Testimony of
Thomas A. Schatz,
President,
Citizens Against Government Waste before the
Senate Subcommittee on Research, Nutrition, and General Legislation
September 27, 2000
Good morning, Mr. Chairman. Thank you for the opportunity to testify today before the Senate Subcommittee on Research, Nutrition, and General Legislation. My name is Tom Schatz and I represent the 1,000,000 members and supporters of Citizens Against Government Waste (CAGW).
CAGW was created 16 years ago after the late Peter Grace presented to President Ronald Reagan 2,478 findings and recommendations of the Grace Commission (formally known as the President's Private Sector Survey on Cost Control). These recommendations provided a blueprint for a more efficient, effective, less wasteful, and smaller government.
Since 1984, the implementation of Grace Commission and CAGW recommendations have helped save taxpayers more than $650 billion, but our work is far from done.
The Grace Commission Task Force on Agriculture made 58 specific recommendations, ranging from improving slaughter inspections to decentralizing cash collection in the Farmers Home Administration. The Grace Commission understood the importance and complexity of reforming USDA.
Unfortunately, reform comes slowly to that department. Every year, CAGW publishes Prime Cuts, a compendium of spending reduction options from various sources including the Congressional Budget Office, Office of Management and Budget, inspectors general, and other public and private sources.
This year, Prime Cuts detailed 52 specific recommendations to reform USDA. The potential savings from these recommendations is $11 billion in the first year and $57 billion over five years. I would like to submit the Agriculture section of Prime Cuts into the record. Included in this year's list are recommendations to eliminate sugar and peanut subsidies, as well as to eliminate corporate welfare programs such as the Market Access Program and the Export Enhancement Program.
Prime Cuts tries try to fine tune good programs that have gone astray and eliminate those programs that are not needed. The most notorious example of a good program gone bad is the food stamp program managed by the Food and Nutrition Service (FNS). Food stamp fraud has been an issue for CAGW since the Grace Commission recommended streamlining the program a decade and-a-half ago. While the most pervasive food stamp problem is illegal trafficking, many management problems continue to perplex FNS, such as their failure to update the program annually to reflect changes in the average participant household's size and composition. The benchmark for defining an average American recipient household was established in 1971, and no changes have been made since to reflect the country's changing demographics. The recommendation, for which the Grace Commission estimated savings of more than $3 billion over five years, was never implemented.
As the food stamp program has grown, so have the documented instances of fraud. The Grace Commission, General Accounting Office (GAO), Office of Management and Budget (OMB), and the USDA Inspector General (IG) have all tracked and made recommendations to reduce food stamp fraud. With its far-reaching disbursement, high visibility, and inconsistent government oversight, scamming the Food Stamp program has become an almost effortless crime. The stamps themselves act as an underground currency for opportunists, petty thieves, drug and illegal arms dealers, counterfeiters, smugglers, and money launderers. A review of recent newspaper articles and unofficial loss estimates due to illegal trafficking and overpayments suggests the true cost of fraudulent activity may be $5 billion annually.
In 1997, CAGW testified that a handful of states had instituted the electronic benefits transfer (EBT) system, and recommended wider use of the EBT system. Today, 40 states and the District of Columbia use EBT systems to deliver food stamps. While there have been some improvements in the food stamp program, mismanagement continues to be a problem.
In particular, the State Option Food Stamp Program (SOFSP) and the Child and Adult Care Food Program (CACFP) have internal control deficiencies that continue to befuddle FNS officials. In its most recent semiannual report, the USDA IG recommended that, in regard to the SOFSP, FNS should "take immediate action to address the accounting and reporting deficiencies, issue clarifying guidance to State agencies, and recover invalid Food Stamp Program (FSP) expenditures."
CACFP officials have terminated 26 sponsors receiving more than $46 million annually in food and administrative funds. Of the 60 individuals charged with crimes through CACFP, 45 have been found guilty and 37 sentenced. In one particular case, the president of a Michigan day care center was sentenced to nine years in prison followed by three years of supervised release. The man was ordered to pay $13.5 million in restitution, a $10 million fine and a special assessment of more than $3,000.
One of the most disturbing problems pointed out by the semiannual report was the Urban Resources Partnership (URP) program. According to the IG, URP was initiated without specific statutory authority or congressional appropriations. The IG went on to criticize the program, saying, "In addition, cities/areas were not selected to participate in URP on a competitive basis, URP recipients did not always use funds to meet the purposes of the applicable statutes from which the appropriations were obtained, and the program did not include controls to ensure that award funds were used in accordance with applicable Federal regulations." URP funds have been used to fund projects such as painting a mural on a wall and creating a database in Buffalo to catalogue the city's trees. This committee should not sit idly by while USDA officials continue to spend additional money on this illegal program.
The IG was also highly critical of the Rural Utilities Service (RUS) telephone program. The IG claims that RUS continues to make and service telephone loans to financially strong borrowers who likely could obtain financing from other sources. The IG identified 434 borrowers with loans totaling $1.9 billion who had "sufficient financial strength to repay their loans and/or could obtain, or be graduated to, non-Government lending sources." On top of this, the mismanagement of the electricity program should shock many taxpayers. The IG charges the electricity program borrowers are not investing in rural development as intended by Congress. Instead, the borrowers reported investments in U.S. Treasury notes, stocks and bonds, money market certificates, certificates of deposit, and commercial paper. These recommendations are similar or identical to those made by the Grace Commission. It is time to turn words into action and reform these programs.
Another problem that has plagued USDA for years is in its Office of Civil Rights (OCR). The IG noted that OCR could not identify the location of more than 1,200 program complaint case files and could not accurately determine where one-third of all complaints stood.
GAO supported the IG's work in this area earlier this month in testimony before this very committee. GAO identified a number of outstanding problems with OCR, including: continuing management turnover and reorganization; inadequate expertise that contributed to processing delays; lack of clear, up-to-date guidance and procedure; and poor working relationships and communication within OCR and between the office and other USDA entities. These weaknesses led USDA to settle a lawsuit with black farmers that could cost the federal government $2 billion.
One of the most important Grace Commission recommendations enacted by Congress was the Chief Financial Officers (CFO) Act of 1990. The CFO Act requires all cabinet level and other major federal agencies (24 total agencies) to prepare financial statements to be audited by each agency's inspector general or an independent external auditor in accordance with "Government Auditing Standards issued by the Comptroller General of the United States." This common-sense approach to financial accounting has escaped USDA. In referring to USDA's FY 1999 Consolidated Financial Statements, the IG stated that the agency, "does not know whether it correctly reported monies to be collected in total, how much money is collected, the cost of its operations, or any other meaningful measure of financial performance."
The IG report details financial management weaknesses overall and in specific areas such as the Forest Service. The IG notes that the Forest Service uses a non-integrated general ledger system for nearly 84 percent of its financial activity. This means there is an inability to trace individual transactions from general ledger accounts to supporting subsidiary records. For example, the IG reported that a former forest service employee used a government credit card to buy $8,500 worth of personal items such as groceries. The forest service only recovered $6,000 of the illegal credit card charges.
In March of this year, GAO issued its 1999 audit of the U.S. government's financial statements. According to GAO, among the seven major challenges facing the federal government are its inability to "properly estimate the cost of certain major federal credit programs and the related loans receivable and loan guarantee liabilities, primarily at the Department of Agriculture." GAO went on to say that USDA could not estimate the net loan amounts to be collected because of a lack of key historical data needed to predict borrower behavior, such as the timing and amount of future defaults and prepayments. GAO blamed this lack of historical data on system inadequacies.
USDA is not entirely to blame for this fiscal fiasco. Over many years, rather than investing in technology and upgrading financial and computer systems, Congress puts in pork and funds duplicate, obsolete, or mismanaged programs.
On September 28, 1996, almost exactly four years ago, the House Committee on Government Reform and Oversight, under Chairman William Clinger, Jr. (R-Pa.) released a scathing report on government waste, House Report 104-861, Federal Government: Examining Government Performance As We Near The Next Century. The committee stated its "quick review of fraud, abuse and mismanagement uncovered more than $350 billion in potential savings could be achieved if greater resources were devoted to good management practices. Hundreds of billions more will be wasted in the near term on cost over runs, program delays, delinquent payments, loans, grants and unfulfilled contracts."
Specifically related to this committee's jurisdiction, the Government Reform Committee found that the Consolidated Farm Service Agency was making ill-advised loans and failing to collect millions in debts owed, including delinquencies of $6.4 billion out of the total of $17.8 billion in guaranteed and direct loans. It found that the Rural Housing and Community Development Service was allowing its loans to be used improperly. It also found mismanagement at the Food and Consumer Services area, including food stamp fraud and the misuse of appropriated funds for political polling. In the area of telecommunications and technology, the committee determined USDA wasted hundreds of millions of dollars on its Info Share project, including the purchase of outdated hardware and software. It also reported USDA did not have adequate controls for ensuring its telephones were used for business purposes. More than 600 collect calls over a four-month period were accepted by USDA employees from individuals at correctional institutions, many of which were routed long-distance to phone sex and adult party lines in the Dominican Republic. I request the portion of the Clinger report related to USDA be entered into the record.
Another long-standing area of waste and mismanagement, which under the leadership of Senate Governmental Affairs Committee Chairman Fred Thompson (R-Tenn.) has only recently been examined, is improper payments by federal agencies. Sen. Thompson asked GAO to review federal agencies to determine the level of such payments. In its 1999 report, GAO found $19.1 billion in such payments across eight agencies; in its July 2000 report, GAO found $20.7 billion in 12 agencies. It is no surprise that USDA was included in the report, as more than $1.3 billion in improper payments were being made in the food stamp program.
Financial management is an area that must be addressed immediately. CAGW is not asking for dramatic changes, just common-sense accounting. We recommend USDA continue its implementation of the Financial Information System Vision and Strategy (FSVIS) project to make their financial books legible.
For the taxpayer, it is important that USDA programs be managed effectively from the onset. Time and again when the IG uncovers fraud, the recovery of funds doesn't come close to the money lost.
But the impact of fraud and abuse cannot be measured solely in dollars. Those who truly need our help don't always get it, while others receive benefits they don't deserve. Even worse, every dollar wasted through mismanagement takes food from families who need food stamps, children who need school lunches, and workers who need tax relief.
Congress should hold those responsible for the administration of these and all programs accountable for their effectiveness. Ensuring the IG has adequate resources to carry out its mission will also help to reign in USDA's rampant mismanagement.
Thank you very much for this opportunity to testify. This concludes my testimony. I will be happy to answer any questions at this time.
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