[House Prints 109-C]
[From the U.S. Government Publishing Office]
109th Congress Committee
COMMITTEE PRINT
2d Session Print 109-C
_______________________________________________________________________
AN EXAMINATION OF FEDERAL 9/11 ASSISTANCE TO NEW YORK: LESSONS LEARNED
IN PREVENTING WASTE, FRAUD, ABUSE, AND LAX MANAGEMENT
__________
A STAFF REPORT
SUBCOMMITTEE ON MANAGEMENT,
INTEGRATION, AND OVERSIGHT
of the
COMMITTEE ON HOMELAND SECURITY
U.S. HOUSE OF REPRESENTATIVES
109th CONGRESS
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
August 2006
U.S. GOVERNMENT PRINTING OFFICE
20-452 WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON HOMELAND SECURITY
Peter T. King, California, Chairman
DON YOUNG, Alaska BENNIE G. THOMPSON, Mississippi
LAMAR S. SMITH, Texas LORETTA SANCHEZ, California
CURT WELDON, Pennsylvania, Vice EDWARD J. MARKEY, Massachusetts
Chairman NORMAN D. DICKS, Washington
CHRISTOPHER SHAYS, Connecticut JANE HARMAN, California
PETER T. KING, New York PETER A. DEFAZIO, Oregon
JOHN LINDER, Georgia NITA M. LOWEY, New York
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, District of
TOM DAVIS, Virginia Columbia
DANIEL E. LUNGREN, California ZOE LOFGREN, California
JIM GIBBONS, Nevada SHEILA JACKSON-LEE, Texas
ROB SIMMONS, Connecticut BILL PASCRELL, Jr., New Jersey
MIKE ROGERS, Alabama DONNA M. CHRISTENSEN, U.S. Virgin
STEVAN PEARCE, New Mexico Islands
KATHERINE HARRIS, Florida BOB ETHERIDGE, North Carolina
BOBBY JINDAL, Louisiana JAMES R. LANGEVIN, Rhode Island
DAVE G. REICHERT, Washington KENDRICK B. MEEK, Florida
MICHAEL MCCAUL, Texas
CHARLIE DENT, Pennsylvania
------
Subcommittee on Management, Integration, and Oversight
Mike Rogers, Alabama, Chairman
CHRISTOPHER SHAYS, Connecticut KENDRICK B. MEEK, Florida
JOHN LINDER, Georgia EDWARD J. MARKEY, Massachusetts
TOM DAVIS, Virginia ZOE LOFGREN, California
KATHERINE HARRIS, Florida SHEILA JACKSON-LEE, Texas
DAVE G. REICHERT, Washington DONNA M. CHRISTENSEN, U.S. Virgin
MICHAEL MCCAUL, Texas Islands
CHARLIE DENT, Pennsylvania BENNIE G. THOMPSON, Mississippi Ex
CHRISTOPHER COX, California Ex Officio
Officio
Majority Staff
Michael J. Russell, Subcommittee Staff Director
Heather E. Hogg, Subcommittee Professional Staff Member
Julie Schmidt, Subcommittee Legislative Assistant
Matthew McCabe, Counsel
Kerry A. Kinirons, Counsel
Danielle Rosengarten, Legal Intern
Michael S. Twinchek, Chief Clerk
Minority Staff
Rosaline Cohen, Counsel and Subcommittee Coordinator
Cherri L. Branson, Senior Investigative Counsel
Jeffrey E. Greene, Counsel
Todd A. Levett, Professional Staff Member
Fellow/Detailee
Ken Vogel, Legislative Fellow, American Political Science Association
Joanne Madden, Supervisory Special Agent, Federal Bureau of
Investigation
Letter of Transmittal
House of Representatives,
Committee on Homeland Security,
Washington, DC, August 10, 2006.
To the Members of the Committee on Homeland Security: Last
December, I tasked the Subcommittee on Management, Integration,
and Oversight to conduct an examination of allegations of
waste, fraud, and abuse of Federal funds provided to New York
in the aftermath of the September 11th attacks. Attached for
your review is the Subcommittee's report entitled, ``An
Examination of Federal 9/11 Assistance to New York: Lessons
Learned in Preventing Waste, Fraud, Abuse, and Lax
Management.''
I urge you to examine this bipartisan report, which sets
forth the findings of the Subcommittee's six month review and
proposes legislative changes to strengthen Federal assistance
programs for use in the aftermath of future disasters. I look
forward to working with you as we seek to improve Federal
disaster assistance programs in light of this and other recent
reports of waste, fraud, and abuse in these programs.
Sincerely,
Peter T. King,
Chairman.
Letter of Transmittal
House of Representatives, Committee on Homeland
Security, Subcommittee on Management,
Integration, and Oversight,
Washington, DC, August 9, 2006.
To the Chairman of the Committee on Homeland Security: It
is our pleasure to present you with a bipartisan staff report
entitled ``An Examination of Federal 9/11 Assistance to New
York: Lessons Learned in Preventing Waste, Fraud, Abuse, and
Lax Management.''
Forwarded by Members of the Subcommittee on Management,
Integration, and Oversight, this report details the
Subcommittee's examination into the use and misuse of
approximately $20 billion in Federal assistance allocated to
New York to respond to, recover from, and rebuild after, the
terrorist attacks of September 11, 2001.
Additionally, the report sets forth the findings of the
Subcommittee's six month review, which culminated in a series
of three Subcommittee hearings held on July 12 and 13, 2006.
The Subcommittee hearings focused on issues of response,
recovery, and rebuilding, taking testimony from 22 witnesses
representing Federal, State, and local government agencies,
non-profit aid organizations, business groups, and government
watchdog groups.
It is our hope that findings contained in this report will
form the basis of Federal legislation implementing lessons
learned from the 9/11 experience in New York City. If
implemented, the reforms may deter and prevent fraud in future
major disasters that require a Federal response.
We appreciate your consideration of this report, and look
forward to working with the Members of the full Committee to
pass legislation implementing recommendations contained in the
report.
Sincerely,
Mike Rogers,
Chairman, Subcommittee on
Management, Integration,
and Oversight.
Kendrick Meek,
Ranking Member, Subcommittee
on Management,
Integration, and
Oversight.
John Linder.
Mark E. Souder.
Katherine Harris.
Dave G. Reichert.
Michael T. McCaul.
Sheila Jackson-Lee.
Bill Pascrell, Jr.
Bennie G. Thompson.
C O N T E N T S
----------
Page
I. Introduction:
The Need for Oversight................................... 3
The Subcommittee's Examination........................... 4
Accounting for the $20 Billion........................... 5
Subcommittee Findings.................................... 11
II. Response:
Tragedy Prompted Unprecedented Response, New Approaches.. 12
Debris Removal: Formidable Effort for Monumental Task.... 14
Testing and Cleaning..................................... 23
Individual Assistance.................................... 23
Mortgage and Rental Assistance........................... 26
Crisis Counseling........................................ 27
Unemployment Assistance.................................. 28
Temporary Transportation................................. 29
Coordination Between and Among the Federal Government,
Charities, and Voluntary Agencies.................... 29
III.Recovery:
Federal Government Reaction.............................. 32
Housing and Urban Development Community Development Block
Grant-Funded Programs................................ 34
Business Recovery Grants................................. 38
Residential Grant Program................................ 39
Job Creation and Retention Program....................... 40
Small Firm Attraction and Retention Grant Program........ 40
Small Business Administration Programs: STAR Loan Program 41
Disaster Loans........................................... 42
Department of Labor Programs............................. 42
IV. Rebuilding:
Five ``Mega-Projects'': Lower Manhattan's Transportation
Infrastructure....................................... 44
Internal Controls........................................ 55
External Controls........................................ 56
V. Conclusion.......................................................58
Appendices
A. Agency Budget Tables.......................................... 61
B. Convictions for Fraudulent Activity........................... 67
C. Summary of Lower Manhattan Development Corporation Commitments
to the Revitalization of Chinatown............................. 71
D. Prepared Witness Statements for the Subcommittee on
Management, Integration, and Oversight hearings ``An
Examination of Federal 9/11 Assistance to New York: Lessons
Learned in Fraud Detection, Prevention, and Control.''......... 75
Part I--Response--July 12, 2006.............................. 77
Part II--Recovery--July 13, 2006............................. 145
Part III--Rebuilding--July 13, 2006.......................... 179
E. Acronyms...................................................... 200
109th Congress Committee
COMMITTEE PRINT
2d Session Print 109-C
======================================================================
AN EXAMINATION OF FEDERAL 9/11 ASSISTANCE TO NEW YORK: LESSONS LEARNED
IN PREVENTING WASTE, FRAUD, ABUSE, AND LAX MANAGEMENT
_______
Mr. Peter T. King, from the Committee on Homeland Security, submitted
the following
STAFF REPORT
Introduction
The September 11, 2001, terrorist attacks in New York City,
Northern Virginia, and Southwestern Pennsylvania resulted in
what was, at the time, the costliest disaster in the history of
the United States. The financial and emotional toll of the
attacks were especially felt in New York City, where Al-Qa'ida
hijackers crashed two passenger jets into the World Trade
Center. The attack collapsed the twin towers, killing 2,749
people,\1\ injuring thousands more, and leaving many others
homeless. Indeed, New York City witnessed the elimination of as
many as 100,000 jobs,\2\ and dealt with the need to remove 1.63
million tons of debris \3\ strewn across 16 acres of Lower
Manhattan, and repair damage to major electrical, communication
and transportation infrastructures.
---------------------------------------------------------------------------
\1\ Subcommittee Staff Telephone Interview with Ms. Ellen Borakov,
Director of Public Affairs, New York City Medical Center Office of the
Chief Medical Examiner, conducted Aug. 8, 2006.
\2\ The New York State Assembly Ways and Means Committee estimated
that of the 125,300 jobs lost in New York in the 4th quarter of 2001,
80 percent resulted from the 9/11 terrorist attacks. U.S. General
Accounting Office, Review of Studies of the Economic Impact of the
September 11, 2001 Terrorist Attacks on the World Trade Center, GAO-02-
700R, May 29, 2002 at 13 citing New York State Assembly Ways and Means
Committee, ``New York State Economic Report,'' Mar. 2002.
\3\ Review of EPA and FEMA Responses to the September 11, 2001
Attacks Before the Senate Comm. on Environment and Public Works, 107th
Cong. (2002) (statement of Mr. Joseph Allbaugh, Director, Federal
Emergency Management Agency) (hereinafter Allbaugh Written Testimony).
[GRAPHIC] [TIFF OMITTED] T9452.001
The response to the disaster was remarkable. At the urging
of the New York Congressional Delegation, the President
requested and Congress appropriated approximately $20 billion
to the State of New York to assist the response, recovery, and
rebuilding efforts in the wake of the attacks. Congress pressed
the Federal agencies responsible for administering the disaster
relief to expeditiously process funds so that the funds would
reach those impacted by the attacks as quickly as possible, and
granted the agencies greater flexibility to do so. Federal
agencies, in turn, found themselves in the difficult position
of using existing disaster recovery programs in unfamiliar
ways, implementing new programs, and stretching existing
authority to take on new tasks.\4\
---------------------------------------------------------------------------
\4\ Neither the Federal Emergency Management Agency (FEMA) nor the
Environmental Protection Agency (EPA) had previously coordinated post-
disaster indoor contaminant-cleaning efforts and neither was
specifically authorized to do so. However, working together, the
agencies undertook such an effort in New York City after the September
11th terrorist attacks under FEMA's Stafford Act debris removal
authority. Federal Emergency Management Agency Office of Inspector
General, FEMA's Delivery of Individual Assistance Programs: New York--
September 11, 2001, Dec. 2002 at 25 (hereinafter FEMA's Delivery of
Individual Assistance Programs).
---------------------------------------------------------------------------
Agencies loosened regulations and expanded eligibility for
programs, some of which dispensed more assistance to victims of
September 11, 2001 (9/11) in New York than they had in response
to all previous disasters combined.\5\ To date, Federal
agencies, partnering with State and local agencies, have
disbursed approximately $13.7 billion of these funds for
services ranging from treating the injured and providing
temporary housing to removing 100,000 truckloads of debris.\6\
Funds have also been used to provide assistance to unemployed
workers and affected businesses, and to rebuild the
transportation, communication, and utility infrastructures of
Lower Manhattan. The majority of the balance of the $20 billion
is dedicated to the rebuilding of Lower Manhattan's
transportation infrastructure.
---------------------------------------------------------------------------
\5\ Prior to 9/11, the largest Department of Housing and Urban
Development (HUD) Community Development Block Grant (CDBG)
appropriation for disaster recovery was about $500 million, which was
the amount allocated for both the 1997 Midwest floods and 1994
Northridge, California earthquake. Subcommittee Staff briefing with Mr.
Jan Opper et al., Director of Disaster Recovery and Special Issues,
U.S. Department of Housing and Development, May 26, 2006, in
Washington, D.C. (hereinafter Opper Briefing). In addition, from the
inception of FEMA's Mortgage and Rental Assistance Program until 9/11,
the agency has awarded only $18.1 million to victims of 68 declared
disasters, compared to $76 million to the victims of 9/11 in New York.
See, FEMA's Delivery of Individual Assistance Programs, supra note 4 at
9.
\6\ Allbaugh Written Testimony, supra note 3.
---------------------------------------------------------------------------
In addition to governmental assistance, charities assisting
in the recovery from the attacks also received unprecedented
donations and dispensed more and broader services than for any
previous disaster.\7\ The role of these charities and issues
related to disbursement of Federal assistance are discussed
herein.
---------------------------------------------------------------------------
\7\ U.S. General Accounting Office, More Effective Collaboration
Could Enhance Charitable Organizations' Contributions in Disasters,
GAO-03-259, Dec. 19, 2002 at 7 (hereinafter More Effective
Collaboration Could Enhance Charitable Organizations' Contributions in
Disasters).
---------------------------------------------------------------------------
THE NEED FOR OVERSIGHT
Even as New Yorkers and all levels of government struggled
to respond to this event, some sought to take advantage of the
tragedy for financial gain. From a man who collected nearly
$300,000 in Federal loans after claiming his two
telecommunications companies, which moved out of the World
Trade Center in July 2001, sustained physical damage in the
attacks,\8\ to two employees of the New York City Medical
Examiner's Office accused of embezzling Federal funds intended
to help identify victims' remains,\9\ unscrupulous individuals
tried any number of ways to take advantage of the massive
outpouring of Federal and private funds in response to the
disaster.
---------------------------------------------------------------------------
\8\ U.S. Small Business Administration, Summary of Convictions--
Fraud Related to 9/11 Disaster Loans, received by Subcommittee Staff on
Feb. 9, 2006.
\9\ Press Release, U.S. Attorney for the S.D.N.Y., U.S. Arrests Two
Former City Employees for Defrauding New York City Medical Examiner's
Office (Dec. 9, 2005).
---------------------------------------------------------------------------
This report is intended to fill a vacuum in the nation's
understanding of how the money set aside for New York City was
administered. Despite documented instances of fraud, waste, and
abuse, no Congressional Committee or other government oversight
group has ever catalogued the full nature and scope of the
Federal assistance to New York City. This report also develops
recommendations to enhance response and improve controls across
the Federal government, based on the lessons learned from the
9/11 response, recovery, and rebuilding effort in New York
City. To fill this gap, Committee on Homeland Security
Chairman, Peter T. King, directed the Subcommittee on
Management, Integration, and Oversight (MIO) to conduct a
comprehensive examination of how the $20 billion in Federal 9/
11 assistance directed to New York City was utilized, with
special emphasis on allegations of mismanagement that resulted
in waste, fraud, and abuse.\10\ This report sets forth the
findings of the Subcommittee's six month investigation, which
culminated in a series of three Subcommittee hearings held on
July 12 and 13, 2006. These hearings focused on issues of
response, recovery, and rebuilding, and involved testimony from
22 witnesses representing Federal, state, and local government
agencies, non-profit aid organizations, business groups, and
government watchdogs.\11\ The findings contained in this report
are the basis for forthcoming legislation to act upon the
lessons learned from the
9/11 experience in New York City as detailed in this report.
---------------------------------------------------------------------------
\10\ In December 2005, the New York Daily News published a lengthy
series of articles outlining a wide range of examples and allegations
of misuse of 9/11 funding. Examples included the influence of organized
crime in debris removal at Ground Zero, the use of ghost and shadow
employees by contractors, kick-backs and embezzlement, unfair
allocation of recovery funds to big businesses, and inappropriate uses
of 9/11 disaster assistance funds.
\11\ The prepared statements submitted by 20 witnesses for the
Subcommittee's series of hearings on July 12-13, 2006 may be found at
the end of this Report. Two additional statements submitted for the
record from the Honorable Michael J. Garcia, United States Attorney for
the Southern District of New York, and the Honorable Thomas McCormack,
Chairman of the New York City Business Integrity Commission, may be
found in the forthcoming official hearing record available from the
Government Printing Office.
---------------------------------------------------------------------------
THE SUBCOMMITTEE'S EXAMINATION
The Subcommittee's bipartisan review included a
retrospective examination of funding already spent on the
initial response to the 9/11 attacks; an examination of funds
spent on the recovery of businesses and residences in Lower
Manhattan; and a prospective examination of fraud controls in
place for the balance of 9/11 monies to be spent on rebuilding
Lower Manhattan's infrastructure.
In preparation for this report, the Subcommittee reviewed
allegations of waste, fraud, and abuse in the media, government
audits, and analyses by community and watchdog groups.
Subcommittee staff also conducted numerous site visits,
interviews, and conference calls with officials from Federal,
state, and local agencies that received Federal 9/11 funds, or
investigated or prosecuted cases involving the funds. Through
its analysis of grant data, indictments, Federal audits, and
reports by media and government oversight groups, the
Subcommittee has catalogued specific cases of fraud, waste, and
abuse; determined whether assistance could have been disbursed
more efficiently or effectively; and assessed various anti-
fraud mechanisms that were put in place after 9/11 for possible
replication in future disaster assistance situations.
The Subcommittee closely scrutinized--and this report
discusses--the projects to be funded by the more than $6
billion remaining from the $20 billion, and the controls in
place to ensure the money is spent appropriately and
efficiently. The Subcommittee has also compiled a
representative sampling of indictments, prosecutions, and
convictions for frauds perpetrated with respect to
9/11 assistance funds. In addition, the Subcommittee has
completed an accounting of all Federal funds, with technical
assistance from the Government Accountability Office (GAO).
ACCOUNTING FOR THE $20 BILLION
On September 14, 2001, Congress passed the Emergency
Supplemental Appropriations Act for Recovery from and Response
to Terrorist Attacks on the United States, FY 2001 (P.L. 107-
38), which made available $40 billion ``to provide assistance
to the victims of the attacks,'' to improve local preparedness
for mitigating and responding to the attacks, to pursue and
prosecute those involved in terrorism, to increase national
security, and to repair public facilities and transportation
systems damaged by the attacks. The Act further provided that
not less than one half of the $40 billion would be designated
for ``disaster recovery activities and assistance related to
the terrorist acts in New York, Virginia, and Pennsylvania on
September 11, 2001.'' The $20 billion in Federal assistance
appropriated to the New York City area to address the impact of
the 9/11 attacks marked the first time the Federal government
set a target amount of disaster assistance near the beginning
of the response and recovery process. The appropriations Act
also stipulated that the remaining $20 billion would be
obligated ``only when enacted in a subsequent emergency
appropriations bill as a condition for the availability of
funds.''
Over the subsequent 11 months, Congress passed several
bills to provide an estimated $20 billion in direct funding and
tax benefits. Specifically, Congress approved the Department of
Defense Appropriations Act (P.L. 107-117) on January 10, 2002,
as well as a second emergency supplemental appropriation (P.L.
107-206), on August 2, 2002.
The $20 billion in Federal aid slated for New York was
provided primarily through four channels: the Federal Emergency
Management Agency (FEMA), the U.S. Department of Housing and
Urban Development (HUD), the U.S. Department of Transportation
(DOT), and the Liberty Zone tax benefits--a set of tax benefits
targeted to stabilize and restore the economy of Lower
Manhattan. Together, these sources provided 96 percent, or
$19.63 billion, of the committed Federal aid to the New York
City area.
In its October 2003 report, the GAO provided a preliminary
review of the use of the $20 billion grouped in the following
categories:
Initial Response--search and rescue operations,
debris removal, temporary utility system repairs, etc. One
billion dollars was set aside to establish an insurance fund to
cover claims resulting from debris removal operations.
Compensation for Losses--individual assistance for
housing costs, loans to businesses to cover economic losses,
and funding for disaster-related costs incurred by New York
City and New York State.
Infrastructure Restoration and Improvement--
restoration and enhancement of transportation systems in Lower
Manhattan and permanent utility repair.
Economic Revitalization--Liberty Zone tax
benefits, small business loans, and business attraction and
retention programs.
As part of its examination, the Subcommittee obtained an
updated accounting from each Federal agency involved in
disbursing 9/11 funds. Based on that financial data, and with
technical assistance from GAO, the Subcommittee updated GAO's
original four categories as depicted below.
[GRAPHIC] [TIFF OMITTED] T9452.002
Based on the financial data provided by Federal agencies
and a review of appropriations acts, the Subcommittee compiled
the accounting of funds, with Federal agencies ranked in order
of the amount of 9/11 funds for which they are responsible
(highest to lowest).
[GRAPHIC] [TIFF OMITTED] T9452.003
The Subcommittee further analyzed the current status of 9/
11 funds appropriated to the primary Federal agencies involved
in the response, recovery, and rebuilding of New York City
after the terrorist attacks. This analysis includes the total
amount of funds committed, obligated, and disbursed.\12\ The
chart below reflects these three categories for the primary
Federal agencies involved.
---------------------------------------------------------------------------
\12\ For the purposes of this report, funds are ``committed'' once
they are designated for a specific purpose. ``Obligated'' funds have
been set aside for a particular contract or purchase order. Commitments
and obligations may also differ due to rescissions, transfers (once
programs close), and de-obligations. ``Disbursed'' means the funds have
been expended.
BREAKOUT OF FUNDING IDENTIFIED FOR NEW YORK
[Figures in millions of dollars]
------------------------------------------------------------------------
Major Contributing Agency Committed Obligated Disbursed
------------------------------------------------------------------------
FEMA............................ $8798 $8780 $5798
HUD............................. 3107 3107 1723
DOT............................. 2353 1850 490
SBA............................. 197.1 182 181
LABOR........................... 241 105 103
HHS............................. 121 121 121
DOJ............................. 75 70 68
---------------------------------------
Total..................... 14,892.1 14,215 8,484
------------------------------------------------------------------------
Figures Represent Approximate Amounts.
Column Names Are Intended for Representational Purposes Only.
The Subcommittee focused its examination on the controls
implemented by the Federal agencies to which Congress
appropriated the greatest amount of funding, as well as the
state and local agencies and charitable organizations with
which those Federal agencies partnered. The Federal agencies
and the amounts they were appropriated are as follows:
Federal Emergency Management Agency (FEMA) $8.799
billion
U.S. Department of Housing and Urban Development
(HUD) $3.483 billion
U.S. Department of Transportation (DOT) $2.366
billion
U.S. Small Business Administration (SBA) $250 million
U.S. Department of Labor (DOL) $249 million
U.S. Department of Health and Human Services (HHS)
$120 million
U.S. Department of Justice (DOJ) $75 million
The state and local agencies that disbursed the largest
amounts of Federal 9/11 funds and, as such, were a major focus
of the Subcommittee's inquiry, include:
The Port Authority of New York and New Jersey (Port
Authority)
Empire State Development Corporation (ESDC)
Lower Manhattan Development Corporation (LMDC)
New York City Department of Design and Construction
(DDC)
The Subcommittee also examined the roles played by private
relief agencies, generally, and the American Red Cross, in
particular, in disbursing assistance, as well as the role FEMA
played in coordinating the assistance provided by voluntary and
charitable agencies.
SUBCOMMITTEE FINDINGS
In its examination of these Federal, state, and local
agencies, as well as voluntary and charitable organizations,
the Subcommittee carefully considered the balance between the
need to expeditiously supply assistance to disaster victims,
and the need to maintain controls over the programs through
which that assistance is disbursed. It is the sense of the
Subcommittee that these goals are not mutually exclusive, and
that both can be accomplished through effective management and
oversight.
This report incorporates lessons learned by the
Subcommittee through its examination of the 9/11 response.
These lessons are presented as legislative recommendations that
the Subcommittee believes could improve the management and
oversight of financial assistance to respond to future
disasters. The report identifies effective management and
oversight mechanisms--or ``best practices''--employed in the
response to 9/11, as well as systemic problems exposed in the
response that opened the door to waste, fraud, and abuse. The
report identifies steps that were taken to address some of
these systemic problems, but also points out instances in which
problems were not addressed and, as a result, plagued the
responses to subsequent disasters, most notably Hurricanes
Katrina and Rita. If these problems are not remedied, they will
continue to keep the door open to waste, fraud, and abuse in
the responses to future disasters.
The major systemic problems, common to disaster response,
identified by the Subcommittee include:
(1) lack of information sharing and cooperation;
(2) inadequate verification prior to disbursing
funds;
(3) duplicative payments;
(4) relaxed or ineffective controls; and
(5) weak oversight of procurement.
The Subcommittee also identified ten ``best practices''
used in the aftermath of the September 11th attacks, and urges
their use in future events:
(1) private integrity monitors;
(2) database searches to screen contractors;
(3) mandatory regular audits;
(4) dedicated temporary oversight office;
(5) full-time Independent Coordination Agency that
prevents fraud;
(6) temporary Fraud Prevention Task Force;
(7) fraud awareness training;
(8) fraud tip lines;
(9) controlled electronic access to disaster sites;
and
(10) contractor employee screening.
In the chapters that follow, this report will not only
undertake an in-depth discussion of the systemic problems in
disaster response, recovery, and rebuilding, but will also
analyze the effectiveness of systems implemented by Federal,
state, and local agencies, and voluntary organizations to
prevent waste, fraud, and abuse.
As our nation approaches the fifth anniversary of the 9/11
attacks, this report, in a small way, memorializes the
extraordinary efforts of New Yorkers, as well as personnel on
the Federal, state, and city levels to respond to an
extraordinary situation. The lessons learned from their
experiences provide valuable insight about the importance of
establishing controls in the provision of disaster assistance.
The Subcommittee believes the enactment of disaster assistance
reforms based on lessons learned from the response to 9/11 is
one way in which something positive can be derived from the
horrific events of 9/11.
Response
TRAGEDY PROMPTED UNPRECEDENTED RESPONSE, NEW APPROACHES
The immediate response to the attacks by Americans,
charitable organizations, and all levels of government was
unprecedented. The Federal response, directed by FEMA, focused
on: debris removal at the Ground Zero site; environmental
testing and cleaning the inside of residences; individual
assistance, including grants for medical and dental costs,
funeral costs, transportation needs, and air conditioners and
other air quality improvement equipment; temporary housing
assistance to displaced individuals; crisis counseling;
unemployment assistance; legal services; temporary
transportation to and from Lower Manhattan; and coordination
between and among the Federal government and charitable
agencies.
Unique circumstances and scope of response increased need for oversight
It is the sense of the Subcommittee that at least four
unique elements of the 9/11 response in New York City created a
need for the establishment of more aggressive controls to
reduce or eliminate waste, fraud, and abuse than had been put
in place for previous disasters.
First, FEMA funded 100 percent of all public disaster
assistance provided to New York. FEMA usually requires state
and local governments to pay a matching share of up to 25
percent.\13\ The 9/11 response marked the first disaster
response for which FEMA announced at the beginning of recovery
and rebuilding efforts it would fund 100 percent of the public
assistance program.\14\ FEMA officials are generally reluctant
to recommend a 100-percent Federal share for rebuilding
projects because requiring state or local governments to pay
some percentage of costs creates an incentive for them to
control costs and root out waste and abuse, FEMA officials told
the GAO.\15\
---------------------------------------------------------------------------
\13\ U.S. General Accounting Office, Disaster Assistance:
Information on FEMA's Post 9/11 Public Assistance to the New York City
Area, GAO-03-926, Aug. 29, 2003 at 24 (hereinafter Disaster
Assistance).
\14\ Id.
\15\ Id. at 25.
---------------------------------------------------------------------------
Second, the Federal government appropriated $20 billion for
New York prior to any estimates of the response, recovery, or
rebuilding costs. This, in effect, preset the spending level
for agencies. Eventually, the difficulties agencies experienced
as they tried to expend $20 billion led Congress to alter the
range of allowable uses of Federal disaster funds to include
activities that are not normally permitted under the Robert T.
Stafford Disaster Relief and Emergency Assistance Act (P.L. 93-
288). The decision to permit FEMA to pay not only New York
State's and New York City's traditionally reimbursable
expenses, but also their ``associated costs,'' enabled FEMA to
spend down the funds more rapidly. Non-traditional uses of
disaster funds included a public awareness campaign called ``I
Love New York,'' designed to attract tourists back to the area
after 9/11, and payments to fund the pensions of New York City
police and fire department personnel.\16\ When asked by Members
and staff of the Subcommittee, FEMA and the other Federal
agencies denied that they felt pressured to spend the $20
billion.\17\
---------------------------------------------------------------------------
\16\ Id. at 5.
\17\ See, House Homeland Security Subcommittee on Management
Integration and Oversight Holds Hearing on Fraud in September 11
Assistance: Recovery, CQ Transcripts, July 13, 2006, available at
http://www.cq.com (last visited Aug. 4, 2006).
---------------------------------------------------------------------------
Third, Federal agencies utilized existing disaster recovery
programs for new purposes, implemented new and untested
programs, expanded their authority to address never-before-
handled tasks, loosened regulations, expanded recipient
eligibility for certain programs, and utilized some programs to
a greater extent than in all previous disasters combined. For
example, prior to 9/11, neither FEMA nor the Environmental
Protection Agency (EPA) had coordinated post-disaster indoor
contaminant-cleaning efforts. However, this assistance was
provided for homes polluted by debris from the World Trade
Center collapse.\18\ In addition, FEMA's Mortgage and Rental
Assistance program, a pre-existing program that had been used
prior to 9/11 to award just $18.1 million to victims of 68
previously declared disasters, provided $76 million to the
victims of 9/11 in New York.\19\
---------------------------------------------------------------------------
\18\ FEMA's Delivery of Individual Assistance Programs, supra note
4 at 25.
\19\ Id. at 9.
---------------------------------------------------------------------------
Fourth, organized crime is reputed to have a continuing
influence in New York City, particularly in the trucking,
demolition, and waste disposal industries, which handled the
bulk of the debris removal from the site of the World Trade
Center.
It is the sense of the Subcommittee that the exigent
circumstances after 9/11 exposed systemic problems pertaining
to the Federal oversight of immediate disaster response
programs, grantees, and charities, making the funds susceptible
to waste, fraud, and abuse. In his testimony before the
Subcommittee, Department of Homeland Security Inspector General
(Deputy Inspector General of FEMA at the time of 9/11) Richard
Skinner stated that ``The fraud, waste and abuse that [occurred
after 9/11 were] the same types of fraud, waste, and abuse we
see after every disaster.'' \20\
---------------------------------------------------------------------------
\20\ Written Testimony submitted by the Honorable Richard Skinner
before the Subcommittee on Management, Integration, and Oversight
hearing entitled, ``Federal 9/11 Assistance to New York: Lessons
Learned in Fraud Detection, Prevention, and Control.'' Part 1
``Response,'' July 12, 2006, at 6 (hereinafter Skinner Written
Testimony).
---------------------------------------------------------------------------
Further, it is the sense of the Subcommittee that the State
and City governments performed admirably as stewards of Federal
taxpayer dollars given the extraordinary circumstances, though
this report identifies a few instances in which the State and
City could have better handled programs.
For their part, charities and private organizations
assisting in the recovery received an outpouring of donations
and provided more and wider services than for any previous
disaster.\21\ But the Subcommittee found those services were
susceptible to fraud and duplication with the assistance
provided by other voluntary organizations and government
agencies.
---------------------------------------------------------------------------
\21\ More Effective Collaboration Could Enhance Charitable
Organizations' Contributions in Disasters, supra note 7, at 2.
---------------------------------------------------------------------------
DEBRIS REMOVAL: FORMIDABLE EFFORT FOR MONUMENTAL TASK
The terrorist attacks of 9/11 left a tangled, burning
mountain of steel and other debris rising 11 stories above
street level and descending seven stories below it at Ground
Zero--the site where the World Trade Center once stood. The
removal of that 1.63 million tons, or 100,000 truckloads, of
debris \22\ was a monumental task made more difficult by a
chaotic mix of grief, urgency, unsafe conditions, some unsavory
contractors, and the American impulse to volunteer.
---------------------------------------------------------------------------
\22\ Allbaugh Written Testimony, supra note 3.
---------------------------------------------------------------------------
While the wreckage continued to burn for three months, \23\
debris removal proceeded around the clock. This task was made
more difficult by the magnitude of the destruction and by
Ground Zero's unique status as both a disaster site and a crime
scene. In the first two weeks, debris removal was slowed
further by the ongoing search for survivors amidst the
wreckage.\24\ When there was no longer a chance of finding
survivors, the work proceeded slowly because of the need to
carefully sort and screen debris for the remains and personal
effects of victims, as well as criminal evidence.
---------------------------------------------------------------------------
\23\ Mae M. Cheng and Curtis L. Taylor, WTC Fires Almost Out; FDNY
Won't Declare Site ``Under Control,'' Newsday, Dec. 20, 2001, at A61.
\24\ Michael Cooper, A Nation Challenged: The Trade Center;
Giuliani Declares That Finding Anyone Still Alive in the Rubble Would
Be ``a Miracle,'' N.Y. Times, Sept. 25, 2001, at B9.
---------------------------------------------------------------------------
Initially, private contractors from across the country
poured into New York from as far away as Washington State to
help with the search and rescue and debris removal work, \25\
and most began working without contracts. This frenzied
environment allowed corrupt subcontractors--including some
affiliated with organized crime--to infiltrate Ground Zero and
engage in fraudulent activities. For instance, several
contractors were accused of diverting debris shipments;
submitting charges to the government for the work of so-called
``ghost employees,'' fictitious individuals who were said to
have worked on the site; and submitting charges for broken or
non-existent equipment. These illicit activities occurred
primarily before New York City secured the area and employed an
innovative system for eradicating waste, fraud, and abuse at
the site, which included the deployment of private integrity
monitors known as Independent Private Sector Inspectors General
(IPSIGs).
---------------------------------------------------------------------------
\25\ Subcommittee Staff Briefing with Mr. David Varoli, General
Counsel, New York City Department of Design and Construction, Mar. 20,
2006, in New York, New York (hereinafter DDC Briefing).
---------------------------------------------------------------------------
Other difficulties were caused by New York City's inability
to sign contracts with the private companies handling most of
the debris removal because private insurers would not cover the
potential liability claims stemming from the risky work.\26\
That discouraged contractors from signing traditional
contracts. In response, FEMA waived key internal contracting
controls intended in part to prevent contractors from over-
billing agencies disbursing FEMA funds.
---------------------------------------------------------------------------
\26\ Disaster Assistance, supra note 13, at 15-16.
---------------------------------------------------------------------------
Still, the debris removal was completed in less than half
the time and for about half the cost originally projected.
Originally expected to take two years \27\ at a cost of $1.2
billion, \28\ the work was finished in nine months \29\ at a
cost of $636 million.\30\
---------------------------------------------------------------------------
\27\ DDC Briefing, supra note 25.
\28\ Allbaugh Written Testimony, supra note 3.
\29\ Disaster Assistance, supra note 13, at 12.
\30\ Allbaugh Written Testimony, supra note 3.
---------------------------------------------------------------------------
In his September 2002 testimony before the Senate Committee
on Environment and Public Works, then-FEMA Director Joseph
Allbaugh lauded the efficiency of the New York City and FEMA
employees who oversaw the debris removal, which he said was
performed without serious loss of life or injury. ``Thanks to
the men and women of the New York City Department of
Sanitation, Department of Design and Construction along with
our FEMA employees, they did an extraordinary job by cutting
that projected cost of debris removal by almost half,''
Director Allbaugh said, calling the work ``an incredible
task.''
[GRAPHIC] [TIFF OMITTED] T9452.004
Organized crime infiltration in the Ground Zero clean-up?
Because of the urgency of the situation at Ground Zero, the
New York City Department of Design and Construction (DDC),
which managed the debris-removal operations, was not able to
start screening contractors and subcontractors through the New
York City Vendor Information Exchange System (VENDEX) until
three months after the attacks.\31\ VENDEX is a database with
background information on all contractors who bid on New York
City contracts and subcontracts valued at $100,000 or more, and
sole source contracts valued at $10,000 or more, and/or whose
aggregate business with New York City in the preceding 12
months totals $100,000 or more.\32\
---------------------------------------------------------------------------
\31\ DDC Briefing, supra note 25.
\32\ New York Mayor's Office of Contract Services, Contractor
Responsibility--How the City Ensures that Its Contractors are
Responsible, available at http://www.nyc.gov/html/moc/html/
contractor.html (last visited August 3, 2006).
---------------------------------------------------------------------------
The inability to screen companies in this environment
allowed some subcontractors with links to organized crime or
records of unsavory business practices, including--according to
media reports--at least one barred from City or Federal
contracting, \33\ to receive payments for debris-removal and
shipping work. Experts testifying before the Subcommittee could
not verify the accuracy of assertions in the media that at
least $63.2 million in FEMA funds for Ground Zero cleanup work
was paid to companies with mob ties.\34\ However, Mr. Neil
Getnick, a private integrity monitor hired by DDC to monitor
part of the debris removal, stated that $63.2 million could
have gone to companies accused of mob ties. Since private
integrity monitors probed many layers of association, Mr.
Getnick noted at the July 12, 2006, Subcommittee hearing one
example where private integrity monitors discovered that a
subcontractor's father once was indicted--but not convicted--on
mafia-related charges. Additionally, Mr. Getnick and others
involved in Ground Zero oversight contended it was possible
that companies accused of mob ties capably and honestly
performed the work for which they were paid.
---------------------------------------------------------------------------
\33\ Laquila Construction is barred from winning contracts for both
the City of New York and the Federal government. See, Russ Buettner et
al., Exposed: Map of Ground Zero Spoils: Where the Money Went to Clear
Trade Center Debris, N.Y. Daily News, Dec. 5, 2005, at 24.
\34\ Russ Buettner et al., Towers Fell, Mob Schemes Began: How
Organized Crime Divvied Up Ground Zero Work, N.Y. Daily News, Dec. 5,
2005, at 4.
---------------------------------------------------------------------------
Elements of the construction, trucking, demolition, and
waste disposal industries in New York City have reputed ties to
organized crime. Without the IPSIGs at Ground Zero, New York
City Commissioner of Investigations Ms. Rose Gill Hearn said
``it would have been a free-for-all.'' \35\ Commissioner Hearn
testified before the Subcommittee that a local prosecutor
informed her office of an intercepted conversation between two
organized crime associates. They lamented that the on-site
presence and close scrutiny of the monitors at the World Trade
Center was making it impossible for anyone to overbill New York
City using the usual scams.\36\
---------------------------------------------------------------------------
\35\ Subcommittee Staff Briefing with Ms. Rose Gill Hearn,
Commissioner of Investigations, New York City Department of
Investigations, Feb. 24, 2006, in New York, New York (hereinafter Gill
Hearn Briefing).
\36\ Written Testimony submitted by Ms. Rose Gill Hearn before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 1 ``Response,'' July
13, 2006, at 12 (hereinafter Gill Hearn Written Testimony).
---------------------------------------------------------------------------
Congress and FEMA adapt to unique circumstances
FEMA paid the U.S. Army Corps of Engineers $72 million to
sort debris for remains and personal belongings that could
identify victims and for criminal evidence related to the
attacks--an endeavor in which the Federal Bureau of
Investigation (FBI) also participated.\37\ The sifting
operation occurred at the Fresh Kills landfill in Staten
Island, New York. Officials intended for all debris to be
shipped directly to the landfill by barge and truck. However,
private integrity monitors found that some truckers diverted
debris to sell to scrap yards, paused mid-route for long
periods of time, or otherwise delayed the trip to increase fees
generated by hourly billing, a practice known as ``cooping.''
---------------------------------------------------------------------------
\37\ Disaster Assistance, supra note 13, at 14-15.
---------------------------------------------------------------------------
``Time and materials' hourly payments, which are generally
disfavored in government contracting, were necessitated because
DDC and contractors could not agree on contractual payment
arrangements after several private insurance companies declined
liability coverage for the risky work.\38\ New York City asked
Congress to indemnify it against potential claims stemming from
most injuries or deaths at Ground Zero in much the same way
Congress indemnified the airlines against potential lawsuits
brought by the survivors of 9/11 victims, \39\ but proposed
legislation was not enacted.\40\ Instead, after the debris
removal was finished, Congress authorized FEMA to set aside $1
billion for a government-backed insurance fund to cover
contractors and New York City for liability claims resulting
from debris-removal work.\41\ The move was unprecedented but
could prove necessary in light of the class action lawsuit
filed on behalf of 8,000 plaintiff firefighters, police
officers, and construction workers claiming they were harmed by
exposure to toxic substances while working at Ground Zero and
seeking compensation from New York City.\42\
---------------------------------------------------------------------------
\38\ Id. at 15-16.
\39\ DDC Briefing, supra note 25.
\40\ World Trade Center Worker and Contractor Protection Act of
2001, H.R. 3503, 107th Cong. (2001).
\41\ Pub. L. No. 108-7 (Consolidated Appropriations Resolution,
2003).
\42\ Anthony DePalma, 9/11 Suit Tests New York Stand on Immunity,
N.Y. Times, June 23, 2006, at B1.
---------------------------------------------------------------------------
Because New York City could not sign traditional contracts
with the companies removing and shipping the debris, FEMA
allowed DDC to continue paying contractors on a time-and-
materials basis indefinitely. FEMA's internal guidelines only
permitted time-and-materials contracting for the first 70 hours
after a disaster, partly because those contracts do not
incentivize efficiency and thus become more prone to waste,
fraud, and abuse.\43\
---------------------------------------------------------------------------
\43\ Subcommittee Staff Telephone Interview with Mr. Dennis R.
White, Deputy Special Inspector General, Department of Homeland
Security, conducted July 5, 2006 (hereinafter White Telephone
Interview).
---------------------------------------------------------------------------
``Time and materials contracting is something that's
frowned upon in government contracting. It's used only in cases
of emergencies,'' Mr. Dennis R. White, a Department of Homeland
Security (DHS) Deputy Special Inspector General who worked in
the FEMA Office of Inspector General's (OIG) New York City
field office after 9/11, told Subcommittee staff.\44\ ``The
problem is that it encourages the contractors to take as many
hours as possible because they get paid by the hour.''
---------------------------------------------------------------------------
\44\ Id.
---------------------------------------------------------------------------
Best practice: Private integrity monitoring caught and deterred fraud
The removal of cost-control incentives on private
contracts, combined with the chaos at Ground Zero, made it
exceedingly important for the government to exercise oversight
and implement stringent controls over debris-removal
operations. FEMA's OIG asserted that it initially stationed
people at the four exits of the site of the World Trade Center
to track the shipments of debris to ensure they were not
diverted.\45\ On October 4, 2001, the administration of former
New York City Mayor Rudolph Giuliani announced it had
dispatched four integrity monitoring companies to oversee the
four construction management companies hired to clean up the
four Ground Zero quadrants.\46\ This action came just days
after a grand jury began hearing testimony about truck drivers
allegedly diverting debris shipments to scrap yards to sell
instead of to the landfill to be sifted.
---------------------------------------------------------------------------
\45\ Id.
\46\ Jennifer Steinhauer, A Nation Challenged: City Hall, 4
Companies Are Hired to Oversee Contractors, N.Y. Times, Oct. 5, 2001,
at B11.
[GRAPHIC] [TIFF OMITTED] T9452.005
The World Trade Center Integrity Compliance Monitorship
Program, which was continued by Mayor Giuliani's successor,
Mayor Michael Bloomberg, hired four private integrity monitor
companies--Decision Strategies/Fairfax International; Getnick &
Getnick; Stier, Anderson & Malone; and Thacher Associates--all
of which were run by former prosecutors. Known as Independent
Private Sector Inspectors General (IPSIGs) the companies
employed an innovative approach to contract management first
utilized in New York in the 1990s for public school
construction projects. Working with the New York City
Department of Investigation (DoI), FEMA, and DDC, the IPSIGs
used forensic auditing, surveillance, interviews, informants,
global position system tracking of trucks, background checks,
and other investigative techniques to screen subcontractors and
ensure they were utilizing the appropriate equipment and
workers, accurately billing the government, and hauling debris
to the appropriate destination.
The private integrity monitors' performance of background
checks on contractors, using New York City's VENDEX database
and independent means, proved a useful tool. The checks
resulted in the indictments by the Manhattan District
Attorney's office of two principals of a Yonkers carting firm
working at Ground Zero who allegedly lied about their ties to
organized crime in documents filed with New York City. The
private integrity monitors also identified numerous instances
of over-billing by this firm.\47\
---------------------------------------------------------------------------
\47\ Id.
---------------------------------------------------------------------------
Private integrity monitors had never previously been
deployed on such a large scale \48\ and, by all accounts, their
deployment in the debris removal context was an overwhelming
success. Private integrity monitors identified a number of
contractors with ties to organized crime which were
subsequently removed from the site, found trucks cooping while
on the clock, \49\ flagged several attempted frauds that were
referred for prosecution, recovered $47 million in over-billing
by contractors and subcontractors, and saved immeasurably more
money by deterring fraud.\50\
---------------------------------------------------------------------------
\48\ Gill Hearn Briefing, supra note 35.
\49\ Subcommittee Staff Briefing with Mr. Neil Getnick et al.,
Independent Private Sector Inspectors General, Mar. 21, 2006, in New
York, New York.
\50\ Gill Hearn Written Testimony, supra note 36.
---------------------------------------------------------------------------
The World Trade Center Integrity Compliance Monitorship
Program was effective in large part because it was preventive.
By embedding private integrity monitors with the individual
contractors, the monitoring program prevented fraud and abuse
by contractors that were unscrupulous or sloppy in their
accounting. In addition, the monitoring ensured proper record
keeping and established internal controls, which created a
culture of compliance within each contractor's operations and
ensured accountability to New York City.
DoI and the monitors took several steps to bolster the
effectiveness of the monitoring program. First, they met
regularly with one another and with law enforcement agencies.
Second, they set up an electronic key-card system to track each
person who accessed the site. Third, they established a fraud
hotline, which received 80 tip calls.\51\ Together, these
controls increased the effectiveness of the private integrity
monitor program and enhanced the overall vigilance against
fraud and waste during the debris removal. It is the sense of
the Subcommittee that private integrity monitors should be
incorporated into future disaster response oversight,
particularly in instances requiring debris removal.
---------------------------------------------------------------------------
\51\ Gill Hearn Briefing, supra note 35.
---------------------------------------------------------------------------
High-ranking officials in the DHS OIG office said debris-
removal work has always posed oversight problems for FEMA, but
the removal of debris from Ground Zero was among the agency's
best run projects.\52\ In the Subcommittee's judgment, that
success resulted from the presence of private integrity
monitors and occurred in spite of very challenging conditions.
---------------------------------------------------------------------------
\52\ Subcommittee Staff Briefing with the Honorable Richard L.
Skinner, Inspector General, Department of Homeland Security, June 28,
2006, in Washington, D.C. (hereinafter Skinner Briefing); White
Telephone Interview, supra note 44. Mr. Skinner stated that debris
removal poses challenges. Mr. White stated that the 9/11 debris removal
was among the best ever run.
---------------------------------------------------------------------------
Hard lesson learned: Costly oversight in aerial photography contract
Not every part of the response phase paralleled the success
of the private integrity monitoring program. For example, FEMA
contracted with a photographer to take aerial photographs of
Ground Zero without checking the photographer's background or
experience and without including in the contract standard
language giving FEMA title and ownership of the photographs. As
a result, the photographer was able to copyright 30,000
photographs and 34 minutes of video of Ground Zero that he took
from a New York City Police Department helicopter while also
receiving $300,000 from FEMA and the DDC. He sold 36 of the
photographs to LIFE Books, which printed them in a 2002 book. A
lawyer for the photographer reportedly sent New York City a
letter warning that it could not use the photographs without
the photographer's permission.\53\
---------------------------------------------------------------------------
\53\ Greg B. Smith, Shameful Abuse of 9-11 Footage, N.Y. Daily
News, Feb. 12, 2006, at 6 (hereinafter Shameful Abuse of 9-11 Footage).
---------------------------------------------------------------------------
According to an interview the photographer gave to LIFE
Books, a representative from FEMA called the photographer at
2:00 a.m. on September 15, 2001, after spotting his ad in a
phone book, and asked if he had ever taken aerial photographs.
LIFE Books quoted the photographer as saying:
I said ``yes,'' and we all know now that I had never
taken aerial photos before. I guess the reason I said
yes was because I have gotten all kinds of strange
calls from my photography business ad in the yellow
pages. When you have a yellow pages ad in New York
City, you can just imagine the kind of calls you might
get.'' \54\
---------------------------------------------------------------------------
\54\ Interview by Life.com with Gregg Brown, Photographer, New
York, New York, available at http://www.life.com/life/lifebooks/
amspirit/brown.html (last visited August 3, 2006).
FEMA could not identify the FEMA employees responsible for
awarding the contract. FEMA did not offer a satisfactory answer
to the Subcommittee's repeated queries about whether FEMA
typically includes clauses in contracts ceding title and
ownership to the agency,\55\ though Mr. Joe Picciano, Deputy
Director for the FEMA regional office that includes New York,
testified before the Subcommittee on July 12, 2006, that the
failure to include such a clause was an oversight.
---------------------------------------------------------------------------
\55\ According to Adrian Sevier, FEMA does not engage in much
direct contracting and does not have standard contract language. FEMA
did not respond to Subcommittee Staff inquiries requesting additional
information about FEMA contracting practices, generally, or the 9/11
aerial photography contract, specifically. In a subsequent telephone
interview in April 2006, a FEMA representative said contractors are
normally required to cede title and ownership of their work, but also
said most photographers dealing with FEMA do not give up ownership of
their photographs. Subcommittee Staff briefing with Mr. Adrian Sevier,
Acting Deputy General Counsel, Federal Emergency Management Agency,
Mar. 24, 2006, in Washington, D.C.
---------------------------------------------------------------------------
The photography began under FEMA's direction on September
15, 2001.\56\ In November 2001, the DDC assumed the contract
and asked the photographer to cede title and ownership to New
York City, which the photographer refused.\57\ The DDC revoked
the photographer's access to the helicopter on May 10,
2002.\58\
---------------------------------------------------------------------------
\56\ Shameful Abuse of 9-11 Footage, supra note 53.
\57\ DDC Briefing, supra note 25.
\58\ Shameful Abuse of 9-11 Footage, supra note 53.
---------------------------------------------------------------------------
The photographs and the video footage were commissioned to
assist the rescue effort by tracking the plumes of smoke
emanating from the rubble at Ground Zero and to record the
event for posterity. However, to view the photographs and the
video, members of the public must file a request with New York
City under New York State's Freedom of Information Law \59\ or
go to the U.S. Copyright Office, located in the Madison
Building of the Library of Congress in Washington, D.C.,
because the photographer owns the images and video.\60\
---------------------------------------------------------------------------
\59\ DDC Briefing, supra note 25.
\60\ Greg Smith, Only Playing in D.C., N.Y. Daily News, Feb. 12,
2006, at 7.
---------------------------------------------------------------------------
TESTING AND CLEANING
FEMA and the Environmental Protection Agency (EPA) entered
into two interagency agreements to detect and remove
potentially harmful materials scattered by the World Trade
Center collapse from private residences in Lower Manhattan.
Neither agency had previously provided such services after a
disaster, nor was either specifically authorized to do so.
However, after residents in the area complained for months
about the pollution, the EPA and New York City formed task
forces to examine the issue.
Systemic problem: Lack of interagency coordination
Months after the attacks, FEMA implemented an indoor
testing and cleaning program with the EPA by invoking its
Stafford Act authority for debris removal. Though the deadline
to register for the program was extended twice to December 28,
2002, residents expressed frustration with delays and
difficulties obtaining information and registering for the
program.\61\ According to the FEMA OIG, difficulties resulted
in part because FEMA failed to request that EPA conduct the
necessary testing to determine whether debris posed a public
health or safety threat. The EPA was required to confirm that
disaster dust and debris posed health and safety risks before
FEMA could provide funding for cleanup. However, FEMA failed to
coordinate with EPA to ensure that the required assessments
were conducted in a timely manner.\62\
---------------------------------------------------------------------------
\61\ FEMA's Delivery of Individual Assistance Programs, supra note
4 at 24.
\62\ Id. at 25.
---------------------------------------------------------------------------
INDIVIDUAL ASSISTANCE
Lax management and weak oversight plagued some of FEMA's
individual assistance programs, including Individual and Family
Grants, Temporary Housing Assistance, and Crisis Counseling. In
at least one case--FEMA's Air Quality Program--the result was
rampant waste, fraud, and abuse. This program and others were
the subject of critical reports by the media, FEMA's OIG, and,
after the establishment of DHS, the DHS Office of Inspector
General (DHS OIG).
DHS Inspector General Richard Skinner told Subcommittee
staff that FEMA did not require state and local agencies
receiving FEMA grants to have proper oversight plans in place
to prevent waste, fraud, and abuse among subgrantees.\63\ As
opposed to in-depth reports citing potential problems, Mr.
Skinner said FEMA allowed its grantees to file reports that
were mere numerical tallies. According to Mr. Skinner, FEMA
would benefit from Congressional mandates for quarterly reports
to Congressional Appropriations Committees, much like HUD's
reporting requirement which proved to be effective during its
response to 9/11, as discussed below.
---------------------------------------------------------------------------
\63\ Skinner Briefing, supra note 52.
---------------------------------------------------------------------------
It is the sense of the Subcommittee that FEMA failed to
grasp the lessons learned from 9/11. For example, the FEMA OIG
recommended changes to the Individual and Family Grants (IFG)
program, which funded the Air Quality Program. FEMA relaxed the
programmatic controls associated with this program which was
intended to reimburse applicants for costs associated with air
conditioners, air purifiers, and vacuums. The FEMA OIG found
that the program was vulnerable to fraud and abuse, partly
because of lax oversight by FEMA and the New York State
Department of Labor, which administered the program.\64\ Yet,
according to the GAO, following Hurricanes Katrina and Rita,
the successor to the IFG program paid as much as $1.4 billion
in fraudulent assistance for inappropriate expenditures such as
season football tickets, a $200 bottle of Dom Perignon
champagne purchased at a Hooter's restaurant, and ``Girls Gone
Wild Videos.'' \65\
---------------------------------------------------------------------------
\64\ U.S. Department of Homeland Security Office of Inspector
General, The Federal Emergency Management Agency's Individual and
Family Grant Program Management at the World Trade Center Disaster,
OIG-04-49, Sept. 2004, at 7 (hereinafter FEMA's Individual and Family
Grant Program Management).
\65\ Written Testimony submitted by Mr. Gregory D. Kutz before the
Committee on Homeland Security, Subcommittee on Investigations hearing
entitled, ``Waste, Fraud, and Abuse in the Aftermath of Hurricane
Katrina,'' June 14, 2006, at 25.
---------------------------------------------------------------------------
The ability to detect fraud, waste, and abuse in FEMA-
administered programs ends three years after the last
expenditure of funds. At that time, the OIG's authority to
audit a program and disallow costs ceases.\66\ Once the three
years have passed, state and local governments may archive,
destroy, or deny Federal agencies access to grant records.\67\
DHS OIG Skinner advised the Subcommittee staff that his agency
does not intend to conduct additional audits of the major FEMA
programs that administered funds for the 9/11 recovery.\68\
---------------------------------------------------------------------------
\66\ ``Pursuant to 44 CFR 13.42, states are required to retain
records, including source documentation, to support expenditures/costs
incurred against the grant award, for 3 years from the date of
submission to FEMA of the Financial Status Report. The State is
responsible for resolving questioned costs that may result from an
audit conducted during the three-year record retention period and for
returning disallowed costs of ineligible activities.'' 44 C.F.R.
Sec. 206.120 (2006).
\67\ Skinner Briefing, supra note 52.
\68\ Id.
---------------------------------------------------------------------------
Systemic problem: Inadequate verification prior to disbursing funds
Normally, FEMA requires that disaster victims apply and be
denied for Small Business Administration (SBA) disaster loans
before disbursing funds from the IFG program. However, FEMA and
New York State categorized air conditioners, air purifiers,
filters, and vacuum cleaners in a way that exempted them from
the SBA loan application requirement.\69\ That designation
permitted those items to be purchased with air quality grants
regardless of SBA consideration.
---------------------------------------------------------------------------
\69\ Id.
---------------------------------------------------------------------------
Typically, FEMA inspects property that applicants claim was
damaged or destroyed in a disaster before issuing IFGs to
replace the property. In March 2002, FEMA waived that
requirement for air conditioners purchased through the air
quality program after determining it would be impractical to
verify damage to individual units.\70\ Instead, New York State
implemented a self-certification process requiring applicants
to describe the circumstances associated with the repair or
replacement of items and to submit supporting receipts.
According to the FEMA OIG, this shift, combined with promotions
by stores selling eligible items and misleading notices in
community foreign-language newspapers, significantly increased
the number of applications and may have increased the
likelihood of fraud and abuse.\71\ In a random sample of 4,435
IFG applications to replace damaged window air conditioners,
FEMA found that 2,731--or 62 percent--of the units were likely
ineligible.\72\
---------------------------------------------------------------------------
\70\ Air conditioners were added to the list of reimbursable items
after home inspections had already been completed and FEMA determined
it would not be cost effective to send inspectors back to homes to
inspect air conditioners. FEMA's Individual and Family Grant Program
Management, supra note 64, at 6.
\71\ Id. at 8.
\72\ Id.
---------------------------------------------------------------------------
FEMA typically requires receipts or similar records to
verify that IFG funds will be used for essential needs prior to
disbursement. In May 2002, FEMA and New York State authorized
advance payments to applicants who could not afford items
covered by the Air Quality Program. FEMA asked applicants to
provide receipts after purchasing approved items,\73\ but by
March 2003, FEMA found none of a randomly selected group of
5,602 cash-advance recipients (who had received a total of $5.8
million in assistance) had submitted receipts.\74\ In July
2003, FEMA determined that 1,682--or 33 percent--of a random
inspection of 5,029 recipients had not purchased air
conditioners. These cases were referred for collection.\75\
---------------------------------------------------------------------------
\73\ Id. at 6-7.
\74\ Id. at 8.
\75\ Id.
---------------------------------------------------------------------------
Mr. Skinner credited efforts by his office as well as
FEMA's sampling and home inspection program with prompting
100,000 of the original 229,000 applicants to voluntarily
withdraw from the program.\76\
---------------------------------------------------------------------------
\76\ Skinner Written Testimony, supra note 20.
---------------------------------------------------------------------------
Best practice: Demonstrate intolerance for fraud by prosecuting small
cases
The Manhattan District Attorney's Office and the U.S.
Attorney's Office largely declined to prosecute cases of
alleged fraud against the Air Quality Program in part because
the frauds involved small sums of money and in part because
prosecutors determined the program's regulations were too lax
to prove violations.\77\ The Manhattan District Attorney's
Office did prosecute 12 cases investigated by Federal
auditors.\78\ Prosecutors also pursued other 9/11 fraud cases
involving less than the typical monetary thresholds to send a
message that fraud against disaster funds would not be
tolerated. (See Appendix B for convictions of fraudulent
activity associated with 9/11 assistance.)
---------------------------------------------------------------------------
\77\ Id. at 5.
\78\ Id. at 6.
---------------------------------------------------------------------------
Subcommittee staff has been told that prosecutors' offices
often lack the resources to prosecute the surge in post-
disaster cases that result from frauds perpetrated against
disaster assistance programs. Given that certain kinds of fraud
occur after every disaster, \79\ Subcommittee Chairman Mike
Rogers stated that prosecutors' offices should assess their
needs in the event of a disaster. Chairman Rogers further
asserted it would be worth considering setting aside a
percentage of total Federal disaster-response funds
appropriated to assist prosecutors' offices in handling fraud
cases associated with disaster relief. \80\
---------------------------------------------------------------------------
\79\ Id.
\80\ See, House Homeland Security Subcommittee on Management
Integration and Oversight Holds Hearing on Fraud in September 11
Assistance: Recovery, CQ Transcripts, July 13, 2006, available at
http://www.cq.com (last visited Aug. 8, 2006).
---------------------------------------------------------------------------
Systemic problem: Lack of information sharing and cooperation
The FEMA OIG found that FEMA's Air Quality Program would
have been better served by limiting eligibility to the areas
identified by the EPA and New York City's Department of Health
as affected by toxic debris, rather than providing grants to
households in all five boroughs of New York City.\81\
Specifically, FEMA could have utilized a map of the smoke
plumes from Ground Zero to designate eligible geographic areas.
``If the IFG Program and the EPA testing and cleaning program
had worked more closely together in terms of geographic
eligibility, the prog ram would have had reasonable and
justifiable boundaries,'' according to the FEMA OIG.\82\
---------------------------------------------------------------------------
\81\ FEMA's Delivery of Individual Assistance Programs, supra note
4 at 20.
\82\ Id.
---------------------------------------------------------------------------
MORTGAGE AND RENTAL ASSISTANCE
FEMA administered its Mortgage and Rental Assistance (MRA)
program to provide as much as 18 months of mortgage or rental
payments to 9/11 victims. During implementation, FEMA changed
the eligibility criteria from aiding people who lost at least
25 percent of their incomes ``as a result'' of the catastrophe
to those who lost 25 percent of their incomes ``as a direct
result'' of the attacks.\83\
---------------------------------------------------------------------------
\83\ FEMA's Delivery of Individual Assistance Programs, supra note
4 at 11.
---------------------------------------------------------------------------
Systemic problem: Ineffective oversight
According to one media report, FEMA failed to explain how
the agency defined ``direct result.'' It also did not provide a
place on the MRA application for applicants to explain why
their job loss was a ``direct result'' of the attacks, or even
to list their employers' addresses. FEMA also did not provide
its employees with guidelines explaining how to determine which
applicants were directly affected by the attacks.\84\ Most
denials of assistance appear to have resulted from
misinformation or misunderstanding about eligibility or the
specific benefits covered, and/or the application process,
according to the FEMA OIG.\85\ The New York Times identified
some of the rejected applications. Among them were the
following:
---------------------------------------------------------------------------
\84\ Diana B. Henriques and David Barstow, Change in Rules Barred
Many From Sept 11 Disaster Relief, N.Y. Times, Apr. 26, 2002, at A1.
\85\ FEMA's Delivery of Individual Assistance Programs, supra note
4 at 35.
---------------------------------------------------------------------------
Hundreds of Chinatown seamstresses, Manhattan
hotel workers and taxi drivers were denied MRA funds.
FEMA denied MRA funds to a disabled veteran who
sold hats and gloves on the sidewalks of lower Broadway, though
he provided sworn statements from shopkeepers confirming that
he was a regular vendor in the area.
An applicant ``who had worked at a restaurant on
the concourse of the World Trade Center, supplied the
restaurant's name and his supervisor's telephone number at work
* * * was denied aid because an agency evaluator could not get
through on the telephone to the now nonexistent restaurant.''
\86\
---------------------------------------------------------------------------
\86\ Henriques and Barstow, supra note 84.
---------------------------------------------------------------------------
There were also examples of fraudulent applications to the
MRA program. For example, according to the Manhattan District
Attorney's Office, an attorney and his girlfriend created false
documents to show that the girlfriend had lost her job and was
being evicted from her apartment. She then filed claims for
assistance and received $70,000 from FEMA, the Red Cross, and
Safe Horizon. In reality, she had not lost her job and was
living with her boyfriend in New Jersey.\87\
---------------------------------------------------------------------------
\87\ Press Release, District Attorney of New York County, People
vs. 26 Individuals--WTC Charity Fraud (Nov. 13, 2002).
---------------------------------------------------------------------------
After media reports in April 2002 showed seven out of 10
applications for the MRA program had been denied, \88\ FEMA
took steps to remedy and expand the program. FEMA re-examined
all 7,323 rejected applications, deemed 1,625--or 22.2
percent--eligible and requested additional documentation for
3,126--or 42.7 percent.\89\ FEMA modified MRA applications to
allow applicants to explain how their economic hardship was a
direct result of the attacks, and eliminated the requirement
that self-employed applicants and business owners be rejected
by the SBA before applying for assistance under the MRA
program.\90\ FEMA also expanded the geographic area of
eligibility in late June 2002, a little more than one month
before Congress passed a bill doing the same.\91\
---------------------------------------------------------------------------
\88\ Henriques and Barstow, supra note 84.
\89\ FEMA's Delivery of Individual Assistance Programs, supra note
4, at 13.
\90\ Id. at 14.
\91\ Id.
---------------------------------------------------------------------------
Ultimately, FEMA's MRA program provided more than four
times the amount of financial assistance to New York's 9/11
victims than the program had delivered to all victims of
previous disasters since its inception.\92\ FEMA's Inspector
General said the program would need to be altered if it were to
be revived.\93\
---------------------------------------------------------------------------
\92\ From the inception of FEMA's Mortgage and Rental Assistance
program until Sept. 11, 2001, it has awarded only $18.1 million to
victims of 68 declared disasters compared to $76 million to the victims
of 9/11 in New York. See, FEMA's Delivery of Individual Assistance
Programs, supra note 4, at 9.
\93\ Id.
---------------------------------------------------------------------------
CRISIS COUNSELING
The Stafford Act authorizes FEMA to fund professional
counseling to treat mental health problems caused or aggravated
by a disaster or its aftermath. In addition, the U.S.
Department of Justice (DOJ) can fund professional counseling to
treat mental health problems caused or aggravated by a crime or
its aftermath. Since the 9/11 attacks are considered to be a
crime resulting in a disaster, both programs applied.
Systemic problem: Lack of information sharing and cooperation
FEMA and DOJ failed to coordinate to ensure that
individuals psychologically impacted by the 9/11 attacks did
not receive duplicative services funded by the two agencies,
according to the FEMA OIG.\94\ Shortly after 9/11, the two
agencies reached a verbal agreement on the sequence of delivery
of services. However, the FEMA OIG wrote, ``more detailed and
comprehensive guidance is necessary to ensure that services
delivered to disaster victims who are also victims of crime are
appropriate, consistent, and not duplicative.'' \95\ The FEMA
OIG encouraged the agencies to enter into a Memorandum of
Understanding formalizing their relationship, their respective
responsibilities and authorizations, as well as programs, time
frames, and sequencing to apply when a disaster is also a crime
scene. It was not until 2006, four years after the OIG made its
recommendation, when FEMA and DOJ executed a Letter of Intent
discussing services needed in responding to catastrophic
Federal crimes.\96\
---------------------------------------------------------------------------
\94\ Id. at 28.
\95\ Id.
\96\ Skinner Briefing, supra note 52.
---------------------------------------------------------------------------
UNEMPLOYMENT ASSISTANCE
The U.S. Department of Labor (DOL) administers the FEMA-
funded Disaster Unemployment Assistance (DUA) program to
provide assistance to any person left unemployed by a disaster
who is not eligible for regular State Unemployment Insurance or
other supplemental income. DOL after 9/11 expanded the program
by:
allowing disaster unemployment benefits to a
broader range of survivors than in past disasters;
extending application periods;
loosening documentation standards; and
extending the duration of benefits by 13
weeks.\97\
---------------------------------------------------------------------------
\97\ FEMA's Delivery of Individual Assistance Programs, supra note
4, at 35.
---------------------------------------------------------------------------
Nevertheless, DOL experienced a historically
disproportionate denial rate for DUA, \98\ and advocacy groups
complained in public forums that eligibility was unjustly
limited and that improper processing excluded eligible
applicants.\99\ According to the FEMA OIG, after examining New
York State records, DOL officials determined denial decisions
were consistent with guidelines and regulations, but that
``most denials appear to have resulted from misinformation or
misunderstanding about eligibility or the specific benefits
covered, and/or the application process.'' \100\
---------------------------------------------------------------------------
\98\ Id.
\99\ Id. at 45-46.
\100\ Id.
---------------------------------------------------------------------------
Systemic Problem: Lack of information sharing and cooperation
The FEMA OIG indicated FEMA should have made information
available earlier in multi-lingual formats \101\ and that
outreach shortcomings may have resulted in misunderstandings
over eligibility for the DUA program. But, the FEMA OIG
stressed, the agency's post-9/11 outreach program was the most
comprehensive in agency history.\102\ At its peak, the outreach
program included 107 FEMA representatives and 32 DOJ outreach
workers, as well as a helpline, a toll-free registration line,
disaster service centers which disseminated information in 17
languages, and extensive advertisements in various mediums--
even on the marquees of Madison Square Garden and the NASDAQ
Stock Exchange.
---------------------------------------------------------------------------
\101\ ``Advertisements were placed in foreign press papers in
August 2002, in mainstream papers in November 2002, and on buses and
subways in December 2002.'' FEMA's Delivery of Individual Assistance
Programs, supra note 4, at 34.
\102\ Id. at 33.
---------------------------------------------------------------------------
TEMPORARY TRANSPORTATION
The Port Authority of New York and New Jersey (Port
Authority) issued five FEMA-funded contracts to a private
company called New York Waterway to operate ferries between New
Jersey and New York as an alternative to PATH rail lines
damaged in the attacks.
Systemic Problem: Ineffective oversight of procurement
Between March 2002 and April 2003, FEMA authorized at least
$29.8 million for increased ferry service and new ferry
terminals. FEMA disbursed the funds through the New York State
Emergency Management Office to the Port Authority, \103\ and
according to the DHS OIG, FEMA had no direct contact with the
company.\104\
---------------------------------------------------------------------------
\103\ Email from Ms. Tamara Faulkner, Congressional and Media
Liaison, Department of Homeland Security Office of Inspector General,
to Subcommittee Staff (Apr. 11, 2006).
\104\ Id.
---------------------------------------------------------------------------
Three of the five contracts issued to New York Waterway
were not competitively bid. Given that the Port Authority had
an existing contract with New York Waterway since 1988, \105\
from the Port Authority's perspective, the no-bid contracts
were justified. Port Authority Chief Operating Officer Ernesto
Butcher told Subcommittee staff that New York Waterway ``was
the most logical choice'' to do the work.\106\ ``Their effort
was a Herculean one in terms of providing the services to move
people back and forth across the river,'' Mr. Butcher
said.\107\
---------------------------------------------------------------------------
\105\ Id.
\106\ Subcommittee Staff Telephone Interview with Mr. Ernesto
Butcher, Chief Operating Officer, Port Authority of New York and New
Jersey, conducted May 26, 2006.
\107\ Id.
---------------------------------------------------------------------------
The Department of Justice, in cooperation with the Port
Authority Office of Inspector General (Port Authority OIG),
brought civil fraud charges against the company alleging New
York Waterway over-billed the government. The government
accused the company of submitting false bills to the Port
Authority for expenses it never incurred, overstating its
profit margin, and inflating its incremental costs. The company
agreed in July 2006 to settle the charges for $1.2 million,
without admitting wrongdoing.\108\
---------------------------------------------------------------------------
\108\ Press Release, U.S. Attorney for the S.D.N.Y., Ferry Operator
to Pay $1.2 Million to Settle Civil Charges That it Defrauded the
Government After the September 11 Terrorist Attacks (July 17, 2005).
---------------------------------------------------------------------------
COORDINATION BETWEEN AND AMONG THE FEDERAL GOVERNMENT, CHARITIES, AND
VOLUNTARY AGENCIES
As Americans sought to help after the 9/11 attacks, many
made contributions to charities and voluntary agencies. Surveys
suggest as many as two-thirds of American households donated
money to voluntary agencies aiding in the response. Reports
from 35 such charities and agencies show that they received an
estimated $2.7 billion in contributions within 14 months after
the attacks.\109\ Voluntary agencies made a significant
contribution to the recovery. In New York, these agencies
provided direct cash assistance and services including
counseling to families of those killed, disaster relief
workers, and those left unemployed or homeless by the attacks.
---------------------------------------------------------------------------
\109\ More Effective Collaboration Could Enhance Charitable
Organizations' Contributions in Disasters, supra note 7, at 7.
---------------------------------------------------------------------------
Systemic problem: Lack of information sharing and cooperation
Pursuant to the Stafford Act, FEMA is charged with
coordinating the administration of relief with the American Red
Cross, the Salvation Army, the Mennonite Disaster Service, and
other relief or disaster assistance organizations, as well as
with state and local governments \110\ to avoid duplication of
benefits.\111\ The Subcommittee found that despite efforts by
the voluntary agencies and by FEMA to coordinate assistance to
prevent fraud and avoid duplicate payments, the assistance
provided by voluntary agencies was susceptible to fraud.
---------------------------------------------------------------------------
\110\ 42 U.S.C. Sec. 5121 et seq. (2000).
\111\ FEMA's Delivery of Individual Assistance Programs, supra note
4, at 31.
---------------------------------------------------------------------------
For example, according to the Manhattan District Attorney's
Office, one applicant for assistance from FEMA, the Red Cross,
and Safe Horizon claimed his income decreased by more than
$100,000 due to the attacks. In reality, the individual, who
had assets in excess of $1 million, saw his income increase
from $137,198 in 2001 to more than $200,000 in 2002. According
to the Manhattan District Attorney's office, his fraudulent
applications initially went undetected, however, and he
received nearly $60,000 in assistance.\112\
---------------------------------------------------------------------------
\112\ Press Release, District Attorney of New York County, People
vs. Charles Cadorette (July 31, 2003).
---------------------------------------------------------------------------
FEMA took several steps to coordinate the services and
assistance provided by traditional voluntary agencies, as well
as others not traditionally involved in the delivery of
assistance. These efforts were hampered, however, by the
unprecedented influx of contributions to the voluntary agencies
and by privacy laws prohibiting the sharing of information
between and among voluntary and government agencies.\113\ FEMA
officials conceded to the FEMA OIG that some people may have
received duplicative assistance from governmental agencies and
from the voluntary organizations.\114\
---------------------------------------------------------------------------
\113\ More Effective Collaboration Could Enhance Charitable
Organizations' Contributions in Disasters, supra note 7, at 21.
\114\ FEMA's Delivery of Individual Assistance Programs, supra note
4, at 32.
---------------------------------------------------------------------------
``FEMA needs to be better able to anticipate the proactive
role non-governmental organizations will play in disaster
recovery operations and attempt to coordinate relationships
with those organizations through protocols such as Memoranda of
Understanding to alleviate the potential for duplicating
benefits,'' the FEMA OIG recommended.\115\ In a December 2002
report, the GAO recommended that FEMA convene a working group
of officials from key charitable and voluntary groups and
Federal, state, and local officials to help reduce fraud and
build cooperation in charitable responses to future disasters.
The GAO specifically suggested that the group develop and adopt
a common application form and confidentiality agreement for use
in disasters and strategies for enhancing public education
regarding charitable giving.\116\
---------------------------------------------------------------------------
\115\ Id.
\116\ More Effective Collaboration Could Enhance Charitable
Organizations' Contributions in Disasters, supra note 7, at 21.
---------------------------------------------------------------------------
Despite the coordination problems that occurred after 9/11,
similar problems plagued the responses of FEMA and the Red
Cross to Hurricanes Katrina and Rita, according to a June 2006
GAO report. GAO found that disagreements between the
organizations about their roles and responsibilities ``created
tension between FEMA and the Red Cross and affected the
organizations' working relationship,'' \117\ hindering their
ability to coordinate relief efforts for Hurricanes Katrina and
Rita. The report also found that as of May 24, 2006--one week
before the start of the 2006 hurricane season--FEMA and the Red
Cross had yet to reach agreement on key responsibilities.\118\
---------------------------------------------------------------------------
\117\ U.S. General Accounting Office, HURRICANES KATRINA AND RITA:
Coordination Between FEMA and the Red Cross Should be Improved for the
2006 Hurricane Season, GAO-06-712, June 8, 2006 at 3.
\118\ Id.
---------------------------------------------------------------------------
Recovery
The economic, physical, and psychological damage wrought by
the 9/11 attacks in New York City is difficult to fathom. In
addition to the loss of life, injuries, and physical
destruction, the attacks dealt a substantial blow to the
residential neighborhoods of Lower Manhattan. Due to the
importance of the financial, insurance, and real estate
industries of Lower Manhattan, the impact of 9/11 reverberated
throughout the economies of not only New York City and the
surrounding area, but the nation as a whole.
Estimates of economic losses range from $54 billion to $105
billion.\119\ A study by the Milken Institute, a non-profit
fiscal research group, estimated that as a result of the
attacks, the economy of the New York-New Jersey metropolitan
area sustained income losses of about $2.7 billion in 2001
alone, while all metropolitan areas in the country sustained
losses of about $191 billion.\120\ By some estimates, the
attacks eliminated as many as 100,000 jobs \121\ in the New
York area and more than 10 million square feet of office space
in Lower Manhattan.\122\ As a result, Lower Manhattan slipped
from the third to the fourth largest central business district
in the nation.\123\
---------------------------------------------------------------------------
\119\ U.S. General Accounting Office, Review of Studies of the
Economic Impact of the September 11, 2001 Terrorist Attacks on the
World Trade Center, GAO-02-700R, May 29, 2002 at 12. (These estimates
include direct and indirect costs of lost income brought about by
business closing and related spending reductions.)
\120\ Id. at 2-3.
\121\ The New York State Assembly Ways and Means Committee
estimated that of the 125,300 jobs lost in New York in the 4th quarter
of 2001, 80 percent resulted from the 9/11 terrorist attacks. U.S.
General Accounting Office, Review of Studies of the Economic Impact of
the September 11, 2001 Terrorist Attacks on the World Trade Center,
GAO-02-700R, May 29, 2002 at 13 citing New York State Assembly Ways and
Means Committee, ``New York State Economic Report,'' Mar. 2002.
\122\ Written Testimony submitted by Mr. Stefan Pryor before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 1 ``Recovery,'' July
13, 2006, at 2 (hereinafter Pryor Written Testimony).
\123\ Id.
---------------------------------------------------------------------------
The impact of the terrorist attacks on the neighborhoods of
Lower Manhattan was evidenced by the decrease in downtown
occupancy rates. In the months after 9/11, occupancy rates
downtown, which includes the communities nearest to the World
Trade Center site, were estimated to have declined to 60
percent, from a pre-9/11 rate of 95 percent.\124\
---------------------------------------------------------------------------
\124\ Email from Mr. David J. Herbenick, Legislative Specialist,
Department of Housing and Urban Development, to Subcommittee Staff
(June 23, 2006).
---------------------------------------------------------------------------
FEDERAL GOVERNMENT REACTION
In response to the economic devastation to the
neighborhoods of Lower Manhattan, Congress appropriated
previously unprecedented sums to the U.S. Department of Housing
and Urban Development (HUD) for disaster response. The U.S.
Small Business Administration (SBA), the U.S. Department of
Labor (DOL), and other Federal agencies also received funding
to help compensate individuals, businesses, and other groups
for losses resulting from the attacks. Additionally, Congress
authorized more than $5 billion in Liberty Zone tax incentives
designed to spur redevelopment in Lower Manhattan. This was the
first geographically-targeted tax program in response to a
disaster.\125\
---------------------------------------------------------------------------
\125\ U.S. General Accounting Office, September 11: Overview of
Federal Disaster Assistance to the New York City Area, GAO-04-72,
October 31, 2003 at 86.
---------------------------------------------------------------------------
U.S. Department of Housing and Urban Development (HUD)
In three appropriations acts,\126\ Congress directed HUD to
administer $3.483 billion through its Community Development
Block Grant (CDBG) program to New York State to assist
individuals, businesses, groups, and utilities that sustained
physical or economic damage from the terrorist attacks. This
marked by far the largest appropriation of HUD funds for
disaster recovery,\127\ though the appropriation was
subsequently surpassed by the $17 billion in HUD assistance to
the Gulf states for the recovery effort following Hurricanes
Katrina and Rita.\128\ HUD issued the grants to New York State,
which authorized the funds be disbursed by two state public
benefit corporations,\129\ the Empire State Development
Corporation (ESDC) and an ESDC subsidiary formed specifically
to disburse HUD funds for 9/11 recovery efforts, the Lower
Manhattan Development Corporation (LMDC).
---------------------------------------------------------------------------
\126\ (1) Pub. L. No.107-73 (2001): $700 million appropriated by
Congress November 26, 2001, granted to the ESDC February 2002. (2)
P.L.107-117 (2002): $2 billion appropriated by Congress January 10,
2002, granted to the LMDC June 2002. (3) Pub. L. No.107-206 (2002):
$783 million appropriated by Congress August 2, 2002, granted to the
LMDC Sept. 2003.
\127\ Prior to 9/11, the largest Department of Housing and Urban
Development (HUD) Community Development Block Grant (CDBG)
appropriation for disaster recovery was about $500 million, which was
the amount allocated for both the 1997 Midwest floods and 1994
Northridge, California earthquake. The $3.483 billion CDBG
appropriation for 9/11 recovery has been eclipsed by the $17 billion
appropriated for the recovery from Hurricanes Katrina and Rita. Opper
Briefing, supra note 5.
\128\ Written Testimony submitted by Ms. Ruth Ritzema before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 2 ``Recovery,'' July
13, 2006, at 10.
\129\ 1-A N.Y. Pub Auth. Sec. Sec. 50-51.
---------------------------------------------------------------------------
Major ESDC and LMDC initiatives administered using HUD
funds include:
Utility Restoration and Infrastructure
Rebuilding;
Residential Grant Program (RGP);
Business Assistance Grants;
Business Recovery Grants (BRG);
Job Creation and Retention Program (JCRP);
Small Firm Attraction and Retention Grants
(SFARG);
Technical Assistance for Small Businesses;
Business Information Program;
NYC Housing Preservation District for affordable
mixed-income housing;
Cultural Enhancement Fund;
Ferry service;
Disproportionate Loss of Workforce (DLW); and
Other specific improvement projects.\130\
---------------------------------------------------------------------------
\130\ The improvement projects include: the Downtown Alliance
Streetscape, New York Stock Exchange security and improvements, West
Street Pedestrian Crossing, Parks and Open Spaces, Hudson River Park
and East River Waterfront, Columbus Park Pavilion Renovation, Marketing
History/Heritage Museum, Millennium High School, Public Service
Activities, Lower Manhattan Community Outreach, Pace University Green
Roof Project, Chinatown Tourism and Marketing, and Lower Manhattan
Information.
---------------------------------------------------------------------------
U.S. Small Business Administration (SBA)
In the wake of 9/11, the SBA and Congress adjusted SBA's
direct and guaranteed loan programs to make them more
responsive to the needs of those impacted by the attacks. SBA
expanded the eligibility of the Economic Injury Disaster Loan
Program--which provides direct loans to repair physical damage
and provides working capital to home- and business-owners who
suffer losses in a disaster--to permit loans to businesses
located outside the boundaries of the declared disaster areas.
In addition, in January 2002, Congress authorized the SBA to
guaranty up to $4.5 billion \131\ in loans made by private
sector lenders to small businesses ``adversely affected by the
September 11, 2001 terrorist attacks and their aftermath''
\132\ through the Supplemental Terrorist Activity Relief (STAR)
Loan Program.
---------------------------------------------------------------------------
\131\ The actual appropriation was for $75 million, which allowed
the SBA to guarantee $4.5 billion worth of loans, based upon historical
default rates and program costs offset through fees paid by lenders to
obtain an SBA guaranty. That is why the amount of money appropriated to
fund the STAR loan program was substantially less than the total
lending authority for the program.
\132\ Pub. L. No. 107-117 (2002).
---------------------------------------------------------------------------
U.S. Department of Labor (DOL)
In addition to the Disaster Unemployment Assistance
administered by DOL using FEMA funds (discussed in the
``Response'' section), DOL made grants to retrain and help
workers left unemployed by the attacks secure new employment.
Grants were also provided to the New York State Workers'
Compensation Board to process claims related to the terrorist
attacks.
Liberty Zone tax incentives
Congress authorized more than $5 billion in tax incentives
designed to spur redevelopment in Lower Manhattan, including
the New York Liberty Bond (Liberty Bond) program. The Liberty
Bond program granted New York State and New York City the
authority to issue up to $8 billion in low-cost, tax-exempt
private activity bonds, which in turn created $1.8 billion in
funding for New York City. That funding has been used for
residential, commercial, utility, and retail development in New
York City's Liberty Zone, which runs south of Canal Street
between East Broadway and Grand Street.
HOUSING AND URBAN DEVELOPMENT COMMUNITY DEVELOPMENT BLOCK GRANT-FUNDED
PROGRAMS
Well-crafted State and local systems eased disbursement
The Subcommittee found that both ESDC and LMDC generally
performed well. ESDC had procedures in place and experience in
using government funds to administer economic development
programs. LMDC, a new agency, created procedures parallel to
those developed by ESDC.\133\
---------------------------------------------------------------------------
\133\ Opper Briefing, supra note 5.
---------------------------------------------------------------------------
Testifying before the Subcommittee on July 13, 2006, Ms.
Eileen Mildenberger, ESDC's Chief Operating Officer, stated
that her staff reviewed each request for assistance and
utilized third-party verification when awarding grants. This
third-party verification included: a request for tax
information; site visits to business locations; conversations
with landlords; and obtaining information from the New York
State Department of Labor to confirm employment.\134\ In
addition, at the recommendation of the HUD OIG, ESDC hired a
consultant to audit the 4,100 Business Recovery Grants it
awarded.\135\ The consultant concluded that 98 percent of the
grants were awarded based on accurate estimates.
---------------------------------------------------------------------------
\134\ Written Testimony submitted by Ms. Eileen Mildenberger before
the Subcommittee on Management Integration and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 2 ``Recovery,'' July
13, 2006, at 4 (hereinafter Mildenberger Written Testimony).
\135\ U.S. Department of Housing and Urban Development Office of
Inspector General, Office of Audit, Interim Report on Community
Development Block Grant; Disaster Funds, Memorandum No. 2002-NY-1802,
May 22, 2002 at 5 (hereinafter HUD Interim Report).
---------------------------------------------------------------------------
As part of the Subcommittee staff's examination of LMDC's
fraud controls, the Subcommittee staff learned that LMDC has a
``three-layer'' approach.\136\ The first layer is LMDC's Audit
and Finance Committee, composed of LMDC Board Members, which
evaluates all funding proposals prior to submission to the full
board.\137\ As part of the evaluation process, the Committee
evaluates financial controls and incorporates input from the
HUD OIG. Contracts are reviewed by LMDC's General Counsel.
Contracts over $50,000 are reviewed by LMDC's president and
approved by the board. Other controls at this level include
background checks on prime contractors and careful monitoring
of the procurement process.
---------------------------------------------------------------------------
\136\ Subcommittee Staff Briefing with Mr. Stefan Pryor et al.,
President, Lower Manhattan Development Corporation, Feb. 23, 2006, in
New York, New York.
\137\ Id.
---------------------------------------------------------------------------
The second layer of LMDC's fraud controls includes
compliance with HUD and LMDC guidelines and financial
monitoring.\138\ The third layer is a proactive approach which
focuses on investigations.\139\ LMDC works closely with, and
refers cases to, the New York City Department of Investigation,
the U.S. Attorney for the Southern District of New York, and
the HUD OIG.\140\ In addition, Subcommittee staff were advised
that LMDC conducts an internal audit program, which includes
ongoing reviews of internal controls and regular reports to
LMDC's audit committee.\141\
---------------------------------------------------------------------------
\138\ Id.
\139\ Id.
\140\ Id.
\141\ Id.
---------------------------------------------------------------------------
Push to expeditiously disburse funds
Congress took steps to ensure that HUD and its grantees,
ESDC and LMDC, quickly disbursed CDBG funds to those harmed by
9/11. Congress required that applicants for Business Recovery
Grants (BRG) receive a response to their request within 45 days
of application submission.
In order to expedite the disbursement of funds, Congress
also included a provision in the initial emergency supplemental
appropriation authorizing the HUD Secretary to waive or alter
any CDBG statutes or regulations ``except for requirements
related to fair housing, nondiscrimination, labor standards,
and the environment.'' \142\ There were 19 waivers in all,
which allowed expedited disbursement of funds through the
Partial Action Plan system. Under this system, LMDC is required
to submit interim proposals, known as Partial Action Plans, to
HUD for pre-approval prior to awarding funds. A high-ranking
HUD Disaster Recovery official said the waivers were necessary,
particularly early in the response, because ``disasters aren't
typical.* * * We do not really grant waivers lightly.'' \143\
He conceded though, that the waivers became less necessary
three years after the disaster.
---------------------------------------------------------------------------
\142\ Pub. L. No. 107-73 (2001).
\143\ Opper Briefing, supra note 5.
---------------------------------------------------------------------------
The Secretary granted waivers in the following areas:
Low-income requirement: HUD waived the requirement
that 70 percent of CDBG funds be used for activities benefiting
people of low- to moderate-incomes.\144\ The waiver language
added ``HUD expects the grantee [New York State] will make a
good faith effort to maximize benefits for low- to moderate-
income persons, and maintain documentation of such efforts.''
\145\ According to the high-ranking HUD Disaster Recovery
official, this waiver was necessary because the areas nearest
the World Trade Center site contained a heavy concentration of
businesses in the financial, insurance, and real estate
sectors.\146\
---------------------------------------------------------------------------
\144\ 67 Fed. Reg. 4164 (Jan. 28, 2002) (Waiver No. 1).
\145\ Id.
\146\ Opper Briefing, supra, note 5.
---------------------------------------------------------------------------
Public input: HUD waived certain citizen input
requirements, replacing them with ``Streamlined Citizen
Participation Requirements,'' which were enumerated in the
Federal Register.\147\ The requirements ``do not mandate public
hearings, but do provide for a reasonable opportunity for
citizen comment and for ongoing citizen access to information
about the use of grant funds.'' \148\ This waiver was used to
reduce the period during which the public can comment on action
plans (typically 30 days) to 15 days.\149\ LMDC provided
mechanisms for public input, including a town hall-style
meeting. A high-ranking HUD Disaster Recovery official said the
grant processes established by both LMDC and ESDC included more
public input than most non-disaster CDBG disbursements. ``They
went above and beyond what the regular requirements would have
been for CDBG funds,'' the official said.\150\
---------------------------------------------------------------------------
\147\ 67 Fed. Reg. 4164 (Jan. 28, 2002) (Waiver No. 2).
\148\ Id.
\149\ Opper Briefing, supra note 5.
\150\ Id.
---------------------------------------------------------------------------
Outside criticism: Waivers allowed closed process that favored big
companies
Media and nonprofit groups criticized ESDC and LMDC grant
processes for being too secretive in their decision-making and
unresponsive to public input.\151\ Ms. Bettina Damiani, Project
Director for Good Jobs New York, a nonprofit government
oversight group that closely followed the 9/11 recovery
process, testified before the Subcommittee on July 13, 2006,
that the waivers created a process by which subsidies were
granted with little accountability and minimal input from New
York taxpayers.
---------------------------------------------------------------------------
\151\ Russ Buettner et al., Ground Zero: $2.7B Money Pot; LMDC
Pouring Fed Dollars Into Site--With No Results, N.Y. Daily News, Dec.
6, 2005, at 42. See also, Heidi Evans and David Saltonstall, Mike Adds
to Call for Big Probe, N.Y. Daily News, Dec. 6, 2005, at 7. See also,
Russ Buettner et al., Towers Fell, Mob Schemes Began: How Organized
Crime Divvied Up Ground Zero Work, N.Y. Daily News, Dec. 5, 2005, at 4.
See also, Good Jobs New York, The LMDC: They're in the Money; We're in
the Dark, A Review of the Lower Manhattan Development Corporation's Use
of 9/11 Funds, August 2004, at 15-19.
---------------------------------------------------------------------------
Also testifying on July 13, 2006, was Mr. John Wang,
President of the Lower Manhattan-based Asian American Business
Development Center--a nonprofit group created in 1994 to help
businesses in New York City's Chinatown neighborhood--who
stated that Chinatown had no representative on the board of
LMDC.\152\ He told the Subcommittee that the application and
funding processes did not accommodate the distinct needs of
Chinatown's mostly small businesses. As a result, he believes
Chinatown did not receive a proportional share of CDBG funds,
despite the neighborhood's close proximity to the World Trade
Center. According to an LMDC official, Chinatown was among the
neighborhoods most impacted by the attacks.\153\
---------------------------------------------------------------------------
\152\ Written Testimony submitted by Mr. John Wang before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detention, Prevention, and Control.'' Part 1 ``Recovery,'' July
13, 2006, at 3 (hereinafter Wang Written Testimony).
\153\ Pryor Written Testimony, supra note 122.
---------------------------------------------------------------------------
According to a June 2003 survey of 731 Chinatown business
owners who had sought help from the Asian American Business
Development Center,\154\ less than half of the businesses that
sought assistance from LMDC received a grant. More than half of
those that did receive a grant received only $3,000 in
assistance. According to information the Asian American
Business Development Center received from ESDC in March 2003,
the average grant award to Lower Manhattan businesses was
$33,680 as compared to only $7,829 for Chinatown businesses.
Despite testimony from LMDC President Stefan Pryor that
Chinatown received more than $170 million from LMDC alone,\155\
Mr. John Wang contended the neighborhood did not receive the
assistance it needed.\156\ (For an inventory of LMDC's major
projects benefitting Chinatown, see Appendix C.)
---------------------------------------------------------------------------
\154\ Asian American Business Development Center, AABDC Financial
Assistance Center: Findings from the Application Process for the World
Trade Center Business Recovery Grant and Small Firm Attraction and
Retention Grant Programs, June 2003, at 1.
\155\ Prior Written Testimony, supra note 122.
\156\ Wang Written Testimony, supra note 152.
---------------------------------------------------------------------------
Best practice: Fraud prevention task force and regular audits
Officials from investigative and enforcement divisions of
Federal, state, and local agencies involved in 9/11 recovery
efforts participated in two informal fraud prevention task
forces: the Lower Manhattan Construction Integrity Team, which
continues to meet, and the World Trade Center Fraud Working
Group. The World Trade Center Fraud Working Group convened in
December 2001 to discuss concerns regarding the susceptibility
of grants and contracts issued in response to the attacks to
fraud. Many members of the group later formed the Construction
Integrity Team to deal with fraud concerns related to the
contracts to rebuild Lower Manhattan.
Members of the World Trade Center Working Group included:
U.S. Department of Housing and Urban
Development--OIG
U.S. Department of Labor--OIG
U.S. Department of Transportation--OIG
U.S. Department of Energy--OIG
Federal Emergency Management Agency--OIG
U.S. Small Business Administration--OIG
Social Security Administration--OIG
U.S. Environmental Protection Agency--OIG
Internal Revenue Service--Criminal
Investigation Division
United States Postal Inspection Service
New York City Department of Investigation
Lower Manhattan Development Corporation
State of New York--OIG
State of New York Insurance Department
Port Authority of New York and New Jersey--
OIG
Metropolitan Transit Authority--OIG
New York City Business Integrity Commission
Metropolitan Transit Authority, Chief
Compliance Officer
United States Attorney's Office, Southern
District of New York
Manhattan District Attorney's Office
The Department of Justice initiated a Hurricane Katrina
Fraud Task Force to preemptively eliminate fraud in the Gulf
states' recovery from Hurricanes Katrina and Rita. This task
force includes many of the same members as the World Trade
Center Working Group. It is the sense of the Subcommittee that
such groups should be institutionalized to monitor responses to
future disasters.
Additionally, Congress required the HUD OIG to conduct an
audit every six months of the CDBG funds provided to New York
State after the terrorist attacks of September 11, 2001.\157\
It is the sense of the Subcommittee that these audits were
particularly effective in identifying systemic weaknesses,
promoting better management, and preventing waste, fraud, and
abuse, and should be replicated for future Federal disaster
assistance programs.
---------------------------------------------------------------------------
\157\ H.R. Conf. Rep. No. 107-350, at 456 (2001).
---------------------------------------------------------------------------
Best practice: Fraud awareness training
The HUD OIG provided fraud awareness training to agencies
administering grants, including ESDC and LMDC. The training
included fraud detection techniques, particularly before grants
were disbursed, as well as tips to identify fraud indicators.
According to Ms. Ruth Ritzema, the Special Agent in Charge of
the HUD OIG New York Field Office, the training helped to
prevent or mitigate a number of potential frauds, as well as to
uncover and provide evidence of criminal activity. It is the
sense of the Subcommittee that fraud training should be
provided to employees and volunteers of state, local, and
voluntary agencies that disburse Federal disaster assistance
funds or award contracts.
BUSINESS RECOVERY GRANTS
Four and one-half months after the attacks, ESDC began
providing $563 million in business recovery grants (BRGs) to
compensate small businesses for their losses. LMDC later
disbursed BRGs as well. If a business was located south of 14th
Street, had fewer than 500 employees, and had unreimbursed
economic losses, it was eligible for assistance. In addition,
$13 million was allocated to large businesses that employ 200
workers or less at their downtown locations. BRGs provided
assistance to more than 14,000 businesses. The average grant
was nearly $39,000 and compensated only 16.8 percent of the
average firm's loss.\158\
---------------------------------------------------------------------------
\158\ Mildenberger Written Testimony, supra note 134.
---------------------------------------------------------------------------
In reviewing how ESDC determined eligibility, Subcommittee
staff learned that ESDC based its decisions on the size of a
company's ``economic loss,'' rather than following a ``claims
adjustment'' approach as had been used in prior disasters.\159\
In determining the amount of financial assistance, ESDC
developed a formula which considered: (1) in which of four
zones the company was located; (2) the company's gross revenue;
and (3) the extent of economic loss which the grant could not
exceed.\160\ Under this formula, small businesses that had
limited revenue received small grants.\161\ In addition,
Subcommittee staff learned that ESDC used gross revenue in its
calculation because it was the ``least complicated.'' \162\
This approach, however, had the effect of favoring large
companies.\163\
---------------------------------------------------------------------------
\159\ Subcommittee Staff briefing with Mr. John Bacheller, et al.,
Executive Vice President and Senior Deputy Commissioner, Empire State
Development Corporation, Feb. 23, 2006, in New York, New York.
\160\ Id.
\161\ Id.
\162\ Id.
\163\ Id.
---------------------------------------------------------------------------
The Subcommittee and the HUD OIG identified a number of
systemic problems in the BRG program.
Systemic problem: Failure to coordinate funding
The inability of ESDC and LMDC to reach agreement quickly
on a funding issue was partly to blame for the ESDC's delayed
disbursement of $54.5 million in BRGs, which a media report
indicated made it difficult for some businesses to stay
afloat.\164\
---------------------------------------------------------------------------
\164\ Lore Croghan, Grant Delays Threatening Firm's Survival; WTC
Recovery Payments Postponed Again; Downtown Businesses Make Drastic
Cuts, Crains N.Y. Bus., July 28, 2003, at 1.
---------------------------------------------------------------------------
The BRGs, which had been awarded to 1,714 first time
recipients and 452 companies expecting supplements to earlier
awards, had initially been scheduled for distribution in March
2003. The date was pushed back to April 2003, then to June
2003, then to July 2003, and finally to August 2003.\165\ This
violated the Congressional mandate that all applications for
CDBG funds be fulfilled or rejected within 45 days after
applications are submitted.
---------------------------------------------------------------------------
\165\ Id.
---------------------------------------------------------------------------
This significant delay occurred because ESDC had
applications for more BRG money than could be funded by the
$340 million originally allocated to the program and needed
money from LMDC to continue the program. ``It took us many,
many, many meetings with LMDC to get those funds,'' an ESDC
official told Subcommittee staff.\166\ LMDC eventually signed
off on the transfer in LMDC Partial Action Plan (PAP) No. 2,
which provided $150 million to fund ESDC's BRG program and was
approved by HUD on November 22, 2002.\167\ LMDC's Partial
Action Plan (PAP) No. 4, approved by HUD on August 6, 2003,
provided an additional $74.5 million to fund the program.\168\
---------------------------------------------------------------------------
\166\ Subcommittee Staff Telephone Interview with Mr. John
Bacheller, Executive Vice President and Senior Deputy Commissioner,
Empire State Development Corporation, conducted June 22, 2006
(hereinafter Bacheller Telephone Interview). ESDC Officials Ms. Amy
Schoch and Ms. Susanna Stein also participated in the interview.
\167\ Email from Ms. Helen Albert, Deputy Assistant Inspector
General, Department of Housing and Urban Development Office of
Inspector General New York Field Office, to Subcommittee Staff (June
14, 2006) (hereinafter HUD OIG Email).
\168\ Id.
---------------------------------------------------------------------------
Systemic problem: Inadequate verification before payments
ESDC issued BRGs totaling $110 million to 4,100 businesses
before it began using a new application form requiring a
detailed itemization of economic losses.\169\ While CDBG
regulations do not contain requirements that businesses prove
economic losses,\170\ ESDC's lack of verification is contrary
to the guidance for calculating business interruption losses
provided by the Senate Report accompanying the appropriation of
CDBG funds that went to ESDC.\171\ At the recommendation of the
HUD OIG, ESDC hired a consultant to audit the 4,100
grants.\172\ The consultant concluded that 98 percent of the
grants were awarded based on accurate estimates. The HUD OIG,
however, sampled 170 of the grants and found 13 applications
conflicted with IRS records. HUD OIG referred the 13 to its New
York Office of Investigation.\173\
---------------------------------------------------------------------------
\169\ Id.
\170\ Opper Briefing, supra note 5.
\171\ S. Rep. No. 107-109, at 206 (2001).
\172\ HUD Interim Report, supra note 135.
\173\ HUD OIG Email, supra note 167.
---------------------------------------------------------------------------
One noteworthy case--not among the 170 grant recipients
audited by the HUD OIG--was New York Waterway, the ferry
company discussed above, that in July 2006 paid $1.2 million to
settle a civil fraud case in which it was accused of over-
billing the Federal government.\174\ The company received three
Business Recovery Grants totaling $358,188, despite the fact
that it had benefited from a drastic increase in ferry service
after the terrorist attacks forced the suspension of PATH rail
service between New Jersey and New York. The company, which did
not admit wrongdoing in the settlement, claimed in its ESDC
application that it had lost $8.6 million from September 11,
2001, through the end of the year.\175\
---------------------------------------------------------------------------
\174\ Press Release, U.S. Attorney for the S.D.N.Y., Ferry Operator
to Pay $1.2 Million to Settle Civil Charges That it Defrauded the
Government After the September 11 Terrorist Attacks (July 17, 2005).
\175\ Charles V. Bagli, Ridership Up, But Ferry Company Got 9/11
Aid, N.Y. Times, May 6, 2003, at B3.
---------------------------------------------------------------------------
RESIDENTIAL GRANT PROGRAM
The Residential Grant Program (RGP) offered grants to
encourage individuals to renew existing leases, sign new
leases, or purchase residences in Lower Manhattan.
Systemic problem: Inadequate verification before payments
According to the HUD OIG New York Regional Office, LMDC
made duplicate payments through its Residential Grant Program
and did not maintain proper documentation related to the
program. The HUD OIG referred 10 cases for prosecution.\176\
---------------------------------------------------------------------------
\176\ Subcommittee Staff Briefing with Mr. Edgar Moore et al.,
Regional Inspector General for Audit, Department of Housing and Urban
Development Office of Inspector General New York Regional Office, Feb.
24, 2006, in Washington, D.C.
---------------------------------------------------------------------------
JOB CREATION AND RETENTION PROGRAM
The Job Creation and Retention Program (JCRP) was intended
to attract and retain large ``anchor'' firms. Twenty-seven
companies accepted grants totaling $292 million. They committed
to retain and create more than 70,000 jobs in Lower Manhattan
and a total of 91,000 jobs throughout New York City.\177\
---------------------------------------------------------------------------
\177\ Mildenberger Written Testimony, supra note 135.
---------------------------------------------------------------------------
Outside criticism: Inequitable distribution of funds
Media and nonprofit oversight groups were critical of JCRP
for facilitating large grants to companies that they alleged
either did not need the money to stay afloat or would have
stayed in New York City without the grants.
For example:
American Express received a $25 million JCRP grant
six months after it stated publicly that it would return all
its employees to Lower Manhattan, according to the New York
Daily News.\178\
---------------------------------------------------------------------------
\178\ Russ Buettner et al., Rich Got Richer As Poor Got Crumbs,
N.Y. Daily News, Dec. 4, 2005, at 32.
---------------------------------------------------------------------------
Health Insurance Plan of New York received a $12
million JCRP grant to move from midtown to Lower Manhattan,
though the New York Daily News reported the company had been
looking to expand in the area for more than a year.\179\
---------------------------------------------------------------------------
\179\ Id.
---------------------------------------------------------------------------
The Bank of New York received $40 million, and the
New York Daily News reported that, though the bank retained
7,700 jobs in New York City, it is moving 1,400 of them out of
Lower Manhattan to Brooklyn.\180\
---------------------------------------------------------------------------
\180\ Id.
---------------------------------------------------------------------------
ESDC and HUD officials responded that such large firms are
anchor tenants critical to the economies of New York City and
the region.
SMALL FIRM ATTRACTION AND RETENTION GRANT PROGRAM
The Small Firm Attraction and Retention Grant program
disbursed nearly $115 million to 2,200 small businesses that
made five-year lease commitments to stay in Lower Manhattan.
These firms employ over 37,000 people, nearly one-third of whom
are low-wage earners. Second grant disbursements, totaling $42
million, to eligible companies that stay downtown will take the
program into mid-2007.\181\
---------------------------------------------------------------------------
\181\ Mildenberger Written Testimony, supra note 134.
---------------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION PROGRAMS
STAR LOAN PROGRAM
In January 2002, Congress authorized the SBA to guaranty up
to $4.5 billion \182\ in loans made by private-sector lenders
to small businesses ``adversely affected by the September 11,
2001 terrorist attacks and their aftermath'' \183\ through the
Supplemental Terrorist Activity Relief (STAR) Loan Program.
---------------------------------------------------------------------------
\182\ The actual appropriation was for $75 million, which allowed
the SBA to guarantee $4.5 billion worth of loans, based upon historical
default rates and program costs offset through fees paid by lenders to
obtain an SBA guaranty. That is why the amount of money appropriated to
fund the STAR loan program was substantially less than the total
lending authority for the program.
\183\ Pub. L. No. 107-117 (2002).
---------------------------------------------------------------------------
Systemic problem: Inadequate oversight
SBA failed to provide adequate oversight of the STAR Loan
Program to ensure it met the Congressional mandate that it
guaranty loans to small businesses ``adversely affected by the
September 11, 2001 terrorist attacks and their aftermath.''
\184\ SBA encouraged lenders to liberally interpret the term
``adversely affected'' when evaluating eligibility for the
program. SBA also did not require lenders to ask borrowers
whether they were affected by 9/11 and, therefore, eligible for
STAR loans. Nor did SBA require lenders to submit documentation
to justify why a loan was eligible for the STAR loan program.
This left the SBA unable to check the loans before they were
issued.
---------------------------------------------------------------------------
\184\ Id.
---------------------------------------------------------------------------
While SBA made STAR loans more cost-effective for lenders
to encourage them to make the loans more affordable to
borrowers,\185\ SBA's failure to regularly track the fees
lenders charge borrowers undermined this effort.\186\ As a
result, lenders who were already urged to push the bounds of
eligibility for this program, found a new incentive to
originate STAR loans--they could collect higher fees on STAR
loans than they could on other SBA loans.
---------------------------------------------------------------------------
\185\ U.S. General Accounting Office, Small Business Administration
Response to September 11 Victims and Performance Measures for Disaster
Lending, GAO-03-385, Jan. 29, 2003 at 15.
\186\ Subcommittee Staff Briefing with Mr. Peter McClintock, et
al., Acting Inspector General, Small Business Administration Office of
Inspector General, Feb. 9, 2006, in Washington, D.C.
---------------------------------------------------------------------------
Systemic problem: Inadequate verification before payments
Lenders issued 9/11 loans to ineligible businesses. Private
sector lenders approved by SBA \187\ aggressively steered
businesses--including those not affected by 9/11--into the SBA-
backed STAR loan program, presumably violating the intent, if
not the letter, of the program. Many lenders likely failed to
inform borrowers their loans were from a program intended for
businesses hurt by the terrorist attacks, and, according to an
examination of a representative sample of STAR loans by the SBA
Office of Inspector General (OIG), a majority of borrowers were
unaware they had received loans from such a program.\188\ The
sample also found lenders did not document how the recipients
were impacted by 9/11, and the SBA did not check for such
documentation before the loans were issued.
---------------------------------------------------------------------------
\187\ STAR loans could only be issued by private sector lenders in
SBA's Preferred Lenders Program, which allowed designated lenders to
process, service, and liquidate SBA-guaranteed loans with reduced
oversight from SBA.
\188\ See, U.S. Small Business Administration, Audit of SBA's
Administration of the Supplemental Terrorist Activity Relief Loan
Program, Rep. No. 6-09, Dec. 23, 2005.
---------------------------------------------------------------------------
The SBA OIG placed considerable blame on SBA for the
program's shortcomings. The OIG found that SBA failed to
adequately oversee the program and encouraged lenders to
liberally interpret eligibility guidelines. According to the
SBA OIG audit examining a statistical sample of 59 STAR loans:
\189\
---------------------------------------------------------------------------
\189\ See, Id.
---------------------------------------------------------------------------
Only nine recipients were appropriately
qualified to receive STAR loans.
In five cases, there was no justification of
eligibility for the loan in the lenders' files.
In 21 cases, the justification in the files
was contradicted by interviews with the businesses or
other information in the loan files.
Of the 42 businesses that auditors were able
to interview:
Only two were aware they had received a STAR
loan.
25 said they were not adversely affected by
9/11.
36 said they were not asked or could not
recall if they were asked whether they were adversely
affected by 9/11.
While media reports and a 2003 GAO audit indicated that
businesses hurt by the terrorist attacks were denied
loans,\190\ the Subcommittee's review found that no eligible
applicants were denied loans because of lack of funds. In fact,
there was money remaining when the program statutorily sunset.
---------------------------------------------------------------------------
\190\ See, Geoff Earle, City Firms Stiffed in 9/11-Loan Outrage,
N.Y. Post, Nov. 7, 2005, at 2. See also, U.S. General Accounting
Office, Business owners testified that SBA's existing disaster program
did not have the ability to provide loans to small businesses within
the disaster areas, Audit, Aug. 2003, at 14.
---------------------------------------------------------------------------
DISASTER LOANS
The SBA expanded the eligibility of the Economic Injury
Disaster Loan Program--which provides direct loans to repair
physical damage and provides working capital to home- and
business-owners who suffer losses in a disaster--to allow loans
to businesses located outside the declared disaster areas.
Systemic problems: Relaxed controls
According to the SBA OIG, SBA did not follow its own
procedures for pursuing collection of delinquent disaster loans
issued to 9/11 victims. As of September 30, 2004, 1,495
disaster loans to
9/11 victims, valued at $208.8 million, were delinquent.\191\
Letters demanding payment are an important and required part of
SBA's collection process, but when the OIG reviewed a sample of
delinquent loans, it found SBA had sent such letters to only
four of the 17 borrowers who should have received them.\192\
---------------------------------------------------------------------------
\191\ Written Testimony submitted by Mr. Eric M. Thorson before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 2 ``Recovery,'' July
13, 2006, at 4.
\192\ Id.
---------------------------------------------------------------------------
DEPARTMENT OF LABOR PROGRAMS
The U.S. Department of Labor made grants to retrain and
gain employment for workers left unemployed by the attacks and
to the New York State Workers' Compensation Board to process
claims related to the terrorist attacks.
Systemic problem: Inadequate oversight
Similar to the STAR loan program, worker training programs
administered by DOL also did not receive adequate oversight.
According to the GAO, DOL failed to properly monitor a $125
million grant to the New York State Workers' Compensation
Board, leading to the misspending of a portion of the grant.
Congress had earmarked the $125 million ``for the processing of
claims related to the terrorist attacks,'' \193\ according to
the GAO.\194\ The Workers' Compensation Board, however, at the
direction of the New York State Legislature,\195\ spent $44
million of these funds to reimburse two other state agencies
\196\ for expenses they incurred paying claims to victims of
the World Trade Center attack. GAO found these expenditures
violated the terms of the congressional appropriation.\197\ GAO
recommended that DOL recover the $44 million or retroactively
reclassify it to approve its use to reimburse the two state
agencies. The fiscal year 2006 appropriations bill for DOL
retroactively approved the use of the $44 million to reimburse
the two agencies.\198\
---------------------------------------------------------------------------
\193\ The grant was part of a $175 million appropriation to DOL's
Employment and Training Administration made by Congress in Pub. L.
No.107-117 (2002) under the heading, ``Workers Compensation Programs,''
which was to be obligated from amounts previously made available in
Pub. L. No.107-38 (2001).
\194\ See, U.S. General Accounting Office, Department of Labor-
Grant to New York Worker' Compensation Board, Decision File No. B-
303927, June 7, 2005 (hereinafter Department of Labor-Grant to New York
Worker' Compensation Board).
\195\ 2003 N.Y. Laws, A.B. 7265, S.B. 3377, Mar. 23, 2003.
\196\ The Board paid $28 million to the New York Crime Victims
Board and $16 million to the New York State Insurance Fund.
\197\ Department of Labor-Grant to New York Worker' Compensation
Board, supra note 194.
\198\ Pub. L. No. 109-149 (2005).
---------------------------------------------------------------------------
Systemic problem: Ineffective oversight of procurement
According to the DOL OIG, DOL became improperly involved in
Chinatown Manpower Project, Inc.'s subcontracting of a $1.1
million contract it received. DOL awarded a $25 million
Workforce Investment Act National Emergency Grant to the New
York State Department of Labor to provide training services to
workers who lost their jobs as a result of the attack on the
World Trade Center. The New York State DOL contracted with the
Chinatown Manpower Project to provide services in Chinatown
related to the grant. According to an audit by the DOL OIG, DOL
became improperly involved in the subcontracting process,
resulting in subcontracts being awarded without proper
competition to vendors in Chinatown, including to two
organizations to which the DOL Regional Representative in New
York had long-term personal ties. The DOL OIG concluded that
this violated Federal procurement rules and created the
appearance of favoritism.\199\
---------------------------------------------------------------------------
\199\ See, U.S. Department of Labor Office of Inspector General,
Departmental Involvement in Chinatown Manpower Project, Inc.
Contributed to Circumvention of Procurement Rules, Rep. No. 02-05-202-
01-001, Aug. 25, 2005.
---------------------------------------------------------------------------
Rebuilding
The 9/11 terrorist attacks crippled the transportation,
communication, and utility infrastructure of Lower Manhattan
and impacted much of the surrounding area. New York City
streets disappeared beneath rubble, a major arterial highway
was heavily damaged, and debris temporarily blocked tunnels to
motor vehicle traffic. Below the ground, the collapse of the
towers and World Trade Center Tower 7 destroyed the Port
Authority commuter rail station and subway stations that ran
beneath the buildings.
The electrical, gas, steam, and telecommunications utility
infrastructures in Lower Manhattan were also heavily damaged,
resulting in extensive disruptions in service. Utility
companies responded quickly to provide emergency service to all
customers, which was eventually improved and made
permanent.\200\ The New York City Comptroller's Office
estimated that utility repair costs for AT&T and Verizon alone
would be $2 billion.\201\ In response, Congress appropriated
$750 million to compensate utility companies for this work
\202\ so consumers would not have to bear the costs. To date,
most--if not all--of this designated funding has been spent.
---------------------------------------------------------------------------
\200\ Daily Message, Secretary Martinez Announces $783 Million in
Aid to New York for Post-9/11 Restoration (Sept. 17, 2003).
\201\ U.S. General Accounting Office, Review of Studies of the
Economic Impact of the September 11, 2001 Terrorist Attacks on the
World Trade Center, GAO-02-700R, May 29, 2002 at 14.
\202\ Pub. L. No. 107-206 (2002). (Chapter 13 appropriated $783
million to HUD, of which $750 million went to the LMDC for the Utility
Restoration and Infrastructure Rebuilding Program.)
---------------------------------------------------------------------------
Of the $20 billion appropriated by Congress to assist New
York after 9/11, more than $6 billion remains to be spent. Most
of the more than $6 billion of unspent funds is committed to
rebuilding projects, with transportation infrastructure
projects slated to receive a majority of the funds. Also
remaining is more than $2 billion in under-utilized Liberty
Zone tax incentives. New York State officials have requested
these funds be redirected by Congress to fund transportation
projects in New York City.\203\
---------------------------------------------------------------------------
\203\ Subcommittee Staff Telephone Interview with Mr. James A.
Mazzarella, Director, State of New York Office of Federal Affairs,
conducted July 7, 2006.
---------------------------------------------------------------------------
FIVE ``MEGA-PROJECTS'': LOWER MANHATTAN'S TRANSPORTATION INFRASTRUCTURE
Lower Manhattan is perhaps more reliant on public
transportation than any other city in the United States. About
80 percent of the 350,000 people who commute to work in Lower
Manhattan do so using public transportation--the highest
percentage of any commercial district in the nation.\204\ The
terrorist attacks eliminated the routes most of those commuters
used prior to 9/11. The Port Authority Trans-Hudson (PATH) line
between New Jersey and the World Trade Center alone had carried
an average of 67,000 passengers daily before it was destroyed
on 9/11.\205\
---------------------------------------------------------------------------
\204\ Disaster Assistance, supra note 13, at 16.
\205\ Written Testimony submitted by Mr. Bernard Cohen before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 3 ``Rebuilding,'' July
13, 2006, at 1 (hereinafter Cohen Written Testimony).
[GRAPHIC] [TIFF OMITTED] T9452.006
[GRAPHIC] [TIFF OMITTED] T9452.007
After the attacks, DOT and FEMA committed a combined $5.1
billion to restore and enhance New York's transportation
infrastructure. FEMA allocated $2.75 billion, with DOT
providing the rest through two of its sub-agencies: the Federal
Highway Administration (FHWA) and the Federal Transit
Administration (FTA).
New York committed funding primarily to five mega-projects
in Lower Manhattan: a new PATH terminal; a World Trade Center
Site Security Center to screen vehicles entering the World
Trade Center site and provide parking for tour buses; a Fulton
Street Transit Center to replace the existing subway station; a
reconfiguration of the South Ferry Terminal subway station; and
a realignment of Route 9A (the West Side Highway)/West Street,
the major north-south state arterial highway along the west
side of Lower Manhattan.
Those mega-projects and the total Federal allocations to
date are as follows:
Permanent World Trade Center PATH terminal:
$1.92 billion (The Port Authority will fund $300
million from insurance payments it received for its 9/
11 losses)
World Trade Center Site Security Center:
$478 million
Fulton Street Transit Center: $847 million
South Ferry Terminal Station: $420 million
Route 9A/West Street: $287 million
[GRAPHIC] [TIFF OMITTED] T9452.008
Unique Federal funding of Lower Manhattan transportation mega-projects
The Federal approach to funding these projects differed in
three key ways from other post-disaster transportation
projects.
First, the projects are almost entirely Federally-funded.
As FEMA officials informed the GAO, FEMA is typically reluctant
to recommend a 100-percent Federal share for rebuilding or
recovery projects because requiring state or local governments
to pay some percentage of the costs creates an incentive for
them to control costs and root out waste, fraud, and
abuse.\206\
---------------------------------------------------------------------------
\206\ Disaster Assistance, supra note 13, at 25.
---------------------------------------------------------------------------
Second, most of the projects will not just rebuild damaged
or destroyed facilities, but will also make improvements to the
transportation infrastructure. Mr. Bernard Cohen, the Federal
Transit Administration's official leading the agency's
oversight of Lower Manhattan mega-projects, testified before
the Subcommittee on July 13, 2006, that ``[t]he recovery
presented Lower Manhattan with an opportunity to modernize and
rationalize its infamous spaghetti bowl tangle of transit
lines.'' \207\ This scope change represents a departure from
the Stafford Act directive that Federal disaster assistance
funds be spent only to repair, restore, reconstruct, or replace
damaged facilities.
---------------------------------------------------------------------------
\207\ Cohen Written Testimony, supra note 205, at 2.
---------------------------------------------------------------------------
For example, the design of the new World Trade Center PATH
terminal, which began construction in March 2006 and is
scheduled for completion in June 2011, has been compared to
that of Grand Central Station. The majestic glass and steel
terminal, designed by renowned architect Santiago Calatrava,
will include new underground pedestrian walkways linked to
another transit hub and a major building.\208\
---------------------------------------------------------------------------
\208\ Id.
[GRAPHIC] [TIFF OMITTED] T9452.009
Other Federally-funded plans call for a new multi-level
transit center serving 12 different subway lines to replace the
old Fulton Street Station's maze of narrow ramps, stairs,
platforms, and street entrances. The New York State
Metropolitan Transportation Authority began construction in
July 2005 on the new Fulton Street Transit Center. Construction
is scheduled for completion in June 2009.\209\ The New York
State Metropolitan Transportation Authority is also
reconfiguring the South Ferry Terminal Subway Station to
eliminate the tight-curve platforms that prevented operators
from opening the doors on the rear five cars of their trains.
The new design will also increase the number of entrances from
one to three and make the station accessible to disabled
passengers.\210\
---------------------------------------------------------------------------
\209\ Id.
\210\ Id.
[GRAPHIC] [TIFF OMITTED] T9452.010
[GRAPHIC] [TIFF OMITTED] T9452.011
Third, because the funding for transportation projects came
from the total $20 billion Federal aid package appropriated to
help New York respond to, recover from, and rebuild after 9/11,
the Federal funding allocated to Lower Manhattan mega-projects
is finite. If costs exceed the fixed Federal funding, it is not
clear what funding sources will cover any increases.
The Subcommittee's research has shown that the need for
effective internal and external oversight of the five Lower
Manhattan mega-projects is heightened for several reasons:
The projects will be paid for primarily using
Federal funds.
They will improve--not just replace--previous
infrastructure.
The funding is capped, so that cost overruns could
be problematic.
Simultaneous construction of multiple, major
projects in a limited geographic area will demand extraordinary
coordination and oversight.
The Federally-funded mega-projects will have to compete
with many other New York City construction projects--both
prompted by 9/11 and otherwise--for contractors, labor, and
materials. According to the DOT Office of Inspector General
(OIG), within the next five years, more than $20 billion in
construction work will likely be underway in Lower
Manhattan.\211\ This work will require more than two million
cubic yards of concrete, more than 200,000 concrete trucks, and
a daily construction workforce of 6,500 for the next three to
five years.\212\
---------------------------------------------------------------------------
\211\ Written Testimony submitted by Mr. Todd J. Zinser before the
Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 3 ``Rebuilding,'' July
13, 2006, at 2 (hereinafter Zinser Written Testimony).
\212\ Written Testimony submitted by Mr. Ronald P. Calvosa before
the Subcommittee on Management, Integration, and Oversight hearing
entitled, ``Federal 9/11 Assistance to New York: Lessons Learned in
Fraud Detection, Prevention, and Control.'' Part 3 ``Rebuilding,'' July
13, 2006, at 3 (hereinafter Calvosa Written Testimony).
---------------------------------------------------------------------------
In general, when substantial infusions of funding are
directed to an area for reconstruction efforts, it increases
the risk of fraud.\213\ In New York City, that is especially
true due to the lingering influence of organized crime in the
construction, trucking, demolition, and waste disposal
industries. Additionally, rebuilding in densely-developed,
public transit-reliant Lower Manhattan presents logistical
challenges, not least of which is an inability to seal off the
area from traffic and human congestion due to the area's status
as the center of the financial industry.
---------------------------------------------------------------------------
\213\ Id.
---------------------------------------------------------------------------
Heightened attention should be paid to these projects
because of the aforementioned factors and because of the fact
that the DOT OIG recently cited the need for the FTA and the
FHWA to strengthen their stewardship of Federal funding of
highway and transit projects.\214\ The Subcommittee believes
that the FTA and the various other Federal and state agencies
involved in the mega-projects have established strong oversight
mechanisms and internal control systems. Some of these are
innovative and, if they perform well, may serve as a model for
future disaster recovery efforts.
---------------------------------------------------------------------------
\214\ U.S. Department of Transportation Office of Inspector
General, DOT's 2006 Top Management Challenges, Rep. PT-2006-007, Nov.
18, 2005 at 5.
---------------------------------------------------------------------------
The DOT OIG recommended several steps that could be
replicated to prevent fraud in ``mega-projects' in other parts
of the country. These steps include: (1) establish a single
complaint hotline; (2) conduct background checks on
contractors, including contractor databases (e.g., VENDEX in
New York City), the Federal debarment list, Occupational Safety
and Health Administration (OSHA) violations, and licensing
agencies; (3) design an employee background screening system in
consultation with unions; (4) create a fraud awareness training
program; and (5) utilize private independent integrity
monitors.\215\
---------------------------------------------------------------------------
\215\ Subcommittee Staff Briefing with Mr. Theodore Alves et al.,
Principal Assistant Inspector General for Auditing and Evaluation, U.S.
Department of Transportation Office of Inspector General, June 20,
2006, in Washington, D.C.
---------------------------------------------------------------------------
INTERNAL CONTROLS
Through a Memorandum of Agreement with FEMA, FTA was
designated as the lead agency to administer all Federally-
funded transportation projects in Lower Manhattan. To carry out
its responsibilities, in 2002 FTA established a special
oversight office, the Lower Manhattan Recovery Office (LMRO),
exclusively to oversee the Lower Manhattan mega-projects.
The FTA received nearly $90 million in dedicated funding
for oversight.\216\ The LMRO coordinates the resources of the
various agencies involved, including the Port Authority, the
New York State Department of Transportation, and the New York
State Metropolitan Transportation Authority by offering
technical and logistical assistance and allowing for ``one-stop
shopping'' for Federal transportation funds.
---------------------------------------------------------------------------
\216\ Zinser Written Testimony, supra note 211.
---------------------------------------------------------------------------
In a meeting with Subcommittee staff, FTA officials
indicated they had encountered no fraudulent activity thus far
in the use of Federal 9/11 financial assistance. They
attributed this, in part, to establishment of the LMRO in July
2002. The Office conducts rigorous project oversight that
includes: (1) an oversight team leader; (2) project engineers;
(3) a procurement consultant; (4) a financial management
consultant; and (5) easy access to FTA headquarters legal
staff. \217\ The Director of the Office recommended to
Subcommittee staff the following key factors that control fraud
in the use of 9/11 funds:
---------------------------------------------------------------------------
\217\ Subcommittee Staff Briefing with Mr. Bernard Cohen, Director,
Lower Manhattan Recovery Office, Federal Transit Administration, Feb.
22, 2006, in Washington, D.C.
---------------------------------------------------------------------------
establishment of a fraud hotline in the
Lower Manhattan Construction Command Center (LMCCC);
the LMCCC Director of Security is an
experienced fraud fighter, who works with all agencies
involved in rebuilding on fraud prevention;
a task force of Federal, state, and local
Inspectors General in Lower Manhattan meets at least
monthly;
fraud prevention training is conducted; and
private integrity monitors are hired and
deployed by the Metropolitan Transit Authority.\218\
---------------------------------------------------------------------------
\218\ Id.
---------------------------------------------------------------------------
In addition, as part of its examination of fraud controls
for the remaining balance of 9/11 funding, the Subcommittee
staff confirmed that FTA has adopted a ``risk management
approach'' for the Lower Manhattan recovery projects.\219\ FTA
officials told Subcommittee staff that FTA will: (1) apply a
risk analysis ``in early project development for all LMRO
projects''; (2) ``focus project management on identification,
assessment and mitigation of risks'; and (3) conduct
``continuous assessment of project scope, budget and schedule
based on risk status.'' \220\
---------------------------------------------------------------------------
\219\ Id.
\220\ Id.
---------------------------------------------------------------------------
As part of its risk analysis to control costs, FTA advised
Subcommittee staff of the types of budget and scheduling risks
that will be considered. These include: ``security; utilities;
historic preservation; risks due to project scope; risks due to
cost escalation; construction risks; real estate and other
property risks; and project coordination risks.'' \221\
---------------------------------------------------------------------------
\221\ Id.
---------------------------------------------------------------------------
Best practice: Dedicated temporary oversight office
The Subcommittee recommends allocating a certain percentage
of disaster-recovery mega-project funds to establish a special
oversight office within the Federal agency with primary
jurisdiction over the relevant mega-projects. The FTA's LMRO
could provide a working model for such an office.
The Subcommittee believes two types of cost-control
techniques employed by LMRO warrant discussion. Per FTA's
requirements, LMRO utilizes value-engineering studies to
objectively review all reasonable alternatives during the
design phase in order to find more cost-effective alternatives.
LMRO has already implemented recommendations from such studies
and officials told the DOT OIG the recommendations have saved
nearly $67 million on the Fulton Street Transit Center project
alone.\222\ Additionally, a risk-management approach is
intended to keep costs within estimates and avoid overruns that
would price projects over the fixed amounts the Federal
government has appropriated.\223\
---------------------------------------------------------------------------
\222\ Zinser Written Testimony, supra note 211, at 15.
\223\ Id. at 5.
---------------------------------------------------------------------------
The FHWA and FTA transfer funding on a reimbursement basis.
Accordingly, grantees must meet certain guidelines to receive
reimbursement, and FHWA conducts physical oversight and process
reviews to ensure those guidelines are met. As an added layer
of oversight, FHWA has requirements in place to monitor a
state's expenditures. If a funding recipient fails to comply
with the FHWA's guidelines, FHWA has the capability to recover
funds.
EXTERNAL CONTROLS
In testimony before the Subcommittee on July 13, 2006,
Acting DOT Inspector General Todd J. Zinser announced that his
agency had established an OIG Lower Manhattan Transportation
Oversight Team specifically to support oversight of the 9/11
recovery mega-projects in Lower Manhattan. Team members and
resources were redeployed from the DOT OIG's work on the $14.6
billion Central Artery/Tunnel Project--or ``Big Dig''--in
Boston.\224\
---------------------------------------------------------------------------
\224\ Id.
---------------------------------------------------------------------------
Best practice: Temporary fraud prevention task force drawn from other
agencies
The Lower Manhattan Construction Integrity Team was
established in 2004 to prevent fraud in publicly-funded
projects in Lower Manhattan. It includes the DOT OIG, LMCCC,
LMDC, the New York City Department of Investigation, the New
York City Business Integrity Commission, the New York State
OIG, the New York State Metropolitan Transportation Authority
OIG and Chief Compliance Officer, the Port Authority OIG, and
the OIGs of the U.S. Departments of Labor (DOL) and Housing and
Urban Development (HUD).
The Lower Manhattan Construction Integrity Team has
developed a range of measures for the prevention of fraud,
including best practices for screening potential contractors,
information sharing, fraud awareness training for contractors'
supervisors and managers, employee screening and access control
to the World Trade Center site, and the use of private
integrity monitors to supplement existing oversight resources.
The Lower Manhattan Construction Integrity Team members also
maintain a joint fraud complaint hotline, which can be accessed
at www.LowerManhattan.info.\225\ A similar task force, the
Hurricane Katrina Fraud Task Force, subsequently was formed to
monitor the hurricane recovery efforts in the Gulf states.\226\
---------------------------------------------------------------------------
\225\ Id. at 9.
\226\ Id.
---------------------------------------------------------------------------
Best practice: Full-time independent coordination agency that prevents
fraud
The Lower Manhattan Construction Command Center (LMCCC)
began as a voluntary collaboration among project sponsors
intended to coordinate overlapping construction projects.\227\
On November 22, 2004, New York Governor George Pataki and New
York City Mayor Michael Bloomberg issued parallel executive
orders to establish the LMCCC as a formal, full-time oversight
agency. According to those orders, the LMCCC was created to ``*
* * coordinate between all construction located in Lower
Manhattan [including] all construction projects beginning from
2004 to 2010 valued at over $25 million * * * work requiring
governmental action or permit, and construction requiring work
directly in City or State streets or highways.'' \228\ Funded
mostly through a $6.5 million FTA grant, the LMCCC brings
together private developers, public agencies and authorities,
utilities, businesses, and resident representatives in one
physical location to resolve disputes among agencies,
coordinate construction logistics, and prevent fraud.\229\
---------------------------------------------------------------------------
\227\ Cohen Written Testimony, supra note 205, at 4.
\228\ New York Governor George E. Pataki, Establishing the Lower
Manhattan Construction Command Center, Exec. Order 133, Nov. 22, 2004;
New York City Mayor Michael R. Bloomberg, Creation of the Lower
Manhattan Construction Command Center, Exec. Order 53, Nov. 22, 2004.
\229\ Calvosa Written Testimony, supra note 212, at 3.
---------------------------------------------------------------------------
Best practice: Fraud awareness training
LMCCC, together with members of the Lower Manhattan
Construction Integrity Team, developed a fraud prevention
training module for presentation to contractors and employees
to provide information about prohibited conduct. For example,
contractor employees are informed of the penalties for bribing
public servants, submitting false documents, paying incorrect
wages, or engaging in other fraudulent activity.\230\ While
common among public sector employees, this sort of training has
rarely been provided to contractor staff.\231\ The Subcommittee
recommends mandating this training for employees of contractors
working on future disaster recovery mega-projects.
---------------------------------------------------------------------------
\230\ Id. at 5.
\231\ Id.
---------------------------------------------------------------------------
Best practice: Contractor employee screening and access control
LMCCC, in collaboration with the Port Authority OIG and
organized labor, conducts background checks on contractor
employees at Lower Manhattan construction sites, especially the
World Trade Center site. In order to be granted access to the
construction sites, employees will have to submit to background
screening that will include a cross check against the terrorist
watch-list and criminal record searches to determine if
prospective workers have been convicted or charged with certain
crimes. Workers cleared by the checks will be issued an access
card. Initially, the access control program will be implemented
only at the World Trade Center site. However, LMCCC hopes to
extend it to other construction projects in Lower
Manhattan.\232\
---------------------------------------------------------------------------
\232\ Id. at 7.
---------------------------------------------------------------------------
Best practice: Private integrity monitors
Borrowing from the successful debris removal protocols
developed at the World Trade Center site, LMDC has retained a
private integrity monitor to oversee the demolition of a
building located at 130 Liberty Street. The New York State
Metropolitan Transportation Authority has retained compliance
monitors at its Fulton Street Transit Center and South Ferry
Subway Station projects. The Port Authority plans to hire an
integrity monitor to oversee the construction of the new World
Trade Center PATH terminal.
It is the sense of the Subcommittee that replicating the
use of private integrity monitors, as was done for not only
debris removal, but also for mega-project construction, is
likely to significantly deter and prevent fraud. As noted
above, the Subcommittee recommends the use of private integrity
monitors in future major disaster recovery efforts.
Conclusion
The terrorist attacks of September 11, 2001, have left a
lasting impact not only on New York City, Northern Virginia,
Southwestern Pennsylvania, but also on the Nation as a whole.
The outpouring of support for victims of the attacks and their
families was unparalleled. At that time, people across the
country and around the world reached out to offer support in
any way they could. Unfortunately, unscrupulous individuals
sought to exploit the disaster for their own financial benefit.
Under the direction of Subcommittee Chairman Mike Rogers
and Ranking Member Kendrick B. Meek, bipartisan Subcommittee
staff--augmented by a FBI Supervisory Special Agent and an
investigative journalist on detail to the Subcommittee--
conducted a six-month review, with technical assistance
provided by the Government Accountability Office. Through its
review, the Subcommittee has concluded that there are important
lessons to be learned from the Federal Government's and New
York's response to 9/11--both systemic problems which require
attention and best practices worthy of replication.
This report makes recommendations for how those lessons can
be incorporated into the planning for and response to major
natural disasters and potential future terrorist attacks to
help ensure assistance programs are more cost-effective. In
addition to this report, the Subcommittee plans to develop
legislation to implement many of this report's recommendations
so that future disaster assistance programs can benefit from
the lessons learned in New York City after the attacks of
September 11, 2001. It is the Subcommittee's view that many of
the best practices identified in this report, if in place prior
to last year's hurricane season, could have prevented waste,
fraud and abuse in disaster assistance programs responding to
Hurricanes Katrina and Rita.
APPENDIX A
Agency Budget Tables
FEDERAL EMERGENCY MANAGEMENT AGENCY
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Initial Disaster Response
Search and rescue operations..... 22 22 22
Debris removal operations........ 1,718 1,718 1,718
Emergency transportation measures 482 482 482
Testing and cleaning efforts \1\. 94 94 89
Other initial response services.. 212 205 121
Compensation for Disaster-Related Costs and Losses
Total assistance for State, City, 2,981 2,980 2,702
and other organizations.........
Assistance for the State, 1,256 1,256 1,256
City, and other
organizations...............
Reimbursement of associated 1,258 1,257 1,257
costs authorized by Congress
Hazard mitigation grants..... 307 307 31
Other administrative costs... 160 160 158
Total assistance for individuals 539 529 529
and families....................
Mortgage and rental 222 222 222
assistance..................
Crisis Counseling............ 164 154 154
Individual and family grants. 105 105 105
Other individual assistance.. 48 48 48
Infrastructure Restoration and Improvement
Restoring and enhancing the Lower 2,750 2,750 135
Manhattan transportation system
\2\.............................
--------------------------------------
Total \3\.................. 8,798 8,780 5,798
------------------------------------------------------------------------
\1\ The funds allocated for testing and cleaning include all FEMA
transfers to the Environmental Protection Agency (EPA).
\2\ From FEMA's perspective, the funds for the restoration of
Manhattan's transit system were obligated upon the execution of the
Interagency Agreement that committed these funds to the Department of
Transportation (DOT). DOT estimates that from the funds available to
restore and enhance Lower Manhattan's transportation system,
\3\ All figures are current as of December 31, 2005.
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
(Figures in millions of dollars)
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Initial Response Assistance \4\
Temporary utility repairs........ 250 250 160
Compensation for Disaster-Related Costs and Losses
Residential grants for 281 281 236
individuals and families........
Business recovery grants and 624 624 554
loans...........................
Compensation to businesses for 43 43 43
disproportionate losses.........
Compensation to businesses for 33 33 33
disproportionate loss of
workforce.......................
Bridge loans..................... 5 5 0
Technical assistance grants...... 5 5 4
Business information program .... 5 5 4
Infrastructure Restoration and Improvement
Rebuilding and improving Lower 4 0 0
Manhattan transportation system.
Permanent utility infrastructure 500 500 33
repairs.........................
Short-term capital projects...... 68 0 0
Economic Revitalization Efforts
Job creation and retention grants 320 320 232
................................
Small firm attraction and 155 155 110
retention grants................
Other planning efforts........... 93 93 66
Other Economic Revitalization Efforts
Parks and open space improvements 31 31 8
Affordable housing construction 50 50 0
and improvements................
Memorial and cultural programs... 370 370 206
Tourism.......................... 10 10 7
Employment training and public 8 8 5
service activities..............
Other economic revitalization 324 324 22
improvements ...................
Total \5\.................... 3,107 3,107 1,723
------------------------------------------------------------------------
\4\ Congress appropriated $3.48 billion to HUD; as of February 6, 2006,
HUD had committed $3.107 billion to specific purposes. Thus, $376
million has not yet been committed to a specific activity.
\5\ All figures are current as of February 6, 2006.
U.S. DEPARTMENT OF TRANSPORTATION
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Initial Response Assistance
Federal Transit Administration's 100 100 76
(FTA) emergency transportation
measures........................
Infrastructure Restoration and Improvement
Restoring and enhancing the Lower 5,003 4,041 551
Manhattan transportation system
\6\.............................
Transit projects............. 1,800 1,397 220
Transit projects to be 2,750 2,291 137
reimbursed by FEMA \7\......
Street resurfacing and 242 160 77
reconstruction..............
Ferry projects............... 100 93 50
Rail safety projects......... 100 100 67
--------------------------------------
Total \8\................ 2,353 1,850 490
------------------------------------------------------------------------
\6\ Not including projects reimbursed by FEMA, DOT committee $2.242
billion, of which $1.75 billion was obligated and $414 million was
disbursed.
\7\ FEMA reimbursements are not included in DOT funding totals.
\8\ All figures are current as of December 31, 2005.
U.S. SMALL BUSINESS ADMINISTRATION
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Compensation for Disaster-Related Costs and Losses
Supplemental Terrorist Activity 75 41 40
Relief (STAR) Subsidy..........
World Trade Center/Pentagon 135 116 116
Subsidy........................
World Trade Center/Pentagon 40 25 25
Administration.................
SBA funds from initial 250
appropriation..................
Funds Transferred Out........... 51.4
Subtotal........................ 198.6
Funds Rescinded................. 1.5
------------------------------------------------------------------------
Total funds available \10\ 197.1 182 181
after rescission and
transfer \9\.............
------------------------------------------------------------------------
\9\ All figures are current as of June 23, 2006. Following the initial
$250 million appropriation, the total commitments for the SBA loan
programs were reduced from the STAR program by $1.5 million in FY
2006. In addition, $51.4 million of unused emergency funding was
transferred to pre-9/11 loan programs and other programs at the
closure of the STAR loan and the World Trade Center/Pentagon (WTCP)
programs ($27.4 million was transferred to STAR 7(a) loans in FY03;
$15 million to the regular disaster loans from WTCP in FY04; and $9
million for WTCP Administration transferred back to the Treasury and
Office of Management and Budget (OMB). Because the STAR loan and WTCP
programs have closed, $14,976,000 of unobligated funds are no longer
available--$5 million for STAR loans; $3.8 million for WTCP
Subsidiary; and $6.192 million for WTCP administration. SBA's FY07
budget proposed the return of these unobligated amounts to the
Treasury and Office of Management and Budget. In addition, the $1
million from the Start Subsidy Budget Authority that was obligated but
not disbursed is no longer available.
\10\ The effective amount of ``committed'' funds is composed of $46.102
million from the STAR loan program, $119.968 million from WTCP
Subsidy; and $31 million WTCP administration.
U.S. DEPARTMENT OF LABOR
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Compensation for Disaster-Related Costs and Losses
Funds Allocated to DOL Programs:
Assistance to DOL for 6 6 6
management, salaries and
expenses...................
Reimbursement for 2 2 2
Occupational Safety and
Health Administration/
Employee Benefits Security
Administration salaries and
expenses...................
New York Agencies:
New York State Unemployment 7.6 1 1
Insurance Fund.............
New York State Training and 57.5 49 49
Employment Services
Operations.................
New York State Workers 175 55 53
Compensation...............
Total Initial Funding to DOL 249.1 113 111
Total Assistance Allocated to 241 105 103
New York \11\..................
Subsequent Funding Activity:
Rescinded Funds............. (122.2) ........... ...........
Funds Returned to New York 50 ........... ...........
through Supplemental
Appropriations \12\........
Subtotal of Funds Made 168.8 ........... ...........
Available to New York......
Funds De-obligated at New (12.8) ........... ...........
York City's Request........
------------------------------------------------------------------------
\11\ All figures are current as of February 15, 2006.
\12\ Congress rescinded $122.3 million from the initial $249 million
appropriated to DOL, recovering $2.3 million from New York State
Unemployment Insurance and $120 million from the New York State
Workers Compensation Fund. After appeals from New York, $50 million
was returned through DOL and the remaining $75 million through the
U.S. Department of Health and Human Services.
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Initial Response Assistance
Centers for Disease Control 10 10 10
and Prevention--Enhancing lab
security.....................
Centers for Disease Control 10 10 10
and Prevention--Environmental
hazard control...............
Centers for Disease Control 3 3 3
and Prevention--Medical
supplies.....................
Substance Abuse and Mental 28 28 28
Health Services
Administration (SAMHSA) \13\.
Administration on Children and 23.7 23.7 23.7
Families \14\................
Administration on Aging-- 1.3 1.3 1.3
Senior Citizen Centers.......
-----------------------------------------
Total Initial Response 76 76 76
Assistance.............
Compensation for Disaster-Related Costs and Losses
Health Resources and Services 45 45 45
Administration (HRSA) for
Health Centers...............
-----------------------------------------
Total \15\.............. 121 121 121
------------------------------------------------------------------------
\13\ New York City received $22 million of the $28 million allocated to
SAMHSA, according to information obtained by Management, Integration,
and Oversight Subcommittee staff by telephone call with officials of
the U.S. Department of Health and Human Services, May 16, 2006
(hereafter referred to as ``May 16 telephone call'').
\14\ New York State received a majority of the funds allocated to the
Administration on Children and Families, but some funding was also
provided to Pennsylvania, Virginia, and Washington, D.C. HHS was
unable to provide the exact allocation of funds by state, according to
May 16 telephone call.
\15\ All figures are current as of May 16, 2006.
U.S. DEPARTMENT OF JUSTICE
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Compensation for Disaster-Related Costs and Losses
Office of Justice Programs-- 7 7 7
funding for various assistance
programs \16\...................
Salaries and Expenses for the 7 7 7
General Litigation Division.....
--------------------------------------
Total Assistance for state, 14 14 14
city, and other
organizations...............
Victim Compensation.............. 54 54 54
Office of Justice Programs-- 24 24 24
funding to the New York Crime
Victims Board...................
Office of Justice Programs-- 30 30 30
Formula Grants to the New York
Crime Victims Board.............
--------------------------------------
Total Assistance for 54 54 54
Individuals and Families
\17\........................
Total \18\................. 75 70 68
------------------------------------------------------------------------
\16\ This includes a $7 million obligation to New York University for
``NYU Center Catastrophe,'' $38,271 to Nassau County to implement the
Law Enforcement Tribute Act, and $367,291 to New York City for the
County and Municipal Agency Domestic Preparedness Equipment Program.
\17\ The Department of Justice (DOJ) also obligated and disbursed
$246,518.56 for crisis counseling.
\18\ All figures are current as of March 31, 2006. DOJ's grants
accounted for $63 million of its $68 million in commitments for
assistance, while salaries and expenses accounted for $7 million.
Approximately $5 million in commitments remained unspecified as of
March 31, 2006. Thus, the obligated amounts total approximately $70
million ($7 million in salaries and expenses and $63 million in
grants). In addition to the $75 million in DOJ funds from the original
$20 billion in assistance to New York, DOJ has provided over $300
million in direct and indirect assistance to New York City and New
York State in response to 9/11 through Office of Justice Programs
(OJP) funding, OJP formula grants, U.S. Attorneys Assistance, and COPS
grants.
U.S. Department of the Treasury
The Government Accountability Office reported that Treasury
received $26 million of the initial $20 billion in emergency
funds provided to New York City. Treasury advised the
Subcommittee that it could not confirm that figure because it
had lost its ability to track the funding following the 2003
reorganization that resulted in the transfer of the Federal Law
Enforcement Training Center, U.S. Customs Service, and the U.S.
Secret Service from Treasury to the newly created Department of
Homeland Security.
However, Treasury advised that the expended funds were
primarily used to reestablish the Lower Manhattan offices of
the U.S. Secret Service, the Internal Revenue Service, and the
Treasury Inspector General for Tax Administration.
U.S. GENERAL SERVICES ADMINISTRATION
[Figures in millions of dollars]
------------------------------------------------------------------------
Total Total Total
Activity committed obligated disbursed
------------------------------------------------------------------------
Compensation for Disaster-Related Costs and Losses
Security upgrades at the New York 4.5 4.5 4.5
Civic Center....................
Other Accommodations to GSA 26.7 26.7 26.7
Tenants.........................
======================================
Total assistance for GSA 31.2 31.2 31.2
tenants.....................
--------------------------------------
Other security costs, including 1.6 1.6 1.6
overtime, hiring of guards,
equipment purchases, and
updating communications systems.
--------------------------------------
Total \19\................. 32.8 32.8 32.8
------------------------------------------------------------------------
\19\ All figures are current as of June 30, 2006.
U.S. Securities and Exchange Commission
Total Funds Allocated to the SEC \20\................... $20,705,000
Funds Obligated by the SEC.............................. 20,694,428
Funds Expended by the SEC............................... 15,131,898
Funds Available to the SEC.............................. 5,562,530
\20\ All figures are current as of June 7, 2006.
---------------------------------------------------------------------------
U.S. Commodities Futures Trading Commission
Total Funds Allocated to the CFTC \21\.................. $17,100,000
Funds Expended the CFTC................................. 10,618,162
Unexpended Funds........................................ 6,481,838
Unliquidated Obligations................................ 5,666,473
Available Funds......................................... 815,365
\21\ All figures are current as of June 22, 2006.
---------------------------------------------------------------------------
U.S. Department of Education
Funds Allocated to the Department of Education \22\..... $10,900,000
Funds Allocated to New York City through Project School
Emergency Response to Violence (SERV)............... 4,200,000
Funds Allocated to New York State....................... 1,700,000
Funds Allocated for New York City Extended Services..... 5,000,000
\22\ All figures are current as of June 15, 2006.
---------------------------------------------------------------------------
U.S. Department of Commerce
Economic Development Administration Grants:
Grant to the Empire State Development Corporation to
produce an emergency planning process and
redevelopment strategy for immediate survival and
long-term business development.................... $1,000,000
National Telecommunication and Information
Administration Grants:
Grant to Educational Broadcasting Corporation, Inc.
to replace transmission equipment of WNET-TV,
Channel 13, which was destroyed in the attacks.... 6,429,502
Grants to WNYC Radio to replace transmission
equipment of WNYC-FM.............................. 1,421,969
Total Funds Allocated to the Department of Commerce \23\ 9,250,000
\23\ All figures are current as of June 12, 2006.
---------------------------------------------------------------------------
U.S. Social Security Administration
The Government Accountability Office reported that the
Social Security Administration (SSA) received $4 million. The
SSA disputed that figure to the Subcommittee staff, and
asserted that it received $2.5 million.
The SSA advised that it used the funding to reestablish its
Lower Manhattan offices.
U.S. Equal Employment Opportunity Commission
Funds Allocated to the EEOC \24\........................ $1,310,000
Funds Expended by the EEOC.............................. 1,308,000
Funds Available to the EEOC............................. 2,000
\24\ All figures are current as of June 7, 2006.
---------------------------------------------------------------------------
U.S. Office of National Drug Control Policy
On December 3, 2001, the ONDCP approved a grant awarding
the New York City District Attorney's Office $2.3 million to
reestablish the Lower Manhattan office of the New York-New
Jersey High Intensity Drug Trafficking Area (HIDTA).
The HIDTA used the funding to locate and renovate its new
office space and purchase equipment.
U.S. Department of Housing and Urban Development
Office of the Inspector General
HUD OIG received and obligated $1,000,000 in Emergency
Relief Funds for disaster recovery activities and assistance
related to terrorist acts in New York.
HUD OIG used these funds to reconstitute its investigation
office located in New York City. These costs included
rebuilding the structure of its offices as well as for the
purchase of vehicles, a phone system, office equipment,
furniture, and computers.
HUD OIG reported that all allocated funds have been
dispersed and expended.
APPENDIX B
Note: Names of individuals have been redacted.
CONVICTIONS FOR FRAUDULENT ACTIVITY
----------------------------------------------------------------------------------------------------------------
Date of Restitution/
Date charged Charges Jurisdiction conviction Sentence recovery
----------------------------------------------------------------------------------------------------------------
5/23/2002.......... 18 U.S.C. 641....... SDNY................ 5/23/2002 3 months............ $26,140.00
2/20/2003.......... 18 U.S.C. 287....... SDNY................ 3/26/2003 probation........... $11,683
1/26/2004.......... 18 U.S.C. 641/1341.. SDNY................ 9/15/2004 probation........... $5,250
5/11/2004.......... 18 U.S.C. 64 SDNY................ 4/25/2005 18 months........... $45,251
1,1001,1343-12
counts.
10/1/2001.......... Attempted Theft..... Lexington, KY....... 3/15/2002 60 months probation. ............
11/8/2001.......... Offering a False New York County..... 8/28/2002 Diversion........... $975
Instrument (FI).
11/8/2001.......... Offering a False New York County..... 8/27/2002 Restitution & Cond. $2,420
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 11/4/2002 Restitution & Cond. $1,250
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 8/28/2002 Conditional ............
Instrument. Discharge.
11/8/2001.......... Offering a False New York County..... 11/4/2002 Restitution & Cond. $1,145
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 11/4/2002 Restitution & Cond. $1,530
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 11/4/2002 Restitution & Cond. $550
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 8/27/2002 Restitution & Cond. $1,125
Instrument. Disch.
11/8/2001.......... Offering a False New York County..... 8/28/2002 60 months probation. $735
Instrument.
1/28/2002.......... Offering a False New York County..... 8/27/2002 60 months probation. $6,508
Instrument.
1/28/2002.......... Offering a False New York County..... 8/27/2002 36 months probation. $8,740
Instrument.
1/28/2002.......... Offering a False New York County..... 3/19/2003 60 months probation. ............
Instrument.
1/28/2002.......... Offering a False New York County..... 3/19/2003 60 months probation. ............
Instrument.
4/8/2002........... Offering a False New York County..... 4/14/2003 60 months probation. $5,753
Instrument.
11/8/2001.......... Offering a False New York County..... 4/8/2003 36 months probation. $671
Instrument.
1/8/2002........... Offering a False New York County..... 8/27/2002 Restitution & Cond. $1,268
Instrument. Disch.
2/8/2002........... Offering a False EDNY................ 5/23/2002 3 months confinement $6,508
Instrument.
4/1/2002........... Offering a False New York County..... 8/27/2002 Restitution & Cond. $11,451
Instrument. Disch.
4/5/2002........... Offering a False New York County..... 4/5/2002 12 months ............
Instrument. confinement.
11/3/2001.......... Offering a False New York County..... 7/9/2002 1 month probation... ............
Instrument.
10/2/2002.......... False Claim......... ND-GA............... 8/6/2004 21 months $400
confinement.
4/8/2002........... Offering a False New York County..... 5/14/2002 5 months confinement $11,194
Instrument.
4/7/2002........... Offering a False New York County..... 12/2/2002 36 months probation. ............
Instrument.
1/7/2002........... Offering a False New York County..... 6/21/2002 10 days community ............
Instrument. service.
4/2/2002........... Offering a False New York County..... 12/16/2003 conditional ............
Instrument. Discharge.
3/19/2002.......... Offering a False New York County..... 2/5/2003 12 months probation. ............
Instrument.
3/19/2002.......... Offering a False New York County..... 11/5/2002 Restitution & Cond. $31,000
Instrument. Disch.
4/4/2002........... Offering a False New York County..... 10/1/2002 6 months confinement $3,438
Instrument.
4/11/2002.......... Offering a False New York County..... 4/22/2002 36 months probation. ............
Instrument.
2/20/2003.......... Offering a False New York County..... 9/15/2003 6 months confinement $11,783
Instrument.
6/19/2002.......... Offering a False New York County..... 10/31/2002 36 months probation. ............
Instrument.
5/31/2002.......... Offering a False New York County..... 8/22/2002 54 months ............
Instrument. confinement.
6/19/2002.......... Offering a False New York County..... 3/3/2003 Restitution & Cond. $1,000
Instrument. Disch.
6/18/2002.......... Offering a False New York County..... 4/2/2003 60 months probation. ............
Instrument.
6/19/2002.......... Offering a False New York County..... 2/19/2003 12 months probation. $712
Instrument.
6/26/2002.......... Theft by deception.. Camden Cty, NJ...... 11/7/2003 10 years confinement ............
3/20/2002.......... Offering a FI, New York County..... 9/3/2003 5 years probation... ............
GrandLar.
6/19/2002.......... Offering a False New York County..... 3/13/2003 3 years probation... ............
Instrument.
3/20/2002.......... Offering a FI, New York County..... 8/7/2003 3-6 years ............
GrandLar. confinement.
6/19/2002.......... Offering a False New York County..... 3/23/2004 100 hours community ............
Instrument. service.
11/13/2002......... Offering a FI, New York County..... 11/5/2003 2-6 years prison....
GrandLar.
11/13/2002......... Offering a FI, New York County..... 11/5/2003 1 year prison....... ............
GrandLar.
6/19/2002.......... Grand Larceny....... New York County..... 6/20/2003 36 months probation. ............
11/13/2002......... Grand Larceny....... New York County..... 4/15/2003 1 1/2-4 years prison ............
4/10/2003.......... Forgery, False New York County..... 1/6/2004 Counseling.......... ............
BusRec.
11/13/2002......... Grand Larceny....... New York County..... 9/29/2003 2-4 years prison.... ............
3/17/2003.......... Grand Larceny....... SDNY................ 6/12/2003 6 month probation... ............
4/9/2003........... Grand Larceny....... New York County..... 12/8/2003 5 years probation... $9,366
3/17/2005.......... 18 U.S.C. 1341/641.. SDNY................ 5/3/2005 3 years probation... $1,168
11/23/2004......... 18 U.S.C. 1343/1957. SDNY................ 6/8/2005 18 months........... $18,500
7/6/2005........... 31USC3729........... SDNY................ n/a n/a................. $300,000
12/17/2002......... 18 U.S.C. 371, 1001, SDNY................ 10/3/2003 51 months........... $373,228
1341.
12/17/2002......... 18 U.S.C. 371, 1001, SDNY................ 10/3/2003 33 months........... $373,228
1341.
11/24/2003......... 18 U.S.C. 641....... SDNY................ 8/25/2004 24 months........... $170,108
6/21/2004.......... 18 U.S.C. 641....... SDNY................ 7/19/2004 probation........... $26,250
7/1/2003........... 18 U.S.C. 641....... SDNY................ 4/15/2004 probation........... ............
5/29/2003.......... 18 U.S.C. 641....... SDNY................ 5/29/2003 probation........... ............
8/25/2003.......... 18 U.S.C. 1341...... SDNY................ 10/1/2003 probation........... $250
8/18/2003.......... 18 U.S.C. 641/1341.. SDNY................ 9/29/2003 6 months............ ............
12/9/2003.......... 18 U.S.C. 641/1341.. SDNY................ 2/5/2004 2 months............ $2,228
12/8/2004.......... 18 U.S.C. 641....... SDNY................ 3/11/2005 pending............. ............
8/25/2004.......... 18 U.S.C. 1341...... SDNY................ 8/25/2004 house/arr........... $3,683
7/1/2005........... 18 U.S.C. 641....... SDNY................ 11/14/2005 time serv........... ............
42 U.S.C. 408....... .................... ........... .................... ............
3/16/2005.......... 31 U.S.C. 3729...... SDNY................ n/a n/a................. $36,500
8/19/2002.......... 18 U.S.C. 371/1341.. SDNY................ 6/16/2003 97 months........... $504,869
12/22/2003......... 18 U.S.C. 371/1343.. SDNY................ 6/10/2004 21 months........... $73,430
1/26/2004.......... 18 U.S.C. 641/841... SDNY................ 6/9/2004 48 months........... $31,718
3/8/2005........... 18 U.S.C. 1341/1001. SDNY................ 9/16/2005 pending............. ............
18 U.S.C. 287....... DNJ................. 2/28/2006 30 months........... ............
5/26/2004.......... 18 U.S.C. 1001...... SDNY................ 8/31/2004 4 months............ ............
3/13/2002.......... Grand Larceny....... New York County..... ........... .................... $190,867
3/25/2002.......... Grand Larceny....... New York County..... ........... .................... $21,500
3/26/2002.......... Grand Larceny....... New York County..... ........... .................... $272,800
Fraud............... New York County..... ........... .................... $89,599
Forgery............. New York County..... ........... .................... ............
false records....... New York County..... ........... .................... ............
Forgery............. New York County..... ........... .................... $31,000
Forgery............. New York County..... ........... .................... $41,761
Forgery............. New York County..... ........... .................... $13,500
Forgery............. New York County..... ........... .................... $4,000
fraud............... New York County..... ........... .................... $10,000
fraud............... New York County..... ........... .................... $3,300
false records....... New York County..... ........... .................... $4,000
grand Larceny, New York County..... ........... .................... $108,905.28
forgery.
grand Larceny, New York County..... ........... .................... ............
forgery.
grand larceny....... New York County..... ........... .................... $20,774
grand Larceny, New York County..... ........... .................... $3,966.67
Forgery.
fraud............... New York County..... ........... .................... $10,994
grand larceny....... New York County..... ........... .................... $4,500
Forgery............. New York County..... ........... .................... ............
larceny, forgery.... New York County..... ........... .................... $685
.................... New York County..... ........... .................... $12,170
11/13/2002......... Theft............... New York County..... ........... .................... $70,000
11/13/2002......... Theft............... New York County..... ........... .................... $8,000
11/13/2002......... Theft............... New York County..... ........... .................... $114,653.09
11/13/2002......... Theft............... New York County..... ........... .................... $45,283
11/13/2002......... Theft............... New York County..... ........... .................... $45,176
11/13/2002......... Theft............... New York County..... ........... .................... $400
11/13/2002......... Theft............... New York County..... ........... .................... $400
11/13/2002......... Theft............... New York County..... ........... .................... $950
11/13/2002......... Theft............... New York County..... ........... .................... $4,000
11/13/2002......... Theft............... New York County..... ........... .................... $4,400
11/13/2002......... Theft............... New York County..... ........... .................... $3,000
11/13/2002......... Theft............... New York County..... ........... .................... $3,780
11/13/2002......... Theft............... New York County..... ........... .................... $3,850
11/13/2002......... Theft............... New York County..... ........... .................... $9,226
11/13/2002......... Theft............... New York County..... ........... .................... $800
11/13/2002......... Theft............... New York County..... ........... ....................
11/13/2002......... Theft............... New York County..... ........... .................... $35,875
11/13/2002......... Theft............... New York County..... ........... ....................
11/13/2002......... Theft............... New York County..... ........... .................... $46,490.52
11/13/2002......... Theft............... New York County..... ........... .................... $8,092.92
11/13/2002......... Theft............... New York County..... ........... .................... $12,323.60
11/13/2002......... Theft............... New York County..... ........... .................... $31,000
3/21/2002.......... .................... New York County.....
3/21/2002.......... .................... New York County..... ........... .................... $14,000
3/21/2002.......... .................... New York County..... ........... .................... $16,381
2/2/2005........... fraud............... New York County.....
8/5/2002........... Theft............... New York County.....
8/5/2002........... Theft............... New York County.....
4/10/2003.......... Fraud............... New York County..... ........... .................... $18,995
4/10/2003.......... Fraud............... New York County..... ........... .................... $6,900
4/10/2003.......... Fraud............... New York County..... ........... .................... $8,808
4/10/2003.......... Fraud............... New York County..... ........... .................... $8,129
4/10/2003.......... Fraud............... New York County..... ........... .................... $6,607
4/10/2003.......... Fraud............... New York County..... ........... .................... $6,607
4/10/2003.......... Fraud............... New York County..... ........... .................... $5,000
4/10/2003.......... Fraud............... New York County..... ........... .................... $3,936
4/10/2003.......... Fraud............... New York County..... ........... .................... $4,650
4/10/2003.......... Fraud............... New York County..... ........... .................... $2,328
4/10/2003.......... Fraud............... New York County..... ........... .................... $9,366
4/10/2003.......... Fraud............... New York County..... ........... .................... $4,458
4/10/2003.......... Fraud............... New York County..... ........... .................... $499
4/10/2003.......... Fraud............... New York County..... ........... .................... N/A
4/10/2003.......... Fraud............... New York County..... ........... .................... $3,298
4/10/2003.......... Fraud............... New York County..... ........... .................... $14,057
4/10/2003.......... Fraud............... New York County..... ........... .................... $6,508
7/31/2003.......... Fraud............... New York County..... ........... .................... $59,192.36
8/27/2003.......... Fraud............... New York County..... ........... .................... $135,000
4/10/2003.......... Fraud............... New York County..... ........... .................... $11,854
4/10/2003.......... Fraud............... New York County..... ........... .................... $4,684
4/10/2003.......... Fraud............... New York County..... ........... .................... N/A
6/18/2003.......... Grand Larceny....... New York County..... ........... .................... 5,899.00
6/18/2003.......... Grand Larceny....... New York County..... ........... .................... 5,149.28
6/18/2003.......... Grand Larceny....... New York County..... ........... .................... 5,094.59
6/18/2003.......... Grand Larceny....... New York County..... ........... .................... 7,715.45
6/18/2003.......... Grand Larceny....... New York County..... ........... .................... 7,353.82
6/18/2003.......... Grand Larceny....... New York County..... .................. $7,336.50
6/18/2003.......... Grand Larceny....... New York County..... .................. $6,096.75
6/18/2003.......... Grand Larceny....... New York County..... .................. $5,044.75
6/18/2003.......... Grand Larceny....... New York County..... .................. $5,655.00
6/18/2003.......... Grand Larceny....... New York County..... .................. $7,499.75
12/3/2003.......... Grand & Petty New York County..... .................. $15,205
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $6,602
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $1,117
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $4,989
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $8,361
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $2,500
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $4,477
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $4,093
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $5,398
Larceny/Fraud.
12/3/2003.......... Grand & Petty New York County..... .................. $3,499
Larceny/Fraud.
----------------------------------------------------------------------------------------------------------------
18 U.S.C. 286: Conspiracy to defraud the government with respect to claims.
18 U.S.C. 287: False, fictious, or fraudulent claims.
18 U.S.C. 371: Conspiracy to commit offense or defraud the U.S.
18 U.S.C. 641: Embezzlement.
18 U.S.C. 666: Theft or bribery concerning programs receiving federal funds.
18 U.S.C. 841: Manufacture, distribution, or storage of explosive materials.
18 U.S.C. 1001: False statements.
18 U.S.C. 1341: Mail fraud.
18 U.S.C. 1343: Wire fraud.
18 U.S.C. 1349: Attempt and Conspiracy.
18 U.S.C. 3147: Penalty for offense committed while on release.
18 U.S.C. 3551: Sentencing.
31 U.S.C. 3729: False Claims.
42 U.S.C. 408: Receiving Increased payments.
Relevant Abbreviations: SDNY = U.S. Attorney's Office for the Southern District of New York; EDNY = U.S.
Attorney's Office for the Eastern District of New York; New York County = Manhattan District Attorney's
Office; ND-GA = Northern District of Georgia; DNJ = District of New Jersey.
APPENDIX C
Summary of Lower Manhattan Development Corporation Commitments to the
Revitalization of Chinatown
Over $171 Million \23\
---------------------------------------------------------------------------
\23\ Information provided by the Lower Manhattan Development
Corporation to the Subcommittee on Management, Integration, and
Oversight on July 21, 2006.
---------------------------------------------------------------------------
ECONOMIC DEVELOPMENT
Chinatown Partnership LDC: $1.6 million
The Chinatown Partnership Local Development
Corporation (LDC) is a community-based not-for-profit
organization that was formed in 2004 as a result of the Rebuild
Chinatown Initiative (RCI), a comprehensive community
assessment and planning initiative that was conducted by Asian
Americans for Equality (AAFE) to address the needs of Chinatown
in the aftermath of September 11th. Funding for the LDC is also
provided by the September 11th Fund.
The creation of the Chinatown Partnership LDC--a
single organization that has brought together major civic
organizations, cultural institutions, and businesses in the
community--marks a significant milestone for the neighborhood.
The CPLDC's goal is to improve business conditions
by making Chinatown a cleaner, safer, more attractive place to
conduct business by strengthening connections between commerce
and culture.
Clean Streets Program: $5.4 million
This supplemental cleaning program for the Chinatown
community is the outgrowth of a major survey of more than 3,000
Chinatown residents and businesses following 9/11, which found
that improving cleanliness, reducing odors and removing
graffiti is the top priority for the neighborhood. The campaign
builds on and incorporates the efforts of the Council for a
Cleaner Chinatown, a non-profit community group founded over
ten years ago. The program is administered by the Chinatown
Partnership with assistance from the New York City Department
of Small Business Services.
TOURISM
Explore Chinatown Tourism Campaign: $1,160,000
The campaign, officially launched on May 10, 2004,
is intended to build awareness and increase revenues for
Chinatown businesses. The campaign includes an international
public relations and advertising campaign; a website
(www.explorechinatown.com); a visitor information kiosk on
Canal St., and special events. The campaign has won numerous
awards in the marketing, travel and public relations
industries.
On October 15, 2005, more than 50,000 people
attended the third ``Taste of Chinatown.'' Taste of Chinatown
included tasting stations and cultural and family oriented
activities to entertain visitors. A Chinatown to China
sweepstakes was also held.
A post event survey of 51 participating businesses
conducted by Asian Women indicated the benefit of the event.
Some of the survey's findings included: over $85,000 was
generated in tasting plate sales and related inside sales
during the event; 100% of those surveyed said they would
participate in the next Taste of Chinatown and felt that the
street closure for the event was very effective and worthwhile.
Chinatown Visitor Kiosk: $216,000
In 2005 alone over 165,000 people visited the
Chinatown kiosk.
CULTURE
Cultural Enhancement Funds for Chinatown: More than $1.5 million
LMDC funded cultural projects in Chinatown have the
potential to attract visitors from around the world; attract
world-class artists and performers; support cultural richness
and diversity; and enrich the lives of Chinatown residents and
workers.
$135,000 for Asian American Arts Center--founded
in 1974, the center explores the interplay between contemporary
American and Asian culture and art through exhibition,
presentation, and education. LMDC funds will assist the
organization in digitizing and increasing public access to this
important archive.
$140,000 for Asian Americans for Equality and
Chinatown Partnership LDC for CREATE (Committee to Revitalize
and Enrich the Arts of Tomorrow's Economy)--Embodies an
unprecedented effort among diverse Chinatown arts and cultural
institutions, civic members, and community leaders to unify
around the vision of developing a major cultural and performing
arts center in Chinatown. LMDC funding will support Phase II of
the planning effort for CREATE. LMDC also funded Phase I with a
$150,000 grant.
$800,000 for Downtown Community Television
Center--Located on the border of Chinatown, the center
increases access to media by producing documentaries, providing
educational programming on film, and training students in film-
making free of charge. LMDC funds will assist with the build-
out of DCTV's lower level space, allowing for the creation of a
120-seat screening room dedicated to documentary film and
additional classrooms.
$50,000 for H.T. Dance Company--Supports Asian-
American and contemporary dance through artistic creation, arts
education, and presentation. LMDC funds will provide technical
equipment to create a multi-media center at the organization's
home in Chinatown.
$200,000 for Museum of Chinese in the Americas
(MoCA)--Founded in 1980, the MoCA is the first full-time,
professionally-staffed museum dedicated to reclaiming,
preserving, and interpreting the history and culture of Chinese
and their descendants in the Western Hemisphere. LMDC funds
will support the pre-design phase of a new 12,500-square-foot
museum designed by Maya Lin at 215 Center Street.
$100,000 for National Dance Institute--This art-
based education program engages children and professional
artists in the creation of dances and performances of high
quality. Since its founding in 1976 by Jacques d'Amboise, NDI
has introduced more than half a million fourth, fifth, and
sixth grade public school students in the New York metropolitan
area to the magic of dance. NDI seeks to create a permanent
home and expand its program with a Center for Learning and the
Arts in Chinatown. LMDC funds will support site search and
project development.
$150,000 for New York Chinese Cultural Center--
Teaches and preserves traditional Chinese performing arts.
NYCCC hosts the country's only full-time professional school of
Chinese dance, offering a comprehensive curriculum of more than
1,000 classes and workshops annually. LMDC funding will support
the reconfiguration of the Chinatown organization's performing
arts space to increase programming capacity and strengthen the
organization's administrative and management facilities.
TRAFFIC AND TRANSPORTATION
Chatham Square Study and Implementation: $25 million
In 2004 the LMDC worked with the community to
identify traffic problems in Chinatown. The Chinatown Access &
Circulation Study recommended a new configuration for Chatham
Square to improve pedestrian safety and vehicular flow within
Chinatown--based on community input.
Currently the LMDC is working with the City of New
York to further prepare the proposal for implementation.
Chinatown/Brooklyn Bridge Study:
As part of its efforts to revitalize downtown, the
LMDC has developed a plan to better integrate the Chinatown
community and the area around the Brooklyn Bridge Anchorage,
located to the east of Chinatown, with the rest of Lower
Manhattan.
The main elements of the plan include five
components developed from 14 public outreach meetings related
to Chinatown circulation and access problems.
AFFORDABLE HOUSING
Chinatown/Lower East Side Acquisition Grant Program: $16 million
This Department of Housing Preservation and
Development (HPD) administered program will enable non-profit
property managers to acquire and preserve low-to-moderate
income residential buildings in Chinatown and the Lower East
Side.
Knickerbocker Towers: $5 million
This 1,600 unit complex consists primarily of low
and moderate income residents. LMDC's funding will enable the
complex to make necessary capital improvements without
increasing rents or applying an assessment, helping to preserve
the affordability of the project.
PARKS AND OPEN SPACE
Parks Renovations: $20 million
Columbus Park--$3.25 million
James Madison--$2.12 million
Sara D. Roosevelt--$7.75 million
Pike/Allen Street Mall--$5.93 million
Albert Smith Playground--$1.6 million
Chinatown will also benefit from LMDC's $150 million
commitment to the East River Waterfront Project. Chinatown's
waterfront will receive major improvements as part of this
comprehensive program.
Residential Grant Program: Chinatown $40 Million
The Residential Grant Program seeks to compensate
individuals for the extraordinary expenses they may have
incurred as a result of the disaster, as well as creates
incentives for individuals and families to rent, purchase, or
remain in housing in Lower Manhattan.
The WTC Business Recovery Grant Program: Chinatown $60 million
The WTC Business Recovery Grant Program, established by
ESDC with funding from LMDC, provided grants to businesses
(including not-for-profit organizations) with fewer than 500
employees, located in Manhattan south of 14th Street, to
compensate them for economic losses resulting from the
disaster, thereby assisting in the retention of thousands of
jobs both directly and indirectly.
APPENDIX D
Statements
``An Examination of Federall 9/11 Assistance to New York: Lessons
Learned in Preventing Waste, Fraud, Abuse, and Mismanagement''
Wednesday, July 12, 2006, Part I--Response
Witnesses
PANEL I
Page
Mr. Greg Kutz, Director, Financial Management and Assurance, U.S.
Government Accountability Office............................... 101
Mr. Joe Picciano, Deputy Director for Region II, Federal
Emergency Management Agency, U.S. Department of Homeland
Security....................................................... 77
The Honorable Richard Skinner, Inspector General, U.S. Department
of Homeland Security........................................... 92
PANEL II
Ms. Leigh Bradley, Senior Vice President for Enterprise Risk,
American Red Cross............................................. 134
Mr. Neil Getnick, President, International Association of
Independent Inspectors General................................. 126
The Honorable Rose Gill Hearn, Commissioner, New York City
Department of Investigation.................................... 118
Ms. Carie Lemack, Co-Founder, Families of September 11.......... 130
Mr. David J. Varoli, General Counsel, New York City Department
of Design and Construction..................................... 122
Thursday, July 13, 2006, 10:00 a.m., Part II--Response
Witnesses
PANEL I
Mr. Leroy Frazer, Bureau Chief, Special Prosecutions Bureau, New
York County District Attorney's Office......................... 160
Ms. Ruth, Ritzema, Special Agent in Charge for New York, Office
of Inspector General, U.S. Department of Housing and Urban
Development.................................................... 145
Mr. Douglas Small, Deputy Assistant Secretary, Employment and
Training, U.S. Department of Labor............................. 154
The Honorable Eric Thorson, Inspector General, U.S. Small
Business Administration........................................ 151
PANEL II
Ms. Bettina Damiani, Project Director, Good Jobs New York........ 172
Ms. Eileen Mildenberger, Chief Operating Officer, Empire State
Development Corporation........................................ 164
Mr. Stefan Pryor, President, Lower Manhattan Development
Corporation.................................................... 166
Mr. John Wang, Founder and President, Asian American Business
Development Center............................................. 169
Thursday, July 13, 2006, 2:00 a.m., Part III--Response
Witnesses
PANEL I
Mr. Bernard Cohen, Director, Lower Manhattan Recovery Office,
Federal Transit Administration, U.S. Department of
Transportation................................................. 189
Mr. Todd J. Zinser, Acting Inspector General, U.S. Department of
Transportation................................................. 179
PANEL II
Mr. Ronald P. Calvosa, Director of Fraud Prevention, Lower
Manhattan Construction Command Center.......................... 191
Mr. Michael Nestor, Director, Office of Investigations, Port
Authority of New York and New Jersey........................... 195
Wednesday, July 12, 2006
2:00 p.m. in 311 Cannon House Office Building
Subcommittee on Management, Integration, and Oversight
Hearing
``An Examination of Federal 9/11 Assistance to New York: Lessons
Learned in Preventing Waste, Fraud, Abuse, and Mismanagement, Part I-
Response''
Witnesses
Prepared Statement of Mr. Joseph F. Picciano, Deputy Director, Region
II, Federal Emergency Management Agency, Department of Homeland
Security
Good Morning Chairman Rogers, Ranking Member Meek and members of
the Committee. My name is Joseph Picciano. I am the Deputy Director for
Region II of the Department of Homeland Security's (DHS's) Federal
Emergency Management Agency (FEMA) based in New York City and covering
New York, New Jersey, Puerto Rico and the Virgin Islands. On behalf of
FEMA and the Department of Homeland Security, I appear before you today
to discuss FEMA's disaster assistance for response and recovery to the
New York City area following the September 11, 2001 terrorist attacks.
FEMA and its staff are proud of the work accomplished following the
attack. The tragic event posed unique challenges. It tested our ability
to deliver help in a timely and effective manner while maintaining
accountability.
FEMA Responds
Immediately following the attack, FEMA activated the Federal
Response Plan, which brings together 28 federal agencies and the
American Red Cross to assist local and state governments in responding
to national emergencies and disasters. FEMA Headquarters also activated
the Washington-based Emergency Support Team (EST) on a 24-hour basis,
and Region II deployed its Emergency Response Team-Advance Element
(ERT-A). In addition, FEMA activated the following federal assets to
support response operations:
Twenty Urban Search & Rescue Teams (FEMA)
U.S. Army Corps of Engineers (Power and Debris Teams)
Four Disaster Mortuary Teams (DMORT)
Four Disaster Medical Assistance Teams (DMAT)
One Management Support Team (MST)
One Deployable Portable Morgue Unit (DPMU)
One Veterinary Medical Team
President Bush appointed the Federal Coordinating Officer (FCO),
responsible for coordinating the timely delivery of Federal disaster
assistance to New York State, local governments, and disaster victims.
On September 15, 2001, FEMA established the Disaster Field Office (DFO)
at Pier 90 on the West Side of Manhattan. It initially operated 24
hours per day and served as a base for all FEMA operations. On December
3, 2001, the DFO relocated to 80 Centre Street in Lower Manhattan.
President Bush pledged at least twenty billion dollars to the City
and State of New York. In the following 11 months, Congress passed
several bills to provide approximately $20 billion in direct funding
and tax benefits. This was the first time that the amount of federal
assistance for a disaster was determined early in the response and
recovery process. Congress allocated $8.8 billion of this twenty
billion to FEMA to reimburse individuals, governments, and not-for-
profit organizations for response and recovery work related to the
World Trade Center (WTC) disaster. As of May 30, 2006, FEMA has
obligated approximately $8.77billion, leaving approximately $30.3
million remaining for distribution. These remaining funds will be used
to bring several ongoing programs to their completion, particularly
Human Services programs such as Mortgage Rental Assistance, Individual
and Family Grants, and Crisis Counseling assistance for the State of
New York, and funding to reimburse applicants for currently non-funded
projects authorized by the Consolidated Appropriations Resolution,
enacted February 20, 2003, P.L. 108-7 (CAR).
Public Assistance (PA)
Although there were a total of 191 applicants with Project
Worksheets (PWs), three applicants received approximately 95 percent of
all the Stafford Act funding:
New York City (50 agencies received assistance);
The Port Authority of New York and New Jersey; and,
The State of New York (50+ agencies, including the
MTA).
Recognizing that the response to this tragedy was widespread, and
that the New York State Emergency Management Office (SEMO) could not
conduct a thorough and complete applicant briefing with such an
extensive and unknown population, FEMA and SEMO established a Private-
Non-Profit (PNP) Hotline on October 17, 2001 to identify potential PNP
applicants. FEMA staffed the call center with local hires who worked
Monday through Friday, 8 a.m. to 6 p.m., from October 17 to November
17, 2001; however, the call center was discontinued due to extremely
low call volume (less than 150 inquiries total).
Based on the magnitude of the disaster and the duration of past
recovery efforts (such as the Northridge Earthquake and Hurricane
Andrew), the FCO appointed the Deputy FCO for Long-Term Recovery,
responsible for identifying the needs of the community, coordinating
with other federal, state, and local agencies to address those needs,
and developing FEMA's long-term recovery plans.
Since the disaster recovery needs could not be solved within one
program or agency, the Deputy FCO relied heavily on the creation of
local and federal task forces to better coordinate the recovery effort.
The various task forces focused on activities designed to immediately
stimulate the development and infrastructure needs of the community. By
bringing together all of these resources, the local agencies could
immediately gain access to the resources of numerous federal agencies,
and the local agency could promptly respond to time-sensitive problems
in an effective manner.
The primary task force was the Federal Task Force (FTF) to Support
NYC. The FEMA Deputy FCO for Long-Term Recovery chaired this task
force. It was comprised of representatives from 11 federal agencies
focused on developing a complete understanding of the reconstruction
needs of the local and state government, and devising a recovery
solution comprehensive enough to address these needs.
Equally important for its immediate impact on local projects was
the Infrastructure Recovery Workgroup (IRWG), originally chaired
jointly by SEMO and FEMA, and then later chaired by the Commissioner of
NYC Department of Transportation. This task force was assembled to
ensure an efficient and integrated restoration of public and private
infrastructure destroyed or damaged by the disaster. The IRWG consisted
of numerous federal, state, local, and private sector participants.
The Public Assistance Team
Immediately following the disaster, Region II assigned a Public
Assistance Officer (PAO) and deployed over 30 Disaster Assistance
Employees (DAEs) to serve as Public Assistance Coordinators (PACs) and
Project Officers (POs). Within two weeks of the disaster, Headquarters,
the FCO, and the Regional Director decided to replace the PAO and
outsource the remainder of the PA operation (with the exception of
National Emergency Management Information System (NEMIS) positions),
substituting the DAEs with its Technical Assistance Contractors (TACs).
The decision to outsource the PA operation, the first ever for FEMA,
was made for several reasons:
The catastrophic nature of the disaster called for
deep technical expertise and professional management;
The long-term nature of the project required a high-
level of consistency among the staff; and,
A fear that another terrorist attack might occur and
require immediate FEMA resources.
To ensure that FEMA had access the broadest available range of
technical specialists, the contracting officer asked all three TAC to
supply personnel.
Ensuring Quality
It was recognized by FEMA and the applicants that well-written PWs,
supported by accurate and well-documented cost analyses, and prepared
in accordance with the Stafford Act and FEMA regulations, would reduce
appeals and Office of Inspector General (OIG) audits. For that reason,
quality was emphasized at the outset and considered extensively when
disaster-specific processes were established.
To ensure quality, and validate that agencies were requesting
reimbursement for all they were entitled to under the law, New York
City, the disaster's largest applicant, required that all PWs, once
prepared by the PAC and PO, be reviewed and signed-off by the agency
representative, a NYC Office of Emergency Management representative,
and an OMB representative, before being entered into NEMIS. Although
FEMA was initially concerned the obligation process would be slowed, in
the end it assured both the City and FEMA of a higher quality PW.
On the FEMA side, three initiatives were undertaken to ensure
quality:
1. A Policy and Program Advisor position was created to provide
verbal and written guidance to PACs and POs on eligibility
questions. This advisor served as a critical link between PA
management (the program decision makers) and field staff (the
program implementers). Besides dealing with complex and
sensitive issues, this advisor also prepared the PA Program
Guidance memos for the PAO's signature.
2. FEMA developed a Quality Assurance Guide in October 2001,
and disseminated it to all PACs and POs. This guide provided a
series of detailed steps to be completed by FEMA POs during the
preparation of PWs.
3. A quality control queue was created within NEMIS. An
experienced technical specialist, with extensive program
knowledge, a background in accounting, and access to
management, worked off-site to review every PW and confirm
eligibility decisions against all applicable regulations and
disaster-specific guidance; verify cost estimates; correct any
errors or omissions; and provide feedback to PACs and POs, when
necessary.
In addition, FEMA's Office of General Counsel (OGC) and the OIG
were physically present at the DFO, and subsequently the Federal
Recovery Office, and provided day-to-day advice to the applicants and
PA management. The OGC attorney(s) drafted mission assignments and
interagency agreements, addressed eligibility-of-applicant issues and a
myriad of other issues surrounding access rights, property ownership,
liability, procurement, and insurance.
The OIG staff worked proactively with PA staff and applicants to
ensure a consistent level of understanding regarding the documentation
and audit requirements. Besides attending the applicant briefings and
kickoff meetings, the OIG held a three hour audit briefing for all NYC
agencies, and frequently provided feedback to PA managers regarding
program, policy, or process issues. The OIG also reviewed all 9/11
Associated Cost PWs.
Consolidated Appropriation Resolution (P.L. 108-7)
In the aftermath of the disaster, it soon became apparent that
while the Stafford Act was generally well-suited to most response and
recovery needs, there were a number of significant costs which were
clearly ineligible.
To address these types of projects, Congress enacted the
Consolidated Appropriation Resolution of 2003 (CAR) signed into law by
the President as Public Law 108-7 on February 20, 2003, to fund:
(1) 9/11-associated costs not reimbursable under the Stafford
Act;
(2) $90 million for long-term health monitoring of emergency
services, rescue, and recovery personnel; and,
(3) Up to $1 billion to establish insurance coverage for the
City of New York and its contractors for claims arising from
debris removal at the World Trade Center site.
This authorization was granted contingent on funds made available
under P.L. 107-38, 107-117, and 107-206. In other words, any
reimbursement for non-Stafford Act associated costs would come from the
existing appropriations of $8.8 billion, after all Stafford Act-related
costs had been reimbursed. By the time that the CAR was enacted, more
than 17 months after the disaster, New York City and New York State had
already paid many of these costs; therefore, reimbursement from FEMA
effectively resulted in much needed budget relief for these agencies.
In March 2003, FEMA, the City, and the State verbally agreed to the
following:
The PA program would stop accepting costs for
Stafford-eligible projects as of April 30, 2003;
The applicants would submit all Project Completion and
Certification Reports (P.4s) no later than June 16, 2003;
FEMA would programmatically close all Stafford-
eligible projects by June 30, 2003;
FEMA would use the Project Worksheet to fund all 9/11
Associated Costs; rather than complete a P.4 certifying
completion of the project and expenditure of the funds, the
City and State would each separately sign a grant management
letter certifying to abide by the Federal grant management
requirements;
FEMA would establish a Dedicated Fund (also referred
to as a Set-Aside Fund) for both the City and State that would
include:
(1) the estimated cost of all incomplete Stafford-
eligible projects deobligated due to the April 30, 2003
deadline, and
(2) an estimate for all Stafford-eligible projects not
funded on a PW as of April 30, 2003;
The City and State could draw against the 9/11
Associated Costs PWs on a dollar by dollar basis up to the
amount set-aside in their Dedicated Fund;
Once the City and State exhausted their respective
Dedicated Funds, all remaining dollars available for 9/11
Associated Costs would be divided on a two-thirds for the City,
one-third for the State basis (as mutually agreed to by NYC and
NYS); and,
The applicant and grantee would submit no further
appeals or time extension requests.
This was documented in a Joint Letter of Agreement dated June 2003.
The letter also specified that the Port Authority would receive $448.75
million in federal funding, and that the date for the Port Authority to
submit Stafford-eligible costs would extend beyond April 30, 2003.
Since all County and PNP projects were completed and funded by April
30, 2003, the agreement did not affect these applicants.
Expedited Closeout
To close out the PA Program and accelerate funding of the 9/11
Associated Costs, FEMA established an expedited closeout process.
Unlike the traditional closeout process where the applicants initiate
it and the grantee coordinates it, this expedited process established
firm deadlines and was led by FEMA. By closely managing the development
of P.4s, streamlining the financial reconciliation of projects, and
refining the closeout database initially developed by the Region to
closeout DR-1391, by July 2003 FEMA was able to receive and forward to
the grantee signed P.4s for all Stafford-eligible projects. The City
and State were active participants in this process because it quickly
brought to a close the Stafford Act-eligible program, thereby saving
the City and State considerable time and money to manage a long-term,
traditional closeout, and it allowed them to promptly draw down on any
remaining funds using 9/11 Associated Cost projects.
9/11 Associated Costs
Once the closeout was complete, FEMA then worked with NYC and NYS
to prepare PWs for 9/11 AssociatedCost projects. 9/11 Associated Cost
projects were defined as those related to 9/11 that were not
reimbursable under the Stafford Act. Projects such as CUNY's Fiterman
Hall and the Battery Park City sidewalk and road repair identified in
the City and State's dedicated fund, respectively, were not prepared as
9/11 Associated Cost projects because these were eligible under the
Stafford Act.
To determine the allocation of the CAR funding, FEMA subtracted
from the $8.8 billion all Stafford Act program expenditures to arrive
at the available funding, and immediately deducted from that figure all
the projects authorized by the CAR.
Calculating the funds available for projects authorized by the CAR
2003 was complicated, as FEMA wanted to ensure that funds remained to
meet its projected Stafford Act obligations, and still be able to
expedite funding to the City and State for the Debris Removal Insurance
Program (DRIP), expanded health care monitoring, and 9/11 Associated
Projects all large and costly projects. To do so, FEMA's Stafford Act
projection of $6.44 billion reflected an amount slightly higher than
anticipated in certain areas primarily for Human Services and other
Administrative Costs to mitigate the risk of FEMA not having enough
funds to meet its Stafford Act obligations. This projection was refined
in January 2004 when it became clear that additional funds could be
made available to the City and State to fund 9/11 Associated Cost PWs,
and these PWs were obligated. All or a portion of these available funds
may be provided in the future to NYC, NYS, and the Port Authority to
cover additional 9/11 Associated Costs.
Port Authority
As a result of the WTC attacks, the Port Authority suffered an
estimated loss of $4.6 billion generated primarily by:
The collapse of seven major office buildings
(including the Twin Towers) owned by the Port Authority;
The deaths of 84 Port Authority employees, including
37 PAPD police officers;
Damage to its PATH system; and,
Lost revenue.
Since the estimated $4.6 billion loss far exceeded its insurance
coverage of $1.5 billion, FEMA, the Port Authority, and SEMO developed
and implemented an Insurance Apportionment Strategy. This strategy
provided immediate cash flow to the Port Authority for Stafford-
eligible costs, while ensuring that the overall obligation was not
duplicated by insurance benefits.
Under the terms of the ECP, and pursuant to the June 2003 Letter of
Agreement (LOA) reached between FEMA, NYS, and NYC:
1. FEMA would reimburse the Port Authority for all Stafford-
eligible work completed and paid for by May 31, 2003,
regardless of whether the entire scope of eligible work had
been completed; and,
2. The Port Authority's allocated disaster funding--whether
Stafford eligible, Associated Costs, or Subgrantee Allowance--was
capped at $448.75 million.
Using the Insurance Apportionment Strategy, FEMA reimbursed the
Port Authority for Stafford-eligible costs obligated via project
worksheets, and an administrative allowance. These payments accounted
for $400 million toward the Port Authority's funding limit capped at
$448.750 million. The left $48.750 million available to the Port
Authority as reimbursement for 9/11 Associated Costs.
Facts
In two years FEMA obligated $7.48 billion in Public Assistance and
infrastructure-related costs, in three categories as shown below in
Figure VI-1. (An additional $21 million was obligated in January and
February 2004 two years and four months after the attacks--to fund NYC
and NYS 9/11 Associated Cost PWs.)
[GRAPHIC] [TIFF OMITTED] T9452.012
FEMA Transfers $2.75 Billion to FTA
The $2.75 billion transferred to FTA was combined with the US DOT's
$1.8 billion allocation, to create a $4.55 billion transportation fund
to be administered by FTA and used to reconstruct and enhance Lower
Manhattan's transportation infrastructure, including roadways, subway
systems, and commuter rails. The process and conditions of this
transfer of funds is treated in greater detail later in the ``Emergency
Transportation Restoration of the Lower Manhattan Intermodal System''
section of this PA Summary.
FEMA Obligates $2.38 Billion Under Stafford Act
The Stafford Act obligations totaled $2.38 billion, including $.06
billion representing grant management and project administration costs.
As Figure VI-2 illustrates, of the $2.32 billion obligated to
traditional PA Program recipients, approximately two-thirds was awarded
to NYC, with the Port Authority and New York State claiming the
majority of the remaining third.
Figure VI-2 Stafford Act Project Worksheet Obligations by Recipient
[GRAPHIC] [TIFF OMITTED] T9452.013
Approximately 90 percent of the reimbursed costs represented
Emergency Work, FEMA work categories A and B (refer to Figure VI-3).
Major obligations included:
Debris Removal to DDC and DSNY
Incremental Cost Approach (ICA) for OT Labor
Death and Disability Benefits
Temporary PATH Station
Emergency Transportation (excludes Temporary PATH
Station)
OCME for Victim Identification
Building Cleaning and Air Monitoring
The above statistics comprise roughly 82 percent of all Emergency
Work and nearly 75 percent of all funds obligated within FEMA's
traditional Stafford Public Assistance Program.
Figure VI-3 below illustrates Stafford Act Project Worksheet
Obligations by Category of Work
[GRAPHIC] [TIFF OMITTED] T9452.014
[GRAPHIC] [TIFF OMITTED] T9452.015
FEMA Obligates $2.37 Billion under CAR 2003
As previously discussed in Section III, the passing CAR 2003 in
February 2003 allowed for greater flexibility in disbursing federal
grants to the City and State of New York for costs associated with the
events of September11th. After budgeting the $1 billion for debris
removal insurance and the $90 million for expanded health care
monitoring, FEMA allocated and then obligated funds to NYC and NYS on
9/11 Associated Cost PWs, first disposing of each entity's Dedicated
Funds, and then separating the remaining funds two-thirds to the City,
and one-third to the State. As of August 3, 2004, the City had received
$913 million in 9/11 Associated Costs and the State has received $372
million including $49 million for the Port Authority.
Backfill Labor
Stafford Act-eligible backfill labor costs after the WTC disaster
exceeded $50 million, primarily for the FDNY, NYPD, NYC Department of
Sanitation, and NYC Department of Transportation. To evaluate the
eligibility of backfill costs--costs incurred by the applicant to
backfill for an employee performing eligible emergency work--PA staff
followed the November 1993 memo issued by the PA Division Chief
regarding force account (in-house) labor. This memo outlined instances
where FEMA could reimburse for backfill, and how this reimbursement
should occur. The methodology also contained a final step to validate
that the eligible disaster-related overtime and backfill overtime did
not exceed the total overtime paid by the department. This was a
critical step since some FDNY backfill overtime PWs were greater than
ten million.
Cleaning
The collapse of the WTC created a widespread plume of dust and
debris. From the beginning, residents, community leaders, and City and
State officials expressed concern that the dust may pose a threat to
health and air quality. Due to these concerns, the EPA recommended to
FEMA that the dust and debris be removed from residential units and
unclean buildings in order to reduce the long-term risk of exposure to
chemicals such as asbestos.
Based on EPA's advisement and requests from the City, FEMA provided
funding for the exterior and/or interior cleaning of 244 buildings and
4,500 residential units in Lower Manhattan, and two unoccupied
privately owned buildings in close proximity to the WTC site. FEMA
classified this work as debris removal and based its eligibility
determination on the EPA's and NYC Department of Environmental
Protection's concern over the potential health threats posed by the
debris, and the threat to the economic recovery this debris posed to
lower Manhattan, as outlined in a letter from NYC to FEMA.
To ensure authorized right-of-entry, as required by the Stafford
Act and 42 USC Sec. 5173, the City of New York developed a request form
that the building owner or resident needed to sign before work could
commence. The authorization form included a stipulation that any
insurance proceeds received for activities covered by the EPA/DEP's
dust cleaning program would be remitted to the federal government. The
State Emergency Management Office maintains responsibility for
notifying FEMA of any such remittance.
Death and Disability Benefits
In responding to the WTC disaster, 341 FDNY firefighters, 2 FDNY
EMTs, 23 NYPD police officers, 3 State Court Officers, and 37 Port
Authority police officers died. Their deaths were the first large-scale
casualties resulting from an emergency response effort in FEMA's
history. For the first time, FEMA received a request that it reimburse
applicants--the City and State of New York--for certain contractually
obligated death benefits, increased pension contributions, and other
associated costs. Specifically, the City and State requested
reimbursement for more than $750 million in death and disability
benefit costs, including:
Funeral Costs and Memorial Services;
Lump Sum Line of Duty Benefit Costs;
Increased Pension Costs Due to Line of Duty Deaths;
Increased Pension Costs Due to Increased Disability
Retirements; and,
Leave Payout.
Upon review, FEMA concluded that funeral and memorial costs, lump
sum death benefits, and increased pension costs due to line of duty
deaths, although unusual, were a direct result of the disaster and a
cost of performing the emergency work. Specifically, FEMA management
found $291 million to be in accordance with OMB Circular A-87
Attachment B, Item 11, Compensation for Personnel Services, and item
11d(5).
Given the magnitude of the death benefit claims, the FEMA had an
actuary review the applicant's actuarial studies to determine the
soundness of the applicant's methodology and the reasonableness of the
assumptions. Based on the actuary's findings, which supported the
applicant's claim, FEMA authorized the reimbursements.
FEMA reimbursed the City and State for additional death and
disability benefit costs as 9/11 Associated Costs.
FEMA did not approve death benefit costs for City or State
employees killed as a result of the disaster where it could not be
reasonably demonstrated that these individuals were performing eligible
emergency work. FEMA also did not reimburse for State worker
compensation costs as FEMA reimbursed the applicant a fringe rate to
perform the emergency work, which included a component for workers
compensation.
Debris--Time and Material Contracts
The FEMA PA Debris Management Guide (FEMA 325) states that the Time
and Material (T&M) work should be limited to a maximum of 70 hours of
actual emergency debris clearance work, and shall be permitted only for
work that is necessary immediately after the disaster has occurred when
a clear scope of work cannot be developed. After the WTC disaster, the
NYC Department of Design and Construction--the overseer of the debris
removal effort--entered into time and material contracts with four
construction managers (CMs) to accomplish the emergency debris removal,
hauling tasks, building demolition, and site stabilization. The CMs
operated via a letter of intent, and not a complete written contract.
Each of the CMs was capped at $250 million.
On September 15, 2001, FEMA approved a written waiver of policy,
which allowed the extended use of T&M contracts based on continuing
unpredictable and complex site conditions at the WTC. In addition, FEMA
waived in part the requirement for competitive bidding on the basis of
continuing public exigency and emergency. Due to these contracting
circumstances, it was prudent that the federal government provide
oversight to ensure that the scope of work and costs of the debris
operation were properly controlled. In order to accomplish this, the
City and FEMA established and implemented monitoring systems using
resources from FEMA, Office of the Inspector General, the DDC, the NYC
Office of Management and Budget, the NYC
Department of Investigation, and several private auditing groups.
In November 2001, FEMA tasked the US Army Corps of Engineers
(USACE) to provide an independent evaluation of the contract
arrangement and recommend whether a T&M contract was still the most
feasible and cost effective contract payment basis, or whether another
type of contract, such as a lump sum or unit price, would be more
suitable. Based on USACE's assessment and recommendation, FEMA extended
its T&M waiver to DDC for the duration of the debris operation.
Debris Removal Insurance Program
Generally contractors, such as the four CMs, provide their own
general and professional liability insurance coverage and include the
costs of insurance as part of their overhead. As such, these costs are
generally eligible for reimbursement by FEMA. Because of the extreme
conditions related to debris removal at the WTC, and the unique nature
of the hazards associated with the debris removal operation, the CMs
required a greater amount and scope of insurance coverage than is
typically obtained, including coverage for environmental liability.
The City agreed to provide a master insurance program, called the
Coordinated Insurance Program, to cover both the debris removal
contractors and employees that had worked at the WTC site. However, due
to the impact of the disaster on the insurance market, available
insurance was severely limited. The City was reimbursed to obtain
general liability coverage and marine insurance coverage. These
policies did not provide the City with coverage for environmental
risks, such as asbestos, or professional liability. Although the City
sought coverage for these risks, no commercial insurance was available
due to the unknown environmental and health risks associated with the
disaster. Because of the unresolved insurance issue, the CMs completed
debris removal at the WTC without a written contract.
The major issue for FEMA was the City's insistence that the
liability protection apply not only to the contractors, but also to the
City for claims brought by City employees that had worked at the WTC
site. FEMA had informally advised the City that the contractor-based
insurance was eligible under the PA program, but the City-employee
based insurance was not and would have to be separated in order for
FEMA to provide funding. In addition, FEMA was concerned about the cost
effectiveness of the City's proposal.
The passage of the CAR resulted in the City establishing a captive
insurance company to process and payout any claims, and FEMA obligating
$999.9 million on PW 1554 in September 2003. The draw down of funds
will not occur until all final terms and conditions, including the
scope of coverage, have been agreed upon.
Emergency Transportation
The WTC disaster caused unprecedented damage and disruption to New
York's regional transportation system. The region relies on a complex
network of rail, subway, bus, bridges, tunnels, roads, and ferry lines
that ties together millions of workers and residents throughout New
York City and in surrounding counties in New York, New Jersey and
Connecticut. The collapse of the WTC towers caused massive damage to
sections of this regional transportation system which serves Lower
Manhattan. This network of rail, subway, bus, and ferry lines was
disrupted as a result of:
1. The destruction of the Port Authority Trans-Hudson (PATH)
WTC station, the terminal station for the PATH lines running
under the Hudson River and serving Lower Manhattan.
2. The damage to the Metropolitan Transportation Authority's
(MTA) Cortlandt Street Station and the N & R and 1 & 2 subway
lines, all located below and adjacent to the WTC towers. (The
MTA subway lines run underground along the west side of
Manhattan. These subway systems were seriously impacted by the
disaster, but unlike the PATH system, did not suffer complete
destruction of major system components.)
3. Alteration of surface transit routes made necessary by
debris removal operations and infrastructure repairs in the
vicinity of Ground Zero.
As a direct result of the disaster, 68,000 commuters who used the
WTC PATH station each day had to find an alternative route to work.
Approximately 76,000 commuters and residents were forced to find
alternatives to their pre-9/11 subway routes.
The direct damage caused by the disaster represented only a portion
of the disruption to the region's transportation system, however. The
damage caused a ripple effect that disrupted the entire system,
affecting every mode of transportation that served Lower Manhattan. For
example, the tens of thousands of New Jersey residents who commuted to
Lower Manhattan on the PATH each day were suddenly forced onto other
modes of transportation. Overnight, the demand for ferry service to
Lower Manhattan more than doubled, and Penn Station experienced an
influx of new riders as commuters were forced to take New Jersey trains
into Penn Station and then take subways downtown. This strained the
capacity of existing transportation routes, created dangerous
overcrowding, resulted in long waits for service, and caused
significant damage to the region's economy.
Restoration of the Lower Manhattan Intermodal System
A traditional interpretation of Section 406 of the Stafford Act
would have limited FEMA's funding to the replacement of the WTC PATH
station and other physically damaged elements of the system. However, a
white paper was developed that provided a broader definition, within
the context of the Stafford Act, of what can comprise a ``damaged
system,'' which FEMA Headquarters approved. By accepting this
definition, FEMA was able to find eligible both directly and indirectly
damaged projects that are critical to restoring the functionality of
the Lower Manhattan intermodal transportation system. In August 2002,
this unique approach resulted in two critical developments:
1. FEMA announced that $2.75 billion appropriated by Congress
to FEMA's disaster fund could be
used to help restore the transportation infrastructure system in
Lower Manhattan. To this amount, the Federal Transit Administration
(FTA) added $1.8 billion, both of which were made available for
transportation projects, for a total of $4.55 billion.
2. FEMA and the US Department of Transportation (DOT) entered into
a Memorandum of Agreement
(MOA) in August 2002, which designates the FTA as the responsible
agency for administering and
monitoring the distribution of the $4.55 billion. This would
enable the Federal government to assess needs and distribute funds in a
systematic, comprehensive, and efficient manner.
Although the MOA noted that the FTA needed to disperse the $2.75
billion in accordance with the Stafford Act, this was waived due to the
passage of the Consolidated Appropriation Resolution of 2003 (CAR
2003).
In March 2002, FEMA agreed with New York City that the emergency
transportation needs of the region justified the increased costs
involved in increasing the frequency of ferry services. FEMA agreed to
reimburse
New York City and the Port Authority for the operating costs of
some new and expanded services initiated post 9/11. This began a series
of ferry projects aimed at providing alternatives to commuters seeking
ways, other than driving and subways, to reach Lower Manhattan.
Eventually, over $47 million was obligated for ferry service and
temporary landing projects that provided ferry service from:
Hoboken to Lower Manhattan;
Brooklyn to Lower Manhattan;
Hunters Point, Queens and East River down to Lower
Manhattan; and,
Lower Manhattan Circulator.
Family Center
As part of its rescue and response effort, the City of New York
needed to quickly establish space where families and friends of the
victims could gather to provide or could obtain information about those
missing or presumed dead, and where families of victims could apply for
assistance. To meet this need, NYC established the Family
Center at Pier 94 in Manhattan, which provided a safe and
convenient location where families to obtain information about the
missing as well as various services and programs.
Because the Family Center provided some services similar to those
of a Disaster Service Center, which are generally not eligible for PA
funding, FEMA had to carefully consider the eligibility of the build-
out and operation of the Family Center. Basing its decision on 44 CFR
Sec. 206.225, FEMA determined that the costs incurred by the City to
establish and operate the Family Center were eligible since services at
the Family Center, such as providing a centralized site to fill out
missing person reports, submit DNA samples, and begin processing death
certificates, was an essential community service in the aftermath of
this disaster. The total cost to build-out and manage the Family Center
was approximately $10 million.
Full Replacement Value (Vehicles)
As a result of the collapse of the WTC towers on September 11, over
200 publicly owned vehicles were destroyed beyond repair. Title 44 CFR
Sec. 206.226(g) stipulates that eligible equipment damaged beyond
repair may be replaced by ``comparable items.'' In interpreting this
federal regulation, FEMA's Public Assistance
Guide states:
When equipment, including vehicles, is not repairable, FEMA will
approve the cost of replacement with used items that are approximately
the same age, capacity, and condition. Replacement of an item with a
new item may be approved only if a used item is not available within a
reasonable time and distance.
In recognition that the collapse of the WTC towers destroyed
hundreds of emergency response vehicles, which significantly and
adversely impacted these agencies' ongoing ability to expeditiously
deliver emergency services, the Federal Coordinating Officer, in a memo
dated December 12, 2001, sought Headquarters' approval for a disaster-
specific directive aimed at fully and promptly restoring the services
provided by these emergency vehicles, with minimal disruption to the
overall recovery process. More specifically, this directive would serve
to allow for the reimbursement of new, 2002 model vehicles to replace
those lost in the disaster in lieu of analyzing and determining, on a
case-by-case basis, whether each destroyed vehicle could be
replaced``within a reasonable time and distance.''
The FCO's request was granted and documented in PA Program Guidance
8, dated January 16, 2002.
According to this guidance, the reimbursement value of a
replacement vehicle would be:
Based on the estimated cost of its purchase through the
applicant's normal procurement process; and,
Calculated net of deductions for actual or anticipated
insurance proceeds.
Lost Instructional Time
On September 11, 2001, the collapse of the WTC forced the NYC Board
of Education (BoE) to evacuate schools in Lower Manhattan and cancel
classes citywide. Whereas most students were able to return to their
respective schools on September 13th, students attending schools within
close proximity to the disaster site were displaced and unable to
return to either their own school or to provisional school facilities
until September 18th. In total, NYC estimated that public school
students lost more than 15 million hours of instructional time due to
school closures, delayed openings, and school relocations. To replace
the lost instructional time, the City proposed implementing an after-
school program, contingent on FEMA funding.
While FEMA recognized that school hours were lost as a result of 9/
11, a program contingent on FEMA funding would not satisfy the
emergency work criteria per FEMA regulations. Ultimately, Congress
directedFEMA to pay for this activity in House Report 107-593. FEMA
obligated a $78 million Category G PW to fund an after-school program
intended to replace the instructional time lost as a result of the WTC
disaster.
Mutual Aid
Not surprisingly, the response from people, non-profits, and other
governmental jurisdictions to help NYC respond and recover was
enormous. In part due to this response, the President declared every
county in New York eligible for Category B emergency work. In light of
every county being declared and the response of so many counties
without a pre-disaster mutual aid agreement in place with New York
City, FEMA found certain mutual aid arrangements eligible even though
they were not formally established in writing prior to September 11,
2001. By doing so, several provisions of Policy Series 9523.6 were
waived. These waivers and authorities were permitted only because the
impact of this terrorist event was catastrophic and well beyond
reasonable planning assumptions of the applicants, and because mutual
aid agreements were unlikely to have been formulated with all the
entities from whom assistance was needed.
In reimbursing local governments within NYS who responded to the
aid of NYC, FEMA limited the eligible costs to overtime, travel
expenses, lodging, and other direct costs, and reimbursed the mutual
aid provider directly. Only applicants who had pre-9/11 mutual aid
contracts in place that allowed payment for straight time were
reimbursed for that cost. All mutual aid providers outside of the state
had to have a pre-9/11 mutual aid contract in place to be reimbursed,
in that case through NYC. The City did not request reimbursement for
any in-state or out-of-state mutual aid providers because, according to
NYC's Office of Emergency Management(OEM) officials, none billed the
City.
Specific to DR-1391, the vast majority of mutual aid assistance
requested by NYC was provided by various New York State counties.
Although numerous counties were called upon to support the response and
recovery effort, Nassau, Suffolk, Westchester, and Rockland counties
incurred most of the mutual aid costs. These four alone accounted for
approximately $10.5 million in mutual aid assistance, with Nassau
County providing the bulk--over $7.2 million in mutual aid assistance.
Obtain and Maintain Insurance
Per Section 311 of the Stafford Act and Title 44 CFR 206.253,
following any disaster, and as a condition for receiving PA funds, an
applicant must obtain and maintain insurance on those insurable
facilities (including content, equipment and vehicles) for which PA
funding had been found eligible. The insurance must be for the hazard
that caused the damage. An applicant is exempt from this requirement
only if the state insurance commissioner certifies that such insurance
is not, per Section 311(a)(1) of the Stafford Act, ``reasonably
available, adequate, and necessary.'' In addition, with regard to
requests from public entities that they be allowed to self-insure,
Section 311(a)(c) of the Stafford Act notes that only states will be
allowed to act as self- insurers.
Prior to 9/11, NYC did not maintain commercial insurance on NYC
buildings or property, such as vehicles or building contents. Rather,
NYC considered itself to be ``self-insured.'' When damages or losses
occurred to a
NYC property, the property was either not repaired or replaced, or
else it was replaced or repaired using funds appropriated from NYC
revenues.
Following 9/11, NYC requested that it be allowed to continue to
self-insure and to be exempted from FEMA's
Obtain and Maintain Insurance requirement. NYC argued that
obtaining and maintaining commercial insurance for the damaged or
destroyed property eligible for PA funding would be a deviation from
normal business practice, resulting in serious fiscal implications to
NYC's budget. On March 26, 2002 the NYS Superintendent of Insurance
issued a letter stating that NYC was self-insured, and that the type of
insurance required was not reasonably available, adequate, and
necessary. FEMA's Acting Regional Director declined to recognize NYC as
self-insured, but granted a waiver to the Obtain and Maintain
requirement based on the NYS Superintendent of Insurance's opinion.
Port Authority Apportionment
One of the most complex challenges of the disaster was determining
an insurance apportionment strategy for the Port Authority of New York
and New Jersey. The Port Authority reported estimated losses in excess
of $4.6 billion, and had $1.5 billion of insurance coverage for all
insured risks on a per occurrence basis. Since the Port's projected
losses significantly exceeded its insurance coverage--the only
applicant to whom this occurred in DR-1391 FEMA worked with the Port
Authority to develop a funding strategy that would provide the Port
Authority with cash flow, yet account for the Port Authority's future
insurance proceeds.
For the first year and a half after the disaster, while estimates
of the Port's overall loss were still being developed, FEMA, NYS, and
the Port Authority agreed to apply a 50 percent insurance reduction to
each individual funding obligation. The implementation of this strategy
allowed Stafford Act grant funds to be released in advance of final
insurance resolution. The 50 percent was based on FEMA's analysis at
the time of the Port's Preliminary Loss Assessment.
Through subsequent developments and the Port Authority's refinement
of its losses, FEMA later modified its funding strategy and effectively
reduced its obligation outlay to 26 percent of eligible projects. FEMA
and the
State allowed individual project reimbursements to be released with
varying percentages applied for insurance proceeds. Even though the
Port Authority's loss claim will continue to mature, the financial
model--the Insurance Apportionment Strategy--calculated the net FEMA
eligible obligation at $409.88 million, representing 26 percent of the
total Stafford-eligible costs.
In the end, the Port Authority was granted $397.97 million as
Stafford Act-eligible costs obligated via PWs, and an administrative
allowance of $2.03 million. FEMA was able to fully exhaust the
available insurance proceeds by documenting the amount of eligible work
and making provisions through the apportionment process, thus ensuring
no duplication of insurance benefits.
Equipment and Contents Repair and Replacement
Costs contained in this category are relatively low since its focus
is the repair and replacement of damaged equipment, computer systems,
contents and furnishings. More specifically, this category includes
costs associated with the:
(1) Replacement of destroyed vehicles;
(2) Installation and replacement of telecommunication and computer
systems, and,
(3) Replacement of destroyed building contents and furnishings.
The repair and replacement of larger, more permanent structures,
such as buildings, water mains, and transportation components are
included in the Infrastructure category.
Death and Disability Benefits
Costs contained within this category are for certain contractually
obligated death benefits, increased pension contributions, and other
costs associated with the death or disability of emergency personnel as
a direct result of the disaster. Specifically, this category includes
costs for:
(1) Funeral and memorial services;
(2) Lump sum line of duty benefits;
(3) Increased pensions due to line of duty deaths and increased
disability retirements;
(4) Leave payout to beneficiaries; and,
Cost of living adjustments for the State's pension contribution
Hazard Mitigation
This category contains costs associated with FEMA's 404 Hazard
Mitigation Grant Program (HMGP), which for DR-1391-NY provided funds
for long-term hazard mitigation measures against terrorism. Funding for
HMGP is generally 15 percent of the total estimated Federal disaster
assistance to be provided by FEMA under the declaration. That 15
percent is cost-shared on a 75/25 Federal/State and local ratio. For
this event, it was capped at 5 percent of that total, limited to the
disaster area, and intended for projects that protect infrastructure
and systems essential to the City's continued viability. These
parameters on the HMGP were implemented due to the immense financial
size of the disaster, particularly where the disaster assistance that
serves as the basis for the HMGP allocation was provided at 100 percent
federal expense, with no State or local cost-share. FEMA considered
many projects, including those that:
(1) Protect public infrastructure and utilities;
(2) Protect key governmental and healthcare facilities;
(3) Promote awareness initiatives;
(4) Ensure the continuity of government and business operations;
(5) Promote high-rise building safety; and,
(6) Protect public landmarks.
Administration
This category includes costs associated with administering all of
the FEMA Federal grant programs for DR-1391-NY. The most significant
and costly items in this category are those associated with:
(1) Grant management costs (including the FTA);
(2) FEMA administrative costs;
(3) Contractor costs; and,
(4)Administrative allowances.
New Jersey
Included within this category are all costs funded through EM-3169-
NJ. The most significant and costly projects in this category were
those associated with emergency protective measures taken by the State
of New
Jersey and its associated entities. Specifically, this category
contains funds expended by New Jersey resources to:
(1) Provide logistical and operational support to NYC;
(2) Evacuate Lower Manhattan;
(3) Transport and treat the injured;
(4) Establish emergency staging areas for rescue and recovery
operations;
(5) Secure bridges and tunnels; and,
(6) Manage traffic to and from New York City.
Not included in this category are New Jersey projects that were
sponsored by the New York State Emergency Management Office.
Individual and Family Grant
Costs contained within this category are for projects in which
individuals, not public entities, were the ultimate beneficiaries of
services. The most significant and costly projects in this category are
those associated with the Human Services Program, which includes costs
for:
(1) Mortgage and Rental Assistance;
(2) Temporary Housing;
(3) Individual and Family Grants;
(4) Disaster Unemployment;
(5) Crisis Counseling; and,
(6) Disaster Food Stamps.
Also included in this category are funds expended via Interagency
Agreements for:
(1) Expanded health care monitoring for rescue workers;
(2) Establishment of a health registry;
(3) Medical screening/health assessments of Federal workers;
and,
(4) Residential cleaning and sampling.
Costs associated with operating the Family Center are also included
in this category.
While all of the categories of spending listed above are important,
the Crisis Counseling program was the most significant FEMA had
established since the Murrah Building bombing in Oklahoma City in 1995.
As with the Oklahoma City experience, this program was also of a longer
duration than most programs associated with disaster-related
counseling. The issues and challenges to individuals and families such
as Post-Traumatic Stress Syndrome and other mental health challenges
caused by such a horrific event are manifested in the size and scope of
this program.
The largest program in terms of financial costs was the Mortgage
and Rental Assistance (MRA) program. This program was deleted from the
Stafford Act with the passage of the Disaster Mitigation Act of 2000.
However, that Act and the provisions for the deletion of MRA were not
yet in effect in September of 2001. As such, it was still an eligible
program and available for this disaster. The MRA program authorized
temporary mortgage or rental payments to or on behalf of individuals
and families who experienced financial hardship caused by a major
disaster. Given the need to show causality, as well as a requirement
that the applicants have received a written notice of dispossession or
eviction, this had always been a challenging program to administer.
Given the population size of the immediate area impacted by this event,
this was an especially difficult program to administer in both an
urgent and equitable manner. However, despite all of those challenges,
a significant number of applicants were assisted through this program.
The most challenging program, among human services programs, was
the Individual and Family Grant (IFG) program. Traditionally this
program helps individuals and families to replace household items and
provides special help for those without adequate insurance to pay for
some medical and funeral expenses. The most difficult aspect of the IFG
program was the payment for air conditioners based on the contaminated
air quality caused by the destruction of the towers.
By the time determinations had been made regarding air quality,
most home inspections, FEMA's chief means of verification of damage,
had already been performed. The EPA's warnings regarding the air
quality were real, as were the concerns of residents. Therefore, rather
than re-inspect thousands of homes, FEMA and the State of New York
accepted self-certifications by residents as to the urgency of their
need and to their contention that they were replacing air conditioners
previously owned.
While FEMA and the State entered into this program cognizant of the
risk of fraud, as with many emergency- related programs, we err on the
side of safety with the assumption that we could assure more
accountability as the recovery continues. The aggressive, and at times
deceptive, approach by vendors anxious to encourage purchases presented
a serious complication. The fact that there was no re-inspection and
the vendors' approach contributed to fraud and abuse in the IFG
program. Although this program was abused, it also ensured that those
most in need of such assistance received help.
Undeniably, the WTC disaster impelled us to move quickly and
compassionately. However, it is also our duty to ensure that our
programs provide the benefits intended under the law to eligible
applicants. The experience with the September 11th IFG program
underlines the importance of balancing compassionate service with the
need for accountability. To provide a clear understanding of how
effectively the program is operating, the
States must perform inspections and, barring those, random
eligibility samples throughout the process.
Conclusion
Taken together, these project areas represent an overall picture of
the damage and the steps taken to repair the damage and to assist the
individuals, families, and communities who suffered the most direct
pain and loss from this national event.
Even a brief review of the different categories of spending serves
as a reminder of the various forms of disruption and chaos caused by
the event but it is also a reminder of the heroic work that took place.
I appreciate the opportunity to share with you the details of
FEMA's role in response, recovery, and mitigation for the World Trade
Center disaster, and I will do my best to answer any questions you may
have.
Prepared Statement of Mr. Richard L. Skinner, Inspector General, U.S.
Department of Homeland Security
Good afternoon Mr. Chairman and Members of the Subcommittee. I am
Richard L. Skinner, Inspector General for the Department of Homeland
Security. Thank you for the opportunity to be here today to discuss the
work of the Office of Inspector General (OIG) in response to the
terrorist attacks of September 11, 2001, in New York City. During the
period of the federal response, I served as the Deputy Inspector
General for the Federal Emergency Management Agency (FEMA).
Subsequently, I became the Deputy Inspector General, and later
Inspector General for the Department of Homeland Security.
OIG RESPONSE TO SEPTEMBER 11, 2001
The events of September 11, 2001, resulted in catastrophic loss of
life and physical damage as well as loss to the business and
residential infrastructure in the lower part of the Borough of
Manhattan. FEMA applied the full range of authorized disaster
assistance programs to address the post-disaster needs of the City of
New York and its citizens, including grants for Public Assistance,
Temporary Housing (specifically Mortgage and Rental Assistance),
Individual and Family Grants, Disaster Unemployment Assistance, Crisis
Counseling Assistance and Training, and Legal Services. However, due to
the unique circumstances of this disaster--i.e., managing the
consequence of a terrorist event rather than the consequences of a
natural disaster--FEMA had to use its authorities and programs more
broadly than ever before. As a result, FEMA's authorities were not
adequate to meet everyone's expectations in recovering from the
unprecedented needs created by this event.
On September 17, 2001, our investigators arrived in New York City
and met with the Federal Coordinating Officer, representatives of the
U.S. Attorney's Southern and Eastern District Office, the Manhattan
District Attorney's Office, the New York Police Department, the Port
Authority Police Department, the City of New York Department of
Investigations, and many other investigative organizations with
jurisdiction over the World Trade Center disaster. The purpose of those
meetings was to provide and receive information; explain our mission of
aggressively investigating and recommending prosecution of anyone
attempting to defraud FEMA; and, to fulfill our objectives of:
Participating in public service announcements
Conducting fraud awareness briefings
Organizing a multi-agency task force to collectively
address fraud
Reviewing applications through computer matching
Monitoring debris removal
Participating in press conferences with the U.S.
Attorney's Office
Distributing FEMA fraud Hotline posters and
information
During the initial first eight months, a satellite office was
established in Manhattan where our investigators worked round-the-
clock, in three shifts with six agents per shift. In April 2002,
investigators transitioned to two/12-hour shifts, and maintained six
agents per shift. By February 2003, investigators were working one/12-
hour shift with six agents. The Agent in Charge of the FEMA OIG Eastern
District Investigations Branch Office in Atlanta, Georgia provided
supervisory oversight of the World Trade Center investigations.
By early October 2001, we also deployed teams of auditors and
inspectors from our headquarters and various field offices to the New
York City Disaster Field Office (DFO). Our mission was to (1) assist
the Federal Coordinating Officer in reviewing and assessing procedures,
practices, and controls in place throughout the operation; (2) identify
and prevent fraud; and (3) assure FEMA's Director that all possible
actions to protect public welfare and to ensure the efficient,
effective, and economic expenditure of federal funds were undertaken.
One team of auditors and inspectors worked directly with the Federal
Coordinating Officer and monitored set-up and operation of the DFO.
Another team of auditors worked with FEMA's public assistance staff
while a team of inspectors worked with FEMA's individual assistance
program staff.
INVESTIGATIVE ACTIVITIES
We received allegations of fraud in a variety of ways. While the
FEMA OIG fraud hotline was our primary source of information, FEMA's
disaster assistance program staff, the Manhattan District Attorney's
Office, and other federal, state, and local agencies provided
information.
Our investigators received over 1,100 complaints resulting in
approximately 250 investigations, the majority of these complaints were
related to fraudulent applications for Mortgage and Rental Assistance,
Disaster Unemployment Assistance, and individual assistance. We worked
many of those investigations jointly with the Social Security
Administration OIG, the New York Department of Investigations, and
other law enforcement agencies. We arrested or indicted 117 individuals
resulting in 96 convictions, 10 dismissals, 3 warrants, and 8
investigations pending final disposition. Further, the approximate
aggregate dollar amount that can be attributed to our investigative
activity is $940,000 in recoveries, $6.9 million in restitutions, $2
million in fines, and $8 million in cost savings to the federal
government.
Individual Assistance
Our investigative activities in response to the World Trade Center
closely paralleled a profile we learned from responding to prior
catastrophic disasters. We projected that the first investigations
would involve false claims for individual assistance, which included
the Mortgage and Rental Assistance, Disaster Unemployment Assistance,
Individual and Family Grants programs, and other associated programs to
assist individuals affected by the disaster.
During our initial meeting with representatives of both the U.S.
Attorney in the Eastern and Southern Districts, it was mutually agreed
that the Manhattan District Attorney's Office would prosecute the
smaller individual assistance cases while the U.S. Attorney's offices
would pursue debris removal cases.
Examples of the individual assistance cases accepted by the
Manhattan District Attorney's Office were:
Claims for damage to residences owned by others
Claims for damage to a residence where no damage
occurred
Claims for pre-existing damage
Claims for mortgage and rental assistance
Claims in the names of decedents
Renters filing claims purporting to be landlords
Mortgage and Rental Assistance Program
The Mortgage and Rental Assistance (MRA) program was designed to
cover rent or mortgage payments for victims who suffer financial
hardship as a result of a major disaster. Victims who were unable to
pay their rent or mortgage and received written notice of eviction or
foreclosure may have been eligible for MRA grants.
One example of an MRA-related investigation involved a person who
was temporarily employed by FEMA at the Applicant Assistance Center in
Manhattan. The employee participated in a scheme to defraud FEMA by
filing false claims under the MRA program. To further the scheme, he
and seven others obtained, or helped to obtain, over $1 million in MRA
grants based upon applications that contained fake phone bills and
bogus driver's licenses, which were intended to prove residency at a
particular location, or identified residential addresses that were
actually commercial mail receiving facilities. Additionally, these
individuals enlisted accomplices to create false documents, submit
false claims, vouch for information provided to FEMA, and to receive
grant payments. In April 2006, with the cooperation of the Secret
Service and the Postal Inspection Service, six were arrested and
charged in the Eastern District of New York, in a 52-count indictment
to include false claims, conspiracy, mail fraud, wire fraud, and making
false statements. Two of the individuals pleaded guilty, one remains a
fugitive, and prosecution is pending on the remaining four defendants.
Other examples of related investigations include two individuals
who claimed damage to their personal property items from debris and
smoke filled air in their apartment, which was located 35 blocks from
the World Trade Center site. Each received $10,000 in grants from FEMA.
Another individual claimed her estranged husband was a window washer at
the World Trade Center and died in the attack. She received $3,200 in
rental assistance before we determined the husband was alive and living
on Long Island. All of these individuals were successfully prosecuted.
Individual and Family Grants Program
The Individual and Family Grants (IFG) program was designed to meet
the disaster-related necessary expenses or serious needs of disaster
victims which could not be met through other provisions of the Stafford
Act; or, through other means, such as insurance; other federal
assistance; or voluntary agency programs. Eligible expenses may include
those for real and personal property, medical and dental expenses,
funeral expenses, transportation needs, and other expenses specifically
requested by the state.
On October 18, 2001, air purifiers, air filters, and vacuum
cleaners with high efficiency particulate air filters were added to the
list of IFG eligible items. On March 22, 2002, FEMA and the state
decided to add window air conditioners as an IFG eligible item.
Eligibility was dependent upon applicants having owned a window air
conditioner that was damaged during the event. Traditionally, during a
home inspection inspectors would verify damage before recommending the
repair or replacement of an eligible item.
However, when air conditioners were added as an IFG eligible
property item, home inspections had been completed. FEMA then decided
that it would not be cost effective to have inspectors verify damage of
a single property item. Instead, the state implemented a self-
certification process. Further, on May 1, 2002, FEMA and the state
authorized advance payments to applicants who were financially unable
to purchase air quality items. Rather than requiring receipts for such
items prior to grant approval (which was traditionally required) or an
ability to document financial need, applicants were permitted to
certify that they were unable to pay for the items and were asked to
provide receipts after purchase.
On February 20, 2003, the Associated Press reported that people who
did not suffer from the effects of contaminated air filed 90 percent of
the applications for reimbursement of IFG eligible air quality items.
The source of that figure was FEMA's World Trade Center disaster
recovery manager. The manager's estimate was based on an assumption
that, of the 225,000 applicants for air quality items, only the 25,000
applicants that lived in Manhattan and who were eligible to participate
in an Environmental Protection Agency home cleaning program, suffered
from contaminated air. Consequently, the manager concluded that 90
percent of the applications submitted were from individuals who had not
suffered from the effects of contaminated air.
We determined there was no indication that eligible applicants did
not receive assistance. However, because FEMA and state management and
control over IFG eligible air quality items was reduced, many
applicants received assistance for which they may not have been
eligible, which increased opportunities for fraud and abuse.
In response to these concerns, and at our urging, FEMA implemented
a sampling program to verify applicant eligibility and to identify
abusers. FEMA selected two random samples: one of applicants who
repaired or replaced air conditioners, and one of applicants who
received advances for air quality items. Although the samples were not
designed to be statistically valid, the results suggest that a large
number of applicants were not suffering from the effects of
contaminated air.
In January 2003, FEMA selected a sample of 4,435 people who applied
for assistance to buy window air conditioners and visited their homes
to verify that they had window air conditioners before the disaster
occurred. FEMA representatives inspected damaged air conditioners or,
when damaged air conditioners had been disposed of, inspected
indentations left in windows by the air conditioners. The home
inspections identified 1,704 applicants who had evidence of the prior
existence of a window air conditioner, and 2,731 applicants, or 62%,
who did not and therefore were probably ineligible for assistance.
The second sample of 5,602 applications was selected in March 2003
to verify the proper use of $5.8 million in advances for air quality
items. Applicants who received advances were required to submit
receipts to the state within 30 days after receiving the funds, but
FEMA said that none of the applicants included in the sample complied
with this requirement. As of July 22, 2003, FEMA had completed 5,029
home inspections and determined that 3,347 applicants had purchased the
air quality items. FEMA referred the 1,682 applicants, or 33%, who had
not purchased the air quality items to the state for collection.
These findings and conclusions were discussed with Manhattan
District Attorney's Office prosecutors who expressed concern proving
criminal intent. The prosecutors felt it would be their burden to prove
that a subject's intended purpose was to defraud FEMA, yet the
prosecutors were not certain they could satisfy that element. While
prosecutors did state that they would be willing to review such cases,
unless our investigators had solid proof of intent, prosecutors would
be more likely to decline prosecution. Also, prosecutors expressed
concern over the low dollar amount--about $1,200--of each potential
case and over the administration of the program, which allowed
applicants to receive funds and purchase items with no stated purchase
deadline.
The Assistant U.S. Attorneys expressed similar concerns.
Specifically, the lack of program criteria allowing applicants to
receive funds and purchase items with no stated purchase deadline, and
the low dollar amount, made the cases very unattractive. An additional
issue for the U.S. Attorney was the appearance of selective prosecution
for which a logical defense would be why is the government prosecuting
certain individuals when it chose not to prosecute all 200,000 of the
potential fraudulent claims.
We reviewed many allegations and referrals concerning this matter
and determined, from a historical and reasonable approach, that with
few exceptions, the allegations and referrals did not appear to have a
great deal of prosecutorial merit. However, both federal and state
prosecutors stated that if the case involved false documents, they
would be more likely to prosecute those subjects. We conducted 12
investigations, the subjects of which were prosecuted by the Manhattan
District Attorney's Office. Two individuals filed claims to obtain
filters for their window air conditioners when in fact the high-rise
building where they resided had central air conditioning. Another 10
individuals, when confronted by our investigators, confessed to
submitting false invoices to support their claims for IFG assistance.
Last, we investigated complaints against 16 air quality products
companies for using unethical sales tactics and referred them to the
New York State Attorney General's office.
Nevertheless, we did have success, in our opinion, mitigating some
of the fraud. As a result of FEMA's intensive efforts to educate the
public as to the true intent of the IFG Program and its aggressive home
inspection sampling initiative, coupled with our investigative
initiatives, which received considerable media coverage, more than
100,00 of the original 229,000 applicants voluntarily chose to withdraw
from the program. They either returned or did not accept their grant
award. Given that the average IFG award was about $1,200, these actions
helped FEMA save more than $120 million.
Public Assistance
Public assistance investigations, the majority of which deal with
debris removal and generally involve primary contractors and
subcontractors, are more complex and take longer to complete than the
individual assistance investigations. Examples of public assistance
cases the U.S. Attorneys agreed to prosecute dealt with the removal and
disposal of disaster related debris. We have long recognized that the
nature of debris removal operations make it an area where unscrupulous
individuals and firms could potentially use a disaster for personal
gain. With our years of experience, we have seen contractors engaged
in:
Submitting false debris removal invoices
Artificially increasing tonnage hauled
Inflating the number of employees
Falsifying labor and material costs
Bribery, bid-rigging, and kickbacks
Working jointly with the Internal Revenue Service's Criminal
Investigations Division and the Postal Inspections Service, we
investigated the president and owner of a disaster recovery and clean-
up company. This individual and others were convicted in U.S. District
Court of engaging in a fraud scheme to enrich themselves by taking
advantage of federal disaster relief funds in New York and two other
states. Specifically, the contractor was hired to provide monitoring
and maintenance services at the Fresh Kills Landfill on Staten Island.
The contractor misrepresented the hourly rates it was paying employees,
and submitted false invoices for employee lodging and per diem.
In another investigation, two contractors working for a trucking
company were successfully prosecuted. All contractors are required to
have a valid New York City permit to do business in the city. We
received information that this trucking company submitted an
application to remove debris and provided false information as to the
owner of the company. Working jointly with the New York Department of
Investigations, we participated in the execution of a New York State
search warrant at two of its places of business, which produced
documentation as to the true owner and manager of the company. One
individual was arrested for submitting false documents to the City of
New York for a work permit license. A second individual was arrested
for making false statements in a deposition as to the ownership of the
company. Both were convicted on multiple counts of perjury.
GENERAL MANAGEMENT OVERSIGHT ACTIVITIES
As I briefly mentioned, our auditors and inspectors worked in
direct support of the Federal Coordinating Officer responding to
specific requests and addressing matters that independently came to our
attention. Some of the tasks we performed at the Disaster Field Office
related to accounting and auditing, but some were as varied as tracking
down missing copy machines. We worked closely with a team of FEMA
comptrollers and Office of General Counsel representatives, helping
them with a wide assortment of financial matters. Further, we worked
with other federal agencies, as well as with state and city
organizations and voluntary agencies. Our support included establishing
a partnership with program staff to identify and suggest courses of
action regarding potential and emerging issues with duplication of
benefits, donations management, accountable property, program
limitations and administration, DFO training, and safety and security.
Public Assistance
We responded to the World Trade Center attack as a partner with
FEMA's response and recovery components. We deployed a team of auditors
to monitor public assistance operations and assist in reviewing
requests for assistance. The team maintained a presence for more than
18 months after the attack, working with FEMA public assistance staff
to ensure that recovery efforts were on track and complied with federal
laws and regulations.
Our efforts were far from the traditional role of the OIG as this
was an extremely unique situation. We were able to contribute
significantly to the effectiveness of FEMA's response by providing
proactive oversight rather than reactive hindsight. Early in the
process we briefed applicants on how to qualify for FEMA assistance and
maintain records, and we reviewed accounting systems of some of the
local governments to ensure they were adequate for collecting necessary
cost data.
We reviewed requests for funding and the detailed worksheets for
proposed projects and met with public assistance program staff on a
regular basis to provide them technical assistance on allowable costs.
At FEMA's request, we reviewed questionable bills submitted by
applicants for payment and FEMA's implementation of its policy on
heightened security eligibility.
We did not conduct any traditional compliance audits of public
assistance grants, nor did we audit any costs incurred under the
Consolidated Appropriations Resolution Act of 2003, which provided that
costs not eligible for public assistance funding, referred to as
associated expenses, would be funded with the remainder of the $8.8
billion of authorized FEMA funding. FEMA estimated that $7.6 billion
would be required for Stafford Act purposes and $1.2 billion would be
used for associated expenses. Associated expenses include such costs as
local government employee salaries, heightened security costs, and the
``I Love NY'' campaign, which encouraged tourism and visitors to the
state.
Individual Assistance
In response to congressional inquiries, we reviewed the delivery of
individual assistance in New York after September 11, 2001. The review
focused on issues that needed to be addressed by both FEMA and Congress
as they considered regulatory and legislative changes to improve FEMA's
delivery of assistance to victims of future terrorist attacks that
result in presidential disaster declarations. The following is a
summary of some of the issues raised during our review, FEMA's Delivery
of Individual Assistance Programs: New York--September 11, 2001
(December 2002).
Eligibility Issues in the Mortgage and Rental Assistance Program
FEMA has not implemented the MRA program on a large scale because
previous disasters did not coincide with nor result in widespread
unemployment or national economic losses. From the inception of the MRA
program until September 11, 2001, only $18.1 million had been awarded
in 68 declared disasters, compared to approximately $76 million awarded
in response to the New York World Trade Center disaster alone. Because
the program was seldom used, Congress eliminated it when the Disaster
Mitigation Act of 2000 (DMA) was enacted, making the program
unavailable for disasters declared after October 14, 2002.
FEMA had to face the challenge of implementing this program in a
disaster that caused significant economic consequences, including not
only the obvious economic impact of the incident itself but also the
indirect economic effects felt throughout the nation. The language of
the Stafford Act's MRA authority established, as a criterion for
assistance, a written notice of dispossession or eviction. The law was
silent, however, on what constitutes a financial hardship. This
omission required FEMA to interpret to what extent a personal financial
loss constitutes a financial hardship, and to determine whether that
hardship resulted directly from the primary effects of the attack or
from the secondary effects on the nation.
The MRA program's limited use, the broad economic impact of this
unprecedented event, and FEMA's challenge to differentiate between
primary and secondary economic effects contributed to difficulties in
delivering timely and effective assistance. The MRA program was unique
because it addressed limited, individual economic losses versus
physical damage resulting from a disaster. Traditional inspection of
damages as a basis for program eligibility determinations, therefore,
did not apply to MRA. Individual financial hardships caused by the
disaster were evaluated on a case-by-case basis. FEMA attempted to
clarify eligibility criteria that required a clear link between
physical damage to the business or industry caused by the disaster and
an applicant's loss of household income, work, or employment regardless
of geographic location.
State Capability to Implement the Individual and Family Grants Program
Applications for IFG assistance rose sharply in June 2002, as
applicants requested assistance for air quality items. FEMA believed
the increase in new applications coincided with public announcements
being made by the Environmental Protection Agency (EPA) regarding the
poor air quality in the city and the need for air-conditioning and
related items because of the unusually warm spring and early summer.
The state believed the surge in new applications coincided with the
closing of assistance from many nonprofit organizations. FEMA received
an average of 7,660 applications per month from June 2002 to August
2002 for air quality items. Applications for IFG assistance typically
do not spike at this point in the recovery phase of a disaster.
The unanticipated increase in applications received after June 2002
also may have been related to two other decisions regarding assistance
for air quality items. First, assistance was made available to all
households in the five boroughs of New York City. The broad geographic
eligibility was not related to the areas of actual impact. A better
model might have been to limit eligibility to the same areas identified
by the EPA and the New York City Department of Health for purposes of
the apartment cleaning and testing program. Had the IFG program and the
EPA testing and cleaning program worked more closely in terms of
geographic eligibility, the IFG program would have had reasonable and
justifiable boundaries. Second, as a result of concerns expressed by
certain advocacy groups, applicants were allowed to certify that they
were unable to pay for the air quality items (costing as much as
$1,600). Funding was advanced to those applicants and they were
requested to provide receipts after purchase. There were few
limitations placed upon who could qualify for this ``unable to pay''
option. As I have previously noted, this may have increased the
likelihood of fraud and abuse.
Interagency Coordination Challenges
I cannot stress enough the need for interagency data sharing and
coordination to improve disaster response, recovery, and oversight.
After 9/11, responsibilities shared among FEMA, EPA, the U.S.
Department of Justice's (DOJ) Office for Victims of Crime, and
voluntary agencies, for example, were not defined clearly enough to
distinguish roles and establish the sequence of delivery of assistance.
Recovery from the event highlighted the need for data sharing
agreements regarding shared roles and responsibilities among key
agencies likely to respond to future criminal actions.
Information Data Sharing
Although progress has been made in this area since 9/11, much more
needs to be done. Accordingly, I would like to again emphasize the need
for interagency data sharing and coordination through three principal
means: direct access to FEMA data, computer matching agreements, and
real-time data exchange.
Hurricane Katrina clearly demonstrated that law enforcement needs
direct access to disaster victims' personal information, not only to
reconnect family members and locate missing persons, but also to
convicted sex offenders who relocated as a result of the disaster.
Hurricane Katrina left over 5,000 children missing and more than 2,000
unaccounted for registered sex offenders. The process employed by FEMA
to fulfill law enforcement agency requests for FEMA records under the
Privacy Act is untimely. The FBI has indicated that these requests
sometimes take days to fulfill. A similar protracted process was used
for governors to request information from FEMA to obtain data on sex
offenders who relocated to their state. The HHS believes, and we agree,
that evacuated, registered sex offenders are a potential threat to
children until appropriate law enforcement has information to identify
and monitor these individuals. Timely access to FEMA data can assist
law enforcement in protecting public safety and security, such as in
the apprehension of fleeing felons.
In support of these issues, FEMA published a notice in the Federal
Register, on July 6, 2006, adding a new routine use to its Disaster
Recovery Assistance system of records that allows for greater
information sharing with federal agencies, state and local governments,
or other authorized entities for the purposes of reunifying families,
locating missing children, voting, and with law enforcement entities in
the event of circumstances involving an evacuation, sheltering, or mass
relocation, for purposes of identifying and addressing public safety
and security issues. As FEMA noted, these routine uses are being added
to resolve any ambiguities about FEMA's authority to share information
under these circumstances and to ensure that necessary information can
be disseminated in an efficient and effective manner. This is a step in
the right direction.
Another advantageous means of data sharing involves computer
matching. Computer matching agreements among federal agencies that
provide disaster assistance are often necessary to detect fraud, waste,
and abuse. Agencies such as the Social Security Administration and the
Small Business Administration, for example, have expressed a high
degree of interest in such agreements with FEMA. An agreement between
FEMA and the Department of Housing and Urban Development was recently
executed to identify individuals who are receiving excess or duplicate
housing assistance relating to Hurricanes Katrina and Rita. Yet, to
date, only the HUD computer matching agreement has been executed,
eleven months after Katrina's landfall. Without such agreements, the
prospect for protecting the taxpayer's dollars and prosecuting fraud is
diminished.
One more means of data sharing I would like to convey is the real-
time exchange of information among federal agencies that provide
disaster assistance. This exchange of information is necessary to
verify identity and eligibility, as well as to create a holistic
approach for the effective delivery of disaster assistance. According
to FEMA's Guide to Recovery Programs, the federal government has over
90 disaster assistance programs. Real-time data sharing agreements are
necessary to prevent the duplication of federal disaster assistance and
to ensure that disaster victims receive the full compliment of disaster
assistance needed for a timely and effective recovery. Currently, FEMA
has a contract with the commercial data reseller ChoicePoint to
authenticate the identity of disaster assistance applicants. Since
Hurricane Katrina, approximately $4.3 million has been expended for
their authentication services. Furthermore, it is our understanding
that FEMA has extended this contract with ChoicePoint through June
2007. However, interagency data sharing agreements between federal
agencies that provide disaster assistance would lessen the government's
reliance upon commercial data resellers such as ChoicePoint for
identity authentication. For example, data sharing agreements between
FEMA and the Social Security Administration and the Postal Service can
verify the name, social security numbers, and address of an individual
applying for disaster assistance. These agreements will result in
greater intergovernmental collaboration in the delivery of disaster
assistance, which corresponds with the intent of the National Response
Plan and FEMA's Strategic Plan Fiscal Years 2003-2008, which charges
FEMA to serve as the nation's knowledge manager and coordinator of
emergency management information.
I would like to note that we have an ongoing review of how FEMA's
data sharing processes and procedures can be enhanced to promote
effective and efficient disaster response, recovery, and oversight. We
look forward to sharing our findings of this review with you when it is
complete. The following are examples where interagency data sharing and
coordination after the 9/11 terrorist attacks could have been approved.
Response to Residential Air Quality, Testing, and Cleaning Requires
More Coordination
EPA was aware, based on its work in the aftermath of the 1993 World
Trade Center terrorist bombing, that the World Trade Center complex
contained asbestos material. Neither FEMA nor New York City officials,
however, initially requested that EPA test or clean inside buildings
because neither EPA nor the New York City Department of Environmental
Protection could identify any specific health or safety threat. EPA
nevertheless advised rescue workers early after the terrorist attack
that materials from the collapsed buildings contained irritants, and
advised residents and building owners to use professional asbestos
abatement contractors to clean significantly affected spaces.
Directions on how to clean the exterior of buildings affected by dust
and debris were provided to building owners by the New York City
Department of Environmental Protection, and directions on how to clean
interior spaces were provided by the New York City Department of
Health.
Neither FEMA nor EPA traditionally had been involved in testing and
cleaning private residences. Neither agency is specifically authorized
to provide such services. However, when a potential health and safety
threat was identified and New York officials documented that interior
testing and cleaning would beneficially impact the City's economic
recovery, FEMA used its debris removal authorities under the Stafford
Act to provide the necessary funding.
However, the program to test and clean residences in lower
Manhattan did not commence until months after the disaster. Although
FEMA has the responsibility to coordinate recovery from declared
disasters, FEMA must depend on the particular expertise of the EPA in
circumstances involving possible air contaminants or environmental
hazards. EPA must confirm that such hazards constitute a public health
and safety threat before FEMA can provide funding for emergency
response. We suggested that FEMA be more proactive in requesting EPA to
conduct necessary testing and/or studies to determine if a public
health or safety threat exists in future, similar disasters so that
cleaning efforts could begin much earlier in the recovery phase. FEMA
also should address the roles of state and local agencies in such
circumstances, as consultation with those agencies would provide useful
information in review or evaluation.
Department of Justice Authorities Compliment FEMA Authorities
Because the World Trade Center complex and Pentagon were declared
disasters by the President resulting from criminal actions, both FEMA
and DOJ's Office for Victims of Crime had authority to provide victim
assistance. FEMA's Crisis Counseling Assistance and Training Program
(CCP) providers found it necessary to offer support services that went
beyond the normal levels of CCP mental health programs. Further, too
many entities were involved at the outset to ensure coordination and
avoid potential confusion of services provided to victims.
The event uncovered potential DOJ-FEMA overlaps in some programs
covering disasters that are also crime scenes. FEMA's CCP program funds
crisis counseling and the IFG program reimbursed victims of disasters
for medical, dental, and funeral expenses. The Victims of Crime Act of
1984, as amended (42 United States Code Sec. 10603), authorizes DOJ's
Office for Victims of Crime to provide financial assistance to victims
of federal crimes and of terrorism and mass violence in the form of (1)
grants to state crime victim compensation programs to supplement state
funding for reimbursement of the same out-of-pocket expenses, including
mental health counseling; and, (2) grants to state victim assistance
agencies in support of direct victim services such as, crisis
counseling, criminal justice advocacy, shelter, and other emergency
assistance services. Because the event was both a disaster and a
criminal act, programs of DOJ's office for Victims of Crime were also
applicable. As a result, expenses medical, dental, and funeral expenses
were covered by DOJ.
FEMA, the Office for Victims of Crime, and DOJ's Executive Office
for United States Attorneys subscribed to a Letter of Intent to ensure
that victims received needed services and information and to articulate
services needed in responding to catastrophic federal crime. The Letter
of Intent should serve as the foundation for future cooperative
activities but more detailed and comprehensive guidance is necessary to
ensure that services delivered to disaster victims who are also victims
of crime are appropriate, consistent, and not duplicative. Those
objectives could be accomplished through a Memorandum of Understanding
between FEMA and DOJ's Office for Victims of Crime that formalizes the
relationship, the responsibilities and authorities to be applied,
programs, time frames, and sequencing when a disaster is also a crime
scene.
Coordination with Voluntary Agencies
Voluntary Agencies (VOLAGS) typically provide immediate emergency
assistance to victims, while FEMA addresses short and long-term
recovery needs. Near the end of the recovery cycle, VOLAGS address
victims' unmet needs. After the September 11, 2001 attacks, individuals
donated time, resources, and money in record volumes to a large number
of VOLAGS. The overwhelming generosity and rapid influx of cash
donations likely contributed to the ability of VOLAGS and other groups
to provide higher levels of assistance. Since so many VOLAGS, ad hoc
organizations, and other entities not traditionally in the sequence of
delivery were distributing assistance, it was difficult to collect
accurate information necessary to understand the scope of assistance
being provided. FEMA, attempting to bring order to the chaos created by
the multitude of voluntary organizations, developed a matrix of various
government and non-government entities. At one point, this matrix
included over 100 organizations and was used to identify their
contributions to disaster recovery efforts and the types of assistance
provided. FEMA validated the information and became familiar with the
kinds of assistance being offered so that staff could make informed
referrals. In spite of those efforts, FEMA was not able to assure that
all voluntary agencies were coordinated appropriately to ensure that
benefits were not duplicated among disaster programs, insurance
benefits, and any other type of disaster assistance.
Historically, FEMA has not considered the assistance of voluntary
agencies to be duplicative of its assistance in most declared
disasters. In response to this event, however, VOLAGS far exceeded
their traditional role in the provision of assistance. FEMA, to ensure
timely assistance to victims, decided to activate its own individual
assistance program and to treat VOLAG and other non-governmental
assistance as non-duplicative. Had FEMA expended the resources
necessary to fully identify and quantify such assistance, the timely
provision of urgently needed assistance would have been delayed. FEMA
acknowledges, however, that some people may have received assistance
for similar losses from more than one source.
Regardless of FEMA's decision not to identify and quantify
voluntary agency assistance on a case-by case basis, the potential that
duplication occurred did exist although the nature and amount of
duplication remains unknown. FEMA needs to be better able to anticipate
the proactive role non-governmental organizations will play in disaster
recovery operations and attempt to coordinate relationships with those
organizations through protocols such as Memorandums of Understanding to
alleviate the potential for duplicating benefits.
Improvements have been made since the 9/11 attacks. The Coordinated
Assistance Network was established through a memorandum of
understanding in 2003 and was first piloted during the 2004 hurricane
season in Florida. The following organizations signed this document:
American Red Cross, Salvation Army, Alliance of Information and
Referral systems, United Way of America, United Services Group,
National Voluntary Organizations Active in Disaster, and Safe Horizon.
The goal of the Coordinated Assistance Network is to afford more
efficient and effective service coordination among voluntary, as well
as governmental, agencies during disaster events. It was designed as a
communication mechanism for services providers and to identify any gaps
or redundancies in services. The network allowed registered
organizations to access information on available services and to share
information on the levels of services delivered to individuals,
families, or households. It also allowed disaster victims to explain
their needs and register only once, as registration afforded disaster
victims a registration with all service providers on the network. In
response to the 2005 hurricanes in the Gulf Coast region, five
organizations were using the network and 81,817 clients records were in
the system as of September 30, 2005.
Mr. Chairman, this concludes my prepared remarks. I would be happy
to answer any questions that you or the Subcommittee may have.
[GRAPHIC] [TIFF OMITTED] T9452.016
[GRAPHIC] [TIFF OMITTED] T9452.017
[GRAPHIC] [TIFF OMITTED] T9452.018
[GRAPHIC] [TIFF OMITTED] T9452.019
[GRAPHIC] [TIFF OMITTED] T9452.020
[GRAPHIC] [TIFF OMITTED] T9452.021
[GRAPHIC] [TIFF OMITTED] T9452.022
[GRAPHIC] [TIFF OMITTED] T9452.023
[GRAPHIC] [TIFF OMITTED] T9452.024
[GRAPHIC] [TIFF OMITTED] T9452.025
[GRAPHIC] [TIFF OMITTED] T9452.026
[GRAPHIC] [TIFF OMITTED] T9452.027
[GRAPHIC] [TIFF OMITTED] T9452.028
[GRAPHIC] [TIFF OMITTED] T9452.029
[GRAPHIC] [TIFF OMITTED] T9452.030
[GRAPHIC] [TIFF OMITTED] T9452.031
[GRAPHIC] [TIFF OMITTED] T9452.032
Prepared Statement of the Honorable Rose Gill Hearn, Commissioner, New
York City Department of Investigation
Good afternoon Chairman Rogers, Congressman Meek, Members of the
Committee. It is a privilege to address this Committee and describe the
foresight of and efforts made by the City of New York to prevent fraud
and waste in connection with the clean up of the World Trade Center
site immediately following the destruction of the Twin Towers and
surrounding buildings. New York City's experience demonstrates that the
proactive measures taken were highly effective in detecting and
preventing fraud and waste, without compromising the ability of the
emergency efforts to proceed with remarkable efficiency.
Appointed by Mayor Michael R. Bloomberg, I am the Commissioner of
the New York City Department of Investigation, known as DOI, which is
one of the oldest law-enforcement agencies in the country. Created in
the wake of the Boss Tweed scandals of the 19th century, DOI is an
agency of New York City's government charged with rooting out, but
perhaps more importantly, preventing corruption within or impacting
City government. That mission is a challenging one as New York City is
one of the largest employers with one of the largest budgets in the
country. DOI often works with the federal and state prosecutors who
have jurisdiction over the City of New York. We work jointly with other
law enforcement agencies such as the New York City Police Department,
the FBI and the federal Postal Inspectors. DOI is also empowered by law
to investigate and report on potential corruption hazards and to advise
the Mayor and the other branches of City government on measures they
should take to prevent corruption and the waste of City funds. Thus, we
do not just try to catch criminals after they have committed crimes,
but we also devote a substantial amount of our resources to preventing
crimes before they happen and to preventing the needless loss of
precious City resources through waste and inefficiency.
DOI offices are located on Maiden Lane just up the block from what
was the World Trade Center. On the morning of September 11th, DOI
personnel and detectives responded to the scene to help with the
evacuation of the buildings. When the Towers collapsed, the cloud of
dust and smoke came rushing down Maiden Lane, and debris rained down on
our building. For days thereafter, DOI personnel became part of the on-
site digging and security operation. My own experience included seeing
the apocalyptical sight at the World Trade Center: people jumping from
the fireline seventy stories high in the North Tower; followed by the
explosion of the second plane into the South Tower; and the collapse of
the Towers as if they were sandcastles. The City then mobilized in an
extraordinary way, and DOI was part of that.
In the aftermath of the 9/11 terrorist attack on the World Trade
Center, the City had to undertake a clean-up operation that was
unprecedented in scope and cost. Moreover, it was recognized that the
City's clean-up would have to be safe, include a sensitive on-going
search for remains, and allow businesses and residents to return
swiftly to the densely populated Wall Street financial district, whose
economic viability was crucial, not only to the City, but to the
Country as a whole.
To achieve the goals of the World Trade Center clean-up, it was
understood that vast amounts of government money would have to be spent
and spent quickly. Indeed, some of the members of this Committee were
instrumental in seeing that New York received the money it needed for
the historic clean-up and recovery effort. However, experience has
taught us that the expenditure of large sums of government money in an
emergency situation increases the likelihood of fraud, inefficiency and
price gouging. Accordingly, based on the concerns of the possibilities
of fraud and corruption in all aspects of the clean-up effort, Mayor
Rudolph Giuliani's office asked DOI to put in place a monitoring
program to prevent exploitation of the emergency situation by
unscrupulous firms and individuals. That initiative was continued by
Mayor Bloomberg, who took office on January 1, 2002, and with it
responsibility for the site and its clean-up, which was completed in
July 2002. Mayor Bloomberg required DOI and the other agencies to
continue to be vigilant and proactive about corruption and waste issues
at the site, a priority in the Bloomberg Administration.
DOI had already established under non-emergency circumstances such
a procedure for monitoring various municipal projects, for example,
construction projects within the City, where there had been a
particular concern about corruption. Thus, DOI drew on that experience
in putting a monitoring program together for the World Trade Center
site but, of course, on a much larger scale.
In order to accomplish and better manage the necessary clean-up,
the City divided the 16-acre World Trade Center site, Ground Zero, into
four quadrants. A construction manager, or CM, was retained for each of
the four quadrants. (A map of Ground Zero as divided into the quadrants
is attached to my written materials.) The Cbs were paid based on the
labor, time and materials they used to carry out the clean-up. The CMs,
in turn, had hundreds of subcontractors throughout Ground Zero, for
example, truckers, waste disposal, and demolition companies--industries
with a long history of organized crime involvement.
Thus, these contracts were not only enormous, but as ``time and
materials'' contracts, they presented specific vulnerabilities to fraud
and abuse from unscrupulous contractors, subcontractors and suppliers
from which the City needed to protect itself. In addition, the work of
the contractors and oversight of that work, was complicated by the
multiple activities going on at Ground Zero during the clean-up due to
the fact that the 16-acre site was a crime scene with an active
recovery effort underway for the remains of the thousands of victims of
the disaster. In combination with the fact that the work was to be
carried out under the direction of four CMs, rather than one, the
potential for fraud was increased. Thus, the purpose of the DOI
monitoring program was, to the best of our ability, ensure that the
City knew what work was being performed at the site and that the
billing was appropriate and legitimate.
The Ground Zero clean-up was remarkably well-coordinated and
ultimately well-accomplished because one agency, the City's Department
of Design and Construction (DDC), was given the responsibility of
managing the project. DDC is the City's construction and engineering
expert. All four of the Ground Zero CMs reported to DDC. Thus, given
that DOI was tasked with monitoring the four CMs, we collaborated
closely with DDC.
DOI created and implemented the World Trade Center Integrity
Compliance Monitorship Program, which was in place by early October
2001. This program required each of the four Ground Zero CMs to retain
an onsite ``Integrity Monitor'' selected by DOI. Through DOI, each
Integrity Monitor had the authority to review and audit all of the
books and records of the contractors working at the site, and to
maintain a physical presence on the site, including around the
perimeter of Ground Zero. By virtue of this oversight program, the
Integrity Monitors scrutinized the contractors' activities in real time
and functioned as the City's eyes and ears. DOI also required the
Monitors to establish a hotline number where anyone could call with
concerns or information. A key feature to the effectiveness of the
Monitors was that they reported directly to DOI on the contractors
activities. Thus, if there were any issues or problems, they were
addressed immediately. Reports of their findings were made on a
frequent basis to DOI, which set up a trailer right at Ground Zero
where meetings could readily and frequently take place. DDC was
included in many of those discussions and received regular reports as
well. DDC also hired an auditing firm to assist its Engineering Audit
operation with auditing and payment issues. Together with the Monitors,
this created strong oversight to detect and prevent fraud and waste.
The Integrity Monitors were themselves closely monitored by DOI in
order to ensure that they were performing the kind of work that was
really needed by the City, and in order to enable DOI to act on their
findings quickly when necessary. The Monitors had to be tethered to a
pivotal government oversight agency like DOI would make them a much
less effective and useful tool.
DOI's Integrity Monitor program was a good government step because
it was preventive in nature. By embedding the Monitors with the
individual contractors, the monitoring program prevented fraud and
waste by any contractors that were unscrupulous or sloppy, both: (1)
instituting proper record keeping and work procedures to create a
culture of legal compliance within each contractor's operations; and
(2) ensuring accurate accountability to the City.
The Integrity Monitor model requires specialized firms with legal,
accounting, law enforcement and investigative expertise. Because this
model had been used in New York City by DOI, we were fortunate to have
a number of highly qualified firms ready from which to pick, with whose
work we were already very familiar. . The Monitors selected by DOI, who
did an outstanding job under very difficult circumstances, were four of
the New York areas leading monitoring firms: Getnick & Getnick for the
Turner Construction quadrant; Stier, Anderson and Malone, LLC for the
AMEC Construction quadrant; Decision Strategies for the Tully
Construction quadrant; and Thacher Associates, LLC for the Bovis Lend
Lease quadrant.
Thus, DDC was responsible for overseeing the operations of the four
CMs, subcontractors and suppliers performing work at Ground Zero, and
under the direction of DOI, the four Monitors maintained oversight of
those activities.
DOI oversaw the work of the Monitors by reviewing the results of
their investigations and audits and by helping to direct and focus
their activities. DOI held joint meetings with all of the Monitors
together every week in order to facilitate the dissemination of
information among the Monitors and to ensure the coordination of joint
efforts. This was particularly important because the coordination
helped to ensure that the decentralization of the clean-up effort did
not in itself breed fraudulent schemes, such as having individual
workers reported on the payrolls of different companies for work
performed at the same time or subcontractors double bill for work
through multiple CMs. DOI was also in constant communication with DDC
and other government agencies, to make sure that information obtained
by the Integrity Monitors was communicated quickly to the entities that
most needed it. Finally, DOI communicated with the other area law
enforcement and prosecutorial agencies on matters disclosed by the
Integrity Monitors and ensured an appropriate flow of information
between these agencies and the Monitors.
Initially, the Integrity Monitors maintained an on-site presence at
Ground Zero on a 24-hour basis, seven days a week. Their duties fell
into general categories of: deterrence, detection and documentation. In
order to perform these duties, the Integrity Monitors engaged in legal,
investigative, forensic accounting and engineering analysis. To perform
their jobs, they reviewed books and records; identified and corrected
inadequate financial and quality controls; analyzed financial records
to ensure accuracy and basic contract compliance; assisted with
clarifying agency policies at the site; analyzed laws and contracts;
gathered intelligence for the law enforcement community; detected and
corrected incompetence; and monitored the day to day work on the site.
And they did all of this with a sensitivity to the City's needs for
efficiency, speed and cost control.
Specific investigative, auditing and monitoring activities engaged
in by the Integrity Monitors included:
Background checks on companies and individuals working
at Ground Zero;
Establishment of a hotline to enable anonymous tips
and to field complaints from workers on the site;
Observation of employees sign-in/sign-out procedures
and reviewing sign-in and sign-out sheets;
Interviews of employees on-site;
Reviewing payrolls to ensure that there were no
fictitious employees on the payroll, through comparisons of
payroll records with payroll checks issued and payroll records
with the daily sign-in/sign-out sheets;
Reviewing payrolls for prevailing wage violations and
other labor law violations;
Monitor swipe card system at the site for employees;
Monitor equipment on site to verify its presence and
use; ensure billings conformed accordingly;
Auditing inventories of equipment on site and
verifying whether it was rented or owned by the company, and
verifying that the City was properly billed accordingly;
Monitor GPS tracking system for trucks removing
debris;
Conducting spot checks and surveillances of supplies,
equipment, activities at the site;
Monitoring of material deliveries;
Reviewing truck manifests;
Verifying that materials that were ordered were in
fact delivered;
Verifying that the materials that were ordered and
delivered were in fact job related;
Verifying that the costs of materials were not
inflated through forensic audits;
Reviewing invoices and verifying that appropriate
mark-ups were made, that there were no computational errors,
and that there was no over billing and/or double billing;
While it should be noted that the vast majority of contractors on
the site performed their work exceptionally well and with integrity, as
a result of all of these types of intensive investigating and auditing
efforts and more, the Integrity Monitors prevented a significant amount
of waste, fraud and abuse in the Ground Zero clean-up. To a significant
degree, the prevention came as a result of their presence on the site
alone, which in and of itself, served as a deterrent to misconduct. For
example, the sign-in sheets at the site from the earliest days of the
clean-up prior to the arrival of the monitors, contained the names of
individuals who allegedly did work at the site who were associated with
organized crime. Moreover, some of those early sign-in sheets also
contained the names of alleged workers on multiple sign-in sheets for
work done (impossibly) at the same dates and times. However, when the
four Monitors went into place and the CMs and the subcontractors all
knew the Monitors were closely analyzing such items, these probable
illegitimate and duplicative labor costs were no longer showing up on
the payroll records billed to the City.
Indeed, corroborating the fact that the Monitors served as a
deterrent, early on during the clean-up, DOI was advised by a local
prosecutor of an intercepted conversation between two organized crime
associates in which they lamented that the on-site presence of the
Monitors at the World Trade Center site was making it impossible for
anyone to overbill the City via the usual scams, because the site was
being so closely scrutinized. We couldn't have said it better
ourselves.
In addition to the deterrence of the type of willful misconduct
lamented in that intercepted phone call, it is clear that the Integrity
Monitors' activities further prevented waste and abuse through the
establishment of proper record keeping systems, their physical presence
on the site and their frequent audits of the billings. While, as with
the general deterrence, it is difficult to precisely quantify the
savings resulted from the institution of good record keeping
procedures, direct observations and the quick detection of problems
through frequent audits, the fact that significant savings that
resulted from these activities is clear. For example, based on the
submission and review of required documentation, the Integrity Monitors
found evidence that purchased equipment initially billed to the City
was also listed as equipment leased to the City. Thus, the City was
being charged a rental fee on equipment it had already purchased and
for which it had already been paid. As a result, these charges would
not only then be disallowed (a quantifiable savings) but future
improper billings on this equipment would not occur (a more difficult
to quantify but clear savings nonetheless). Similarly, a review of
required documentation by the Integrity Monitors revealed that requests
for payments for rental equipment at times included fuel costs where
such costs were built into the rental fees. Again, these costs would be
disallowed (easily quantifiable savings) and not billed going forward
(more difficult to quantify).
In another instance, the Integrity Monitors on-site spot checks
resulted in a clear, but difficult to quantify, savings. Some debris-
removal trucks were found to be operating with broken odometers. Had
the trucks been allowed to continue to operate with this type of
mechanical failure, they could have easily deviated from their approved
travel routes, a problem observed with some trucking from the outset of
the debris removal activity. The work of the Integrity Monitors
resulted in the early detection and systemic correction of this problem
and thereby reduced the ability of unscrupulous truckers to misdirect
the debris or misuse the free dump tickets they were given in
connection with their work at Ground Zero.
The Integrity Monitors background checks on contractors also
resulted in the indictment of two principals of a Yonkers carting firm
working at Ground Zero by the Manhattan District Attorney's office for
lying about their ties to organized crime in documents filed with the
City. Not surprisingly, invoices submitted by this same carting firm
were identified by the Integrity Monitors as containing numerous
instances of over-billing by that contractor.
Significant quantifiable savings through the identification and
correction of sloppy, and sometimes willfully abusive, practices were
also achieved by the Integrity Monitors. For example, in one instance,
bills submitted to the City for payment by one subcontractor were so
fraught with errors and improper mark-ups of heavy equipment and
services, and lack of documentation authorizing the performance of
services and labor charges, that they were reduced by two thirds--from
$2.6 million originally billed to $795,000. In another instance, after
long discussions concerning various billing issues between a Monitor
and a subcontractor based on the Monitor's review of the records, the
subcontractor agreed to revise prior billing submissions--translating
to an estimated downward adjustment of $1 million.
In yet another example, one Integrity Monitor examining
subcontractor invoices submitted to the City totaling more than $7.3
million, identified over-billing in the amount of $3 million, or almost
42% of the total invoice. In another type of overbilling uncovered and
stopped by the Integrity Monitors, certain subcontractors were found to
have impermissibly marked-up their bills beyond the 10% allowed for
overhead and the 10% allowed for profit. .
Double billing for workers, time and materials were caught through
the Integrity Monitors' frequent audits and on-site observations. So,
for instance, the Monitors caught a subcontractor submitting invoices
for debris removal at two different locations at exactly the same time,
using the exact same vehicles and drivers. This matter, among others,
was referred to the local prosecutor's office.
These are just a few examples to highlight the kinds of activities
engaged in by the Integrity Monitors in connection with the World Trade
Center clean-up and the savings to the government that resulted from
those activities. They clearly demonstrate the effectiveness of the
Integrity Monitor model, where the Monitors are embedded in a project
from the beginning, and where they report directly to a government
agency that ensures the appropriate focus of their work and the quick
and effective dissemination of their findings.
It is clear that, as a result of the World Trade Center Integrity
Compliance Monitorship Program, the government saved a significant
amount of money by preventing and curtailing fraudulent activity, waste
and abuse of public funds. In total, we have estimated that, based on
their extensive work and forensic analysis, the Integrity Monitors
recommended in excess of $47 million in cost savings and that their
very presence on the Ground Zero site and their frequent audits
produced additional significant savings that cannot be quantified. All
of these efforts not only protected public tax money, but helped to
preserve the faith of the taxpayers in the quality and integrity of
government services.
In conclusion, DOI makes the following recommendations to the
Federal Government: (1) have a list of pre-existing list of known,
experienced and vetted monitors in various fields of expertise and
disciplines; (2) put an integrity monitor in place at the outset of any
situation that will call for a large, costly government response
operation, so that proper record keeping and work procedures can be
instituted to create a culture of legal compliance within the
operation, and ensure accurate accountability to the government; (3)
have the integrity monitor(s) report to a government oversight agency
with a broad governmental mandate encompassing fiscal integrity and law
enforcement (e.g., in New York it was DOI); and then (4) closely work
with the integrity monitors and the other government entities concerned
with addressing the emergency at issue throughout the duration of the
project.
Thank you for this opportunity to speak to you today. At this time,
I would be pleased to answer any questions that the Committee members
or other representatives may have. Attachment
Prepared Statement of Mr. David J. Varoli, General Counsel, New City
Department of Design and Construction
Chairman Rogers; Congressman Meek; members of the committee: Good
afternoon. Thank you for inviting me to testify before you, it is both
an honor and privilege to be here today on behalf of the City of New
York, Mayor Michael R. Bloomberg, Commissioner David J. Burney, AIA,
and the City's Department of Design and Construction.
I want to thank you, Chairman Rogers, for calling this hearing.
Today's hearing is entitled ``9/11 Federal Assistance to New York:
Lessons Learned in Fraud Detection, Prevention, and Control.'' As the
Counsel to the City's Department of Design and Construction (``DDC''),
I am here today to discuss the recovery and clean-up efforts of the
City following the terrorist attacks of September 11, 2001, which was
the largest unplanned demolition project in American history. Every day
the City encountered head on an unpredictable and complex site and
responded with innovation and comprehensiveness to all issues. Yet,
from the outset, the City's objective was for the work to be done in
conformity to FEMA standards in order to minimize the costs and
financial exposure to the taxpayers of the City and the country.
This July, DDC is celebrating its 10th anniversary. DDC was created
to oversee the work of building and repairing the City's municipal
infrastructure. DDC designs and constructs the City's sewers, water
mains, roadways, police and fire stations, daycare centers, jails,
municipal offices, and a variety of other structures in support of the
City's infrastructure. We have expertise in the fields of engineering,
architecture, and construction services. We work with some of the best
and biggest private sector firms in the world. In addition, DDC works
with a lot of small and new firms. Our business is to know the
construction business and to deliver quality and cost efficient
services to our clients and the ultimate users--the people of New York
City.
As you have heard from my colleague, Commissioner Rose Gill Hearn,
DOI is similar to DDC in that it also has an expertise and it knows its
business very well, which is finding and rooting out fraud, waste, and
corruption. DOI has created a system of inspector generals that are
placed in each agency and has established a sophisticated
infrastructure to monitor and combat government corruption both on the
inside and in the vendor community.
As will be described in greater detail, DDC immediately hired four
construction management firms--Bovis Lend Lease, Tully Construction,
AMEC, and Turner Construction (who I'll refer to as the ``Construction
Managers''). The Construction Managers were engaged to manage the
debris removal and coordinate the work of the many trades working at
the site. Moreover, DDC immediately issued a task order against a
requirements contract for the auditing services of KPMG to assist in
the engineering audit functions traditionally handled by DDC. DOI and
its private inspector generals (who I'll refer to as the ``Monitors'')
monitored the Construction Managers' compliance with the City's laws,
regulations, and policies from an integrity perspective. This included
background checks of all major principals; investigations of
potentially fraudulent matters; surveillance and review of day-to-day
operations; verification of payroll reports to comply with DDC policies
and prevailing wage laws; operating an integrity hotline to receive 24/
7 allegations of misconduct or violations; making recommendations to
the Construction Managers and DDC; and, verifying payments to
subcontractors and vendors. The Monitors functioned independently of
DDC and reported their findings directly to DOI, which then forwarded
pertinent information to DDC.
Before I describe the system put into place by DDC, DOI, and the
rest of the City, I want to first set the stage by going back in time
to the day before September 11th. It was a Monday, September 10th. The
weather in the City was outstanding. The skies were clear blue and the
sun shone brightly. Similar to the weather on September 11th, it was a
beautiful summer day even though it was already the third day of public
school. On September 10th the City did not have a plan to deal with an
act of war against the City. However, the City did have in place a form
of government that encouraged expertise in certain fields. The City,
with a strong executive branch, was separated into a series of agencies
with, for the most part, single missions and goals. This is an
important point worth stressing. City agencies like DDC and DOI are
experts at what they do and, over time, have created systems and
contracts to provide their services in an efficient manner. For
example, the City has experts in the following municipal services--
sanitation, emergencies, health, construction, law, environment,
police, fire and the prevention of corruption at the government level,
to name just a few.
On the morning of September 11th, the day was starting as good as
it ended the night before. A suit jacket was all that was needed and
kids were still wearing shorts to school. The Hudson River was
sparkling as the sun rose above the skyscrapers from the East. By 8:40,
public school children were in school and most people were at work or
commuting to work. Then, as we all know, in a matter of minutes, the
world changed for New York City, Pennsylvania, Washington, D.C., and
the United States of America. We had all been attacked and violated. A
war had been brought to our doorsteps and into our backyards. After the
first Tower fell that morning, the clear blue skies were immediately
replaced with a thick dark haze of dust. We lost more than our clear
blue skies and Sun that morning.
My perspective is both a personal and professional one. You see, I
was there the day our country's world changed. I was in Tower 1 and
Building 5, after the two planes hit, searching for my two-year old and
his daycare classmates. Later that morning, my children and I saw the
brave men and women jump from the towers, and at 9:59 in the morning I
fell on top of my children in an attempt to protect them from the
falling debris as the South Tower fell. My perspective also comes from
having lived across the street from the World Trade Center and having
my children's daycare set up in Building 5. During the clean-up, DDC
and the other governmental agencies operated out of my children's
elementary school at Public School 89. In fact, my office was my
daughter's classroom. It is a day my family, my city, and my country
will never forget.
There are many success stories that followed the City's and the
country's response following the attacks. Two of the success stories
are how the City cleaned up the debris in such a short time and how the
City worked to detect and prevent fraud. We believe that the recovery,
demolition, and clean-up was a success for the following reasons:
first, all branches of government--Federal, State, and local--gave one
entity--DDC--responsibility for managing the administrative, financial,
and legal aspects of the project; and second, the events of the tragedy
forged a strong partnership between the three levels of government and
further forged a strong partnership between DDC, the Construction
Managers, and the over 200 subcontractors. With the responsibility for
managing the project, DDC then looked to the respective experts in-
house and in City government in each of the fields of administrative,
financial, technical, and legal and brought them on the team--the
City's Department of Investigation, to name one of the most important
agencies, worked closely with DDC. Moreover, in the middle of all the
chaos following the attacks, the City put into place one of the best
proactive fraud prevention programs, whereby the City utilized the best
men and women, and technology available to monitor every aspect of the
project. The institution of the Monitors by DOI and the retention of
KPMG by DDC earlier on established a certain tone for the project of
respect and an expectation of law-abiding behavior. These two steps
created a system of verification and reconciliation of all payment
requisitions, and extensive field monitoring work.
DDC worked with a team of public and private entities in the
attempted recovery of survivors once the Towers fell, and DDC lead a
team of public and private entities in the deconstruction of the war-
damaged buildings and in the removal of the ensuing construction
debris. DDC's mission was clear--assist the City in restoring order to
the City by cleaning up the debris in a timely and cost effective
manner.
The recovery aspect of the City's job did not meet any of our
dreams, expectations, or prayers. Once the Towers fell, we did not find
any survivors. We did not find alive any of the people who did not
evacuate in time or any of our Police or Fire that had not gotten out
in time. Words cannot express how we all felt as the days turned into a
month and we had found no survivors.
As for the demolition and debris removal work, the cleanup of the
World Trade Center site far exceeded anyone's expectations. In the
aftermath of the tragic loss of life, safety was the City's number one
priority as we proceeded to demolish the remaining buildings and cart
off the debris. Another key priority was to prevent fraud and theft.
Thanks to extraordinary efforts by the City and all of its agencies,
its contractors and consultants, and cooperating state and federal
agencies, the City had an excellent safety and fraud prevention record.
Early projections had the City cleaning up the site for two or more
years. In fact, the City finished cleaning up the site in nine months.
The City worked for twenty-four hours a day, seven days a week, for
nine full months. The only day off was on November 12, 2001. The irony
of that day was that the Commissioner, First Deputy Commissioner,
myself, and a skeletal crew of DDC employees who reported for work to
catch up on paperwork, immediately dropped everything and went out to
the Rockaways, Queens, following the crash of Flight 587 to aid in the
recovery. As for the World Trade Center project, in a matter of days
DDC had created a crude management structure, which then materialized
into a clear management structure with an organization chart. In nine
months, DDC demolished the wrecks of the remaining structures--
Buildings 3, 4, 5, 6, and 7, and the skeletal walls of Towers 1 and 2,
and DDC removed 1,642,116 or slightly over one and a half million tons
of heavy steel and debris.
Together, DDC and DOI, with the assistance of the Monitors and
KPMG, instituted a program to monitor any attempts at fraud or waste,
while at the same time never stopping the debris removal process.
Furthermore, DDC and DOI put into action our respective expertise, with
the assistance of many other City agencies, State agencies and Federal
agencies. To name just a few of the other City agencies that played an
important role there was the City's Office of Emergency Management,
Police Department, Fire Department, Buildings Department, Environmental
Protection Department, Transportation Department, as well as the Port
Authority of New York and New Jersey.
It is important to understand that in a normal ``planned''
demolition and debris clean-up project, architects and engineers study
the as-builts and other related blueprints of the building to be taken
down. Experts in how to bring down a building in a neat fashion are
retained and consulted. Prior to any demolition work, the contents of a
building are emptied, the area around the building is restricted, and
only a limited work crew is allowed nearby the site both during and
after the demolition. The end result is usually a controlled and self-
contained destruction, with no loss of life and limited external
property damage.
None of this happened before September 11th. We have all seen the
pictures and film footage. War brings chaos and in the City on
September 11, we were surrounded by tons of chaos.
In addition to having people still in the buildings as they came
down, the buildings were loaded with all of their contents. The City
did not have the time to study the buildings before they came down.
There was nothing controlled about how the buildings came down. In
fact, it was the complete opposite. Chaos was the order of the day. As
I mentioned earlier, I lived nearby the World Trade Center. In my
apartment, every surface was covered in the dust and debris from the
collapse of the Towers. And, as I also stated earlier, the City was
faced with the largest unplanned demolition project--7 direct buildings
destroyed, including two of the largest office towers in the world,
plus damage to numerous nearby buildings, and, most sadly, the
unprecedented loss of life and destruction of families--parents faced
with burying their children, spouses faced with burying their spouses,
and children faced with the reality that their parents are gone
forever, as well as their childhood innocence.
As we now know, DDC was placed in charge of coordinating the
deconstruction of the remaining structures and to remove all debris.
DDC's approach was to hire the four Construction Managers and to break
down the 16-acre site into 4 quadrants or areas. This enabled the
agency to track and coordinate the flow of labor and equipment onto and
off the site, and to monitor daily and nightly the amount of progress
made. DDC contacted four of the largest construction firms in the City
who had either prior experience in the area, New York City, or the
World Trade Center complex. Every morning and evening the City's best
construction people--private and public--would meet in a kindergarten
classroom and discuss what work was to be done that day and to review
what had taken place during the prior twelve hours. Having these
meetings in a kindergarten classroom sitting in chairs appropriate for
a six year old was good for comic relief at such a sad time.
When all this started, no one knew what we were looking at in the
sense of time to complete and cost. DDC recognized very early on that
it would need help in dealing with all of the auditing and payment
issues. The City had in place a contract with KPMG, a large accounting
firm for consultanting purposes. The firm also has a construction and
forensics auditing division. DDC utilized KPMG to work with DDC's
engineering audit officer to institute an audit engineering team for
the entire project. I have not mentioned this earlier, but please keep
in mind that during the nine months DDC worked on the project, DDC also
continued to service all of its other clients and kept on building the
City's infrastructure in the rest of the City (DDC manages a current
portfolio of design and construction projects in the billions of
dollars). In addition, DOI continued its mission with regards to all
other City agencies.
What does a nine-month demolition and recovery clean-up project
mean in terms of sheer numbers and dollars? The City paid the four
Construction Managers cumulatively almost a half billion dollars or to
be precise $476,907,125.54. As I stated earlier, the City removed
1,642,116 or slightly over one and a half million tons of steel and
heavy debris. The daily average of men and women working at the site
ranged from 1,096 people in the early months to 346 people in the last
month. In total, 2,400,000 man-hours were expended during the project.
Hundreds of pieces of equipment from the largest crane in New York City
history to small hand tools were used throughout the project. In
addition to the four Construction Managers that reported directly to
DDC, there were approximately 200 different subcontractors and
consultants working on the project.
Included in the $476,907,125.54 paid to the Construction managers,
was $24,661,101.93 paid to DOI's Monitors. DDC also paid KPMG
$15,315,507.29 for all of its services. In the fall of 2001, DDC
installed a Global Positioning System in all trucks--private and
public--that came onto and left the site. In addition, in the winter of
2002, DDC instituted an electronic check-in system to gain access to
the site. This system instituted on January 31, 2002 reported 5174
people accessing the site in the remaining months of DDC's demolition
and debris removal operation.
DDC and DOI instituted a lot of innovative procedures to ensure
compliance and accuracy. The use of KPMG is one example of an
innovative procedure. For example, KPMG provided audit expertise in
prevailing wage compliance and documentation; verification of actual
numbers of personnel working based on shift logs 24/7; determination of
equipment usage on a given shift by established categories--
operational-in-use, standby-staffed by an operator to be deployed when
directed, and idle-being serviced or repaired; verification of costs of
material, rental and owned equipment based on costs and rental rates in
effect on September 10, 2001; verification of costs of professional
personnel on established salary and benefit schedules; and
certification of marine transport of debris loads by examination of
vessel logs.
With regards to reviewing the payment requisitions submitted by the
four Construction Managers, DDC and KPMG in consultation with DOI and
its Monitors, FEMA, and the four Construction Managers, put into place
a payment requisition review process as follows:
An innovative detailed system of checks and balances was instituted
by DDC and DOI to ensure that the taxpayers' money was spent in
accordance with FEMA's and DDC's policies and regulations. DDC's
engineering audit officer and KPMG, would audit a sample from each
payment requisition for each subcontractor cost category to assure
proper documentation exists and there is agreement; check for proper
equipment rates, labor rates, material prices and markups in compliance
with industry standards, and prevailing wage prices; take withholdings
of payment on a percentage basis per issue identified; enter all
findings into a central electronic database; and submit a report to DDC
and the Construction Manager for review and comment. DOI and its
Monitors would review the payment requisitions submitted by the
Construction Manager as they relate to fraud, waste, and abuse. DDC
would send field monitors, who were not auditors, out to cross
reference the payment requisition with their daily field logs for
agreement; DDC's project managers, who also were not auditors, reviewed
the payment requisition packages for reasonableness of expenses,
agreement with costs with field reports, and supporting documentation;
and, the DDC project managers would also recommend withholdings to
DDC's engineering audit officer. FEMA would review the payment
requisitions for accuracy, agreement with proper source documents, and
eligibility of cost items for reimbursement and scope of work; and
would also use their own field monitors to verify the daily reports.
With regards to tracking the time and material tickets submitted by
the approximately 200 subcontractors, DDC and KPMG created a very
detailed methodology. Each group in the process had a unique focus and
role. The system or methodology worked as follows: KPMG's role was to
assess and enhance processes and controls over field operations,
including time and materials data capture and processing; and to
monitor and sample debris removal cost data on a daily basis. DOI's
Monitors' also had a role. The Monitors focus was to review supporting
documentation for all subcontractor payment requisitions for fraud,
waste, or abuse. DDC's project managers' role was to monitor all
documentation so that the work was completed in a timely and cost-
effective manner, and to ensure that payment requisitions contain
supporting documentation. And, finally, FEMA's role was to monitor
documentation to ensure that work being performed and billed for was
eligible for payment by the Federal government, and was reasonable and
cost-effective.
To follow through on each of these important roles, a detailed
procedure was instituted by DDC. For example, KPMG fulfilled its role
by breaking out its review into three distinct parts--labor, equipment,
and materials. For labor, it would take random, 10% samples of names
from shift sign-in sheets and physically verified that the workers were
present. For equipment, it checked that all large equipment from the
Construction Manager's equipment logs were present and entered their
findings with the following notation--working, standby, or idle. As for
material, it would collect daily a copy of receiving slips and make
notes in their daily observation logs, and report findings to DDC's
engineering audit officer. DOI's Monitors, as already highlighted by
Commissioner Rose Gill Hearn, also had a comprehensive system to review
all labor, equipment, and materials.
As I conclude my testimony today, again I would to take this
opportunity to thank the Committee for convening these Hearings. I
would also like to highlight some of the issues we encountered during
the nine months it took us to complete the recovery, demolition, and
debris clean-up.
First, and foremost, the issue of how this country will respond,
God forbid, to another act of war on its shores. I believe the
destruction that follows an act of war should be treated differently
than a natural disaster. As Commissioner Gill Hearn mentioned, the work
done at World Trade Center was performed under a criminal investigation
the entire time. There were times when a construction crew had to stop
work to allow the FBI, ATF, Secret Service, FDNY, and/or NYPD search
for some item.
Moreover, we had to respond to a lot of different federal rules and
regulations as administered by FEMA that had been created over time in
response to flood and hurricane damage. These policies and regulations
did not fit the mold here. In the end, after several meetings and the
act of writing letters, we would receive an exemption to a set policy
or regulation. But there has to be a better way.
In closing, like a lot of other people, I have read the stories of
how this nation responded to the World Wars that scarred the prior
century. What I took from those stories was the ideal that a democratic
and diverse nation such as ours can and will rise up to meet any
challenge. After my personal experiences on September 11th, it is funny
to say this, but I consider myself lucky to be in New York and to work
for the City of New York. I witnessed first hand the best in people
following that day's attacks. Similar to how the federal government and
private industry responded to the call by President Roosevelt at the
start of World War II, the government of the City and the private
industry located in New York City also answered a call on behalf of
itself and the country.
Prepared Statement of Mr. Neil V. Getnick, President, International
Association of Independent Inspectors General
Good afternoon Chairman King, Chairman Rogers, and members of the
Subcommittee. My name is Neil Getnick, and I am an attorney and the
Managing Partner of the law firm, Getnick & Getnick, which is located
in New York City. It is a privilege and an honor for me to appear
before you today to speak about my firm's participation as an Integrity
Monitor in the clean-up and recovery effort which took place at the
site of the WorId Trade Center after the terrorist attacks upon our
Nation on September 11th. I am especially honored to appear this
afternoon with New York City's Commissioner of the Department of
Investigation, Rose Gill Hearn. The Department of Investigation has
long utilized Integrity Monitors to assist New York City in fighting
fraud, waste and abuse in City projects and departments, and was
responsible for the appointment of Integrity Monitors to participate in
the clean-up and recovery effort at Ground Zero.
New York City has shown that government can join together with
private individuals, serving as Integrity Monitors, to effectively and
economically combat and prevent fraud, not only in the area of disaster
relief, but also in the regular day-to-day business of government.
Historically, the use of Integrity Monitors was an essential component
of the City's campaign to combat mob infiltration and corrupt influence
in key industries and markets, such as wholesale food markets,
commercial carting, and school construction. The Integrity Monitors
proved highly effective and the City expanded their use. Examples of
this are found not only in the disaster relief effort at Ground Zero,
which I will address in more detail shortly, but also in situations
where the City enters into contracts with private business and has a
concern that there is the potential for misuse of taxpayer funds, and
therefore appoints an Integrity Monitor to oversee a particular
contractor or project. New York City's innovative use of private
individuals and firms as Integrity Monitors is an example of government
and the private sector working together for the public good in a cost-
effective manner.
Although I am speaking today in my capacity as the Managing Partner
of Getnick & Getnick, I am also the President of the International
Association of Independent Private Sector Inspectors General
(``IAIPSIG''). IAIPSIG is a nonprofit professional association whose
mission is to preserve and promote integrity, honesty, impartiality and
professionalism in the work of IPSIGs, monitors and independent
investigators. An IPSIG is an independent, private sector firm (as
opposed to a governmental agency) that possesses legal, auditing,
investigative, and loss prevention skills, that is employed by an
organization (i) to ensure that organization's compliance with relevant
laws and regulations, and (ii) to deter, prevent, uncover, and report
unethical and illegal conduct committed by the organization itself,
occurring within the organization, or committed against the
organization. Notably, an IPSIG may be hired voluntarily by an
organization or it may be imposed upon an organization by compulsory
process such as a licensing order or contract issued by a governmental
agency, by court order, or pursuant to the terms of a deferred
prosecution agreement. The IPSIG may also, in appropriate cases,
participate with management in enhancing the economy, efficiency and
effectiveness of the organization. Members of the IAIPSIG adhere to a
comprehensive Code of Ethics and have been appointed as Integrity
Monitors by local, state and federal agencies, as well as voluntarily
retained by private industry.
When I speak about Integrity Monitors today, I am speaking about an
IPSIG which has been imposed upon an organization, and in the case of
disaster assistance we are referring to construction management firms
and general contractors, as a condition set forth in the contract to
provide disaster relief services. This was the situation that existed
at Ground Zero.
After the attack on the World Trade Center on 9/11, Mayor Giuliani
and top New York City officials realized that, as with any
construction-type project, the potential for fraudulent and abusive
behavior was present at Ground Zero. The City was determined not to
allow that type of behavior to occur. Within a few weeks after the
disaster the New York City Department of Investigation reached-out to
private firms with extensive past experience as Integrity Monitors on
City projects and in short order put into place an Integrity Monitor
program to oversee the recovery and clean-up process. There were four
construction management companies assigned to oversee the disaster
clean-up, and the site was divided into four quadrants with each
construction manager assigned to a particular quadrant. Our firm,
Getnick & Getnick, was assigned as the Integrity Monitor to oversee the
work performed on the quadrant assigned to the joint venture between
Turner Construction Company and Plaza Construction Corporation. The
other three Integrity Monitors were Thacher Associates, LLC, assigned
to monitor Bovis Lend Lease; Stier, Anderson and Malone, LLC assigned
to monitor AMEC Construction Management, and DSFX (Decision Strategies)
assigned to monitor Tully Construction. Each of the four monitors were
well known to the Department of Investigation, having been pre-
qualified to serve as Integrity Monitors in the past and having
successfully handled other monitorship assignments for the City.
It is important to note what the appropriate role of an Integrity
Monitor is, and is not, at a disaster relief site. There are many
participants from the private and public sectors who take part in a
disaster relief project. There is a construction manager whose job is
to: manage the day-to-day operations on the work site; hire and
supervise all subcontractors; interact with the relevant governmental
agencies overseeing the project; prepare daily information logs;
prepare billing requisitions; in addition to other responsibilities.
Typically, a government agency with in-house engineering capability
oversees the performance of work by the construction managers and the
subcontractors working under them. At the World Trade Center, the New
York City Department of Design and Construction performed this task.
Numerous governmental agencies inspected the work for compliance with
applicable laws, rules and regulations, such as OSHA requirements and
safety and environmental regulations. At the World Trade Center site,
in addition to the New York City Police and Fire Departments, various
federal agencies were present on a daily basis, including
representatives from the Federal Emergency Management Agency, the
Environmental Protection Agency, the Occupational Safety and Health
Administration, and the Federal Bureau of Investigation, among others.
An effective Integrity Monitor does not duplicate or supplant the
functions of these other participants in the project. Rather, an
Integrity Monitor uses a multidisciplinary approach, bringing to a
project its unique knowledge and expertise in the following areas: (i)
legal, (ii) investigative, (iii) auditing, (iv) loss prevention, and
(v) other project-specific requirements such as engineering,
environmental, etc. The Integrity Monitor utilizes these specific skill
sets to review and monitor policies, procedures, and practices in the
area of record-keeping and billing, as well as for the actual field
work. The Integrity Monitor evaluates these procedures and work
progress to assess efficiency, accuracy and compliance with all
applicable law, rules and regulations. It reports its findings to the
assigned governmental agency, as in the case of the World Trade Center
the Integrity Monitors reported to the Department of Investigation.
Much of the information reported to the Department of Investigation was
subsequently shared with the monitored companies and the other
governmental agencies involved in the project. An Integrity Monitor in
many cases, and this was certainly true at the World Trade Center,
works with the monitored parties to develop programs and procedures
which prevent corrupt practices, ensure compliance with all pertinent
laws and regulations, and promote the efficient and cost-effective
completion of the project. For example, when a billing issue was
discovered which did not fall into the category of potential criminal
behavior, the Integrity Monitor brought the issue to the attention of
the construction manager and the Department of Design and Construction,
discussed ways to avoid that problem in the future, and the billing was
adjusted to reflect the proper amount. This is an example of how the
Integrity Monitor facilitated corrections and improvements so that the
City was not overbilled. In cases where corrupt and fraudulent behavior
was suspected, whether in the area of billing or construction-related
matters, the Integrity Monitors reported the matter to the Department
of Investigation and then worked with it and the appropriate law
enforcement agencies to assist in the investigation and in some
instances, ultimate prosecution, of the responsible parties.
Because of the unique role and skill set of the four Integrity
Monitors assigned to the recovery and clean-up at Ground Zero, we were
able to provide coordinated assistance to the companies and
governmental agencies working at the site, as well as to serve as a
deterrent to those seeking to take advantage of the disaster situation
for their own selfish gain. Members of the Integrity Monitor teams had
expertise in legal, investigative and forensic accounting work and were
former government lawyers, police officers and accountants with many
years of experience working in law enforcement and on criminal
investigations. We were in the field on a daily basis, observing the
work in progress, speaking with the workers on the site, monitoring a
complaint hotline 24 hours a day, and gathering significant
intelligence. We reviewed billing submissions, checked back-up
documentation, visited home offices of subcontractors when appropriate,
and compared the billing submissions with our own observations in the
field. Using this approach, we worked together with the Department of
Investigation and the other governmental and private agencies on the
project, to expose and prevent waste, fraud and abuse.
My firm has been appointed or retained as an IPSIG and Integrity
Monitor on numerous federal, state and local projects across a wide
variety of industries. Based on that experience generally, and at the
World Trade Center disaster site specifically, I would like to
highlight for you the types of improper and often criminal behavior
which can take place during the clean-up and recovery phase of a
disaster site, which, because of its emergency nature, is typically
billed on a time and materials basis, as opposed to a fixed price basis
following a competitive bidding process.
Improper Payroll and Labor Billing: (1) ghost employees on
the payroll; (2) employees who sign-in and out of the work site but who
go to off-site work locations during the day, often to work on private
jobs in nearby areas; (3) employees who ``loan'' their identity to
others who work in their place and receive a portion of the wages, with
the balance being pocketed by the employee named on the books; (4)
excess labor present on site resulting in inefficient use of work
force, i.e., workers on site who are not being utilized; (5)
contractors paying employees substandard wages and billing the
government at a higher rate; (6) bribes to union officials to permit
non-payment of pension and welfare benefits to union employees; (7)
inflating the amount of union benefit payments in labor bills submitted
to the government; (8) work slow-down to incur overtime pay.
Improper Equipment Billing: (1) billing for equipment not
present at the site; (2) billing for equipment present at the site
which is either unnecessary or is not functioning and in need of
repair; (3) billing for repairs which were not performed or which were
occasioned by off-site use; (4) billing for inflated rates higher than
those permitted by contract; (5) billing for inflated rates higher than
those charged on private work; (6) double-billing of equipment; (7)
excessive and inaccurate billing for fuel needed to operate equipment
on site.
Improper Materials Billing: (1) billing for substandard
materials required for proper job performance; (2) inflating the price
of materials purchased for the site; (3) inadequate inventory control
resulting in billing for materials which are removed from the job site
and used at a different location; (4) double-billing for materials; (5)
kick-back schemes and bribes resulting in inflated prices for materials
used on the work site.
Safety and Environmental Issues: (1) failure to properly
train employees in safety procedures and use of equipment, and to
enforce those procedures on the job site; (2) failure to properly
dispose of hazardous waste material; (3) billing for substandard and
ineffective environmental monitoring and testing; (4) performance of
unnecessary and duplicative environmental monitoring and testing; (5)
billing for safety equipment not utilized at the disaster site; (6)
utilization of machinery and equipment on site which does not comply
with current safety and environmental standards; (7) failure to
maintain adequate site records and logs to determine whether required
site safety and environmental standards are met.
Subcontractors: (1) selection of subcontractors based on
improper criteria which does not include ability and pricing, such as
payment of bribes, personal relationships, etc.; (2) improper mark-up
of subcontractor billings; (3) retention of subcontractors unqualified
and incapable of providing required services; (4) improper vetting of
subcontractors' qualifications and background.
Security: (1) insufficient site security and spotty
enforcement of security regulations, such as failing to check
identification and to inspect deliveries, allowing for unauthorized
personnel and goods on work-site; (2) theft of property from site due
to inadequate security, inventory control and theft prevention
procedures; (3) inadequate coordination between various organizations
and individuals responsible for site security.
Management of proiect: (1) relationships between
construction managers and subcontractors which prevent objective
evaluation of job performance; (2) corruption of supervisory personnel
by bribes, threats, etc., (3) inadequate supervision and implementation
of appropriate procedures to prevent fraud, waste, abuse, and
violations of rules and regulations; (4) inability to perform necessary
tasks and assignments.
Many of these kinds of activities were identified as issues or
potential problems by the Integrity Monitors at the World Trade Center
clean-up and recovery project, and have been encountered during other
monitorships we have worked on in the past. Due to the
multidisciplinary approach and extensive experience in combating
fraudulent and criminal activity on construction and other government
projects which the Integrity Monitors brought to bear on this
challenging task, and our partnership with City Government, we were
able to identify and address these problems, and, when appropriate,
work with law enforcement agencies to gather evidence for criminal
prosecution. As a result, the money spent on 9/11 disaster relief at
the World Trade Center site was spent for its intended purpose.
I understand that the Committee on Homeland Security is considering
legislation which will address fraud prevention in disaster relief
programs. Based on our extensive experience in working as an Integrity
Monitor and IPSIG on various governmental assignments, we offer the
following suggestions with respect to that proposed legislation:
A list of pre-qualified organizations which can act as
Integrity Monitors should be established so that qualified individuals
can quickly mobilize to monitor disaster relief programs. These
organizations should have among its members individuals with legal,
investigative, forensic auditing and loss preventions skills, and have
extensive experience in acting as Integrity Monitors on other
government projects.
The obligations and duties of an Integrity Monitor at a
disaster recovery site should be clearly delineated, and should include
adherence to a Code of Ethics such as the one followed by members of
the IAIPSIG (copy attached to this testimony).
The construction manager or contractor overseeing the
disaster relief project should be required as a condition of its
contract with the government to cooperate with the Integrity Monitor,
including providing access to all books and records and access to all
personnel, and require all of its subcontractors to do the same. The
four construction managers working at the World Trade Center disaster
site entered into such agreements with each of their respective
Integrity Monitors as a condition of the CMs providing construction
services at the site.
The hallmark of an IPSIG and an Integrity Monitor is its
independence. Integrity Monitors should have no prior business or
personal relationships with the monitored entity which would create a
conflict of interest, or even the appearance of one.
Indemnification should be provided to the Integrity
Monitor, similar to the type of indemnification provided to public
officials acting during the course of their official duties.
Payment to the Integrity Monitor for services provided
should be guaranteed on a regular basis to ensure that the Integrity
Monitor is not thwarted in carrying out its obligations by companies
that might withhold or delay payment in an attempt to deter the
Integrity Monitor from performing its duties.
Any construction project, even one which is anticipated and planned
in advance, is susceptible to fraud, waste and abuse. By its very
nature, a disaster recovery project is more vulnerable to this type of
conduct. As we have seen with the World Trade Center recovery and
clean-up after 9/11, however, the appointment of Integrity Monitors
allowed the City of New York to detect improper behavior on a real-time
basis, and not just after the fact. This enabled the City to remedy
problems and bad practices quickly, and thus save significant sums of
money. Even more noteworthy, however, is the preventive effect the
Integrity Monitors had at Ground Zero in stopping fraudulent and
wasteful conduct before it occurred by their presence and involvement
at the site. This deterrent effect is invaluable. The use of Integrity
Monitors at future disaster relief sites will have the same impact and
will ensure that the money designated for disaster recovery is used for
its intended purpose.
Thank you for the opportunity to address you this afternoon on this
very important topic. I am happy to answer any questions you may have
for me at this time.
Prepared Statement of Ms. Carie Lemack, Co-Founder, Families of
September 11
It is an honor to be given the opportunity to testify in front of
the House Committee on Homeland Security's Subcommittee on Management,
Integration and Oversight. I would especially like to thank Chairman
Rogers and his impressive staff for inviting me here today. The work
you do in overseeing the Department of Homeland Security is vital to
ensuring that our nation's protectors remain focused and prepared for
the threats our country faces.
Today we are not here to talk about these threats, though they
remain constant and require our continued vigilance. Today we are here
to talk about our response when these threats strike, and how to more
effectively deploy aid to those in need.
A quick note; while I am a co-founder of Families of September 11,
today I speak as a daughter of a 9/11 victim. My views are my own and
have not been voted on or endorsed by the Families of September 11
board of directors, of which I am a member.
There are three things that I believe responders need to keep in
mind when trying to eliminate fraud and inappropriate use of funds for
terrorism victims. First, we have to recognize that in the United
States today, ``family'' is not just the traditional husband, wife and
2.5 kids. There are couples who never married, but have made lifelong
commitments to each other; re-married fathers, with children from both
a current and previous marriage. There are young workers who support
their elderly parents and disabled siblings. When administering aid, an
organization or government agency has to be able to take non-
traditional familial structures into account.
Accordingly, if an aid organization advertises that it is
collecting and distributing donations for disaster victims, it must
abide by its promotions. The agency cannot choose which subset of
victims to support after the fact. If they advertise to help all
victims, they must help all victims.
Another issue that must be addressed is how a recipient can monitor
and report fraud. Those who are collecting aid and managing the flow of
funds for their family are in the best position to identify when
something is amiss, but oftentimes, at least in the majority of cases
after 9/11, there was no way for the head of household to know who else
was applying for, and receiving aid in the name of the victim.
Information should be available to the victims and their family
representative, not held in secret by the agencies that are unequipped
to handle the tremendous influx of requests and inquiries.
Lastly, any type of aid distribution should go through an opt-in
database system, not one that is opt-out. That is, let the families
decide who sees their personal financial information and which groups
they would like to apply to for aid, instead of automatically giving
their private information to all aid organizations that then decide
which programs they are eligible for. This process will also help
families detect and prevent fraud in their loved one's name. The opt-in
system should be used in concert with a single application, instead of
the system used after 9/11, when each aid agency had its own
application that required hours of duplicating efforts from the
families the aid was supposed to help.
These three issues became clear to me after my personal experiences
with post-9/11 aid. My mother, Judy Larocque, was the CEO of Market
Perspectives, a small market research firm employing approximately 20
people in Framingham, MA, my hometown seventeen miles west of Boston.
Mom was 50 in September 2001, about to turn 51 on October 27th. She had
two daughters; my older sister, Danielle, who at the time lived in
Chicago, and me.
Mom's dream was to get both her daughters back home after we left
Massachusetts for college in California. In the fall of 2001, it looked
like her dream was going to come true. On Labor Day weekend, Danielle
and her boyfriend, now husband Ross, came to Boston to visit. I took
Mom to a Red Sox-Yankees game, we ate lobster and steamers, and we
enjoyed a peaceful weekend spending time together. When Danielle and
Ross left to return to Chicago, Ross told Danielle he thought he could
definitely live in Boston. Mom and I were ecstatic.
On September 10th, Mom was as proud as ever. Danielle taught her
first class as an adjunct professor at Northwestern Law School that
day, and Mom beamed. When I called her late that night, I woke her up.
Even in her sleepy state, the first question she asked me was ``Did you
call and congratulate your sister?'' Of course the answer was yes. We
were as close as any mother and daughters can be. Mom made sure of
that. Whenever Danielle and I fought, she made us hug, and told us
``you are always going to be sisters, that will never change''.
That bond became even stronger after 9/11. There are not words to
describe the pain and grief of losing Mom, my best friend, my
confidant, my comforter, my rock. We all know of the horrors of that
day, September 11, 2001, so I will not go into that any further.
Instead, I will focus on the troubles we encountered after 9/11.
Immediately, we began to understand that the methods in place to
deal with victims' families are not made for today's familial
structure. Mom was recently divorced, and since Danielle and I were not
considered dependents, Mom was treated as a single woman with no
children. I cannot even begin to imagine how furious that designation
would make her.
American Airlines was the first organization we came in contact
with that treated us differently. They kept me on hold for hours, never
confirming Mom was on Flight 11. At one point, I remember thinking that
she could not have been on that flight, because an airline would not
treat victims? family members this poorly. Unfortunately, I was wrong
on multiple counts.
When Danielle asked for help in getting home to Boston from
Chicago, the American Airlines representative gave her the number for
Amtrak, and told her that the trains were all booked. We then learned
that Mom's name was released to the media sometime in the afternoon of
9/11, even though we had expressly asked American Airlines not to give
out her name.
Only later did we find out that there was a lot of information we
were not told about. There was a meeting at Logan Airport on the
morning of the 12th that we were not invited to. The only explanation
for the omission was that we were not considered immediate family,
though we can never really know if that is why information was kept
from us.
Perhaps all of this would have been different had Mom had a
husband. Instead, she had two daughters in their twenties, trying their
best to handle her affairs, but not considered her children by aid
agencies and the like.
As we struggled with that hurdle, we also learned that the
specifics of her murder were being taken into account, without our
prior knowledge, to determine if her family was eligible for aid. To
prevent improper practices, organizations need to make clearer their
criteria and procedures ahead of time to ensure all families receive
appropriate treatment.
This lesson became apparent in the American Red Cross' decision not
to give aid to the families of those who loved ones perished on the
four planes. They claimed that the airlines? legal obligations would be
substantial enough to help those families. They did this without
alerting the public, all the while collecting donations in the name of
the ``9/11 victims and their families''.
The ramifications of this decision may not be immediately apparent,
but they were severe. Suddenly, many of Mom's friends who donated to
the American Red Cross asked us about the aid we were getting to help
pay Mom's mortgage on our childhood home. When I had to tell them we
were not eligible for the aid, they became angry, frustrated, and
wanted me to provide the explanation.
It seemed that everywhere we went, we saw solicitations for the
American Red Cross. It was incredibly painful to feel like a second-
class victim's family member, as if we were not good enough for the
generosity that the American public put forth. When we went to
Framingham's Town Hall to get copies of our birth certificates to apply
for Mom's death certificate, we were faced with another reminder of our
low status. There on the counter was an appeal to help the victims in
New York and Washington by giving to the Red Cross. When we asked if
the woman at the counter knew there were victims right here at home,
her eyes welled with tears.
Families need to be accepted as what they are. When an ad is placed
saying an organization is raising money to help victims? families, it
must either specify which type of families, or be open to all affected
families. To this day, all the scholarship money that was raised for
the ``children'' of 9/11 victims only goes to dependent children of a
certain age. I was a 27-year-old daughter of a 9/11 victim, but was
deemed ineligible for any 9/11-related scholarships or aid when I began
graduate school in 2002. I may not be what most considered when they
donated money for 9/11 children, but there is no doubt in my mind, nor
would there be in my mother's, that I lost a parent on 9/11.
As a co-founder of Families of September 11, a national
organization of 9/11 victims' family members, survivors and concerned
members of the public, I heard the stories of many non-traditional
family members who fell through the cracks of aid organizations in the
months following 9/11. There were the engaged, some of whom were
supposed to be married only four days after the attacks, who were not
eligible for most types of aid. I remember vividly speaking with a
woman whose ex-husband had remarried before he was killed on 9/11, so
that the new wife received all of the aid. The problem occurred because
the man had fathered children with both women, and the first wife was
unable to collect money to help her young son. The story of a couple
who chose not to marry, but lived together for seventeen years comes to
mind, with the victims' parents getting aid, but not the partner who
was left with bills and a mortgage. This scenario was played out over
and over again with many of the gay and lesbian victims whose partners
were left with no legal and varying social status to receive aid.
Aid organizations must recognize the differing aspects of American
families as we know them today. They must be flexible and
accommodating. To its credit, the American Red Cross and United Way did
finally come around and begin to help non-traditional families. But
this change came only after tremendous pressure. It should not be the
responsibility of the victims to have to actively lobby those who are
purporting to help them. Instead, the aid organizations should welcome
their input and act on it, not resist it until Bill O'Reilly or his
counterparts repeatedly attack their practices on national television.
The Department of Homeland Security (DHS) could play a crucial role
in solving this problem. Currently, there is no Office of Victim
Assistance in DHS, which means that while there are lots of people
thinking about how to deal with preventing and immediately responding
to a disaster, there is no one trained to deal with the people a
disaster might affect. If DHS has trained professionals on hand who
specialize in assisting disaster victims, perhaps the good people at
American Airlines and other corporations can leave victim support to
those better suited.
The designation of who is eligible for aid, and who is not often
walks a thin line. We are all aware of the reports of limousine drivers
and mistresses who racked in large sums of money from aid organizations
because they were able to prove, however tenuously that they suffered
losses after 9/11. But there are some programs, and some individuals
for whom this designation is crystal clear. What is less precise,
however, is how to identify and respond to them.
After Congress created the Victim Compensation Fund (VCF), families
were faced with a difficult decision: should they give up their right
to pursue litigation against those liable in their loved one's death in
order to receive an unknown amount of money from the government? This
was made even more difficult by the fact that when the regulations for
the VCF were finalized, there was strong resistance in Washington
against any type of in depth investigation into the 9/11 attacks. How
could a family decide whether or not to pursue litigation, when we had
no way of knowing what really went wrong?
For Danielle and me, however, this decision was simple. We knew
that we had to pursue litigation in order to get to the truth, and
therefore do our part to ensure that what happened to Mom and nearly
three thousand others would never happen again. If the airlines,
security companies and others had been forthcoming, we might have
chosen differently, but based on their secretive behavior, we felt it
was our obligation to shed light on the truth in our call for
accountability.
There was someone who did not share our sentiments. He wanted to
collect money, and was not interested in seeking the truth. His name is
Wayne Larocque, and he is Mom's ex-husband.
One day while on the phone with an attorney and my sister, I
decided to look at the list the Department of Justice had created of
those who had applied for the fund. At the time I was President of
Families of September 11, and I felt an obligation to do what I had
advised our members to do; stay informed, be diligent, and make sure no
one was fraudulently applying to the VCF in your loved one's name.
When I saw Wayne's name on the list, applying on behalf of Mom, I
was shocked. That disbelief soon turned to action, and Danielle and I
quickly contacted VCF officials. As I understood it, Wayne applied, and
in his application, he failed to mention that Mom had two daughters who
were her legal next of kin.
We were not allowed to see Wayne's application, although we did
contact the proper authorities to ensure that Mom's rights, and our own
were not violated and that no fraud was ultimately committed. His
application could have jeopardized our participation in a lawsuit; the
airlines have tried to have any family that even minimally applied to
the VCF thrown out of the pending litigation.
Even today, I have no way of knowing what other money Wayne applied
for and received. Perhaps there is none. But if he was willing to go
the trouble of filling out the VCF form (which was much more involved
that most aid applications), I can only imagine how easy it might have
been for him to collect other money. Without having access to
information regarding who applied for and received money in Mom's name,
I can have no way of knowing if any fraud was committed, and therefore
cannot report and deter it.
There are systems that are very exact when determining how to
compensate victims' families. Worker's compensation for example, does a
terrific job of knowing exactly how much each family gets, and to whom
it goes. I know this, since we were not eligible for worker's
compensation aid, but Mom's mother, my grandmother, was. Based on my
experiences with it, I feel very confident that little to no fraud got
through the their system, nor the system the Social Security program
uses. I do not believe it is too much to ask aid agencies to have some
sort of system that could allow a victims? family to know who is asking
for and receiving aid in a victim's name, in an effort to curb fraud.
In the case of the VCF, this type of transparency clearly worked.
This database should be part of an opt-in system that could be used
to streamline aid distribution. After 9/11, Americans, and for that
matter, people from across the globe, showed their patriotism, unity
and compassion in a generous outpouring of support and donations.
Speaking for myself and my family, we were overwhelmed with the
selfless giving of time, money and love from our neighbors, friends,
communities and fellow Americans.
The job of collecting and distributing the aid was not an easy one.
Those agencies that stepped up to the plate and volunteered to house
and give out the money might not have been fully aware of the difficult
task that lay before them.
On the Tuesday before Thanksgiving 2001, I drove from Boston to New
York City for a meeting with other 9/11 family members and New York
Attorney General Elliot Spitzer to discuss how to streamline the aid
distribution process. He suggested creating a database of 9/11
families? financial information, so that the aid organizations could
review our status and decide how best to divvy up the aid.
I agreed that idea of a database was useful, but thought it should
work in the opposite direction. The families needed one list of aid
agencies with a common application, that told them the criteria and
amount of aid each agency was offering. This way, families could fill
out one form, and could then decide to which organizations they wanted
their application sent. For many families, the idea of deciding which
agency was able to see their information was extremely important.
Unfortunately, we were unsuccessful in creating this database. As I
understood it, the aid agencies did not want to collaborate in drafting
and approving a single application and did not like the opt-in idea.
The result was that families had to spend hours on the phone, or in
queue at the Family Assistance Center, repeating the same information
over and over again to different aid agencies. Not only was it
frustrating to the families, it also led to an environment that could
foster fraud. There was no way to keep track of which agency was paying
which bill for a family, possibly resulting in multiple payments,
whether intentional or not.
For future events requiring aid distribution, I highly recommend
the opt-in, single application approach. Families have every right to
know who sees their financial information, which an opt-in system
provides. Using an opt-out approach assumes that every family
completely understands the complicated system--after suffering a
traumatic loss, this is just one more unnecessary burden to place on a
grieving, overwhelmed family.
A single application is a seemingly simple, yet hard to implement
process. Each aid agency uses its own, slightly modified approach, and
there is no overseeing authority to make them all collaborate for the
benefit of the recipients. If Congress can get them to work together
now, before another event, perhaps the victims of the next catastrophe
will receive an improved, more streamlined and easier to use response
process.
This is an area that DHS could address. If an office of victim
assistance is created, it could house a ready-to-be-deployed database
that will immediately serve disaster victims. With one data collection
point, families are spared the unenviable task of repeating their
personal data, and are capable of monitoring aid activity for their
family. This office could also develop rules and strategies for dealing
with any fraud that is detected and increase family-approved
information sharing among agencies and aid organizations.
The generosity demonstrated by the public towards 9/11 victims?
families and survivors was tremendous and deserves to be lauded.
However, the treatment of the aid after it was collected was less then
perfect. We need to learn from the mistakes committed in the past to
improve the process for the future.
Mom always taught Danielle and me to be accountable for our
actions. If we erred in some way, we did our best to admit it, correct
it, and make sure it didn't happen again. I can think of no better way
to honor my mom than to apply this same standard to post-9/11 aid and
response. This is why I fought so hard for the creation of the 9/11
Commission, and again for the implementation of its recommendations,
and that is why I am here today to work with you to create the best aid
response we can for the future.
Thank you very much for this opportunity to speak before you. I am
happy to take any questions.
Prepared Statement of Ms. Leigh A. Bradley, Senior Vice President for
Enterprise Rusk, American Red Cross
Chairman Rogers, Congressman Meek, and Members of the Committee, my
name is Leigh Bradley and I am the Senior Vice President for Enterprise
Risk at the American Red Cross.
I want to thank you for providing me with the opportunity to appear
before you today to talk about the American Red Cross response to the
attacks of September 11th--work that is ongoing to this very day. I
appreciate the opportunity to share with you our lessons learned
regarding fraud prevention, detection, and controls.
The attacks on the United States that occurred on September 11,
2001, tested the American Red Cross and America in ways we had not
experienced as an organization or as a nation. It is a day that will
remain burned into the minds of all who witnessed on national
television two of our nation's tallest and proudest buildings fall more
than 100 stories, a massive inferno at the Pentagon and a plane crash
in a remote field in Shanksville, Pennsylvania. Thousands of innocent
people died on September 11, including members of the first response
community who put their lives at risk to save others. Since September
11, thousands more have since suffered from the physical and emotional
stress of responding to these vicious attacks. All who witnessed this
day will remember where they were, what they were doing, and will
always recount their feelings and emotions as we, as a nation, were
overcome with grief.
The American Red Cross had been America's partner in disaster
preparedness, prevention and response for nearly 120 years on that
fateful day in September. In our long history, we have aided soldiers
on the battlefield, supported victims of all disasters, and provided
support to first responders.
Our experience in the aftermath of the Oklahoma City Bombings in
1995 helped to prepare us for this day. Almost immediately after the
first plane struck the World Trade Center, Red Cross volunteers and
personnel were on the scene ready to aid in the response.
I want to acknowledge the work of Alan Goodman who is with me
today. Alan is the Executive Director of the American Red Cross
September 11th Recovery Program (SRP). For the past four years, Alan
has been at the helm of this program, which has provided longer term
recovery to tens of thousands of individuals and families, including
families of the deceased, the physically injured rescue and recovery
workers and their families, and people who were living or working in
the areas of the attacks.
Response to September 11, 2001
One year after the terrorist attacks occurred on 9/11, the American
Red Cross issued a report to the American people regarding the
activities of the Red Cross, the Liberty Disaster Relief Fund, and the
execution of the September 11th Recovery Program. Included in this
report was a chronology of our response, which is attached to my
testimony. (Appendix I)
Before I discuss the Red Cross response to 9/11 and some of the
lessons learned, it is important that I briefly share what the Red
Cross traditionally does during times of disaster and how this response
differed.
The American Red Cross responds to disasters in communities across
the nation each and every day. In fact, we respond to more than 70,000
disasters each year. The vast majority of disasters we respond to are
single family home fires. We also respond to large-scale disasters,
such as hurricanes, floods, tornadoes, and manmade events. There is one
constant in all of our response operations and that is to ensure the
immediate emergency needs of our clients are met.
Individual client assistance has been provided by the American Red
Cross for as long as the organization has been in existence. Red Cross
individual client assistance includes much more than just financial
support. In fact, traditional individual client assistance has been
based on a cadre of services to ensure that the health and welfare
needs of our clients are met. This includes feeding and sheltering
operations, mental health assistance, first aid, and relief and
recovery referrals. We partner with other nongovernmental
organizations, the for profit community, and with all levels of
government to ensure that the emergency needs of disaster victims are
met. In each response, our first priority is to ensure that those
affected by disaster have a safe shelter and are provided with the
basic necessities of life.
The next priority is to assist families in taking the first steps
toward recovery. This is the purpose and concern that individual client
assistance is designed to serve. It has long been the case that while
shelter, feeding and the distribution of critical items are sufficient
to stabilize individuals and families, it is not sufficient to meet all
short term emergency needs necessary for disaster victims to begin
their individual road to recovery. Critical items of assistance such as
resources for food, changes of clothing and bedding bridge the gap
between mass care activities and the receipt of state and federal
recovery assistance. This allows a family a modicum of independence and
a flexible resource for the types of essential items mentioned above.
Ultimately, within the framework of disaster assistance provided by
other agencies, as well as state and federal programs, individual
client assistance helps bridge the gap between mass care activities and
loans, temporary housing, and other assistance.
The response of the American public in the wake of 9/11 was
extraordinary. When thousands of Americans needed help following the
attacks, tens of thousands volunteered with the Red Cross, and tens of
thousands made financial contributions. The American Red Cross received
more than $1 billion in contributions. While the Red Cross often
provides financial assistance for the immediate emergency needs of our
clients, the intent of our donors was to ensure this money was
earmarked for the victims of 9/11.
To that end, we created the Liberty Disaster Relief Fund as a
distinct and segregated fund for those financial donations and to
assist those directly affected by the September 11th attacks. Former
Senate Majority Leader George Mitchell was appointed as the independent
overseer of the fund. Under the distribution plan, and consistent with
the Red Cross mission of providing immediate emergency disaster relief,
the majority of funds were to be distributed to the families of those
who were killed in the September 11 attacks, those who were seriously
injured, and others directly affected by the disaster.
For an organization that is accustomed to providing de minimus
amounts of financial assistance--money that is meant to provide for
immediate emergency needs such as a change of clothes, toiletries, or
diapers for children--this meant providing much larger sums of money.
The American Red Cross had two phases of response to the tragic
events of September 11. Phase One represents the immediate response to
the terrorist attacks, dating from September 11, 2001 through October
1, 2002, and is referred to as the Relief Operation Phase. Phase Two
encompasses the long term recovery effort, dating from October 2, 2002
to the present, and is referred to as September 11th Recovery Program
(SRP) Phase.
Relief Operation Phase
Family Gift Program #1 (FGP I)--The FGP I provided
three months of rent, food, utilities and other ongoing
expenses to family members of those missing, deceased, or
injured from the World Trade Center (WTC), Pentagon, or
Shanksville, Pennsylvania events.
SRP Phase
Family Gift Program #2 (FGP II)--The FGP II began on
December 6, 2001, and provided six months of living expenses to
family members and injured clients who received FGP I and nine
months of expenses to clients who initially sought financial
assistance after December 2002.
Family Gift #3 (FGP III)--FGP I and FGP II met the
early financial needs of the victims covered under the Family
Gift Program. The first two gifts were designed to cover the
first nine months of living expenses and these gifts were all
disbursed prior to June 30, 2002. In January 2002, the Cross
determined that the Family Gift Program should also cover unmet
essential living expenses for an entire year through September
11, 2002. The third Family Gift (FGP III) was created to cover
expenses for the months ending on September 11, 2002. The third
Family Gift (FGP III) was created to cover expenses for the
months ending on September 11, 2002. No funds were distributed
for FGP III until July of 2002.
Specifically, FGP III granted expenses, depending on whether or not
clients received the previous two gifts, to financially dependent
immediate and extended family members of decedents, child guardians,
and the ``seriously injured.'' The ``seriously injured'' were defined
as individuals who were in the immediate vicinity of the WTC, the
Pentagon or the Pennsylvania crash site on 9/11 and as a result
suffered a verifiable, serious physical injury or illness for which
they were admitted to a hospital for at least 24 hours between 9/11 and
9/18/01. The FGP III ended on June 15, 2004.
The Supplemental Gift Program--The Supplemental Gift
Program began in August 2002. Each estate and seriously injured
client was originally eligible to receive a gift of $45,000 to
be distributed to those individuals named as executors or
administrators of the estate. In November 13, 2002, the Liberty
Committee approved an increase of the gift amount to $55,000.
To be eligible for the Supplemental Gift, injured clients must have
met the FGP III criteria and additionally have been totally disabled
for 90 consecutive days. Gifts to estates were awarded with the agreed
upon restriction that they be distributed only to individual
beneficiaries, rather than to charities or academic institutions.
Supplemental gifts made to the seriously injured have no other
restrictions following verification of eligibility.
Special Circumstances Gift Program (SCG)--The SCG
Program is a needs-based gift provided to seriously injured who
qualified for the Supplemental Gift as well as financially
dependent extended, nontraditional, and traditional family
members who were eligible for the FGP III, had not received
substantial amounts of assistance from other sources, and
continued to have unmet needs. All awards were determined by a
Review Committee on a case-by-case basis, taking into account
the individual's unmet financial needs, the level of dependence
on the deceased and any 9/11 related special circumstance. The
SCG ended in December 2004.
Disaster Responders--Clients who were officially
deployed as disaster responders to the WTC, Pentagon, or
Pennsylvania are eligible to receive all of the above benefits
if they meet other specific criteria, such as for injury or
economic need.
Additional Assistance--An additional assistance
program began in April 2003 to assist disabled individuals and
family members. Eligible clients were able to receive up to six
months of financial assistance for demonstrated unmet,
essential housing and living expenses. This program ended in
December 2005.
To be eligible, family members were required to demonstrate
financial need and one of the following: financial dependence upon the
decedent, a mental health condition that led to a continuous 90-day
period of disability, or had been appointed the legal guardian of the
minor child/children of a decedent. Disabled individuals were required
to have suffered a 90-day disabling respiratory, mental health or
physical disability and demonstrate financial need.
Joint Relief Operation Phase and SRP Phase
Displaced Residents--Clients whose primary residence
was south of Canal Street in Manhattan and who were displaced
from their homes, had their homes damaged, or had access to
their homes disrupted were eligible to receive assistance which
may include relocation, temporary housing costs, rent/mortgage,
cleaning, moving, storage, and air purifiers.
Economically Impacted--Clients who worked below Canal
Street in Manhattan and were unemployed due to the 9/11 attacks
were eligible for three months of assistance with rent, food,
and utilities until February 7, 2002. After February 7th,
clients were eligible for a one month grant disbursed according
to household size. The last day for economically impacted
clients to register for Red Cross assistance was March 28,
2002.
In total, the September 11 Recovery Program has provided support to
nearly 60,000 individuals and families directly affected by the
September 11 terrorist attacks. While the direct services provided by
SRP, including financial assistance and referral to social work
agencies for case management needs, ended on December 30, 2005, the
program had been established around five major initiatives:
Long Term Mental Health Services--based on financial
need, this program provided financial assistance for services
including individual, group and family counseling; psychotropic
medication coverage; hospitalization; and inpatient and
outpatient substance abuse treatment. Programming will continue
through the end of 2007.
Long Term Health Care Services--this program provided
financial assistance and clinical case management for uncovered
health expenses directly related to injuries or illnesses
caused or exacerbated by the events of 9/11.
Family Support Services--This program provided
individualized support and guidance to eligible families to
ensure that they had access to the resources they needed for
their recovery. Trained Red Cross Family Support specialists
assisted with determining health care and mental health needs,
identifying resources, making referrals, providing assistance
through three financial assistance programs, identifying long-
term needs and planning for the future.
Assistance to Residences--For displaced residents with
ongoing needs, the Red Cross provided air purifiers and HEPA
vacuums, helped to relocate individuals and families, and
provided reimbursement for expenses incurred during
displacement. In addition, this program offered mental health
assistance to affected residents who experienced emotional
trauma as a result of 9/11.
Communication Coordination--To help meet the needs of
those affected by the September 11 attacks and maximize
efficient use of resources, the Red Cross coordinated with
other groups including community organizations, constituency
groups, advocacy organizations, local elected officials, faith-
based and interfaith organizations, and other nonprofit and
government agencies providing direct services and benefits to
those affected. The Red Cross is a founding member of the 9/11
United Services Group (USG), which coordinated 13 service
agencies to help ensure that those affected by the events of
September 11 were able to get the help they need. The Red Cross
assisted the USG in developing a shared database that has
helped various charities provide financial assistance and
services to victims of the September 11 attack more
efficiently.
At the end of the first quarter of 2006,\1\ the Liberty Disaster
Relief Fund had collected a total of $1.080 billion. Approximately $738
million of the funds received has been expended in financial assistance
to those directly affected; $159 million has been expended for
immediate and long-term program costs; $66 million has been expended
for indirect services; and about $60 million has been used for fund
stewardship. As of the end of March, 2006, $55 million remained in the
Liberty Fund.
---------------------------------------------------------------------------
\1\ These figures represent contributions and expenditures through
March 31, 2006 and are the most current data available. The next report
of the Liberty Disaster Relief Fund will be released on the fifth
anniversary of 9/11 on September 11, 2006.
---------------------------------------------------------------------------
The Red Cross will use the balance remaining in the Liberty
Disaster Relief Fund to support non-profit agencies that can deliver a
variety of services to the people whose lives were the most seriously
affected by the terrorist attacks in the communities where they live
and work. These services include mental health and wellness for adults,
adolescents and children; health diagnosis and treatment for rescue and
recovery workers; financial assistance; and community recovery in lower
Manhattan.
Fraud Prevention, Detection and Controls
Waste, fraud and abuse are very serious issues to the American Red
Cross. As an independent nonprofit agency, we rely on the donations of
the American public to provide services free of charge to victims of
disaster. We have an obligation to our donors to ensure that we are
good stewards of the donated dollar. The Red Cross treats its
obligation to deter and detect fraud or abuse with the utmost
seriousness and when appropriate seeks prosecution of fraudulent
activity to the fullest extent of the law.
During times of disasters there are individuals who take advantage
of the generosity of the American people and of the very agencies and
institutions that provide services to those in need. That has held true
in all Red Cross disaster responses, and unfortunately, it was evident
during our response to September 11. Attached to my testimony are
examples of fraud that we witnessed as an organization during our
response to September 11. (Appendix II)
We learned a number of valuable lessons in our response to 9/11 and
have implemented a number of changes in the Red Cross response to
disasters and to prevent, detect and control fraud. I will address some
of the lessons learned and elaborate on fraud prevention, detection and
controls that have been put in place as a result of our response to 9/
11.
But first let me describe the 9/11 compliance and enforcement
response. 1,473 cases were investigated by the Red Cross involving
actual or potential allegations of fraud, and many of these cases were
referred to federal, state and local prosecutors for full investigation
and prosecution. There were some cases that were not pursued by law
enforcement and these were reviewed by the Red Cross for possible civil
prosecution as I discuss below.
Methods of Prevention
The Red Cross executed a number of policies and methods to mitigate
fraud from occurring. These include:
1. Except where immediate assistance was necessary, require
applicants for assistance to document financial need and/or
injury caused or exacerbated by the disaster.
2. For every eligibility requirement, we established a
corresponding documentation requirement that was specific and
enforced.
3. Required applicants to affirm that the information provided
and recorded in the case file was accurate and true.
4. Whether automated or manual processes, developed more
effective case tracking mechanisms to detect and track fraud
and ensure that those not entitled to benefits did not receive
them.
5. Implemented at the outset of any disaster relief effort the
types of fraud detection and prevention efforts, including
cooperation with other charities and governmental entities.
6. Make certain that all decisions about program design and
eligibility criteria were made by a centralized authority and
were communicated to the field clearly, in writing.
7. Developed forms and procedures that minimize discretion for
case workers and clearly articulated the ground rules for
discretionary decisions by supervisors.
8. Delineated clearly the responsibilities of all those
involved in the review and approval process by making clear
that someone was obliged to make sure all necessary information
and documentation was provided.
Methods of Detection
Detection of fraud in the aftermath of September 11th occurred in a
variety of ways. The most prevalent and successful methods include:
1. Casework--Many cases involved the presentation of false
documents, false identities and false victims.
2. Internal Controls--Disaster Accounting was alerted to
duplication of benefits, forged checks, changes in address,
etc.
3. Neighbors, Family Members and Associates--Individuals would
alert the Red Cross to the possibility of fraudulent claims,
which were investigated.
4. Law Enforcement--Red Cross was alerted to on-going
investigations involving FEMA, NYPD and NYFD as to the
possibility of fraud.
5. Case Audit Unit--would discover inconsistent data,
documentation and statements, which would lead to further
investigation.
The Red Cross identified 20 cases as possible targets for civil
suits. Hogan & Hartson LLP, a nationally recognized law firm,
represented the Red Cross in these civil proceedings on a pro bono
basis. After further investigation on these 20 cases, we decided to
refrain from pursuing ten of the 20 cases because of factors, such as
an inability to locate and serve the defendant with legal process or
the defendant did not have sufficient financial assets that could
satisfy a judgment. However, we filed suit in the remaining 10 cases.
The total amount sought to recover in these 10 cases is $111,352. As of
this date, two cases have been completed, with $25,894 recovered
through settlements. There is a settlement in a third case for $15,600,
with monthly payments of $100 for 156 months. The defendant made the
first payment but has defaulted on remaining payments. We have filed a
motion with the court to enforce the settlement agreement, which is
pending. We have obtained a default judgment in a fourth case and we
are moving forward with the appropriate procedures to garnish the
defendant's wages. The remaining six cases are in various stages of
active litigation.
One of the lessons that the Red Cross learned from 9/11 was the
need to more aggressively pursue fraud perpetrated against the Red
Cross though the civil court process and to include verifying that Red
Cross insurers kept their commitments to pay fraud claims filed by the
Red Cross. Two cases illustrate this point.
In the Southeastern Connecticut Chapter matter, the
Red Cross filed an employee dishonesty claim with Royal
Insurance Company arising out of the embezzlement of 9/11 funds
by the Executive Director of the Southeastern Connecticut
Chapter. The Red Cross filed a claim with Royal for $173,657,
the total amount of the loss, even though the local prosecutor
valued the provable loss as $120,000. In December, 2003, the
Red Cross reached a settlement of our claim with Royal for
$97,710. The policy at the time had a deductible of $50,000, so
we received from Royal $47,710. It was determined between the
Chapter and Red Cross National Headquarters that the Liberty
Fund would receive 79% of this settlement.
In the Hudson County Chapter matter, the Executive
Director of the Chapter embezzled $1,113,577 from the Chapter that was
a provable loss. With additional costs associated with the embezzlement
that were covered by our fidelity loss policy, the total claim
submitted to Royal Insurance was $2,490,593.70. Royal Insurance paid
part of the claim in the amount of $1,676,024.65 in August, 2003,
leaving $787,796 as an amount that Royal said was not covered by the
policy. The Red Cross filed suit against Royal and the case was settled
for $475,000 in November, 2003. Thus, the total amount recovered from
Royal in this matter was $2,151,024.65.
The Red Cross will continue to work with federal, state and local
law enforcement regarding fraud against the Red Cross and will actively
pursue in the civil courts those provable cases not prosecuted in the
criminal courts. The Red Cross also will file appropriate claims with
its insurance companies and will pursue claims for any fraud losses
against those insurance companies that wrongfully deny claims.
Methods of Controls
The detection and prevention of fraud is a small, but important
component of the design of a disaster relief program. The September
11th Program provides myriad examples of the kinds of fraud that people
will try to perpetrate if substantial sums of money are available. Many
types of fraud can be minimized by taking proper steps in the design
and controls of the eligibility criteria and documentation requirements
for the programs.
In developing a response to any disaster, the Red Cross must do at
least two things; 1) define the individuals who are eligible to receive
assistance and; 2) define the assistance that each will receive.
An important issue for defining eligibility is creating an
authoritative list of those who are entitled to benefits/assistance.
This was an ongoing problem for all of the charities that responded to
the September 11 attacks. In a future disaster, it will be important
for the charities and governmental entities to work together to develop
a comprehensive list of those injured, deceased, and entitled to
benefits. Where an individual seeks benefits for a relative who is not
on the list, some additional documentation should be required.
Additionally, documentation beyond a simple assertion that an
individual was killed must be provided for claims of death. Many of the
significant cases of fraud against the Red Cross (in dollar terms)
occurred when people falsely claimed that a loved one had been killed.
A well-designed program with appropriate levels of controls should
balance the interest in minimizing fraud with the interest in ensuring
that victims receive assistance without undue administrative burden.
Failure to obtain adequate documentation or documentation of any
kind was a significant problem in the early Family Gift Programs (FGP
I; FGP II) when the standards of ``assumed'' and ``attested''
eligibility were utilized. Many case files have nothing (other than
case worker notes) to substantiate the claims made or the assistance
provided. This problem was rectified when the ``demonstrated''
eligibility standard was used for the final family gift distribution.
Although there are numerous examples of individuals who forged
documents, a substantive amount of fraud was committed by those who
lied, but were never asked to provide documentation to back up their
claims. A number of additional suspected fraud cases were identified
when applicants were unable to provide the required documentation to
substantiate their additional claims of ongoing financial assistance.
Finally, those who design future financial assistance programs must
be cognizant that the ability often given to case workers to be
creative and flexible in helping applicants to obtain benefits or
assistance often has the effect of encouraging case workers to bend or
break rules for eligibility. To the extent such flexibility is
encouraged, it should be done at the supervisory level and it should be
clear that flexibility cannot result in providing additional funds to
those who are not eligible.
Coordinated Assistance Network (CAN)
One of the great successes to come out of the entire
nongovernmental organization community's response to 9/11 was the
development of the Coordinated Assistance Network (CAN). Our
experiences in 9/11 showed clearly that having clients find their way
through a web of service providers caused added confusion in an already
trying time. Several disaster clients were lost within the improvised
system; others were shuttled from appointment to appointment, having to
tell their painful story time and time again.
The Coordinated Assistance Network provides the framework and tools
to make casework management easier and more efficient though advanced
collaboration and also adds additional safeguards to prevent fraud. CAN
enables disaster clients to visit any one of the participating
organizations, tell their story, provide required documentation, and--
with their permission--have that information shared automatically with
the partner agencies that are able to assist them. Through a secure,
web-based system, an agency can instantly review each client's specific
situation and the services received--in real time--helping to provide
better services to the client, eliminate duplication of benefits, and
measurably lessen the burden for each participating agency.
Since 9/11
In addition to the valuable lessons we have learned and
incorporated as a result of our response to 9/11, our nation has
continued to see individuals take advantage of the generosity of the
American public and the agencies responsible for helping victims
recover from disaster. This past year, the American Red Cross provided
assistance to more than 1.4 million families impacted by the
devastation wrought by Hurricanes Katrina, Rita and Wilma. $1.2 billion
of emergency financial assistance was provided to those million
families. To stop those that attempt to cheat the system, the Red Cross
participates in the Department of Justice's Hurricane Katrina Fraud
Task Force, which also includes members from the FBI, the United States
Secret Service, the Federal Trade Commission, the Postal Inspector's
Office, and the Executive Office of the United States Attorneys, among
others. The Red Cross is assisting in hundreds of investigations now in
progress. Every resource is precious to the Red Cross and we are taking
every measure to aggressively pursue any illegal activity. To date,
there have been 76 indictments and 55 convictions.
As of June 14, we are investigating 7,109 cases of suspected and
actual fraud. These represent a combination of cases turned over to law
enforcement and cases being investigated internally. We estimate the
potential of approximately $9.5 million in cases stemming from this
fraud.
There were instances where individuals or families received
duplicative assistance that was neither fraud nor abuse on behalf of
our clients, but rather a simple oversight or human error. I am pleased
to report to this Committee today that as of May 1, 2006, the American
Red Cross had collected $2.3 million in returned assistance from
clients who had received duplicate payments.
As a result of the fraud we have experienced during and since 9/11
and the 2005 hurricane season, the American Red Cross is incorporating
even stronger controls to mitigate future abuses. These include
improvements to our Client Assistance System (CAS) software, with
reporting enhancements to provide a single system of record to support
the delivery of assistance to those in need; and improvements in
chapter advance procedures and new monitoring and control processes to
support the use of the cash-enabled client assistance cards (CAC).
Closing Remarks
Mr. Chairman, Congressman Meeks, and Members of the Committee, I
want to thank you again for providing me the opportunity to share with
you our experiences in our response to September 11. The American Red
Cross provided assistance to nearly 60,000 individuals and families
impacted by the devastating attacks on America on September 11, 2001.
As the September 11th Recovery Program begins to wind down nearly five
years after the first plane struck the World Trade Center, the American
Red Cross continues to respond to disasters, both natural and manmade,
each day in communities across the country.
We are proud to be America's partner in disaster prevention,
preparedness, and response, and we urge all Americans to be prepared
for whatever disaster may strike.
I am happy to respond to any questions you may have.
Appendix I
September 11, 2001
Four airplanes are hijacked and crash into the twin
World Trade Center towers, the Pentagon, and an open area near
Shanksville, Pennsylvania. The terrorist attacks affect tens of
thousands of victims and their family members throughout the
United States. Millions more across the country and around the
world are overcome by grief, fear, and compassion.
Within minutes, the American Red Cross immediately
responds. More than 6,000 trained disaster volunteers are
mobilized. Emergency Response Vehicles are deployed to help
victims and rescue workers.
When the towers collapse, an Emergency Response
Vehicle from the Red Cross in Greater New York is hit with
debris and rubble. There is great concern throughout the
organization for the welfare of the staff.
Volunteers open 13 shelters in the New York area for
people left homeless or stranded.
Volunteer mental health professionals trained in
disaster response are dispatched to the shelters, crash sites,
the flights' points of origin and destination, and other major
transportation hubs, providing physical and emotional support
to the victims, their families, rescue and recovery workers and
thousands of others affected by the tragedy.
After the FAA grounds all commercial traffic in the
United States, Red Cross chapters across the country help
hundreds of thousands of travelers stranded at airports
nationwide.
Respite centers are established near the crash sites
to provide the police officers, firefighters, rescue and
recovery workers, and others with places to turn for physical
and emotional relief.
The Red Cross begins taking spontaneous donations to
help the victims of the attacks and their families. Individuals
and businesses in America and around the world begin donating
money and blood in record numbers.
The Red Cross blood donation line receives more than a
million calls. (The most received previously in one day was
3,000.)
September 12, 2001
The City of New York opens the Compassion Center for
families whose loved ones are missing. There, the Red Cross
provides mental health counseling and meals.
The Red Cross sets up a phone bank at the offices of
PBS affiliate WNET Channel 13. Mental health volunteers take
calls there from people in need of assistance. At Red Cross
headquarters, a 24-hour Emergency Communications Center is
activated.
At the request of the White House, the Red Cross mans
a blood drive for White House staff.
September 13, 2001
Within one day, volunteers answer more than 13,000
calls at the Emergency Communications Center.
A special Amtrak train containing relief supplies
leaves Union Station in Washington, D.C., bound for New York.
At the request of Congress, the Red Cross commences a
two-day blood drive in Senate and House office buildings.
September 15, 2001
Three new mental health brochures are released to help
people around the country address and cope with the emotional
trauma created by the disasters.
September 16, 2001
Working with Microsoft and Compaq, the Red Cross
launches the Family Registration Web, an online network to help
unite loved ones with survivors of the attacks.
September 17, 2001
Acting in part on counsel from the Red Cross, the City
of New York moves the Compassion Center to a new location where
it becomes the Family Assistance Center. The Red Cross
continues to play a major role, offering financial assistance,
bereavement counseling, guidance and help with gathering
information. Red Cross crisis counselors are aboard all
shuttles carrying family members to the center. In addition,
the Red Cross provides meals for both families and workers.
When the world financial market reopens, Red Cross
mental health volunteers are at major transportation hubs to
offer counseling, provide mental health information and to let
people know that help is available.
September 18, 2001
Eighteen teams of Red Cross workers go door-to-door in
the Restricted Zone in downtown New York to assist residents
who choose to stay in the area. Each team is made up of six
people and includes a mental health professional, a disaster
specialist, and a family service worker.
September 20, 2001
The Red Cross establishes the Liberty Disaster Relief
Fund as a separate, segregated account to fund relief services
related to the September 11 attacks.
The Red Cross commences a series of blood drives at
federal departments, including Commerce, Health and Human
Services, Justice, Transportation and Defense.
September 23, 2001
The Red Cross launches an unprecedented Emergency
Family Gift Program to help families of the deceased and
seriously injured meet their immediate financial needs. This
gift program assesses each family's needs and provides a grant
for living expenses such as food, clothing, utilities, mortgage
or rent payments, funeral, and related expenses. The program
places funds in the hands of families, often within one
business day.
September 27, 2001
The Red Cross launches a nationwide, toll-free hotline
offering assistance and referral information for anyone seeking
help from the Red Cross. 1-866-GET-INFO and a call center in
Virginia become important components of the overall Red Cross
response to September 11.
October 9, 2001
By the end of the fourth week, the Red Cross has
served 5,854,373 meals, answered 64,211 hotline calls, and
helped people affected by the disaster by making 61,104 mental
health contacts and 31,717 disaster health contacts.
October 12, 2001
The Red Cross announces that at least $300 million
will be needed for the Red Cross response. Because future
terrorist attacks seem imminent, the announcement states that
funds raised will be spent on other terrorist-relief programs,
including a strategic blood reserve, Armed Forces services, and
community outreach.
October 31, 2001
The Red Cross ceases active fund-raising for the
Liberty Disaster Fund. At this point, the organization has
received more than $500 million in September 11-related
donations.
November 6, 2001
In testimony before Congressional and Federal
officials, the Red Cross announces that it has spent or
committed close to $154 million in less than seven weeks.
Within that short time frame, the organization has already
helped 25,000 families affected by the September 11 terrorist
attacks, provided more than 10 million meals and snacks to
families, police officers, firefighters, investigators, and
rescue and recovery workers. Trained mental health workers also
have provided emotional support to more than 144,000 people.
November 11, 2001
The Red Cross in Greater New York commences a two-day
training seminar for more than 700 tri-state mental health
professionals who interact with citizens affected by the events
of September 11.
November 12, 2001
On the second day of the training seminar, Red Cross
volunteers on staff at the event are quickly mobilized to serve
the needs of victims of a plane crash in Belle Harbor, Queens,
a neighborhood that has already lost a number of residents to
the September 11 terrorist attacks.
November 14, 2001
With nearly $550 million in the Liberty Disaster
Relief Fund, the Red Cross announces that it will use the fund
to meet the immediate and long-term needs of the victims of the
September 11 terrorist attacks exclusively.
December 4, 2001
The Red Cross extends its financial assistance to
economically affected individuals to cover the cost of rent or
mortgage, utilities and food for up to three months.
December 27, 2001
The Red Cross names Senator George Mitchell, former
Senate Majority Leader, as the independent overseer of the
Liberty Disaster Fund to ensure donors that their contributions
will meet the ongoing and long-term needs of the families
affected by the September 11 terrorist attacks.
The Red Cross announces that it will spend $317.5
million by the end of 2001 on aid to more than 36,000 families
affected by the September 11 terrorist attacks.
At this point, the Red Cross has received more than
$667 million in donations to the Liberty Disaster Fund, which
has grown by more than $100 million since the organization
stopped soliciting donations.
January 31, 2002
Senator George Mitchell and the Red Cross announce the
Liberty Disaster Fund Distribution Plan. This plan calls for
distributing the majority of funds to those directly affected
by the disasters and reserves a portion of the fund to respond
to long-term needs of the families, rescue workers, and others
affected by the disasters. Senator Mitchell also announces
plans to expand the direct Family Gift Program to cover
expenses for up to one full year.
March 11, 2002
Six months after the terrorist attacks, the Red Cross
has received $930 million in contributions, of which it has
expended more than $550 million to date. The organization has
distributed $169 million to more than 3,200 families of the
deceased and those seriously injured. More than 51,000 families
displaced by the attacks have received $270 million. An
additional $94 million has funded the provision of 14 million
meals, mental health services to 232,000 people and health
services to 129,000 people.
May 1, 2002
Senator George Mitchell releases the first of his
quarterly reports on the distribution of the Liberty Disaster
Fund. The report states that the Red Cross ``fairly responds to
the needs of victims, complies with the intentions of Red Cross
donors, and is consistent with the Red Cross mission of
providing emergency disaster relief.''
Despite having discontinued solicitation of
contributions for the Liberty Disaster Fund for many months,
continued donations bring the fund's size to more than $950
million, nearly double the amount received when the Red Cross
stopped soliciting donations.
June 5, 2002
The Red Cross announces a series of bold changes in
its disaster fund-raising practices. The national initiative
expands efforts to educate donors about the Red Cross General
Disaster Relief Fund and institutes a new system of affirmative
confirmation and acknowledgement to ensure all disaster-related
donations are directed as intended. The program is called Donor
DIRECT, which stands for D(onor) I(ntent) RE(cognition),
C(onfirmation) and T(rust).
June 21, 2002
The Red Cross announces the start of the final phase
of the Family Gift Program. The Red Cross also announces the
Supplemental (Estate) Gift Program, which will provide one-time
gifts of $45,000 to the estates of those who were killed in the
attacks, as well as to those who were seriously injured.
August 1, 2002
Senator Mitchell releases the second quarterly Liberty
Disaster Relief Fund report, which finds that the Red Cross
continues to distribute the fund properly to meet the needs of
the families and individuals affected by the September 11
terrorist attacks. More contributions bring the total receipts
to the Liberty Disaster Fund to $988 million.
August 22, 2002
The Red Cross announces the details of its September
11 Recovery Program. The Program will allocate more than $133
million to provide services over a period of three to five
years to the families most directly affected by the September
11 attacks. These funds are to be used primarily to help pay
for mental health and uncovered health care services, as well
as family support and assistance to affected residents in
downtown Manhattan.
September 11, 2002
As the nation marks the one-year anniversary of the
terrorist attacks of September 11, 2001, the Red Cross
continues to help provide family support, mental health, and
spiritual counseling for affected families and individuals. In
addition to providing support on the day of the anniversary,
the Red Cross is also offering assistance to help pay the
expenses for families who wish to travel to a memorial service
that will take place in affected cities across the country but
who might not otherwise have the means to attend.
Within one year, $643 million has been distributed or
committed to those directly affected by the September 11
disasters. Another $200 million is projected to be distributed
by year's end depending on the pace of family responses
received and the processing and verification of necessary
documentation.
Appendix II
Examples of fraudulent cases:
October 2002 Daniel Djoro reported that his brother, ``Daniel
Zagbre,'' had perished while at the World Trade Center for a business
meeting. He produced his ``brother's'' Social Security number and
driver's license to prove ``Zagbre's'' existence. We had flown him from
Lansing, Michigan to New York City to retrieve the death certificate.
But ``Daniel Zagbre'' was in fact a fictitious name the defendant
himself had used. Djoro eventually defrauded the Red Cross and Safe
Horizon out of $269,000, of which he has repaid $138,000. (Prosecuted
by Manhattan DA)
August 2003 Cyril Kendall, a father of 12 children, claimed that a
13th child had died in the WTC attack. He told the Red Cross and Safe
Horizon that his son was in the North Tower for a job interview with
the American Bureau of Shipping, a legitimate company. To prove the
existence of his ``son,'' Cyril showed Red Cross workers a picture of
himself as a young man. He stole over $119,000 from September 11th
Recovery Program and $190,000 in total. (Prosecuted by the Manhattan
DA)
January 2004 Terry Smith received over $136,000 from the Red Cross
after claiming his wife died on 9/11 while visiting a friend at the
WTC. He also claimed that he and his wife had 10 children and needed
the funds for health care and child care. Our staff became suspicious
when he was reluctant to produce a New York death certificate. His wife
was actually deported to Jamaica in 1999. (Prosecuted by the US
Attorney, Southern District, California)
November 2004 Donna Miller claimed that her husband, Michael, died
in the attack on the World Trade Center. When she was unable to provide
documentation of Michael's death, the September 11th Recovery Program
contacted the authorities in Michigan. After further investigation by
the Kent County Sheriff's Department, Detective Steve Moon found that
her deceased husband was actually still alive. She collected over
$98,000 from the Red Cross and Safe Horizon. (Prosecuted by the Kent
County (MI) District Attorney)
Jonathan Finkelstein received $51,000 for injuries he said he
suffered as a volunteer paramedic at Ground Zero. However, the
September 11th Recovery Program learned that not only was he never at
the World Trade Center site, but the documentation supporting his
injury claims was forged by his wife at the doctor's office where she
worked. He repaid the $51,000 in court-ordered restitution upon
pleading guilty to the charges. (Prosecuted by the Manhattan District
Attorney).
Thursday, July 13, 2006
10:00 a.m. in 311 Cannon House Office Building
Subcommittee on Management, Integration, and Oversight
Hearing
``An Examination of Federal 9/11 Assistance to New York: Lessons
Learned in Preventing Waste, Fraud, Abuse, and Mismanagement, Part II-
Response''
Witnesses
Prepared Statement of Ms. Ruth A. Ritzema, Special Agent in charge for
New York, Office of Inspector General, U.S. Department of Housing and
Urban Development
Chairman Rogers, Ranking Member Meek, members of the Subcommittee;
thank you for inviting me to testify today on the lessons learned after
the events of September 11, 2001. Although this hearing is about the
oversight efforts in fraud detection, prevention and control, which I
will elaborate in great detail on, I wanted to start off my testimony
by quickly sharing with you how the events of that day directly and
intimately impacted me.
Events of September 11th
The Department of Housing and Urban Development's Office of
Inspector General (HUD OIG) Office of Investigations, of which I am the
Special Agent in Charge, was at 6 World Trade Center. It housed
approximately thirty-five HUD OIG employees--special agents, forensic
auditors and support staff.
On that morning, fortuitously, our New York City special agents
were out of the office at a quarterly firearms qualification.
Unfortunately, our forensic auditors and support staff were on site
when the first plane hit the North Tower, which was adjacent to our
office. All of the auditors and support staff in the building heard the
explosion and one of our secretaries, who saw pieces of the plane and
building fall, immediately told everyone to evacuate prior to any
alarms going off. They fled across the street near the financial
district where they watched the building burn. The group became
separated when the second plane went into the South Tower.
Four of my special agents from our regional sub-office in Buffalo,
New York, had flown in for their firearms qualification and they were
to meet at our building at 9:00 a.m. for case reviews. The agents were
traveling on the subway and made a lucky mistake by getting off at City
Hall instead of the next exit that would have put them in the basement
of the World Trade Center complex at exactly the wrong time.
I had meetings scheduled for that day in New Jersey and was across
the river when I received a page from an agent about a fire at the
World Trade Center. When I heard on the radio about the second plane
going in, and worried about my own people, I immediately headed into
the City using the shoulder of the New Jersey Turnpike to bypass the
stopped traffic. As I approached the extension, I could see the towers
on fire. I repeatedly tried to get through to headquarters, the staff
or the offices, but as hard as I tried I only got a busy signal.
As I was driving towards the City, the first of the two towers
collapsed before my eyes and I heard on the radio that the Pentagon had
also been attacked. I drove through the Holland Tunnel to the federal
building located at 26 Federal Plaza, which is six blocks away from the
World Trade Center and is also where the HUD OIG Office of Audit is
located. A Federal Bureau of Investigations (FBI) agent told me that
the emergency law enforcement command post was setting up at the church
adjacent to the World Trade Center complex.
Running down Broadway, I was struck by how surreal the whole
situation appeared. The beautiful cloudless day had turned all dark
with soot and smoke in the air. People tried to turn me away from
Ground Zero until I threw on my ``Federal Agent'' vest cover. I stopped
from time to time to try to get help for a couple of people who had
pretty serious burns. I then continued to run to the command post to
check and make sure that our people were out safe. I just arrived at
the church adjacent to the towers when the second tower collapsed
literally right in front of me.
At that point, I have no memory of what happened during the
collapse. My next memory is being about a block away with firemen all
around and hearing screaming radio transmissions of firemen who were
getting buried and were desperately trying to give their coordinates;
``we're at two o'clock from the fountain'' (the fountain was located in
the middle of the plaza). After the air cleared some, another FBI agent
saw me and told me that we were rallying in Chinatown and he and I ran
there.
I immediately agreed to work with and assist the FBI in any
capacity. Our Assistant Special Agents in Charge (ASACs) had rallied
our agents and were standing by for instruction. One of my ASAC's and I
went back to what was formerly our office and watched the building
burn. Shortly thereafter, 7 World Trade Center collapsed. Training from
my years in the military kicked in as we dispersed and established
security perimeters to deal with the rumors and false reports swirling
about in the dark mist of that day. Thankfully, and most importantly,
we accounted for our people, but we had lost everything else--our
evidence, all our case files, and our equipment. The HUD OIG had
previously suffered a tragedy when one of our special agents died in
the Oklahoma City bombing and I was very grateful how lucky we were
considering our proximity to the devastation.
A command post was set up at 290 Broadway and it seemed that every
law enforcement-related agency was in that room with a phone that
rarely worked and a handwritten piece of paper taped in front of their
table to identify their agency. Our OIG agents were stationed all over
the city--at command post, airports, Ground Zero or whatever other hot
spot came up. They also searched for evidence with rakes, shovels and
gloved hands at the landfill in Staten Island. This command post was
move to the ``Intrepid'' in the Hudson River and to a garage on the
West Side Highway where for the next few months our special agents
continued to assist in the terrorist investigation and to transition
back to HUD-related oversight activities.
Auditing Activities
In the aftermath, Congress authorized HUD to provide the State of
New York with $3.483 billion in Community Development Block Grant
(CDBG) disaster assistance to aid recovery and revitalization and
earmarked at least $500 million of this to compensate small businesses,
nonprofit organizations, and individuals for economic losses. Out of
these funds, the Empire State Development Corporation (ESDC),
designated by New York State to develop and administer economic and
business recovery grant and loan programs, was allocated $700 million.
The Lower Manhattan Development Corporation (LMDC), established to
administer and develop programs to rebuild and revitalize lower
Manhattan, was allocated $2.783 billion.
Direction from the legislation insisted on speed in assisting
businesses located in lower Manhattan hardest hit by the attack. For
instance, applicants for Business Recovery Grants (BRG) were required
to have a response to their request within 45 days of application
submission. Congress also insisted on the utmost integrity from the
program and required that the HUD OIG maintain a continuous audit
activity of funds allocated to the rebuilding efforts. The Congress
required that we report on the expenditure of the funds every six
months. Our audit objectives to fulfill this mandate were to determine
whether ESDC and LMDC:
Disbursed the CDBG disaster funds to applicants in a
timely manner;
Disbursed the CDBG disaster funds to eligible
applicants in accordance with HUD-approved action plans;
Had financial management systems to adequately
safeguard the funds; and
Developed and implemented adequate procedures for
monitoring the CDBG disaster assistance programs.
HUD OIG called for a meeting with Inspectors General from all the
affected agencies to begin investigative and auditing coordination and
cooperation in the New York/New Jersey office. Early collaboration with
other agencies was important to the success of our auditing efforts. As
a result, procedures were developed that provided that if an entity
already received a Small Business Administration (SBA) grant and
applied for a BRG grant, that entity could not receive a BRG grant if
the total of both grants exceeded its economic loss. Likewise, we met
with Federal Emergency Management Agency (FEMA) officials to also work
on the issue of duplication of benefits among our programs.
We further collaborated with the Internal Revenue Service (IRS) to
obtain a copy of an applicant's tax transcript, which was then used to
verify that the tax information included on the application for
computing economic loss was accurate. We discovered that some
applicants did not file a tax return but still submitted a tax return
on their BRG application and/or they sometimes included a higher
taxable income than what was actually filed with the IRS in order to
inflate economic loss. The auditors referred these over for
investigation.
Additionally, we coordinated with the Social Security
Administration (SSA) to test whether the social security numbers from
our audit sample were legitimate. If our auditors discovered a
discrepancy (i.e., the age of applicant did not agree with the age
registered with the SSA), they referred it to investigations. In
general, if the auditors detected any suspicious information during the
course of its financial review, for instance, in the ESDC's Business
Retention Grant (BRG) or Small Firm Attraction and Retention Grant
(SFARG) programs or in the LMDC's Residential Grant program, it
referred it to investigations for further review. This greatly enhanced
anti-fraud and abuse endeavors.
HUD OIG auditors took a proactive approach that stressed prevention
of fraud and abuse, as opposed to solely a detection emphasis whereby
audits would take place long after the funds had been expended. The
unusual nature of this audit recognized that the funds needed to be
disbursed quickly and that Congress had waived the pre-set CDBG
statutory requirements that governed the parameters of who were to
receive grants. Early in the program our audits identified significant
weaknesses in internal controls and program design. We conducted audits
in an almost real-time basis that gave the auditee an early opportunity
to take corrective action and improve controls and procedures for
future expenditures. Audits were started no more than six months after
the disbursements had been made. While this was resource intensive and
caused a strain on our other operations as we had not been given any
additional funds to undertake this initiative, we felt it was important
that we remain aggressive and in the forefront.
To date, we have audited over $1 billion dollars in disbursements.
The results of these audits include findings of duplication of benefits
and payments; of overpayments; of ineligible and unsupported costs, and
of improvements needed in collection efforts. For example, our audit
work found that over $2 million had been disbursed to the Hudson River
Park Improvements Program contrary to the terms of the sub-recipient
agreement.
In furthering our early collaborative work with the SBA, only eight
months after the attack, we issued an interim audit report noting the
duplication of benefits between SBA loans and the ESDC's BRG program.
We also reported on concerns we had with the calculation of recipients'
economic loss amounts for the BRG program. As a response, ESDC
developed procedures and formulas that tried to prevent duplication.
ESDC also revised its application for the BRG program to require
recipients to itemize the amount of claimed economic loss. In addition,
it has responded by: