we are tightening the belt. as a next step in this effort i suspend cash awards, quality step, bonuses, similar discretionary payments or salary adjustments to any politically appointed federal employee commencing immediately and continuing through the end of the fiscal year 2011. i direct the office of personnel management to issue guidance and consultation with the office of

management and budget to assist departments and agencies in implementing this policy. that's the presidential memorandum august 3, 2010 yet 77 more conferences went on after that. executive order deliver an efficient and effective and accountable government. government operations will be curving uncontrolled growth, terminating poor performing projects, focusing agency leaders on achieving improvements in high quality areas and opening government up. that was june 13th, 2011. september 21st, 2011.

the vice president was then tasked with getting every agency head together to deliver an efficient, effective and accountable government which launched the campaign to cut waste. the vice president convened the heads to discuss the campaign to cut waste. the vice president asked department agency head to undertake thorough review of wasteful spending and report back on the measures. the president has instructed me to review policies and controls related to activities and expenses. approval of conference related activities and expense ls shall be clear through the deputy secretary or equivalent.

executive order 13589 on november 2011. i'll go to section seven of that. agencies should limit the purchase of promotional items, plaques, clothing in particular where they are not cost effective. conference after conference, celebration after celebration, several layers of overtime and now gsa wants to have authority over leases in the hundreds of millions of dollars. it stops here at this committee. i yield back. >> thank you. others seek recognition? >> mr. speaker. i love the title but i settle

for chairman. as nice as you were, i'm going to recognize mr. duncan first. >> thank you. i appreciate you calling this hearing. all the publicity that's being given to these conferences and these terrible abuses of the taxpayers have shown once again that the easiest thing in the world is to spend other people's money and that it's far too easy. in fact, governor randell when he was mayor of philadelphia and having a problem with some of the city unions testified in front of one of our congressional committees many years ago and said the problem with government is there's no incentive for people to work hard so many do not. there's no incentive for people to save money so much of it is squandered. those words were true many years

ago and they're true today and maybe even more so as all of the abuses of the taxpayers that we're talking about here today show. i appreciate you having this hearing and looking into these matters. i yield back. >> thank you for calling this hearing. i have two other hearings so i'll be in and out for most of the morning. it does appear that sound fiscal management has been cast aside and replaced by wasteful, mismanagement, recklessness. we'll hear more about that today. i thank you for having called the hearing. i yield back. >> thank you.

>> i'm not going to be able to stay for testimony but i have a couple of questions. it's been brought to my attention that there's a situation in san antonio, texas involving gsa that made headlines. the local social security office is asked to move to a new office. while the new location will provide additional space will also double the cost of the lease. it will be more than one million per year. i understand the social security administration has spent $1.7 million in renovations. a commission for the new lease total 178,000. this is not taken into account the cost of the actual move. i recognize this is just one lease in one part of the country and i'm interested in understanding why this situation has occurred in light of all the other things that's been happening with gsa. i have a series of questions i'd like to submit and get back in writing. with that i yield back.

>> others seek recognition? >> thank you. >> i want to thank you for providing this hearing for us to get this off our chest. i was a mayor of a small town in pennsylvania. the city was broke. it doesn't have money to hire the police that we needed. now i come to congress and the country is broke. i'm beginning to believe that it's me. i have to ask the simple question. when we deal with so many issues like we don't have money to fix our roads and bridges, but yet we're giving out hundreds of millions of dollars in bonuses, it's hard for me to conceive where the real problem lies. i've come to this conclusion that, yes, there's horrible abuses of gsa but you're not the only agency.

this not the only agency i've seen waste and abuse. we can go agency by agency and find it over and over again. i've come to the conclusion that we are the problem. we in congress have failed. it's great to get this off our chest and point out to the american people how you've wasted their tax dollars but who are the enablers? it's congress. we've allowed these agencies to do this. if anybody understands zero based budgeting we implemented a fundamental practice that most businesses use. rather than allowing agencies to budget by what they spent last year and this is what we're requesting this year, zero based budgeting would eliminate all this. we wouldn't be having this hearing today. every agency would start out with the same amount, zero.

you would have to justify every line item. they would never be able to budget millions of dollars for bonuses. this would never happen. this congress can't pass a budget. the senate hasn't voted for a budget in three years. this is like parent who is are going away on vacation and they load their house up and are going to leave their teenage children at home but before they leave they load the house up with booze and leave the credit card on the table and when they go away they act surprise that there are beer bottles over the house and the house is a wreck and they ask what happened. we've allowed this to happen. we've allowed this to happen. i'm going to ask the american people who are watching these hearings to take this matter into their hands before this next election, ask everyone who is running for this office if they support zero based budgeting. ask everyone who is running for the united states senate if they

promise the american people that they will pass a budget. if the answer to those questions are no, then i would suggest they hire new baby sitters. thank you. >> others seek recognition? ms. johnson. >> thank you. i want to ask unanimous consent to place my entire statement in the record. >> without objection. >> what i'd like to say is we are in dire straits for dollars. we have some excellent federal employees. i know that in this very partisan environment it seems like you're all bad, but that's not the case. it appears to me that that was no attention given to clearing the problems when they were called to your attention.

i think that for that reason social security very difficult to try to justify the ill decisions that were made. this makes it very hard for law enforcement officials, air traffic controllers, educators that are all federal employees that work very hard, make a lot less money and get tainted with this kind of behavior with this agency. i think it's unfortunate and thank you mr. chairman. i yields back. i'll put my entire statement in ro the record. >> thank you. in listening to my colleagues i can't agree with them more. i was mayor of small city. the budget is something we looked over very carefully. that's at a smaller level. i know you have tremendous

responsibilities in the oversight is probably a little harder. every single agency is expected to do their best and act prudently. i'm hoping that the american people that are listening will understand that they have a right to be tight government when they hear these stories and worn out by facts that are brought out to the general public's view. i think it's important for us to support that. we continue to go after any agency that is mismanaging, that is not following the intent of the law, and that the people, the supervisors there, their leadership is understanding that they have a right to be able to carry out the intent of the charge they are giving and understand we will be able to follow through. i hope there will be lots of inquiries and discipline to those that have thought that they could just move ahead

without any punitive action or consequences. we are facing the same budgets in our city. even in our staff we don't get bonuses. we can't. we don't have the funds. to have the american public see this outrageous expenses, the taxpayer dollar, it's their money. i'm totally looking forward to listening and hopefully finding some so i am totally looking forward to listening and hopefully finding some solutions to be effective in dealing with the future of our employees, that is the american public's employees. thank you, mr. chair. i yield back. >> other members seek recognition. >> if no other members seek recognition, when we do have our panel that we'll turn to. and today we have two witnesses. the first witness is the honorable brian miller, who is the inspector general of the

general services administration. and then we have miss cynthia metzler. she's chief administration services officer of the general services administration. we will, of course, welcome your testimony. we'll start with five minutes or so. there are only two of you, so we won't hold you to that. if you have additional information, doum menation that you would like to be made part of the record, we'll be glad to do that. i want to thank him for his willingness to work with us. we have what started out as a small scandal. now it's turning into a massive scandal with a number of people who have been involved. in fact, it's getting hard to

find someone who isn't involved who we can get to testify without having them put into some jeopardy because of the judicial process that probably will unfold here. i thank mr. miller for working so diligently with our investigative staff to uncover what's going on and also bring it to light. so mr. miller, you're recognized. welcome. >> thank you, mr. chairman. >> chairman denham, ranking member norton, members of the committee, thank you for inviting me here to testify this morning. i appreciate this committee's support of inspector general and it's my office's mission to weed out instances of fraud, waste and abuse at the general servicesed a medication. it was with that mission in mind that i wrote my july 19th letter

to our committees and jurisdiction, some of which had requested that igs bring matters to their attention earlier in an investigation. in my letter, i had an incident that advised me that gm planned to have similar information in response to information acts. on november 17, 2010, the federal acquisition services, fas, held with a one-day performance awards ceremony in washington, in the washington, d.c. metropolitan area. the ceremony featured a team building drum band exercise conducted by a third party vendor. and speeches by current and former gsa officials. our findings, though subject to further investigations and

change show costs over $34,000 for the venuvenue, $28,000 for picture frames and $148,000 for coordination and logistical transportation. and presentation called mission possible agent "x." as i have stated in my letter, we began a -- we have begun a preliminary analysis of the information we receive from gsa and have opened an administrative investigation. since our investigation had begun just a few weeks ago, we have already got some changes in cost figures and new facts. this may be a good opportunity to explain how an oig investigation is conducted. oig investigations originate with any number of sources.

gsa employees, gsa senior mlgt, other government employees, contractors and concerned citizens a mechanism to report instances of fraud and abuse. my office of investigation receives between 2,000 and 3,000 hot line tips annually and will assess each complaint or tip for credibility and open up an investigation if appropriate. additionally some matters warranted an investigation are brought to our attention by gsa senior management, as was the case with the fas ceremony. in other scenarios, our auditors may bring a matter discovered during an audit to our investigation or special agents may be tipped off by an informant. no matter what the source, they conduct their investigation with professionalism, objectivity and diligence. they interview witnesses and collect available evidence and documents. our agents compile the evidence in a written report of

investigation commonly known as an roi, reportive investigation with relative evidence attached. in the last semiannual reporting period, our office of investigations made 486 referrals for criminal prosecution, civil litigation, and administrative act. court ordered and investigative recories for the same six-month period. totalled 218 million,$218 milli. because it can have, accuracy is of the utmost importance. inaccurate reports can threaten the integrity of an oig investigation and damage the oig's reputation as a mechanism for dependable oversight. because our investigation to the fas ceremony is on going, the preliminary figures in the confines of my letters to

committees are the extent to which i can discuss the incident. those numbers were based on information provided by the agency. information that i understand was going to be released publicly. my office will continue to look into this ceremony and will update the committee when our investigation concludes. thank you for the opportunity to provide testimony. i would be happy to answer any questions. thank you. >> thank you, mr. miller. zwl we'll now turn to cynthia metzler, chief administrator of the office. >> good morning -- >> i would pull that up as close as you can. thank you. >> is that better? my name is cynthia metzler. i am the chief administrative services officer of the general services administration. in that capacity i coordinate internal management and support services to promote efficiency twn agency, covering a wide variety of issues, including

travel and conferences. as you were aware our acting administrate member was not able to appear. we reached out to request this hearing be scheduled at a mutually convenient date so that he could personally appear, but informed that the chee was electing to proceed with today's hearing with the awareness that he was unavailable. he looks forward to continuing to work with the committee to improve the efficiency of gsa and refocus the agency on the core mission, of streamlining the administrative work of the government to save money for the american taxpayer. given that the genesis of this hearing was the acting administrator's recent referral to the inspector general of a 2010 awards ceremony for the federal acquisition service. i have come here today to outline the steps we have taken

to prevent waste from happening again. as of april of 2012, all travel for events, including internal gsa meetings, training conferences, seminars and leadership or management events, among others, was suspended we have consolidated oversight of travel and conference expenses into the office of administrative services, which i lead. my office now reviews each and every planned future conference to make sure these events and any related travel are justified. for example, a conference requires a business justification, submission of a budget, and must be approved by the head of the office pursuing a conference and myself. conference with anticipated costs over $100,000 require approval by the administrator. any travel must be approved by the agency.

any travel for a routine internal meeting at gsa requires a waiver from the administrator or deputy administrator. we have canceled 37 previously scheduled conferences. these are a few of the many reforms the acting administrator has taken to improve oversight, strengthen controls and help refocus the agency on its core mission. i know he looks forward to discussing these with you in the future. in 2010, fas awards ceremony is another example of what the acting administrator has already recognized. a pattern of misjudgment, which spans several years in administration. new policies on spending to put an end to waste. the new leader is committed to

stopping any misuse of taxpayer dollars. wen we find questionable occurrences we refer them to the office of the inspector general, as we did in this case. gsa has already taken a number of important steps. as part of the acting administrator's top to bottom review, more steps will be taken to improve efficiency and save the taxpayer dollars. i appreciate the opportunity to come before you today to discuss thises a set reform at gsa and awelcome any questions you may hav have. >> well, thank you. and i appreciate your coming. we requested mr. tangerlini and he had a family issue. we requested the administrator and she was involved in the

question that's under investigation. so she is not coming. we invited the chief of staff. he's not coming. then we invited -- what's his last name? federal acquisitions services. i guess he was pretty heavily involved in this, the virginia conference, and i believe he took a leave of absence from the event. did he take a leave of absence last week? >> i believe he's on medical leave. >> okay. >> and then we got further down the public building's administrator couldn't come. so we got down to you. and we appreciate your being here. but it's getting difficult to find anyone who hasn't been involved in these scandals to now come and testify. and i know, mr. miller, you have ongoing investigations now we

identified 77 conferences with at least 25 attendees and $10,000 cost. is that correct? are you aware of this? >> that's correct, mr. chairman. >> many of them are smaller amounts. but we have some smaller amounts with very significant expenditures. i see some almost the $2,200 a person. some raise some questions. i think we should give particular attention to the national congressional support conference in henderson, nevada. were we able to find out if that was the same hotel mr. neily was in? but that 44 congressional --

ma'am, is that your ledge office? your legislative office? 44 persons? >> it's the office of congressional affairs. >> and i'm not sure if they were at the same resort with the same hot tub that mr. kneely was in, but they were there for five days for a government relations conference. and that's september of 2011. but i would like particular attention, if you can get back to the committee. the initial inquiries were on that. but we have particular interest in that. so again, the committee and you have some work to do, and appreciate your work. i won't get into specifics

because i don't want to tie the elon .. mr. miller? >> yes, it is cooperating. we are getting a lot of information from the agency, and we work with them. we obviously get information in waves sometimes. we don't get complete information all the time. and so we go back and get additional information. i think the committee understands the process. >> and further, i don't think we have a referral on the bonuses. were you doing anything on the bow nugss? >> we have an audit of executive compensation under way. well on its way. >> well, we will turn over to you what we have been provided

with. i'm not an attorney, mr. miller. but the way you ask the question and the response you get from the agency is when they ask how much in bonuses. we were told 10 million. now it appears it could be up to 44 million, another 30 million. do you know anything about the total number of bonuses? dollars that were expended? >> chairman mica, unfortunately i do not. i'm not in charge of the human capital part. >> could you -- >> but we can get it. again, when you have 1% of the

employees and 13,000 gsa employees and you get 10% of all the bonuses, it seems something is not right. are you familiar with the issue that's brought up on signing the gsa contracts. in particular at the world trade center? it was a $350 million contract, which was signed before it was authorized by the committee. >> any responsibles have to do with the internal operations of gsa. and that with the public building services. >> can you also request that the agency provide us that information? we are expecting some sort of a reply. we already requested it. we do not have it. when the law states anything over $2.7 million needs approval

in this committee we -- i might say, too, you have 13,000 employees. i chaired the civil service sub committee. and there are thousands of federal employees who go to work every day in this city and around the nation who do an absolutely outstanding job. they help people. they're wonderful. and i have nothing against going to conferences. i come from central florida. we welcome people to central florida. unfortunately the heavy spending visits were to central florida. many of these may be legitimate expenses. but obviously some of them are over the top. ma'am, are are you aware the

agencies are not to give big gifts, recognition items in a presidential or a standing order. you're familiar with that requirement sf. >> i'm familiar with the presidential directives. my office only took on responsible for approving conferences and awards ceremonies and related expenses in april of 2012. so we've been reviewing conferences from april 2012. >> and we can't get the people who were responsible before us. but now you would not approve $20,000 in drumstick, $35,000 in picture frames. would those expenditures comply? >> we would not approve those now. >> the inspector general cited $40,000 in cost for organizing the conference.

i wen back and looked at the figures, and i think there was transportation and other things included in that. i saw the consulting fee of $140,000. i took 140 and then subtracted from expenses. is $104,000 the typical fee for a one day conference? >> chairman, we looked at the organizing fee. >> $104,000 for one-day conference. there are a lot of people in the wrong business out there. >> we would not have approved that conference under today's standards. >> these things just pop out. i've got people in my district losing their homes, their jobs.

we have an agency spending money like there's no tomorrow. it's got to be brought to a halt. and we couldn't get the responsible party in here. would you convey also to mr. tangerlini that i have tried for three times to convene the hearing. and one of the reasons that we're not waving further delay in holding this hearing is because of that. so we will have him back in for discussions. and i hope to have the missing people involved in this the committee, too. >> thank you, mr. chairman. mr. miller, you say in your

testimony in page three that the administrator began a top to bottom review of the agency. are you satisfied with the steps the administration is take iing prevent what came before us in las vegas? now we find we're in crystal city. >> representative norton, it is encouraging that gsa is taping steps to correct abuses and putting controls in. they strengthened the financial accountability. in terms of whether they're effective or whether or not it's enough, i think it's too early

to tell. >> thank you. now, could i ask a question about the crystal city matter of the chairman. because i look at that, even 140,000 plus, miss meltzer, can be -- you take out some of it. you're still left with 140,000. and it's by far the largest expenditure. can i can you if there are agency personnel that could perform the function that is called coordination and logistical management? or should this be contracted out? i see almost all the conferences are contracted out to some private event planner. and they have their property

margin and all that goes with it. so is there no agency that can do conferences? >> congresswoman, yes, there are people in the agency, and under the new standards of the acting administrator, we have a new requirement that before one of the third-party event planners can be used in the future that the head of the service has to approve it. it has to come through my office. >> you do have event planners and people who do event planning in the agency. >> it's not the mission of gsa, but there are people. >> conferences aren't the mission either. >> yes. >> if everything that isn't the mission had to be contracted out, and work in the profit margin, and the real question, and i would ask mr. miller this, wouldn't it be less expensive to have a few people knowledgeable at conference planning in the agency, rather than contract out to some private event planner every time you want to do a conference?

>> they have event planners on staff. >> i would strongly recommend you hiring out. event planners do very good. my hat is off to them. i don't think they try to do the fanciest job they can. i think shall be who worked for the federal government would have a better understanding of what the agency wants, and i very much recommend it. that these matters not be contracted out. but the federal employees be given the task of designing and developing conferences for employees. mr. miller, i have to ask you about this. it's strange, and i would want to look blind this.

the federal governments come from gsa, which has 1% of the employees. that will catch anybody. do you think that figure is a figure, and i don't know what the word bonus means, that fairly represents the proportion of bonuses at gsa relative to other federal employees? or agencies. >> representative norton, i heard the figure this morning from the chairman. i have not had a chance to evaluate it. >> mr. miller, i would ask among your priorities you look at that matter. i don't know what the karkization is. frankly i find it difficult to believe. it's very difficult for me to believe that agencies which have hundreds of thousands of

employees don't have a larger percentage. so i don't accept that at face value until you have the opportunity to look into it. the president has essentially asked that certainly his appointees lead by example. i would not begrudge federal employees bonuses, but i would say on a moderation basis, when you consider that for most americans, a salary would be considered a bonus. so, i don't, without knowing more about bonuses. i certainly don't want to deprive bonuses. but during a recession and a recovery. it seems they ought to be given, and i can only say on a ration-basis. some people who otherwise might deserve them won't get them. i ask you to do is look at

bonuses now so that we can see what that was about. i am very curious about page two of your testimony. you say in the last semiannual, that would mean for six mons reporting period, your office made 486 referrals for federal prosecution, civil litigation and administration action. would you break that down that sounds like a large number. would you compare that to what happened in the past? >> and i would ask you to break that down quickly. >> okay. well, we make referrals obviously for criminal prosecution, for civil action. >> what portion of each? i know you may not have all the

figures before you. >> i can get the figures and send them up to you. i would be happy to do that. they should be in our semiannual report as well, broken down. >> can you characterize them to say civil litigation orred administrative action, it would be helpful to know that as well? >> that's usually a civil fraud case. so when a vendor or contractor has inflated billings to the gsa. >> so it may not be federal employees? >> correct. and again, if a contractor is gibing a bribe, it may be a criminal referral against the contractor. and depending on the circumstances and not against the government employees. >> mr. miller, if you could provide full details to this committee, we would appreciate it. >> i would be happy to. >> mr. miller, are you familiar with the august 3rd, 2010 memo

from the president the presidential memorandum to freeze doe nuss? >> only in a general way. zblf let me ask you. since 2010 have all the discretionary awards been frozen? >> i understand the president has kept -- >> are there awards that you know of to date between august of 2010 to today? discretionary awards, bonuses or similar payment? >> i believe they are either capped or frozen or actually, miss metzler may be in a better position to answer that. >> you sent a report to the committee there have been a number of bonuses that have gone out in the last three years. >> yes are you familiar with the memorandum to the heads of the

executive department and agencies that says approval of conference related activities and expenses shall be cleared through deputy secretary or equivalent? >> yes, in a general way. >> have all the conferences, the 77 in the last year and a half, have the 77 conferences been cleared by deputy secretary or equivalent? >> i do not believe they have. >> you do not believe they have. >> correct. >> are you familiar with the presidential document, the executive order, promoting efficient spending, where in section seven it says extraneous promotional items, agency should limit the purchase of those items rchlt you familiar with that? >> yes, in a general way. >> have there been any commemorative items, plaques or clothing given out? >> well, mr. chairman, we are conducting an ongoing

investigation. >> were the drumsticks at the crystal palace given out? >> they were given out in connection with the celebration. >> were there kem rative frames? >> they were given out in connection with the celebration. >> would you consider those commemorative items that should be covered under the executive ord sner. >> i think we're getting very close to our ongoing investigation. with that matter. so i would decline to answer that. in you report, $28,364.45 for picture frames. i would consider those picture frames commemorative items. $700,000 for shadow frames. i would consider that commemorative items.

$20,578 for 4,000 drumsticks given to attendees. i would consider that in the same category. so my question to you is if you have a memorandum from the president. if you have a memorandum from the department heads saying that deputy secretary or equivalent will approve all conferences, and if you have two executive orders by the president, how could this go on for the last two years? >> mr. chairman, we are looking into that. our investigation is ongoing. >> mr. miller, you've been doing these investigations for quite some time now. have you ever seen a period of time where executive orders are just flat out ignored? >> when the commander in chief issues an executive order, do you ever find that agencieses just ignore it? as the ceo of a company, if i

had a department head ignore my order, they would be fired. so the question is, why aren't these people being fired if they're ignoring the commander in chief? >> i understand that, and we have an ongoing investigation. >> thank you. miss metzler, i understand that mr. -- couldn't be here today. i appreciate that. this committee had the responsibility to continue on the investigation and make sure the law is being upheld. but we would like to continue to offer an -- i assume he doesn't have avacation planned on august 6th when we have our hearing. i hope he doesn't have a family vacation planned august 17 thd. i understand how important family vacations are. we're going to give him two more opportunities in the next few weeks to testify before this committee. we hope that he doesn't have previous engagements. let me ask you. in your testimony you say as of april 2012 all travel for events

including internal gsa meetings, trainings, conference seminars and leadership or management among others were suspended. were they suspended? >> they were suspended. and any event subsequent to april had to go through the new approval process. >> conferences and celebrations? >> yes. >> awards ceremonies? >> yes. >> awards ceremonies with food, yes. >> all gsa travel went through you on these conferences, celebrations or award ceremonies? >> after april. >> you con stop dated oversight of traffic expenses in administrative services which you lead. >> that's correct. >> why is there a conference going on today in nashville. >> that conference was subject to the smart pay conference. it was previously scheduled, before the acting administrator. those responsible came in with their proposals for the

conference, why it was being held. who was going to be attending it, what the purpose was. >> my time is brief here. over 6,000 rooms at the gaylord in nashville. i understand the presidential suite is occupied today. is there a gsa employee in the presidential suite? >> i do not know. >> it's over p 3$,000 a night. >> i don't know. >> you don't know? >> i don't know. i would hope not. >> how about the junior suite? those were all booked up today, too. >> under our policies, those rooms are not be occupied by gsa employees. >> and since you oversee the oversig and travel expense of these, what is the travel necessity of the general jackson lee steamboat that is taking a party out tonight? are they going to a destination? is that the reason for the travel expense? >> there is no such travel associated with anything that the general services

administration is involved in. that may be some other third party. >> so there is no expense to the federal government for the general jackson lee steamboat that is having a party tonight. >> that is correct to the best of my knowledge. >> we look forward to looking into that further. >> i apologize for my delay. i had a judiciary hearing. good to have you all with us by the way. mr. miller who brought your -- strike that. who brought this conference to your attention? >> acting administrator brought it to my personal attention. there was a -- we did receive a hot line complaint in may of this year it was an anonymous complaint of about five single-spaced pages with about four lines of general information about this conference.

>> were you familiar with it prior to having seen the notice? >> no, i was not. >> it appears, and i hope i'm not being duplicative. but it seemed the conference took place in two cities. a reception that costed over $7,000 at the tea bridge marriott. the reception, i'm furthermore told was complete with a violinist and guitarist, for a music variety. and it appears a bus was hired at more than $5,000 presumably to shuttle between the different hotels. i guess my question is why were two locations needed for one day

conference "a", and who was invited to the reception? >> those are questions that we're looking for the answer to as well. we have an ongoing investigation into this matter. >> you want to weigh in on this? >> when the acting administrator found out about this conference, we referred the matter to the inspector general for inquiry. so we're waiting for results of his survey. or his investigation. >> as i said in my opening statement, it does appear that sound fiscal practicing have been cast aside, if not abandoned. for mismanagement and waste and recklessness. and i'm hoping that this hearing will at least expose the wrong doing, and i think it has been wrong doing. again, thank you for being here. any of you have anything before i yield back? >> no maung. >> thank you, mr. chairman. i yield back. >> mr. chairman, i yield back.

>> thank you. miss napolitano? >> thank you, mr. chair. just a couple questions. how many conferences a year do you normally have scheduled? roughly. i don't need an exact number. >> the numbers that were scheduled prior to april 11th, 2012, we have been trying to uncover for the last several months. right now for this year in 2012, we have only five conferences scheduled. >> the conferences were -- pre-april you were attending the conferences. is there any calls go to whoever is in charge to find out whether they're meeting the requirement to uphold the budget to be transparent and to be able to have information?

>> before that? >> before that we did not have central control of conferences, how many there were or who wept or the nature of them. >> but apparently you still have conferences preapproved prior to april. >> actually not. any conference that was scheduled after april -- >> no, i'm talking pre-april. >> even if it was scheduled before april, it was deemed to be canceled. and they had to come back through my office. through the administrator to hold the conference. >> so you do have oversight over anything, regardless of preor post. >> yeah, that is correct. and the concern that now races inside my head is the cost is going to be on the taxpayer, if

you will, for the investigation of the 77 conferences. am i correct, sir? >> we are currently investigating those. yes. it comes out of our appropriations. >> right, but again, that's money that should not have to be spent, in other words. >> yes. >> but you have them go back and review to ensure that compliance has been made. >> yes. is there any way to quantify how much time you're going to spend on these? i'm talking in terms of dollars. >> that would be difficult. we're trying to do this in the most efficient way possible. we have strict parameters. >> understood. i'm trying to get to the point that it's going to cost the taxpayer a lot of money because of the decades of doing twhavr it is that they did without any oversight or any control over

the conference with the expenditures, the bonuses, et cetera. and you say you've cut all bonuses, ma'am. >> bonuses are not within my lane of responsibility. i am aware that the acting administrator has issued a serious curtailment on expected bonuses, and other bonuses are being looked at as part of the top to bottom review. >> that's curtailment, but not necessarily ending bonuses until clarification is made of whether they've been earned. >> certainly. the senior management gets bonuses. the american public doesn't get bonuses. how can we justify that with such a tight budget? we're looking for money.

you're paid to do a job, for goodness sake. >> i'll be happy to get back to what the information from the right officials at gsa regarding. >> i don't sit on the committee of jurisdiction, so i'm wondering about the questions that kind of fall through the cracks for me. you talk about misjudgment from several administrations. but why has it took me so long that it took me, the whistle blower, to raise the question tw the inspector general's office? >> the acting administrator came to gsa on april 15th and 16th. he issued a series of new policies regarding conferences and training. so it didn't take him but a minute or less than a week to issue the policies that we have now that provide oversight central control.

and put fiscal responsible back into the spending. >> and what brought that to head? >> well, him coming to gsa, prompted by the resignation of the previous administrator. >> thank you, mr. chairman. >> thank you, mr. chairman. mr. miller, i had intended to ask ab these 486 referrals that miss norton got into. i'm still curious about those. that does seem like an awfully high number. over a six-month period, that comes to over 80 referrals a month. is that much higher than has been done in the past and i know you said, many of these or most of these were not referrals of that gsa employees.

but more front panls to the gsa contractors or something. would you tell me a little bit more about that? >> it's a mix of referrals. my point was that a referral can either be against someone doing business with gsa, or it can be about a gsa official. so i wouldn't want to quantify it off the top of my head as to which one is more, rather there are more referrals regarding contracts or more referrals regarding gsa employees. i would be happy to furnish the committee with the precise breakdown of the referral. we do a lot of referrals with credit cards to go with the leased vehicles. gsa leases vehicles called the fleet to other agencies. any time another agency uses one of these cards a credit card goes along with it.

unfortunately they misuse the credit card and charge gas for friends and family. and that's a crime. so it's not a large case. but it's a referral, and we do have it prosecuted by u u.s. attorneys when we can, or by state prosecutors, when we can. so we do have a number of those, which may contribute to the higher numberle of referrals. i don't know if that explains it. >> do you know if that was a much higher figure than the proceeding annual -- >> i think we've been increasing our referrals over the years. and i take that as the accomplishment of the office. >> i would like to see a preview and also if one of the gsa contractors was a repeat

violater. there's a small number of companies that are just repeat violators, something needs to be done about that also. >> we recovered $200 million from oracle recently under the settlement oaf a civil fraud case. so that's an example of one of the cases. so it can range from $200 million to swub misusing a credit card or leased car for gas in the amount of 100 to $500. so it's a large range of damages. >> on another topic, i'm told by staff that cbs had a report that said over 13,000 gsa employees receive bonuses or extra pay, incentive pay, whatever you want to call it. different types of bonuses are

extra pay. it says the number of gsa employees is 12,635. have you looked into that? was it just a common accepted practice that every gsa got a bonus? >> we have an audit on its way of executive compensation. it's an audit we started some time ago. we suspected multiple awards to gsa officials. multimilliple awards for the sa work that they've done. >> miss metzler, on this conference where it says $10,000 was paid for a presentation by somebody called mission possible agent "x", do you know what that -- what they got for that

$10,000 or what the presentation was about? >> congressman, i do not. that conference was in 2010. it created our current review processes, and indicated we would not be approving conferences at this time. >> rt. i'll close by saying this. i'll repeat what i said in the opening statement. it unfortunately is far too easy to spend other people's money, and the problem with government is it's not coming out of your own pocket. we have too in people at the federal level just abusing the taxpayer taxpayers. >> thank you, mr. chairman. we have hard deds line of 11:00. any questions you feel comfortable providing the chair would help to move the committee along better. with that, mr. wallace?

>> thank you, mr. chairman for holding the committee. mr. miller, thank you for being back again and for the work that you've done. there are a couple things my colleague has said. it's hard not to feel the frustration here. at some point in time expressngn frustrations is not good enough. mr. duncan pointed out the issue. i would argue there is an incentive other than pay, it's called ethics. and i would like to think as i taug school starting out for $17,000 a year i worked just as hard as i did when i reached the top at 47,000. that i was working just as hard in that classroom and trying to save money for the taxpayers. but when we get a situation like this it absolutely, as miss johnson said, too, it destroys all credible and my friend is

very thorough. we both know there's not going to be good news out of that conference. swb is staying in that damn suite tonight. i would almost guarantee you. i understand you don't have that. i think you know that, though. so my question next is what happens when you come back and the questions getting asked today, i don't have any answers for these. and i'm as frustrated as anybody else. how do we make sure this stops? it appears to me there was clear cut directives put out. mr. miller has been to the committee and testified. many of us sit here appalled at $45 breakfast and everything else. and here we are again. so are you confident the changes implemented in place are going to stay, for example, to make sure none of the things forbidden are going to happen in nashville. are you comfortable with that as an administrator. >> i am confident that we

reviewed that with all the others that have been held. we looked at the expenses in the budget. we made very clear ethical responsibles and the ethical responsibilities on the companies also attending. so i am comfortable that we have conducted a thorough review of this conference. >> for the american public then, and i am speculating, but erg everything -- my spidey sense tells me something very bad is going to come out of that. if it does, can you give dpi me a buck stops here. if there's an employee at the $3,000 a night suite, what is going to happen? i think it is. i don't want to put words in his mouth. who going to be accountable if that happens? we'll find out. this is going to come out. so in a week or so there's going to be a story. no there was not.

i'll say, goodness they put good checks in place. if it comes out someone is in there, what will happen then? >> as all things with actinge a administrator, once we discover something has violated the policy or the law, we've been referring those matters to the inspector general. if we find anything about the conference does not comport with what was proposed to be to the acting administrator and to me, then we will be referring to the matter to the inspector general. >> when you leave this room, is somebody going to be on a cell phone calling nashville? >> i think somebody is probably on a cell phone already, while we're in the hearing, because we were very clear about the limitations on any pre existing conference that received approval that there were not to be questions of riverboats. there were not to be questions of presidential suites sochlt that was the guidance that was

given, the direction was given, and the conditions under which this conference was approved. >> i appreciate that. >> i'm hopeful by the time i leave here we will have answers. >> and i do appreciate that. i want to be clear. i know you're in an uncomfortable position. that's what comes with leadership. but i can't stress the corrosive factor that happens to so many dedicated, hard working ethical employees across the country. and whatever you say about is unfair with gross generalizations, i certainly know it here that we are painted by our colleagues in this body. and we seech get associated with one another. and it's all of our responsibility, especially leadership to fix that. >> thank you. i would remind committee members we have about ten minutes. i'm going to ask each of you to keep it to two minutes to make sure we finish it on time and get to everybody. miss metzler, i want to clarify. mr. wallace was very clear, and

you said we consolidated the expenses in the office of administration services. which you lead. you lead, you sign off on, and you said, there probably are people on cell phones right now, just contacting the gaylord opri land who confirm they have present rented out the general jackson for a private event this evening. did you authorize gsa to rent out the general jackson for a private evening tonight? the steam boat? >> we did not. this conference -- i just might add -- >> i need to yield to next member. mr. barletta. >> miss metzler, i asked if i could see gsa budget. the response i got is the answer is complicated. they budget a top line for

building operations, but they have not budgeted down to line item like conferences and meetings. now, i know you talked about the reforms in place. could you tell me what they have budged right now for conferences, meetings, travel, bonus bonuses. >> congressman, the budgeting of the agency is within the view of the chief financial officer. and the entire budgeting, along with every other aspect of gsa is part of the -- >> i'm asking if they have line items specifically for conferences, for bonuses. is it itemized like that? i couldn't even get a budget. i couldn't get a copy of the budget. i'm a member of congress. is it down to line items? >> the proposals for conferences after april are very much line item by line item. so that we saw, for example, for

the smart pay conference -- >> if i could. i want to get to the point. could you then send me a list of how much money is budgeted for conferences, bonuses, travel. and also what gsa's budget is. and how do we fix the problem? we could go on and on and on. this is not the only agency. so this is my takeaway from this meeting. number one, we need to force the senate, and congress should act and the president should sign a budget with the american people. two, congress should require that every department utilize zero base budgeting. every department require. three, we should not ask to take more hard working taxpayers' money so that washington can spend it, and four, we should not let this government run our health care system. thank you. >> thank you, miss metzler, if

you could provide that back to the committee. we will be anxious to see how many conferences you approved as well as the expenses and line items moving forward. >> i'm sorry. mr. edwards for two minutes. >> thank you, mr. chairman. thank you to the witnesses. just a couple of questions that we could just run down because time is short. how many employees are at gsa? >> over 12,000. >> and what's your estimate of the number of them that have participated in these conferences in the last year? >> congresswoman, i would have to get back to you about the numbers of people that have participated in conferences. >> but it would be fair to say it's probably not 80% of the agency participating in these conferences or 90% of the agency. >> it would be fair to say it's less than half. and much less than that, i would estimate. >> now over the last three years

the regular general service workers at gsa haven't received a pay raise at all. is that right? >> i have just rejoined the government in august of 2011, so i'm not familiar with what the pay situation was before that period. >> pretty much guaranteeing that federal workers haven't received a pay raise in three years, and what's the percentage of employees at gsa who have received have to have someone get back to you with that information. i don't have it since it's not part of my responsibility. >> would you also get back to me about the numbers of those employees in the gs-3, 5 and 7 range who weren't the recipients of those bonuses at the senior executive level? employees who haven't received a pay raise over the last three years? >> we will get that information to you. >> and how many annual conferences have there been that aren't related to boosting

moral, but are serving the core mission of the agency? >> the vast majority of the conferences of gsa are serving the core mission of the gsa. the conference we're holding right now is called the smart pay conference. it's to provide credit cardholders with required training so that they know how to manage their credit cards. the last conference we had was to provide conferences on contracting and -- >> we're out of time, soy can't -- and i appreciate that, but i can't run through all of these. let me say in closing, that i think in addition to strengthening the account ability of the conference arena, it's important for the i.g. to look at questions i've had, longstanding about the transparency accountability, fairness and parody in every area of the general services administration. and this is not about the good employees of gsa, a lot of them live in my congressional district. but when i walk up to a woman who works at gsa who works hard every day, who hasn't got a

raise, who shows up and does her job, and she's in tears because this agency is in the newspaper every single day, it is disgusting, it's not worthy of the taxpayers, it's not worth think of the citizens of this country and gsa needs to get its house in order. and the acting administratoadmi i'm glad he routed out the problem, he needs to be in front of this committee. here you have somebody who is a friend of the administration totally disgusted with the administration. totally disgusted with the gsa and its operation at every single level, every single time that we have a hearing in front of this committee. and it just -- we just can't take it any more. you know, let us defend the employees who are good and hard workers at the general services administration, but not to defend this kind of garbage that's a waste of taxpayer money and makes all of us not have any confidence at all, that the good

workers of gsa can do their job, and with that i yield. >> thank you, miss edwards. this committee would request the analysis of the training per individual as miss edwards said. there's a lot of money going into this. we want to make sure the good training their receiving is a benefit to those that are getting trained. if they're spending a million dollars at a conference, we want to see the benefit of those that are trained and receiving out of that, i'd like to see the cost benefit behind that. i recognize mr. ribble, the final two minutes. >> thank you, mr. chairman. >> mr. miller, the current heads of fas and pbs at the virginia conference? >> the current head of fas was at the conference, i'm not sure about pbs, i'd have too look into that. >> do you know if the head of pbs was at the virginia conference? >> i do not.

>> could you get back to me with that information please zm. >> >> in your testimony, you said, he looks forward to continuing to work at the committee to refocus to save money for the american taxpayer. what were they doing before? >> the acting administrator has committed to conducting a thorough top to bottom review of this agency, so that every single aspect of the agency is being looked at right now, so that we can ensure it's carrying on its mission in the most cost effective way. >> you say in you're testimony on page 2 that your office reviews each and every planned future conference to make sure these events and any related travel are justified. and then you say, for example, conferences require a business justification, and a submission of a budget. that wasn't going on before? this is pretty basic.

>> there was no central oversight of conferences to require that the proposal for what the conference was about, how it was related back to the agency's mission. that may have happened but it wasn't done at a centralized fashion. >> this is unbelievable. the american people watching this must be stunned by this, that they weren't required to submit a budget to have a conference approved? >> after april 11th, 2012, we have been requiring much more diligence in what the justification for the conference is. and i'm sure there were budgets beforehand but we have been looking at these in a different fashion to ensure that the american taxpayer dollars are well utilized. >> again, i just say this -- mr. chairman, as i yield back. my son's a professional drummer in nashville. however, he pays about $7 a pair

for drum sticks. the gsa who's core mission is to save money for the american taxpayer bought 20,000 drum sticks and paid $10 a pair. they paid 25 to 30% more. i wonder how they're saving money for the american taxpayer. >> thank you. >> i'd just like to associate myself with a colleague. and let's talk a little bit about leasing. the gsa signed a lease with the war and trade center? >> yes. >> why would you go to the world trade center? besides the fact that the lease was approved by this committee, and it was never brought before this committee?

that's the reason i'm -- >> i was not involved in that in anyway. >> it comes before the committee and we approved it. why the world trade center? i would think you'd get something cheaper. can you tell me why the world trade center? >> my responsibilities include the internal operation of the agency, not leases like the world trade center, i'm sure we'll be happy to provide that information to the committee. >> why wasn't it brought before the committee. it's usually the history that the leases are brought before the committee for approval. >> i understand that, i cannot answer that question. certainly that's something that acting administrator tangrilini or someone at gsa who controls the functions of gsa could

answer and should answer. >> i don't have much time. but it's just outrageous, really is. here we are trying to defend the good workers and then we have the situation with the bonuses. who sets the standard for the bonuses. how do they arrive? is that a committee? a person that says, mr. miller, you can have a bonus? >> i believe there are policies and performance criteria involved. but again, that's a function within gsa. we have an audit ongoing of exactly -- executive compensation. so we are looking at that and looking at how awards are being given out and how bonuses are given out. >> all right, i yield back. thank you very much. >> thank you so much. if other members have questions or additional inquiries that they would like to submit to our

witnesses, i welcome them. and i ask unanimous consent that today's record be kept open for a period of 15 days for the witnesses to respond or for members to provide additional commentary to the record without any further business. i want to thank the two witnesses for coming today, particularly mr. miller for your cooperation as the inspector general we're expecting additional answers and commentary. i'm sorry you got the short straw today and you're down the totem pole and fairly new. the others have hidden or dukd for cover. we will convene additional hearings when we come back in

september. i would urge everyone to participate. there being no further business on this particular hearing, i excuse and thank again the witnesses. and this will conclude the gsa portion of our pro

>> secretary of state, hillary clinton is on an 11 day tour about her, arriving in senegal on wednesday, where she met with the president to two university students. ..

future trading commission jerry eve ensler said wednesday that regulators failed to protect customers of now bankrupt in thin investment firm from about $200 million in losses. as part of his testimony at a senate agricultural committee hearing that also looked at the bankruptcy at ns global, where about $1.6 billion of customer money was lost.

this is two hours and 30 minutes. >> we appreciate very much witnesses this morning on a very, very important topic and appreciate members attendance this morning. about eight months ago, farmers and ranchers all across america woke up to some shocking news. mnf global, one of the nation's largest futures commission merchants have filed for bankruptcy, and at minimum, hundreds of millions of dollars of customer money had gone missing. a loss of customer on the of this magnitude had never happened before. it was something that shouldn't have been able to happen. it's been an article since the early days of the futures markets that customer money is to be kept separate and safe. but on october 31st, 2011, that was broken. questions were raised about how the segregated funds were being used or if the system worked.

questions were raised about how repeated audits and reviews had missed problems that contributed to the failure. we were assured that mf global was a immelt lawyer and then on july 10th, 2012, it happened again. the circumstances were certainly different and in some ways more dramatic. for the second time in eight months, customers were left holding the bag when their segregated money was misused. our farmers and ranchers and other businesses need these markets to work. they need to have faith that they can use the markets to manage their risk. it certainly seems this year but the risks are many. but one of those risks should not be that their futures broker's firm will go out of business and their money will disappear. we've heard from farmers and businesses who after mf global had collapsed opened accounts. for these folks, lightning

really does strike twice. and they rightfully want to know why. i want to know why. the members of the committee want to know why. and millions of farmers, ranchers and business owners across the country who need these markets to function properly are demanding to know why. i have three goals in the hearing and they are the same that we had last december when we brought the mf global executives before the committee. first of all, or charges to make sure customers get their money back. it's critical for the integrity of these markets that customers are first in line to get the money. we also want to make sure that individuals who engage in wrongdoing are held accountable. and we want to determine what changes need to be made to prevent something like this from happening again. with that change will look like is a question that we need to resolve.

i asked for recommendations after mf global that the ranking member and i have asked for input, and the committee today will hear from some of those that have given us their input. we also asked where the investigations were after mf global and all these months later there still ongoing. i am eager to hear where things stand with the investigations now. we need to know answers, and hold people accountable. if customers don't have faith in the markets the markets failed. simple as that. i hope the hearing can start to rebuild that faith for the millions of people that need these markets to work and i will now turn to my friend and ranking member senator roberts. >> thank you madame chairwoman for the excellent statement and thank you for scheduling this hearing on an important issue regarding our oversight responsibilities for the cftc.

today's hearing is certainly of concern to our constituents we must also work with you and the rest of our colleagues to consider how we can help farmers and ranchers who are suffering from the most serious drought in memory. we cannot ignore the response of devotees to oversee an equally important part of the american economy that is the futures and to the evidence industry. so today we have a two-part hearing first we will hear from the cftc and the bankruptcy trustees to continue to investigate the details of mf global's situation and the collapse and bankruptcy. second we will hear from industry groups with regard to the recommendations to strengthen and secure the futures and derivatives industry. mf global and pierre adriano normal bankruptcy celeste time the customers of the future commission merchants segregated funds were absconded. in what was unthinkable actually happened again with the news from iowa regarding the

peregrine financial group. i would like to hear from trustees at the groups to return all of the segregated account funds to the customers of these firms to the i appreciate the mf global trustee and the new peregrine trusty be here to update us on their effort. the trusty judge louis freeh couldn't be here but i think him for his submitted testimony. i am also looking for to hearing from key stakeholders in the futures industry and in the second panel here today. he's put a tremendous amount of thought into your recommendations to make the system stronger. i am eager to hear those recommendations. this input is critical and important to the committee as we consider the fundamental question of whether the self regulatory structure that has existed for decades is capable of regulating the industry or whether it is all grown it's

time and means to be replaced by a massive transfer of authority and money for that matter to washington and the cftc. it should be noted that while chairman dinsmoor doesn't advocate this approach, some do. i also thank commissioner summers who is leading the investigation of the mf global failure for being here this morning. now, today's topic are serious matters and i know there are folks out there that believe the cftc is moving too slowly. they are asking why aren't certain people in federal court already. on the understand those frustrations. i also no investigations are ongoing and we must be sensitive of how much information is actually disclosed to jeopardize or arrest and conviction. today we will learn as much as possible about what took place during the final chaotic days at mf global. i also look forward to hearing the recommendations before fun to a second panel.

again, to see if we can work with the futures industry to prevent anything like this from happening again. our futures markets are an absolutely critical part of what allows this nation to provide citizens with the least expensive and most reliable food supply in the world. for decades our regulatory model has assured us that our futures markets have property but in light of recent events, it certainly can and should be improved. madame chairwoman i look forward to hearing the recommendations brought forth by this morning regarding any possible improvements and thank you again for holding this hearing. >> thank you very much. and i certainly we want any member the would like to submit an opening statement for the record we would welcome that and we would turn to our panelists now. we have an excellent group of panelists. we appreciate you joining us today. one of our witnesses today, judge louis freeh serving for the parent company mf global

holdings was unable to attend. judge freeh has submitted a written testimony and will be responding to members' questions for the official record. i am pleased to introduce our first panelist, chairman gary gensler, certainly no stranger to the committee. and we welcome you back. prior to the service on the cftc, chairman gensler served in several positions and the treasury department and before that had a very successful career in the private sector triet so we appreciate you being here and our second panelist is joseph summers is a member of the commodities futures trading commission and as well no stranger to the committee and has been selected by her colleagues to serve as the senior commissioner in charge of mf global related matters. previously served as head of government affairs for the international swaps and derivatives association and worked in the governmental affairs for the chicago mercantile exchange. we welcome you back and look forward to hearing about the progress of your efforts. and, certainly james giddens,

and we welcome you back to the committee and appreciate your efforts serving as a trustee for the securities investment protection act liquidation of mf global. in an that role, you have charged in part with the task of retrieving lost funds for customers. and we know mr. giddens covered internationally recognized leading expert on brokerage firm liquid nations. welcome back to the committee. the final panelist is ira bodenstein. mr. bodenstein is serving as the chapter 7 trustee for the financial group and we welcome you to the committee and to the position. mr. ira is also a member of the law firm based in chicago coming and previously u.s. attorney general janet reno selected mr. ira to serve as the united states trustee for the northern district of illinois and the

state of wisconsin. we appreciate you joining us on the short notice and we look forward to working with you. so, we will now turn and ask german gensler for his opening remarks and a understand you are asking for five minutes of testimony and we certainly welcome any written testimony as well and then we will open it to questions. chairman gensler. >> good morning chairwoman stabenow, a ranking member roberts and members of the committee. i am pleased to be with you and particularly honored to be here with commissioner summers on these important matters. the commission and i take very seriously the losses of customer funds that should have been segregated at all times. customers should have been able to rely on a system of protection that protect them it's not just about those that lost money but it's of farmers and ranchers and other end users that need to have confidence in the markets. it's with these critical markets

of futures markets and ultimately in the swaps markets out of the customers need the hedge risk locking in the price of corn or wheat or an interest rate producing food and fiber and other essential products. the recent events remind me of saying my grandfather had handed down in my family and repeated quite often as immigrant from russia used to say figures don't lie, but lawyers sure can figure. and simply put, the evidence points to the owner taking the funds of customers right out of the bank and of lying about it for years. the national futures association self-regulatory organization responsible for frontline oversight is required to conduct periodic audits of peregrine funds and in addition an independent audit and annual

financial statement and putting all the way to december 31st 2011. and just like the local police cannot prevent against all bank robberies, market regulators cannot prevent against all financial fraud. but having said that, i believe the system fails to predict peregrine's customers and we all must do better including the cftc. the commission has been actively working to improve protection of customer funds. we finalize for separate rules strengthening protection for investment funds. customers called gross margin, segregation of customer funds in the new world of swaps, and also working at the selfridge of the reorganizations have specific requirements for their financial surveillance. we will suppose the with the futures industry association, the nsa, the cme and others on minerals finalized just last month concerning new controls

over customer segregated accounts and i think that those working and relationships served well the they will be tested for the netz meeting through changes post-peregrine. the cftc also implemented a st structure of the intermediaries also hiring new leadership over the last nine months both full partner of an accounting firm and part from a wall from two helpless died this effort. looking toward the white you think it is critical that we further update will giving regulators direct electronic offset to offset bank and custodial accounts. we should incorporate the nsa rules those that were finalized and put them in default. i think there is a consensus to do that. but also i think we should get futures customers access to information about how the assets are held. where is the money held? i think we have to enhance internal control of the futures commission merchants regarding

how customers' accounts are handled and i also think we need to carefully consider additional roles played out how they conduct their exams and all bets and as the ranking member said, i think it's been embedded in the system for decades for self regulation and then we examined the examiners but we need to look at how we examine the examiner and set their rules in place. we will conduct a full role on the examination and audit oversight looking openly for improvements in putting getting advice from the public company accounting oversight board that's been gracious enough to tell how do they do with the do and how can we learn from what they do. and based on those conduct san oversight i think we must do everything in our authorities and resources to strengthen our oversight programs and protection of customer funds and as i think back to my grandfather saying keep his values and from that mission in mind so i think you.

>> thank you very much. commissioner summers. >> ranking member roberts and members of the committee, thank you for inviting me here today to testify about mf global. over the last nine months the futures trading commission has conducted a thorough analysis. in the bankruptcy proceeding to recover customer funds. we have a comprehensive and on going in for some of the negotiations. it's imperative that the commission industry and the congress identify and assess the congress for the shortfall in customer funds and take corrective action where possible. at german gensler's request the commission staff developed recommendations for enhancing commissions and designated a self-regulatory organization programs related to the protection of customer funds

which includes changes to the commission rules governing futures commission merchants enhanced commission oversight of the csrl and possible statutory changes among other things. we must do everything in our power to restore confidence in that you futures markets so producers, processors and other end users of commodities can once again hedge the price risk without fear of the funds being frozen or lost. november 9th 2011 the commission voted to make me the senior commissioner with respect to the global matters. this authorizes me to exercise the executive and administrative functions of the commission solely with respect to the pending enforcement investigation, the bankruptcy proceedings and other action to lowercase recover customer funds or determine the reason for the shortfall. while i am unable to discuss the specifics of our ongoing

enforcement investigation, i will provide a brief overview. our division of enforcement is actively engaged in the investigation concerning the shortfall of customer funds. we have a dedicated team working everyday on this case. they are interviewing witnesses and reviewing documents as well as other information and are proceeding as expeditiously as we can. as the committee will understand i cannot disclose any specific details of the investigation because they are on public and because i do not want to prejudice any enforcement action. however depending on the specific facts and circumstances, a shortfall customer segregated fund could amount to a violation of the c.a. and commission regulations including those that govern segregated funds, prevent theft of customer money, required our registrars to provide the

accounts, prevent making false statements and prohibits the schemes. depending on the specific facts and circumstances the commission could file an enforcement action against corporate entities and/or individuals who have violated the cea or regulation. depending on the specific facts and circumstances, individuals could also be liable if they are controlled persons of a company who has violated the law. a controlled person generally refers to management. depending on the specific facts and circumstances and an enforcement action can be filed against individuals who a day and edit the violations by company. finally the commission regulations impose obligations on accountants who audit and on the banks who hold customer segregated funds. generally the commission has b-frp to do other things among

the monetary penalties in putting to disgorge ill-gotten gain, obtain restitution for customers and obtain other injunctive relief. in terms of a civil monetary penalty the commission can seek a greater of three times the defendant's game or set amount which is currently at $100,000 per violation. civil monetary penalties are forced it to the u.s. treasury will restitution would be paid to the victims who suffer losses. the commission is a civil and force the agency so we cannot seek imprisonment or a sanction an enforcement action as a sanction, excuse me, and imports of action. however, a willful violation of the c.a. or our regulation is a federal crime which can be prosecuted by the u.s. attorney. we do not have a say in whether or not the criminal authority prosecutes coming in by a understand that they have a higher burden of proof.

there's no doubt that mf global bankruptcy has caused severe hardship for thousands of customers who trusted the system and trusted their sc m. i believe the commission can make improvements to our regulatory oversight of sc m and the sro to install confidence in the futures markets and i will work with the commission and congress to implement the rules necessary to enhance our ability to protect market users. >> thank you very much. >> giddens, welcome. >> thank you. >> chairwoman stabenow, a ranking member roberts and committee members -- >> weddington need to push a button. >> thank you. chairwoman stabenow coloring the member roberts and committee members, it's been nine months since the bankruptcy of mf global where irresponsible actions of company management caused an unprecedented invasion

of customer funds. i know this has been a long frustrating period for formal request to the customer is waiting for the return of property rightfully belonging to them. however, sycophant progress has been made for the benefit of customers and putting it returning 80% of customer property to the commodities customers who traded on u.s. exchanges. completing an extensive investigation and issuing a public report on its findings and identifying and pursuing the recoveries of additional assets for customers on eighth and more importantly the customers have appreciated this committee's support for these efforts. mine consistent goal remains to return as much property as possible and as quickly as possible and a fair and lawful manner, and that is what i have done. it's important to understand that i have no role in the

bankruptcy and the holdings which was the holding company of the broker-dealer and is now represented by a separate trustee. as a liquidation trustee, i do not have law enforcement for the regulatory authority the white continue to cooperate with and have shared my report and its findings with all the relevant agencies. currently my office is completing a fourth distribution to the former commodities customers bringing total distributions to 4.7 billion. 80% of the property for the u.s. exchange rate and 5% for the foreign exchange trades for substantially all non-affiliated accounts for transferred, and approximately 80% received nearly all of their account balances because of the securities investor protection corporation advances have also

conducted the claims process that involves more than 44,000 claims. claims have been made and most have been agreed to by the claimants. we have claimed a speech absent litigation. the approximately $1.6 billion shortfall in segregated property available for the return to customers remains we're looking to eliminate the shortfall by determining the size of customer plane pulls and recovering funds through negotiation and litigation if necessary we may request of the bankruptcy court approval for the allocation of them on segregated property to customers. significant agreements have been reached with the group with mf global global canada which will also support my ability to distribute additional funds to

customers. there are very substantial disputed claims from mf global affiliate's including the holding company which required me under the law to hold appropriate reserves until those disputes are resolved, and until they are resolved by the bankruptcy court, they stand at a very significant impediment to further distributions to customers. in the united kingdom litigation continues to resolve my claim against the joint special let - traders for 700 million in customer property. extensive and thorough investigation into the failure of mf global led to my conclusion that there may be valid claims against directors and officers including john karzai in. i am prosecuting these claims with plaintiffs in pending lawsuits against those parties

jpmorgan chase concerning transfers i believes. i have made recommendations about how to avert a similar future catastrophe and protect customers coming and i support reforms recently approved by regulators. thank you very much for the opportunity to testify here today. >> thank you very much, mr. bodenstein, welcome. >> thank you. good morning german stabenow, ranking member roberts and members of the committee. i thank you for this opportunity to appear before you today. i have submitted my full written testimony. my name is ira bodenstein, and i and the appointed interim chapter 7 trustee of peregrine financial group incorporated. i was appointed as a successor trustee by the office of the united states trustee which is a component of the department of justice on july 11th, 2012. over a planned and was preceded by the filing of a complaint by

the u.s. commodity futures trading commission which sought injunctive relief against peregrine and russell watson, sr. on july 10th, 2012. in the filing of the voluntary chapter 7 bankruptcy petition by mf peregrine within hours after the entry of a temporary restraining order and the appointment of a receiver in the cftc proceeding at since the date of my appointment as a peregrine trustees i've been working diligently to comply with my fiduciary duties under the bankruptcy code. i've taken steps to secure peregrine assets and protect customer accounts and information. to prevent the loss of institutional knowledge and to assist in the taking control of the assets and information i obtained bankruptcy court allowing me to operate the business of peregrine on a limited basis through september 13th, 2012 but as a

certain employees at peregrine. i've also selected acre of professionals which i feel are necessary to assist me in this liquidation effort to revive the working cooperative with the cftc, the nsa, the fbi and the u.s. attorney's office in coordinating the liquidation of peregrine and providing access to all information under my control three years in the pending civil and criminal investigations on the other hand i've been getting cooperation from the other side in getting information that they already have control of and allowing me to see that information. i've also been working cooperative me with the receiver who was appointed in the cftc action. initially there was some concern over competing orders and who had jurisdiction over what has been straightened out in the

receivership matter and an amended receivership order and an amended statutory restraining order have been entered making it clear that all assets of peregrine are under control of the bankruptcy trustee. in conclusion, with the destin sense of the team i have put in place i intend to confirm the validity of the information on the books and records of peregrine and disseminate such information to its households which also delivers its speed. one customer balances are calculated, i intend to seek court authority to make an initial distribution to the customers as soon as i can. i think you for the opportunity to appear before this committee. >> thank you very much. we realize you are new to the position you're in and we thank you for your willingness to come before the committee as you begin this very important process. for the committee members we will do to rounds of five minute questions this morning, and let me start with tremendous flair.

how quickly can the cftc move to improve the protection of customer accounts? you talked about various things you are looking at how quickly can you do that? do you need more legal authority to protect futures markets or do you feel you have the authority right now that you need to be given to move? >> i think we have strong legal authority and i keep an open mind to work with this committee and others to work on their suggestions for changes whether it is about the civil penalties that we can impose on people or maybe possibly with regard to the bankruptcy code itself. but in terms of legal authority it's quite strong. in terms of timing, we've moved i think very effectively with the national futures association and the industry on those changes we would like to incorporate those into our rule book as well. but i would be hopeful that what is in front of the commissioners

now and draft is only in the draft form that we can try to get it out to the public comment in the months of september is my hope, but a lot of feedback will come. we have a public roundtable as well towards the end of next week we are going to hear more from the public on these matters. >> thank you. obviously the public is watching here and certainly from my perspective i'm going to escalate to many times now whether or not people should be investing and using the futures markets and that is not a good thing. so we do need to make the right decisions, but we do need to move. let me ask the commissioner how much time on average has the cftc needed to bring charges in the case like this. i know you can't speak of this particular case, but when we look at the kinds of cases the cftc has brought, what would be

given the size and complexity, the normal time frame? >> i think in my time at the cftc the past five years we haven't had a case like this. this is unprecedented for the commission to have a case of this complexity of this size, 38,000 commodity customers and with customer money missing which is in a bankruptcy case before we've never had that happen. so this is unprecedented for us and i want to assure the committee that we are moving as expeditiously as we can. >> do you believe you have the resources to do this in the quickest way possible? >> we have a dedicated team on ns global -- mf global with a number of people with our division of enforcement in our new york office as well as assistance from chicago and here in washington working on this.

>> is that a yes? >> yes. >> thank you. any funds collected as a result of successful cases that you would bring go directly to make customers whole. >> seeking restitution would allow us to give that money back to customers. civil monetary penalties would of course the back to the u.s. treasury. >> thank you very much. we've heard from the judge in the written testimony that he believes there is enough money to make customers hole and there should be significant excess funds for creditors. how would you respond to that? >> based on our claims analysis, we estimate that u.s. customers have valid claims for approximately 6 million the estate is approximately $5.2 billion in assets. customers who traded on foreign exchanges the so-called 40.7 funds have pending claims with

approximately 1 billion. 30.7 in the present has assets of 90 million. that is the shortfall. as i indicated, we very much would like to say every customer 100%, however, it will be a time-consuming, difficult an uphill battle to be successful in marshalling substantial additional assets needed to pay commodities customers 100%. we appreciate mr. freeh's apparent support and confidence in our ability to allocate additional substantial assets. and certainly that remains our singular focus. but, for example, 700 million of what should have been segregated funds are at issue in the litigation in the united kingdom. we are very hopeful about our success in that litigation but when no means is that assured. that is a matter that will be decided by the english courts under the english law. >> obviously a top priority for our committee i believe i can speak for everyone is to make

sure that people were made whole coming and we appreciate your aggressiveness in doing that can't support you in doing whatever is necessary to do that. given the time the time is expired i would now turn to the ranking member, the distinguished senator from kansas. >> thank you madam chair. mr. giddens or vindictive the report indicates that new in october 26 the firm was out of compliance on october 26 you have on october 28 she was still wiring out another 175 million to the united kingdom for mr. karzai's instructions. is this correct? >> yes, sir. >> did mf global have internal controls regarding how and why money could be moved that would prevent this from happening? >> the have controls that they were obviously in effect ignored.

>> is mr. gore's lines and the overruling the internal controls? is this your incompetence or did someone somewhere within mf global know what they were doing and willfully move the money out of the segregated accounts? >> i believe the report which deals with these subjects in which hundred 75 pages mick squier our conclusion that there was knowledge that segregated customer funds were being improperly moved. >> did the tbb to a cftc change after the fact to the rule of 1.5 regarding the international rule or 30.7 investments really matter in terms of what mf global was doing with its customer segregated funds? >> the subsequent change in terms of how much would be segregated we think would have

been had a rule been changed one have been very important. i think we indicated something like a billion dollars that would have required to be segregated for the 4.7 customers was not segregated so that certainly would have been a material. >> at the end of today what is your best estimate of the percentage of customers money they will finally get back out of this? >> again, certainly it is my goal that they recover 100%. we are up to 80% on 4d or 5% on the 40 plaine seven. we've had other collections of non-segregated funds as to which we have to go through the bankruptcy court and have the bankruptcy court finally allocate. it will be our position that is a substantial part of the funds should be allocated to the customers coming and with the amount of funds that we have under control, and if we are

successful in the pending litigation, i think we are comfortable saying that the additional distributions should certainly be in the 90% range. this is granted be an uphill fight as i indicated to get to 100%. >> i appreciate your dedication. sherman, welcome back. today, right now, can the cftc tell if an fc m is shuffling customers' money intraday in and out of the segregated account? >> i think that we would be hard-pressed to be able to do that. i think that the rules forbid it. that somebody even has to be fully segregated but we don't have access and we are not in those accounts. but it's absolutely against the rules to take money intraday. it has to be in segregation all

day long. >> welcome following that, have you done anything to quickly resolve the situation somebody can look at the end of the day we have to do the intraday can we do it at the end of today? >> yes, and i think even these recent rules that were adopted by the nfa was a positive step as you see for each day and then at the management wants to tap into what is called the access fund, sometimes the their own fund, the company fund. they can't take out more than a limited amount, 25% without having senior management signing it and noting the regulators as well. we also recommended that they get a direct view only online bob to see the bank accounts and custodial accounts that will take some further changes and technologies changes. some get a rating agency had been downgraded mf global, how

much longer would this use of customer funds have gone by mf global without any regulator? >> s to the specifics of the one institution i would leave it to those that know more about the company now than i do. but i think that the obligation of the self regulatory organizations and the cftc to ensure that all institutions comply with blah, blah. >> i appreciate that and i will have further questions in the second round madame chairwoman. >> thank you. >> senator harkin. specs before madame chair. according to information i received in the national futures association, the nfa has taken five enforce that actions against peregrine in 1996, 2004,

2008, 2012, and again on july 9th, 2012 to aid in 2004, according to a story that was in "the new york times," peregrine clients said a national to the national futures association and the cftc asking it to intervene to prevent the firm from misusing its customers' money. a copy of the letter was obtained by "the new york times." five years later in 2009 again a tipster wrote nfa asking it to review peregrine's bank account information for accuracy. in 1996 the action involved separate incidents in which peregrine failed to maintain aggregate to the racket funds. again in 2011 in the course of an audit they were informed that peregrine was under segregated by to enter the million. there's two letters one on friday and one on monday that sort of changed those figures. my questions are will delete was

the cftc aware of the 2011 incident in which there were two letters one on friday and one on monday? if so, what did you do and should the cftc have been made aware of it? >> to the best of my knowledge we were not but we were going to learn more facts looking at our own cftc. but the work papers of the nfa may have that. but we don't necessarily review the audits. there's an outside auditor and a self-regulatory organization. but we have moved in the last two and a half years as weak quarterly now look at nfa and the cme review but just on a sample basis. we sample some and it happens to the peregrine wasn't a part of our sample in the last two years. >> is it typical for a term like peregrine to have that many efforts that actions taken against it in a similar time period? that's one come to come three, four, five, six going back to

1996. >> i would have to get back to you because there are especially in the large financial institutions, and this was small and often disciplinary actions for sales practice issues. but i would say looking back at the record and even looking at a the 2000 action that the cftc brought and there was a settlement that they had about accounting records. i think the system failed to protect the public when you look at those various incidents over the years and there was 12 years ago. >> i guess i just -- my question is one red flag ought to be enough if you get two or three, pretty soon somebody has to start paying attention. >> that is why we are looking very closely at how we can enhance the standards of the audit itself. that's why we've reached out in the public accounting oversight board. something similar. it's not identical with a look at the audit and we have the

responsibility to sort of look at how they do their job. we want to learn from that and see how we can be a better examiner. >> that raises the question do they have enough power and authority and personnel to ensure that the industry's self-regulatory organizations fulfill the responsibilities. >> we will continue to look at the statute but my initial thought is we probably do have the authorities. i think we need to upgrade some of our roles and how they have to comply with generally accepted auditing standards and with the outside auditors have to do to allow electronic confirmation direct electronic access. founding malae said before from the committee i think we are underfunded to see the futures industry that's grown fivefold since the 90's and then we have the slot industry as well. it's my it's my understanding of commodities merchant doesn't to compared to beat could protect

customers from losses such as fraud or malfeasance. again, i question whether or not there shouldn't be -- there have been some suggestions there should be an insurance fund, there is for securities, there is for the federal deposit insurance, but there isn't for the futures commission merchants. do you have any thoughts on that? >> the commission is currently focused on doing everything we can under the current law to protect customers and i think there is more than we need to do. i certainly have an open mind as to this dialogue and i think it is really the weighing of costs and benefits and it is an age-old issue of insurance does take a cost. i think we need to focus in on our rules and ensure the customers to better and the self regulatory function works better to be a disconnect my time is up. you do it for securities and deposits but not for futures i wonder if we shouldn't be looking at something like that.

>> senator lugar. >> thank you madam chairman. let me follow the line of questioning in duralast testimony you mentioned the struggle of getting to the rulemaking to 30 some rules and headed towards 50 and you mentioned in september there may be more adequate hearings but other parties of the business might have you. i'm just curious in terms of the dynamics in your own members of the commission quite apart from the testimony of those to you are regulating this sets attention with the private community or within the board that brings about this delay it will be about two years from the time the bill was passed and earlier on i know you gave more

optimistic predictions about the rule making. but delays the rulemaking? what is the dilemma that you have? >> the complexity of the topic and the task the congress gave is we want to get this right and a balanced. this is a true paradigm shift to this market. we are in a sense now in the back half for the back nine if i can use -- i'm not a golfer, but we have completed 36 final rules with all of the foundational rules. i think the commission serves the public well. commissioner summers can speak to it. we've largely done this with consensus, but occasionally we break the ranks but we do want to find consensus where we can among the five others to get us done i think it is more sustainable for the public if we do and then as you say we have 35,000 comment letters to deal

with every one of those and do cost-benefit analysis and the like. >> what letters come in and how do you characterize who are writing of these letters? >> market participants. they are weighted towards the financial community. i think that we if adequately and appropriately addressed the end user issues on what is the definition of the swap dealer and the like and the end user exception. but we are going to continue to get the comments from end users who don't want to get caught up in this and try to work with fat. >> is there a sense that with the industry involved the degree in terms of public understanding we've had these incidents but they may be lurking out there some more. this isn't parallel to the cybersecurity we are debating on the floor right now but we may have a 9/11 situation the market

system everything else is shut down. that may not be as dire to what we are talking about today but nonetheless lacking the confidence in the markets but the resistance obviously by the private companies to do their thing in their way. i'm just curious about this tension and what our rule ought to be legislatively by the department of oversight. >> i think we've made tremendous progress but four years since the crisis and 8 million people losing their jobs i do think we need to get on and try to complete the market reform to read as it relates more darkly to the customer protection issues there's been a tremendous interaction and support from the futures industry and a self-regulatory organization to enhance the system because the system did fail to protect the public in these matters in the last nine months to the estimate that he made any recommendations for legislative reform amendments the we ought to be offering here as legislators to

be helpful to you? >> we have not but have remained open to it. i think whether it is in the area of civil penalties may be some possible issues in the bankruptcy code. we have pretty strong legislative authority to i think enhance the rules for the customer protection area and enhance the rules for the auditing futures commission merchants. >> thank you very much. >> senator klobuchar is next. >> thank you madam chair and to the witnesses and thanks for holding this hearing. i know when it was originally scheduled it was at the focus on mf global and the steps that had been taken since then. yet today we find ourselves trying to understand how something like this happened again this time with peregrine financial group where something went undetected for many years. i have one farmer who had been invested in the disaster

happened, puts his money in peregrine and loses twice. so clearly the system hasn't protected the people that it should and there have been people left holding the bag that shouldn't be holding the bag. i would like to get credit for the important steps that have been taken so far to strengthen consumer protections but as we all know, of rules are only as good as to the extent that they are enforced the that is something i certainly used as a prosecutor you can have all of the books with all of the law if you don't enforce them sometimes it is worse than having them at all. so i wanted to first ask about some of the major revelations in the report released by the trustee giddens, chairman dams were coming and that was if there was an incredible mismatch between the increasingly complex liquidity needs of mf global and the treasury unit that managed the company's cash flow and compliance. the report found that in an electronic age, mf global was managing its liquidity using the

entries on spreadsheets and oral reports. i guess first chairman dennis where is this finding concerning to you as this to me and going forward what is being done to ensure they not only have adequate capital but also the systems, procedures and technology is in place to monitor the rest. >> i am concerned about the internal control of the futures commission merchant and ultimately of the swap dealers as well. we are looking at and half in the draft form in front of the commissioners rules to ensure the future trading manager and become merchants have procedures for better internal controls and the staff has built those recommendations on dhaka full public record including trustee giddens report. >> about the expertise you stated in your testimony that as a part of the oversight you reviewed the training and you went on to say that the recent

examinations included recommendations for enhanced training and supervisory review procedures. how do you think that's going and what is the experience of the front line audit staff and what should change? >> i think it still needs to be enhanced. i think that there's a great deal not just out of the peregrine situation, but just in the growth of the futures model and these two circumstances in the last nine months. and i know that they are committed to doing that. but we are also looking to put in some rules about how the final the general the accepted standards and how the joint audit program works between the sro which i think will inevitably raise some of the standards of the sulfur devotee organizations. >> one of the things that struck me according to "the wall street journal" article i wonder if an employee actually called and found out that they showed the account was dramatically

underfunded and then even though they had that information over the phone than believed the facts that said everything was fine. my question is why wasn't it taken more seriously and is that something that should be considered as you go forward? >> i think it is very concerning and i share the public view and senator harkin in your view that should have been looked at and pursued with a phone call to the back directly to the things that is what a risk-based auditor what do. >> i will end with this what has been the greatest frustration to recover customer funds? i know some of my colleagues asked about the money but what was your frustration getting the money from mf global and what is the one lesson that you think should be taken from your investigation in terms of how we move forward with a better

system. >> on the recommendations, that we need on the basis of our experience or study was really which would have been very beneficial and eliminated a lot of problems here would be the study of an insurance fund from the commodities customers for the protection provided to the security's customers and also by the fdic for the bank depositors most of the accounts, and as understand in many there were under $100,000 come so they are small farmers, ranchers and others, so that the amount of protection to provide $100,000 of that hadn't existed that would have permitted us to have paid i think and i'm talking up the top of my head something

like 98% of all claimants almost immediately that would have been sufficient to cover costs. how feasible that would be and how funded that would be to the industry is a subject for study but that limited amount of coverage as i say in our case would have permitted us to quickly move and cover most of the deficiencies in the case and a security customers because of the existence of sipa and the sipa protections. in terms of the collection of assets even the moneys and the banks and other depositories throughout the world it's a process of saying the segregated funds because these institutions in many cases all were reluctant

to release funds and in some cases said we have counterclaims and so is a cumbersome process to the funds that demonstrably belong to customers because they are held a third parties there were some exceptions to that and some of the institutions show some concern with the public interest and also for the customers. but nothing works quite as is prescribed when you are in the bankruptcy. >> senator johanns. 64, madame chair. if i could start with you as you were looking through the facts surrounding mf global i would like to know if the facts

illustrate that mr. corvine knew that segregated funds were being moved. >> i think we deal with that very important 64,000-dollar question and the report with the nuances and the like to read as i say i think that issue is also being looked at by by the enforcement hour own view is the preponderance of the evidence indicates. estimate they were aware of the liquidity crisis and was aware that customer funds towards the

end were being utilized to cover other costs and firms. as i say the principal for my report under sipa is to explain why the firm failed to the point of view when we were coming up with the causes of action that we could pursue to bring in additional asset. >> i appreciate that. but you must also appreciate that we have constituents who are not only interested in getting the money back that they lost but they are interested in making sure it something was done wrong those who didn't were brought to account in some form or fashion the other senior officers we are the plaintiffs' counsel and we're working together all those cases are

consolidated but judge pereiro from new york there in the hundreds of millions and those are part of the efforts we are making and the lawyers are making in concert to hold those people and we are responsible for some of the losses. >> when you answer my question you referred to the senior management, and i guess it can't get more senior than being the top guy, so taking your answer to me that you are often referencing mr. karzai. >> yes, sir. >> again, going back to your report, the facts indicate that mr. corvine in fact authorized the movement of customer segregated funds. >> i can't say that the total

analysis of that proves that. >> is part of your responsibility and of cooperation with the u.s. attorney's office and that investigation is ongoing. >> as well as the cftc regulatory investigation. >> commissioner or chairman gensler come anyone of you can attempt to address this let me express a concern i have and i would like your reaction to get by becoming even more of a skeptic that i was at the time of the passage of dodd-frank we filled books with rules and