Two subcommittees of the House Committee on Financial Services held a joint hearing on November 2 entitled “Fraud in the HUD HOME Program.” The Subcommittees are Oversight and Investigations and Insurance, Housing and Community Opportunity. There were two panels of witnesses, the first one featuring two people described as having been “convicted of defrauding organizations that received funds from the Department of Housing and Urban Development’s HOME Investment Partnerships Program.” Even before these witnesses began, the Republicans and Democrats argued over the appropriateness of inviting convicted felons to testify before Congress.
Representative Randy Neugebauer (R-TX), Chair of the Subcommittee on Oversight, said the hearing was “not about the worthiness of the HOME program” but rather to answer questions about the sufficiency of program oversight and if suspected fraud in the HOME program is indicative of similar activity in other housing programs. He said the witnesses on the first panel would demonstrate “how easy it was to commit fraud and how little oversight there was from HUD” for the HOME program.
Chair of the Subcommittee on Insurance, Housing and Community Opportunity, Representative Judy Biggert (R-IL), reported on a development in Chicago that she believed should already have 65 affordable units, but it appeared to her to be only four units.
Ranking Member of the Subcommittee on Oversight, Representative Michael Capuano (D-MA), expressed his displeasure with the way the Republican members of the Subcommittees planned the hearing without collaboration with the Democrats.
Mr. Capuano requested that the witnesses in the first panel be sworn in to insure they understood that they must be truthful at a Congressional the hearing. He also wanted half of the testimony of one of the witnesses, who is awaiting sentencing for his crime, be stricken from the hearing record. Mr. Capuano said that much of the testimony appeared to be an apology or excuse for the crime and that it was not the role of the House Committee on Financial Services to evaluate the crime nor to provide any legitimacy to the apology by entering it into the Congressional Record.
Representative Luis Gutierrez (D-IL), Ranking Member of the Insurance Subcommittee, was also dismayed at the composition of the hearing, saying that “in 20 years, we’ve never had two felons before the committee” to provide guidance. He said that usually the committee calls experts, whistle blowers, organizers, and advocates to testify, who are “honest people,” as opposed to convicted felons.
Mr. Gutierrez pointed out that one of the witnesses on the first panel made a $5,000 donation to the Republican National Campaign during the same time period when she was committing the crime for which she is now imprisoned, and that the illegal activity and the donations both occurred during the presidency of George W. Bush.
Mr. Gutierrez also said that, while the intent of the first panel of convicted felons may have been to demonstrate that it is possible to abuse the HOME program, he believes that in fact, it demonstrates that there is oversight and punishment of criminal activity in the HOME program.
One of the witnesses on the first panel appeared via videoconference from a prison using the pseudonym “Jane Smith.” Timothy Truax, who was convicted of fraud in the State of Pennsylvania and is awaiting sentencing, was the second witness. He appeared in person, having received permission from state officials to travel to Washington, D.C. to testify. The witnesses were sworn in after “Mrs. Smith” began her testimony.
Neither witness was able to clearly describe the relationship of his or her crime to the HOME program. When questioned about whether she had defrauded the HOME program, “Mrs. Smith” said there was mismanagement of funds by the development arm of the nonprofit organization of which she was executive director. She said that nonprofit organizations with little experience such as hers could partner with experienced consultants and receive HOME grants. She criticized HUD for not holding face-to-face interviews with grantees, and said that when the development she was managing ran into cost overruns, HUD should have stopped the project. “Mrs. Smith” could not comment on HUD’s auditing practices as she said she was not present when inspectors reviewed her organization’s paperwork. “Mrs. Smith” said her criticism of HUD’s HOME oversight practices did not relate to what she said was her “mismanagement” of her organization’s finances, which was the crime for which she was convicted.
Mr. Truax said he was convicted for taking kickbacks from contractors in exchange for rigging the bidding system in which they were participating. The bids were for development projects, which had HOME as one funding source. Mr. Truax said that it was easy for him to rig bids and take kickbacks because HUD only audits the HOME program every three years. He said that when an audit was conducted, he was asked to select projects for review by the HUD auditor, which allowed him to select certain projects that were not involved in bid rigging.
Mr. Gutierrez asked “Mrs. Smith” if her $5,000 donation to the Republican National Campaign came from HOME funds that she stole, and she answered that she did not steal any HOME funds. She said the donation she made came from her salary, not the funds that she “mismanaged.” Mr. Gutierrez questioned her inability to remember who asked her to make this donation, given that she reported her salary was around $65,000 annually. He found it difficult to believe she could not remember the circumstances of an expenditure that was such a large portion of her pay.
Mr. Gutierrez made a motion for the subcommittees to go into executive session because he said that the inconsistencies in “Mrs. Smith’s” oral testimony indicated that she was lying. Mr. Neugebauer denied the motion and the hearing continued.
Republican members in attendance prefaced their criticisms or questions with references to the value of the HOME in building affordable housing their districts. Several Republicans also clarified that their comments were not to be taken as support of defunding HOME, but instead wanted increased oversight.
The second panel included three HUD officials and an advocate. John McCarty of the HUD Office of the Inspector General said that since 2000, his office’s oversight of the HOME program has led to 21 convictions of people who used HOME funds for personal gain. Former HUD Inspector General Kenneth Donohue’s work with the department spanned several administrations, and during his tenure his office recommended aggressive monitoring of HOME grantees, particularly at the sub-grantee level. He said he was pleased that HUD Secretary Shaun Donovan testified at the House Committee on Financial Services HOME hearing in June that HUD was addressing the need for this level of monitoring (see Memo, 6/3). Ethan Handelman of the National Housing Conference spoke on the importance of the HOME program in creating affordable housing, creating jobs and leveraging private funds to build affordable housing.
James Baudette of the HUD Departmental Enforcement Center reported he was not aware of any current fraud involving HUD HOME funds. He said HUD is very responsive to their feedback and that 95% of the time HUD officials agree with the Office of the Inspector General’s audits. “It is incorrect to single out HOME for fraud,” said Mr. Baudette. “Unfortunately, dishonest people exist,” and this will continue regardless of whether there are HUD block grants or not, said Mr. Baudette. He referenced funding levels as a barrier to additional monitoring.
When questioning the witnesses, Representative Robert Dold (R-IL) said that the goal of the hearing was to find out how to make things better. Lack of government oversight in his view would mean that taxpayers do not get the benefit of these affordable housing dollars and that they would be reluctant to continue to fund the program. He referenced the Washington Post series claiming to uncover fraud in the HOME program and cited the series’ figure of 14% of multi-family properties with fraud (see Memo, 5/20). Mr. McCarty responded that there is no evidence of fraud in those projects as far as he is aware.
Further questions from members brought about discussion of HUD’s electronic project tracking system, the Integrated Disbursement and Information System (IDIS). Mr. McCarty does not believe that the IDIS system is working effectively. Mr. Baudette said that his department had previously told HUD officials that there were problems with this system. Mr. Donohue noted that in his June testimony, Secretary Donovan said that HUD is looking into the system problems. Mr. Baudette also confirmed that his office has received reports of instances of grantees being allowed to select their own projects for audit as described by Mr. Truax, and that his office has urged HUD to make sure this does not occur.
Mr. McCarty said he believes many of the issues raised by witnesses and Subcommittee members have been addressed by HUD. In response to a query as to whether the system is working, Mr. Donohue said that in the instances of the witnesses in the first panel, the system worked perfectly. He also said he believes that HUD is both concerned about the mission of the HOME program being achieved and the funding being spent correctly. Mr. McCarty offered that he believes the failures illustrated by the witnesses in the first panel are “of people, not policy.” Each of these witnesses agreed that additional monitoring would be helpful but cited cost as a barrier.
NLIHC joined 32 organizations in signing a letter in support of HOME to the Chairs and Ranking Members of the Subcommittees. The letter was coordinated by the National Council of State Housing Agencies. The letter said, “HOME has successfully and cost‐effectively produced more than 1 million affordable homes, both ownership and rental, in addition to making homes affordable for tens of thousands of families with rental assistance. We find any report of misspent taxpayer dollars disturbing and fully support efforts to ensure all HOME funds are properly used. We ask that the Subcommittees view any instances of misused HOME funds in the context of a program that has, in its 20‐year history, successfully produced almost 382,000 rental units, assisted more than 428,000 homebuyers, completed almost 198,000 rehabilitations, and helped over 242,000 tenants.”
View the letter at: http://www.nlihc.org/doc/HOME_Sign-On_Ltr_11-1-11.pdf