since federal credit in '92, it's $6.6 billion have gone from the bank to the treasury. if i could add one last thing, i know our time is limited. from the financial crisis in 2008 we have a real-life stress test. we complied with everything go asked for. we have seen the most stressful economic system and stresses on the economic and banking system the world has seen since the depression. our defaults are 0.211%, less than quarter of a percent. we've gone through the worst six years the world has ever seen. >> absolutely, chairman. the question always is, is the glass half full or half empty, what will be the impact on having a glass, not having a glass? that is a policy decision we have to decide here, but it is a fascinating subject of discussion. the intensity i've observed in

this committee, both perspectives is great. whatever we do will impact business, it will impact individuals, will impact our competitive nature around the whole planet. with that, i yield back to the chairman. >> chair recognizes mr. clever. >> thank you, mr. chairman. to the inspector general. there have been problems, obviously, with xm bank. has there been something so egregious and monstrous that congress should give the xm bank a certificate of distinction? >> offersly the decision if xm bank is still around is for congress to decide.

all we've done is to look at some of the issues that were appearing to our bank operation. from the law enforcement side, we've been very active on that side. we had a hearing last year talking about risk management. we have done work on dealing with customers. we look at economic impact. all those aspects of the bank we thought needed to be addressed. since then the bank's been working with us and addressing those. some recommendations still standing. there is still progress. the conversation two, three years ago wasn't on the table. >> if we didn't fund air force, would it have an impact on the budget? >> of course. >> that simple?

>> yes. you asked if we didn't fund the air force? of course. >> what if we didn't fund the toilet tissue for the capitol? >> that would have an impact on the budget. >> okay. thank you. >> so anything we don't want would have an impact on the budget, is that correct? >> i'm not sure it's material for this discussion, but yes. >> you are absolutely right. you are absolutely right. >> do you know how many times the xm bank has been reauthorized? >> 16 times in its 80-year history. >> would it be a surprise to you -- probably wouldn't -- that most of them were unanimous

votes or overwhelmingly unanimous when they went to the floor and to the senate? and that a significant number, i can't remember the exact number, was actually, they were actually voice voted out of the house and then i think they call it consent -- in the senate, in the lower house what do they call it in the lower house? >> unanimous consent to the senate? >> consent? >> unanimous consent. >> you would be surprised at the number of unanimous consent? so i guess the point i'm perhaps making and poorly, is that what's different now -- what i'm saying, are there some problems? i think there are some things we can do. i think there are some tweaks that should be made. there should be some reform. i think the delta airline representative brought us some things that should be

considered. my concern is, the xm bank has been well received by everybody over the years, and now all of a sudden we have this partisanism over the bank. i'm just wondering, what is it about this moment in our history that we don't think we can look at a problem and some of this is not that big a problem, then make changes so that our businesses can compete for business abroad? i'm frustrated over the fact that it would seem to me that there are issues that need to be addressed, they can be fixed. has there been anything discussed here today that can't be dealt with if we sit down and worked? >> congressman, i'm a businessman.

i came to this after 20 years in the private sector. so we are constantly and our team is looking for better ways to operate the bank, address reforms and issues brought up by congress so we can do a better job in managing risk and also serving exporters. lastly, i would just add, it was under president reagan a number of reforms went into place and president reagan signed a six-year extension of the xm bank. >> time of the gentleman has expired. the chair now recognizes the gentleman from north carolina, mr. mchenry chairman of the oversights investigation subcommittee. >> i want to ask about the "wall street journal" story about employees being under investigation for accepting kickbacks and steering contracts to favored firms. is there internal investigation conducted by the xm bank on these separate from the investigation by the office of

inspector general? >> let me begin by saying, frankly -- >> it's -- >> i'm outraged by the number -- >> you answered this question before, you are outraged. is there an investigation by the xm bank, separate from the office of inspector general? >> they are under the jurisdiction of the inspector general at this point. >> at this point. no further investigation from your staff? >> this level of seriousness, they are turned over to inspector general. >> status of investigation would be closed there but open at the oig? >> it's not closed. it's an open issue. >> if you referred it to them because of the seriousness, then you are done with the investigation, correct? >> we are awaiting to hear what the inspector general says. that may recommend other actions we take either with the employee

or procedurally. >> i understand. as a result of this, have you consulted with general council's office about incidents of fraud, waste and abuse? >> well, let me make one statement. all these infractions, all of these individuals you are referring to were all referred to the inspector general by our employees. our employees said there is something suspicious here, i need the inspector general to look at that. these were internally generated and sent to the inspector general by our own employees who said i don't like what i see here, this doesn't look right. >> i'm asking about you. >> i don't understand the question. >> fantastic. have you consulted ethics office about these matters? >> matters have been handled by inspector general as proper.

>> they referred that to the office of inspector general? >> some of it may have been turned over by an employee. they don't have to go through a particular channel. any employee can refer -- >> let me ask a separate question. is there an office of ethics at the xm bank? >> office of ethics? >> yes. in the general council's office there is office of ethics and compliance. i think there are two to four attorneys in the administrative law area. >> who do they report to? >> general council. >> other ethics offices report directly to the head of the operation in other parts of government, would you support that? >> well, we have a chief risk officer this committee asked that the inspector general recommended, that i committed to. the chief risk officer has reporting to him, it's more broader than credit risk. >> i understand. i asked a simple question.

>> the risk officer reports to me. >> i asked about the ethics office not risk office. >> ethics is part of that. >> i understand. i am talking about a direct report. i will move on. i understand you don't want to answer those questions i've been asking. are you aware of any criminal investigation about the actions that were brought to light in the "wall street journal" report? >> these matters, i think are better answered by the inspector general since they are an ongoing investigation. i don't want to invade people's privacy. >> are you aware of a criminal investigation about these matters? >> i'm aware the inspector general is conducting an investigation. >> if there is a criminal investigation about this matter? >> i'm aware of the investigation. i still feel the question would be better answered so i don't invade anyone's privacy by the inspector general who is at the table. i don't want to make a misstatement.

>> i understand. in terms of meetings with the office of inspector general, that is much easier to do. i'm trying to ask you a few questions. mr. chairman, i'm just trying to get to the bottom of this. if i can ask you a question about the florida construction company, center of the "wall street journal" story, have you had contact or dealing with them personally? >> oh, no. absolutely not. >> thank you. >> mr. chairman, i yield back. confounded, i yield back. >> gentleman yields back. chair recognizes gentleman from florida mr. murphy five minutes. >> thank you all for appearing before us today. chairman hochberg, thank you. good to see you. thank you for your steadfast promotion of american jobs and american manufacturing in our country. as a small business owner myself, i understand one of the most important things those small business folks need is access to capital and financing. last year alone, export/import

bank financing supported over 200,000 jobs, 90% of which of those jobs supported small businesses. if the united states unilaterally disarms the export financing world and allows xm to lapse, what kind of economic impact could it have on american manufacturing, on our job creators, our exporters, selling goods that are stamped proudly "made in america" all around the world, and so many which relied on this exhort/import bank? >> on the first panel we had steve wilburn who gave specific testimony how the threat of ex-im bank not being here in september, the awarding of a $57 million contract to his company would support a lot of jobs, the smaller transaction of $48 million supported more. it's obviously a larger

transaction. we heard small businesses at the time of the shutdown, even the threat of a shutdown were losing sales because of potential we would not be there. small businesses rely on us very deeply. it's 90% of our customers, 90% of the clients. frequently, they do not have another option. they frequently have very few options. i ran a small business. it's hard to get credit in general and it's harder for a small business. lastly, many of the small businesses are part of the supply chain. i know we focus on small business direct exporters, but they are part of the boeing supply chain, spacex. manufacturing like boeing, ge, people like to talk about, but they don't make 100% of what they do. they would be impacted immediately. >> as a fiscal conservative myself i view all government spending with a skeptical eye. one of the things i say

frequently, isn't this body's role to create jobs? it's our role to create an environment with job growth. you created that not shutting down the government, putting xm bank at risk. can you talk about some of that uncertainty, and if what was last year 200,000 jobs, what that could potentially be in the future? >> it's obviously hard to be precise. i'm thinking positively we'll reauthorize the bank. 205,000 jobs in the past year. well over a million jobs in the last five years, under 1.2 million were supported by our exports. we filled a gap the private sector could not fill or did it to meet the competition. so those are all at risk. when someone gets a loan from us, they have to state why they need the loan from us or the guarantee or insurance, why can't they get it in the private

sector? i would rather the private sector do everything. we're there when the private sector can't or won't. >> to that point, i feel like i'm in an alternate universe here. this doesn't make any sense. can you talk about maybe on the international scene how this has affected what some of our competitors globally are doing, what some other countries are doing, and maybe you address if you think maybe they are going to step in to help us? maybe their exports banks will help american manufactures? >> there is an ad in today's politico that talks about the ex-im banks in china, russia, france. 67 countries all have an export bank. they all would gleefully take sales from the united states and support more jobs in their communities. they are delighted to do that. they are looking forward to doing that. as i mentioned, china does more than four times the amount of financing for its exports than we do. we have a far more modest.

>> if anything, some could argue we should be expanding the bank? >> yes. if you really care about jobs and want to meet the competition, and frankly, one way to get the competition is to meet them toe-to-toe, head-to-head over and over again and indicate we are not going to back down unless they play by the rules. >> it would be one thing if not a single other country in the world has the equivalent of the export/import bank, but they do and they are bigger. so we don't live in that universe. we might as well live in this reality. compete and give our employees the best opportunity they have. >> the chair recognizes gentleman from california mr. royce, chairman of the house foreign affairs committee. >> thank you very much. mr. hochberg, a stated goal of xm bank is to provide export credit assistance to serve customers unable to attain

financing through commercial markets. what policies and procedures does the bank have in place to ensure that it is limiting its assistance to these customers and not crowding out opportunities for private capital markets? and does xm make any kind of formal analysis of what private capital would enter its analysis? >> each state must state why they are looking for our support and can't find it in the private sector. whether it's lack of financing, meeting the competition, sometimes banks will have limits on what they do. that's where we step in. subsaharan africa is a good example of that. we did a lot of loans in the philippines. cameroon, over half the exports that went to cameroon we financed. why?

it's hard to get any bank to step forward. in places like western europe we do very little business because the banks are able to do it. japan, we hardly do business because it's a well-defined banking system. >> is xm doing enough to going to the private market and not finding capital before going to the banks? >> i think that gets into sort of the underwriting and what they are doing in terms of looking at eligibility and analysis done there. we have work under way right now looking at that. that work is not yet complete. i would point out we made some recommendations back in '07. this is just to clarify a point, though xm has been cooperative and agreed with our recommendations, not all have yet been implemented. there are some back from '07 that look at this economic

impact that it's still working on. >> okay. let me ask also in terms of the numbers and what numbers are right. both sides of this debate are claiming numbers that support their case based on different accounting methodologies. so the bank claims estimates it made $1.6 billion in revenues for taxpayers since 2008. yet as you know and has been cited here today, the cbo reported on may 22nd that if xm used the fair value accounting method, it would be budgeted as a $200 million cost on the taxpayers each year. d d doctor, can you explain the large gap of numbers in your assessment and can you touch on what kinds of risk assumptions you use in terms of losses when you apply this fair value methodology? and do you look at historical experience and commercial bank

experience and factor in loss reserves and capital? maybe a quick explanation how you do this. >> yes, congressman. when the government makes a loan or makes a loan guarantee through xm bangor some other credit program, the ultimately budgetary effects are not known. many loans, most loans are repaid. some are not repaid or repaid in part. sometimes some money is recovered. the ultimate budgetary effects aren't known till after the fact. last year xm turned over some amount of money to the treasury. that's true. when we give the congress cost estimates, we are trying to give you a sense of what will happen going forward under a certain program from a certain financial bit of financial assistance. those estimates are operating in a world of great uncertainty. what the fair value methodology does is to capture in the estimate not only the expected level of default in recoveries, but the variation around that

expectation. and to recognize how the possible outcomes -- >> let me put it another way. what i would be interested in is the risk analysis framework that's employed in accounting by the private sector creditors. if you do that -- >> private sector creditors take account of this market risk and put a price on it because the risk is costly. >> in your opinion, if you did that would it be a $200 million cost to the taxpayers or would it be -- >> yes. when we apply that methodology to the xm banks' projections of the size of the credit programs they will run, of the default rates and recovery rates and so on, taking the same set of underlying cash flows that appeared in the credit supplement to the president's budget and use in our standard fcra accounting, woo he use those same underlying cash flows but apply cost from market risk. then they are costly to the tune

of $200 million a year as you said. >> time of the gentleman expired. the chair recognizes the ga from georgia, mr. scott. >> thank you. in this morning's hearing, the airlines with the chairman of delta parents and the pilot associations made some salient points. i think this, we've got to move the xm bank forward. it creates jobs. but i believe we can, we can do this as well as address those concerns. i know that you know exactly what they are. from what the testimony said this morning, the chairman of delta airlines mr. anderson and

the head of the pilots association mr. mark both made these points. that unless there is a level playing field in the exercise of would particular aspect of what you do, which is the financing of these wide body aircraft that puts our airline industry in the united states at a competitive disadvantage with foreign airlines who are able to get these wide-body aircraft flying these international routes that are very, very profitable. you can see the concerns that delta airlines has and the pilots and airline industry has because, quite honestly, inles we do something to address this and if the xm bank is being used in an unfair way to subsidize, for example, the airlines in

india, the other airlines that have been brought up where they get subsidized by their government where they get turned around, they are subsidized by you, they are able to get the planes cheaper, they can reduce their ticket prices, and that makes it uncompetitive. so what i want to do, as i mentioned to chairman, is find a way that perhaps we can come up with some language, as we move forward with this with the 90 days we have that can address that concern. it doesn't seem this is mutually exclusive. can you help me and give me guidance how we will be able to move this forward at the same time addressing the concerns of delta airlines? >> we don't subsidize. people pay a fee and pay for our

guarantee to borrow money, borrow money through a bank. we are totally self-funding and self-sustaining. there is not a subsidy going from us to anybody else. i need to state that. two. in 2011, without congress asking us, we raised the fees multilaterally across the world and made it more expensive to buy aircraft, in particular. today foreign carriers all pay more than a comparable u.s. carrier would pay for the same airplane. they already paying a premium. delta think they should pay a bigger premium. they are paying more. they would like them to pay a lot more. we need to understand the facts. >> delta airlines does not take any money from the xm bank but these foreign countries do.

>> that is correct. the united states has the best financial markets, the most liquid creative financial markets so u.s. carriers can borrow at lower rates than any foreign carrier buying at the same rate. there isn't an advantage going to the foreign carriers. >> granted, it's sort of like we are at a stalemate here. what we have to do is try to lean into one another and try to find out where we can give here. there is absolutely no way that we can move forward with the progression of the ex bank if you have the salient cry from an unlevel playing field for one of our most significant important industries worldwide. isn't there something we can do,

even if it's a trigger or means curtailing certain routes that the competition can't take? >> for three years we've been asking delta precisely what they like. they have not given us a precise relation. >> hopefully we'll get that recommendation in an amendment we can address this to as we move forward. judge, time of the gentleman expired. chair recognizes the gentleman from tennessee. >> thank you, mr. chairman. appreciate you being here. a lot has been talked about today with delta airlines. delta used the credit export agencies of brazil and canada to purchase hundreds of aircraft made in those countries. is that true? to their credit, they are for reforms but extending the

reauthorization of the bank. what would be to the advantage of delta to borrow the money from those countries and not use ours? the products? >> yes. the united states is not really in the business of making what are called regional jets, those small somewhat uncomfortable narrow jets. we don't make those. they are really manufactured today largely in brazil and canada. japan is coming up. >> it's the principle of the thing if you are against it, you would be against all of it. >> correct. >> they avail themselves of export credit from brazil and canada. >> the commerce department says first quarter contraction was more severe than the 1% annual decline estimated a month ago. another major factor was a

bigger trade deficit than initially estimated. i did not i have a whole book of reforms we have been working on. something we tend to in congress. we are in election series. we saw elections last night. elections will be next week. elections have consequences when we forget who we work for. if i forget my district back home in tennessee, when i go back there, the elections have consequences. my district, number of jobs supported, and i know the judge from south carolina had problems with numbers a few minutes ago. a thousand jobs plus in my district. 5,000 plus in my state. that's who i work for. the eighth congressional

district of tennessee. this is not about big business, small business. look, we want the country to grow and flourish. we want to hopefully have the environment in the private sector where they don't need the government and don't need washington. but at the same time i'm looking at the debt clock. it's unbelievable. this is a program under the current guidelines. it's actually returning money back. we need to reform it. i heard the chairman, the former chairman bachus a few minutes ago talk about sending a letter to you guys and not getting a response in a timely manner. i think that's unacceptable. i think we have to do a better job of being accountable to your customers. but to just because it doesn't look right or i don't get everything i want, my wife and little girl were going to be here today. i was thinking i've been married

23 years which is a long time. i don't get everything i want at home. i'm sure not going to get everything i want up here. just not going to happen. but my job -- >> hope you do better at home. >> i hope i do better at home. my job is not -- i'm a farmer. i came to washington 3 1/2 years ago. i promised my constituents that the folks of my district because i received the farm subsidies before i was selected. i promised them we needed a better way. we needed to reform the farm bill. this is just an example. we reform the farm bill, more reforms that had been done i don't know how many years. did away with the farm subsidy program. took many steps in the right direction. was it perfect? no. i voted over 2,400 times since i've been here and none of the bills have been perfect. did i vote no and say it's not everything i want so i'm not going to do anything? no. that would be irresponsible on my part. my part is to do the best i can

for my district and support an investment that creates 1,000 jobs in my district. that is what this is about. with reforms. without reforms i can't support it. with that i yield back, mr. chairman. >> gentleman yields back. chair recognizes gentleman from california mr. sherman. >> mr. hochberg, i hope as you administer xm bank in the future, and i do think you'll have a future, you will focus especially on small businesses and focus on new products. we were trying to maintain a wage rate way above the average wage rate in the world. only way we are going to do that is by making things here they don't make elsewhere. a lot of this debate is between those who think we should focus

on anne rynd's book on libertarianism and practicality. germany has more than three times the exports per person, as we do in the united states. germany has an export credit authority or agency that is roughly three times the size of ours compared to the size of our economy. germanys obviously a smaller country. while we have a declining manufacturing sector and huge trade deficit, they have outstanding manufacturing jobs and a huge trade surplus. so the practicality side leans toward us also having an export

credit agency. so the question is on purity. i want to point out to this committee that xm bank has a little sister called opec. it is also a u.s.-sponsored export credit authority. it comes under the jurisdiction of the foreign affairs committee. we reauthorized them on the floor of the house of representatives under a bill written by my good friend chairman royce of the foreign affairs committee. yes. that good friend. 106 republicans voted for that bill. so if you are torn and you think the xm bank is good practicality but i got to preserve by ideological purity, if you are one of those 106 republicans who voted for the electrify africa

act you already lost your ideological purity so come with us and be practical. as to ideological purity, as the gentleman from tennessee who just left pointed out, delta airlines has no ideological purity, nor do i expect them. they are impractical. they bought canadian aircraft and got financing from the canadian agency that is analagous to xm bank. you are scheduled to make 14 billion in the next ten years? >> that is the cbo estimate. >> you have a different estimate? >> i don't make estimates for ten years. we made a projection, a budget proposal for 2015 and they took those numbers and projected them out ten years. >> okay. so we have to live under the

benevolent tyranny of cbo. if they say we lose $14 billion, we have to adjust those debt clocks and announce to the country that we are increasing the national debt by $14 billion or we have to wait for the chairman of this committee to join me in a pro-revenue bill. that would take a long, long wait. but it's argued that fair value accounting, which is not the law. any time somebody wants to increase the national debt debt by proposal, they say change the accounting then i'm not increasing the national debt. i've heard this all the time. now it's fair value accounting. fair value accounting would mean for pizza hut that we don't see

whether they made money or lost money. we see they would have lost money if they had to pay as much to borrow money as the local pizzeria which would be a very strange thing. the investors in pizza hut would be surprised to find out their company lost money. >> that is not the way i would describe pizza hut's fair market accounting. >> time of the gentleman expired. chair recognizes the gentleman from south carolina mr. mulvany. >> thank you, mr. chairman. we heard a lot of talk today in the last 5 1/2 hours about reforms and making a better bank. let's look at that a little bit. mr. hochberg you were here a year ago. at that time i asked you about the inspector general's report which said you had some problems that were not routinely

reporting the performance of your subportfolios relating to the small business subsaharan africa in renewable energy mandates. i find out today you still haven't fixed that one. i said a year ago it looked like you had trouble with a lack of due diligence and monitoring efforts conducted by lenders with a history of defaulted transactions, even though there is expectation such efforts are taken, xm does not require participating lenders to conduct due diligence or asset monitoring of that irinvestigations. i find this morning you haven't done that either. there is a list of 78 different things, various reports since 2010 i asked you to do. the ig asked the ex bank to do. they verified you have con and fixed 33 of those 78. as to 36, the ig can't verify you fixed them, say you are working on it or know for a fact

you haven't started on them yet. there are nine of the 78 that they say your responses are unresponsive and they don't count you as trying to fix things. you are required by law 12 usc 635, the board director shall take into account any serious adverse effect of loan guarantee on the united states industry, availability of materials which are in short supply and employment in the united states. we heard this morning you have done that one time. one time in 2001 when it comes to selling aircraft or helping boeing sell aircraft overseas. that was in 2001. staff tells me now you have conducted a grand total of 24 of those reports as required by law over the last 17,000 export/import transactions. in 2012, we asked for reforms. in 2012, this body asked the export/import bank for reforms.

one was the secretary of the treasury shall initiate and pursue negotiations with other major exporting countries including members of the organization for economic cooperation development and nonoecd members to substantially reduce, with the ultimate goal eliminating subsidized form of export subsidies. that was almost two years ago. y'all managed to set a meeting. the administration recently sent over its proposed reforms, i guess. they call it a reauthorization. i don't know if we call it a reform. it says you want more money, you want to change the way you count losses, you want to eliminate the need for producing stuff in the federal register regarding notice, lowering the accountability and transparency, and i wish the gentleman who was here from the previous panel small businesses, you want to be able to count towards your small business quota small businesses that sell to big businesses. forget about the pickles, forget about the green energy, unless

you are selling to one of the big guys, you don't get to count under the president's proposed reforms. which i guess you participated in because it's under your signature. i look at a all of that against a political environment where this administration has regularly shown they don't really care about following the law very much. they certainly having followed it on health care. they are not following on immigration. don't seem to be following how they are supposed to keep their e-mails at the irs. makes me wonder for everybody here who says listen, it's great, pass some reforms, that would be wonderful. before you run to the reform bandwagon, i encourage you to ask some questions. to make sure before we do that, let's see if the bank can actually reform itself under the existing laws we have already passed. let's see if maybe the bank can make the suggested reforms that the ig and gao suggested. and maybe make sure this administration might actually be interested in enforcing a reform bill if we pass it.

until then, i suggest you that the time is way, way too early for talking about reforms of this bank. with that i yield back the balance of my time. >> gentleman yields back. chair -- okay. chair recognizes the gentleman from illinois, mr. holmgren. >> thank you all for being here. first, mr. chairman, i would ask for leave to be able to, sorry unanimous consent my full statement be entered in the record. this is an important discussion. we just want to get information and want to know the truth and want to do the right thing. as i mentioned, i think congress should take a hard look at the current structure of the export/import bank. also i hear from my own district's businesses that tell me they rely on the bank to ensure exports reach their customers.

before congress abolishes the export/import bank without a reasonable exit strategy we need to explore viable reforms to the bank. this leads to my first question and i address it to chairman hochberg, the bank's role is to serve markets and customers unable to obtain financing through commercial markets. what policies and procedures does the bank have in place to ensure it is limiting its assistance to these customers and not crowding out opportunities for private capital markets? >> congressman, thank you for giving me a chance to talk a little about that. 98% of the transactions at xm bank we work to make the loan, guarantee the loan or arrange the loan. we are doing that with 98% of transactions. every application needs to state why they are coming to us and why they can't do this in the private sector. that's requirement for us to be making a loan.

it's called additionality. what additional value are we providing? that's one reason frankly our loan portfolio hasn't grown in the last few years. of late there's been less need and that is a good sign. that is a good sign banks are making more loans and dealing with small businesses. >> direct my next question to the inspector general, if i may. your office regularly engages with private stakeholders to maintain input on the bank operations. is the bank effectively limits itself to markets and customers not being served by private lenders? what steps could the banks take that the export/import bank is lender of last resort, not the lender of choice? >> thanks for the question. the bank has a requirement in the charter to only offer

financing for three situations. one of them is competition, lack of financial in the market or functionality. the requirement the chairman is talking about is any transaction that goes through the system has to have a declaration to some extent like a secertification saying the reason we are coming is x. whether or not that is verified is another story. we did a story on the program, we highlighted in documents backing up that statement. that's the extent of what we looked into. we haven't got into whether or not marketing strategy with the bank across the country meet the charter requirement or not. we haven't got enough for it. as focused on the loan program, we did address some of those

questions. >> chairman hochberg -- >> i would just add, it is required in the loan appalachian. the applicant needs to certify that their financial records are accurate as presented. that everything they state is accurate as presented. we do an audit periodically. i have to take an assumption if an applicant is signing an application for loan guarantee for the girl government that a corporate office is not committing fraud in doing so. they have to state why they are coming to us. >> let me move on. i only have a little bit more time. current risk management function of the bank is fragmented. neither addresses the totality of enterprise risks. begin the bank's recent risk trends including increased authority to extend credit from $100 billion to $140 billion, what additional procedures are you putting in place to ensure central risk management structure? >> be at the recommendation of the ig, and i stated a year ago,

we added the position of chief risk officer, i work closely with inspector general that the chief risk officer and underwriting are two entirely separate reporting structures, both reporting to me. chief risk officer looks not only at credit risk but employee risk, reputational risk, legal, i.t., hacking, the entire risk portfolio. there is enterprise risk committee and two senior career people who worth. >> my time expired. i yield back. >> time of the gentleman expired. there are votes currently on the floor. the committee will recess until approximately 4:45. the committee stands in recess.

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city of boston as you will recall was struck by a tragedy during the running of the 117th boston marathon. two terrorists detonated pressure cooker finish line. as you'll recall they killed three people, they injured nearly 300 more. the horror of this attack which we viewed again and again on television and again on the first anniversary of the attack will never be forgotten, but neither will be the heroism that unfolded immediately following those attacks. police, medical personnel, national guards men and women, volunteers, runners and spectators all ran toward the blast, toward the blast to provide immediate aid to the injured. these acts of courage and selflessness saved countless lives. the tragic events of the 117th running of the boston marathon

remind us that we must constantly seek to counter the threats, anticipate the threats from home-grown terrorists and to improve our nation's ability to anticipate and prevent the next attack. today as we strive to improve our counter terrorism efforts we have the opportunity to look back at the boston marathon bombing and ask ourselves this question, what if the attack had occurred differently? what if it was even more deadly? what if the pressure cooker bombs weren't just simply bombs but dirty bombs? the last question is what we're going to focus on today in this hearing. dirty bomb is any kind of crude explosive device that when detonated dispurses radiation around the blast. the dirty bomb goes off. those who survive the blast can be exposed to harmful amounts of radiation that could cause

sickness or even death. moreover, a dirty bomb could enter areas uninhabitable not just for days, weeks, months but for years making that particular weapon a highly disruptive weapon. the boston marathon terrorists had turned their pressure cooker bombs into dirty bombs and the consequences of that tragic date could have been multiplied by an order of magnitude. i want us to think about that for a minute. for instance, when those police, medical personnel, volunteers, riders and spectators all ran towards the blast to help the injured, what if they had been unknowingly exposed to harmful amounts of radiological material? in many cases this material cannot be seen as we know, cannot be smelled, could not be felt, could not be tasted.

in this hypothetical what would have been a heroic display of selflessness could have spread to a more deadly and disruptive situation. today's hearing will focus on how we can ensure that this hypothetical situation does not come to pass. we'll focus on the threat of a dirty bomb and specifically examine the security of radiological material here in communities across our country that could be used to create a dirty bomb. two years ago at the request of then senator danny akaka, good friend to us all, general accountability office issued a report examining the government's efforts to secure radiological material in u.s. medical facilities. j.o. found that in many cases this radiological material was all too vulnerable to threat or sabotage. shortly thereafter i joined he and senator casey in requesting the gao audit, the security of radiological material used at

construction and industrial sites. unlike the radiological devices in hospitals that are stationary and large, industrial radiological sources are often found in small, highly portable devices routinely used in open populated areas and we have in the poster over here an example of the kind of highly portable radiological device that we're talking about. this is a radiography camera. it's a camera that's commonly used at construction sites to survey pipes and foundations for cracks and imperfections. these cameras contain radiological material that if seized by the wrong hands could be used to help create a dirty bomb. as clearly as the type of portable device that a thief or terrorist could walk away with if they found it left unsecured. gao will testify today on the security of industrial

radiological material like this camera, but the messages from the audit are clear. despite government efforts, industrial radiological resources are far too vulnerable to theft or sabotage by terrorists or others wishing to do us harm. in fact, gao found four cases where potentially dirty bomb material was stolen between 2006 and 2012 and more over gao found two cases where individuals with extensive criminal history were given unsupervised access to potential dirty bomb material, one of those individuals had previously been convicted of making terroristic threats. we'll learn more about these vulnerabilities and i think we're going to learn a little bit, maybe some common sense fixes from our friends at gao. but let me just say this, we've

got to do better. we've got to do better than this. given the consequences of a dirty bomb, there really is no excuse for the kind of vulnerabilities identified by the general accountability office. i'll say it again, we've just got to do better. if we're to protect against the next oklahoma city bombing, the next 9/11 or the next boston marathon bombing, we need to stay several steps ahead of the terrorists. we must anticipate and neutralize their evolving ability to carry outer or list plots well before they're ever conceived and executed. today we'll also hear from three agencies that play a critical role in securing radiological materials in the u.s. and preventing dirty bomb attacks from occurring. and with that, we're going to turn to our panel and i'm going to make some brief introductions of each of you and then we'll

invite you to present your testimony and i will ask some questions and some of my colleagues will drift in and out, ask questions as well, and then by the time it will be time for dinner, hopefully we'll be done sooner than that. but i want to welcome each of you for joining us today. thank you for coming. thank you for your preparation for this hearing and for your willingness to respond to our questions. the honorable ann harrington is the deputy administrator for defense, nuclear nonproliferation for a national nuclear security administration. did that fit on a business card? barely. that's a lot. a position you've held, i understand, since, what, 2010? 2010. thank you. prior to national nuclear security administration she served as the director of the national academy of sciences committee on arms control. she has also held positions in

state department as acting director and deputy director of the office of proliferation threat reduction. welcome. next on our panel we have dr. hubin. i'm going to ask you to pronounce your name. let me try it. i want you to pronounce it for us. gowadia. is that right? director gowadia. great name. director of the domestic nuclear detection office at the department of homeland security. she was appointed director in september of 2013 after being acting director since 2012. welcome. i understand you served in multiple positions at the domestic nuclear detection office in 2005 and prior to that worked at the department of homeland security science and technology directorate. the transportation security administration and the federal aviation administration. our next witness on this panel is mr. mark satorious, executive director of operations at the u.s. nuclear regulatory commission.

in that role he serves as a chief operating officer. he joined the nrc 25 years ago as an operating licensing examiner and then as a reactor inspector and senior project engineer. he's a u.s. naval academy graduate, served as the officer in the u.s. navy's nuclear power program and is a nuclear trained submarine officer. thank you for that service, too. final witness this morning is mr. david tremble who serves as a director of the natural resources and environmental group at the u.s. government accountability office. mr. tremble is a primary author of the gao report underlining the threat presented by the security of domestic industrial radiological sources. his current role he provides leadership and oversight on nuclear security and cleanup issues. previously has focused on environmental causes including

controlling environmental substances, clean water and epa management. before joining gao in 2009 he served at the department of state's political military affairs bureau where he was responsible for export compliance and enforcement issues. those are the introductions. i'm sure they don't do justice to each of you, but we're delighted that you're here and that you're willing to help better inform this committee and hopefully the senate with the potential threats that face us and what we might do about them. ms. harrington, please proceed. >> thank you, mr. chairman. and thank you for giving me the opportunity to testify on the department of energy national nuclear security administration efforts to enhance the security of vulnerable high-risk radioactive sources in the united states. i would like to thank you for your continued interest and the interest of the committee and its leadership on this important

issue. i would also like to thank my colleagues from the department of homeland security and the nuclear regulatory commission for being constructive and indispensable partners in the effort to reduce the risk of radiological incidences. the office of defense nuclear nonproliferation which i lead in conjunction with our federal, local and industry partners works to enhance the security of civilian radioactive materials in the united states and internationally. i have provided details on our programs in my written testimony. we do appreciate the comments and recommendations from the general accountability office and we are actively implementing their recommendations to expand outreach to increase the number of program volunteers and enhance coordination with other federal agencies. i want to use the time allotted for my oral remarks to look at the path forward and at the strategic approach we are developing to address the challenges of securing the materials that can be used in a dirty bomb. the importance of securing high

risk radiological sources was highlighted at the 2014 nuclear security summit when the united states and 22 other countries signed on to a so-called gift basket committing to secure all international atomic energy agency classified category one radioactive materials at a level that meets or where possible exceeds the guidelines of the agency's code of conduct on the safety and security of radioactive sources. the goal is to accomplish this by the 2016 nuclear summit. the recent theft in mexico of a truck carrying large cobalt 60 source demonstrates how much we depend on the security outside our borders. commitments like those under the nuclear security summit process contribute in a meaningful way not just to the security of individual countries but to our joint security. while we continue to proceed with implementation of security enhancements for high risk

radioactive materials, several factors have led us to consider a new strategic approach to addressing the dirty bomb threat through actions that achieve more permanent and sustainable threat reduction. factors that we considered include the large number of radioactive sources worldwide, the fact that we secure or retire existing sources even as new sources and new devices are being introduced, the long-term cost for sustaining security systems, the limited options for disposal of these sources and the general constraints within the federal budgets. the grand challenge we should consider is how we can achieve permanent risk reduction rather than continuing in the current preventive posture. just as we have demonstrated that highly enriched uranium or heu is not necessarily for producing critical medical isotopes and that we can

eliminate heu from that technology cycle, can we apply the same principle to radiological sources? we should strive to not only further enhance security but reduce the size and complexity of the overall problem and achieve permanent threat reduction by decreasing the number of sites and devices that require the high activity radioactive materials. the center piece of this strategy is to engage in a worldwide effort to provide reliable nonradioactive alternatives to the highest activity radioactive sources that pose the greatest risk or to find ways to reduce the amounts of material needed for a given function. we will need to have the engagement and active participations from the research industry and medical communities but the potential benefits,

removing the risk of a dirty bomb all together, are significant. considering the range of incentives for replacement where commercially viable alternatives exist is something we are investigating and we are also collaborating with our research and development office to explore and assess technical improvements that could be developed and transferred to industry for commercialization. we recognize, however, that we may not succeed in replacing the need for all sources. for example, radioactive industrial sources such as mobile well logging and radiography sources may not have an acceptable and viable alternative. in such cases we are collaborating with industry partners to develop innovative and sustainable security solutions. we have seen that other countries are willing to go above and beyond international norms and standards for radiological security through collaboration with our programs

and through commitments they have made at the nuclear security summit. we have also now seen domestically that some agreement states have taken radiological security to a higher level. while we have an important role to play in this regard, we also encourage all other states to show the same initiative to demonstrate leadership and commit resources to take radiological security beyond minimum requirements. thank you for your attention and i am happy to answer any questions. >> thank you so much. thanks for your testimony. thanks for your service. dr. gowadia, would you please present your testimony at this time. thank you. >> thank you, chairman. good morning, and i would extend thanks also for holding this hearing. it is tai good opportunity for us to appear today to present to you and discuss with you the office's efforts to prevent and prepare for radiological events. i am honored to be here today to testify with my distinguished

colleagues. their support and assistance are fundamental to the office you've given to my office. we are singularly focused on the nuclear threat and seek to make nuclear terrorism a prohibitively difficult undertaking for our adversaries. in coordination with federal, state and local partners we develop and enhance the global nuclear architecture which is the framework for detecting, analyzing and reporting on nuclear and other materials out of control. although my office focuses on detecting and locating radioactive materials once they are stolen, we work closely with the agent sits who are responsible for the safety and security of these materials. our approach to detection is based on the critical triad of intelligence, law enforcement and technology by ensuring intelligent informed operations are conducted by well-trained operators using the right technologies we maximize our abilities to detect these threats.

the first leg, intelligence and information sharing, is very frankly the back bone of a robust detection architecture. timely and accurate warnings are crucial to the deployment of resources and operations. additionally, we analyze past smuggling cases and terror events and bring this to bear on the future of architecture developments and systems. our office's joint analysis center enables information sharing and also provides alarm a judy case support and situational awareness. to increase the awareness we regularly public informational bulletins for our state and local partners summarizing relevant use articles with useful facts about radiological materials. the second leg of our triad is law enforcement, those on the

front lines of detention and prevention efforts. our office works to ensure that they have the necessary capabilities and are well-trained and ready for the mission. since 2005 through many collaborative efforts we have provided radiation detection to over 27,000 emergency and local offices. they stress operator's abilities to detect illicit activities. to date the domestic nuclear detection office has engaged with 29 states to raise awareness of this threat and we assist our state and local partners as they develop their own detection programs. we work with them to build a flexible, multi-layered architecture that can be integrated in the federal assets into a unified response in the event of a credible threat. by the end of 2015 we will have expanded these efforts to cover

all 50 states. we further support law enforcement's operation by deploying mobile operation units. we support national security and -- national and other special security events. the program was instituted in 2008 and the trailers house equipment for up to 40 personnel. in fact, this year on july 4th we will complete our 150th deployment of the mobile detection unit. the final leg of our triad is technology. in addition to acquiring and deploying radiation censors for the department of homeland security's operational component, we maintain an applied area. we collaborate with several research partners to bring the right technologies to front line operators. operators are always included in all of our efforts. for instance, we recently led the development of the next

generation hand held radioactive identification device. these are readily used by law enforcement and technical experts in the field. we work closely with our operational partners to identify key requirements in the design of the system. the final product is light weight, easy to use and more reliable. it has lower life cycle costs. with your support we will continue such collaborative efforts to offer significant operational improvements and enhance our national detection capabilities. thank you again for this opportunity to discuss the efforts to protect our nation from radiological and nuclear threats. i sincerely appreciate your efforts and support. your leadership and our collaboration will help us ensure a safe, secure and resilient homeland. thank you. >> thank you so much, doctor. please proceed. when you left the navy, how many

years had you served? >> five years of active duty, sir, and then 18 years of reserve service. >> okay. and 18 years reserve service. that was 23 years? >> yes, sir. >> that's how many years i served. five active, 18 reserve. and i was a navy p-3 commander and our job was to track soviet nuclear subs. we did a lot of low level missions off of vietnam. the island in the south china seas. >> yes, sir. you often spent time looking for u.s. submarines without as much success. >> no, we were not stupid enough to try to look. we knew we couldn't find them. they were so quiet and the way we found them, as you know, was through sound, but very proud of your service there and are you a retired captain? >> yes, i'm a retired captain. >> so am i. captain, my son been calls me captain my captain. how do i say, as you were, sailor.

captain, welcome. >> thank you. good morning, chairman carper. i appreciate the opportunity to appear before you today on behalf of the u.s. nuclear regulatory commission or nrc. radiological source security has been and continues to be a top priority at the nrc. the nrc continues to work with the 37 agreement states and domestic and international organizations on a variety of initiatives to make risk significant radioactive sources even more secure and less vulnerable. the events of september 11, 2001 changed the threat environment and resulted in significant strengthening of security of radioactive sources. immediately following 911 the nrc working with other federal and state agencies prioritized actions to enhance the security of radioactive sources. these initial actions resulted

in the nrc having several licensees to communicate general threat legislation and recommend significant actions to address potential threats. once nrc identified actions that licensees needed to take to enhance the security and control of risk significant sources, the agency issued orders that imposed legally binding orders on our licensees. in addition, as mandated by the energy policy act of 2005, the nrc convened an interagency task force on radioactive source protection and security to evaluate and provide recommendations to the president and the congress relating to the security of radiation sources in the united states from potential terrorist threats. this task force submitted its first report to the president and congress in august of 2006, concluding that there were no significant gaps in the areas of radioactive source protection and security. the second task force report was provided if august of 2010 and the third report will be submit the this august. at a hearing held july 12th, 2007 by the permanent subcommittee on investigations of this committee, a web-based

licensing verification system was discussed. in an effort to better track transactions of radioactive material nationally, the nrc developed a portfolio of automated tools to verify licenses and track credentials, inspections, devices and sources and events. this portfolio includes the national source tracking system, the web-based licensing system and the license verification system. the nrc also seized relying on the presumption that applicants for a license were acting in good faith. and instead, instituted a policy by which the nrc and the agreement states would ver fy the legitimacy of applicants when first dealing with them. we also issued pre-licensing guidance that includes various applicant and licensee screening activities and site visits to ensure radioactive sources will be used as intended. the nrc also has implemented a

process called the integrated materials performance evaluation program or impep. the program provides the nrc with a systematic integrated and reliable evaluation of the strengths and weaknesses of the respective programs and it provides an indication of areas in which the nrc and agreement states should dedicate more resources or management attention. through a significant collaborative effort between the nrc and agreement states the agency developed a radioactive source security rule making to replace the earlier orders. and provide requirements on -- to a broad set of licensees. this rule making was informed by insights, gained through the implementation of the orders. the resulting rule is an

optimized mix of performance based and prescriptive requirements that provide the framework for a licensee to develop a security program for risk significant materials with measures specifically tailored to it fas silly. compliance with the rule was required for nrc licensees by march 19th, 2014. agreement state licensees need to fulfill compatible requirements by march 2016. the nrc's efforts in material security have not ended with the publication and implementation of our radioactive source security rule. the nrc will continue to assess its programs to ensure that they promote the secure use and management of radioactive sources. this concludes my remarks, senator, and i'll be happy to respond to any questions you may have. >> captain, thanks so much.

david trimble, nice to see david. thanks for joining us. thanks for all you guys do at jao to help our country. >> my testimony today discusses the challenges federal agencies face in security industrial radiological sources in the united states and the steps agencies are taking to improve security. the potential vulnerability of radiological sources was highlighted last december when a truck in mexico carrying a cobalt 60 source, a high-risk radiological source was stolen. in our report being issued today we examine two types of radiological sources mobile and stationary. we found both posed security challenges even when licensees follow nrc security controls. the size and portability of mobile sources makes them particularly challenging. iea officials have stated that the transportation of high risk sources is of most vulnerable part of the nuclear and radiological supply chain. nrc requirements to ensure security for those mobile forces require framework to be

implemented by the licensee. while orders calling on licensees to secure these sources they do not explain how to do this by, for example, specifying the robustness of locks that must be used or alarms being installed in trucks carrying mobile sources. while all 15 radio graphy companies we visited met nrc security requirements we found great variation in the security measures employed with some companies using only the most basic of locks to secure these sources. the risk to these mobile sources is underscored by four incidents of theft, all after nrc instituted controls in 2005. in addition to these thefts we identify two incidents where individuals claiming to be state inspectors approached the crew while in the field. in one case the individual was wearing a jacket with a logo of the state. this person gained access to the truck, sought detailed information about the source, and left with two accomplices only after the crew made calls

to confirm his identity. regarding stationary sources these typically involve aerospace manufacturing plants, storage warehouses and radiators. while all of the 33 facilities we visited met nrc security requirements some facilities still appeared to have vulnerabilities. nine had unsecured skylights, one had an exterior roll top door open and unattended and the wall of the cage inside where the cameras were stored did not go to the ceiling. another facilitator had an ir radiator secured with a pad lock. in addition to these potential vulnerabilities we found some facilities that separately secure their high risk sources such as logging companies do not have to comply with nrc increased security requirements. licensees of both mobile and stationary sources also face challenges in determining which employees are suitable for trust worthiness and reliability certification, which is required by nrc before an employee is given unescorted access to high risk sources. the certification is intended to

mitigate the risk of an insider threat. which nsa has stated is the primary threat to facilities with high risk radiological sources. under nrc security controls it is left to the licensee to decide whether to grant employees unescorted access even in cases where an individual has been convicted of a violent crime or making terroristic threats. about half of the 33 licensees we visited said they face challenges in making this determination and seven stated they had granted a tnr certification to individuals with criminal convictions giving them unescorted access. one example the individual had been arrested and convicted multiple times of assault, forgery, failure to appear in court, driving while intoxicated, driving with a suspended license and twice for terroristic threats. notably the two convictions for terroristic threats were not included in the background

information provided by nrc to the licensee. according to nrc this person was not convicted of threats against the united states, but of making violent verbal threats against two individuals. our report also examined the steps federal agencies are taking to better secure industrial radiological sources and nsa has a program to install enhanced security measures at facilities containing high risk sources and they have research projects to track mobile sources if lost or stolen. in addition at the time of our review nrc was preparing security best practices guide for licensees. our report includes recommendations to nrc to review and consider advising the tnr process and reexamine the regulatory gap that exempts sh from the increased security requirements. i would be happy to answer any questions you may have. >> david, thank you so much. i think we have a couple of photos here that have been enlarged and i'm going to ask if i could, mr. trimble, for you to

respond to a couple questions. i think your report included in it a number of visuals that were -- especially interesting. we have taken i think three of those photos and put them on these large charts and i'm going to just present each of these three to you in sequence. i want to ask you to describe the photo and the security concern that it represents. here's the first one. what is the photo of? >> this is a -- one of the sites we visited. this aware house storing raid graphy cameras and the potential security vulnerability we identified in this is the large door is obviously left open and unattended. >> all right. and what's -- what is inside that might be of interest? >> these are the radiography cameras you had the earlier pictures of . the warehouse would be the central location these cameras would be stored when not out in the field being used. >> inside could it be a two or three or maybe a couple dozen? >> yes. there could be any number of cameras located inside and they would be in this case, they -- they would be in a storage room and behind a locked container so

meeting -- because they were in a locked container they're meeting the nrc security requirements. not with standing the open door and unattended nature of that door. >> okay. the -- any idea how many of those handheld devices would be required if someone knew how to handle radioactive materials to actually create a weapon of a real concern? >> i think i would defer to our colleagues at the table here but i believe one would be sufficient. >> okay. let's look at the next photo. please. and what do we have here? >> so this is inside one of the storage warehouses for those radiography cameras. as you can see while there is a cage lock on the door, the door and the wall next to it don't go all the way to the ceiling. which -- so, you know, it's rather impact barrier.

now again, the inside of there, the cameras were in a locked container and that is how -- so not with standing the vulnerability there they're able to meet the requirements of the nrc. >> janet napolitano used to be secretary of homeland security as you recall and i remember sitting here at this table talking about border security and we were talking about building along the mexican border with the u.s. a fence or fences and walls. she said something to the effect of i build a 20- foot fence, somebody will come along with a 25-foot ladder. looking at this reminds me of that. i think we have maybe one more photo that's been enlarged and

placed. maybe you can tell us about that photo. and what do we have here? >> so this is a picture of a skylight and at nine locations we visited, we had unsecured -- identified unsecured skylights a the facility. these facilities range from warehouses storing radio graphy cameras to scientific research facilities to large panoramic eradiators. there are quite a range of facilities that had these vulnerabilities. notably, i believe in the nsa program where they go in on a voluntary basis and beef up security, skylights is one of the areas which they would target in terms of either closing the means of ingress or securing the skylight. >> the -- can you tell us whether the building where the

skylight exists, were the devices that we're talking about here, were they locked up in a secure facility? >> yes. they're still meeting the requirements because they would still be in a locked container inside the facility but the skylight from our view as a potential vulnerability because it provides another way of getting inside the building to gain access to that container. >> yeah. as we all know, there are locked containers and some are not very secure, others are quite secure. can you comment on that please. >> we saw that i think most pointedly looking at the trucks, the radio graphy travel in with their mobile sources. some of these trucks were secured with simple pad locks.

some had high security locks and inside the dark rooms where the cameras would be stored sometimes people would have just an army surplus container with a cable securing it to the truck which provided the second lock required under the requirements. some took the mission more seriously, bought sort of reinforced steel containers and bolted it down and done much more of a job to secure those containers. it's great variability is what we observed in the field. >> let me ask the other panelists to react to what we've seen and what mr. trimble has said. any thoughts before i ask a different question? no. captain satorius? >> i would just say, that this is the first i've seen of these pictures. i have been made aware of issues that the gao has found within their report. being an organization that

always strives to continually improve, we have a new security rule which i mentioned. we will look at that rule and see if there are things we need to beef up. we as a regulatory body put regulations in place that are risk informed and performance based and we do not typically have a one rule fits all that we leave it to the licensees to. it's their responsibility to take our requirements and put their program into a place and ensure that they're complying with our regulations. now we do provide with rules guidance that will instruct licensees on how they can construct and operate their program in a manner that will comply with our regulatory requirements but we leave it to the licensee to put their program in place to document a written security plan to -- i've had to understand the security zone on some of these pictures to understand completely all the details, but i wanted to provide that short perspective. >> okay. good.

is this an honor system that's in place. basically self -- >> no. >> policing compliance? >> we also inspect these facilities and where we have compliance problems where they do not comply with our regulatory requirements, we have an enforcement program that can issue violations, civil penalties, orders that will modify or revoke their license if necessary so we have a very robust enforcement program. and we -- like i say, we inspect these facilities on a period that aligns with the potential danger that might befall a member of the public if they were to be exposed. and our inspection program is quite robust. i'm a former inspector myself. it's about a year program that has formal classes that have to be taken and passed successfully. there's a -- many on the job type accompaniments as you

perform these inspection instruction activities and then finally, you're qualified as an inspector through an oral board. so it's a rigorous program and only inspectors can perform these sort of reviews of licensees. >> did you say the regulation had been updated recently? >> yes. >> give us just a flavor for how it was changed? >> what we did was i had mentioned in the 2005 time frame we had done an assessment since 9/11 and looked at what things we needed to make regulatory requirements and what we typically do is we will issue orders that modifies their license and has the perform

certain activities. we'll then take a little longer and go through the rule-making process which is a two to three-year process involves outreach to stakeholders and members of the public to help nous that rule-making endeavor and so that process took place and we issued that regulation in march of this year. it involves, as you've heard, a background check to ensure that individuals that are allowed to have access by themselves, that they're trustworthy and reliable. the licensee performance that review. and makes the determination as to whether the individual meets the trustworthy and reliable. we also have issued a -- which my colleague here had indicated we issued a guidance document of the best practices for performing these type of reviews

so that the individual that's responsible for making that call, has guidance on what to look for and what things to -- the other thing that requires is a liaison with local law enforcement so you have a plan that if if in the course of the required detecting and assessing and responding to the potential theft of a source, you have to lay out plan with local law enforcement so that they can respond. they're required to inform the nrc. they call the local law enforcement first and required to call us as soon as they're done with that so we get early notification so that we can outreach to our federal partners to make sure that this lost or stolen source has actually been ob sounded with. >> can you give us an idea of

how often these reports to police and the nrc come in for devices that are missing or believed to be stolen? >> i would say several a month. and the vast majority of those, all but -- in the last since 2005, 2010, 1112, and 13 there has been no category one source lost or stolen. for category 2 sources -- >> give us idea of what a category 1 is as opposed to a category 2. >> the iaea standards and their code of conduct identifies category 1 sources as if not safely managed, or secured, likely to cause permanent injury to a person what handled them or was in contact with them. it would probably be fatal to be close to this amount of unshielded material of a period of a few minutes to an hour. that's the most -- and these sources are used in ir radiators and they're strong sources, they

tend to be cobalt 60. category 2 is one step down from that, where if you were in close contact to it for an hour or two, there would be serious injury and possibly a fatality. >> i would assume that for category 1 devices, that the level of risk would be higher. >> yes. >> and the requirement for securing the device would be greater and maybe even inspections would occur more often.

give us an idea of how often inspections would occur for the different categories. >> annually for category 1 sources. >> and for the other categories. >> it varies. some are a period of every two or three years depending upon the strength of the material and its potential to harm members of the public. i will say also for category 1 sources, our part 37, the new rule, requires that any time the source is removed from its storage container it sets off an alarm. so that's -- it's a new requirement that was in part 37. >> and is that for category 1 devices. >> yes. >> let me ask our panel, the panelist, would you just comment on the rule that captain just described? what do you feel -- what should we be encouraged by, concerned about? please, any of you.

david? >> well, as we note in our report, our site visits were assessing the current rules, part 37 didn't kick in for nrc led states until this year and it won't rule out for states until 2016. what i would highlight, however, is many of the problems we're identifying in our report i don't believe would be addressed. for example, the issue of location where some sites are able to not be subject to the security requirements because they're separately stored, therefore they're not totalled up to hit the regulatory threshold that triggers enhanced security. i do not believe that's addressed. some of the specificity we've talked about in terms of types of locks for category 2 sources i don't believe is addressed. then the issue about trust worthiness and reliability certification and the process by which that is done, i do not believe is addressed. so the decision is still being left to the licensee and there's

no process or criteria that would disqualify someone from being given such a certification and no process by which say, for example, say you had a conviction or a red flag, that would trigger a greater nrc involvement. >> miss harrington, dr. gowadia, would you react to what mr. trimble just said? >> i would like to take perhaps one of his points just very briefly, actually. one of mr. satorius's points, which is the coordination and i think this is one of those places where we can play a special role and do along with nrc and dhs. reaching out to law enforcement can be complicated. there are many layers. you might be in a tribal area. it might be a university campus with its own security police. it could be an environment you have local, county and state police. part of what we do, collaboratively, to go a bit above and beyond what is in the rule is to organize a table tops exercises that involve all elements of the community. these exercises really help bring together the different

elements of the community that would be involved in response to any kind of incident and so far in collaboration with our colleagues at the department of energy who do counter terrorism and counter proliferation we've run well over 100 of these exercises all over the united states in community -- >> how often? like in a year or what? >> several a year usually. but we have found that the feedback from this kind of exercise is extremely positive. but, you know, if you -- if you were to try to regulate that

sort of exercise i'm not sure how you could do it. but this is one of the steps by looking together at how we can collaboratively improve the security posture, we've come up with some approaches like this that i think we feel are very positive contribution to the overall security. >> speaking for the domestic nuclear detection officer i can tell you that the collaboration one is very critical because the trusted networks by virtue of these exercises and all the work we do in our trilateral meetings, in our government coordination council, et cetera they help us build an ability to get the early indicator, the early warning, so that the law enforcement aspects with the detection capabilities can respond and help and find the

lost or stolen sources. so we certainly support the regulatory work at the nrc and the additional work that administrator harrington just mentioned because it enables our end of the mission spectrum, the detection, the find, fix and locate piece. >> how do the safeguards that have been described here this morning, how do they compare with safeguards in place with other countries around the world where it's radio graphy cameras or other devices? even medical radioactive material, how does our work compare with that of other countries? >> this really is a global challenge, and it's i think to the credit of the countries involved in the nuclear security summit process that they really have brought radiological security to the fore since the 2012 summit when it was added to the list of active targets for collaboration. i mentioned in my testimony that

at the 2014 summit, the united states and 22 other countries made a commitment that by the time of the 2016 summit, we would have taken steps to secure all category 1 sources. so that now is on our collective plates in the united states to deliver that to the 2016 summit, and we will work collaboratively with other countries. but i would venture to say that the photographs that we saw here today, could reasonably represent the similar challenges within the international community. in fact, i was at a conference in southern africa earlier this year and as you know, very rich in natural resources and the countries are extremely worried

about the dirty bomb threat because of the number of sources, the lack of regulation, lack of secure procedures, lack of a, you know, strong independent regulator to provide a framework and so we will work with those countries collaboratively to try to help them improve their profile. >> okay. when i was governor of delaware for eight years, we were very much involved in the national governors association, had a clearing house for good ideas and i remember many cabinet meetings presiding over with our cabinet when we're discussing a particular challenge in our state, saying to my cabinet, some other states has faced this challenge and they have figured it out and they are the gold standard. we had as i said in the national governors association, a

clearing house for a good idea and we had the ability to find out what other state had addressed this satisfactory, where the contact people were and how to get in touch with them. in many instances. do we have that capability with maybe looking, i don't know if we look state to state, but it's not from state to state to see who's best -- who has the best practices in this regard or maybe from country to country who has the best practices. maybe it's us. could you all speak to that, please? >> i can start. >> please. >> senator. i'll speak from an agreement state perspective. where we have 37 states within the united states that have signed an agreement, the governor has signed an agreement, with the chairman of the nrc that where we -- well, we first -- they want to take over the responsibilities for

the safety and security of certain radioactive sources. and we have a process that we review their program and ensure it has the right staffing. >> excuse me. why would a state want to take over that responsibility? >> many reasons. the principle one i hear is that, you know, we charge fees for licenses and doing our regulatory activities. we're a 90% fee recoverable agency. and so we charge fees. they oftentimes can do it for less money so it's kind of a service to their constituents where they're able to provide those industrial users or medical users the use of these sources safely and compliant with our requirements at a less cost to their citizens. >> okay. others on the issue of compliance and best practices, whether it's within this country or outside of this country please? >> well, you mentioned senator

akaka before and i had the honor to testify before him several years ago, and he was truly a leader in this area and worked very hard with -- >> what do you suppose inspired him? >> i'm not sure. i would ask my team, especially yanna iliapolis for us, she worked very closely with the senator and with the state of hawaii to bring them into full compliance with all regulations and as far as i know they were the first state to do that. >> okay. >> i think the senator -- >> can you step a little closer to the microphone, please. just take a moment and we'll -- let you escape to your seat.

>> say your name, please. >> my name is yanna ilapolis and i work for nsa program. >> maybe you can spell that for us later. >> it's like -- >> i don't think i could, joanna with an i. very simple. i think the senator was truly a visionary and care about a lot of post-september 11 threats and there were a lot of indicators in the early days post-september 11th and intellectually had talked to other congressmen and senators on this issue and requested that the gao look into the area and i think with the gao's audits, which were somewhat painful on federal programs, but i think in the end raised the visibility of some of the vulnerabilities we have both domestically and internationally and he was a clear advocate of if it can be done in my state, i

have medical facilities, i have usda eradiators, i have navy base, i have a lot of things in my backyard if it can be done in my state and increase the security posture that could serve as a model going forward with other states. so it was a push on our part. we didn't solely focus on hawaii. we focus on major metropolitan areas and other states across the country on a voluntary basis, but his foresight and his advocacy on this issue, clearly articulated the need for others to step up and step forward. >> all right. thank you. thank you very much. >> mr. trimble. >> i would just add that previously, gao has done some work in this area. we looked at the issue of orphaned sources and we looked at how they were handling this

issue in france and had innovative ideas. we haven't looked at the cross-organizational sharing aspect but we have done some work overseas to look at how other countries have tackled some of these issues. >> i guess it would be understandable that if other states, other nations rather, have these devices, that they have radioactive materials in them, whether they're mobile or stationary and if other countries do not secure them well, and those materials were obtained, they could be used for bad purposes in those countries or maybe anywhere. what do we have to reduce the likelihood if another country did not have -- did not secure these -- their radioactive materials as well, what

assurances do we have with the way we protect our own borders and ports of entry, that we'll be able to detect or intercept any of that material coming in? dr. gowadia? coming in? doctor? >> yes. thank you, senator, for that question. >> sure. >> at dhs we believe in a multi-faceted layered approach to our security so this begins way overseas. in my office we work closely with the international atomic energy agency so we can promulgate best practices across the globe. all 159 member states now have access to best practice guides on building national architectures, exercising training and awareness, and we are even beginning to teach some of the courses at the international law enforcement academy. so that is our first outreach. we also work with partner

nations certainly to encourage them to have layered approaches within their nations. i guess as i go through my answer you will see me building a layer after a layer after a layer so that we can make the nuclear terrorism a harder and harder undertaking for the adversaries. we use information such as manifest data to focus our overseas scanning efforts and then certainly collaborate with our intelligence community partners so that we can get the early indicators, the early intelligence warnings and search our assets as necessary. at the borders ourselves we have very robust capabilities. almost 100% of our containerized cargo is scanned at the seaports. the ports of entry gets similarly scanned. we have well trained law enforcement officers and customs

and border protections and united states coast guard. every boarding party carries detection equipment. all incoming general aviation flights are met by customs and border protection officers have the right equipment and scan the incoming aircraft. these are some of the examples i can think of. of course, with your continuous support we will continue to make the right investments and appropriately balance capabilities to build strength after strength at our borders and with our international partners. >> well, to be honest, all of that is actually encouraging and so we're grateful for the work that is being done. i say the road to improvement is always under construction and give us some examples of what we're doing better today than maybe what we were doing in the not too distant past. and maybe mention a couple of areas where we can do better still. this would be for you and for others as well.

>> i guess i'll start. one of the things we do better today is inform our efforts based on a more holistic look at the risk. my office is responsible for coordinating the global nuclear detection architecture and implementing its domestic opponents. these fiscally constrained days we have to balance our resources to get the maximum bang for buck. so we are now analyzing risk informed schemes building better feeds for information so that our mobile agile architecture can be better responsive to -- more responsive to a credible threat. so that's something we are doing better. i could not agree with you more so no matter what we are doing, we can always do something better, a lot better with the adversary being adaptive, we have to continue to grow and stay ahead of our bare capabilities as well.

you heard the administrator talk about exercising illicit nuclear materials are not something a law enforcement sees on a day-to-day basis so we must practice, we must keep our skills up to speed and we do that with some of our exercise -- field exercises where we use uncommon sources to expose our officers to things they don't see on a normal basis. these are some of the activities integrated exercising i think is something we can do better moving forward. and our communications coordination function always can be better. >> so dr. gowadia mentioned the global nuclear detection architecture. there was a white house review of gnda last year and within the

context of that review some very specific interest in the programs that we run at the department of energy were identified as necessary to fill certain gaps. for example, our second line of defense program works very carefully and closely with dhs. we install radiological detection devices in ports where there is a lot of outgoing cargo traffic to the united states so we try to catch things before they even are headed to the united states and we're particularly interested in nuclear material but radiological is a big concern. a large number do get caught through the system, identified, isolated and handled appropriately. also internationally.

since 2004 we just actually celebrated the ten year anniversary of our global threat reduction initiative, we've done an enormous amount of work internationally to both secure sources, identify distribution pathways, work with countries to develop best practices, work on an international code of conduct for the security of radiological services. this is an extremely active area of programming for us and one where we will continue to be extremely active. i think one of our biggest accomplishments was first identifying and then retiring the radiological thermoelectric generators, rtgs, used by russia to power light houses in very remote locations and so forth.

these were massive sources and one of them could have been used for many, many dirty bombs. that was a huge accomplishment over multiple years. we've had similar kinds of work going on across the globe for the last decade. >> i would just add one of the things we're doing better today that we weren't doing in the past has to do with our security rule making that i mentioned earlier. there's six focus areas within that rule making that makes us a more effective rule and that includes as i think i had mentioned background checks including fbi fingerprint iing help ensure that individuals are allowed next to sources and can do so unescorted. documenting security programs and written security program

that lays out how agencies will safeguard these sources, coordinating with local law enforcement to have a plan in place in case there's theft or diversion and coordinating and tracking radioactive source shipments such that if they become lost during shipment there's a manner to be able to find them. >> okay. good. >> i would add i think the international efforts we've discussed today in terms of protecting the country highlight in an indirect way the importance of the issues we bring up in our report because as those pathways become more and more difficult for anyone to navigate, the easiest path is domestic. why try to bring something in from overseas if you can just go to the local hospital or go to the warehouse to get the source. so this underscores the importance of making sure the

nrc reports are robust. the weaknesses we identify we think are points i would highlight can be better. looking at the definition of co-locations so that all vulnerable facilities are subject to the regulations, improving how we do background checks, getting better guidance on who should and should not be given access, examining whether nrc should be playing a bigger role in that process, providing more specific guidance to companies and licensees who are not security professionals. these are commercial companies doing a business. they may have some health and science background, but they're not security professionals. they need more help than what we're giving them right now. >> okay. good. let's go back to radiography cameras. one of the questions i had asked are they category one or category two? >> they're category two and they

have a source that needs to be replenished fairly often because of its half-life. >> okay. what would be fairly often, every year or two? >> about every three months. >> oh. all right. are we aware of any effort to actually mount an attack of a dirty bomb in this country or another country? are we aware where someone's actually attempted, much like in boston where we have the effort to -- unfortunately successful to hurt and kill and maim a lot of people. have you seen use of substances in the air to poison or kill people on subways so we have actual demonstrated uses of technology to hurt people? do we have any documentation about attacks in this country or