product 930 which is essentially a place to hold rushed and incomplete claims are backlog percentage would drop to 60% an and addition over 14 month period march of 2013 to may of 20:14 p.m. atari up and product 400 which again includes provisional ratings surged from just over 29,000 to over 1007000 by 3607% increase folks playing to me what you are doing with the end products 930 and 400 simply makes them a secret category whereby you are able to hide prematurely decided claims to approve the appearance of your backlog numbers. >> secretary hickey.

>> chairman miller i told you i would tell the truth when i put my hand up so i will tell you the truth. i don't know every number that is called in and product so i apologize for not being able to cite you. >> can you give me who does at the table. either one of those will know the answer. >> i will happily do that bad. >> i have 38 seconds left. >> i will ask ms. rubens to please comment. >> mr. chairman i would point to the monday morning workload reports were in fact your numbers on the end product 400 are controlled correspondence and have been used for development and the 930 and product which are reviews including quality assurance are in fact reflected in the work that we demonstrate for completion. >> mr. chairman now that i note that i know the titles i can add to that discussion. >> no maam i don't believe that

anybody at the table is telling me the truth from the va. i think you are using the numbers to high backlog claims. i think of included backlog numbers to make -- data -- mr. michaud you are recognized. steve thank you mr. chairman. ms. halliday as you've done your investigation have continued to iterate that a singular focus on reading claims is starting to, the cost of other workload falling through the? what would you are or what would be your suggestions to address the situation? >> mr. met cod we consistently looked at the quickstart progr program, the special initiative to clear the backlog of claims. we have looked at appeals. there has been a constant reallocation of staffing away

from some of these initiatives to work the pending backlog of compensation paid at some point if you want these initiatives to be successful you have to dedicate the workload to accomplish the job. >> thank you. dependency claims have risen by 2000% in four years with the majority of those being backlog. when does the va anticipates ending the nonraiding backlog? do you have a specific date or a proposal? >> congressman michaud in 2005 was the first time under completely different administration the 125 day initiative was set. in 2009 the former secretary of

va secretary shinseki said the aspirational goal of no claim all over the 125 days. prior to that i have been an average of 125 days and 90% accuracy. in all of these cases even dating back as far from history that i can take because i've only been here since 2011, the focus has been on the raiding work and party and there's a really good reason for that. in order to access, and noted to be able to get a different benefit that the nonraiding bucket you first must have a rating so by example in order to get a dependency claim you have to have been rated at least 30% and a rating claim that you gave us. that's the reason why the backlog is focused on the raiding claims. i can tell you this. i can tell you that we have a that we ever really could plan around a special dependency claims. we have built a system called a

rules-based processing system whereby when a veteran goes and files on line for their dependency claim that 50 to 60% of the time they are paid in a single day. that is what we are moving towards from a technology solution. but the ones that awaiting congressman i will tell you have also done a contract. the contract is lifting them up on paper and putting them into the rules-based processing system. >> do you have the date? >> i do not affect a congressman. there has never been a goal set that as a specific date associated with it. >> okay. mr. bertoni did you find any instances in which va is intentionally manipulating to present better outcomes than what is really happening? >> i wouldn't say it's intentionally manipulating.

i think and as i noted in my statement's in several basic areas they are not fouling general statistical practices. that looseness inter-methodology translates to numbers that aren't accurate and aren't helpful in terms of looking at trends over time a performance and accuracy rates and comparing offices in terms of relative performance. as i said when we applied simple waiting we had several swings and offices that suddenly improved relatively speaking. that's not good metrics and an organization where the mission is as important as as important is this the dollar symbol the numbers involved you need to have precise estimates. there's more work to be done to get there. >> thank you. general hickey quickly there are some pretty serious allegations and compelling allegations made by ms. ruell with regard to the sure shredding up 96 boxes and a

cap of military returned mail documents. can you provide us with any additional information about how va handled the situation when it was highlighted by ms. ruell? >> i can't congressman an impact i reacted quickly. when i first heard the conversation ms. ruell said it came to my e-mail. i dispatched director from pension service. he took a tame affair with everyone of those boxes to make sure there was not anything that was amiss in those boxes and in fact i believe that i can attest to the fact that it's not. let me explain what's in those boxes. the pension service works a little differently than a compensation service. they are not in vbms yet though i would like to see them at vbms in the future. what they do do is they work the claim in paper first and then they scan in documents

afterwards. once they have this document scanned and afterwards then there is a normal procedure for the proper disposition of that paper. we will address the same issue on the compensation side. we are working closely with dod on what do we do with paper that we don't use anymore because it's all electronically scanned in the system. we will have to address that same thing. i understand and i'm very concerned about any ideas that we might be inappropriately shredding documents and that is why we are taking our time figuring out what we do in the compensation business around that. >> mr. lamborn you are recognized for five minutes. >> thank you mr. chairman. ms. hickey, the people working to you at the veterans administration? >> congressman there are over 20,000 people. >> okay and an average given near how many of them get fired? and please consult with

mr. murphy or ms. rubens if you need to. >> i will probably ask ms. rubens to further elaborate. what i can tell you as we go through a fairly extensive process before people are fired. >> i didn't ask you your process. how many in an average year? >> i don't know if i have that information but i will ask ms. rubens if she does. >> sir i don't have the current number that were fired in the last year. currently across the workforce today we have 66 employees who are in performance improvement plans. >> they would be the ones eligible for firing if they didn't improve their performance? >> our goal first is to help them improve their performance and look for other things that they have been successful in other positions. >> you can't tell me how many people get fired an average year? >> we could do that congressman lamborn. i apologize i don't have an immediately available. >> the procedure you have to go there is probably small number i

would guess. >> i believe it is probably appropriately a small number. we can certainly remind this great committee that i have 52% of those employees who are veterans and i have 46% who are a direct family members. >> of those who were fired how many of those are many of those are for cause versus how many of those are let go without being given a recent? >> generally we do not let people go without giving them a reason. >> you heard javier soto's comment earlier in response to our questioning that he was let go on june 30 without being given a reason from the st. petersburg regional office. regional office. area where that's? >> congressman lamborn was made aware of it in the hearing tonight. >> okay and he was not given any reason. he got the letter on june 30. on the 24th of june he had given a report and i believe

this was on behalf of local afge 1594 somewhat critical of the leadership on how they process the claims. and let's see, six days later he is fired without being given a cause. is this a normal activity or something out of the ordinary? >> congressman and this is not a normal activity. i will look into the very specifics of it. i will not discuss out of protection for mr. support any specific issues associated with this employment. >> it sounds to me like we could have the whistleblower here who is being retaliated against. that's a really serious matter to all of us on this committee because we want whistleblowers to come forward when there something going on wrong but the public needs to know about are the committee or even you need

to know about. >> i absolutely with you congressman. i want to know about it. i have employees that reach out directly to me via e-mail. i was disappointed to hear that they were told they could not. that will be rectified immediately. i need to be an avenue by which employees can talk about their concerns as well and i'm open to that. i do that on a routine basis. in fact i have a pulse jet called that i do where i will only speak to bargaining unit employees that starts by saying banishment cannot tell you not to talk to me. management can't even look at you funny that if they slip you a note or anything of this is do not tell me something i immediately wanted to send me an e-mail. >> well you are saying something to sound good but the actions unfortunately happened always match the rhetoric. ms. halliday but me ask you in my short remaining time you talk about how vba's process misrepresented the actual workload and its progress toward

eliminating the backlog. could you elaborate a little bit more on that please? >> today we issued a report on the review of the special initiative to process the rating claims pending over two years. as i said in my oral statement vba used to process, a new process they put in place to issue provisional claims. what we found was those provisional claims in spite of not having a final decision were taken out of the backlog. what happened then was vba lost control over some of those claims so that they didn't get worked in a priority basis. we felt that had vba used its interim rating process, it had all the tools it needed to keep the integrity of the data of

claim and to process these claims. they had to try something. they are working hard to try and clear the backlog but we feel it misrepresented the workload. essentially you took out incomplete claims out of the backlog that needed a final rating decision or its. >> thank you its. >> thank you very much and mr. chairman i yield back. >> ms. brown you are recognized for five minutes. >> thank you. before i begin my questioning i just want to say on this note that was out of the bathroom, i hope no one ever loses their job for a note in the bathroom on a pad and i don't think anyone has any business reading somebody's pad in the bathroom. that's the first thing. now, to ms. hickey i am impressed with the amount of how

you have been able to expedite the veterans process not only for the veterans but for the families and can you explain the process because it seems like part of the problem is that you go to a new system. they have expedited and it seems as if there's a problem with you trying to improve the system. >> congresswoman i know from having change management environments that everybody adjust to change differently and i'm sensitive sensitive to that but i will tell you i don't know any federal agency nor any commercial company that has fundamentally taken a paperbound process in less than 18 months up a system done a billion images nearly and now works 91% of its work in a paperless environment. 1.4 million claims our employees have been on the system. 1.4 million you know what that

does for veterans? it means they get answers faster and better in the system is the justice system. their tools are helpful things in the system to help make that employee better at making that decision more consistently. that's the whole reason we put tools later. i heard the conversations from our employees. the table and i know our employees need help with the workload that's out there, i do. that is why we are building additional functionality all the time into the system to help it be better. what i can tell you is this. you don't do 1.17 million record-breaking one year and 1.3 million breaking the previous record this year and have all measures of equality. i will concede that there may be ways to improve on that even y yet. in that amount of time to not be doing stuff that's better for veterans. >> i have an independent verifier also. >> we do. i hear you loud and clear and i

know you don't trust what we are we are saying. i went for the second time to another third party to ask for independent verification of the way in which we assess our quality. it's a person that doesn't deal with federal agencies at all and has no federal look about them. they do with businesses on the outside and how they look at quality. in addition to that i have directed we are going to go after one certification because i want every veteran in this country and all of you to believe us when we say we are making good decisions. not because of us that because we care so much about those veterans and family members and their survivors and they deserve nothing less from us. >> thank you very much. some of us, with pre-existing conditions and perhaps we all don't have the same goals. i hope that the goal is to make sure that the veterans get the services that they need and that we work together to make sure that happens and not to

grandstand. i cannot sit here and say i think all of you are just trying to hide the numbers. i don't believe that. i think it could be problems with the system but we need to work together to figure out how we can improve the system. i for one was very excited when we launched educational system and then when i turn on the television it was problems with the system but it was problems with the stakeholders. the schools had to verify that the student was in school and they were in rolled and they had to drop the class before they could get additional funding from us. so it's not just the va. it's the va and i keep saying working with stakeholders. >> congresswoman brown we now put $42 billion in advance of 1.2 million veterans and their beneficiaries in 4.7 days using exactly that model which is

exactly what we are trying to repeat and doing so with some level of success on the claim site. it was what was driving more and more of our dependency claims getting done and frankly we just released last week the ability for half of our survivors during the most difficult time if i -- their lives to be automatically paid their burial claim. they don't even have to tell us and they don't even have to claim it. at first notice we paid the claim and it goes straight to them. >> thank you so much for your service, all of you and i yield back the balance of my time. >> thank you. mr. bilirakis ewart recognize. >> ms. halliday your mark in your opening statement that the vba has up reported an increase of the backlog of more than 50% since march of 2013. in your opinion do you see any issue with trusting these self-reported achievements by

the department and of course the department has been plagued with inaccuracies and inconsistencies regarding reducing the backlog but i want to get your opinion on this. do you trust those numbers? >> at this point i would say no i can't trust those numbers. i think we have a lot of work ahead of us to address the allegations we have just received. they all seem to focus on data integrity and they need to be looked at very carefully. i don't want to say i trust them. >> thank you. next question again for ms. halliday. during your numerous inspections of the regional offices you have consistently reported the same errors and accuracy and procedures. even after vba has concurred with the previous reports and recommendations. why do you think this happens over and over again? why are we seeing these errors? again it seems like these

recommendations are not being followed. can you comment on that? >> yes. i think that we select medical disabilities to look at that we consider high-risk for processing errors. that is where we want to target our resources. we think that's the most important. what we find in something like traumatic brain injury type claims the policy is very complex. it's very hard to ensure consistency in that application so we continue to see errors with that. general hickey has asked for the oig's help it matches recently. to put a team together so we can show her exactly exactly what it benefits inspectors, the teams that mr. arronte leads are coming across so that she can

put the right controls in place. do you want to add anything? >> the only thing i think i could add is this year when we started our inspections and i'm speaking to reno right now because this is the only office where this occurred is we made a recommendation in the previous inspection of reno involving tbi claims to have a second-level review look at these claims before they are finalized because they are very complex. when we went back this year we found an error rate that was not acceptable and what we found was local management discontinued the practice of a recommendation and the reason we were given his due process claims with a backlog. so with the maaco recommendation and we follow it and it's working why do you stop that? >> i want to know why. >> congressman i absolutely agree with this gentleman.

i absolutely agree they should be following that process. they should not have done a second signature requirement. that is just wrong. i won't give an excuse for it. >> what are you going to do about a? >> i'm going to make sure that they are doing second signature review summary can do that. we will send out additional teams from, services to make sure. i will also double down on the resources to make sure they are doing the second signatures. they are critical, is absolutely right. they are singularly the most complex kind of condition we can do because every experience of veteran has the tbi can be very different so therefore it's not a very clear-cut way to always determine secondary conditions associated with tbi and the like. i don't negate that was a mandate from us to do a second signature. if they are not not doing if they're not doing the right thing. >> i have no more questions. you mentioned in her testimony that employees would not receive

a performance award unless they meet quality standards as well as production standards. we are all aware in previous years every employee received a performance bonus award received them. do you still stand by what you stated in your testimony and do you believe that every single employee eligible to receive performance awards did in fact deserve them? >> congressman since the day i arrived and i had mentioned to this committee before that i came to this job with a deep background in quality management which is why i'm directing it and i know something about how it makes you better and how it validates what you are doing but here's what i say. i've said from the beginning we are production and quality-based organization. there is no war between those two words. i've made serious investments thank you to this committee for the budget to have given us in all kinds of capabilities to

improve our quality. >> answer the question please. did they deserve those performance awards? >> if they successfully navigated their production quality they did but i will say in fy2012 or leader in vba got a performance bonus. >> okay thank you and mr. chairman i yield back. >> mr. turk condo for five minutes. >> ms. halliday tenet thing about the history of the federal policy of performance bonuses and management? can you tell me about it if you do? i just want to know who's always been a part of our system and the federal government and whether something that was instituted? >> to my recollection performance benefits have always been in place to incentivize and reward good behavior and good results. i think for the past few years we really have done a better job

federal government wide at focusing on results. >> mr. bertoni? as far as the use of federal performance? >> i can't speak to the history. i would say it's consistent across the executive agencies that performance bonuses are there and they should be performance-based and they should be results based but certainly when you combine the allure of performance bonuses with metrics that drive in a certain way and drive certain behaviors that is when it gets perverse and that is where executive agencies and otherwise have to be careful about the metrics they put in place and a performance bonus associated with that. >> ms. halliday in the scenario of looking at the vba aside from the scheduling issues we have

had in phoenix is there any indication to you that they performance bonus and the metrics have combined in a similar way for motivation to game the system for financial gain? >> i can't speak to that. >> so nothing is revealed so f far? you say you are targeting in your investigation high-risk disability claims. can you say more about the high-risk disability claims you are looking at? tbi you said? >> during this round of our fy2014 benefits inspections we have selected to look at the management of temporary 100% disability valuations, tbi

claims and the smc and ancillary benefits that bet -- veterans get for the more seriously disabled issues that they face. >> okay. something arose on the previous panel discussion about congressional advocacy when congressional offices colon and it seems to divert attention of the staff and the other parts of the backlog gets maybe less attention. do you find that to be corroborated by the thing you have looked at or mr. bertoni you can comment as well. >> i can't speak to that issue. >> i'm not 100% sure exactly what you are asking that we get

a lot of complaints to the oig hotline and we are looking at those complaints as to whether they are systemic problems are isolated problems with vba. is that what you are asking because i think the congressional offices get many the same calls. >> i was listening to the testimony of the previous panel in one of the complaints was that congressional offices often get attended to and they have to neglect what they were doing on other claims. >> i could speak to that a little bit. i think it's one of many competing workloads and there are a lot of lines of work and activities that have to be done. i know that i get the calls from the public. i push it forward to the various committees so it certainly gets attention from us and i'm sure it gets attention from vba when i get those calls so i'm sure it's the workload that gets

attention among competing workloads and you have to make choices. >> congressman here is what i will say. we have a prioritization for claims and we have some categories of those claims were when you call us about those they will sully get attention but if you are a medal of honor recipient or someone who is ill or injured, someone, did i miss if you? please bear with me but there's a group of listings of people who need our participation and you often call us with often call is that people were in that bucket or if the claim right now today is nine months or older. though we have done 99.9% of all the wonder to your claims we are still working nine-month old clemson and we are going onto the next one but when you call us with a null claim which typically is when you will hear from a veteran and we understand that then we will do it because it's in the priority bucket.

if you were to call me for a claim that was sent in last week but didn't have any of those other priorities on it he would probably get a letter from us that says we will work it when it gets an too the right prior to station. >> thank you. mr. chairman my time has expired. >> thank you. mr. chairman i want to go back to where the chairman began with his legal pad here. i really find this offensive. the reason i find it so offensive is because we have heard over the last six weeks or so and our job as the chairman said his oversight. we have a constitutional obligation to do this. when we see someone wrote this in the staff space, this is their job to get this information to find this astonishing. i truly do. i don't see how anybody could explain and secondly anybody who is still working. i think mr. lamborn asked how

many people have been fired. there would be one if they were under my watch who had rubbed their nose or thought of there knows i should at the veterans affairs committee news, this is our job. you are doing your job and explaining it and when then we have lost and that's one of the things general hickey that i am very concerned about is the loss of trust we have had an rva. i think if you look at any organization in this country a year ago would have held the va up as a shining star in -- a shining city on the hill. i believe believe that we have lost that now. when veteran pilot claimed that they know if it has been moved over to a staff that's not going to look at and i appreciate you coming by. i certainly think you are making a government effort but somewhere it's failing. you heard me say and you were here before about what resources

do you need and i certainly have heard the inspector general's testimony and have read it. what resources do you need if any from this committee to make sure that this backlog is done and those metrics are made? what do you need? >> congressman iysac here a few months back in a budget hearing and i believe i said at the time i need an absolute unequivocal 1 i.t. budget, 100% not a dollar less and now in a world in which we are building a new scheduling system that's even more critical because now there's a happy competing interest there. we have got to have a full i.t. system. >> we have spent, no pun intended a widow's pension on getting all the i.t. money. it's mind-boggling to me. if i hear somebody say money and i've seen the va and dod take a

thousand million dollars, that's a billion and flush it and i have no earthly idea where the money went to build a system that's integrated. i asked the secretary word of the billion-dollar scope? no answer and so i don't know that adding more money and you say in i.t. program if we give you that money and provide that money this very generous congress does that we have provided the resources for the va. is that going to be enough for my going to be sitting here a year from now if i'm fortunate enough to get reelected and am i going to hear the same thing? >> congressman you were talking about i ehr. >> i'm just talking about i.t. money. >> let me tell you what you have given us. let me tell you what you have given us all of you have given us over the last three years in vba. for the first time in our history we have had dollars funding i.t. systems we

should've had 20 years ago. 20 years ago we should've had a paperless i.t. system like the rest of the world went to and we didn't. we were still two years ago touching 5000 tons of paper. that's 10 and prior state buildings. that's that's tantamount everest. two empire state buildings with little rubber fingertips on our fingers. you have given us the resources to scan a billion of our veterans most precious document in two and electronic system so they are not laying around in boxes. >> i understand. my time is limited and its about up. i want to go back to the inspector general and say i want to make sure we get this for the record. how does it claim that gets moved from way back here that is supposed to the current, how does that happen? how does the record go from the

time it's back here long-term claim and it gets moved to a stack that is current? how does that happen? >> walk us through that fairly quickly quickly. >> there are several ways. we can talk about how they do the claim that let's talk about the provisional claim that was just issued and it should be fresh. when they did the provisional ratings that provisional rating had an m. products of the end product to make it easy was it 110. 110 control this provisional rating. under their special initiative on the issue that provisional rating to the veteran that 110 was gone so that claim came out of the inventory. so they moved it to put it under an end product 400 to control blood and product four hundreds

are not reported in the inventory that you hear from a monday morning workload reports so now that claim technically doesn't exist in the inventory. when the veteran submits new evidence to support the contentions in that claim now vba will create a new and product and process that claim in one day. so it was an old claim pending over two years and they moved it to an end product that does not reported in the immaturity so that claim technically doesn't exist. when it comes to announce a new claim and it's claim and its one-day claim and it's one day older two days old and they work it in two or three days. colemack

.. when the two entities are at all are opposites, i lack the trust that what is being put forward. do you work with the department

to reconcile some of these issues to try to get to a place where there is a stronger agreement between the two of you on these issues? >> we absolutely do. there's a process through which ando, from and early draft sometimes we reverse our position and sometimes they reverse there's. there have been of few times were i have not concurred on their comments, but in general, we learn a lot from our ig and we value their input. i understand we are putting you in a bind and that's why i'm going to get and independent review. >> thank you. ms. holiday, do you agree with what general hickey just said? >> general hickey is giving you a big picture perspective from their view in all the initiatives they have worked. what i have given you is a very

close inspection of certain haveatives i do not feel achieved what they were expected to achieve will stop >> you have had conversations back and forth on these initiatives you have made public? >> yes. we have monthly meetings on the dba leadership. teams in and we talk about the issues in the national audits and we talk about the issues we can talk about all their are some things as far as criminal investigations we may not touch on but in the audit area, we've got very good discussions. recently, i feel general hickey has tried to say i want the information early so that she can take correct of action, and i think if you look, the management advisory i issued on philadelphia was done after two days.

my team, even though they only found 30 instances of manipulation of the date of the adjudicated claim, at that point, we knew we had a problem and instead of completing all the work i'm at it all the samples of all the mail bins and everything else, i engaged general hickey immediately so that corrective action could be taken. i do think there is a responsiveness that is better today than it was a couple of years ago. easily. easily. >> thank you. and when have you, with the new acting secretary, but specifically the acting secretary, they have talked a lot about this. he believes we have to build back the truck to of the trust one veteran at the time. what directives has he given you what have you done in terms of,

you know, very short term directives to your department and/or changes did you have made in the short term? we talked a lot about short-term issues and longer-term issues. i'm interested in what you have done differently in the short term. >> thank you, congressman. i will tell you three things. the acting secretary has directed that we put our best and brightest minds together to figure out if there are any other vulnerabilities in the ways in which people can do what grounds. you will use a different language around that, but we are doing that in putting that together so that we can look at it. we've already asked a small group of people to do brainstorming to see if we have places we need better, stronger control. secondly, i have directed 100 percent facility, and we've been through in the government gsa cars for making sure we had the full 9 yards for every piece

of mail, document, anything that might be out there. it has been directed and is a rapid response requirement they must do. >> my time is up. i yield back. >> you are recognized for five minutes. >> thank-you, chairman. one a couple of questions for you just to point out to my colleagues again, when we're talking initiatives and workloads, i think the conclusion of linda halliday oral statement says a lot to that. them -- when we look at the hundred 25 no claim pending initiative, what plans are exempt from that? >> the focus is on the entire rating bundle. the rating bundle are the ones that were described in prescribed in the fiscal year 2000 well below when i was here

and. was the result of measuring and reporting 350 different metrics and it was driving you nuts and driving veterans nuts as well. there was a big effort back in fyi 2000 where they bundled them together, which is what you hear the term rating bundle and non rating bundle. they put like things together. effort even back in 2005 before this former secretary was here was put on the table and focused on rating bundle. that's what i tell you. generally these are clams and require the rating adjudicated decision. >> i get asked this all the time. how many plans they deal with. don't categorize. no category. how many claims?

>> congressman, i will ask you the question. are you talking about the education claims? >> everything that you hold. i get asked that question all the time. >> i can get you that number, but when we do 5 million education plans dispersing $42 billion that is work we are doing. when we are doing loan guarantee which we are doing record high levels and rates. >> i raise a question because we sit here and talk about how none of these metrics add up. i think the ig degrees and some of it, but we will look at the fully developed planned statistic posted on the viejo administration report website. as of 7-12-14. a fully developed claim to go under and 48 days to complete.

now, we sit here and start imagining the massive workload that we have, are we ever going to get their when it is taking beyond a hundred and 25 to the spin of a fully developed plan. >> congressman under my watch a have done some deeper dive analysis. i tell you, as a simple description how we will. we have done more than 300,000 claims in backlog in alaska who. we don't have that many left in backlog this year high. we are at 2,702,000 cahuenga. that's less than 300,000. if we did 300,000 last year, the men and women working hard, i think we can get their next year and we're not just bringing the backlog down. we're bringing the inventory down. when you think about flow

mechanics, when you bring inventory down the cycle faster. i believe we will. we have the data says we can. >> we will go to kristen ruell. manipulating where it was a backlog in what was not. and this is the dilemma we erin. >> i hear you, congressman. i heard ms. roe was well. i heard her back when she first brought up the issue. i responded quickly. i will tell you it -- i told her, but shame on us are not telling her better. we change processes because of what she originally told me in an e-mail. fundamentally we're moving pension into an advanced scanning operation. two of the pension management centers have already done that. the last one was scheduled to do it in early fall.

she has made a huge impact by raising that issue of that concern. i have processes -- i have adjusted processes as a result. >> one big process, and i think we all agree. we talk about this in the committee. we talk about stakeholder input. your stakeholders are the people on that panel before you. that really needs to be addressed. >> congressman, i will tell you what i do today. i will also tell you i have a high degree of respect for mr. ron robinson to the point where i was one of the people when i first showed up that he started e-mailing. i started asking questions about what was going on where people were not feeling care for, not feeling compassion and not being treated very well to the point i got on an airplane, flew down

there, sat with him for a complete day from 7:00 a.m. until late in the afternoon and had the director at that time sitting there with him. i was going back and forth and conversation. as a result of that the director was put on a management plan the required him to take certain action to improve what was going on. when it did not improve -- and i still heard from mr. robinson, i changed leaders. it is now led by a bronze star winner who led the team up and down the road to baghdad, and i will tell you, i have been back. the employees in the town hall stood up and said to me multiple , thank you for bringing this new leader to us. i think i have reacted write

command appreciate what mr. robinson did. >> thank the chairman. he'll back. >> you're recognized for five of its. >> think you, mr. chairman. thank you for being here and coming to talk to me. and know your taking a personal interest. i very much appreciate that. it seems like every time an example is offer for the way things and not working is the reno office. what did it could management and there. i take this opportunity to make the pitch to move the office to las vegas where most of the veterans are. at the very least we get new management you put that manager and a loss vegas office. it will be easier to recruit somebody to come and take the job. so please keep that in mind.

having said that, i would just ask, the believe that the whole problem of the discovered claims is limited to a particular office in the philadelphia or wherever that might be. we have seen through numerous hearings and some times when a problem crops up in one regional office it turns out pretty soon that it is happening other places. to you have any indication that is the case? checking into places like reno. >> we have allegations of the same conditions occurring and some of the others. the issue here is now the general hickey has brought wrote the fast letter as that

information gets out the corrective action from a national perspective is in place we're still going to look at the allegations we have just received in the past month there so. really run them down to the ground. we want to make sure that integrity is put back into the system. >> one of the problems -- guard like to say one other thing. they did not report the transactions that fell into the staff letter to headquarters. it made it even more challenging to identify how many transactions there were. my team is still up there looking.

>> if you don't have whistleblowers are you still going to go places where there might be a potential? >> let me tell you the minute we knew we had an issue in philadelphia we immediately get a deep dive analysis. we immediately sent the list to the ig the set in the data analysis we think there are some -- are what some of there doing something wrong because we don't know yet, but we found data. before did it back. * for complete run up. we provided that. i would like to ask mr. murphy is he has second to respond. >> we did an analysis against the percentage of found claims

that were in the inventory verses the total inventories of the overcompensated for reno as opposed to say beach, florida. we came out, anything that came too far off the average was the top five regional offices. thus the data we forwarded. in order that we not be looked at as going back in changing data, we pulled all of those claims and the details on those claims first. then we went out to the regional offices and so now let's go look it these claims. i can go back in and recreate what was there when the flag when out. >> can you keep us posted? >> yes. >> i just want to say one thing about why we did decline. it was a pro veteran position to take. let me explain. fifteen years ago you may have come to us and said your leg

hurt and file a claim and granted you. somewhere in the riding he mentioned your ankle hurt. fifteen years ago who ever raided that plan did not notice or did not do anything about your ankle. and you come back. your knee is worse. we are starting to work your claim. the sitting there going through the claim and suddenly see this, for 15 years ago. their are now in a position of, oh, my gosh, have to go do this. i will suddenly have a 16- year-old claim. i wanted to remove the disincentives from our system to grab the ankle and give that veteran the effective date of the way back when the first mentioned it rather than have any disincentive in the system to do it and ignoring it. that is targeted that process. >> even though the data, when the benefits were issued they go

back to the original. >> all the way back to when the first mentioned that their ankle hurt. >> you are recognized for five minutes. >> thank you, mr. chairman. secretary hickey, you mentioned you did an independent review, a study. >> i have one years ago. i am repeating in right now. >> who is that? >> i cannot tell you. -- we require them because they had experience in doing this. >> you don't know the name? >> i don't. >> did they give your report? >> they have not yet. they have given me interim. >> an independent review. they're want to do better.

we had an independent review. this one, they have given me independent comments. >> ago really have the independent evaluation. i'm curious. the earlier you implied that the male was destroyed. that was the impression i got some seemed to say it was placed in a box. and it seemed like a different story. i have a question of what like to go into. in 2009 the inspector general audit uncovered improper shredding of mail. several regional offices. the va concurred with several recommendations back then.

here we are again five years later. i guess i have a question and it relates to many of the reports that i follow up. no one seems to be responsible for following through with the reports. i can never get the name of the individual who is responsible for complying. someone responsible for making that happen. i can never get that happening or find that person in. did that occur in 2009? awarded to stop doing -- awarded to stop dealing with this? wire we still dealing with this? cards congressman, in 2008 before there was even a record management officer there is now as a result of that 2008 effort coffee in every single office an

office manager who has a responsibility. you have to react a loss of. >> i can't answer that question. he talks to you pretty ticket under your interest. to solve this problem. the problem is, secretary, that you have 20,000 people working for you every one of them with the problem come to you? this problem of -- that this rule spoke of, a supervisor who has been firing people and is still there after apparently providing retribution to people who have been trying to improve the system, you need have a system where those people are removed and you need to make it stick because not everyone can

reach you. you need have management that can manage 20,000 people in an effective manner. >> their race by an employee, trusted chain of command. it raises the issue and we for it over. i will give you an example. the baltimore regional office male situation was raised by the chain of command. the ig was called by the chain of command and invited the ig into go of the cecils going on. we had that happen all the time. there are places. i am sensitive to the comments i heard. we have to have an environment where our employees -- >> how were you going to do that ? is not working now.

>> congressman, it works in some places. does not work well, we will address the situation. >> i'm out of time. in none of us have any belief that unless something radically changes with the whole system that there will be changed. hmm out of time. >> many of my constituents in arizona veterans service organization believe that the focus on ending the backlog has incentivized va plan processes to provide an 0 percent disability ratings were low ratings in an attempt to quickly complete claims and reduce claims. files from several veterans in my district and files that the disabled veterans of america gave my office suggests that some of these claims were improperly given a lower rating based on the evidence submitted

a decline. as the claims backlog numbers continue to decrease we have seen an increase of a number of appeals pay 18 percent. my question, what is the bba doing to ensure claims are properly adjudicated the very first time? what mechanisms are in place to prevent examiners from rushing through clans and improperly awarding lowered his ability ratings, in other words, can you describe your quality assurance process? [inaudible] >> for all of the ba to discuss. are will tell you, we have significantly ramp up our efforts in this area as indicative and a think even the gao commented that there has been extra effort. we have now the following, quality review team specialists

the output in -- took 600 people off the line doing planes. that's how much i've out you this. 650 people and could have improved our backlog numbers faster. we have to do them better. they are now quality review team specialists. they, like their star counterparts, must take and pass the skills certification tests to hold that position. that is not an absolutely easy test. they are in the regional offices doing two things. they're doing something new for us called in process review. it is basically, i'm going to check areas where we typically make mistakes and look at them on a higher level frequency. i'm going to come to you as an employee and not saying garcia. i will come and say let me show you what you did.

we got out of that culture and into healthy culture. 250,000 of those nationwide every year. the second thing we did was of five employee people at the end of the month to see what the overall individual quality is. the next thing was a fundamental change of our challenge system. i think this committee for the resources to do that. we pull everyone in. is just like basic training. you go through an intense program. the next thing -- and thank you. we have recently and are right now. we have what we call spark training. we have identified through volunteerism or people challenged on either their production of quality or bills, running them through a program that specializes in helping them

with problems. a special monthly compensation. it's hard to do. we built tools to help, but we are retraining out there with the people who have been challenged. any number of other things, and if there is time will let mr. murphy had. if not, i'm happy to come over and lay out every piece of what we do. >> i have about a minute left. the first panel suggested using specialized case managers to review claims might speed up the process. your thought? >> that is exactly what we are doing. we did it in record-breaking time. we get into a completely new organizational model. we have the express lane, one or two medical conditions not arrest for nearly complex, special operations lane said, complex claims that require high

german level of ability and experience and the core lane which is sort of the same thing we do over and over again with lots of medical conditions, but not in the special operations category. that is what we do well in terms of segmentation. i did hear and listen closely to the idea that some employees feel like they cannot pick up the phone and call a veteran and get a piece of information they need. after watching right now and hear me say that only can they but they should. i would love for them to engage in a conversation. >> thank you. my time has expired. >> recognized for five minutes. >> thank you, mr. chairman. first on an issue, a couple of hearings ago, and reference to the security, the va database. we tend to have a lot of hearings but not as much follow-through. in the assessment on whether the

va has secured their database? >> are you talking about our federal information security act compliance? >> before this committee the database of 20 million veterans and their families had significant potential to be hacked. of course we had a whistle blower that the va denied. they're is a pattern here, and i want to follow upon that. >> when we did our current review this year for 2013 information security was still low last standing material weakness. there are still problems. there are still many security vulnerabilities that need to be corrected. 0in t within va has put together a crisp initiative to try and work some of these

vulnerabilities. they improved last year, but our contractor still said that there were problems. there was not a formal process in place to really make sure that we did not have the threepeat findings from the year before. in the current audit is in progress for this year. >> i look forward to seeing that we had a lot of testimony, concerning testimony about hacking. the va denied that it occurred. finally admitted and said we're going to fix it. what i heard from you is not for certain. we think it's not quite fixed yet. it is not fixed yet. we hear from -- we will fix this. of one to ask that question. outside his room he brought a listing of your current disability : backlog.

does that include every disability claim with those that make the performance reports? >> they include all of the ones that were decided as part of the rating bundle ag confirmed. >> what does it not include? >> it does not include non-operating work. that is not included in there. >> disability claims. >> they are not. once you get a disability claim decision you have the honor charity to go apply for other kinds of benefits. >> we heard that this data may have been manipulated. that may be inaccurate. do you still stand by this claim even though it does not include all of your performance data. he lost his job because he revealed that. >> congressman, it includes everything in the rating bundle.

i can provide you a list. 44 percent more worked. i left after as well. we're doing far more work than we have over the years. >> can you make a claim on accuracy? remind me how you determine independently? >> we do it for different ways, as was described. we do a claim based, issue based. >> is that independently verify? >> -- our process has been independently verify. >> i directed it. i'm sorry than i've said it a couple of times. >> you said you were looking to receive certification. >> there's a long way between certification and achieving that . you know the difference.

i know the difference. you have not achieved. >> i just made the decision last week. i want to build confidence. >> that is the only way that this committee is going to gain trust. if you independently verify data every bit of data, none of this is independently verify and my wrong on that? who has independently verify the claims data? coor's congressman, that is what i am going to do because i want you to have confidence. >> so there is no different just for the record, independent verification of these members, claims work numbers outside for or is that all internal? >> i'm not going to say it is all internal. i will ticket for the record and find out if there are people outside that have already done

it. have an >> the v.a. backlog and benefits package will be one of the topics likely covered in the hearing for nominee robert mcdonald. gamble ceoprocter & was chosen by president obama last month to head the v.a.. he will be before the senate armed services committee on tuesday and we will have live coverage at 2:00 p.m. eastern on c-span3. >> for over 35 years, c-span brings public affairs of its from washington directly to you, putting you in the room at congressional hearings, briefings and conferences, offering company to gavel-to-gavel coverage of the u.s. house, all as a public service of private industry. thee c-span, created by cable tv industry 35 years ago i brought to you by your local cable and satellite provider. in hd, like us on

facebook, and follow us on twitter. >> it has been three days since 17 wasa airlines flight shot down over ukraine and recovery efforts continue for emergency workers. "usa today" reports that of the passengers on board, 100 96 bytes of been recovered and loaded onto refrigerated trains headed toward a rebel-held city in eastern ukraine. there are reports that armed rebels forced emergency workers to hand over the bodies. we are learning that the flight boxes wereght black recovered by rebel separatists. they say the boxes will be handed over to the international civil aviation organization, specialized agency of the united nations. light 17 was one of the topics on the sunday talk shows this morning. secretary of state john kerry was a guest of all five network shows, including cnn's "state of the union." here is some of what

he had to say about the situation in ukraine. >> on friday, the investigators ,nd people who needed access the osce monitors were given 75 minutes. obviously, the area is under control of the separatists. yesterday, they were given three hours. today, we have reports of drunken separatists piling the remains of people into trucks in an unceremonious fashion, actually removing them from the location will stop they are interfering with the evidence at the location. they have removed, we understand, some airplane parts. it is critical -- and this is a very critical moment -- for russia to step up publicly and join in the effort in order to make sure there is a thatfledged investigation, the investigators and people who are coming to help from outside, the icao, the fbi, the national

wensportation safety board, are sending people over, others are sending people, experts who have an ability to be able to put these facts together so no one will have doubt, no fingers will be point about conspiracies , about ideology and politics governing this. we want the fact and the fact the separatists are controlling this in a way that's preventing people from getting there even as the site is tempered with makes its own statement about culpability and responsibility. more from hear secretary kerry and other talkshow guest on c-span radio. all fivedio re-airs network programs on sunday beginning at 5:00 eastern. chair janetrve yellen said the economic recovery was not complete and monetary policy assistance was deleted. she was before the senate again committee recently to deliver the fed's semiannual report on

monetary policy. this is two hours. >> i call this hearing to order. >> i call the hearing to order. we welcome chairman yellen back for the -- report to the congress. since chair yellen was last before the committee, bernard hall was confirmed by the senate to serve on the board. it is important that the fed maintain a full complement of governors to effectively carry out his monetary policy and

regulatory functions. to that end, there are two remaining spots to be filled on the board and i hope for swift nomination of well-qualified candidates with expertise in community banking as well as tough and effective oversight experience. the fed continues to grapple with many present issues that span both monetary and regulatory policy, and look forward to hearing chair yellen's perspective on these issues today. the steady path to economic recovery following the great recession took a sidestep with fourth quarter gdp falling. the unemployment rate has continued to drop in recent months, but long-term unemployment and youth unemployment remain unacceptably

high, and the housing sector has been slow to rebound from its troubles during the crisis with too many credit-worthy borrowers locked out of the mortgage market. given these headwinds against a more robust recovery and low inflation rate, i am encouraged by the fomc's view that monetary policy will likely remain accommodative for a considerable time following the completion of the fed's assets purchase program. i'm also encouraged by the continued progress being made to implement wall street reform and improve u.s. financial stability. chair yellen, your recent comments outlining the importance of macro financial tools that lean against financial excesses and focus on

building resilience in the financial system -- to the need to ensure that firms, particularly the largest and most systemically important firms, are prepared for the worst and able to withstand shocks from a variety of sources. to that end, it is imperative that the wall street reform rules be completed as soon as possible. we must not forget how costly the last financial crisis has been so regulators and congress must continue to do all we can to keep our financial system stable and promote strong economic growth. with that, i will now turn to ranking member crapo for his opening statement. >> thank you, mr. chairman. welcome, chair yellen. during chair yellen's nomination

hearing, i noted the need to fill the additional vacancies that the chairman referenced at the federal reserve board with individuals bringing balanced viewpoints. again, i say that the president should nominate someone with community bank experience to the board to fill one of the remaining vacancies. community banks play an important role in their local economies and face a disproportionate burden from regulation. we should ensure that the perspective of those banks is represented in regulatory policy making. today's hearing is another important opportunity to discuss monetary policy and financial regulatory policy. since our last hearing with chair yellen, the fed has continued to reduce the pace of its large scale asset purchases known as quantitative easing or qp. it has been a welcome development to see that under the chair's direction. this process of tapering has begun and now we will likely be able to see all qp purchases cease later this year.

i have consistently made my opposition to the policy of qe very clear. the quadrupling of the size of the fed's balance sheet that has occurred as a result of the fed's qe purchases of treasury and mortgage-backed securities is worrysome. these qe assets will remain on the fed's balance sheet for a very long time and the reserves used to purchase them will remain in the financial system. the process of normalizing monetary policy will be difficult, particularly in light of the fact that our economy has failed to strengthen in the way that was promised by the supporters of this unconventional monetary stimulus. recent federal open market committee minutes indicate that in the coming years, any miscommunication about monetary policy during this normalization period could create risks to the economic outlook. continued clear communication will be important, particularly as the fed is seeking to rely on new tools that are unfamiliar to the market. for example, fed officials have indicated that overnight reverse

purchase agreements, also known as repos, will likely play a large part in setting monetary policy during normalization. while the federal funds rate becomes less important. at the fomc meeting, some raised concerns that the fed's overnight repo facility could increase problems during adverse market conditions, potentially causing counter parties to shift funds away from making loans and opting for the fed's safety net instead. how will the fed balance the need for open communication with the ability to preserve flexibility should unintended consequences arise in this important market? i'm also interested in your recent comments on the use of macro prudential tools by the fed. you specifically recognize that experience with these tools is limited, and that many central banks will still have much to learn to use these measures effectively. introducing the concept of managing u.s. monetary policy by regulations and prudential oversight is untested, and perhaps more theoretical than

real. i agree with those who are concerned that regulators may not be able to get the timing right. many economists including those at the fed have not been very good judges of identifying market bubbles and predicting when the bubbles will burst. your speech discussed the ability of regulators to change regulatory standards on mortgage lending such as debt to income and loan to value ratios. as a macro prudential tool that could slow mortgage lending. i'm very skeptical that during a housing boom, regulators would ever act aggressively to restrict lending to individuals with high levels of debt or low incomes. in fact, recent experience suggests all the political pressures run counter to that happening. it's also highly questionable to think that forecasters will identify beforehand when these tools should be adjusted during the credit cycle. while financial stability can complement the goals of monetary policy, it's paramount that the regulators strike the right

balance without un-duly harming the economy. we have a lot of issues to deal with and i look forward to your testimony today, chair yellen. thank you. >> thank you, senator crapo. to reserve time for questions, opening statements will be limited to the chair and ranking member. i would like to remind my colleagues that the record will be open for the next seven days for additional statements and other materials. i would now like to welcome chair janet yellen back to the committee. dr. yellen is serving her first term as chair of the board of governors of the federal reserve system. prior to holding this position, dr. yellen served as vice-chair of the board for over 30 years. she has also previously served as chair of the council of economic advisors and president and ceo of the federal reserve

bank of san francisco. chair yellen, it's good to see you once again. please begin your testimony. >> thank you. chairman johnson, ranking member crapo, and members of the committee, i'm pleased to present the federal reserve's semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. i will conclude with a few words about financial stability. the economy is continuing to make progress toward the federal reserve's objectives of maximum employment and price stability. in the labor market, gains in total non-farm payroll employment averaged about 230,000 per month over the first half of this year.

a somewhat stronger pace than in 2013, and enough to bring the total increase in jobs during the economic recovery thus far to more than nine million. the unemployment rate has fallen nearly one and a half percentage points over the past year and stood at 6.1% in june, down about four percentage points from its peak. broader measures of labor utilization have also registered notable improvements over the past year. real gross domestic product is estimated to have declined sharply in the first quarter. the decline appears to have resulted mostly from transitory factors and a number of recent indicators of production and spending suggests the growth rebounded in the second quarter. but this bears close watching.

the housing sector, however, has shown little recent progress. while the sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have overall continued to be disappointing. although the economy continues to improve, the recovery is not yet complete. even with the recent declines, the unemployment rate remains above the federal open market committee participants' estimates of its longer run normal level. labor force participation appears weaker than one would expect based on the aging of the population and the level of unemployment. these and other indications that significant slack remains in

labor markets are corroborated by the continued slow pace of growth in most measures of our early compensation. inflation has moved up in recent months, but remains below the fomc's 2% objective for inflation in the longer run. the personal consumption expenditures or pce price index increased 1.8% over the 12 months through may. pressures on food and energy prices account for some of the increase in pce price inflation. core inflation, which excludes food and energy prices, rose 1.5%. most committee participants project that both total and core inflation will be between 1.5% and 1.75% for this year as a whole. although the decline in gdp in

the first quarter led to some downgrading of our growth projections for this year, and and other fomc participants continue to anticipate that economic activity will expand at a moderate pace over the next several years, supported by accommodative monetary policy, a winning drag from fiscal policy, the lagged effects of higher home prices and equity values, and strengthening foreign growth. the committee sees the projected pace of economic growth as sufficient to support ongoing improvement in the labor market with further job gains, and the unemployment rate is anticipated to continue to decline toward its longer run sustainable level. consistent with the anticipated further recovery in the labor

market and given that longer term inflation expectations appear to be well anchored, we expect inflation to move back toward our 2% objective over coming years. as always, considerable uncertainty surrounds our projections for economic growth, unemployment and inflation. fomc participants currently judge these risks to be nearly balanced, but to warrant monitoring in the months ahead. i will now turn to monetary policy. the fomc is committed to policies that will promote maximum employment and price stability consistent with our dual mandate from the congress. given the economic situation that i just described, we judge that a high degree of monetary policy accommodation remains

appropriate. consistent with that assessment, we have maintained the target range for the federal funds rate at 0% to .25% and have continued to rely on large scale asset purchases and forward guidance about the path of the federal funds rate to provide the appropriate level of support for the economy. in light of the cumulative progress toward maximum employment that has occurred since the inception of the federal reserve's asset purchase program in september 2012, and the fomc's assessment that labor market conditions would continue to improve, the committee has made measured reductions in the monthly pace of our asset purchases at each of our regular meetings this year. if incoming data continued to support our expectation of ongoing improvement in labor

market conditions and inflation moving back toward 2%, the committee likely will make further measured reductions in the pace of asset purchases at upcoming meetings with purchases concluding after the october meeting. even after the committee ends these purchases, the federal reserve's sizeable holdings of longer term securities will help maintain accommodative financial conditions. thus supporting further progress in returning employment and inflation to mandate consistent levels. the committee is also fostering accommodative financial conditions through forward guidance that provides greater clarity about our policy outlook and expectations for the future path of the federal funds rate. since march, our post-meeting statements have included a description of the framework

that is guiding our monetary policy decisions. specifically, our decisions are and will be based on an assessment of the progress, both realized and expected, toward our objectives of maximum employment and 2% inflation. our evaluation will not hinge on one or two factors, but rather, will take into account a wide range of information, including measures of labor market conditions, indicators of inflation and long-term inflation expectations, and readings on financial developments. based on its assessment of these factors, in june, the committee reiterated its expectation that the current target range for the federal funds rate likely will be appropriate for a considerable period after the

asset purchase program ends, especially if projected inflation continues to run below the committee's 2% longer run goal, and provided that inflation expectations remain well anchored. in addition, we currently anticipate that even after employment and inflation are near mandate consistent levels, economic conditions may for some time warrant keeping the federal funds rate below levels that the committee views as normal in the longer run. of course, the outlook for the economy and financial markets is never certain, and now is no exception. therefore, the committee's decisions about the path of the federal funds rate remain dependent on our assessment of incoming information and the implications for the economic outlook. if the labor market continues to

improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned. conversely, if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated. the committee remains confident that it has the tools it needs to raise short term interest rates when the time is right and to achieve the desired level of short term interest rates thereafter, even with the federal reserve's elevated balance sheet. at our meetings this spring, we have been constructively working through the many issues associated with eventual

normalization of the stance and conduct of monetary policy. these ongoing discussions are a matter of prudent planning and do not imply any imminent change in the stance of monetary policy. the committee will continue its discussions in upcoming meetings and we expect to provide additional information later this year. the committee recognizes that low interest rates may provide incentives for some investors to reach for yield. and those actions could increase vulnerabilities in the financial system to adverse events. while prices of real estate, equities and corporate bonds have risen appreciably and valuation metrics have increased, they remain generally in line with historical norms. in some sectors, such as lower rated corporate debt, valuations

appear stretched and issuance has been brisk. accordingly, we are closely monitoring developments in the leverage loan market and are working to enhance the effectiveness of our supervisory guidance. more broadly, the financial sector has continued to become more resilient as banks have continued to boost their capital and liquidity positions, and growth in wholesale short term funding in financial markets has been modest. in sum, since the february monetary policy report, further important progress has been made in restoring the economy to health and in strengthening the financial system, yet too many americans remain unemployed, inflation remains below our longer run objective and not all of the necessary financial reform initiatives have been

completed. the federal reserve remains committed to employing all its resources and tools to achieve its macro economic objectives and to foster a stronger and more resilient financial system. thank you. i would be pleased to take your questions. >> thank you for your testimony. as we begin questions, will the clerk please put five minutes on the clock for each member. chair yellen, there seems to be mixed signals about the economy and the fact -- the face of these mixed signals, how cautiously will the fed proceed as it considers any large scale asset purchases? >> chairman johnson, as you

note, there are mixed signals concerning the economy. most importantly, gdp growth is reported by the bureau of economic analysis to have declined almost 3% at an annual rate in the first quarter. that said, many indicators concerning the economy, indicators of spending and production, are substantially more positive than that. as i noted, the labor market throughout that period has also continued to improve and at a somewhat faster rate than we had seen previously. indicators of consumer sentiment and of business sentiment and optimism also seem to be positive, so my reading at the

present time is that the gdp decline is largely due to factors i would judge to be transitory and i do think that it's substantially that negative number substantially understates the momentum in the economy, but of course, this is something we need to watch very carefully and are doing so. nevertheless, my overall view is more positive. now, as i mentioned, the labor market i believe has been improving. not only is the unemployment rate been declining, but broader measures of performance of the labor market have also shown improvement, and that's important. this is of course exactly what we want to achieve. but the federal reserve does need to be quite cautious with respect to monetary policy. we have in the past seen sort of false dawns, periods in which we

thought growth would speed, pick up, and the labor market would improve more quickly, and later events have proven those hopes to be unfortunately overoptimistic so we are watching very carefully, especially when short term overnight rates are at zero so we have no ability to lower them further. we need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates, and i think the forward guidance that we have provided and the policies that we have put in place are providing a great deal of accommodation to the economy to make sure that it is on a sound trajectory. >> referring to the collins amendment, the senate recently passed legislation to clarify

the fed's ability to apply an insurance-specific capital standards to insurance companies that it oversees. why is it important that congress act quickly and pass this legislation? >> well, as my colleagues and i have made clear on many occasions, our objective in designing regulations for insurance companies that come under our supervision or other non-bank sifis will be tailored to suit the needs and special characteristics of the entities that we supervise, and we are certainly trying to achieve that in the case of the insurance entities that we supervise. but there are constraints on our ability to take, tailor appropriate regulations and the

collins constraint, the collins amendment does pose constraints, so i think it would be useful to increase flexibility to allow us greater latitude in tailoring appropriate regulations. >> in light of your recent speech -- how you envision the fed using macro prudential tools instead of monetary policy to maintain financial stability and build resilience in the financial system? >> well, i think most importantly, we have substantially strengthened the capital and liquidity positions of banking firms and financial firms that we supervise more generally. our objective is to make sure that these firms are on solid

footing and to the extent that the financial system or the economy are buffeted with shocks, that these firms will be resilient, that they can continue to lend to support the credit needs of our economy, even under adverse circumstances, and i would say our stress tests are a very important part of that as well. so first and foremost, the entire agenda from dodd-frank and more broadly coming out of the financial crisis to see a more resilient, better capitalized financial system, banking system, i'd say is the core of that effort. so if there were an asset price bubble and we did not intervene effectively to deal with that, and that bubble burst, we want to make sure that the financial system can withstand such a

shock, and that is an objective of our efforts. we can also use more targeted tools that try to make sure that as business cycle conditions improve as we go into more robust boom times, that for example, in our stress tests, we have automatically designed the scenarios to impose a more severe stress that firms need to be able to survive as asset prices increase and the economy grows more robust. so those are the kinds of tools i largely have in mind. >> senator crapo? >> thank you, mr. chairman. chair yellen, in your testimony you mentioned that you currently anticipate that the federal funds rate will continue below levels that the committee views as normal for an extended period of time. you also added that depending on

economic outlook, this rate increase could occur sooner or later as we get a better feeling for the strength of the economy. based on your view of the economy and the markets, when do you currently anticipate this first rate hike to occur? >> well, the committee has given guidance that says what we will be looking at is the progress we're making toward our two congressionally mandated objectives, maximum employment and price stability or our 2% inflation goal. so there's no formula and there's no mechanical answer that i can give you about when the first rate increase will occur. it will depend on the progress of the economy and how we assess it based on a variety of indicators. to get a sense of the views that

members of our committee hold included in the monetary policy report is a summary of economic projections that all participants in the fomc provided at the beginning of our june meeting. so these projections are just that, they depend on each participant's own personal economic outlook and they are not a policy statement of the fomc, but they provide some sense of concretely what participants expected at the beginning of that meeting, and those projections show that almost all participants anticipate that the first increase in the federal funds rate, if things continue on the trajectories they expect, would come sometime in 2015, and the median projection for where the federal funds rate would stand

at the end of that year was around 1%. so a positive but relatively low level. and i think that gives you a feeling for what participants thought would be appropriate given their projections in june. i want to emphasize, as i've said repeatedly, that what actually happens, our projections change with incoming data. the economy is uncertain and what will actually happen clearly is going to depend on the progress the economy makes. but i think that's consistent with the forward guidance that's contained in the fomc statement as well. >> thank you. based on the minutes of the most recent fomc meetings, the discussion of monetary policy normalization has become an important topic for the committee. one of the strategies that is

discussed is that the fed will drain reserves by lending its securities out to the market as a part of reverse purchase agreements or repos. there is concern that such a facility would be a safe haven in times of market stress, attracting large funds, and depriving business of credit. is this a concern of yours, and how would the fed address the potential that the facility could aggravate a market crisis? >> well, let me say that these are matters that we are discussing in an ongoing basis and no final decisions have been made about the precise strategy that we will use when the time comes to normalize monetary policy. but we have tried to provide in the minutes a very good summary of the thinking in the committee as these discussions have taken place. one of the challenges we face is, as you mentioned in your opening remarks, the fed's balance sheet is very large.

there are a very large quantity of reserves in the banking system and because of that, that poses some limits on our ability to precisely control the federal funds rate. we can't really use quite the same strategy of intervention we used prior to the crisis. so we have indicated that the main tool we will use is the interest rate we pay on overnight reserves. the overnight rrp facility that you referred to, i think of as a backup tool that will be used to help us control the federal funds rate, to improve our control over the federal funds rate. i think it's a very useful and effective tool. we have gleaned that from the initial testing that we have done. but as you mention, we do have

concerns about allowing that facility to become too large or to play too prominent a role, and for precisely the reason that you gave. if stresses were to develop in the market, in effect it provides a safe haven that could cause flight from lending to other participants in the money markets. so two tools that we can use and are discussing to control those risks, one would be to maintain a relatively large spread between the interest rate we pay on overnight reverse rrps and the interest rate on excess reserves, the larger that spread, the less used that facility will be. also, we can contemplate limits on the extent to which it can be used either aggregate limits or limits that would apply to

individual participants and all of that is figuring into our discussions. >> thank you. >> senator reed? >> thank you very much, mr. chairman. thank you, madam chairwoman. you pointed out obviously that the mandate or one of the mandates of the fed is full employment. we have seen some progress, but there has been variations regionally. my state still suffers from a significant unemployment crisis. also underlying the overall statistic is persistently high long term unemployment number. can you comment about what the fed is doing to try to address these two specific issues, and further comment upon whether as i feel, congress can complement your efforts by reinstating long term unemployment benefits for these people? >> well, as you note, nationally long term unemployment is at almost unprecedented levels

historically and the average duration of unemployment spells is extremely, extremely long. and also of course, there are variations from state to state in the level of unemployment with some states seeing much lower unemployment than the national average and the reverse. so our monetary policy really can't affect things at the level of individual states and we have no specific tools to target long term unemployment, but my expectation is that as the national unemployment rate comes down and if the pace of job creation stays where it is or even rises, i expect to see improvements on all fronts and in fact, long term unemployment has declined, and the evidence

that i've seen, although perhaps not utterly definitive, suggests that the long term, the decline in long term unemployment does on balance reflect those who have experienced long spells getting jobs and moving into employment and not simply becoming so discouraged that they move out of the labor force. so that is a healthy development and you know, while long term unemployment remains at exceptionally high levels and is a grave concern, i do think we are seeing improvements as the job market is strengthening and i think in every state, we should expect to see, as confidence in the recovery grows and strengthens, we should definitely expect to see improvements. >> you point out that the federal reserve's monetary policies have limitations but fiscal policies of the congress

can be much more proactive in terms of one unemployment benefits so that these people have some support as they look for and don't get discouraged in their quest for jobs, and second, infrastructure and a host of programs, and i would assume you would see these as complementary to your goal and necessary to your goal. >> well, senator, i think that these are really matters for congress to debate and decide with respect to long term unemployment benefits. obviously we have a situation where long term unemployment is far more common in the population and imposing serious, serious tolls. >> yeah. you don't have to respond but my sense is that for the last several years, you've been the only game in town in terms of trying to deal with this issue, because we haven't taken some of the actions that we could that would have been beneficial and

see us in a much better situation today. >> well, fiscal policy has been, i think, cbo would confirm, a significant drag on the recovery and fortunately, that's diminishing and in fact, i think that's one of the positives for the economic outlook for economic growth going forward. >> well, i hope you're right. just quickly, changing the subject, and probably making a point because my time is rapidly diminishing, the federal reserve in 2011 had a program independent foreclosure review process which they were trying to help people who had been misserved by the foreclosure process services. that was scrapped shortly afterwards and essentially went to a direct payment about $3.9 billion. i am told that that program still has cash on hand, that you

haven't been able to reach the people, people who have been receiving checks haven't cashed them or don't intend to. this residual money, can you reprogram to state agencies or local initiatives that are much more effective in getting the money out? would you consider that? >> no decision at all has been made at this point on what to do with residual funds, and so there may be a number of options we have yet to debate that. >> again, there are states, you know, and regions that need this help and if you could get the money to the people who can get it out, that would be i think positive. thank you, madam chairwoman. >> senator vitter. >> thank you, mr. chairman. thank you, madam chair, for being here for your work. this week on the senate floor, the senate is expected to adopt and pass my amendment to mandate that at least one member of the federal reserve board have

direct community bank or community bank supervisory experience. what is your reaction to that mandate? >> senator, i would welcome the appointment of a community banker to our board. i think a community banker can add a great deal to the work that we do and i have worked with community bankers like governor duke or community bank supervisors like then governor rask, and seen how much that experience can contribute to our work. so i am very positive on the idea of having a community banker appointed to the board. that said, i don't support requiring it via legislation. there are seven governorships,

the board has many different needs. i think if we were to sit down and make a list of all of the kinds of expertise that are needed and are useful, there would be more than seven items on that list, and i would, you know, prefer to see appointments made in light of the priorities, including for a community banker, rather than for the indefinite future locking in and earmarking particular seats for particular purposes. i feel that's a road that could go further in a direction that would worry me if we are earmarking, we could end up earmarking each seat for a particular kind of expertise and i think greater flexibility needs to change over time. but that's not in any way to

diminish my support for seeing a community banker appointed to the board. >> well, we look forward to this community bank experience being more forcefully put on the board through this legislation so we'll agree on that and look forward to it. madam chair, we have talked a lot over your various visits about too big to fail. it's a concern of mine and other members of the committee on both sides of the aisle. what i have personally heard is your agreeing with that general concern, but i have not really seen that translate into concrete policy moves to curb and change the continuation of too big to fail. that's my opinion. so in that context, you were last before us on february 27th. what if any specific policy changes, initiatives, movement,

has the fed or other regulators taken to curb and help end too big to fail? >> so we have finalized our basel 3 capital requirements that significantly increase the quality and quantity of capital in the banking system. even before we did that through our stress tests, we have worked to ensure that especially the largest and most systemic institutions have the ability to not only survive a very adverse stress to the system, but also to lend and support the needs of the economy through such a stress. the amount of capital in the banking system has basically doubled since 2009. we have put in place, we have

put out for comment, a liquidity coverage ratio rule that we hope to finalize this year. we are in the process of working through a regulation that will implement so-called sifi surcharges or surcharges for the largest, most systemic firms. we have finalized an enhanced and higher leverage standard for the eight largest firms in the united states, and we are working very hard to make sure that these firms are resolvable in the event they should encounter a stress that overwhelms those substantial defenses so the fdic under its orderly

it has established an architecture for doing so and the united states is working with other global regulators to think through how that authority could be exercised to deal with cross border issues. we are discussing in the united states and globally, a requirement for the largest and most systemic organizations to hold sufficient, unsecured long-term debt at the holding company level to enable a resolution that would be smooth in the event that such a firm had to be resolved. we are working with those firms also on living wills to enhance their ability to be resolved under the bankruptcy code. >> thank you, mr. chairman. >> senator schumer. >> thank you, mr. chairman. thank you, madam chair.

you've done a very good job. you make brooklyn proud. i'm so glad to have these hearings. i've been sitting at humphrey hawkins hearings since 1981 in the house and senate. they are very elucidating. my first question deals with probably your most difficult issue as fed chair, the anal-old balancing test between fighting inflation and going to full employment. it's a hard tight rope to walk, particularly as conditions change. we are now in a period of change. obviously, unemployment declined, thankfully. obviously, the economy is beginning to pick up. as a result there's a lot of pressure coming from many for you to not only accelerate the end of qe-2 quantitative easing and to raise rates. i would urge caution very strongly. to me the greatest problem this

country still faces is lack of good-paying jobs, decline of middle class incomes. that's with us very, very strongly. worldwide labor markets still keep a lid on inflation. your stated target of 2% ten years ago, if people heard the stated target was 2%, your predecessors, their jaws would drop, but we're not even at that. i would just ask you to be very cautious before you taper the qe-3 program too quickly and entertain the prospect of raising rates. could you comment? >> yes. so i certainly agree and tried to emphasize while we are making progress in the labor market, we haven't achieved our goal. it's also the case that inflation is running under our

2% objective. so both of those facts plus the fact that there have been substantial head winds holding the recovery back, and those head winds, while we are effectively overcoming them and making progress, until they are completely gone, it calls for an accommodative monetary policy to offset that. i would say even if you consider our forward guidance we put in place in march, the committee indicated that even after we think the time has come to raise rates, that we think it will be some considerable time before we move them back to historically normal levels. that reflects, well different people have different views, but to my mind it, in part, reflects the fact head winds holding back the recovery do continue.

productivity growth has been slow. of course, we need to be cautious to make sure the economy continues to recover. we have tried with respect to our asset purchases to set out a clear objective that we had to see a significant improvement in the outlook for the labor market. to put in place a process by which reductions in the pace of our purchases would be measured, deliberate and allow us time to assess how the economy is recovering and we followed, i think, a very deliberate course. so i also emphasize this is not a preset course. if we were to judge the conditions had changed significantly, it's not locked in stone. >> thank you. i'm glad and somewhat relieved to hear. i know there are pressures. i would like to tease each side of that question.

we are seeing improvement in job growth and seeing declines in medium income and middle class incomes and lower incomes. what it means is the number of jobs created that really pay well isn't growing quickly enough. poor paying jobs are growing more quickly. how can the fed, if in any way deal with that. on the other side one of the things you worry about are bubbles. qe-3 pushed a lot of money into corporate bonds, the stock market. i don't think there are bubbles there yet. but i hope you are considering ways to reduce the possibility of bubbles without wholesale increases in rates. can you comment on both sides of that? >> well, with respect to wages, most measures of compensation have been running roughly in line with inflation so that real gains in compensation adjusted

for prices or in real terms have been nonexistent. so while rising compensation or wage growth is one sign that the labor market is healing, we are not even at the point where wages are rising at a pace that they could give rise to inflation. in fact, real wages have been rising less rapidly than productivity growth and what we've seen is a shift in the distribution of national income away from labor and toward capital. so there is some room there for faster growth in wages and for real wage gains before we need to worry that's creating overall inflationary pressure for the economy. that's something we are watching closely. with respect to bubbles, i've stated my strong preferences to

use macroprudential and supervision policies to address areas where we see concerns. as i mentioned, we are doing that in the face of, for example, leveraged lending. but i would never take off the table totally the idea that monetary policy might be needed to address financial stability concerns. to me, i don't see financial stability concerns at the level at this point where they need to be a key determinant of monetary policy. it's not my preference as a first line of defense by any means, but i would never want to take off the table that in some circumstances, particularly if macro-prudential tools failed monetary policy might be called on to play a role, but we're not there. >> thank you. >> senator johans.

>> thank you, mr. chairman. madam chair thank you for being here today. this is the first time you've been before the committee. one as nominee, now twice as role in chair. when you came to the committee last fall i was concerned about the lack of progress to deal with the $4 trillion balance sheet. i worry that the risk of quantitative easing outweighs the benefits. since that time, i want to say to you, i think you've moved in the right direction. in fact, you've moved at a pace that maybe i did not anticipate. you're down to $35 billion per month. but the reality is there is still a $4 trillion balance sheet out there, which is

concerning. in your testimony you speak of your concerns about false dawns. there's been some fits and starts with the fed in terms of tapering. so my question gets to this issue. you're anticipating that by october this program will cease, come to an end. what could happen in that period of time that would cause you to recalibrate and decide that october is not the appropriate date, maybe the program should go on for a period of time. tell me what metrics you are looking at to make these judgments as you go along. >> well, the committee indicated that the path of purchases is not on a preset course. and all along at each of our

meetings where we had to decide whether or not to cut the pace of purchases or to stop that or even to increase purchases, we've asked ourselves two questions. is the labor market continuing to improve, and do we remain confidence that going forward it will continue to do so? and do we see evidence that inflation is moving and will continue to move back to our 2% objective over time? and at every one of our meetings since last december when we started to taper the pace of purchases, we've asked those questions and the answer has been yes, we think inflation stabilized, and we'll gradually move up, and yes, we think the labor market will continue to improve and we have cut and we use the term measured pace or

$10 billion a meeting. now our forecast is that for the next -- that we will continue to see those conditions. i think the evidence we are seeing is consistent with that. if we continue to see progress in the labor market, as i expect, and inflation stabilizing or moving up to toward 2%, we would continue on the course we are in. as i mentioned, purchases would cease after october, but if there would be some very significant change in the outlook we see between now and october, so that we lost confidence that the labor market will improve, for some reason, or that inflation would move back up to 2%, then we would have to rethink that plan. that is the plan. >> excuse me. let me ask you a question. i'm running out of time here,

about the labor market. because i think this is a very, very concerning issue for the economy and for the country. the proportion of americans in the labor force is now less than 63%. we haven't seen those numbers since jimmy carter was president many, many years. i don't know if that's you or me, but it's annoying. we haven't seen those kinds of numbers since jimmy carter was president. the fed has said that you'll look at the labor market. you just reiterated that in your testimony. originally it seemed like the benchmark you were trying to achieve was 6.5%. it's now 6.1%, but to me that doesn't tell the story.

the fact that our unemployment rate is at 6.1% doesn't reflect the reality people are taking part-time work, whether that's obamacare or another reason, we could debate for a long time. tell me what you're looking for when you constantly refer to the labor market. are you looking for fuller participation, more full-time employment? what are you trying to achieve? i ask you to be brief because i am out of time. >> briefly, labor force participation certainly moved down. part of that, i believe, is an aging population and demographic. but when we see diminished labor force participation among prime age men and women that suggests something that is not just demographic, and so my personal view is that a portion of the decline in labor force

participation we've seen is a kind of hidden slack or unemployment. it may be if that's correct that as the labor market strengthens that labor force participation will remain flat, instead of the demographic trend continuing to pull it down. that as people who have been discouraged come back into the labor force and start looking at getting jobs, we will see labor force participation rate flatten out and the unemployment rate may not come down as quickly as it has been. but we'll need to look at that. that's a hypothesis. what we said about 6.5%, as long as inflation was not a concern, we would not think about raising

the federal funds rate, we would not raise it until unemployment declined below 6.5%. 6.1% is not our target either. participants in the fomc are asked what they think a so-called number employment or normal longer run unemployment rate is. in the monetary policy report, we've distributed in june, they thought this was 5.2% to 5.5%. of course we don't know and we are looking at all the things you mentioned in judging the labor force, judging the labor market, not just unemployment rate but a broad range of indicators, including voluntary part-time employment, as you mentioned. and a broader metrics concerning the labor market. >> thank you, madame chair.

>> senator menendez. >> thank you. you were quoted saying while the economy is improving, the head winds are still there even when the head winds have diminished to the point where the economy is finally back on track and it's where we want it to be, it's still going to require an unusually accommodative monetary policy. that was your statement. that seems pretty consistent with the concern of prominent economists outside of the fed. that current economic conditions and fiscal policy are producing an environment that requires lower than normal interest rates to generate economic growth and create jobs. can you explain to me what you mean about the need for, quote, unusually accommodative monetary policy? and do you agree with the views being discussed by many that larry somers and others about lower than normal interest rates and the dangers of tightening

too soon? >> so, i do agree with the view that there are substantial head winds facing the economy. one example would be that we see in surveys of households that their expectations about their future finances and growth in their real incomes are exceptionally depressed. i think that's a factor that is depressing spending. we see in the housing market where we had some progress but it now looks like it's stalled. a lack of credit availability for anyone who has anything other than a pristine credit rating, i think, remains a factor. and that's in many complicated ways, a legacy of what we have lived through. i think there are -- and fiscal

policy has been a factor, in my view, holding back the recovery. and that's what monetary policy has had to counteract. that's in part why we have needed such an accommodative monetary policy for so long. the economy is making progress. i do believe it's making progress, and eventually if we continue, a day will come when i think it will be appropriate to begin to raise our target for the federal funds rate, but to the extent that even when the economy gets back on track, it doesn't mean these head winds will have completely disappeared. in addition to that productivity growth is rather low. at least that may not be a permanent state of affairs, but it's certainly something that we have seen in the aftermath. we've seen it during most of the recovery. that's a factor that i think is suppressing business investment

and will work for some time to hold interest rates down. these concerns and these factors are related to what economists are discussing, including secular stagnation. the committee, when it thinks about what is normal in the longer run, the committee is recently slightly reduced on their estimates of what will be normal in the longer run. the median view on that is now something around 3.75%, but we don't really know. it's the same factors that are making the committee feel that will be appropriate to raise rates only gradually. there's some of the same factors that figure in the secular. >> let me ask beyond what the fed is doing. are there fiscal policy steps congress can take to improve the situation and reduce head winds

against growth? for example, we have interest rates at near historic lows and construction employment is still below the pre-crisis levels. for example, wouldn't it be time to invest in repairing our nation's transportation and other infrastructure as a way to help against such head winds? >> as i said, fiscal policy for a number of years has been a drag on growth. we can translate that into a factor that has necessitated lower than normal interest rates to get the economy moving back on track. of course, it's a judgment for congress what the appropriate priorities are, but i would certainly say that fiscal policy has been unusually tight for a period like we've lived through. >> i understand you don't want to dictate what congress' priorities are, but if congress

were to say investing in significantly robust, transportation infrastructure and other similar projects, would that be something that would help against the head winds? >> certainly, it would be a counter to those head winds, yes. >> thank you, mr. chairman. thank you for holding this particular hearing. chairman, thank you for being here. i apologize, i haven't been here for all of the questioning. the ranking member and myself are running back and forth to the energy committee talking about fire suppression. you get a lot of credit and blame. i'm not blaming you for the fires out west, all right? we can take that question off the table. i know you do take a lot of blame. i just want to thank you for taking time. you said in your opening remarks that the recovery is not complete from the great recession. we've had a lot of lively debates in this committee over

soundness and safety, we had a hearing last week on high frequency trading. some are claiming markets are perhaps rigged. if you talked to individuals in 2008 and told them we are going to go five years through a great recession and you'll see the stock market go from 6500 to 17,000, not too many people would have believed that. the question is, books are being written about this, individuals are going as far as to claim the markets are rigged. i want to get your feelings. do you believe the stock markets are rigged? >> well, i think there are a number of concerns that have been outlined about high frequency trading, and i believe it was in june mary jo white, the chair of the s.e.c. gave a very important and very detailed discussion of high frequency trading,