[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
         AGENCY OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE
=======================================================================

                                HEARINGS

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                        COMMITTEE ON GOVERNMENT
                          REFORM AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION
                               __________

                       MARCH 6, 18, AND 20, 1997
                               __________

                           Serial No. 105-10
                               __________

Printed for the use of the Committee on Government Reform and Oversight









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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico            EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              TIM HOLDEN, Pennsylvania
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
JOHN SHADEGG, Arizona                DENNIS KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           ROD R. BLAGOJEVICH, Illinois
MARSHALL ``MARK'' SANFORD, South     DANNY K. DAVIS, Illinois
    Carolina                         JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire        JIM TURNER, Texas
PETE SESSIONS, Texas                 THOMAS H. ALLEN, Maine
MIKE PAPPAS, New Jersey                          ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
------ ------
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                    Subcommittee on Human Resources

                CHRISTOPHER SHAYS, Connecticut, Chairman
VINCE SNOWBARGER, Kansas             EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York         DENNIS KUCINICH, Ohio
DAVID M. McINTOSH, Indiana           THOMAS H. ALLEN, Maine
MARK E. SOUDER, Indiana              TOM LANTOS, California
MIKE PAPPAS, New Jersey              BERNARD SANDERS, Vermont (Ind.)
STEVEN SCHIFF, New Mexico            THOMAS M. BARRETT, Wisconsin

                               Ex Officio

DAN BURTON, Indiana,                 HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
             Christopher Allred, Professional Staff Member
                Robert Newman, Professional Staff Member
                       R. Jared Carpenter, Clerk
            Ron Stroman, Minority Professional Staff Member







                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:.................................................
    March 6, 1997................................................    01
    March 18, 1997...............................................   119
    March 20, 1997...............................................   313
Statement of:
    Bloom, Thomas R., Inspector General, U.S. Department of 
      Education, accompanied by Steve McNamara, Assistant 
      Inspector General for Audit; Dianne Van Riper, Assistant 
      Inspector General for Investigations; and Cornelia M. 
      Blanchette, Associate Director, Education and Employment 
      Issues, U.S. General Accounting Office, accompanied by 
      Eleanor Johnson, Assistant Director, Education and 
      Employment Issues; Harriet Ganson, Assistant Director; and 
      Jay Eglin, Assistant Director..............................   315
    Brown, June Gibbs, Inspector General, Department of Health 
      and Human Services, accompanied by Michael F. Mangano, 
      principal Deputy Inspector General, Department of Health 
      and Human Services; Richard L. Hembra, Assistant 
      Comptroller General for Health, Education and Human 
      Services, General Accounting Office, accompanied by Marsha 
      Lillie-Blanton, Associate Director for Health Services, 
      Quality and Public Health Issues, General Accounting 
      Office; and Thomas G. Dowdal, Assistant Director for Health 
      Financing and Public Health Issues, General Accounting 
      Office.....................................................   121
    Dyckman, Larry, Associate Director, Housing and Community 
      Development Issues, General Accounting Office, accompanied 
      by Richard Hale, Associate Director; and Larry Goldsmith, 
      Senior Evaluator...........................................    28
    Gaffney, Susan, Inspector General, Department of Housing and 
      Urban Development..........................................    17
    Masten, Charles C., Inspector General, Department of Labor, 
      accompanied by John Getek, Assistant Inspector General for 
      Audit; and Carlotta C. Joyner, Director, Education and 
      Employment Issues, General Accounting Office, accompanied 
      by Harriet C. Ganson, Assistant Director, Education and 
      Employment Issues, General Accounting Office...............    67
    Merriman, William, Deputy Inspector General, Department of 
      Veterans Affairs, accompanied by Michael Sullivan, 
      Assistant Inspector General, Department of Veterans 
      Affairs; David P. Baine, Director of Federal Health Care 
      Delivery Issues, General Accounting Office, accompanied by 
      Jim Linz, Assistant Director, Federal Health Care Delivery 
      Issues, General Accounting Office..........................   229
    Sgro, Beverly, secretary of education, Commonwealth of 
      Virginia; and Paul Steidler, director of education reform 
      project, the Alexis de Tocqueville Institution.............   377
Letters, statements, etc., submitted for the record by:
    Baine, David P., Director of Federal Health Care Delivery 
      Issues, General Accounting Office, prepared statement of...   262
    Barrett, Hon. Thomas M., a Representative in Congress from 
      the State of Wisconsin, prepared statement of..............     6
    Blanchette, Cornelia M., Associate Director, Education and 
      Employment Issues, U.S. General Accounting Office, prepared 
      statement of...............................................   347
    Bloom, Thomas R., Inspector General, U.S. Department of 
      Education, prepared statement of...........................   317
    Brown, June Gibbs, Inspector General, Department of Health 
      and Human Services, prepared statement of..................   124
    Dyckman, Larry, Associate Director, Housing and Community 
      Development Issues, General Accounting Office, prepared 
      statement of...............................................    31
    Gaffney, Susan, Inspector General, Department of Housing and 
      Urban Development, prepared statement of...................    20
    Hembra, Richard L. Assistant Comptroller General for Health, 
      Education and Human Services, General Accounting Office, 
      prepared statement of......................................   138
    Joyner, Carlotta C., Director, Education and Employment 
      Issues, General Accounting Office, prepared statement of...    83
    Masten, Charles C., Inspector General, Department of Labor, 
      prepared statement of......................................    69
    Merriman, William, Deputy Inspector General, Department of 
      Veterans Affairs, prepared statement of....................   232
    Pappas, Hon. Michael, a Representative in Congress from the 
      State of New Jersey, prepared statement of.................     5
    Sgro, Beverly, secretary of education, Commonwealth of 
      Virginia, prepared statement of............................   381
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, report entitled, ``The National 
      Vaccine Injury Compensation Program: A Program Review''....   178
    Steidler, Paul, director of education reform project, the 
      Alexis de Tocqueville Institution, prepared statement of...   387






 OVERSIGHT OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND THE 
       DEPARTMENT OF LABOR: MISSION, MANAGEMENT, AND PERFORMANCE

                              ----------                              


                        THURSDAY, MARCH 6, 1997

                  House of Representatives,
                   Subcommittee on Human Resources,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:45 p.m., in 
room 2247, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Snowbarger, Pappas, Towns, 
Kucinich, Allen, and Barrett.
    Staff present: Lawrence J. Halloran, staff director/
counsel; Christopher Allred and Robert A. Newman, professional 
staff members; and R. Jared Carpenter, clerk.
    Mr. Shays. I would like to call this hearing to order. This 
is the Subcommittee on Human Resources of the Committee on 
Government Reform and Oversight.
    The dictionary defines ``oversight'' as ``watchful and 
responsible care.'' By this definition, constructive oversight 
should be vigilant, objective, and careful. It is not an 
episodic game of ``Gotcha'' but the methodical examination of 
program goals and agency performance.
    Last week, we began that systematic review of Federal human 
service departments with testimony from Housing and Urban 
Development--HUD--Secretary Andrew Cuomo. Today, and in the 
weeks ahead, we will hear from the General Accounting Office--
GAO--and the Inspectors General--IG--of the five Cabinet 
Departments under the subcommittee's jurisdiction. Their views 
on program vulnerabilities and opportunities for improvement 
mark an indispensable starting point for our work throughout 
this Congress.
    We cast our net broadly to match the scope of Federal human 
service programs. For fiscal year 1998, the five Departments 
within our purview account for more than $500 billion, or 30 
percent of total budget authority and outlays. The two 
Departments under discussion today, HUD and the Department of 
Labor, will make total outlays of almost $70 billion next year.
    Broad oversight perspective is also essential as each 
Department faces fundamental questions about its overall 
mission. In complying with the Government Performance and 
Results Act--the GPRA. For the first time, Federal agencies 
must adopt strategic plans and meet measurable performance 
standards. The deficiencies, inefficiencies, lapses, or losses 
described today will tell us where to place our emphasis in 
consulting with the Departments on GPRA compliance, and where 
to look for measurable progress and improved performance.
    Our oversight mission is to safeguard scarce Government 
resources from waste, fraud, and abuse, and make sure Federal 
programs perform as Congress intended to meet human needs. In 
that effort, we rely heavily on the experience and dedication 
of our oversight partners, the General Accounting Office and 
the Inspectors General. To those who are here, we welcome your 
testimony today and look forward to your continued help in the 
subcommittee's work.
    At this time, I would call Susan Gaffney, the Inspector 
General of the Department of Housing and Urban Development, and 
Larry Dyckman, associate director of housing and community 
development issues, General Accounting Office. And he is 
accompanied by Richard Hale and Larry Goldsmith.
    Ms. Gaffney, are you accompanied by anyone?
    Ms. Gaffney. No, not at the table.
    Mr. Shays. I welcome you to sit at the table here and I am 
going to swear you in, and then I am going to have Mr. Towns 
make a statement. So I will take care of business and then I 
will call on you, Mr. Towns.
    If you would all raise your right hand.
    [Witnesses sworn.]
    Mr. Shays. For the record, the witnesses all have answered 
in the affirmative.
    Mr. Towns, I am sorry.
    Mr. Towns. Thank you, Mr. Chairman. Let me thank you again 
for having this hearing today. I think you are right on target.
    Last week, Secretary Cuomo testified before this 
subcommittee that his first two priorities will be resolving 
the Section 8 crisis and improving the management of HUD. The 
one point I made to the Secretary was that we should not solve 
the financial problems of HUD on the backs of the poor. We must 
find a way to pay for Section 8 contracts, reform our public 
housing system, and pay market rents, without causing 
homelessness and massive default of HUD's insured property. 
This will be a difficult balance to achieve, but it must be 
done.
    Mr. Chairman, both HUD and the Department of Labor have 
many difficult policy choices to make in the near future. The 
Inspectors General for these agencies, along with the General 
Accounting Office, will have an important role to play in 
helping to make these choices.
    I look forward to hearing the testimony, and I yield back 
the balance of my time.
    Mr. Shays. I thank the gentlemen.
    Mr. Snowbarger, the vice chairman of the subcommittee.
    Mr. Snowbarger. Nothing, thank you.
    Mr. Shays. Mr. Kucinich.
    Mr. Kucinich. No.
    Mr. Shays. Mr. Barrett.
    Mr. Barrett. If I could?
    Mr. Shays. You are more than welcome to.
    Mr. Barrett. I usually don't have an opening statement, but 
I have one that I will summarize. I just want to make sure that 
I get this issue in the record. I want to thank you for holding 
these timely hearings.
    Although HUD's programs continue to pose a risk in terms of 
their vulnerability to waste, fraud, abuse, and mismanagement, 
many actions the agency has taken to deal with these problems 
have had a positive effect. It is clear, however, that 
additional steps must be taken to improve HUD's mission, 
management, and performance.
    I am especially concerned about the existing internal 
control weaknesses involved in the sale of federally financed 
homes HUD acquires through foreclosure. In my hometown of 
Milwaukee, we are witnessing scams in which investors are 
purchasing HUD homes under the guise that they will live in the 
home. According to an article that appeared in the Milwaukee 
Journal Centennial in August 1996, 40 percent of the people 
buying foreclosed houses in Milwaukee from HUD falsely claimed 
they would be owner-occupant.
    The article cites city records showing that 88 houses sold 
in Milwaukee by HUD to self-described owner-occupants between 
the period January 1, 1995, and March 1, 1996, were not being 
lived in by the buyers in April 1996. I am convinced that these 
scams are not unique to Milwaukee.
    When bidders misrepresent their intent to live in a home 
bought from HUD, they unfairly skip over honest investor-
bidders and possibly over genuine owner-occupants. These 
investors are defrauding our Government and are abusing a 
system that was designed to build healthy neighborhoods and 
revitalize neighborhoods. I plan to introduce a bill in the 
near future that would help prevent these scams from occurring 
in Milwaukee and in other communities around our country.
    I won't go into the particulars of the bill, but I urge the 
members of this committee and every Member of the House of 
Representatives to join me in working to prevent these abuses. 
I look forward to hearing the testimony today.
    I do have the articles from the paper, and I would ask 
unanimous consent to have them entered into the record.
    I also would note that I have responses from--that I have 
had with HUD on this issue, and part of the response I have 
gotten is, this did not cause any loss of funds to HUD, which 
is probably true. I am not concerned about that as much as I am 
concerned about these neighborhoods.
    Ms. Gaffney. I understand.
    Mr. Barrett. That is something that during the course of my 
5 minutes I will want to discuss with you.
    So I would yield back the balance of my time.
    Mr. Shays. Thank you, Mr. Barrett.
    Mr. Barrett. I ask unanimous consent to have the articles 
put in the record.
    Mr. Shays. Let me take care of that business and ask 
unanimous consent that all members of the subcommittee be 
permitted to make any opening statement. The record will remain 
open for 3 days for that purpose, and, without objection, so 
ordered.
    And I also ask unanimous consent that all witnesses be 
permitted to include their written statements in the record. 
And without objection, so ordered.
    And Mr. Barrett, you have requested that information be put 
in the record?
    Mr. Barrett. Yes.
    Mr. Shays. Then that will be done, without objection.
    [The prepared statements of Hon. Michael Pappas and Hon. 
Thomas M. Barrett, and the information referred to follow:]
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    Mr. Shays. Mr. Allen, nice to have you here. Do you have 
any comments?
    Mr. Allen. No comments.
    Mr. Shays. We are going to start with you, Ms. Gaffney, and 
ask you to provide your statement.
    And then we will go to you, Mr. Dyckman.

 STATEMENT OF SUSAN GAFFNEY, INSPECTOR GENERAL, DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Ms. Gaffney. Mr. Chairman, Mr. Towns, members of the 
subcommittee, I would like to run down with you quickly how I 
see the major categories of problems at HUD. First of all, we 
currently have a mission statement that has grown over the 
years to the point that it is quite vague and very broad.
    The last statement that I have heard is that HUD exists to 
create communities of opportunity. As the mission statement has 
expanded, broadened, so have the number of HUD programs 
increased.
    At our last count--and we are updating this now, but 2 
years ago when we counted, we counted 240 discrete HUD programs 
and activities. During this same period of time, HUD's staffing 
has been decreasing dramatically and is projected to continue 
decreasing. So in my statement I tell you that we had 16,000 
employees in 1980, and by the year 2000 we will have 7,500. 
These two things have happened without any apparent concern in 
the Congress or at HUD for how they relate.
    A third type of problem is that HUD staff really don't know 
what they are supposed to be doing these days. We had a 
regional structure a few years ago. We changed that, eliminated 
the regional structure, said we would now organize along 
programmatic lines from headquarters assistant secretaries 
straight through program staff in the field, and, shortly after 
we did that, we announced that HUD's new approach was going to 
be place based, seamless delivery at the locality.
    In the face of these kinds of changes, HUD staff are just 
unable to define what precisely they are supposed to be doing.
    Within HUD, we have a culture that has typically 
differentiated program and policy from management. GPRA, that 
kind of initiative, that's management; that has nothing to do 
with our programs, with our programmatic assistant secretaries. 
And what this means, for instance, is, as we downsize, the 
downsizing isn't done in conjunction with programmatic changes, 
it happens over there, and the programs continue over here. So 
we do it on a pro rata share. We just keep cutting them on a 
pro rata basis.
    We also, to be very blunt about this, have a situation at 
HUD where we are surrounded--every one of our programs is 
surrounded by very powerful interest groups, and some of these 
interest groups have huge amounts of money at stake, and they 
hire very high priced lawyers and other representatives.
    We also have a situation, Mr. Chairman, as you alluded to, 
where decisions--the fiscal consequences of decisions made in 
the 1970's and 1980's, when a balanced budget was not a primary 
concern, are now upon us, and the consequences are quite 
extreme.
    We also have a series of management problems. For instance, 
we have wholly inadequate financial systems and information 
systems. I don't want to go on. There's a litany of such 
management problems.
    What I would like you to understand is, if you look at this 
list of problems, that it would be impossible for HUD to 
perform excellently under these circumstances; nobody could. 
And I would also like you to understand that they are all 
intertwined, all these different levels of problems.
    The good news is what you heard from Andrew Cuomo last 
year. I think the good news is, he understands these problems.
    Mr. Shays. You mean last week?
    Ms. Gaffney. What did I say, last year? I am sorry. Last 
week. I am sorry.
    He understands these problems, and he is dedicated to do 
something about them. He also heard about these problems in his 
confirmation hearings, which was good news, that the Senate 
cared enough to discuss them.
    He is developing an integrated policy program management 
plan to address these areas of vulnerability that would amount 
to a massive overhaul of HUD, because it goes to all of--it 
goes to the mission, it goes to the programs, it goes to the 
policies, it goes to the people, it goes to the internal 
systems; all of that has to be overhauled.
    The important thing that you need to know is, much as HUD 
is always blamed for this situation, we didn't get there alone, 
the Congress was right there with us, and we can't solve these 
problems without congressional action. And over the past 2 
years, despite the fact that legislation has been put forward 
to reform some of these areas, only one of those pieces of 
authorizing legislation has been enacted: a consolidation of 
Indian housing programs.
    To the extent HUD has moved forward, for instance, in 
changing public housing, it has done so through authorizing 
provisions in appropriations acts. So, if Congress doesn't step 
to the plate, HUD's ability to change the situation is slight. 
If Congress steps to the plate and HUD doesn't take it 
seriously, we are not going to move either.
    Two final quick things I would like to say. If Congress and 
HUD did step to the plate, then we would have to start worrying 
about two things. One is--and I know this is a concern of 
yours, Mr. Chairman; I have heard you talk about it before. In 
this area of program streamlining, consolidation, and 
devolution, we'd better figure out how we are going to have 
stewardship, accountability, and oversight.
    We keep talking about performance, meaningful performance 
measures, and we don't have them, and I don't think it's just 
at HUD. And the illustration I want to give you of that is, 
under GPRA, people often talk about the PHMAP--the Public 
Housing Management Assessment Program--at HUD. This is the 
system we use to score public housing authorities, and then, 
based on those scores, we call them troubled or not.
    That system doesn't consider the quality of housing that 
people are living in. So we have situations like Camden, NJ, or 
Memphis, TN, where people are living in absolute squalor and 
the public housing authorities are deemed to be good 
performers.
    So my point is, performance measurement counts a whole lot, 
and we are not near there.
    The second point is, we have got to get serious. If we are 
going to do devolution, we have got to get over this kind of 
naive belief that the Feds are bad and the States and 
localities are full of wisdom and integrity in all cases. We 
still have an obligation for stewardship and accountability, 
and if they don't meet their obligations, we need to be able to 
act, take unpleasant actions, against them, and we have not, at 
HUD, been historically willing to do that.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Gaffney follows:]
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    Mr. Shays. Thank you, Ms. Gaffney.
    Mr. Dyckman.

 STATEMENTS OF LARRY DYCKMAN, ASSOCIATE DIRECTOR, HOUSING AND 
   COMMUNITY DEVELOPMENT ISSUES, GENERAL ACCOUNTING OFFICE, 
  ACCOMPANIED BY RICHARD HALE, ASSOCIATE DIRECTOR; AND LARRY 
                  GOLDSMITH, SENIOR EVALUATOR

    Mr. Dyckman. Thank you, Mr. Chairman.
    Again, I just want to introduce my colleagues. To my far 
left is Larry Goldsmith. He has done a lot of our high-risk 
work. And to my left is Rick Hale, who is the assistant 
director in charge of our multifamily housing work.
    As you know, 2 years ago before this subcommittee we 
discussed the most important management and budgetary problems 
facing HUD. Unfortunately, a lot still remains undone, and, as 
Ms. Gaffney says, there are serious problems.
    For example, HUD has made progress improving its internal 
controls, but major problems still persist. HUD has implemented 
a new management planning and control program intended to 
identify and rank the major risks in each program and develop 
strategies to evade these risks. However, we and the Inspector 
General question the effectiveness of this program.
    Furthermore, even though HUD has reported it has 
significantly reduced the number of material internal control 
weaknesses, those that remain are very significant and actually 
encompass most of the Department. For example, the remaining 
weaknesses affect more than $18 billion in housing subsidy 
funds that HUD disburses annually.
    Much work also remains for HUD to improve its information 
and financial management systems. For example, major 
improvements to HUD systems will not be completed before the 
year 2000. Furthermore, HUD reported in March 1996, that 93 of 
116 of its information and financial management systems did not 
meet the requirements of the Federal Managers' Financial 
Integrity Act and therefore could not be relied on to provide 
timely, accurate, and reliable information and reports to 
management.
    I was encouraged last week, when Secretary Cuomo spoke 
before you, that he is going to be putting together a plan and 
he feels that within 18 months he will see significant 
improvement. We will follow and monitor that program and those 
plans very closely.
    Now, in addition to wrestling with critical agencywide 
management weaknesses, HUD faces a daunting task in managing 
the costs associated with, one, renewing Section 8 contracts 
for assisted housing; two, re-engineering the assisted 
multifamily projects that FHA had insured; and, three, insuring 
the soundness of public housing.
    Overall, the price of renewing Section 8 contracts is high 
and will increase over the next several years. As you can see 
on the chart next to you, HUD estimated that it will need over 
$9 billion in budget authority for fiscal year 1998, to renew 
contracts covering 1.8 million housing units. The figure to my 
right shows how the escalating needs for Section 8 budget 
authority will soon surpass funding levels for all of HUD's 
other programs and that Section 8 may grow to over $21 billion 
slightly past the year 2000.
    Now let me turn to portfolio re-engineering. That's the 
subject of HUD's re-engineering proposal, which consists of 
more than 8,600 properties containing about 860,000 apartments. 
The properties provide housing for a diverse population, 
including families and single adults, as well as those with 
special needs such as the elderly and the disabled.
    Last year, I think, when we testified before the 
subcommittee, we showed a video which showed the variation in 
the quality of housing of some of those multifamily projects. 
These properties have FHA insurance, loans with unpaid 
principal balances of nearly $18 billion, and receive project-
based Section 8 assistance provided under long-term contracts 
that HUD executed in the 1970's. Over time, Section 8 subsidies 
for these properties have increased dramatically, and today 
many of the Section 8 contracts are reaching their expiration.
    However, for many properties, reducing the Section 8 
subsidies without reducing the outstanding mortgage balances of 
these properties would lead to default and billions of dollars 
in claims against FHA's multifamily insurance fund.
    HUD's fiscal year 1997 appropriation includes a 
demonstration program to restructure some of these FHA-insured 
mortgages and bring income and expenses in line so that it can 
operate at market rents. These types of proposals recognize the 
reality that has existed for some time; namely, that the value 
of many of the properties in the insured Section 8 portfolio 
are far lower than the mortgages on the properties suggest.
    A third major program challenge facing HUD is ensuring the 
soundness of public housing. About 3 million low-income people, 
many of whom are elderly, disabled, live in public housing, 
which is run on a day-to-day basis by about 3,300 local housing 
authorities. HUD currently provides housing authorities with 
$5.4 billion a year to help them operate and modernize their 
projects. However, over time, the authorities' expenses have 
begun to exceed their funding sources. These are primarily from 
HUD's operating subsidies and tenants' rents.
    Also, as you know, welfare reform could further reduce many 
tenants' ability to pay rent. With funding for housing 
authorities increasingly tight, it is crucial for HUD to 
accurately identify housing authorities having management or 
budgetary problems and do all that it can to help them address 
the problems before they become unmanageable.
    Last, I would like to comment on something that Ms. Gaffney 
said, and it's concerning reaching consensus on HUD's mission. 
Since it was created in 1965, HUD has grown to include some 240 
programs and activities and hundreds of billions of dollars in 
financial commitments.
    Over the years, we and others have criticized the 
inefficiencies in HUD's organization and the deficiencies in 
its management. Leaders in the administration and in the 
Congress agree that HUD must, at a minimum, be restructured to 
better meet the Nation's housing and community development 
needs.
    HUD has proposed major changes, including consolidating 
programs and devolving responsibility for program design and 
implementation to States and localities. While some limited yet 
significant improvements to HUD's existing program structure 
have been made, a comprehensive re-evaluation of HUD's overall 
mission and how it delivers its programs has not yet occurred.
    This is even more crucial because, as you know, HUD is 
going through a significant downsizing. It used to have about 
13,500 employees not too long ago. Its goal now is to go down 
to 7,500 employees, and there's a significant question about 
HUD's capability to manage the myriad of programs it now 
operates with such a small staff.
    What is needed now is for the administration and Congress 
to agree on the future direction of Federal housing and 
community development policy and the best organizational and 
program delivery structures to carry that out. This will 
involve inherent tradeoffs between the needs of those seeking 
HUD's assistance and other demands on the Federal budget.
    That concludes my remarks, and we would be happy to answer 
any questions.
    [The prepared statement of Mr. Dyckman follows:]
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    Mr. Shays. I thank you very much.
    Before calling on Mr. Towns, I just have to comment that 
obviously both of your testimonies seem to work in complement 
with each other, but for you to say HUD's high-risk problems 
involve weak internal controls, inadequate information and 
financial systems, ineffective organizational structure, and 
insufficient mix of staff with the proper skills, it makes you 
wonder why anyone would want to be Secretary of HUD.
    That's the background in which we have to solve the Section 
8 problem, the background on which we have to make our local 
housing authorities more viable and more efficient. It just 
makes you wonder if we are going to be able to do it no matter 
who is at the helm.
    Mr. Towns, you have the floor.
    Mr. Towns. Thank you very much, Mr. Chairman. I would like 
to yield to Mr. Barrett, who has to leave.
    Mr. Shays. Fine. In fact, we can just call on Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman and Mr. Towns.
    I look at the graph up there in terms of the Section 8 
pressures and how it is going to conflict and cause us some 
difficult decisions here, so I certainly don't envy the task 
that you face, and, frankly, I envy even less the task that we 
as Congress face in resolving those things.
    But I would like to spend my time on my parochial issue, if 
I may, please, and I apologize to the committee for doing that, 
but I need some assistance from you on this.
    If I could, the letter that I had sent over to the 
Department in part reads, ``While it might be true that these 
cases resulted in a minimal financial loss to the Federal 
Government, the inspector general's decision fails to recognize 
that owner-occupancy misrepresentations can result in real 
damage to neighborhoods.'' And, unfortunately, it sends a 
message that there is nothing wrong with swindling the 
Government and abusing a system created to build healthy 
neighborhoods as long as the Government doesn't have to pick up 
the tab.
    And, again, to sort of put this in a framework for you, we 
had a situation where it was clear that there was an individual 
that was representing that he was going to live in these homes. 
The decision both at the national level and the local level 
was, well, we got our money.
    And I am hearing, of course, from the people in the 
neighborhoods who say, we are trying to rebuild this 
neighborhood and the response we get from the Federal 
Government is, well, we don't care, we have gotten our money. 
And I would like your insight or your thoughts on what we can 
do to address that problem.
    Mr. Shays. Could I just ask that, first, is this a problem 
that both of you are aware of? I mean, it seems to be a pretty 
serious problem.
    Ms. Gaffney. I am certainly aware of it.
    Mr. Dyckman. We haven't done any work directly on that 
problem----
    Mr. Shays. OK.
    Mr. Dyckman [continuing]. Although I have read articles on 
it.
    Mr. Barrett. I don't mean to----
    Mr. Shays. No; you misunderstand the purpose for my 
question. You seem to feel that this is a parochial issue, and 
I don't view it as that. I view it as a very serious issue and 
am happy that you are raising it because there are a whole host 
of reasons why this would be wrong.
    We are trying to encourage home ownership, we are trying to 
encourage neighborhoods to have people own the homes so they 
care for it, and so I was wondering if you could just give us a 
general overview before you answered the specific question.
    Ms. Gaffney. First of all, I have no reason to believe that 
it is parochial to your part of the country. I would assume 
that it is all over the property disposition program that this 
is happening.
    I would just like to clarify, and I know, Mr. Barrett, you 
understand this in our correspondence back and forth. What has 
happened is, we in fact did look into this. We did an 
investigation, and we found that the situation was exactly as 
Mr. Barrett has related, and that is, people were representing 
that they were going to--they were going to be owner-occupants 
when, in fact, they had no intention of doing so, and they were 
causing dysfunctional situations.
    We took our investigative results to a U.S. attorney, who 
declined prosecution on the basis that the Federal Government 
had not lost any money, and also, I think--to be fair and blunt 
about this--on the basis that HUD doesn't seem to care a lot 
about this practice.
    We then, when the U.S. attorney declined prosecution, went 
back to HUD and asked them to take administrative action 
against the person, and, to tell you the truth, I don't know 
where that stands. I think you had proposed perhaps criminal 
sanctions, some kind of increased penalties, for people who 
engage in this practice.
    What I don't know how to do is, first of all, we need to 
get HUD concerned about this, because if you try to prosecute 
and you don't have the program people saying they agree it's a 
problem, it's hard to get prosecutors involved.
    But second, unless we can get the prosecutors to accept the 
cases, it doesn't matter what the penalty is. And I am 
perfectly willing to work with you to get there.
    Mr. Barrett. And clearly, I don't want to put people in 
prison for doing this. What I want to do is, I want the problem 
to stop, because, again, what I hear from the residents of 
neighborhoods who are trying to rebuild the neighborhood is, it 
can break the spirit of a neighborhood if you have people who 
are putting money--and, frankly, if you have someone who is 
going to lie on a form, like to the Government, chances, I 
think, are going to be greater they are going to be a lousy 
landlord. If this is how they treat the system, this is 
probably how they are going to treat tenants as well.
    I recognize where the U.S. attorney's office has bigger 
fish to fry and there is no financial loss to the Government, 
but then to have HUD say, well, it's a minimal loss, yes, it's 
a minimal loss in dollar terms, but it makes me question what 
the aims and the goals of HUD are. Is it just to run a balance 
sheet, or is it to try to encourage homeownership, as the 
chairman said?
    Ms. Gaffney. Well, of course, it's the latter.
    Mr. Barrett. But I would like to see the Department far 
more engaged on this issue than it has been. And it's with 
mixed feelings that I hear it's not a parochial problem. I am 
sorry that it exists in places other than my community, but 
maybe that's what we need to have in order to get the 
Department to pay some more attention to the problem.
    Ms. Gaffney. Mr. Barrett, I will help, but I am not the 
Department. You know, we are going to have to try to do this 
and get their attention together.
    Mr. Barrett. I am looking for allies anywhere.
    Ms. Gaffney. You've got it.
    Mr. Barrett. I am happy to hear you are going to help.
    Ms. Gaffney. OK.
    Mr. Barrett. Again, I will yield back the balance of my 
time. Thank you, Mr. Chairman.
    Mr. Shays. Mr. Pappas.
    Mr. Pappas. Thank you, ladies and gentlemen, thank you.
    I have a couple of questions, really, that have been 
conveyed to me from some of the county governments in the five-
county area that I represent in central New Jersey, and each of 
them has experience in dealing with HUD and HUD programs, 
specifically the Home Program and the Community Development 
Block Grant Program. I am hoping that you could shed some light 
on responding to some of their concerns.
    There are many nonprofit agencies that, besides fund-
raising from the private sector, really depend upon some of the 
funds through both programs for capital improvements, and I 
know that there are some percentages that I believe--and 
correct me if I am wrong--that there are Federal restrictions 
as to the percentage of the overall amount that is given that 
can be allocated for facilities or broad categories. You can 
correct me if I am wrong in regard to that.
    But I think more importantly is the difficulty that some of 
these nonprofit agencies have. Many of them are operating with 
mostly volunteers, maybe some who are part-time staff people, 
who are providing some very critical service to--fulfilling 
service needs for populations in my counties and throughout the 
country.
    A couple of weeks ago, when Secretary Cuomo was here, I did 
compliment him that I thought that those two programs worked 
well, but at the same time I do know, and it has been 
reiterated to me, that some of the paperwork or some of the 
reporting that some of these organizations have to follow can 
become burdensome.
    How can we address that while realizing that there has to 
be some accountability for these public funds that are being 
used, balance the need to have accountability but also realize 
that there's a target or target populations that we are trying 
to assist? And many of these community-based nonprofit agencies 
play an important role in that social safety net.
    How can we better do that?
    Ms. Gaffney. I am surprised, you know. The two programs 
that get the highest marks in HUD for being flexible and not 
burdened with paperwork are Home and CDBG. So I am going to--I 
am going to have to look into, or maybe you could, after the 
hearing, tell me specifically what paperwork is bothering 
people. But it seems to me that the paperwork in HUD 
traditionally has surrounded compliance with endless rules and 
regulations.
    I think we need to have two kinds, paperwork and 
monitoring. One, there has to be some financial accountability; 
that's clear. And we need audits; I think we can all agree on 
that.
    I think apart from that, we just need to focus on what is 
the purpose, what is the outcome, what are they supposed to be 
accomplishing. And I think pretty much if we can verify that 
they are accomplishing what they are supposed to be 
accomplishing, we could ignore some of the processes that got 
them there.
    I think to date we tended to concentrate on the processes 
and often ignore whether they actually got to where they were 
supposed to.
    I don't know if that's helpful.
    Mr. Pappas. I know, and, again, I am a cheerleader as far 
as both programs are concerned. I think they are both very 
effective, but I know over the years, as I have dealt with them 
in my own county government, that there are those organizations 
that, for maybe a variety of reasons, are not able--they get 
awarded the grants but they are not able to actually utilize 
the funds, and then it gets reverted back, and then it is 
distributed elsewhere.
    And if the need wasn't there, then they wouldn't have 
applied; and if the entities that were approving or did approve 
the grant for that particular purpose, they evidently felt it 
was an important purpose to be filled as well. So then there 
probably have been a dozen instances that I can think of over 
the years of programs that have not been completed or projects 
have not been completed.
    I don't know what the answer is. I am not just saying the 
blame is all on HUD, but I know that there have been situations 
out in New Jersey that we haven't been able to go from point A 
to point B, and I am just wondering whether you, through your 
offices, might try to learn if there is some consistent problem 
that seems to be causing that more than one place.
    Ms. Gaffney. I don't think we have ever looked at it that 
way, but if you could give me some of those instances, we will 
certainly followup and see if we can find some kind of systemic 
problem.
    Mr. Pappas. Thank you.
    Mr. Shays. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin by saying, if Congress provides additional 
budget authority to renew the Section 8 contract, what 
regulatory or statutory changes would each of you recommend to 
improve Section 8? Or would you recommend getting rid of it?
    Ms. Gaffney. You talked before about caring about the 
people who need help. With this program of these insured--the 
multifamily projects that are both insured and assisted through 
Section 8, we have a situation that isn't, it seems to me, 
designed to benefit the poor people who need housing. This is a 
situation where HUD takes all the risk through insurance. The 
owners put in little equity. The rents are highly above market. 
There's no incentive for the owners to maintain these 
properties. So at least 66 percent--two-thirds of them are 
above market rents. At least 25 percent of them are in 
extremely distressed situations.
    It seems to me that if we are going to go forward with this 
program of project-based assistance, Mr. Towns, everybody seems 
to think of the multifamily housing program as a private sector 
housing program, but we have insulated the owners from every 
private sector motivation that exists. If we are going to go 
forward with this type of housing that is tied to particular 
owners and particular projects, I think we'd better introduce 
some market incentives, because otherwise we are going to be 
right back in the same position in another 5, 10, 20 years. 
That's what I think.
    Mr. Towns. Thank you, Ms. Gaffney.
    Mr. Dyckman. I just want to say something general, and then 
I will turn it over to Mr. Hale.
    In the past, we have looked at the cost of Section 8 
versus, say, public housing, to see whether or not it's 
advantageous to go to a vouchering-out system. And there are 
all kinds of implications of doing that. Cost, of course, is 
one of them, but you really have to look at each project 
separately. Some public housing turns out it is cheaper than 
Section 8. In different parts of the country, depending on 
housing availabilities and prices of rents, in some cases, 
Section 8 is less expensive than public housing, so you really 
have to look at it on a case-by-case, city-by-city basis.
    Mr. Hale. Mr. Towns, just to add to that and to pick up on 
what Ms. Gaffney said, in terms of this whole mark-to-market 
portfolio re-engineering initiative where we are proposing to 
reduce the Section 8 subsidies on multifamily properties by 
writing down mortgages on those properties and then also 
perhaps providing some sort of tax relief to owners, I think 
when we are doing that we need to make sure that we are looking 
at not only the interest of the owners but the interests of the 
residents and the Federal Government as part of that.
    Two things in particular I think that ought to be looked at 
very closely are: One, when we are going to do that, we should 
not be offering those kinds of advantages to owners and 
property managers who have not done an adequate job of 
supporting the housing that they own and maintain; and, second, 
I think we ought to look at what kind of commitment we are 
going to get out of owners when we do that in terms of 
maintaining the long-term affordability of that housing for the 
residents. If we are offering something to the owners, we also 
should get something that makes sense in terms of the 
Government and the residents out of that deal.
    Mr. Towns. OK. Thank you very much.
    So it is really a problem that you would have to address 
sort of almost on a regional basis?
    Mr. Dyckman. Well, the----
    Mr. Towns. I am really trying to understand how we save 
some money and at the same time provide quality kind of 
housing.
    Mr. Dyckman. It depends on what Section 8 issue we are 
talking about. If it is a project-based mark-to-market issue, 
then the issues are a little bit more focused. But if it is 
concerning taking people from public housing and vouchering 
them out into Section 8 tenant-based, that might be a different 
set of issues, and that's what I was addressing in my comment.
    Mr. Towns. Right.
    Ms. Gaffney. Can I try to tell you how I see this?
    Mr. Towns. Sure.
    Ms. Gaffney. The proposal, in very general terms, for 
portfolio re-engineering and the way they want to save Section 
8 money is, they want to--the HUD wants to mark these mortgages 
down to the point where the projects can operate at market 
rents. That means that the Federal Government is going to have 
to pay a very substantial amount of money. And then, as I 
understand it, the owners are going to be able to come back and 
get HUD insurance for their projects, and they will continue to 
get Section 8 for their projects, and we will start all over 
again.
    Now, how did we get where we are today? We got to where we 
are because the rents kept increasing. HUD kept raising the 
rents above market every year. It would seem to me, we still 
haven't heard how HUD intends to stop doing that.
    The more important thing is, we are looking at a situation 
where the owners had no particular motivation to maintain these 
properties. They had no equity. They are still not going to 
have any equity. So we have got to change the design if we are 
going to save money and if we are going to have affordable 
housing that is decent; we can't just do it again.
    Mr. Towns. Right.
    One more question, Mr. Chairman?
    Mr. Shays. Yes.
    Mr. Towns. I notice the light is on.
    Ms. Gaffney, on your written testimony you indicated that 
HUD does not have efficient and effective financial management 
systems. Is that because HUD lacks the expertise to design 
these systems or because HUD lacks the money to purchase them? 
That's not clear to me.
    Ms. Gaffney. I think the answer, the basic answer, is that 
HUD has lacked the will to have such systems because it has not 
attached priority to having such systems. And that goes back 
to, the people who have been concerned about having integrated 
financial systems are kind of the management people in HUD. You 
know, that's the accountants and the IG and the administrative 
people. But the program people have had more important things 
to do. And so there has been a disconnect in getting those 
people together and making it a Departmental priority. I think 
that's what Mr. Cuomo plans to change.
    Mr. Dyckman. If I could just add, I agree completely with 
the answer Ms. Gaffney gave. As a matter of fact, in 1984 we 
issued a management review of HUD in which we identified a lack 
of commitment even then leading up to, I guess, the current day 
in terms of the problems with and the causes for inadequate 
financial management systems.
    But also I think part of it is also trying to identify your 
needs and matching your needs with the systems that the 
people--that the managers need to manage their programs. I 
think there hasn't been a commitment actually to do that until 
possibly recently.
    Ms. Gaffney. We have spent huge amounts of money on 
systems, huge.
    Mr. Dyckman. It hasn't been the lack of resources, I don't 
believe.
    Mr. Towns. The resources are not the problem?
    Ms. Gaffney. No.
    Mr. Dyckman. I mean, surely you could always use more 
resources, but I don't think that's the crux of the problem.
    Mr. Towns. The reason I am really sort of staying with this 
is that the Secretary indicated that he was going to, I think, 
eliminate, I think, 7,500 employees--or, no, the level would be 
7,500 by the year 2000.
    Ms. Gaffney. Correct.
    Mr. Towns. And then I am listening to all of these 
problems.
    Ms. Gaffney. Right.
    Mr. Towns. And then I am thinking about the fact that half 
of the people that are there now will be gone, and for some 
reason I am beginning to think there would be more problems if 
you eliminated half of the people that are there.
    Or do you feel that you just have a lot of people around 
who don't know what they are doing, so it doesn't matter?
    Ms. Gaffney. Not at all. Not at all. That's what I was 
trying to say to you before. What has happened is, the staff 
cuts have been made in a totally arbitrary fashion, unrelated 
to any idea of what that would mean programmatically.
    I would say to you, though, that in the systems area, 
clearly there's going to be a whole big movement to contracting 
out. I would think, and that's going to raise a whole other set 
of difficulties because you almost need more highly skilled 
people to contract out than you need to do it in house, and I 
don't know if that has been addressed.
    But of all the areas that are amenable to contracting out, 
systems development and implementation is one of the better 
ones, because that is an area where HUD has difficulty keeping 
top-flight expertise on staff.
    Mr. Towns. I am going to close. I wasn't much of a baseball 
player. When I came to the plate, I used to strike out all the 
time. I want to know what you mean by, ``Congress and HUD both 
need to step up to the plate''? What do you really mean by 
that?
    Ms. Gaffney. What I mean is, I don't think to date that the 
Congress has accepted responsibility that it has to solve its--
it has to do its part to solve these problems. It has been--
there have been arguments between the House and the Senate. 
There has been a lot of negotiating.
    But no one has said, this is out of control; we are going 
to enact legislation to solve this; nor has HUD, for its part, 
said, until Secretary Cuomo said it, this is out of control; we 
are going to do our part to solve it. It simply hasn't 
happened.
    Mr. Towns. Thank you, Mr. Chairman, for your generosity. 
Thank you.
    Mr. Shays. Thank you.
    Mr. Snowbarger.
    Mr. Snowbarger. Thank you, Mr. Chairman. It's nice being a 
freshman when Congress is being attacked for your past 
activities.
    Mr. Shays. You only get to enjoy that experience once.
    Mr. Snowbarger. I understand that. I understand that.
    And so that I can figure out to you how to get us out of 
this mess and not be caught with the same accusations, I want 
to followup. It seems to me--and the question, I think, is two 
parts for both Ms. Gaffney and Mr. Dyckman.
    You have mentioned two areas where Congress needs to step 
up to the plate, not just to this general, overall, it is out 
of control thing, but one thing I think that Ms. Gaffney 
mentioned was, in the area of mission, that Congress needs to 
be a part of that answer, and the other part of it is 
questioning the will of HUD to carry out the mission once it 
has been given one.
    I would like to hear your comments about what you think 
Congress' role needs to be at this point in time in addressing 
both the mission and HUD's will. We have talked about more 
incentives for the landlords. What are the incentives for HUD 
that we ought to be looking at to carry out the will--that we 
might address its mission?
    Ms. Gaffney. The type of legislation that I am talking 
about is, there have been bills introduced in the Congress now 
for the past 2 years to--I don't have this number, but we are 
now in the business in public housing of providing grants, 
discretionary grants. And I have no idea; there must be 50 
different types of programs under public housing under which we 
are giving grants. They are little things. It's like the Tenant 
Opportunity Program, and they are--people call them boutique 
programs.
    And typically, what we do is, we provide all these 
different types of programs and funds, and then we regulate how 
the housing authorities administer those funds by the 50 
different categories. There have been bills over the last 2 
years that would essentially consolidate those streams of 
funding, give more flexibility to the housing authority in 
terms of how they spend the funds and then exact more 
accountability at the end for the results they achieve.
    Now, I find it very difficult to understand why legislation 
like that. Why--we desperately need that? We can't, with the 
dwindling staff, administer all of those.
    The other big area where we must have congressional action, 
which is clear from that chart, is in this whole Section 8 
area. Legislation has been introduced in that area also, I 
think, for 2 years, and the Congress has not acted.
    I would tell you, this Section 8 business has lots of--what 
shall I call it--interest. I mean, there are a lot of 
interested parties.
    Mr. Snowbarger. Yes, I have heard from them.
    Mr. Dyckman. You know, I took a look--in preparing for this 
hearing, I read over HUD's fiscal year 1998 budget 
justification. I have to tell you, if you read that budget 
justification, it looks like it is an expanding agency. It 
doesn't look like it's an agency that's trying to focus in on 
its core missions.
    Now, I recognize that it's a policy decision to be made by 
Congress with assistance from the administration in terms of 
what is HUD's mission: How many programs do you need to provide 
homeownership opportunities? How many programs are necessary to 
provide tenant opportunities programs?
    Those are all good programs, but the issue is, when you 
have an agency that has internal control programs, when they 
are downsizing, when they have management systems that can't 
help managers make key decisions, when they cannot get a--not 
only a clean opinion but any opinion on their financial 
statements--Ms. Gaffney can attest to that because she audited 
them--I think you have an agency that really has to examine its 
mission, and I think the Congress has a role in doing that.
    Now, GPRA, the Government Performance and Results Act, one 
of its objectives was to help Congress in a consultation 
process with the agencies when the agencies start to define 
their missions to come up with strategic plans in how to 
measure outcomes. I think that would be a very good opportunity 
in addition to the normal type of oversight hearings that 
should be held and are being held. I think there's ample 
opportunity.
    Now, of course, on a case-by-case basis, you have different 
programs that need oversight, but I think in a general nature 
there is an opportunity for Congress to be part of the 
solution.
    Mr. Snowbarger. First of all, I don't know that either one 
of you addressed the incentives that Congress might be able to 
use to sort of reinforce the agency's will to carry out the 
mission. And you are welcome to do that in the next question. 
Since you avoided it the first time around, you may want to 
avoid it the second time around, too. One mention was of 50 
different programs, and earlier, I think, both of you indicated 
there were 240 separate programs.
    Mr. Dyckman. Or activities.
    Mr. Snowbarger. Is Congress the source of each one of 
those?
    Ms. Gaffney. No. Most of them, but not all of them.
    Mr. Snowbarger. And so what you are suggesting is that 
Congress should be taking a look, as we have in other areas, at 
combining those to see if we can't make them more efficient 
through adding flexibility or granting flexibility?
    Ms. Gaffney. Yes, yes. And I think there are instances 
where the Congress--and this is a bitter pill to swallow--
should also be considering whether we should terminate some of 
these programs. And let me give you a couple of examples of the 
kind of business HUD is in that you might not know about.
    HUD insures mortgages for hospitals and for nursing homes, 
and hospital mortgages in these days of major changes in health 
care have become increasingly risky. But, listen, someone has 
to insure hospital mortgages.
    I am not opposed to insuring hospital mortgages. I think it 
is legitimate to ask, is that HUD's role? Maybe HHS should be 
doing that, or maybe the private sector should be doing that. 
So, apart from just consolidating, there are questions about 
terminating, one would think, too.
    Mr. Snowbarger. Mr. Chairman, if I can ask one more 
question?
    Mr. Shays. Sure.
    Mr. Snowbarger. It goes back more specifically to the 
Section 8 question, or the issue. Last week, when Secretary 
Cuomo was in, he mentioned--and I believe maybe, Ms. Gaffney, 
in your testimony you mentioned that there are places where we 
are paying 200 percent of fair market value on rents, which I 
found just amazing. I couldn't figure out how in the world we 
ever got into that, but apparently it was fairly--the Secretary 
indicated it is fairly common that we be paying much higher 
than market rents.
    He indicated that the reason for those were basically the 
contracts that HUD entered into in the first place, at least 
provisions in those contracts that provided for some kind of 
escalator, an automatic escalator.
    Why didn't we catch all of these things sooner? How did we 
end up at a point where we are paying 200 percent on rents?
    And frankly, if we are getting ready to renew some of those 
contracts, are we going to be able to back out of the situation 
where we are paying 200 percent, or are we going to be stuck? 
because someone will say, if you pay me 200 percent, you can 
have the property back; we don't necessarily want the property.
    Ms. Gaffney. You are absolutely right. You know, this 
situation is no surprise. People have known about the 
increasing rents, above market rate, for years. They knew it 
when they were doing it.
    Mr. Snowbarger. They understood when we entered into the 
contracts that they were likely to escalate beyond fair market 
value?
    Ms. Gaffney. It is not clear to me that HUD was locked into 
doing precisely what it did by the original contracts. The 
reason I question that--I am going to have to find out--is 
because we, the Office of Inspector General, and HUD for some 
years now have been trying to get the Office of Housing to 
change the way it does annual rent adjustments, because the 
annual rent adjustments are like an escalator. And they have 
been unwilling to work with us to come up with a new approach.
    What bothers me is that HUD is now doing a mark-to-mark 
demonstration, and we said to them, now is the time to define a 
new way of setting the annual rents. They still do not have the 
methodology. So that is what scares me about the future. We 
still do not have a different way of doing business, and I am 
afraid we are going to get into this same situation again.
    Mr. Snowbarger. Mr. Chairman, could we allow Mr. Dyckman 
some time to respond to that as well?
    Mr. Shays. Sure. Definitely.
    Mr. Dyckman. Yes. Again, it is my understanding that these 
rents were legally arranged and came about simply through 
incentives in the contracts. Mr. Hale is going to explain it a 
little.
    Mr. Hale. Mr. Snowbarger, most of the problem with this 
comes under a program that was called New Construction and 
Substantial Rehabilitation. As you probably know, it started in 
the 1970's and lasted up until 1983, and when that program was 
underway, people knew going in that the rents on these 
properties were, to a large extent, higher than market rents, 
and that was done for a couple of reasons. One, it was to try 
stimulate the housing industry; and, two, it was done so that 
you could build high-quality housing in neighborhoods that were 
not so good. As one of my colleagues has termed it, you would 
build an $800-a-month apartment in a $500-a-month neighborhood.
    The second thing that has compounded this is that the 
annual adjustment factors that are used to mark up the rents 
over time, as Ms. Gaffney pointed out, also were very generous, 
and they made the problem even worse, so that now we do end up 
with the problem that over 70 percent of the properties have 
rents that are more than 120 percent of the market rents that 
those properties could actually support.
    In terms of legal obligations to renew those, it is not so 
much a legal obligation as the concern is that if you renew 
them at substantially lower rents, that a great many of those 
properties would default.
    Now, as you also know, in the fiscal year 1997 HUD 
appropriations bill, those rents were capped at 120 percent of 
fair market rents, and properties were given the choice of 
either one of two things. If you were an owner, you could try 
to get down and make that property work at 120 percent of the 
FMRs; or, second, you could enter into this voluntary portfolio 
re-engineering demonstration program, where if you entered into 
that, then they would reduce your rents down to market rents, 
but also then make an adjustment in your mortgage to try to 
allow the property to survive at those lower rents.
    Ms. Gaffney. But, Rick, could I just say something?
    Mr. Hale. Sure.
    Ms. Gaffney. That is at a point in time, that is when you 
do the market to market, that is the portfolio re-engineering. 
What you need to be concerned about is what happens in the 20 
years that follow in terms of how rent increases are going to 
be set, and that has not been refined.
    Mr. Hale. No, and Susan is absolutely right. I mean, if we 
are going to do that, we should not leave everything else the 
same so that we still have owners that are not caring about 
their properties, we have HUD with no ability to enforce these 
properties, to maintain them as decent, safe, and affordable 
housing and to make sure that the rents remain affordable, that 
they do not constantly continue to creep upward over the next 
20 years, or, as she said, we will be back in the same boat 
that we are in now, only we will have gone through a massive 
effort to get there.
    Mr. Snowbarger. Well, frankly, the thing that concerns me 
more about what you have said than anything else, Ms. Gaffney, 
is that you have not been getting cooperation in terms of 
trying to deal with that problem, and it goes back to the whole 
question of the role of those within HUD to either cooperate 
with you or cooperate with us when and if we are able to change 
the programs.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you. They were very helpful questions and 
helpful answers.
    I have a number of questions that I do not think will be 
long answers; then I want to get into some detail on a few 
issues.
    My sense is, from hearing the Secretary and listening to 
both of you, that taking management structure aside and systems 
aside, our two main focuses need to be--maybe three--Section 8, 
the Public Housing Authorities, the troubled public housing 
authorities; and, third, I might add, but it is related to 
management, obviously, too many programs with too few 
resources. Would you add anything to that list? I realize that 
there are a lot of other issues that you could look at.
    Ms. Gaffney. There are, but I think you are correct that 
those are the major----
    Mr. Shays. Mr. Dyckman.
    Mr. Dyckman. There are other problems at HUD. We have 
issued many reports and recommendations concerning many of the 
other programs, but those are the key problems, in my 
estimation.
    Mr. Shays. Well, since there are many others, I am going to 
ask each of you to add one to the list that I have given you. 
The Section 8, the Public Housing Authority, and too many 
programs with too few resources. What would you add?
    Mr. Dyckman. I would probably add that restructuring of 
FHA----
    Mr. Shays. OK.
    Mr. Dyckman [continuing]. Whether or not the Government has 
to ensure 100 percent of the mortgages for single-family homes, 
and also FHA's multi-family insurance program, whether it is 
necessary.
    We are doing a review, I might add. I have a parochial 
interest in saying that.
    Mr. Shays. The bottom line is FHA.
    Mr. Dyckman. The bottom line is, yes, whether FHA needs to 
be streamlined or should the status quo remain or made into a 
different government organization?
    Mr. Shays. Separated from HUD.
    Ms. Gaffney. Indian housing programs.
    Mr. Shays. Secretary Cuomo talked about farming out the 
responsibility for dealing with the Section 8. While I did not 
share it with him at the time, I was thinking, my gosh, the 
danger is that we will be back in the whole Section 8 problem 
of friends who will get these wonderful contracts to do that 
negotiation. Would that be a concern?
    Ms. Gaffney. What was the----
    Mr. Shays. I want to make sure that I am describing it 
correctly, but basically one of his suggestions as a 
possibility is they bring in outside consultants to deal with 
this problem in various areas around the country, and we know 
what outside consultants sometimes mean at HUD. Do you have 
that similar concern?
    Ms. Gaffney. Oh, contracting out is a major concern to me, 
because it is clear to me that generally people think 
contracting out is an easy way out. We are just going to get 
other folks to do our work for us, you know.
    Mr. Shays. Right.
    Ms. Gaffney. But, clearly, the oversight and the amount of 
work involved in defining the work to be done and overseeing it 
is incredibly important, or you are just going to be taken for 
a ride.
    Mr. Shays. Just try to imagine. I did not mean facetiously 
if I were Secretary, I cannot imagine why someone would be 
Secretary, because I know that Mr. Cuomo, Secretary Cuomo 
enjoys the challenge, but it is almost massive because of what 
Joe Hale has talked about, the high-risk problems in terms of 
what I consider the structure and management of HUD. Mr. 
Dyckman, when you said 240 programs, I forgot, Ms. Gaffney, if 
you agreed to the 240.
    There is a very strong argument that HUD has to look at 
interdisciplinary problems--crime, security, recreation for 
kids. They all interact, because kids who are not going to have 
activities may end up just playing on the elevators and 
wrecking them in the process.
    So I understand why there needs to be an interdisciplinary 
approach, but that notwithstanding, I tend to sense that maybe 
one of our recommendations is going to have to be that based on 
your comments you all have made with your years of experience, 
that HUD may have to just totally refocus on the core programs, 
deal with the public housing, deal with the Section 8, and ship 
out a lot of these other programs, and maybe block grant it, 
which becomes somewhat controversial to some on your side of 
the aisle more than mine.
    Now, is your sense that in focusing on the core programs, 
that they are going to have to drop some programs, consolidate?
    Ms. Gaffney. Yes. Absolutely, yes.
    Mr. Shays. Would you agree with that?
    Mr. Dyckman. Yes. Well, yes, it is not so much that they 
have so many programs, but they seem to have so many programs 
doing the same thing or very similar things, so I am not 
suggesting that HUD get out of the business of public housing 
or vouchers, but why do you need vouchers and certificates? Why 
do you need so many different mechanisms to deliver the same 
thing?
    So, in a sense, it is consolidation, but it may not 
necessarily take them out of the basic services that they are 
providing right now but just to focus better.
    Mr. Shays. But what I get is a sense that Congress has 
provided a few new programs over the past few years, but we 
have not really provided a critical mass of funds, so we have a 
lot of programs but not really truly well funded.
    Mr. Dyckman. Well, if a small program requires resources by 
the agency to oversee it if they are going to do a good job, 
sometimes it does not cost any more money to oversee a large 
program versus a small program. I think that is part of their 
management problems.
    Now, in terms of whether they have enough budgetary 
authority to solve the problems of the cities, of course, they 
do not, but are we wealthy enough to put all our resources in 
solving one set of social problems? That is another issue that 
Congress has to face, obviously.
    Mr. Shays. We are going to get to the next panel, but the 
purpose of today's hearing is to just kind of give us an 
overview; and clearly with HUD, we could focus on a lot of 
other issues, but we are just trying to--we want you to do 
exactly what you are doing, and that is put the emphasis on the 
biggest problems.
    But I do not understand about the Section 8, and I do not 
know if this is the budgetary language that is screwing me up, 
but obviously if you are paying a certain subsidy right now to 
the Section 8, I do not understand why it costs us more money, 
my mind says, to renew. Why more money to renew? Why can't it 
cost less?
    Ms. Gaffney. I am going to try, because this is the budget-
authority-versus-outlay discussion. I think that is what it is.
    Mr. Shays. All right.
    Ms. Gaffney. The crisis is in budget authority, and budget 
authority is essentially expended at the time of obligation.
    Mr. Shays. So the authority is ending, and, therefore, from 
a baseline it is down to zero. In terms of actual outlays----
    Ms. Gaffney. Actual outlays are not changing at the same 
rate--there is not a crisis in outlays. They are much too high, 
and they are increasing steadily. It is the budget authority, 
because the budget authority for some of these contracts was 
provided 20 years ago----
    Mr. Shays. I understand.
    Ms. Gaffney [continuing]. Thirty years ago in time. Right? 
So, now, it is all having----
    Mr. Shays. Let me ask one other question in regard to this. 
While I am not looking to increase the amount of public 
housing, but in one sense, if you have a landlord who owns 
property, particularly in a community, we are paying him twice 
the true market rate to carry the property. Why does not HUD 
just say, ``Goodbye; you can foreclose; we will just take it 
over as public housing,'' and then over time recondition it as 
their property and hopefully get better benefit? I do not 
understand why we would reduce the mortgage requirements of the 
owners of these buildings, give them the benefit, and then 
just----
    Mr. Dyckman. It is a tradeoff, because you have--if you do 
not do something, you may have a foreclosed property, and the 
Government is afraid that they will take a bigger hit.
    Mr. Shays. OK. I guess it is the bigger hit issue. Yes?
    Ms. Gaffney. I think there are two answers. One, HUD has 
traditionally been reluctant to pay insurance claims, and that 
means----
    Mr. Shays. It is an up-front sum, is the problem.
    Ms. Gaffney [continuing]. That the driving concern has been 
the financial situation of the insurance fund. But there is 
another consideration, and that is HUD has not been eager over 
the years to take enforcement actions of any type against these 
owners. That is a clear record.
    Mr. Shays. Let me just make sure that you all feel 
comfortable or are assured that we are going to focus a good 
deal of our time on the Section 8 issue, very up front, and 
hopefully make some recommendations. In our report we will talk 
about some of our concerns as well of what we do not want to 
see HUD do. We are going to need both of your help in that 
regard.
    Mr. Towns, are you all set?
    Mr. Towns. No further questions. I would like to thank the 
panel for your help.
    Ms. Gaffney. Thank you, Mr. Towns.
    Mr. Shays. Well, we enjoy working with----
    Ms. Gaffney. Nice to see you.
    Mr. Shays. I would just add as well that both of your 
organizations, the people in them have been tremendous to work 
with, and we have appreciated the cooperation we always get 
from you and feel that we truly are partners in this effort, 
and it is nice to have such good partners.
    Ms. Gaffney. Thank you.
    Mr. Shays. At this time, we will call on Charles Masten, 
the Inspector General of the Department of Labor, as well as 
Carlotta Joyner, who is the Director of Educational Planning 
Issues, General Accounting Office. You both are accompanied by 
one other individual each, John Getek----
    Mr. Getek. Getek.
    Mr. Shays [continuing]. And Dr. Harriet C. Ganson. So we 
will swear all of you in, if you would remain standing. Raise 
your right hand.
    [Witnesses sworn.]
    Mr. Shays. Thank you. For the record, we will note that all 
four have responded in the affirmative. This now is the focus 
on the Department of Labor, and we really appreciate all of you 
being here. I am sorry we have kept you waiting a bit, and I 
think we will do it as I called. We will start with the 
Inspector General, and then we will go to the General 
Accounting Office.
    I am going to leave here for about 5 to 10 minutes, and 
then I will be back; but what I think I will do is hear your 
statements and then go. So, Mr. Masten.

STATEMENTS OF CHARLES C. MASTEN, INSPECTOR GENERAL, DEPARTMENT 
   OF LABOR, ACCOMPANIED BY JOHN GETEK, ASSISTANT INSPECTOR 
GENERAL FOR AUDIT; AND CARLOTTA C. JOYNER, DIRECTOR, EDUCATION 
 AND EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED 
    BY HARRIET C. GANSON, ASSISTANT DIRECTOR, EDUCATION AND 
          EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE

    Mr. Masten. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for inviting the Office of the 
Inspector General to discuss management and programmatic issues 
facing the Department of Labor. I now possess a different role 
in my capacity as IG, so my views will be my views and not 
necessarily the official views of the Department or the 
official views of the IG.
    Mr. Shays. OK. That is what I thought. I just wanted to 
make sure they are not your personnel views.
    Mr. Masten. The views of the IG. I will summarize the four 
issues that I have detailed in my statement and ask that my 
entire statement be submitted for the record.
    Mr. Chairman, one of the most important issues facing the 
Department is improving the effectiveness and efficiency of job 
training programs. While programmatic and legislative 
improvements have been implemented over the years, our audits 
of these programs continue to identify recurring problems, 
especially with respect to program performance and grant 
management.
    Our most significant findings continue to be those programs 
generally result in short-term, low-wage jobs. It is my opinion 
that job training service will not be maximized, nor costs 
minimized, without adequate performance accountability and 
oversight of grants by the Department.
    The second issue that continues to require major 
departmental and congressional attention is that of ensuring 
the safety of pension assets, which now total close to $3\1/2\ 
trillion. Specifically, the Department must be effective in 
ensuring that pension funds are deposited fully to the worker's 
account in a prompt manner and that these funds are safe while 
being held in trust by the plan administrators, service 
providers, or trustees.
    Our main recommendations are, No. 1, repeal the ERISA's 
limited-scope audit provision, which results in inadequate 
auditing of almost half of the $2 trillion in pension assets 
that are subject to the ERISA audit requirements; and, two, 
that the public accountants and plan administrators be required 
to report serious ERISA violations directly to the Department 
in order to ensure that these violations are reported promptly.
    It is my understanding that the administration is once 
again working on introducing a proposal that will address both 
of these recommendations.
    From an investigative perspective, the OIG continues to 
focus on identifying abuses by service providers, 
administrators, and others, with respect to union pension funds 
and investment activities. In fact, my office is currently 
conducting investigations of more than $200 million in pension 
assets that are suspected of being abused or defrauded.
    The third issue facing the Department would be implementing 
two major statutory mandates, the Government Performance and 
Results Act (GPRA), and the Health Insurance Portability and 
Accountability Act (HIPAA). The main challenge for the 
Department with respect to GPRA will be ensuring that program 
agencies develop outcomes-based performance measures needed to 
assess program impact and that its financial systems are 
adequate to generate the needed financial and cost information 
of DOL programs.
    With respect to HIPAA, DOL was given significant additional 
regulatory disclosure and enforcement responsibility related to 
its administration of ERISA, as well as enhanced authority in 
the Government's effort to combat health care fraud.
    The challenge the Department will be the rapid 
implementation of its provisions while educating the public on 
the many requirements and protections, and then enforcing 
compliance with its requirements. And as the primary criminal 
investigative entity in DOL with respect to HIPAA fraud, my 
office will be faced with meeting our statutory 
responsibilities while providing adequate coverage to other 
priority areas as our resources continue to erode.
    Finally, as far as the Unemployment Insurance System, we 
have three major concerns. The level of fraud activity related 
to this program, particularly as a result of fictitious 
employee schemes; two, the Department's ability to ensure that 
SESAs convert their computer systems to be ready for the year 
2000--not to do this could create inaccuracies in calculating 
the length and amount of benefits, worker eligibility, and 
employee tax rates--and three, DOL's recent policies that 
essentially permit the States to provide electronic access, for 
a fee, to State UI wage record information for the purpose of 
consumer credit verification.
    That concludes the summary of the four areas in my written 
statement, and we are prepared to answer any questions any of 
you may have.
    [The prepared statement of Mr. Masten follows:]
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    Mr. Shays. Thank you very much. Ms. Joyner.
    Ms. Joyner. Yes. Mr. Chairman, members of the subcommittee, 
we, too, are pleased to be here with you today to talk about 
the challenges facing the Department of Labor in carrying out 
its mission. There are two major challenges that I will 
summarize briefly and, I have a longer statement, which you 
have received already.
    The first of these is the challenge to provide effective 
employment training programs that meet the needs of the diverse 
target populations and to do so in a cost-efficient manner; and 
the second is to ensure worker protection in a way that is in a 
flexible, regulatory structure.
    I would also like to talk about how we believe Labor's 
ability to meet these challenges will be enhanced by the 
improved management initiatives that are envisioned by recent 
legislation.
    With about $34 billion and 16,000 staff in fiscal 1997, 
Labor's programs touch the lives of nearly every American 
because of their breadth, from job training to helping people 
get jobs, income security when unemployed, and working 
conditions when employed. We have provided a chart over here 
that gives some information about this.
    Just as an overview, as a reminder, there are 24 different 
units into which the Department is organized. The chart over 
here does not show the over 1,000 field offices around the 
country, which, in addition, carry out the mission of the 
Department. It also does not show, as a chart could not, the 
extent to which these activities are decentralized in nature.
    For example, assuming the information one might want to 
have, such as the non-billable Fed offices, where they are on 
the staff, that kind of information is available only from the 
individual units, not from the central office.
    As you can see, on the chart--I do not know if you can see 
that well--would it be helpful to tip that a little bit?
    Mr. Shays. The chart is a little small, if we just lift it 
up right over here, Chris. Maybe somebody could help you.
    Ms. Joyner. OK. Good. What I will be talking about is the 
yellow marks around the middle of the chart, so I can direct 
your attention there, if that helps, to the program activities.
    Well, you see, that is the problem. There are so many units 
that the text has to be so small that you cannot see it.
    Mr. Shays. OK. Flip the bottom down there. You can slide it 
down a little bit, and then we will be all set. Good. Thank you 
for asking.
    Ms. Joyner. All right. We would hate to spend the money and 
make the chart and have you not be able to see it.
    Mr. Shays. That is all right. I am happy you are doing 
this.
    Ms. Joyner. OK. If you look at the middle level, on 
``Program Activities,'' the Bureau of Labor Statistics is the 
one to the far left. Obviously, that has an important role in 
gathering information on labor statistics, including the CPI. 
Of course, there is a major issue now as to how to revise that. 
But we will be focusing more on the other program offices to 
the right of that.
    The two offices responsible for the work force development 
activities are the Employment and Training Administration, the 
second box and--all the way to the right--the Veteran's 
Employment and Training Service. The charge that these two 
offices within Labor face in mainly the work force development 
mission is that they are doing this in the context of many more 
programs than just the ones for which they are responsible.
    If you will recall, the last time we testified here, we 
pointed out the 163 different employment training programs 
under 15 agencies. All 37 of these at that time were not even 
in the Department of Labor. We have not gone back to recount 
those or to recalculate the $20 billion estimated for those 
programs at that time, but what we do know is that a problem 
remains that instead of there being a coherent work force 
development system to meet the needs of people in this country, 
we have a fragmented system with some of those overlapping 
target groups and questionable outcomes. This has been said 
before as well.
    Now, as you know, consolidation legislation was considered 
in the last Congress, and you would have had some interest in 
that. The Congress was unable to reach agreement on how to 
consolidate the programs.
    The Labor Department has moved ahead with this to try to 
help the States, who themselves have tried on their own to 
integrate these programs. The Labor Department has used 
initiatives, for example, one-stop career centers, and has 
tried to the extent that it is possible without the legislative 
change, to try to overcome this kind of fragmentation. But that 
has not been enough to fix the problem. It has also implemented 
consumer initiatives to get more information about the outcomes 
of some of the programs.
    But as you are aware, too, with the recent welfare reform 
legislation, even more people will be needing assistance in 
getting jobs and being trained for jobs, and the system really 
is not there to help them. In the Washington Post this morning, 
there is an article about the difficulty that employers face in 
trying to bring people off the welfare rolls into jobs, and the 
biggest problem--and it is not a surprise to us--is it is not 
so much the skills, it is employability. That is something that 
we have addressed in one of our reports, and, in fact, I have 
testified on that matter once before this subcommittee on the 
need to focus on employability skills as well as specific job 
skills.
    Another major challenge has to do with worker protection 
issues; that is accounted for by the other four agencies on 
that row of program agencies on the chart: Employment Standards 
Administration, Mine Safety and Health, Occupational Safety and 
Health, and Pension and Welfare Benefits Administration. The 
major challenge here is to provide this regulatory oversight in 
a way that is less burdensome and at the same time more 
effective.
    The Department, again, has made some progress in this 
direction, and OSHA, for example, illustrates some of that, 
with much more partnership initiatives with companies to 
supplement their tradition enforcement approach. But that has 
not been without criticism and without some difficulties there 
as well.
    We have also pointed out some opportunities for them to 
leverage their resources through sharing information with 
contracting agencies. What we found was over $38 billion in 
Federal contracts were going to 261 companies that nevertheless 
had been cited for significant penalties for safety and health 
violations. And so we have made some recommendations to extend, 
if you will, their opportunities in that way.
    In worker protection as well, congressional action poses 
some new challenges and some new activities for them. The 
Congress awarded them additional funds last year to examine 
ways to substantially improve their wage determination process 
under Davis-Bacon, a controversial law. They are now launched 
into a major effort to try to find better ways to do that, and 
while this has been previously mentioned, they have new 
responsibility under the health insurance portability law to 
establish some regulations and subsequently to enforce them.
    I really do think that some improved management practices 
will help them meet both of these challenges. The Government 
Performance and Results Act, as has been mentioned, is really 
the centerpiece for that, for moving Labor, as other 
departments, to a more results-focused, results-oriented 
management.
    And there are other pieces of legislation that have been 
employed in parts of that. The CFO Act, the Chief Financial 
Officers Act; the Paperwork Reduction Act, and Clinger-Cohen. 
Together these will put them in a position as they move to full 
implementation with these, to do several things that are 
crucial: to have some integrated information about their 
mission and strategic priorities, the performance data to 
evaluate their performance toward those goals, to relate their 
information and resources and technology to those goals, and 
then to have some accurate and audited financial information 
about how they are spending their resources toward those goals.
    Labor is taking some action in these directions. We feel 
that this mission is an urgent one. I am sure you share that 
concern about people when they are unemployed, when they are 
injured in the work place, about employers trying to find 
competent workers and understand the regulations that they are 
having to deal with, and then the potential of wasted money 
that we really cannot afford to waste. So we are very 
encouraged and hope that these management approaches will help 
them do better.
    [The prepared statement of Ms. Joyner follows:]
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    Mr. Shays. Thank you for your comments, and we will begin 
with Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman. Let me begin with you, 
Ms. Joyner. You have had the opportunity to evaluate a lot of 
training programs during your tenure. What would you consider 
one of the best programs? Could you give, say, like some 
programs that you think are doing well that you have evaluated?
    Ms. Joyner. Well, there are several ways to look at the 
data. I think that the more or less recent studies that we have 
issued, what we did was look at not a fundings-free program, 
that is not to say whether it is JTPA, Title II(a) or Job Corps 
or anyone of those, but what we tried to do was to look at 
individual programs onsite and to see where they seem to be 
successful and what really made them successful, and we think 
that kind of critique is useful, particularly more so than 
trying to see whether all the programs funded in a certain way 
are useful--are really working.
    And as I mentioned before, in our work on strategies used 
by successful programs, we identified four key characteristics 
that seem to be common to them. The Labor Department tells us 
that they are now using that information, trying to distribute 
that message through the JTPA programs, and then States are 
using it as they are trying to integrate their work force 
development activities.
    I mentioned one of those, which was that the successful 
programs seem to be those that focus on employability skills, 
not just training them to be a welder, but how can they learn 
to get to work on time and why that is important; to identify 
the kind of barriers that face them, and to alleviate those 
barriers, whether it is child care or transportation, that sort 
of thing; and also to make sure that there is motivation to 
succeed, either to bring into their program the priorities to 
those people who are ready to change or help them develop that; 
or when you are doing discreet-skills development, to tie it to 
the local labor market needs rather than just train them in 
construction even if there are no construction opportunities 
where they have been trained.
    Mr. Towns. Thank you. Youth programs have the same problem 
that many of the other agencies have, training programs. They 
are all over the lot. You have Veteran's Administration and 
they are everywhere. Isn't that part of our problem, that we 
cannot centralize them?
    Ms. Joyner. Well, it is. You are referring probably to the 
Table 2 in our testimony----
    Mr. Towns. That is correct.
    Ms. Joyner [continuing]. Where we talk about, at least at 
that time, in 1995, the fact that there were 19 training 
programs that targeted youth--not just that youth could be in 
them, but really targeted toward youth; that seven of those 
programs were in Labor and that there were five different 
agencies----
    Mr. Towns. In Veterans----
    Ms. Joyner. A total of five. Right. And the same thing with 
all of these. We think that is a problem. We think there are a 
couple of reasons why the multiple programs is a multiple 
series of problems. Again, although we cannot quantify the 
amount, we are certain that there are administrative--we are 
losing some money here administratively by running so many 
different programs.
    It also is very frustrating for the young person. Let's say 
you want some job training. Where do you go? Which place do you 
go to? And you may go to one, and it is not the right one, so 
you have to start all over and go somewhere else, and so the 
service quality is not going to be as good as if you had a more 
integrated approach to work with this enrollment.
    Mr. Towns. And I also think that in terms of duplication 
problems----
    Ms. Joyner. Oh, absolutely.
    Mr. Towns. I think that is a real issue, and I think that 
is something that we cannot afford the luxury of that anymore.
    Ms. Joyner. That is right. To give you an example, one 
instance that the one-stop centers are trying to avoid is in 
the past when someone would go into one location, they might be 
given a test to find out what their interests and their skills 
were. They would fill in an application form, and then they 
would be sent somewhere else to get one piece of their service 
and do the whole thing over again.
    And then if they need another service, another piece of the 
total package of what they need, they would have to go to 
another location, take another set of tests, fill in another 
application form. There was cost involved as well as the 
frustration to the person trying to get a service.
    Mr. Towns. Based on the information that you have been able 
to collect and that you say, in terms of what you feel makes up 
an effective program, how do we get that information out to 
job-training programs in the State?
    Ms. Joyner. Well, we have been told by the Labor Department 
that they have--well, they asked for many copies of our report. 
I know that. I had their number at one time. And, in fact, when 
I testified before this committee as a result of that study----
    Mr. Towns. I remember.
    Ms. Joyner [continuing]. The Assistant Secretary was here, 
and he said he made a commitment to get it out, at least 
through the JTPA system, and I believe he has, to the service-
delivery areas. They have more recently told us that as they 
are working with States that are trying to approach job 
training in a more coordinated way, that they are supplying 
that information, and also what the Labor Department learned; 
they also issued a report a couple of years ago and what works 
and what does not in employment training, in education as well 
as in the employment training programs. I hope that they have 
been trying to make copies of that available throughout the 
country as well.
    Mr. Towns. Good. Let me just switch over to you, Mr. 
Masten. Under the new welfare reform law, what will be the 
Department's role in ensuring that welfare recipients get 
effective employment counseling and training?
    Mr. Masten. Mr. Towns, do you want to ask that question 
again? I want to make sure I understand exactly----
    Mr. Towns. In the new welfare reform law, what is the 
Department's role in ensuring that welfare recipients get 
effective employment counseling and training? They would have a 
role in this, wouldn't they?
    Mr. Masten. They would have a role in it. The number of 
training programs in the Department of Labor will play a major 
part in the strategy of getting a lot of the recipients off of 
the welfare rolls, but as far as the specific function of the 
Department of Labor the welfare reform legislation itself, I 
cannot give you the various specifics of it. All of the 
training programs in the Department of Labor will be part of 
the overall strategy to reduce the number of recipients on 
welfare.
    Mr. Towns. Yes. But I would think they would be involved in 
counseling and training. I hope so.
    Mr. Masten. That is right, but I am of the opinion that the 
GPRA-mandated legislation that is on the books that is forcing 
the Department of Labor, as well as the federally run agencies, 
to come up with outcome performance measurements, which sadly 
are the problems.
    When I look at a training program as it involves welfare 
recipients and any other group, the bottom line, these 
individuals should be able to get jobs that will pay them a 
salary that will get them off of welfare and put them into a 
job which they have been trained for. It has been my experience 
that that has not been the case in most of the programs.
    Mr. Towns. Right. Well, let me close it by saying that I 
think that your Department--the Labor Department, I should 
say--will play a major role in making certain that counseling, 
the kind of support of services, and whatever that needs to be 
done has to happen in order for this thing to be--for it to be 
successful or effective, and that I would just point it out 
that I am sure it is not your responsibility totally, but I 
think that you have a role, and I am happy to know at least 
that something is being discussed.
    Mr. Masten. It is one of the problem areas. As I say, what 
I look at, I look at the bottom line of those training programs 
to get someone off of welfare. I grant you, in teaching them 
the skills to get them to work on time, to be able to conduct 
an interview, that is fine; but they should also be able to 
leave that area and get a job that is going to pay them a 
living salary. They should get a job in the area in which they 
have been trained for, and I think that is what the GPRA will 
demand that the Department of Labor and all the other agencies 
put on the table in the future.
    Mr. Towns. Thank you.
    Mr. Snowbarger. Let me followup. We have talked a lot about 
outcome-based performance measures. Other than the fact that 
you are now required to do this by law, what value is there in 
using the outcomes-based performance measures?
    Mr. Masten. Well, for example, JTPA training; if you are 
trained to be an accountant or a junior bookkeeper, you are 
training to be a junior bookkeeper and you spend 18 months in 
that training, if you set the outcome measurement as being how 
many people get jobs as a bookkeeper as a result of the 
training, you will be able to determine if that program is 
working.
    By the same token, if you add on the training and the 
return on the investment if that person was a recipient of 
welfare prior to going into that training program, is likely to 
get a job, and as a result of the training, get off of welfare, 
it is another measurement that would be in keeping with the 
GPRA.
    Mr. Snowbarger. Prior to GPRA, what measures were being 
used?
    Mr. Masten. The measurement was to get the person in any 
job, not particularly in the job for which they were trained.
    Mr. Getek. I would say entered employment; sometimes it was 
the number of hours worked. Some programs--for example, the Job 
Corps is 20 hours per week, would be one of the criteria. Some 
would measure the amount of dollars that were earned in a 
particular hour.
    Mr. Snowbarger. And we are saying at this point that those 
are appropriate measures?
    Mr. Getek. Those are beginning measures. Those are more 
output measures. We think that over a period of time, someone 
needs to measure what the total outcome is and what the result 
is of those outcomes. And, again, somebody getting a livable 
wage over some period of time and holding a job for some period 
of time other than say, 20 hours a week, would give you some 
measure of the return on investment.
    Mr. Snowbarger. How long have you been providing these 
kinds of programs?
    Mr. Getek. These programs go back to, I believe, the MDTA 
program, which was in the late 1960's.
    Mr. Snowbarger. My final question is: why has it taken so 
long to figure out that we have not been measuring programs in 
the right way? Do you want me to make that rhetorical? I would 
be happy to.
    Ms. Joyner. Could I comment? I take your question to be a 
general one about result/outcome-oriented measurement, which is 
very important for job training, as it is important for all of 
Labor's activities, really. And I guess what I would say is 
that it is much easier to measure the short-term effects. It is 
much easier to measure what you are doing and the immediate 
output or what happens, how many got in a job, than it is to 
really know 2 years later whether they are self-sufficient.
    That takes a greater expenditure of resources. Someone has 
to be willing to collect the data over that period of time, and 
ultimately, if you want to know if it was the program that was 
responsible, you might even need to do some sort of impact 
evaluations, which raises the cost up even higher. You might 
need to deny the program to someone in order to compare it, as 
is being done now with Job Corps.
    If we need definitively to know the outcome, the impact, of 
Job Corps, you are going to have to compare it with a group 
that did not get Job Corps. That gets into issues of political 
acceptability, of your son cannot get into Job Corps because 
this is an experimental study.
    Mr. Snowbarger. You mean that Job Corps may not do for 
their son what they have been told it would do.
    Ms. Joyner. Absolutely, because these people--programs are 
run by people who believe they are doing a good job, and I 
think, by and large, want to do a good job; so there is always 
a difficulty in convincing people that it will be better to 
forego giving this believed good to everyone for the sake of 
really knowing what works and what does not.
    So I think absent a real, clear message, in fact, even from 
the Congress, that we believe it is worth spending some money 
to track these participants and get outcome measures and do the 
studies, but it has been a hard thing to do.
    And I guess what I wanted to add is while we are on the 
issue of outcomes, is to look over some of the worker 
protection programs. Take OSHA as an example. OSHA has always 
been required in approving State-operated programs in which the 
States have the option to run their own programs, that the 
States had to have a program as effective as that of OSHA.
    We did a lot of studies in the late 1980's and early 1990's 
on OSHA, and repeated: what is the issue? The OSHA had no idea 
how effective it was, so how was it going to know whether the 
States were as effective? And what was classically done was if 
you do things our way and the process measures match, we will 
believe the results are good. And in that area as well, we 
recommended and they agreed to, and are now moving toward 
actually establishing some results in that area, too. So that 
they are now holding inspectors accountable to cite people and 
to find violations. They are holding programs accountable to 
conduct special emphasis, let's say, on trenching or in 
construction that actually reduce injuries in construction.
    So it is a focus on the results, not on some interim 
measure like citing them for violations.
    Mr. Snowbarger. Well, then, a question to both of you is, 
is GPRA a sufficient message from Congress that we want to know 
the effectiveness of these programs, or do we need to be saying 
something more?
    Mr. Masten. Well, I think it is very sufficient, and as I 
said earlier, not only just for the Department of Labor, but 
for the entire Government, because when you get the basic 
outcome, and then you know the return on your investment, the 
taxpayer will know whether or not it is worth putting the money 
out to have the program in the first place. And if it is not, 
then the decision comes back on Congress to do away with the 
program.
    Mr. Snowbarger. Let me ask one final question, Mr. 
Chairman. You talked about 163 different programs in 15 
different agencies, only 37 of them in the Department of Labor. 
Why did you let these guys do that?
    Mr. Masten. I like your style.
    Mr. Snowbarger. Like you say, I only have 1 year to do 
this, so I am going to take advantage of it.
    But in all seriousness, here we have a Department of Labor 
who, I presume that your mission is, you know, employment and 
training administration, and yet you have only captured 37 out 
of 163 programs for your own little bailiwick here, I would 
think, just in terms of empire-building, you would want all of 
them in your department. But beyond that, I mean, it seems to 
me that somebody should have been telling us at some point 
that, wait a minute. You have that program; it is just over 
here, and you are duplicating if you are not on this program, 
or that particular concern can be accommodated with this 
program with just a little bit of flexibility.
    Ms. Joyner. I would say this is actually a point where your 
two panels today have something in common----
    Mr. Snowbarger. Yes.
    Ms. Joyner [continuing]. Which is, here is a problem; let's 
create a new program to fix it, and then one ends up ultimately 
with lots of programs addressing the same general issue.
    Mr. Snowbarger. Well, the thing that concerns me is not 
only duplication of programs, but the fact that we have got 
them spread over 15 agencies.
    Ms. Joyner. Right. In this case, you have the added factor. 
That is right.
    Mr. Snowbarger. That means you have absolutely no 
coordination of those things. Again, I think your point is well 
taken with HUD. Why did they develop 240 without telling us, 
``We can do that already,'' or ``Give us just a little bit more 
authority in this program, and we can do it there''?
    Thank you, Mr. Chairman.
    Mr. Towns. Let me just say this to Mr. Masten. You know, 
you have been before this committee on several occasions and I 
am impressed by you and I know that you are a knowledgeable 
person, and I just want to go back to something. I cannot leave 
it. I tried to go back to New York without raising it.
    The form is a big thing. Let's face it, and everybody has 
to get up for it. You mentioned about the fact that if 
something is not working, then Congress needs to get rid of it.
    But there are a lot of things that go into that process 
that we have to know in terms of information, in terms of being 
able to monitor it, so my question is basically this. Does the 
Department of Labor have the necessary personnel, computer 
system to monitor the employment counseling and training 
programs for welfare recipients throughout the country? Because 
it seems to me that that would fall under that department. I 
mean, that is my thinking, and I must admit, I cannot say. I 
have only been here a year.
    Mr. Masten. OK. First of all, Congressman Towns, let me 
state for the record, when I said get rid of the program, I 
said, if the return on the investment was not sufficient. I 
gave the two comparisons of outcomes; I said, if it is not 
sufficient--then a decision will have to be made on whether or 
not to get rid of it. OK?
    Not just get rid of it if it is not working, because we 
make recommendations on most of our audits as to what we 
believe will make a program better. We make those 
recommendations to give the program managers an opportunity to 
make them better. So if you can make it better, do it; but if 
you cannot make it better and the return is not adequate, then 
I am saying that their responsibility is to make a decision to 
get rid of it.
    To answer your next question on whether or not the 
Department of Labor has a management information system----
    Mr. Towns. In place.
    Mr. Masten [continuing]. In place, the answer is no.
    Mr. Getek. It could be better because the role of the 
Federal Government, I do not believe, in the past few years has 
been what it ought to be. There is not enough monitoring out 
there of the things that you have just spoken about, the 
counseling and the other areas that affect people who are 
coming into the program. It is left, at least for JTPA, up to 
the Governors to institute systems.
    The Employment and Training Administration has general 
oversight, but over the prior few years, there have not been a 
lot of Federal folks down there looking at whether people are 
getting counseling and education and those kinds of things, and 
I believe those were policy decisions. And for the program to 
work, I truly believe that you have to have an increased amount 
of Federal oversight. It has to work certainly in conjunction 
with the people at the local level, but it also has to be that 
level.
    Mr. Snowbarger. Yes, Ms. Joyner?
    Ms. Joyner. If I could go back to the first part of your 
question and the previous one related, it is the comment about 
the relationship between the Department of Labor, its 
employment and training programs, and welfare reform. The point 
is to recognize, of course, that under welfare reform each 
State will be in control of what each State chooses to do, how 
they choose to implement their requirements for work.
    They have some flexibility, not as much as they had in the 
past, as to what kind of training would meet the work 
requirement, and how in that State they are going to integrate 
their getting people on welfare into jobs with the existing 
job-training structure. So we have some interests in knowing 
and some concern that that may not operate as well as it might 
at the State level.
    Basically, there have been different bureaucracies in each 
State. I mean, there are the people who do employment training, 
and there are the people who handle the welfare programs, and 
they had a job training program, as you know, specifically for 
welfare recipients. There have been several, most recently the 
Jobs Program, which now is--it is gone as an official program.
    So there is the pot of money for the States to use, and our 
sense is that one of the things the Department of Labor, the 
Federal Department of Labor can do is a part of a more informal 
attempting, as we touched on before, more States are trying to 
do more integration, working with them.
    It is not so much a matter of the Department of Labor 
telling them what they have to do--that is not a role that is 
envisioned for them in this--but it is more a matter, I think, 
of getting information out, making Department of Labor 
resources available. Also, from the standpoint of Labor-
operated programs, dealing with potentially more people coming 
in and how to balance the needs of more former welfare 
recipients who now are needing job training--expanding even 
beyond the substantial number of welfare recipients who are 
already being aided by Labor programs.
    Mr. Towns. Let me just say this. I understand the way we 
process and I understand flexibility and I understand one 
region might help find something to be successful and another 
region might--I understand all of that, believe me. Trust me, I 
do, but I think that somewhere along the line, you need to come 
up with a pilot project of some of the five States to be able 
to feed information in so we will know what we are doing. That 
is my concern.
    This is a major effort we are going through here, and I 
think that we should have some data someplace, and I do not 
think we should just leave it to the States because, after all, 
it is still Federal money, that they are using, and that is my 
concern. And they are probably going to come back and back and 
back and back, and I just would like to know what we are doing 
and what they are doing with that money, and then maybe we can 
learn something. That is all.
    Maybe pick five States, seven States, or nine States, but I 
think that it has to be done in order for all of us to feel 
comfortable. I really do.
    Ms. Joyner. We have several studies under way. Some of them 
are in a group other than my own--our income security group--
but we are also working with them trying to do some studies. As 
you suggest, we believe they need to be done to see what is 
happening in States and how the job-training needs and job-
placement needs of welfare recipients are being met in 
different States and what can we learn from that.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. One of the reasons why I 
believe we have lots of different programs and similar programs 
in different departments is that each chairman of the standing 
committee wanted a little piece of the action, and they did it 
through their committee. It never ceases to amaze me. My first 
surprise when I was a freshman was, why did the Department of 
Agriculture get into housing? But we have rural housing that 
goes through them. That was always a surprise to me.
    But the way HUD views its responsibilities, they view their 
need as interdisciplinary, so they are going to focus in on 
recreation, and they are focusing in on job training, and Labor 
is going to focus in on that. One of the big things that we 
tried to do, in the Republican Congress last time around was we 
tried to use some task force, so we would start to use three 
committees that we deal with. We have one committee dealing 
with one department and another committee dealing with another 
department and another committee dealing with another 
department, but they all dealt with the same issue, and we 
tried to bring it all together.
    Our problem is that we tried to overreach. I do not think 
we are going to significantly reorganize the Department of 
Labor, but I wonder if, like with HUD, if there should not be 
some reorganization. So my first question is going to deal with 
the program agencies.
    I want each of you to tell me the program agency that you 
think is run the most efficiently and the one that has the most 
challenges.
    Mr. Masten. I could really take a stab and say the OIG is 
definitely in--[laughter.]
    There is no question about that.
    Mr. Shays. Now, where do I see that on program agencies up 
there?
    Mr. Masten. I have a small program within the OIG. I will 
tell them about it.
    Mr. Shays. OK.
    Mr. Masten. First of all, Mr. Chairman, we have not done an 
audit to discern----
    Mr. Shays. And I do not want this to come back and haunt 
you in the Department, and they say, ``What do you mean?'' I 
will put it this way: Which are you the least concerned about, 
and which do you have the greatest concern?
    Mr. Masten. At this point, I am least concerned about BLS.
    Mr. Shays. OK. I am going to ask you to----
    Mr. Masten. OK.
    Mr. Shays [continuing]. Basically because they have had an 
ongoing mission, it is pretty consistent year to year and so 
on.
    Mr. Masten. Exactly.
    Mr. Shays. OK.
    Mr. Masten. And I would have--so I would like to say I have 
more concern with the Employment and Training Administration--
--
    Mr. Shays. OK.
    Mr. Masten [continuing]. Because it encompasses most of the 
training programs that are part of the strategy of the new 
welfare reform and getting the welfare recipients off the 
rolls. So that would be a major concern, because they have the 
programs that are going to arrange a part of that strategy.
    Mr. Shays. Now, you are going to tell us the relationship 
that you have with your subordinates, whether they feel they 
can be totally up front and honest without having any judgment 
on your part.
    Mr. Masten. That is really the position that I am in now, 
because they are totally up front. [Laughter.]
    Mr. Shays. So where would be----
    Mr. Getek. You have to go where the money is, and that is 
the Employment and Training Administration----
    Mr. Shays. OK.
    Mr. Getek [continuing]. And they have an impact on a whole 
lot of things, and the proposals that are coming out for 
welfare reform certainly are going to affect the Employment and 
Training Administration.
    Mr. Shays. OK. Well, Ms. Joyner?
    Ms. Joyner. Well, first of all, your question about most 
efficiently managed, I would not have a basis to answer that at 
all.
    Mr. Shays. OK.
    Ms. Joyner. We have not--we did----
    Mr. Shays. What shows up on your radar screen the least?
    Ms. Joyner. We also have organizationally that another 
unit, and I have to admit, within GAO rather than my own that 
does more work with the pension and welfare benefits.
    Mr. Shays. OK.
    Ms. Joyner. But I know that they have had some concerns in 
the past, which are less so now, about some of the pension 
issues and enforcement issues there. I would share my 
colleague's concern.
    We, too, try to follow the dollar, and if you are looking 
at things that you have gotten in the Employment and Training 
Administration with a large flow through of money there, that 
would certainly be one that is on the screen. Let me put it 
that way.
    Mr. Shays. OK. Which is the one that shows up the least in 
matters, you hear about the least, the least criticism?
    Ms. Joyner. I really am uncomfortable with that.
    Ms. Ganson. I would echo that I do not have a basis for 
taking an opinion on which is the most efficient. I would say 
that the Employment and Training Administration definitely has 
the challenge of dealing with all these different employment 
and training programs.
    I would also say that the Occupational Safety and Health 
Administration has a real challenge in terms of changing the 
way it operates----
    Mr. Shays. Yes.
    Ms. Ganson [continuing]. Which it has over time, and I 
think is really in the spirit of GPRA in terms of becoming more 
customer-oriented.
    Mr. Shays. The bottom line there is we know that if they 
had to inspect every facility, they would do it about once 
every hundred years.
    Ms. Ganson. Yes.
    Mr. Shays. So they have to--the main project and----
    Ms. Ganson. Right. So I do think that they are, in terms 
really taking that challenge head on.
    Mr. Shays. Now, we have not talked much about--first, when 
you talked about employment, is it fair for me to think of the 
Veterans' Employment and Training Services faced some of the 
same challenges as the Employment and Training Administration? 
Do you have some of the same challenges?
    Mr. Getek. The programs are similar, except you are 
targeting the veterans' groups certainly, and----
    Mr. Shays. But it surprised me when I was in the State of 
Connecticut as a Member of Congress, that I was talking about 
how we did not have any veterans' assistance in our land, and 
then I found out the Department of Labor did. You know, the VA 
did not, but the Department of Labor did, and that was just 
surprising to me how we were----
    Ms. Joyner. Well, it is somewhat different, too, in that 
the major activities under the Veterans' Employment Training 
Services are the people that they find at employment service 
centers--employment offices around the country. The LVERs and 
the DVOPs--we'll have to think what all this stands for--but 
there are people who are designated to work with disabled 
veterans and other veterans in general.
    They are federally funded, but they are working under the 
direction of the State programs, so that when an unemployed 
person goes into the Employment Service and says, ``I am 
looking for work,'' if you are a vet, then you immediately are 
provided with assistance from these people onsite. What, in 
fact, we are doing is, starting now, is responding to a request 
from the House Veterans' Affairs Committee to try to find out 
more about how that is working. But it is quite different from, 
say, funding a JTPA program for youth. That is a different kind 
of activity program.
    Mr. Shays. When the private sector looks to Government, 
they use as their guideline basically three people at the most 
should make a decision on one issue. Then there is some sense 
of ownership and some sense of worth on the part of the 
employee. In the Federal level sometimes I hear numbers of 9 or 
10 people make a decision; therefore, no one feels they have 
made a decision.
    And I am wondering when we talk about--I am leading this to 
HUD, but you all could respond to it--I am just wondering if in 
the whole process of downsizing, if we are able to restructure 
so less people have to pass judgment, when they are, in fact, 
gone, we might not have enough people to do the job.
    Ms. Joyner. It might have an increased sense of 
accountability on the part of each person.
    Mr. Shays. Well, that would be one obvious benefit, but I 
guess what I am saying to you is, if we continue the same 
structure where everyone has to pass judgment, then you may 
need a lot more people; but if we are willing to have less 
people make the decision, I am wondering if then we would not 
be able to develop enough.
    I think the big challenge for Government is our pay scale, 
particularly in terms of Social Security, but I could say it 
for the Department of Labor and HUD as well. The most that we 
pay that employee as a Federal employee might be $120,000, 
where if they were in the private sector, they would be making 
hundreds of thousands of dollars, and this, in some cases, 
forces us to hire outside consultants because we cannot get the 
top-skilled person always. We have a lot of skilled people, but 
they take a significant reduction, particularly on the systems 
side.
    Another question: Let me just end with this issue. I asked 
you in terms of the administration within the program agencies, 
and you were in some cases telling me about the program as well 
and weighing that in your decision of which might be the one 
with the biggest challenge. When I look at the pension and 
welfare benefits and wonder if that is not a gigantic potential 
problem for us, based on some of your comments, what is the 
biggest problem as it relates to pensions?
    Mr. Masten. First of all, Mr. Chairman, understand that the 
pension system involves so much money, it provides the 
opportunity for a lot of fraud and abuse. It also draws very 
sophisticated and very intelligent people into that system who 
can mask fraud and abuse at certain levels and so timely to 
determine this.
    Mr. Shays. OK.
    Mr. Masten. Because of some of the controls that are in 
place now, fraud could be taking place in any number of areas 
many, many years prior to it ever coming to light----
    Mr. Shays. Interesting.
    Mr. Masten [continuing]. Because we simply do not have 
control procedures in place to catch it. The audit was--excuse 
me--John can go into more detail on it, but that is one of the 
biggest things. There is so much money there and so much 
opportunity for fraud and abuse, it is so timely to detect.
    Mr. Shays. OK.
    Mr. Getek. Repealing the limited-scope audit provision, we 
believe, will go a long way because then you will have the 
public accounting firms that are doing the audits now giving an 
opinion on all of the dollars.
    Mr. Shays. Why do we have a limited-scope audit? What was 
the basis for that?
    Mr. Getek. I believe when the ERISA laws were passed, 
institutions like savings and loans and regulated insurance 
companies were exempt because they believed they were reviewed 
enough, but obviously the savings-and-loan crisis that we are 
aware of causes some questions in that area.
    When an accountant gives an opinion, it certainly shows the 
amount of work that they have done. When they do not give an 
opinion, there is no review of the assets that are in the plan. 
Removing the limited scope provision certainly goes a long way 
to ensure that the control environment is there and if there is 
something wrong, that people, who are in positions of 
authority, will be alerted.
    Mr. Shays. OK. Now, and the political restraint is just 
that the organizations would be fighting us to not have the 
kind of----
    Mr. Getek. Well, we believe--AICPA is in favor of this now, 
I believe, as well as the GAO.
    Mr. Shays. OK. Any other comment about the pensions? OK. I 
am going to end, unless my colleagues have any questions, just 
asking each of you to tell me the one question that you wish we 
had asked.
    Mr. Masten. One of the questions, obviously enough, is how 
my office can continue to do more with less when the program 
agencies are given more responsibility and more money to 
initiate programs for which I am going to have oversight 
responsibility. With my financial resources, how am I going to 
be able to take on the additional responsibility and carry out 
my mission?
    Mr. Shays. And just briefly tell me what were your 
resources 2 years ago versus now. Are they about the same, or 
they have gone down?
    Mr. Masten. Down. They have definitely gone down, Mr. 
Chairman. In fact, I recall that I had to go to the Secretary 
in this last go-round and ask for $500,000 so that I would not 
have to lay off anyone.
    Mr. Shays. OK. But is your personnel still pretty static, 
or is it actually----
    Mr. Masten. My personnel has gone down as well because it 
was mandated that we get down to a certain FTE every year to 
the year ninety----
    Mr. Shays. Nine.
    Mr. Masten [continuing]. 1999, and we have not met that. In 
addition to the need for resources, we have the oversight 
responsibility. We have had to rearrange our entire priorities 
in order to address certain things. We do not have money, for 
example, to conduct national audits. We have to go to small 
audits and change our priorities, and that leaves the big 
problem that you had focused on.
    Mr. Shays. Well, we have five departments to oversee, and I 
think that we made a decision that we were going to focus on 
HHS, and basically in Labor I feel that we focus the least 
amount on, and there I think that we have to do a lot more this 
year. The advantage is that we have staff now who have worked 
for 2 years, so I feel like we are going to be able to 
accomplish a little bit more, and I really look forward to 
seeing if we can provide a little more oversight on our side, 
and we might be more sympathetic for your position, too, as 
well. We will not ask you to do more, though.
    OK. Ms. Joyner, a question that you wish we had asked or--
--
    Ms. Joyner. Yes. It is a matter of following up on the 
amount of inquiry that you were following earlier, when you 
talked about the different departments and which ones faced the 
most challenges and which were most efficiently run and so 
forth, and trying to work across the different program 
agencies. I was hoping that you would then go ahead and ask 
what could be done to integrate the activities and really 
focusing on a smaller number of issues instead of focusing on 
the broader issue----
    Mr. Shays. I would like to ask you to respond to that 
question. I mean, we get involved in reorganization. The 
committee gets involved in establishing the price, but the 
whole issue of reorganization is an issue that we did not spend 
any time on in the last years, and it is something I am eager 
to get into.
    Ms. Joyner. OK.
    Mr. Shays. So do you want to just give me a taste of what 
you might suggest?
    Ms. Joyner. OK. Yes. But what I think will play--will help 
in this regard is not necessarily the boxes on the chart----
    Mr. Shays. Yes.
    Ms. Joyner [continuing]. But it is, in fact, your 
consultation role with the agencies, as required by the 
Government Performance and Results Act. They are expected to 
come up with agency-wide mission statements and goal statements 
and measures that they will use to track performance toward 
that. I would encourage you to ask them to talk with you about 
their worker protection activities as a whole rather than what 
is OSHA doing, you know, what are each of the other agencies 
doing, too. How are you pulling together all of your resources 
in the whole department toward that particular part of your 
mission, and how might you improve that, and how will you tell 
me next year what result, what progress you made toward it, 
and, similarly, in any other mission.
    Mr. Shays. The individual we would call I would think would 
have a primary responsibility to the under secretaries in each 
of the departments.
    Ms. Joyner. I am not sure how the departments are handling 
their consultation with----
    Mr. Shays. The under secretary in Labor is really the 
management person whose prime responsibility is----
    Mr. Masten. The deputy secretary.
    Mr. Shays. I am sorry. I call it the ``under secretary,'' 
and you call it the ``deputy secretary''?
    Mr. Masten. Right. The under secretary, I believe, was in 
the good old days.
    Mr. Shays. OK. The No. 2 person in the department is the 
one who is usually in charge of the administrative function.
    Mr. Masten. That is correct.
    Mr. Shays. OK. Well, you have whetted our appetite, and 
this is really the purpose for these hearings, and I thank you 
very much, and we look forward again to working with you. And 
it is something that I just think we have a lot of 
opportunities, so I look forward to that.
    I will say to you, my sense is that this Republican 
Congress--it tends to not focus a lot of time and attention in 
a favorable way on the Department of Labor--is going to be a 
little more receptive to making some significant changes 
without feeling like we have to totally reinvent the Department 
of Labor. And I think if that is the case, then we might see 
some real progress.
    Do you have any comment you want to make?
    Mr. Towns. No. Thank you, Mr. Chairman.
    Mr. Shays. Do you feel a lot better having asked that one 
question that you were considering waiting and going home and 
not asking? Do you feel better now?
    Mr. Towns. I feel much better, Mr. Chairman.
    Mr. Shays. Thank you very much. This is a partnership, if 
you do not know, among all of us. Thank you. I will now close 
this hearing.
    [Whereupon, at 4 p.m., the subcommittee was adjourned.]









   OVERSIGHT OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES, AND THE 
  DEPARTMENT OF VETERANS AFFAIRS: MISSION, MANAGEMENT, AND PERFORMANCE

                              ----------                              


                        TUESDAY, MARCH 18, 1997

                  House of Representatives,
                   Subcommittee on Human Resources,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2247, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Snowbarger, Gilman, Pappas, 
and Kucinich.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; Robert Newman, and Marcia Sayer, professional staff 
members; R. Jared Carpenter, clerk; Ron Stroman, minority 
professional staff; and Jean Gosa, minority administrative 
clerk.
    Mr. Shays. I'd like to call this hearing to order and to 
welcome our witnesses and our guests, as well. This hearing 
continues the subcommittee's review of the cabinet departments 
within our oversight jurisdiction. We asked the Inspectors 
General, the IGs, and the General Accounting Office, or GAO, to 
comment on the mission, management, and performance of the 
Department of Health and Human Services and the Department of 
Veterans Affairs.
    Together, these two Departments will spend $417 billion 
next fiscal year--fully one-quarter of total Federal outlays. 
Seventy-seven percent of those outlays, or $320 billion, will 
be spent purchasing or providing health care.
    In the last Congress, this subcommittee held eight hearings 
examining ways to improve the Federal effort against health 
care fraud. Our persistence, particularly that of our 
subcommittee colleague, Mr. Schiff, was rewarded when these 
proposals were included in the Kennedy-Kassebaum Health Care 
Bill signed by the President.
    The most significant of those proposals made fraud against 
all health care providers a Federal criminal offense. 
Consistent with legislative proposals offered by the 
subcommittee's ranking member, Mr. Towns, the new law also 
gives the Department of Justice, the HHS--Health and Human 
Services--IG, and others increased stable funding to wage the 
fight against health care fraud.
    So some progress has been made to improve the performance 
and protect the integrity of Federal health care programs. But, 
as we will hear in today's testimony, HHS and VA programs 
remain vulnerable to waste, mismanagement, and fraud.
    Our subsequent oversight hearings and the focus of our 
consultations with the departments on the implementation of the 
Government Performance and Results Act will be guided to a 
great extent by the views expressed today by our capable 
oversight partners, the Inspectors General of the General 
Accounting Office.
    And so, again, I'd like to welcome our guests and recognize 
our two members, Mr. Snowbarger, who is the vice chairman of 
the subcommittee. Do you have any opening comments?
    Mr. Snowbarger. No. Thanks, Mr. Chairman.
    Mr. Shays. Our gentleman from New Jersey, would you like to 
make a comment?
    Mr. Pappas. No, thank you.
    Mr. Shays. OK. Now, I would note that presently we have no 
member from the minority side here. Mr. Towns, who has been a 
very faithful partner, is still in New York. But this is the 
kind of hearing that, frankly, we work on a bipartisan basis, 
and sometimes I've left this committee and given the gavel to 
Mr. Towns. So we're equal partners in this process. And I'll 
invite the minority counsel to ask questions if there's 
something the minority feels that we need to get on the record.
    So we'll do that. And at this time, we have before us Ms. 
June Gibbs Brown, the Inspector General of the Department of 
Health and Human Services, and Michael Mangano is accompanying 
her; he will not have a statement, but will respond.
    And then Richard Hembra, Assistant Comptroller General for 
Health, Education and Human Services, General Accounting 
Office, accompanied by Marsha Lillie-Blanton, and also Thomas 
G. Dowdal.
    Mr. Dowdal. Dowdal. Right.
    Mr. Shays. Did I say it right?
    Mr. Dowdal. Yes.
    Mr. Shays. OK. What I need to do, as you know, we swear in 
Members of Congress, we swear everybody who comes before the 
committee, and that way we don't have to get into a value 
judgment. So we're just going to do what we always do.
    [Witnesses sworn.]
    Mr. Shays. OK. For the record, all our witnesses have 
responded in the affirmative, and we will start with you, Ms. 
Brown.
    Ms. Brown. Thank you, Mr. Chairman.
    Mr. Shays. And I'm going to ask that you turn that mike on. 
We're going to use the clock only as a basis of knowing how 
long you've spoken. But we want your statement on the record. 
And actually, if I could, two housekeeping things before we 
begin. I would ask unanimous consent that all members of the 
subcommittee be permitted to place any opening statement in the 
record and that the record remain open for 3 days for that 
purpose. Without objection, so ordered.
    And I ask further unanimous consent that all witnesses be 
permitted to include their written statements in the record. 
And without objection, so ordered. We're going to have the 
clock on for 5 minutes and then we'll roll it over again. OK? 
And just do it automatically. Leave it on red for a second, 
just so we keep track. And then flip it again.
    Is the other mike not working? Seriously? You know, before 
we begin, I'd just like to see if it's plugged in here, Jared, 
so----
    Ms. Brown. I think it's the switch.
    Mr. Shays. And then if you could just check. Yes. That is 
on.

 STATEMENTS OF JUNE GIBBS BROWN, INSPECTOR GENERAL, DEPARTMENT 
    OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY MICHAEL F. 
  MANGANO, PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT OF 
    HEALTH AND HUMAN SERVICES; RICHARD L. HEMBRA, ASSISTANT 
 COMPTROLLER GENERAL FOR HEALTH, EDUCATION AND HUMAN SERVICES, 
    GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY MARSHA LILLIE-
 BLANTON, ASSOCIATE DIRECTOR FOR HEALTH SERVICES, QUALITY AND 
PUBLIC HEALTH ISSUES, GENERAL ACCOUNTING OFFICE; AND THOMAS G. 
  DOWDAL, ASSISTANT DIRECTOR FOR HEALTH FINANCING AND PUBLIC 
            HEALTH ISSUES, GENERAL ACCOUNTING OFFICE

    Ms. Brown. Thank you, Mr. Chairman, for the opportunity to 
present this panel what we think are some of the greatest 
challenges to the HHS program outlays.
    Mr. Shays. OK.
    Ms. Brown. I would like to single out for your 
consideration three program areas in Medicare, home health, 
hospice, and durable medical equipment.
    Far and away, the home health benefit is one, of the most 
vulnerable components of the Medicare program. Expenditures 
have increased five-fold. The number of visits has more than 
doubled over the past 6 years, from $3.5 billion, for 
approximately 2 million beneficiaries, in 1990, to $16.9 
billion for 3.7 million beneficiaries, in 1996.
    By comparison, spending in the Medicare program as a whole 
grew 84 percent over that same period. Unfortunately, fraud and 
abuse significantly impact the high growth rates of home 
health. We have now completed audits of eight home health 
agencies in Florida, Pennsylvania, and California. These audits 
revealed error rates for these agencies ranging from 19 to 64 
percent. We found visits that were not reasonable or necessary, 
patients that were not home-bound, services not properly 
authorized by a physician, and bills for services not rendered.
    Preliminary data from additional audits underway in the 
other States indicate similarly high error rates. We also found 
extreme and seemingly unjustifiable variation in services 
rendered by home health agencies, with an average of 33 visits 
per episode for lower cost providers and 102 for higher cost 
agencies. We have recommended more effective reviews of home 
health agencies, case management, adequate funding of fiscal 
intermediaries, and more involvement of beneficiaries through 
explanation of benefits and their own certification for home 
bound status.
    However, the problems are so pervasive that a legislative 
restructuring of Medicare's payment system is called for. 
Options include prospective payment, capitation payments, 
beneficiary cost-sharing, and benefit targeting. We are also 
concerned about the substantial growth in Medicare payments for 
the lengths of stays for patients in hospice care.
    Our 1994 review of Medicare hospice eligibility in Puerto 
Rico disclosed large numbers of hospice beneficiaries who were 
not terminally ill and, therefore, not eligible for the 
benefit. Twenty million dollars was inappropriately paid for 
services rendered to them. In audits of 12 large hospices 
located in Illinois, Florida, Texas and California, we found 
that 65 percent of the patients who were in hospice over 210 
days, or 7 months, did not qualify for the benefit. These 
audits identified $83 million in overpayments.
    A particular vulnerability exists with regard to hospice 
services provided to nursing home residents. We will continue 
to investigate hospice providers who are blatantly enrolling 
Medicare beneficiaries that do not qualify for the benefit. 
HCFA took strong action to resolve the problem in Puerto Rico, 
including decertification of problem providers. So we know that 
strong management action can go a long way to solving this 
problem.
    However, we believe that congressional action is also 
warranted. We recommend legislation to reduce Medicare payments 
after 210 days. This would provide appropriate incentives to 
the hospices to enroll only those beneficiaries who meet 
Medicare guidelines, while still affording them some financial 
protection and resources to care for patients who live longer 
than expected. We also recommend reducing hospice payments for 
patients living in nursing homes to more accurately reflect the 
increment of additional services provided by the hospices to 
them.
    More progress has been made in dealing with this 
problematic area. Particularly, HCFA established four durable 
medical equipment regional carriers, or DMERCs, who specialize 
in making Medicare payments for these items. Unfortunately, we 
continue to see problems in the durable medical equipment. Our 
studies have found overutilization of wound care supplies, 
overutilization and false billing of incontinence supplies, 
fraudulent billing for body jackets, and excessive payments for 
oxygen services, nebulizer drugs and interim nutrition therapy. 
Like the hospice program, problems are particularly pronounced 
in a nursing home setting.
    I am happy to report that in addition to discovering 
problems, we are also developing new and effective ways to deal 
with them. One good example of this is the problem with 
incontinence supplies. And I have a chart here which I would 
like to call your attention to. Our exposure of these billing 
abuses couple with a coordinated national investigation 
involving more than 20 separate cases in a concentrated effort 
by the Health Care Financing Administration's durable medical 
equipment carriers, has turned the escalated reimbursements 
downward. By the end of fiscal year 1995, the abusive practices 
we identified had all but disappeared, and Medicare is now 
saving more than $104 million per year as a result.
    While such administrative remedies can be effective, we 
believe that fundamental reforms are also needed. We recommend 
legislation to authorize competitive bidding, to make it easier 
for the Health Care Financing Administration to reduce 
inherently unreasonable payment levels, and to fold payments 
for some supplies into the payments made to nursing homes.
    Home health, hospice and medical equipment and supplies are 
serious vulnerabilities. We have other concerns, as well, and 
we continue to find false bills for lab services, excessive 
prices for prescription drugs, and inappropriate billing of 
hospital outpatient services, for example. Once again, I 
appreciate the opportunity to appear before you today and share 
with you some of our concerns related to waste, fraud and abuse 
in HHS programs.
    I'd be happy to respond to any questions.
    [The prepared statement of Ms. Brown follows:]
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    Mr. Shays. Thank you, Ms. Brown. Mr. Hembra.
    Mr. Hembra. For many years, GAO, the IG, and others have 
looked at individual HHS programs. In fact, I think it would be 
pretty clear that you could structure a given hearing and spend 
hours speaking to any particular program. Instead, today, I'd 
like to elevate the discussion and focus on three interrelated 
challenges that we believe face HHS. These are issues that get 
at the core of how HHS manages its programs, and they transcend 
any individual agency within HHS or its programs. We also 
believe that if HHS can successfully meet these challenges, 
it's going to go a long way to improve its efficiency and 
effectiveness.
    Let me begin with the first challenge that we see, and that 
I would put under the ``umbrella'' of program results. Like 
many other Federal organizations, HHS has a long history of 
having problems with accountability, the effectiveness of its 
coordination, how it provides effective oversight.
    I don't find this surprising. If you look at the 
Department, it's one of the largest in the Federal Government. 
Last year, its budget was about $320 billion. Next year it 
could climb to $375 billion. It has 11 key operating divisions. 
It has 300 programs. It has 60,000 employees. It has numerous 
contractors it relies on. It has tens of thousands of grantees 
it looks to. And, it has partnerships it has formed with other 
Federal Government agencies, with the State governments and 
local jurisdictions.
    Expressing the frustration that the Congress has had with 
management, in general, a few years ago, Congress put into 
place a number of pieces of legislation, such as the Government 
Performance and Results Act, the Government Management Review 
Act, the Chief Financial Officer's Act. And all of these had 
one thing in common. They all focused the spotlight on 
instilling discipline in how Federal departments and agencies 
managed their set of responsibilities.
    With GPRA, we've got an opportunity now, for HHS to define 
a cohesive mission, develop a 5-year strategic plan, set into 
place specific performance goals, and identify ways in which to 
adequately and accurately measure how the department is 
carrying out its responsibilities. With regard to GPRA, I think 
we would share the view that the next 6 months are quite 
critical.
    By the end of this fiscal year, HHS, along with other 
Federal Government agencies, have to put together that 5-year 
strategic plan, and it has to begin to position itself to 
determine whether or not its programs are doing what they were 
intended to do. So we have a very challenging period ahead of 
us with regard to this Department. The second issue has to do 
with having timely and reliable information. The Paperwork 
Reduction Act, the Clinger-Cohen Act all set in place an 
information framework that would support a performance-based 
work environment.
    This is very appropriate, because, once again, HHS has long 
managed with incomplete and unreliable information. And not to 
mention the fact that they have had to rely, because of the 
size and the way that it carries out its responsibilities, on 
numerous other partners to provide it with information on how 
its programs are working.
    I think welfare reform is a classic example. It brings with 
it a new set of requirements for HHS. It demands accurate and 
timely information from the States on how they're carrying out 
their welfare reform responsibilities. And we're talking about, 
in recent years, one of the most major social paradigm shifts 
in how we deal with supporting low income families.
    The last issue, which ties back to the Inspector General's 
comments, focus on vulnerable programs. I think it is unfair 
for a department like HHS to look to others such as GAO, the 
Inspector General, the Office of Management and Budget, to 
identify for it where its program vulnerabilities lie. And this 
is certainly the case with Medicare. It's a classic example, 
that, even though HHS and HCFA have known for decades of 
problems within the Medicare program, it wasn't until several 
years ago that GAO and others identified Medicare as very high-
risk, and began to put in place a set of actions to get HHS and 
HCFA better focused on how to deal with the problems associated 
with Medicare.
    With regard to vulnerable programs, we can't just simply 
look at something like Medicare, that consumes a large part of 
HHS' budget, and say, ``That is the vulnerable program.'' I 
think this is a department that has an opportunity to 
constantly look at its programs, be proactive, be vigilant in 
saying to itself, ``Where do our vulnerabilities lie and what 
do we need to do about them?''
    And I think this all ties back to the tools that are now 
available through GPRA, through GMPA, through CFO and the CIO 
legislation, to give----
    Mr. Shays. You speak in tongues, sir.
    Mr. Hembra. Yes. I do. To give this Department an 
opportunity to begin to live up to the American public's 
expectation and function in a more efficient and effective 
manner. And with that, I would be happy to respond to any 
questions.
    [The prepared statement of Mr. Hembra follows:]
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    Mr. Shays. Thank you. We've been joined by Mr. Gilman, the 
chairman of the International Relations Committee, as well as 
Mr. Kucinich. And what I'm going to do--I'm going to yield my 
time to Mr. Gilman, because I know he has other places to go. 
I'm particularly nice to this gentleman, because when I was 
first elected, he was, even then, a seasoned veteran, and he 
was very nice to me. So----
    Mr. Gilman. Thank you, Mr. Chairman. You've been very nice 
to all of us, to take care of all of our problems. And I want 
to commend you, Chairman Shays, for your diligent work, and for 
the opportunity to review, learn, and discuss the important 
issues confronting a number of our Government agencies.
    And I thank our panelists for being here today, to help us 
better understand where we're going and why. We are all 
concerned, of course, as we try to reduce and eliminate 
unneeded Federal programs, to try to reduce the Federal 
bureaucracy and Federal spending, and cutting regulatory red 
tape, and returning some common sense to the numerous 
Government regulations out there.
    I particularly welcome the opportunity for this committee 
to hear testimony from the General Accounting Office and the 
Office of the Inspector General concerning the budget and 
operations of the Veterans Administration. And I realize that 
panel hasn't testified yet.
    And I regret I'm not going to be able to stand by, but my 
assistant, Todd Berger, will be here, and will be taking some 
notes. And I look forward to reading your testimony. Like many 
other Government agencies, the VA is reacting to efforts to 
balance the budget by finding new ways to improve efficiency.
    And as many of you are aware, the VA has been involved in a 
Nation-wide relocation of its resources. And that's being done, 
supposedly, to make certain that health care funds are going to 
be distributed in the most equitable manner between the various 
regions. However, under the plan, VA facilities in the 
Northeast are being particularly hard hit.
    VA officials have assured me that no veteran is going to be 
denied future care despite reductions in funding. However, many 
of us, particularly those of us in the Northeast, remain 
skeptical with regard to that claim. And while we welcome the 
goal of greater efficiency, I have concerns that the veterans' 
needs are going to fall victim to the goal, particularly in the 
area of veterans' health care.
    And at a time when our veterans population is growing 
older, efficiency is an administrative, not a medical concept, 
and it is my chief concern that in the future, under this 
evolving VERA plan, a decision to refuse treatment to a veteran 
will be a medical judgment, not an efficiency decision.
    It's a simple fact that many of our veterans in the 
Northeast fall into special categories: the mentally ill, the 
homeless, alcoholics, drug abusers, and spinal cord injured. 
These veterans clearly have conditions which are neither easily 
treated on an outpatient basis nor more efficient to treat in 
such outpatient conditions.
    However, they are still deserving of basic triage rights. 
And I hope that in the future, these veterans are going to be 
allowed to have their status and place in our VA health system 
be determined by a physician, through a medical examination, 
and not through any administrative evaluation of their 
application before such an examination. Medical judgment on 
treating these future cases should never be superseded by the 
goal of efficiency. To do so would be nothing short of the 
beginning of the breakdown in the relationship between our 
national Government and our veterans.
    So Mr. Chairman, I look forward to further testimony and 
working with you on this serious problem. And with your 
permission, I'm going to leave several questions to be answered 
as part of the record. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. Mr. Snowbarger.
    Mr. Snowbarger. Thank you, Mr. Chairman. I think my 
questions are for Mr. Hembra. You were referring to vulnerable 
programs. I presume you mean programs that are vulnerable to 
fraud and abuse. Is that an accurate statement? Or----
    Mr. Hembra. I think the common definition that we've used 
in the Government has to do with fraud, waste, and abuse. I'm 
not sure that we should necessarily hold ourselves to that 
definition. It's one thing to identify a key program and put it 
on a high risk list and say we're going to focus a lot of 
attention on that. But within the Department of HHS, I think 
there are other----
    Mr. Shays. Excuse me. Can I have you put the mike a little 
closer to you? Yes.
    Mr. Hembra. I think within HHS, there are clearly other 
programs worth looking at for different reasons. And I think 
you have to extend that to the beneficiaries of the programs. 
And a couple that come to my mind--one is Head Start. Head 
Start, right now, is about a $3.5 billion program. It has over 
1,400 grantees that it looks to to administer the program. It 
provides benefits to young children around 4 years of age. It's 
serving a population, I think, of over 800,000. GAO and the 
Inspector General have found problems with that program. To me, 
that's one that warrants closer scrutiny by HHS and the 
Administration of Children and Families.
    I think another area that offers vulnerability is----
    Mr. Snowbarger. Can I interrupt?
    Mr. Hembra. Yes.
    Mr. Snowbarger. I'm not quite sure I understand why you 
were suggesting that Head Start be looked at, and for what 
reason.
    Mr. Hembra. Well, I think because of the amount of money 
that's going into the program, because of the number of 
grantees that the money is flowing into to provide services. I 
think because of the vulnerable population served, that being a 
young children population, and past problems that HHS and ACF 
have had with how the grantees have administered those 
programs, problems that have surfaced in the day-to-day 
operation of the Head Start centers, and what has been 
historically problems with getting corrective action taken.
    Mr. Snowbarger. Are these accounting problems? I mean, the 
ability of the agency to determine whether or not the money has 
been spent properly, maybe not in a fraudulent way, but----
    Mr. Hembra. I think it goes beyond just how the money is 
being spent, although it certainly ties to that. But when you 
look at--you're looking at problems that could affect the 
health and safety of children--the adequacy of the facilities 
and things of that nature. And it's for those reasons that I 
would suggest that you can't just simply look to a large dollar 
program and say, ``That's the one that, perhaps, is most 
vulnerable.''
    Mr. Snowbarger. Could you identify for us, maybe, specific 
vulnerabilities that would lead you to focus on home health, 
nursing homes, medical equipment, supplies, hospice, the 
programs that we've been talking about this morning?
    Mr. Hembra. Yes. I think we can certainly do that. In fact, 
maybe I'll ask Mr. Dowdal if he could respond to that.
    Mr. Dowdal. There's been a lot of growth in the number of 
suppliers of services in that area. There's been lots of 
identified problems by both the Inspector General's office and 
our office related to medical supplies being billed by the 
agencies. There's been tremendous growth in the number of 
visits per person who receives home health care. And the growth 
in the number of home health agencies has been very high.
    There are a lot of questions about whether the services 
that are being provided are covered by Medicare. There's many 
other issues like that surrounding all three of those areas--
home health, SNFs, and durable medical equipment.
    Mr. Snowbarger. To what do you attribute the growing number 
of suppliers, growing number of visits per patient? Why do we 
see all those things going up so much?
    Mr. Dowdal. Some of the reason is that once people figure 
out there's a way they can get a lot of money out of a program, 
then other people find out about it and want to get into that 
same action. And you end up with a lot more agencies or 
suppliers. And a lot of them are not as legitimate as they're 
supposed to be. Now, there's been some steps made to try to 
identify ways of making sure that the suppliers that get into 
the program are legitimate and have a real business and are not 
just some fly by night. But there's still that problem going 
on.
    Mr. Snowbarger. Has the growth in this field maybe 
outstripped the agency's ability to control and account for how 
they're spending----
    Mr. Dowdal. There was a combination of factors, that was 
part of the problem, too. In fact, over the period from 1989 to 
1996, the money available to do the reviews and the checking on 
that actually decreased. And that led to less ability to review 
claims. For example, home health agencies in 1987--they were 
looking at approximately 60 percent of the claims that came in 
to make sure that they were valid.
    Today, they're looking at less than 3 percent. Well, last 
year they were. Now, the Kassebaum-Kennedy bill did get us some 
additional money, so we expect that the percentage will go up 
again, but not anywhere near as high as it was back in the mid 
eighties.
    Mr. Snowbarger. Are these contracts for services and 
supplies currently competitively bid? I think one of you 
mentioned maybe a need to see it goes to competitive bid--or, 
suggested that.
    Mr. Dowdal. Currently, their Medicare doesn't competitively 
bid for that. There is some demonstration programs that they're 
getting started--one of them in the durable medical equipment 
area down in--I believe it's South Carolina. We have discussed 
in the past the issues related to getting competitive bids, at 
least on some kinds of items where there--you know, you don't 
have to worry about the big difference in quality.
    You know, where you get your Depends--it's not going to 
matter which company, because they're all going to be giving 
you the same thing. Items like that. We think there's 
opportunities for at least trying competitive bidding.
    Mr. Snowbarger. Ms. Brown. I saw you reaching for the 
microphone.
    Ms. Brown. Yes.
    Mr. Snowbarger. OK. Mike.
    Mr. Mangano. Actually, the only one of these three 
industries that would be subject to--that potentially could be 
subject to competitive bidding, would be the durable medical 
equipment industry, itself. Right now, the Health Care 
Financing Administration does not have the opportunity to 
wholesale competitively bid. Nor do they have the opportunity 
to reduce prices when they're inherently unreasonable.
    HCFA is required to go through a regulatory process, which 
can take 2 to 4 years, to reduce those prices. In the meantime, 
they're losing millions of dollars. These are two kinds of 
abilities that any insurance company in this business has. We 
think it's particularly a difficult problem when you get into 
nursing homes. Durable medical equipment companies basically 
market their goods to nursing homes because there are a lot of 
patients there.
    When Ms. Brown was showing you that chart on incontinence 
supplies, all of that $100 million that was lost each year was 
because of things that were billed that should never have been 
billed. These were incontinence supplies that were billed when 
they weren't really in connection with a prosthetic device as 
is required by the regulations on medical equipment.
    Most of these billings were in areas of nursing homes, 
where they could go in and sell things. Mr. Chairman you may 
remember about a year ago when Ms. Brown came in and showed a 
female urinary collection pouch. This was an incontinence 
supply that was being billed, when actually what was being 
delivered to the nursing homes were adult diapers. That's the 
kind of abuse that occurs here.
    We think that HCFA ought to have the ability to 
competitively bid, reduce inherently unreasonable costs and, in 
the case of nursing homes, consolidate the billing for 
supplies. The nursing home is going to bill for supplies, not 
the individual DME suppliers who are billing for each 
individual beneficiary.
    Mr. Snowbarger. What's been the success of HHS in following 
up on things that are improperly billed in terms of getting 
return of the money and that type of thing?
    Mr. Mangano. Well, I think we've got a real good record in 
capturing people when they do bill that way. But you have to 
understand that we're dealing on an exception basis. That is, 
we go out there and find out when somebody tells us that 
somebody is inappropriately billing, or prospectively, when we 
go in and we see billings having an extraordinary increase in 
one particular year.
    But just to give you an idea, the Medicare program last 
year had 800 million claims for Medicare Part B, of which 
durable medical equipment would be a part of. It's impossible 
for us to try and catch all of these abuses. Once we do catch 
them, though, we do get good cooperation from the U.S. 
attorneys to apply damages to these cases. But I also want to 
give you the other side of that.
    Many of these companies are small, and the money is gone by 
the time we get around to court cases. One particular case 
would be a typical example of a home health agency in which we 
found that 70 percent of the claims were erroneous. But they 
were basically a holding company for a lot of subcontractors. 
By the time we caught up with them, they went Chapter 11 and 
there was no more money to be gotten back for Uncle Sam.
    Mr. Snowbarger. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman and members 
of the committee. I appreciate this opportunity to ask some 
questions. And there's an area that I'd like to focus in on. As 
a member of the Ohio Senate before I came to Congress, I was 
responsible for helping to promote a rather wide-ranging 
inspection of the Government's policies with respect to 
Medicare HMOs.
    And our State Senate Health Committee actually held a dozen 
hearings on the policies of HMOs in the State of Ohio. And 
those hearings produced substantial evidence of HMOs attempting 
to deny care merely to promote their own profits at the expense 
of the health of their patients. I see in today's front page of 
the New York Times that we have a national problem which 
relates to HMOs not--or constructively denying the appeal 
rights of millions of elderly Americans.
    We understand. I mean, all of us in politics understand. 
There's only one reason that they would do it, because the way 
the system is set up, the less money the HMOs spend, the more 
money they make.
    Now, that being the case, I have just a few questions. 
First of all, the Department, I understand, has been looking at 
this, but have you done--to Ms. Brown--have you done any 
investigation of the number of appeals that have been required, 
the number of appeals that have been denied, and have you come 
to a conclusion about how many people may have tried to appeal, 
but couldn't because of the way the system is set up?
    Ms. Brown. Yes, sir. We just finished four reports of 
different aspects of the--of this particular area--and found 
some of the things that were reported in the morning paper, 
including the fact that most people didn't realize they had 
appeal rights; therefore, didn't exercise them, or they found 
that it was very difficult to exercise those rights.
    These weren't investigations which are, again, into 
criminal or civil matters. But we have done a lot of background 
work to let us know what that environment is so we could 
continue working in there.
    Mr. Kucinich. How would you, Mr. Chairman--how would the 
Department let the millions of Americans that are in this 
program know about their appeal rights? Do you send them 
notices? What do you do?
    Mr. Mangano. Yes. The primary way that the Medicare program 
lets its beneficiaries know about that, is through the medical 
handbook that they issue each year. When we had completed these 
reviews that Ms. Brown just mentioned, we had recommended that 
the Health Care Financing Administration take a more vigorous 
approach to letting the beneficiaries know about their appeal 
rights.
    They have agreed to make changes in their handbook, as well 
as to put bulletins out to beneficiaries to let them know what 
their appeal rights are. One of the difficulties here is that, 
in an HMO, they get one fee to provide all the health care 
needs for the Medicare beneficiaries. And a lot of this is the 
responsibility of the HMO to do it. So HCFA's role should be 
two fold. One, to let its beneficiaries know what its rights 
are. And when those rights have been violated, to intervene at 
that point.
    Mr. Kucinich. Mr. Chairman, I would suggest that the 
Department has more of a responsibility than what has been 
taken here. Because this is--these are taxpayers' moneys. That 
money does not belong to the HMOs, I will suggest. These are 
Federal tax dollars. And my question to you is: what are you 
doing to make sure people are aware of their rights to appeal?
    Because, my background is also in committees, and I can 
tell you that a single shot theory of committee, like putting 
it into a handbook is not adequate. And it seems to me that you 
ought to have some structured series of messages to communicate 
to this national population of elderly so that they will know, 
so that it's common knowledge that if you are not sure of what 
your rights are, that you can refer to--that you can be 
repeatedly advised as to what your rights are so they can be 
exercised.
    Mr. Mangano. Yes.
    Mr. Kucinich. Now, I mean, what are you--you mentioned the 
handbook. You mentioned some bulletins. But what----
    Mr. Mangano. Yes. We're doing even more than that. One of 
the alliances that we formed in our office was in working with 
the Administration on Aging, which has a network of ombudsmen 
across the country that deal with all matters relating to 
senior citizens, particularly in nursing homes.
    One of the things we're doing is passing on to them the 
kinds of things we're finding out as problems is our reviews. 
They're putting forth forums in a variety of parts of the 
country to let the public know about that.
    We're also working with the AARP. Ms. Brown was interviewed 
for an article for their publication that will be coming up 
very soon. We're going to be supplying that publication with a 
lot of do's and don't's, things that beneficiaries ought to be 
careful about. And when you see this problem, let our office 
know about it or let the Medicare program know about it, as 
well.
    Mr. Kucinich. Are you prepared to cancel the contracts of 
any HMOs that are aggressively refusing the appeal rights of 
the elderly who are in this program?
    Mr. Mangano. OK. Of course, we don't have any program 
responsibility over the Medicare program. But if we found that 
an individual HMO was denying a person's rights, we would take 
action against them. We would recommend that the Medicare 
program take actions in terms of disallowances and excluding 
them from the program.
    Mr. Kucinich. One final question, Mr. Chairman. Have you--
--
    Mr. Shays. The gentleman has 10 minutes, so if you----
    Mr. Kucinich. OK. Great. Well, thank you, Mr. Chairman. 
Have you any information of a single HMO in America which has 
been--whose contract has been canceled because of their 
practices in dealing with their elderly patients?
    Mr. Mangano. I am aware of several that have been canceled. 
In fact, I can think of one or two that the OIG got involved in 
in which we did initial audits and investigations in the 
Medicare program and canceled them from their program.
    Mr. Kucinich. Are you going--will the Department followup--
and maybe the Inspector would say this--will the Department 
followup on the court order that was issued by Judge Marquez, 
setting the July 1st deadline? He gave certain--a certain 
prescription, if you will, for remedying what he felt were some 
defects in the administration of the program. Are you intending 
to followup on that or are you going to appeal the Judge's 
ruling?
    Ms. Brown. Well, we have had several meetings with the 
Department regarding our findings. Managed care in Medicare is 
a fairly new area. All of the incentives are quite different 
than the incentives were for people who had basically--too much 
money was being paid out. Because of the nature of HMOs, we 
have a whole new set of incentives here for people to take 
advantage of. We have the authority for any kind of patient 
abuse or neglect, which could be one of the concerns here--in 
neglect--to have them eliminated from the program.
    We've had quite a few meetings, but, I don't know exactly 
what they're going to do on the Judge's decision yet. But the 
Department is very concerned about it. We have done quite a bit 
of work in the area so we can bring the Secretary up to date on 
what's actually happening out there. I'd be glad to supply that 
for the record when I find out more about that particular 
decision.
    Mr. Kucinich. I think it would be helpful for at least this 
Member. And perhaps the others would agree.
    Ms. Brown. OK.
    Mr. Kucinich. For us to get some information about what the 
Department intends to do to--in a comprehensive way--to be 
certain that anyone whose--finds their services denied, reduced 
or terminated, is able to appeal that, that we would be fully 
informed as to what's being done to make sure that all the 
participants, the millions of participants in this program, 
will have their rights defended.
    Because what's happening, Mr. Chairman, is that there is an 
active marketing campaign to draw millions and millions more of 
elderly Americans into this program. And the people who are 
doing the marketing could care less about providing care to the 
elderly. There's a transition from health as a right in a 
democratic society to health as a market driven commodity.
    And what I believe is we need the Department to be more 
than just a casual observer in this, we need you to be the 
umpires. And if somebody does something and they're out, they 
ought to be out. And you're the only ones who can do that for 
the American people. And if we are going to continue to see 
this transit to managed care paradigm, where HMO Medicare has 
more and more patients--and they're predicting that the growth 
may triple within the next 10 years--then, you know, the 
responses that we receive in committees like this have to be 
more substantial and definitive about the rights which patients 
have.
    Because it's the articulation of those rights which will 
make the programs that you are involved in real. And I suggest 
that perhaps it's time for a patients' bill of rights codified, 
so that we are not in a position where we have to learn of 
elderly people who have every right to decent health care being 
denied it or being refused the information which would enable 
them to get better care. This is the other side of the issue 
the President raised about the gag order.
    Mr. Shays. Yes.
    Mr. Kucinich. It's one thing for a physician to be told 
that he cannot give the information to his patient so that his 
or her patient could proceed to get better health care and 
exercise more options, and it's another thing--and it's still 
another thing to constructively deny that person an opportunity 
to get good health care because they don't even know what their 
appeal rights are. Thank you.
    Mr. Shays. I thank the gentleman. Mr. Pappas.
    Mr. Pappas. Thank you, Mr. Chairman. Thank you folks for 
being here. I have two unrelated questions--unrelated to each 
other and unrelated to what we've been hearing you folks talk 
about so far. But I read an article in the February 27, 1997, 
issue of the Washington Times in which the point was made that 
the U.S. Health Care Financing Administration, which is a part 
of the Department of Health and Human Services, will pay some 
$400 million to 41 New York hospitals simply to train 2,000 
fewer medical residents, which would be a 20 percent decrease. 
Is that true?
    Mr. Mangano. Yes, it is.
    Ms. Brown. Yes.
    Mr. Pappas. Why are we doing that when market forces, I 
think, should be the ones to dictate how many people enter a 
particular field?
    Mr. Mangano. Of course, that was not our decision. That was 
the decision of the Health Care Financing Administration. 
Basically what they were responding to is the growing notion, 
as people are aware, that there is a glut of physicians in this 
country, and there are too many in training to meet the market 
needs. So what HCFA basically did was said, ``We'll help 
downsize the number of physicians by paying teaching hospitals 
not to train them.''
    So I believe that particular program will last--it's either 
4 to 6 years in which they'll be reducing the number of 
physicians by 20 percent in New York. And they're giving an 
incentive to the hospital to reduce the number of residents and 
interns in training by paying the hospital as though they were 
there.
    Mr. Pappas. How long has this been going on?
    Mr. Mangano. This was just announced in February.
    Mr. Pappas. OK. And the figure is approximately $400 
million?
    Mr. Mangano. That is correct.
    Mr. Pappas. Is that just for 41 New York hospitals?
    Mr. Mangano. That is correct.
    Mr. Pappas. And is the $400 million just for 1 year or is 
it for that 4- to 6-year period?
    Mr. Mangano. I believe it is for the entire period.
    Mr. Pappas. And what about other hospitals in other parts 
of the country?
    Mr. Mangano. Of course, as soon as they announced this 
program, hospitals in other parts of the country have asked to 
get in on this. HCFA has--this is under their demonstration 
authority. They're demonstrating whether this is a good 
approach or not a good approach. So the position of HCFA is 
they have one State that they're working with. And that's the 
State of New York. And usually under these demonstration 
projects, if it works out well there, they may decide to expand 
it to other States. But they may not.
    Mr. Pappas. Mr. Chairman, I would just say that I would 
question whether this is an advisable expenditure for us to be 
making. I certainly would like your comments. I was----
    Mr. Shays. Well, if the gentleman would yield?
    Mr. Pappas. Sure.
    Mr. Shays. I mean, the purpose of this hearing is not to 
delve too deeply into any particular issue, but to just kind of 
whet our appetite and yours and know where you're coming from, 
and for us to then decide how we want to allocate our very 
scarce resources. And this may be an area that we need to look 
at.
    Mr. Pappas. OK.
    Mr. Hembra. Mr. Pappas, I might add something. We need to 
understand--for years and years and years, teaching hospitals 
were basically reimbursed with additional payments--both 
Medicare and Medicaid--to teach physicians as part of their set 
of responsibilities relative to the Medicare/Medicaid 
population that were treated in those facilities. And I think 
that amount of money is--off the top of my head--something like 
about $6 billion a year that go toward graduate medical 
education payments.
    And this begins to completely move back, recognizing what 
is an overabundance of physicians. And from what we have read--
we have not looked closely at it, because it's a new policy 
change--but the way in which the media has covered it, it's not 
very clear whether this has been well-thought-through by HHS 
and HCFA.
    Mr. Pappas. I would----
    Ms. Lillie-Blanton. Could I also respond?
    Mr. Pappas. Yes. Sure.
    Ms. Lillie-Blanton. Because I think what's important, as 
you've mentioned, is that we really are faced with an 
oversupply of physicians in this country. And in all fairness 
to HCFA, I would say the attempt was, how do you begin to 
reduce that supply? But we've got a broader issue, I would say, 
to look at. And that is the training of foreign physicians, 
which, in many cases, have benefited from those resources and 
the dollars.
    We also have to realize that many of those foreign 
physicians who have trained to those dollars have been 
providing care to medically underserved areas. So as we cut the 
supply of physicians in one area, we've got to look at its 
potential consequences for another area. And then I would say, 
within HHS, we need to look at the multiple health professions 
development initiatives, some of which actually is continuing 
to provide funding for the training of new providers.
    And so, while on one level we realize we've got an 
oversupply of providers, on another level we know we have 
problems in the distribution of providers. And so I would say 
that, on the issue of human resources development, it is a 
broader issue from a policy perspective for us to look at how 
this Nation should handle its problems of human resources in 
health professions.
    Mr. Pappas. I would appreciate--not here--but some 
additional information other than what I have read in the 
newspaper about that particular program. So if you could supply 
that for me--whoever--I would appreciate it. Point other than 
trying to verify if this is the case, the point I will just 
mention and then I'll move on is, I question whether this is an 
appropriate role for HHS and the cost.
    These are comments. The other issue is one that I dealt 
with in another meeting of the subcommittee on another subject, 
where we have representatives of another department--USDA--and 
three agencies that are part of HHS--FDA, the National 
Institutes of Health, and the Center for Disease Control. We're 
talking about an issue of--I guess it's--I'll just forget the 
technical term--mad cow disease. What is the technical term?
    Do you remember? OK. It's easy for you to say. And the 
question I asked the three agencies from one department and 
another department all involved in research--and I guess, just 
a comment that I felt it was--I was surprised that there was 
not one of these agencies that was designated or agreed upon as 
the ``lead agency.'' And I would just encourage you folks to 
encourage that as just a policy that, evidently, has not been 
instituted.
    Because, if we're looking for greater accountability, as, I 
think, the taxpayers require, and, certainly, we want, and I'm 
sure you want, as well. I think that as a matter of course, 
there should be a lead agency involved in any kind of a joint 
research project or joint project, because if something goes 
wrong, there's going to be a lot of finger pointing. And it 
doesn't make it easier for folks like yourselves, in 
particular. Thank you, Mr. Chairman.
    Mr. Shays. Thank the gentleman. For someone who likes to 
get at waste, fraud, and abuse, HHS is a candy store. And for 
just a variety of reasons. And it's not a Republican-Democrat 
issue. I'm just looking and thinking how we could use our 
entire committee staff just to look at one area. You have the 
Administration for Children and Families. You have the 
Administration on Aging. And you have the Health Care Financing 
Administration (HCFA), Agency for Health Care Policy and 
Research, Center for Disease Control, Agency for Toxic 
Substances, Disease Registry, Food and Drug Administration 
(FDA), Health Resource and Service Administration, Indian 
Health Services--I mean, I'm just thinking how we could spend 
so much time dealing with the pathetic success of health care 
in Indian reservations--National Institutes of Health, 
Substance Abuse and Mental Health Service Administration.
    I'm just wondering, when you look at a department so large 
I think when you added Social Security in with it there, the 
budget was larger than the gross domestic product of Canada. 
I'm not quite sure that's right, now that I've said it, but 
close to it. I'm just curious how you all decide which 
wrongdoing, what area of fraud you're going to get at, what 
area of waste you're going to get at, given that you could 
almost just close your eyes and do that? Is that what you do--
close your eyes and just kind of put your finger down, and say, 
``OK. This is it?''
    Ms. Brown. No, sir. And it's a pretty complicated process. 
Of course, we're constantly doing various research to see where 
there are anomalies in the payment schemes that are going on. 
And that often points, as it did in the incontinence supplies 
chart where we have a sudden spurt, and it isn't accountable 
because of some new disease or increase in patient population 
or something of that nature.
    We're constantly looking at all of those to see whether or 
not there is some new scheme that has emerged that has allowed 
people to over bill certain programs. We look at all of the HHS 
programs, actually. But now that the new health legislation has 
passed, we do have a limitation we didn't have before. We have 
increased resources as a result of that, all of those resources 
that were voted in for health care have to be used just on 
health care.
    Mr. Shays. Right.
    Ms. Brown. And that's about 70 percent of our budget. It's 
about 30 percent, then, that is used for all the other 
programs. So for the first year, we're having to track very 
carefully exactly how much goes into each area. So that's one 
constraint.
    Mr. Hembra. From GAO's standpoint, we have a pretty 
disciplined approach to planning strategically and in a more 
tactical fashion. As you're well aware, Mr. Chairman, a good 
part of that is working with the committees on both the House 
and Senate, to ensure that the work that we do best fits the 
needs of the authorization, the appropriations, the budget, and 
the oversight committees.
    Mr. Shays. Does GAO--is it more legislatively directed in 
that sense? Let me ask it this way: does the Inspector 
General's office have a little freer hand in what it looks at? 
And is the GAO a little more guided by congressional areas of 
focus?
    Mr. Hembra. I'd like to let June speak first to this.
    Ms. Brown. Yes. We have independence that has been provided 
to us under the IG Act. So that, the Department or Congress--
nobody can really tell us how to use our resources. And I have 
the responsibility, then. We have a long planning process. We 
have a strategic plan we go through. We look at all the 
emerging areas like home health and some of the new effects on 
nursing homes and hospice, when laws change and so forth.
    Mr. Shays. But you're open to suggestions as well as 
requests?
    Ms. Brown. Absolutely.
    Mr. Shays. And sometimes you do work that's just in 
response to requests you, obviously, then, had to have deemed 
were necessary areas.
    Ms. Brown. Yes. But we encourage both Department officials 
and Members of Congress, if they are aware of any problem area, 
to let us know. There have been a few cases where we've had to 
turn that down because the priority was lower.
    Mr. Shays. Right.
    Ms. Brown. And we have that authority. But of course, 
that's where we get a lot of the good leads that would show us 
where problems----
    Mr. Shays. Does the GAO?
    Mr. Hembra. Yes. From a GAO standpoint, I think currently, 
if you look across GAO, probably about 85 percent of our work 
is what we call congressionally directed.
    Mr. Shays. Gotcha.
    Mr. Hembra. Either through legislative mandates or through 
specific requests that come in from committees or even 
individual Members.
    Mr. Shays. And some of those legislative mandates are 
continual, ad infinitum? They are annual requirements that you 
have to look at?
    Mr. Hembra. They are. But they're much less today than they 
were in the past. We've worked pretty successfully with the 
leadership on both the House and Senate side to eliminate a 
number of those. Of course, our resource base has dropped 
considerably over the last couple years. But we do have 
flexibility. I don't want to suggest that we sit back and wait 
for someone from the Hill to ask us to do a job.
    Mr. Shays. No. If you see an area that you want to look at, 
you can look at it?
    Mr. Hembra. Yes. Within the resource constraints. 
Absolutely.
    Mr. Shays. Right.
    Mr. Hembra. And we do that quite a lot.
    Mr. Shays. OK. In terms of the presentation of the 
Inspector General focus on home care, medical equipment and 
supplies and hospice benefits, let me just get a sense of this. 
We had fascinating hearings on the whole issue of medical 
supplies and pricing. And let me just say, I made a reference 
to it in my opening statement.
    This committee takes tremendous pride in Title II of the 
health care reform bill, which had three titles. Title II was 
the whole issue of getting at health care fraud, making health 
care fraud a Federal offense for all payers, private and 
public. And that was the work of both Jay Owens, the Inspector 
General, as well as the administration.
    But that was a big plus. What we didn't do was see any 
movement toward legislation that we developed based on our 
hearings, dealing with the repricing of durable goods. I want 
to just understand if the system is still as crazy as I recall 
it, that, basically, we have rules and regulations that we the 
Government and we the buyers have to follow, that basically 
outline what we will pay for a good and service, and that if it 
is underpriced, we end up with no sellers.
    In other words, there's no law that requires a seller to 
buy if we aren't paying a market rate. If we pay an above-
market rate, we obviously have a lot of sellers, but we don't 
have--but we have the requirement that we have to buy at that 
price unless we go through a process to refigure the pricing 
mechanism. Now, this is what I want to go through.
    Now, basically, we follow section 1842BA of the Social 
Security Act, and we have to determine that it's grossly 
excessive or grossly deficient--our pricing. Is that correct?
    Ms. Brown. Yes, sir.
    Mr. Dowdal. Yes.
    Mr. Shays. So if it's very excessive or very deficient, 
technically, we don't meet the test. We can overpay if its very 
excessive and very deficient, but we can't reprice unless it's 
grossly deficient?
    Ms. Brown. Yes. And there's a long process that you have to 
go through.
    Mr. Shays. Yes.
    Ms. Brown. The same as changing any regulatory matters, 
which takes 2 to 3 years. So I know you've held hearings in the 
past where we've presented some of this data and have brought 
the public's attention to it, which I certainly applaud. 
Because we need some mechanisms for adjusting prices in such a 
fast changing market as this. We need the authority to do 
competitive bidding when that's appropriate as well.
    Mr. Shays. Yes. My recollection was confirmed, that we did 
issue a report on this, but we need to followup. Does GAO want 
to respond to this? Did you all get into this?
    Mr. Dowdal. Yes. We've done a number of jobs where we've 
recommended that more authority be given to the agency to 
reduce prices when they're obviously out of whack with what the 
market is paying for them. We've been issuing reports on that 
since the late eighties, in fact.
    Mr. Shays. OK. Well, this is one thing that I, certainly, 
am going to spend some of my time on, because the only thing 
gross about the system is that we allow it to continue. If it's 
excessive, we should change the price. So that will be one 
thing. And I appreciate you highlighting that. Did you want to 
respond in any way?
    Ms. Brown. Well, I only mentioned that there are things 
like oxygen concentrators, which we have reported on. And we're 
paying twice what the VA is paying. And they're able to 
competitively bid, where HHS is not.
    Mr. Shays. Now, twice is astounding. The explanation on the 
other side would be that VA buys in bulk and it--Medicare and 
Medicaid would be buying in--is it both Medicare and Medicaid 
that we're talking about?
    Mr. Mangano. Our reviews were in the Medicare area.
    Mr. Shays. Right.
    Mr. Mangano. And just to give you the specific figures, VA 
pays about $128 a month for an oxygen concentrator, Medicare 
pays $345 for one.
    Mr. Shays. I mean, it just boggles my mind.
    Mr. Mangano. That is correct.
    Mr. Shays. Now, the other thing that boggled my mind--I'd 
just like both of you to respond, both GAO and Inspector 
General. We have a system where if doctors submit bills, we--my 
recollection is that we review 1 percent of the bills and about 
4 percent of the billing charges, and that we pay it and then 
have to go back and try to capture it. It's only in those bills 
that we check. Is that process still continued? Has HCFA 
changed that system at all?
    Mr. Mangano. The process is really driven by some pieces of 
legislation that require Medicare to pay its bills within a 
time limit, I believe it's within 30 days.
    Mr. Shays. Right.
    Mr. Mangano. And they must pay those bills within that 
timeframe. As a result, what the Medicare program does, 
primarily--is does a lot of post-payment review. But as we've 
mentioned earlier, only about 2 percent of the claims ever go 
through that post-payment review. The only way they can catch 
it prospectively is through what they call ADITs.
    Mr. Shays. Is that the auto-adjudicated system that we're 
talking----
    Mr. Mangano. Yes. There's--that's correct. There are ADITs 
that the contractors--the Medicare contractors, the insurance 
company which runs the program--have in their system. So, if a 
bill looks grossly out of whack, it rings a bell on and ADIT. 
They can go in and look at the particular bill.
    Mr. Shays. But the fact is that if someone broke their 
ankle and had a chest x-ray, that bill would get through the 
system.
    Mr. Hembra. That is correct.
    Mr. Shays. Because we don't have an auto-adjudicated system 
that would get that disconnect.
    Mr. Hembra. Right.
    Mr. Shays. And have we seen any process since our hearings 
last year on that?
    Mr. Hembra. Not really.
    Mr. Shays. OK. You almost feel overwhelmed. Both those two 
areas just strike me as being such absurdities. So I'm going to 
continue a little bit and then--do you have any more questions 
for this panel? You can just turn the clock off. That's the one 
power of a chairman: I control the clock.
    I love it. In terms of the whole information systems, we're 
learning that the IRS may have wasted $3 billion. When I look 
at it, I find that the details don't support $3 billion, but 
support hundreds of millions if not billions. Are we in the 
same danger with HHS, with its information systems?
    But the problem is that if a business had such an important 
element of its business--information systems--they would spend 
$1 million or $2 million to hire the best and the brightest. 
And they would pay them and they would get their money back ten 
fold. Here, we're limited, I gather, by what a civil servant 
can make. Is part of the problem that we don't have the 
expertise? First, I want to know, do we have a problem with 
information systems? I'd like for you to expand a little bit 
more, since the Comptroller General, you introduced it. And are 
we in danger of coming to concluding that we, too, have wasted 
hundreds of million, if not billions of dollars in information 
systems, and don't presently have a good system or systems?
    Mr. Hembra. If you look back, Mr. Chairman, what you find 
is, as information needs would surface, you would see agencies 
pretty much creating stand alone, stove pipe systems to deal 
with a specific information need. And of course, with the 
advancement of technology, clearly the capability has expanded 
tremendously.
    If you look at HHS--and you could go down specifically and 
look at Medicare, because there is a multi-million dollar 
system's investment that's being made now with regard to the 
Medicare transaction system, which will ultimately replace 
about nine different information systems that HCFA and its 
contractors use in processing claims.
    Is HHS vulnerable with regard to information systems? GAO 
has a lot of work across the Government that says, ``Of 
course.'' And there has been millions and hundreds of millions 
of dollars wasted. Fortunately, I think----
    Mr. Shays. And you're working with Mr. Horn's committee on 
this area--management systems?
    Mr. Hembra. Yes. That is correct. That is correct. 
Fortunately, there's a couple of things happening. In general, 
and if--take you back to my statement--the Paperwork Reduction 
Act, the Clinger-Cohen Act and the creation of Chief 
Information Officers, were all geared toward bringing some 
sense of order to how agencies went about determining what its 
information management needs were and how they were going to go 
about phasing those in.
    We had looked early at HCFA's Medicare transaction system, 
found some problems that they were having, and have been 
working pretty closely with HCFA on MTS. And so I think there's 
less likelihood of seeing something similar to IRS happening 
within HCFA and its Medicare program. I think one thing that 
HHS has to do to make sure that it doesn't get out of hand, is 
make sure that it integrates its information management needs 
as part of it overall GPRA process of developing a strategic 
plan.
    You can't do that outside of the process. It's an integral 
part of what's going on. The second thing HHS, I believe, HHS 
needs to take a look at is, with regard to the Chief 
Information Officer as well as the Chief Financial Officer--the 
Secretary has chosen to triple hat an individual within the 
Department, the Assistant Secretary for Management and Budget, 
giving that individual also the title of Chief Information 
Officer and Chief Financial Officer.
    Clearly, with regard to the Chief Information Officer, we 
don't believe that that's consistent with the legislation. And 
it certainly calls into question whether one individual has the 
capacity at a senior management level to carry that wide range 
of responsibilities.
    Mr. Shays. Have you conveyed that concern?
    Mr. Hembra. That information has been discussed, but 
there's been no change within HHS.
    Mr. Shays. OK.
    Ms. Lillie-Blanton. Could I respond to that also?
    Mr. Shays. Sure. Sure.
    Ms. Lillie-Blanton. I think there is a particular challenge 
in developing information systems for HHS. And that's, in part, 
because HHS works so closely with States. And I think welfare 
reform is an example of that, but Medicaid is also an example, 
where you are relying on data and information systems which are 
collected at the State and local level.
    And we now have a major restructuring in our system of 
welfare. The Federal Government, HHS in particular, is to 
monitor compliance with that, but it's got to monitor 
compliance based on information that is supplied by the States. 
And you have, in many cases, States with very limited data 
information capacity, management information systems.
    And it just presents, I would say, a major challenge for 
HHS to assistant, to develop, to monitor, with the information 
that will come from different States, sometimes which may not 
be comparably collected, sometimes which may not have the same 
kind of control system, sometimes sexual harassment just may 
very well be different types of information.
    So I would say that there is a particular challenge. We 
have seen, with the experience of Medicaid, that even when 
there is some Federal oversight in trying to assist with--
because the Federal Government does collect--has two different 
data systems for the Medicaid program that it collects. But 
even with those, we have some very serious problems in the data 
that is collected through HHS data information systems. So it 
is a very serious problem.
    Mr. Shays. Now, as you talk, I'm thinking that in my home 
town we have two companies that, 10 years ago, didn't exist. 
And today they're billion dollar companies. And yet they 
realize in 10 years they may not exist again. The change is so 
rapid. And I've been wondering for a while if one of the best 
arguments for why we need to try to have government do a little 
less, and then do everything else better, is that it just may 
not be able to keep up with the change.
    One of my concerns in Government is that too many people 
make the decision before it finally comes to fruition, whereas 
in the private sector now, they've empowered two or three 
people in that chain to ultimately make very big decisions. Do 
you want to comment?
    Let me just tell you my plan. I'm going to invite either 
staffs to ask a few questions if they want, only because really 
what we're just trying to do is flush out where we want to 
focus our time. And so, it's really, I think, appropriate to 
have our staff weigh in here if they want. But did you want to 
say something first?
    Ms. Brown. Well, I wanted to comment on the new system that 
they're developing, that----
    Mr. Shays. They being--and for which system?
    Ms. Brown. I'm sorry. HCFA is developing----
    Mr. Shays. OK.
    Ms. Brown [continuing]. For Medicare.
    Mr. Shays. Right.
    Ms. Brown. And this will be a gigantic system that is far 
larger than any insurance company, of course, would have.
    Mr. Shays. This is MTS or----
    Ms. Brown. MTS. Yes. We are able to bring a lot of things 
to their attention, particularly through doing the financial 
system audits. We have identified a lot of problem areas and a 
lot of areas that have to be treated differently in the system. 
So we have a process for working with them on that, which I 
think will help a great deal. I did want to point out that 
there is not requirement, not even the capability for them--
being HCFA--demanding the Social Security number of the 
providers until this latest legislation passed--Kassebaum-
Kennedy.
    HCFA didn't have unique provider numbers, either. And both 
of those are going to seriously undermine the effectiveness of 
a system. So I think they do need Social Security numbers. Even 
when we exclude somebody from the program, there's no way of 
tracking how many other areas they might be billing in.
    Mr. Shays. Let me just say--I'm going to call on the 
majority counsel--but my purpose is to ask if there was a 
question that you wish we had asked, if you want to respond to 
the question we never asked you, but wished we did. And also, I 
find that those who come and testify who say the least 
sometimes have more time to think about something they want to 
say. So with the power invested in me, I'm going to provide the 
three of you who didn't make opening statements to get some 
closing words and see if you're willing to risk saying a 
comment that your boss may not like.
    Mr. Dowdal. Well, that's never stopped me before.
    Mr. Shays. Good. Well, we'll come to you in a second. OK. 
Do you have a question you want to----
    Mr. Halloran. Yes. I just would ask each of you to comment 
on block grants in general and the kinds of accountability 
systems you see that the Department should use in maintaining 
the flexibility that are built in the block grants and, yet, 
being able to provide the accountability that you want and we 
want in terms of the money that's spent. It's a difficult 
balance. You talked about data problems, which is one area. But 
where have you seen in the block grant programs we have, where 
has it worked, and what kind of emerging problems might you see 
as we roll out bigger block grants such as the welfare reform?
    Ms. Lillie-Blanton. Well, actually, let me just give you 
something that I would say HHS is doing now that might be an 
approach to use, because I think we have had problems with 
block grants in the past. HHS has begun to develop what is 
called performance partnership grants. And they've used that 
approach with SAMHSA, the Substance Abuse and Mental Health 
Services Administration, and CDC. In the process of the 
performance partnership grants, there is negotiation with 
States on the goals and outcomes that they want to see 
achieved. And so, rather than holding a State----
    Mr. Halloran. And the form of the data that will prove it? 
Is that part of the deal?
    Ms. Lillie-Blanton. The process has varied, but certainly--
I'd have to look back to find out how specific and how 
prescriptive they are in the data goals, the data elements that 
would be used to document outcomes. But certainly, along with 
the broad objectives--the broad goals are objectives, which are 
measurable objectives. At least with that process you have a 
way of working with an entity--a State or, in some cases, it 
could be a local community--in trying to negotiate what you 
want to achieve, even if you didn't look at all the details of 
how it's achieved.
    So certainly, I would say the goals and the outcomes would 
be an approach that we could use that still give States some 
decent flexibility in how they design their programs, but at 
least the accountability system, from the point of the Federal 
Government, can be monitored because you have defined what you 
wanted to achieve. That's a part of the pilot efforts that are 
now underway.
    It's still not certain how well that can work with the 
broad array of what--of programs that HHS has. Welfare reform, 
for example, is an example where that is a little different. 
And when I talked about the demands on welfare reform--just to 
take a couple of them--one are the time limits and the work 
force participation requirements.
    In that case, Congress has to set some goals, measurable 
goals. But the data systems, at this point, are not in place to 
document and monitor them. So it is a balancing act. With the 
performance partnership grants, I think, are a way that we 
could try to work on some level. When you move to goals that 
are so broad, that cut across all the States, such as welfare 
reform, it means we've got to talk about more uniform data 
collection systems that can help guide and develop.
    And you know, it could mean resources to assist in 
developing those infrastructures. But otherwise, I think that 
we will be comparing apples and oranges even as we give out 
performance bonuses--for example, for declines in out of 
wedlock births. I think that that just becomes problematic, but 
yet, the intent is a desirable goal.
    Ms. Brown. If I could comment. The President's council on 
integrity and efficiency, which is a group of all the 
Presidential appointed Inspectors General, did a study on just 
this. It isn't recommending one way or another, but it explains 
what vehicles could be included in any legislation or other 
provisions of a grant, and what the results might be. If the 
grant doesn't provide for oversight, there would be no way, in 
spite of any efforts and whatever data we had, we would not be 
able to go in and audit against anything.
    So that would be one extreme. This report goes on and 
explains some of the possible vehicles for gaining some level 
of oversight. I'd be glad to provide that report so you could 
get a balance of all the IGs' views.
    Mr. Shays. Ms. Brown or Mr. Hembra. Is there any question 
you wished we had asked that--I mean, there's a lot of things 
we could have--but--so nothing--Mr. Mangano, do you have any 
comment you wanted to--?
    Mr. Mangano. No. I don't think so.
    Mr. Shays. Ms. Brown, any comment? Mr. Dowdal.
    Mr. Dowdal. Yes. I think I'd like to re-emphasize that the 
GPRA process provides a real good opportunity for everyone to 
take a look at the processes and everything that the agency 
has, to meet the goals that have been given to it under the 
laws. And by using that opportunity to better design their 
systems for controlling costs, I think HCFA can get around a 
lot of the problems that currently are evident in the waste and 
abuse and fraud and mismanagement area. So I think--I hope that 
the GPRA process works as well as it should.
    Mr. Shays. Knowing what your mission is and how you're 
going to carry it out is obviously very important. I find that 
it also--we try to do it--obviously, the task is much easier in 
our own offices. But knowing your mission, your strategy, your 
projects, and your tactics, and getting your staff to talk 
about it is very energizing. So it can be a tremendous tool if 
it's used well.
    And I know that you both are expressing concern. You know, 
I guess this year is the moment of truth of whether the 
departments take it seriously or not and take advantage of it. 
Let me say that we're going to go to our next panel, but the 
dialog, obviously, continues. You know that you can pick up the 
phone any time and we feel that we can do the same.
    So I'll just emphasize, again, my interest in making sure 
that we look at the worst of the worst or look at the areas 
where we can have the greatest impact and change, given that 
there is so much that we can look at. And given that we have 
this problem on this side, we also understand that you have 
that same challenge. So we're very patient when we see 
something that doesn't work, and say, ``My gosh, why didn't you 
all get at it?'' Because you've got more than enough to do. So 
thank you very much.
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    Mr. Shays. Our next panel is going to focus on the 
Department of Veterans Affairs: William Merriman, Deputy 
Inspector General, Department of Veterans Affairs, accompanied 
by Michael Sullivan, Assistant Inspector General, Department of 
Veterans Affairs, and David Baine, Director of Federal Health 
Care Delivery Issues, General Accounting Office. Mr. Baine, do 
you have anyone else accompanying you? Could you, in the mike, 
tell us who will be accompanying you? How many? One or two? OK. 
Would you state the name for us so our transcriber can----
    Mr. Baine. Sure, Mr. Chairman. This is Mr. Jim Linz, an 
assistant director in our group, who has been involved in 
veterans programs for more than 15 years.
    Mr. Shays. Well, it's great to have him accompany you, and 
we'll swear all--now, do we have anyone else? Do we have--good, 
OK. We're all set there, then. I'm going to ask you to stand at 
this time so I can swear you in.
    [Witnesses sworn.]
    Mr. Shays. Thank you. For the record, all four have 
responded in the affirmative. And we're going to start first 
with Mr. Merriman, who is the Inspector General. And then we'll 
go to you, Mr. Baine.
    Mr. Merriman. Mr. Chairman and members of the subcommittee.
    Mr. Shays. Excuse me. If we could just switch these names 
around up front here, just to make sure we've got them matching 
here. Thank you. All set? I'm sorry. Thank you.

   STATEMENTS OF WILLIAM MERRIMAN, DEPUTY INSPECTOR GENERAL, 
    DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL 
 SULLIVAN, ASSISTANT INSPECTOR GENERAL, DEPARTMENT OF VETERANS 
   AFFAIRS; DAVID P. BAINE, DIRECTOR OF FEDERAL HEALTH CARE 
DELIVERY ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY JIM 
LINZ, ASSISTANT DIRECTOR, FEDERAL HEALTH CARE DELIVERY ISSUES, 
                   GENERAL ACCOUNTING OFFICE

    Mr. Merriman. Mr. Chairman and members of the subcommittee, 
I'm pleased to be here today to discuss the Department of 
Veterans Affairs. With your permission, I'd like to enter my 
prepared statement for the record and use this opportunity to 
summarize some of the key issues facing the VA. When the IG 
testified before the subcommittee 2 years ago, VA was at the 
crossroads of change.
    Since then, VA has made notable progress. While VA works 
continuously at improvement, it remains faced with what appears 
to be overwhelming challenges for the 21st century. Amongst 
these challenges include responding to the changing health care 
needs of veterans and providing more accurate and timely 
benefits. While VA has made progress, there remains much to be 
done. Also, since many of the changes implemented by VA are in 
the early stages, it will take some time before we are able to 
evaluate the results.
    Regardless, the IG remains focused on working with Congress 
and VA in efforts to constantly improve VA's programs and 
activities. To this end, I would like to briefly elaborate on 
three areas. Collectively, these areas embrace matters critical 
to the accomplishment of VA's mission and reflect major themes 
pursued by the IG. In the area of health care, a VA goal is to 
move from an in-patient to an out-patient based system.
    In recent years, the IG has conducted a series of audits 
and evaluations which address this goal. For example, we've 
determined that the lack of reasonable staffing methodologies 
resulted in unexplained disparities in the allocation of 
resources. While VHA developed the veterans equitable resource 
allocation model to address resources based on work load, the 
use of this model will require close management attention and 
monitoring.
    VHA initiated a reorganization in 1995. While this 
represents a major milestone in the reform of VA's health care 
system, it is too early to determine whether it will produce 
the intended results. Although the IG is optimistic, the scope 
and pace of reorganization presents special challenges for VHA 
to ensure the continuation of high quality health care.
    Another important challenge facing the VA involves reducing 
the backlog in claims and appeals. VHA has about 327,000 claims 
currently pending and an average processing time of about 5 
months per claim. IG efforts are focusing on ways to help VA 
reduce processing times and improve the accuracy of benefits. 
We are nearing completion of a series of related reviews. We 
will issue a summary report later this year. On management 
accountability, the enactment of several pieces of legislation 
in recent years, such as the Chief Financial Officer's Act and 
the Government Performance and Results Act, have provided a 
statutory framework for enhancing the performance and improving 
accountability.
    In regard to our audits of VA's consolidated financial 
statements, significant improvements in financial report 
reliability have been achieved. While VA's efforts over the 
last 5 years have enabled us to provide this year's unqualified 
opinion, work remains to be done to assure control weaknesses 
are continually addressed. Our early reviews of the 
implementation of GPRA show that VA was a long way from 
achieving the ultimate goal using performance measures as a 
tool for improving VA operations.
    However, VA has made significant progress in the area as 
the Chief Financial Officer has been working with all VA 
activities to shift VA's focus to overall program results. 
Before closing, I'd like to address two additional matters 
important to cost effective management of both VA and the 
Federal Government. First, continuation of our authority to 
conduct post-award audits of Federal Supply Schedule contracts 
for medical supplies and equipment and for pharmaceuticals is 
at risk.
    Proposed regulatory changes would severely limit our 
ability to conduct such audits. Our work in this area combined 
with the benefits already realized has convinced us that the 
elimination of the right to conduct post-award audits of FSS 
contracts will result in higher health care costs for the VA.
    Mr. Shays. Before you continue, who is advocating that 
change?
    Mr. Merriman. There's a proposed change for the Federal 
FAR, Federal Acquisition Regulations, that we're negotiating 
with GSA at the current time. Industry is advocating a change 
to the Federal Acquisitions Regulations which would remove our 
right to conduct post-award contract audits.
    Mr. Shays. That's for all departments or just the VA?
    Mr. Merriman. That would be for GSA and the VA for those 
Federal Supply Schedules that are managed by the two 
departments. The General Services Administration has a 
responsibility for managing the Federal Supply Schedules. They 
delegate the responsibilities for pharmaceuticals and for 
medical supplies and equipment to the VA to manage. So if a 
rule were to be passed that eliminated the right to contract 
audits, we would not be able to do it in medical supplies and 
equipment.
    There's separate legislation that might allow us to still 
audit pharmaceuticals. But the proponents of this rule would 
say that the IG still has the authority under the IG Act. We do 
if fraud is suspected. We could conduct an investigation. We 
could do an audit. But we have a program with the department 
where we do the contract auditing for them on a reimbursable 
basis. And we've delivered, in the last 3--a little over 3 
years--about $50 million have been returned to the Government 
based upon our efforts.
    Mr. Shays. Now, is this a proposed rule that you're having 
to comment on? Is this already in process?
    Mr. Merriman. The rule has been proposed. It's still in the 
comment stage. The comments are being considered by GSA at this 
time. We are working with them.
    Mr. Shays. Yes. I'm going to just come back in a second on 
that. Why don't you finish your statement?
    Mr. Merriman. OK. Second, the IG audited VA's OWC program, 
the workman's compensation program, in 1993 as a part of a 
governmentwide review. To address the report's findings, VA 
moved accountability and responsibility for these costs from 
the central office to facility level. Each facility is required 
to monitor its OWC program and return employees to duty as soon 
as possible in order to reduce costs.
    We initiated a pilot investigative project with selected VA 
medical centers to help them identify individuals receiving OWC 
payments under fraudulent circumstances. I believe there is a 
potential for significant savings to the Government in this 
area. This concludes my statement, Mr. Chairman. I'd be pleased 
to respond to any questions you might have.
    [The prepared statement of Mr. Merriman follows:]
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    Mr. Shays. Thank you. Mr. Baine.
    Mr. Baine. Thank you, Mr. Chairman. Good morning.
    Mr. Shays. Good morning.
    Mr. Baine. As you know, the effectiveness of VA's programs 
and activities has a profound effect on the welfare of our 
Nation's 26 million veterans. In fiscal year 1996, VA's 
approximately 222,000 workers delivered a wide array of 
medical, disability, pension, housing, insurance, education, 
and burial services at a cost of nearly $38 billion. Two years 
ago, we testified before this subcommittee on some of the 
challenges facing, specifically, the VA health care system.
    Today, I would like to discuss VA's progress in addressing 
those challenges. In addition, I would like to touch briefly on 
some issues facing the Veterans Benefits Administration, VA's 
efforts to implement the Government Performance and Results Act 
and other recent legislation to improve the management of 
Government programs and changes that could be made in veterans 
benefits and in the operation of VA programs to help reduce the 
budget deficit.
    Mr. Shays. I don't think you have enough time to do all 
that.
    Mr. Baine. I probably don't. But I'm going to try. We 
believe significant improvements have occurred in the 
efficiency of the VA health care system. VA's new veterans 
integrated service network structure clearly values efficiency 
and customer service. This reorganization contains several 
elements that we believe hold promise for providing the 
management framework needed to realize the system's full 
potential.
    Consistent with the requirements of GPRA, the Veterans 
Health Administration established five basic goals for its 
health care system. And under each goal, it has established 
objectives and performance measures for gauging the progress 
toward meeting those goals. Under its new structure, VA has 
consolidated management of nearby hospitals to reduce 
administrative costs, increased the use of ambulatory surgery, 
and reduced the average lengths of stay.
    Under Dr. Kizer's leadership, the VA has a new emphasis on 
both efficiency and customer service. A few years ago, Mr. 
Chairman, we testified that VA could reduce inconsistencies in 
veterans' access to care by better matching medical centers' 
resources to the volumes and demographic makeup of veterans 
requesting services at the VA meld centers. Next month, VA 
plans to implement a new resource allocation system.
    Under this system, the networks that have the highest costs 
per veteran user will lose funds while networks with the lowest 
cost per veteran user will gain funds. We applaud VA's effort 
to try to develop a straightforward, simple method for 
allocating resources. We don't believe, however, that VA has 
determined the right amount of dollars that need to be shifted 
to ensure equity of access, primarily because it has not 
ascertained the reasons for differences between the costs per 
veterans in each of the networks.
    VA recognizes that its allocation system is not perfect and 
is continuing to explore ways to improve it. For example, both 
VA and we are currently trying to develop the data to more 
fully explore the potential effects of population-based 
allocations.
    In our testimony 2 years ago, we focused on several major 
challenges facing VA, the first of which was uneven access to 
health care. During the last 2 years, VA has made a lot of 
progress in this area. First, eligibility for VA health care 
was expanded. Now all veterans are eligible for comprehensive 
in-patient and out-patient care subject to the availability of 
resources. Second, VA has begun to establish community-based 
out-patient clinics to improve veterans' access to out-patient 
care. Third, VA's contracting authority was revised last year 
by the Congress to make it easier for VA to buy services from 
private providers.
    A second major challenge was the decline in use of VA 
hospitals. As VA's effort to increase the efficiency of its 
health care system have gained momentum during the last 2 
years, the decline in VA hospital use has accelerated. As work 
loads continue to decline at the hospitals, VA's investment in 
its hospital's infrastructure increasingly detracts for its 
ability to shift resources to other needs.
    A third major challenge was identifying and addressing 
unmet health care needs of veterans. We suggested that the 
health care system retarget resources to provide care for 
higher income veterans with non-service connected conditions 
toward lower income veterans and those without adequate health 
care insurance. VA, however, through its current legislative 
proposals, appears to be going in the other direction.
    Like VHA, VBA also faces several important challenges in 
administering its comp and pen programs. First, the disability 
rating schedule has not been economically validated for the 
last 45 years. Second, VA could be unable to issue compensation 
and pension checks at the beginning of the year 2000.
    Mr. Shays. Let me just--I don't quite--since I'm the only 
Member here right now.
    Mr. Baine. OK.
    Mr. Shays. And so we can be a little more informal here.
    Mr. Baine. Sure.
    Mr. Shays. I don't understand what you just said about the 
45 years, not being validated. What do you mean? What hasn't 
been validated?
    Mr. Baine. The disability rating schedule is made up of two 
primary components--there's a medical component and an economic 
component. The economic component hasn't been validated by VA 
for the last 45 years. And what that means, Mr. Chairman, is 
those diseases or compensatable diseases for which compensation 
was paid 45 years ago--for example, somebody lost an arm and 
got X number of dollars.
    As time has gone on in the last 45 years, mental illness, 
for example, has taken on more of an important role, but the 
economics of this condition have not been looked at for 45 
years.
    Mr. Shays. I understand.
    Mr. Baine. Third, veterans frequently wait over 2 years for 
resolution of disability compensation and pensions claims. And 
fourth, hundreds of millions of dollars in overpayments of 
compensation and pension benefits are made because VBA so far 
hasn't focused much on the prevention of such payments.
    Let me turn now real briefly to VA's implementation of the 
Government Performance and Results Act, the Chief Financial 
Officer Act and information management legislation.
    While VA has not completed its GPRA strategic plan, its 
budget submission includes many of the elements that will be 
included in that plan in September. The budget submissions for 
both the major administrations also included strategic planning 
documents. Similarly, VA has established a sound financial 
management structure, as Mr. Merriman has pointed out, and is 
in the process of trying to appoint a Chief Information 
Officer. However, OMB has some concerns about whether VA's 
appointment of its Chief Financial Officer as the information 
officer will comply with the Clinger-Cohen legislation.
    Mr. Chairman, we periodically report to the Congress on 
options for reducing the budget deficit, and issued a report 
last week in which 10 specific suggestions, or 10 specific 
options were included for the VA. And I won't dwell on that. 
But those are included in our statement, and we'd be glad to 
talk about any one of them. Thank you very much.
    [The prepared statement of Mr. Baine follows:]
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    Mr. Shays. Thank you. Let me just say that a lot of your 
statement was not given orally but is on the record for our 
staff. And when Members of Congress say they're going to read 
your statement, that's a stretch. But I do know that the staffs 
will read them in preparation for our hearings. I'm trying to 
develop a theory that may just fall flat on its face. I'm just 
going to focus now on Gulf war illnesses and so on, just as a 
means at looking at the mission of the VA. So it has greater 
implications.
    You, Mr. Baine, drew on it in the fact that you said that 
compensation hasn't been really looked at in 45 years for 
disability. I have a general theory that clearly, first off, 
the VA and the DOD and the CIA all want, in my judgment, that 
any of our soldiers who fought in the Persian Gulf to be justly 
diagnosed, treated, and compensated. But I don't think the 
system is allowing that to happen.
    And one of my general theories is that the VA has just not 
responded to the whole issue of biological or chemical 
exposure. In other words, that they don't have the expertise, 
so they have a doctor that has no health care expertise in 
chemical exposure. And what I've learned since I've basically 
questioned the VA's ability to look at chemical exposure, is 
that the medical science, in general, doesn't know how to 
diagnose or treat chemical exposure. And there are very few 
people in the country who have any expertise in it.
    My point is, when I look at the VA, do I see a dynamic 
organization that is quick to change or do I see an 
organization that is very slow to change? And more 
specifically, have either of you looked at the issue of the 
skills of the doctor versus the kinds of challenges that our 
soldiers faced, not just in the Persian Gulf but earlier.
    Mr. Baine. I might--go ahead.
    Mr. Merriman. I'd say that it might be looked at as an 
organization that is slow to change because of its size and how 
it's developed over the years. But when you think about the 
skills that are available to the VA, you have to look in terms 
of the VA physicians, themselves, and the employees of the 
affiliations that they've developed over the years. So at least 
theoretically, they have access to medical expertise that goes 
beyond the VA's employed VA physicians.
    Mr. Shays. In other words, the Westhaven Hospital in 
Connecticut draws on Yale University?
    Mr. Merriman. Many of them have dual appointments.
    Mr. Shays. Right.
    Mr. Merriman. OK. So there is that to be considered. I'm 
sorry. The second part?
    Mr. Shays. Just the issue of its ability to respond to 
change. And then the second is, do you feel that the 
expertise--the health expertise--matches the health needs of 
our veterans?
    Mr. Merriman. I would say----
    Mr. Shays. And I gave, as an analogy, the whole issue of 
chemical exposure.
    Mr. Merriman. Right. I would look at it differently. I'd 
look at the needs of the veterans might be more toward not 
necessarily what happened to them in war time, but diseases now 
that they've grown older. We would have taken issue in the past 
with the focus on specialty care in the VA, some of which, 
perhaps, was driven with affiliation relationships. And we 
would have said that there needed to be more of an emphasis on 
primary care.
    They are moving toward that. They are using some of their 
leverage now to ensure that more of the residents or trainees 
that come into the VA system, are trained in primary care to 
meet the overall multi-system problems of an aging veterans 
population.
    Mr. Shays. You're making an argument that the large 
population are aging veterans that may have illnesses that 
aren't directly related to their service.
    Mr. Merriman. Well, interrelated.
    Mr. Shays. Interrelated. OK. It doesn't really address the 
potential warfare of the eighties and beyond, the issue of--if 
it's not an area you focused in on, I don't want to push you on 
it.
    Mr. Merriman. We haven't. That's about as far as I can go 
on it.
    Mr. Shays. OK.
    Mr. Baine. Mr. Chairman, could----
    Mr. Shays. Your response was helpful. Yes. Thank you.
    Mr. Baine. Could I just make one comment?
    Mr. Shays. Sure, you can make as many comments as you want.
    Mr. Baine. I agree with Mr. Merriman in terms of the VA 
having traditionally been fairly slow to change because it's a 
large organization and it's a big boat to turn around. In the 
last 2, 3 years, however, Dr. Kizer has attempted to turn the 
boat around in many respects. With regard to your specific 
question, I think that is a concern that we have, too. When 
folks from the Persian Gulf conflict get into the VA system are 
they treated in the same way as everybody else that goes in the 
VA, or are there special things that the VA is doing.
    And that's something that we're trying to look at right 
now. We've just started some work to see whether there's any 
difference between somebody who perhaps has been exposed to 
chemical and biological agents, how they're treated vis-a-vis 
how anybody else is treated in the VA hospital.
    Mr. Shays. Well, you raised the question of the 
associations of universities. Westhaven had in its protocol for 
questioning Persian Gulf veterans early on, questions about 
chemical exposure and so on, because the doctor who was 
responsible was a doctor who focused in on work place 
illnesses. So there was this--but that was almost by luck, that 
they got into that issue a little sooner.
    Mr. Baine. That's what we're trying to explore, is see the 
extent to which those kinds of things are happening in the VA 
system.
    Mr. Shays. Now, Dr. Kizer's name has come up more than once 
today. Do you think he's been relatively successful in trying 
to bring about change in the VA?
    Mr. Baine. My own personal belief is that he has. You have 
to----
    Mr. Shays. First off, let me just ask--do you give him 
credit for trying to start with? Do both of you feel that he's 
trying to make major changes?
    Mr. Merriman. Oh, yes.
    Mr. Baine. Yes, sir.
    Mr. Shays. So both of you are on record as saying that he's 
making major effort here?
    Mr. Baine. Right.
    Mr. Merriman. That is correct.
    Mr. Shays. And your sense is he's having an impact, that 
the Department is responding.
    Mr. Baine. I don't think there's any question that he's 
having an impact.
    Mr. Merriman. I agree.
    Mr. Baine. I mean, if you go out into the field, to the 
networks and to the medical centers, you will, I think, come 
away with the appreciation that he is having an impact.
    Mr. Shays. Mr. Merriman.
    Mr. Baine. People have various views of that.
    Mr. Shays. Right. They may not agree with the change, but--
yes. Mr. Merriman, do you feel----
    Mr. Merriman. I agree. And his relationship with our office 
is a whole different world than what we have been used to in 
the past, even in the planning process.
    Mr. Shays. What? Trying to respond to your concerns and 
criticisms? In other words, what is different about that 
relationship?
    Mr. Merriman. First of all, his willingness to participate 
in the development of our projects.
    Mr. Shays. OK.
    Mr. Merriman. He, personally, will give us suggestions to 
include in our plan, which we will discuss with him, and put in 
or not in as we see fit. But his willingness to discuss our 
recommendations, to sit down and have a good thorough 
discussion of it, and take action on problems that we're 
finding.
    If he agrees with us early on in our audit, he won't wait 
until we conclude the process. He will initiate action when he 
sees it. On the other hand, if he questions our methodology, 
he'll demand proof that we're right. But we have a very good 
working relationship with him. And I think he does deserve a 
lot of credit for the changes that are happening in VHA.
    Mr. Shays. What would the VA disagree most with your 
written testimony? Not what you said, because you were both 
pretty positive about the VA. Where would you have your biggest 
disagreement with the VA? I'll start with Mr. Baine.
    Mr. Baine. My----
    Mr. Shays. Yes.
    Mr. Baine. My sense is that VA would probably disagree most 
with our characterization of its intention to target higher 
income non-service connected veterans to enhance its patient 
base.
    Mr. Shays. OK.
    Mr. Baine. That's my----
    Mr. Shays. I'm going to come back to that. What would you 
say that your biggest disagreement with----
    Mr. Merriman. Other than perhaps not identifying more 
positive aspects of their work, I don't know the----
    Mr. Shays. They just want you to talk about the positive.
    Mr. Merriman. We tried to provide a balance.
    Mr. Shays. So we know they're normal. OK.
    Mr. Baine. It's always interesting, because one of the 
things that we've tried to do over the last several years, as a 
courtesy to VA, when we prepare a testimony like this, is go 
talk to the programmatic people. And Jim and I had that 
experience a few days ago. And there were 40 people in the room 
and it was fair to say that most--somebody disagreed with 
almost everything.
    Mr. Shays. Let the record reflect the sarcasm. OK. I still 
want you all to be son of a bitches a little bit. Otherwise----
    Mr. Merriman. We're allowed to do that.
    Mr. Shays. Sons of bitches? The district I represent, the 
4th Congressional District in Connecticut, has 10 towns and a 
number of hospitals. Four of those hospitals are concentrated 
in about a five-town area. And studies show that we may only 
need one of them to provide acute care. Some of the hospitals 
could refocus and provide other care, but acute care we only 
need one hospital the size--one-fourth of what we have now, 
basically.
    When I look at a VA hospital, I would think that you have 
the same challenges in some areas. What's wrong, though, with 
the VA trying to expand its client base for economies of scale? 
Otherwise, there may be no hospital if it can't become more 
efficient. So what would be wrong with the VA focusing in on 
increasing its enrollment?
    Mr. Baine. There's nothing specifically wrong, Mr. Shays, 
with the VA trying to expand its patient base. Our concern is 
that there are a fair number of veterans that have special care 
needs.
    Mr. Shays. Right.
    Mr. Baine. And you pointed out some of them--spinal cord 
injury, PTSD, chemical and biological injuries or illnesses--
those kinds of things that VA is specifically tasked and 
expected to provide care for. As it moves toward a re-
engineered health care system it seems to us, at the present 
time, that VA is targeting folks who can provide an income 
stream to VA to supplement the appropriation that it gets.
    Mr. Shays. Yes.
    Mr. Baine. And they has been a concern of ours for several 
years. It's one where Dr. Kizer doesn't necessarily agree with 
us. But we believe that it's a valid concern. And with regard 
to your comment about--in your district there are four or five 
hospitals in five towns--VA is facing essentially the same 
thing.
    It's taken about 50,000 beds out of service or converted 
those beds to other uses over the last 20 years or so. And it 
is facing the same kinds of things that those hospitals in your 
district are facing. Now, the question actually becomes--and 
it's a question for both the Congress and the administration, 
it seems to me--what portion of the $17 billion health care 
budget should go for the maintenance of the infrastructure.
    There's a choice to be made. Are you going to maintain the 
infrastructure at the current level, or are you going to change 
the mix and try to provide veterans benefit in maybe a 
different way?
    Mr. Shays. Which the veterans are looking at out-patient 
clinics and expanding them, obviously. But that can potentially 
take away its client base from its acute care or it sometimes 
can feed into the system.
    Mr. Baine. Yes.
    Mr. Shays. But there are some of us that take the unpopular 
view, but hold it quite dearly, that I would like a veteran to 
be able to have a veterans' card that enabled them to go to any 
hospital in the world--in the country, rather.
    Mr. Baine. Right.
    Mr. Shays. And be able to get a care that would be special 
to that veteran, not necessarily in a VA facility. Have either 
of you looked at the economics of that issue? Not the political 
viability. Maybe the political viability tells you don't want 
to look at the economic viability.
    Mr. Merriman. We have not. No.
    Mr. Shays. OK.
    Mr. Baine. No. We haven't looked specifically at the 
economics of the thing. We have, however, looked at VA's 
initiative to establish these community-based out-patient 
clinics.
    Mr. Shays. What----
    Mr. Baine. The first batch of 12, I think it was, or 15, 
perhaps--and, basically, what we found was that a large portion 
of the population that was going to be served by those 
community-based out-patient clinics or access points, as VA was 
calling them then, were veterans who were non-service connected 
and higher income. So the outreach effort reached the 
population who, perhaps, could either pay some portion of the 
cost of their care through copays or, as in some of the VA 
legislative proposals, they were Medicare eligible.
    Mr. Shays. Let me just get into one other area that--in the 
President's budget, it says the Veterans Health Administration 
is the Nation's largest trainer of health care professionals. 
About 108,000 students a year get some or all of their training 
in VA facilities through affiliations with over 1,000 
educational institutions.
    The program provides training to medical, dental, nursing 
and associated health care professional student to support VA 
and national work force needs. Have you looked into this--in 
other words, we're looking at training hospitals in Medicare 
and Medicaid and how we pay for it. But the VA, evidently, is 
the largest trainer of doctors. Is that through the VA funded 
system that we have this?
    Mr. Baine. Yes. It's through the VA funded system. As Bill 
said, with the affiliated institutions.
    Mr. Shays. Right.
    Mr. Baine. With the--VA has affiliation agreements with--
I've forgotten exactly how many universities and medical 
schools. And VA sees it as part of its mission, the mission to 
train residents and other health care providers. We've done 
some work with regard to the affiliation agreements. Bill's 
group has done a fair amount of work with regard to the 
affiliation agreements and found some problems.
    Mr. Shays. Yes. Let me ask him. Mr. Merriman, I'm going to 
have you respond. But I'll introduce this question. Is it 
almost the sense that the tail is wagging the dog? Is the VA 
saying what they want or is it the affiliates saying what they 
want?
    Mr. Merriman. We had problems in the past that we thought 
that the VA wasn't using the leverage it had to direct the 
affiliations along the lines that would be more appropriate for 
the department. It's another area that Dr. Kizer came to us on, 
asking for what we had found in the past with respect to 
affiliation problems. And he had a major initiative to go out 
and restructure the agreements with the affiliations and the 
Department. I guess I'd ask Mr. Sullivan to elaborate a little 
bit more on some of our work in that area.
    Mr. Sullivan. Yes. In regard to the number of affiliations, 
the VA--in their 173 hospitals--120 of them are affiliated with 
major universities around the country. Dr. Kizer, in one of his 
initiatives in which we also participated, has addressed the 
resident issue, the issue you brought up earlier--or Mr. 
Pappas, I believe, brought up about the schools being paid not 
to train residents and so forth.
    Mr. Shays. Yes.
    Mr. Sullivan. Dr. Kizer's study has resulted in a decrease 
in the number of residents that are being trained by VA. I 
think his program calls for a 3-year process where the number 
of residents decrease by X percent each year.
    Mr. Shays. Does it represent a cost to the VA or a benefit? 
In other words, sometimes you get the residents and they stay 
up 30, 40 hours before getting any rest and do a lot of the 
yeoman work. So how does the VA view this, as more of a benefit 
or a cost?
    Mr. Sullivan. I think it becomes a benefit. We had problems 
in the past about overuse of the residents in place of the 
attending physicians that VA would expect to have caring for 
their patients. But I think the decrease in cost is also vital. 
I think that has helped, and will help in the future as they 
have a decrease in the number of residents.
    Mr. Baine. One other of the tensions, I think, in the 
business with the affiliations agreements and the residents and 
so forth is that historically and traditionally, many of the 
specialties and subspecialties have been trained in VA 
facilities. As VA moves to a more primary care type model, 
that's creating some tension with the affiliated institutions 
as to whether we're going to have primary care doctors or 
whether we're going to have specialists and subspecialists.
    Mr. Shays. When I was in the Peace Corps, they were 
constantly doing tests on--trying to determine what volunteer--
let me back up. They had a high rate of volunteers not 
finishing their assignments--in some cases more than 50 
percent. So they'd invest money. They'd send a volunteer to a 
country. The village would be excited. And the next thing, the 
volunteer leaves and the village is very unhappy.
    And we made more enemies than friends sometimes. So there 
was a study to decide--a lot of studies to decide who would 
make it and who wouldn't. And I began to think that, in some 
cases, they were playing with our minds. I mean, they took 
married couples and would say some things to one select group. 
And they would take another group--in the experience that I 
had--and say something quite different, and see how we would 
react.
    Then when I got my MBA, I read some of the studies that 
they had done on us, which, having been in Government a long 
time, I get the feeling sometimes the Government is quite 
willing to do things that in the private sector we wouldn't 
condone in terms of using the Army, in a sense, as guinea pigs 
for seeing where we're headed here and what would be the 
outcome.
    And I'm raising, maybe, a sensitive question: do you have 
information that would make us want to look at this? Is there a 
tendency to use the veteran population as an opportunity to do 
certain tests--psychological or physical--that we might not see 
happen in the private sector? Do they represent a control group 
that becomes a real temptation for the associate hospitals?
    Mr. Merriman. That was a long introduction to a question. I 
don't think that it's any different than any normal teaching 
hospital. In other words, the residents are there for training. 
And an individual patient may be looked at by more--more 
physicians in training than normally would be the case. But I 
think it's a----
    Mr. Shays. OK. I'm looking at the issue of a company 
culture, in a sense. We know that the military much less 
sensitive than the private sector to the USAFE chemicals. You 
can have a soldier in the Persian Gulf spraying lindane on 
Iraqi soldiers as a disinfect, et cetera, in an enclosed tent 
without ventilation and without any effort to accommodate 
temperature.
    And they can do it all day long, day in and day out, 
whereas in this country we would never, ever allow that to 
happen. We can have chemicals on military bases that are 
exposed to the environment that we would not allow in the 
private sector. We aren't closing down some military bases 
because of chemical abuse and cleanup costs. I'm just talking 
about a culture. Is there a culture in the VA that is more 
similar to the DOD model than the private sector model?
    Mr. Baine. My experience, and, I think, that of Jim would 
indicate that that, perhaps, was more of a problem 20 years ago 
than it is now.
    Mr. Shays. OK.
    Mr. Baine. In terms of experimentation and those kinds of 
things, there have been some instances where VA was doing 
research on atomically exposed veterans and so forth. And there 
were some stories and tales that came out of those experiences. 
My sense is that there is much less of that now, although we 
haven't done any specific work about that.
    Mr. Shays. Let me say this--if either of you have a sense 
that that may not be accurate, I would want the committee to be 
notified.
    Mr. Baine. We'll do that.
    Mr. Shays. I realize that it would be foolish to comment on 
something you don't have any--your point is that you don't have 
the concern I have. But if you find that there may be in a 
certain area, I would want you to contact the committee and 
then we could pursue it quietly and see if there's any 
substance to it.
    Mr. Baine. We'd be glad to.
    Mr. Shays. Any closing comments that any of the four of you 
want to make before we adjourn? Mr. Sullivan.
    Mr. Sullivan. I just might mention two issues: benchmarking 
and broadcasting. I think what we're finding in a system as 
large as VA is, that there's a number of good things that go on 
around the country that we found in our audits.
    We like to report those things. And what we tell the 
Department is, they should broadcast those things. And we found 
a number of those things along those lines. I think that's 
something we have to bring forward to the committee: the good 
and the bad.
    Mr. Shays. OK. Mr. Linz, do you have any comment you want 
to make?
    Mr. Linz. Yes. One of the things I'd like to go back to 
is----
    Mr. Shays. Just put the mike a little closer and push it 
down a little bit.
    Mr. Linz. One of the things I'd like to go back to is a 
comment you made earlier about having four hospitals in your 
district and maybe only needing one.
    Mr. Shays. Right.
    Mr. Linz. And also the question of, well, what's wrong with 
VA attracting additional users. It creates a difficult policy 
decision because every patient VA attracts is one more patient 
taken away from a private sector hospital. So that's kind of 
the problem.
    Mr. Shays. Yes.
    Mr. Linz. If you've got a community that has one private 
sector hospital and one VA hospital, which one do you want to 
save?
    Mr. Shays. Yes. But the bottom line is, we delude ourselves 
if we think we're going to save a VA facility that is totally 
underutilized. I mean, the bottom line is, let's be up front 
and make a decision now rather than let it be strangled to 
death by underutilization.
    Mr. Baine. The issue, Mr. Chairman, of the VA 
infrastructure for health care, I believe is going to be an 
issue for some time. And it's an issue which the Members of 
Congress are going to have to face.
    Mr. Shays. Yes.
    Mr. Baine. And it's a real, real tough one, because it 
involves employees. You know, there are 220,000 employees in 
VA. And when you close a facility, that affects a lot of 
employees.
    Mr. Shays. It does. But if we can make the veterans, 
themselves, players in this process--if they know what the 
alternative is--what this country needs is some brave people 
who look at their own areas and say, ``Hey, listen. We've got 
to deal with this now.''
    Mr. Linz. Mr. Chairman, the work we did several years ago 
on the veterans' health programs in other countries basically 
showed that as veterans in those countries were given greater 
access to community hospitals, that demand for care in their 
veterans hospitals further declined, and eventually both 
Australia, Canada, the United Kingdom ended up closing their 
veterans facilities. They now provide all of the veterans care 
essentially through public hospitals and----
    Mr. Shays. The model that I particularly like is for a 
veteran to be able--I think the veterans obviously feel that--a 
variety of things. One, if they are dependent on the local 
hospital, that this so-called card that I make reference to 
could disappear overnight because there's not an infrastructure 
and a lobby group that could keep it, necessarily.
    So that's one legitimate concern. But my view is that the 
veterans hospital should be those hospitals that carve out 
particular expertise, and that we give the very best service to 
those veterans who have those particular needs. Transportation 
costs are so much less now that even moving people from one 
State to another, providing they get really great care, there's 
an acceptance level there.
    So let me just do one last thing that I wish I had done 
before I had asked what I thought was the last question. On the 
post-award audits: I was trying to think, well, why would the 
Government want to allow people to cheat the system either 
intentionally or not intentionally, but, ultimately, short 
change the taxpayers by denying a post-audit. And I gather the 
post-audit can be expensive for the private sector? Is that the 
argument?
    Mr. Merriman. Can be expensive in the private sector?
    Mr. Shays. In other words, that they have to, then, respond 
after the fact?
    Mr. Merriman. They would argue that there's cost involved 
to the post-award audit. Obviously there's some. But in today's 
modern environment, what we do is pull their automated sales 
tapes and compare them. What we're really looking for--they 
come to us, and we say--we strike a contract with them and say 
that we want the best price that you give for a comparable 
customer.
    We may not always be the comparable customer for what we're 
buying. So we may not get the lowest price. But we want the 
best price for a comparable customer. And that if there's been 
adjustments to these prices over time, that we'd like to know 
about it and realize the benefits from it. That's what we're 
checking for. And basically, we can do that fairly quickly by 
pulling their automated sales tapes and taking a look at what 
their sales are.
    Mr. Shays. So there's not as big a cost to them other than 
to defend their actions, but there could be a big cost to them 
if, in fact, they had not followed the law the way they're 
supposed to and then had to adjust their price, which would be 
a legitimate reason to want the post-audit?
    Mr. Merriman. Yes.
    Mr. Shays. I'm trying to think logically why the people who 
defend the taxpayers would even honor this process. I'm trying 
to be a little sympathetic to why I'm surprised that this is 
already in the stage where we're in comment, and wondering who 
would have wanted to promote it. So we're going to obviously do 
some checking on this.
    Mr. Merriman. You'll find it comes under the mantle of 
procurement reform. And there's many good things being done to 
streamline procurement and to reform it. This is an area that, 
I think, we've demonstrated, needs to have the oversight that 
we're providing to it.
    Mr. Shays. Yes.
    Mr. Merriman. And it can't be done on a pre-award basis, 
which is what some people would say.
    Mr. Shays. A pre-award basis means once the price is there, 
you've got to live with it?
    Mr. Merriman. That's right. They'd say that when the 
contractor comes in, we have the opportunity to audit his 
proposal at that time. But the kinds of contracts we're dealing 
with in pharmaceuticals and medical supplies and equipment deal 
with hundreds of contractors coming in for contracts that 
stretch over years with thousands of items on them. We cannot 
catch all the problems at that point.
    Mr. Shays. And I think I have sympathy for their view. 
Their view might be that if you told them that they had to sell 
for less, they wouldn't have sold. So in other words, if they 
were selling a particular good at $100, and you determine they 
had sold it to someone else for $90, you could then go back and 
say, ``For all of those, we want the $90 price instead of the 
$100 price.'' They would have to take that hit of $10.
    Whereas, if you did it up front, they might say, ``We may 
have sold it for $10 somewhere else, but we made a mistake. 
We're not going to sell it to the Government for $10, so we'll 
just lose out on the sale.'' In other words, the advantage of 
doing it up front is they say, ``Fine, we won't sell.'' 
Whereas, doing it after the fact, they've already sold it and 
then have to make up the dollars. I'm trying to think of the 
most logical argument for why it's gotten this far. That seems 
logical to me.
    Mr. Merriman. All we would say is, either up front or 
afterwards, abide by your contract.
    Mr. Shays. OK.
    Mr. Merriman. And commercial contracts aren't immune to 
these same things.
    Mr. Shays. OK.
    Mr. Merriman. We've seen commercial contracts where one 
commercial firm will put in a provision that they have a right 
to audit the contracts of their suppliers, or that they have a 
right to price reductions.
    Mr. Shays. Right. Well, that's a very strong argument. 
Well, this will be something we'll take a look at in the 
committee, and then maybe do even more on it. But we have a 
comment period that's ending pretty quickly?
    Mr. Merriman. I believe the comment period has ended. 
Comments are being considered by GSA at this time.
    Mr. Shays. OK. I thank you. Any other additional comment 
before we adjourn? With that, thank you for all your good work. 
I look forward to working with you all again. This hearing is 
adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the record follows:]
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  OVERSIGHT OF THE DEPARTMENT OF EDUCATION: MISSION, MANAGEMENT, AND 
                              PERFORMANCE

                              ----------                              


                        THURSDAY, MARCH 20, 1997

                  House of Representatives,
                   Subcommittee on Human Resources,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2247, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Snowbarger, Towns, and 
Kucinich.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; Doris F. Jacobs, associate counsel; Robert Newman, 
professional staff member; R. Jared Carpenter, clerk; Ronald 
Stroman, minority professional staff member; and Ellen Rayner, 
minority chief clerk.
    Mr. Shays. I would like to call this hearing to order, and 
welcome our witnesses and our guests.
    According to the President's 1998 budget, the Federal 
Government plays a crucial, if limited, role in providing 
education for a lifetime, from pre-school to adult career 
training. Leading that effort, the Department of Education will 
spend $32 billion next year on programs touching almost every 
aspect of American learning, from helping States teach 
disadvantaged elementary school students to providing college 
tuition assistance.
    Our witnesses today will help the subcommittee understand 
how well the Department of Education meets its crucial mission, 
and how well the Department limits its role in deference to the 
primary responsibility of State and local educators. Both are 
important measures of the Department's performance.
    Last year, both the Inspector General and the General 
Accounting Office told the subcommittee of serious problems 
with the Department's management and oversight of student aid 
programs. Of particular concern was virtually unregulated 
access to Federal tuition funds by private, for-profit 
institutions, or proprietary schools, without regard to the 
quality of their programs. Again this year GAO, the General 
Accounting Office, concluded complicated procedures, flawed 
structures, and weak management of student aid programs pose a 
high risk of waste and abuse of Federal funds.
    Today, the IG and GAO will review what progress has been 
made, and what problems remain, in the effort to maximize the 
effectiveness and maintain the integrity of Federal tuition 
assistance programs.
    Our second panel will comment on the Department's 
performance as an intergovernmental partner with the States, 
counties, cities, towns, and villages in the crucial task of 
educating Americans, young and old.
    This is a very interesting hearing for us. We appreciate 
the witnesses who will appear before us, and at this time I 
would like to invite vice chairman of the subcommittee, Vince 
Snowbarger, if he has any comments.
    Mr. Snowbarger. I will pass, Mr. Chairman. Thank you.
    Mr. Shays. Thank you.
    We have two panels. Our first panel is Thomas R. Bloom, 
Inspector General of the Department of Education, accompanied 
by Steven McNamara, Assistant Inspector General for Audit and 
Dianne Van Riper, Assistant Inspector General for 
Investigations. We also have Ms. Cornelia Blanchette, Associate 
Director of Education and Employment Issues, U.S. General 
Accounting Office, accompanied by Eleanor Johnson, Assistant 
Director of Education and Employment Issues.
    Would there be anyone else who might be responding to a 
question?
    Ms. Johnson. Yes.
    Mr. Shays. We have Harriet Ganson and Jay Eglin, if you 
both would stand as well when we swear witnesses. That way we 
won't have to swear you in later. We swear in all our 
witnesses, including Members of Congress, when they testify; so 
if you would stand we will administer the oath. Raise your 
right hand.
    [Witnesses sworn.]
    Mr. Shays. For the record, all of our witnesses have 
responded in the affirmative. I guess we will start with Mr. 
Bloom. Is that the way you want to start?
    What I want to do, we are going to turn on the light. It is 
5 minutes and then we will leave the red on a little bit, and 
then we will turn the green on again just to give you a sense 
of how long you are talking. Your testimony is important so you 
should feel to give it as you choose.
    I might at this time, even though the minority isn't here, 
but this is pretty standard practice, just do two housekeeping 
orders, I ask unanimous consent that all members of the 
subcommittee be permitted to place any opening statement in the 
record and that the record remain open for 3 days for that 
purpose, and without objection, so ordered.
    I also ask further unanimous consent that all witnesses be 
permitted to include their written statements in the record. 
And without objection, so ordered.
    So you can kind of ad-lib a bit if you want, but your full 
statement will be put in the record. Mr. Bloom.

    STATEMENTS OF THOMAS R. BLOOM, INSPECTOR GENERAL, U.S. 
    DEPARTMENT OF EDUCATION, ACCOMPANIED BY STEVE MCNAMARA, 
   ASSISTANT INSPECTOR GENERAL FOR AUDIT; DIANNE VAN RIPER, 
ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS; AND CORNELIA M. 
   BLANCHETTE, ASSOCIATE DIRECTOR, EDUCATION AND EMPLOYMENT 
ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY ELEANOR 
 JOHNSON, ASSISTANT DIRECTOR, EDUCATION AND EMPLOYMENT ISSUES; 
 HARRIET GANSON, ASSISTANT DIRECTOR; AND JAY EGLIN, ASSISTANT 
                            DIRECTOR

    Mr. Bloom. Thank you, Mr. Chairman, Mr. Snowbarger. I do 
have Steve McNamara, who is the Assistant Inspector General for 
Audits, and Dianne Van Riper, Assistant Inspector General for 
Investigations to help me answer some more detailed questions.
    You have asked us to address management and programmatic 
issues at the Department of Education. We have submitted to you 
a quite lengthy written testimony that we would like submitted 
for the record. We believe we have highlighted a lot of 
important issues in that testimony. But I would like to take a 
few minutes to highlight three or four of those issues that we 
think are the most important.
    The first issue would be I guess under the umbrella of 
systems and data integrity and personnel in the systems area.
    In the area of student financial assistance programs, we 
really have many of the characteristics of a good commercial 
bank. We make a lot of loans or we guarantee a lot of loans. In 
fact, our portfolio each year increases about $40 billion, for 
a current total portfolio of about $110 billion that we either 
own through the direct loan program or guaranteed through the 
FFEL program, so we are very much like a bank.
    As a former private sector bank consultant, I know a little 
bit about the banking industry, and banks are becoming more and 
more like technology companies. And the more--the better a bank 
is in technology in dealing with data and dealing with 
information, the more successful they are.
    So I'd like to kind of draw an analogy. If the Department 
of Education in some instances is a lot like a bank and a 
successful bank is a good technology company, the Department of 
Education, to be the most efficient and effective, should have 
a lot of characteristics of a good technology company. We 
should have well-integrated, well-designed systems to provide 
timely, accurate, and complete data. And you need the people 
power to make that happen. And that would start with a strong 
chief information officer.
    This will come as no surprise to anyone, but the Department 
has a long way to go before they would be recognized as an 
outstanding technology company. And we believe there is a lot 
of effort that needs to be put in that area. It is a formidable 
task, though.
    I was reading an article just a couple of weeks ago that 
said in the Washington, DC, area there is a shortage of over 
18,000 technical people, systems people. There is a huge 
shortage in the Washington, DC, area, and being in the 
Government sector, that shortage is probably even more acute.
    So it is a formidable task that the Department has to get 
us up to strength in the human resource effort but one that we 
really need to have a concerted effort to make sure that we 
have the best technology people that we could possibly have. So 
systems is a very important area, and we spend a lot of time in 
our written testimony talking about the importance of that.
    The last time I was here, you may recall, I addressed the 
vocational school situation, and I just want to highlight two 
things I highlighted last time. One is we believe that 
differentiation should be made between the way that trade 
schools, non-degree granting schools are regulated and the way 
a 4-year institution is regulated, and we just wanted to 
emphasize that again. We also want to emphasize the fact that 
we believe that non-degree granting programs need to have 
performance measures. We believe that there ought to be 
regulated performance measures.
    We have emphasized what we call the 70/70 where we believe 
at least 70 percent of the folks that start a trade school 
should graduate and 70 percent of those ought to have jobs. And 
I think those ought to graduate with jobs, and we believe those 
ought to be the minimum standards, and you have heard us talk 
about that before.
    Another important area has to do with a report that we have 
issued very recently. It has to do with matching income levels 
on the applications for student financial aid to what people 
put on their tax returns and the information that the IRS has. 
Currently, we do not and cannot verify the student loan 
application information with the IRS.
    We did do an aggregate audit within the last year and we 
found that in 4 percent of the instances, there was an 
understatement of income if you compared what the IRS has and 
what is on the application. In 4 percent of the cases our 
students said their income was less than what they reported to 
the IRS. And I am a strong believer in privacy. I am a CPA and 
a strong believer in income privacy. But I do believe that if 
you are getting Federal money, that the Department, with all 
the safeguards that are necessary, ought to be able to match an 
individual's adjusted gross income on their tax return to what 
was submitted in application.
    The law here, I guess, is fairly complicated, but I believe 
there probably needs to be a legislative fix to get the IRS on 
top of that.
    The last thing I want to mention is the year 2000 problem. 
You have probably heard others talk about it. I don't think the 
Department of Education is in any worse shape than any of the 
private sector companies or the other Government Departments, 
but it is important. It is something we need to focus on. It is 
something that the Department needs to focus on and it is 
something that we will be keeping our eyes on. Those are my 
comments for the oral testimony.
    Mr. Shays. Thank you very much.
    [The prepared statement of Mr. Bloom follows:]
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    Mr. Shays. Ms. Blanchette.
    Ms. Blanchette. We are pleased to be here today to discuss 
challenges the Department of Education faces in carrying out 
its mission.
    To begin, I'd like to focus your attention on two charts 
that we have brought to set the context for our comments.
    Mr. Shays. Can you hold on 1 second? Might I interrupt your 
statement, I am deciding whether we quickly vote now. We have 
10 minutes. Is your statement about 10 minutes?
    Ms. Blanchette. It is shorter than 10 minutes.
    The Shays. Then we will hear you out and go vote.
    Ms. Blanchette. As shown in the first chart to my right, 
more than $500 billion a year is spent on education in the 
United States, with the Department and other Federal agencies 
contributing about 9 percent of the total. The 9 percent does 
not include Federal student financial aid. That aid is in the 
``all other'' category.
    The importance of education to the well-being of the Nation 
is reflected in the second chart to my right. It shows the link 
between education and employment. The higher the level of 
education, the lower the unemployment rate.
    This morning I will discuss two major challenges the 
Department faces in striving to achieve its mission. First, 
ensuring access to postsecondary institutions while protecting 
the financial interests of the Federal Government; and second, 
promoting access to and excellence in elementary, secondary, 
and adult education. My discussion is based on work we have 
done over several years.
    The postsecondary student aid programs make available 
billions of dollars in loans and grants to promote access. 
However, access is becoming more and more problematic, 
particularly for low-income students as the cost of attending 
college increases.
    For example, a public college education has become less 
affordable in the last 15 years, a period during which tuition 
has risen nearly three times as fast as household income. 
Students and their families have responded to this 
affordability gap by drawing more heavily on their own 
resources and greatly increasing their borrowing.
    A growing proportion of Federal student aid for 
postsecondary education has been through loans rather than 
grants. Policymakers have expressed concern that this trend in 
financial aid patterns has diminished college access for low-
income students. Work we have done on the relative 
effectiveness of grants and loans in helping students stay in 
college until graduation indicates that this concern may be 
valid.
    While the Department's student aid programs have provided 
millions of students access to postsecondary education, the 
Department has been less successful in protecting the financial 
interest of U.S. taxpayers. Student aid programs still suffer 
from complex processes, structural limitations, and management 
weaknesses. In fiscal year 1996, for example, while the 
Department made more than $40 billion available in student aid, 
the Federal Government paid out over $2.5 billion to make good 
its guarantee on defaulted student loans. Student aid programs 
have many participants and each program has its own 
complicated, cumbersome processes. Further, with both the FFEL 
and direct loan programs, the Department has two programs that 
are similar in purpose but operate differently.
    Structural limitations are twofold. First, the Federal 
Government bears almost all the risk for loan losses, and, 
second, the loan programs now have more high-risk students who 
are from low-income families who attend proprietary schools 
than in the past. While both circumstances increase access, 
they also jeopardize the Federal investment.
    Management weaknesses include: (1), not adequately 
overseeing schools that participate in the program, thereby 
allowing extensive fraud, abuse, and mismanagement; (2), 
managing each program through a separate administrative 
instruct with poor or little communication among programs; and 
(3), using inadequate management information systems that 
contain unreliable data. Both the Congress and the Department 
have made changes that have likely resulted in some 
improvements; however, these changes have not been sufficient 
to resolve the Department's difficulties in managing the 
student aid programs.
    In promoting access and excellence in elementary, 
secondary, and adult education programs, the Department 
provides over $11 billion. The challenge for the Department in 
this arena is ensuring that these programs are providing the 
intended outcomes. To do this, the Department must make sure 
the programs have clearly defined objectives and that it has 
complete, accurate, and timely information about the programs's 
operations. In some circumstances, the Department doesn't have 
these prerequisites.
    The possible second challenge involves the proposed 
partnership to Rebuild America's Schools Act, which if enacted 
would be administered by the Department. If this proposed 
solution to the Nation's school facilities problem is enacted 
into law, the Department's challenge will be to ensure that the 
Department has qualified staff to administer the program and 
financial and information management systems to provide 
complete, accurate, and timely operational data.
    To meet its challenges, the Department must adopt improved 
management practices, the Results Act, the expanded CFO Act, 
the Paperwork Reduction Act, and the Clinger-Cohen Act provide 
powerful tools in the form of a statutory framework for 
improving agency operations and accountability. The Department 
has made progress in implementing these laws but work remains 
to be done.
    Mr. Chairman, this concludes my statement. I will be happy 
to answer any questions you or any members of the subcommittee 
have.
    Mr. Shays. Thank you.
    [The prepared statement of Ms. Blanchette follows:]
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    Mr. Shays. This is a challenge. I have a feeling that this 
is going to be a weird day because this is a motion to adjourn. 
I think this may be the only vote but there may be other 
motions to adjourn, so I am hoping we will be back in 15 
minutes, but if we are not, we will try to call up and give you 
an idea. We are in temporary recess.
    [Brief Recess.]
    Mr. Shays. Sorry for the delay. I thought there was going 
to be a second vote. What do I know? We will start with the 
vice chairman.
    Mr. Snowbarger. Thank you, Mr. Chairman. I am hoping that I 
can formulate this question correctly.
    I have always had some concern about the heavy involvement 
of the Federal Government in these student loans, particularly 
in direct student loans. And that concern has been on two 
fronts. No. 1, can we do it efficiently? No. 2, are we 
interfering, perhaps, with the private sector; are we competing 
with the private sector?
    I was just able to read the beginning section, the overview 
of this report, and glanced through the testimony that you 
provided in writing, and very frankly, my questions have not 
been answered. In fact, my questions have been heightened. And 
my concern is, can the Federal Government be effectively 
involved in these programs given the fact that it requires a 
massive amount of data gathering, analysis? Sooner or later we 
have to get into probably collection efforts, on and on. I 
mean, can we do this efficiently? Are there better ways to do 
it?
    Ms. Blanchette. I guess we can both take a stab at it. I'll 
make a couple of points and then turn it over to the IG and 
then perhaps Mr. Eglin, our Assistant Director, who handles 
most of our higher education work would have some further 
comments.
    A couple of observations, the Department spent a lot of 
effort, dollars and staff years, I'm sure, in terms of giving 
special focus to the direct loan program. And one of the 
comments and observations we made earlier in testimony was that 
perhaps it was to the detriment of the guaranteed student loan 
program. Because of that focus, the Department has actually 
done a pretty good job to date.
    Second observation: A lot of the activity involved with 
direct lending is actually done by servicers under contract, 
not directly by the Department: Servicers collect loans; 
service the loans while the student is in school; and do other 
activities that you would think the Department does because of 
the nature of the program but it is done under contract to the 
Department. And so that makes up for some of the perhaps 
shortfalls of the Department if it had to do those things.
    Mr. Bloom. I would certainly agree with those comments. But 
let me start and say that the FFEL program, which is a 
guaranteed student loan program, was severely broke 5 years 
ago, 6 years ago. And so something dramatic needed to be done.
    The good news about the direct student loan program is that 
it has focused the FFEL program to become a much, much better 
program. It concerns me that it took kind of what I think of as 
a dramatic move to get this old legislative program, which at 
the last hearing I think I showed you how it worked. It is a 
very cumbersome program. But they have come a long way. The 
FFEL program has come a long way with the added competition of 
direct loans.
    The GAO is right. There was a lot of emphasis placed on the 
direct loan program and it has come up reasonably well and 
reasonably efficient, but not as efficient as it could be if 
this was a technology company.
    So I guess we are better off now than we were 5 years ago, 
and I think most people would agree to that. Whether that's 
ideal or not, that's a good and fair question, one that could 
be debated on a lot of different fronts.
    Mr. Snowbarger. Well, both of you said in one way or 
another, we are doing a good job or we are doing a much better 
job. Who is ``we''? What are we referring to? Are we talking 
about both loan programs? Are we talking about the direct loan 
program versus the guaranteed loan program? Who is doing a good 
job?
    Mr. Bloom. Well, let me take a stab at it first. The 
guarantee loan program, particularly the guarantee agencies and 
the lenders, have really started to clean up their act. Let me 
back up and say that for a 1995 audit, the audit of the 
Department's 1995 financial statements, we got a disclaimer of 
opinion. We, the Department of Education, got a disclaimer of 
opinion because of how bad the data was in the FFEL program, 
the old program.
    Now, remember that's old information, that's 1995. But that 
is pretty dramatic. And those weren't the only problems in the 
FFEL program, but I think that it is kind of indicative of the 
data gathering problem that the guarantee agencies had and that 
the Department had to get that information.
    Things have gotten much, much better. Competition is a 
wonderful thing sometimes, and in this case, the direct loan 
program has been a wake-up call for the banks and a wake-up 
call for the guarantee agencies. And part of that--because of 
that competition, I believe the programs are better today. Now, 
whether that's the best way to do it going forward, interesting 
debate.
    Ms. Blanchette. I would concur, and I will allow Mr. Eglin 
to add.
    Mr. Eglin. I think that I agree that the competition, I 
think, has been good because it has allowed the guaranteed 
program and the participants, the lenders and the agencies, to 
be much more efficient.
    Also, as you know, the Congress has kind of tweaked some of 
the subsidies that were provided to the lenders and the 
guaranty agencies under the FFEL program, and what that has 
done, I think, is kind of more of a consolidation within that 
program to make it more efficient.
    The question still remaining is which is the best, and I 
think there's a lot of interest in that. There are some studies 
under way. The Department has a major study under way that is 
looking at many elements of the direct program in comparison to 
the FFEL program to see which one is delivering--which have 
been more efficient.
    Mr. Snowbarger. Again, I don't doubt the benefit of 
competition and what it's going to do. I just question who the 
competitor ought to be.
    The other question I have is about the inefficiencies of 
the guarantee programs: do you have some feel for the reasons 
for the inefficiencies? Was it the regulations that were placed 
on either the lenders, the schools, whatever? Or did it come 
from the Department not being able to follow through and 
followup on compliance?
    Mr. Eglin. It's probably a little of both. As we point out 
in the high-risk report, part of it is the structure in which 
the program was established. And it was established almost 30 
years ago and things are a lot different than they were then. 
And there is a lot more electronic information that can be 
processed much quicker. We don't need to have lenders as close 
to schools and students and parents as we did 30 years ago, so 
there are a lot of things that have changed.
    And the fact that we depend on lenders and guaranty 
agencies to keep our books contributes to some of the problems 
with the financial statements. By the time it gets to the 
Department there is a lot of validation that needs to be done. 
Some of the agencies and some of the lenders, not necessarily 
deliberately, the information is tough to be validated and that 
has contributed to a lot of our problems.
    So with that structure with thousands of lenders and 50 
guaranty agencies, plus all the schools and students, that's a 
lot of folks participating in the FFEL program. There is a lot 
of money involved, and a lot of small transactions. A lot of 
$2- and $3,000 loans. It is not like $100- and $200,000 
mortgages.
    Ms. Blanchette. To add to that, in that environment, as Mr. 
Bloom indicated and as we reported in our high-risk report and 
as I mentioned this morning, the data systems are horrendous. 
Not only do the different systems not communicate with each 
other or allow the Department to communicate across programs, 
in many instances there is no way to detect errors. And so with 
the many players and small-dollar transactions with different 
systems for different programs not communicating with one 
another, it just adds to the problem.
    Mr. Snowbarger. Are there things that we need to do 
legislatively to change the way that the system operates or are 
those internal within the Department?
    Mr. Eglin. Well, it is probably a little of both. I think 
the Congress has provided a lot of guidance and made a lot of 
changes to the statute, almost annually. And it's--it probably 
has contributed to some of the structure that the Department 
operates within. And conversely, as I think we also point out 
in the high-risk report, the Department in how it manages it, 
the data systems, as Ms. Blanchette mentioned, as well as some 
of the other problems, contribute to this. So it is not an easy 
fix. And I think what the competition between the two programs 
has done has allowed efficiencies to surface because of the 
fact that they were competing with another program.
    Ms. Blanchette. And to add to that, with improvements in 
financial systems and the information systems, some of the 
problems would be reduced, if not eliminated. Now that's not an 
easy effort and it takes a long time.
    Also, as we said in our statement for this hearing, with 
adherence to legislative mandates such as the CFO Act and the 
Clinger-Cohen Act with respect to technology, and the Results 
Act, if the Department can garner the discipline that those 
acts require, and do the things that they should be doing under 
those acts, then it should be able to improve the financial aid 
program substantially.
    Mr. Bloom. Again, I agree with just about everything said 
there. You asked what you all might do, what Congress might do. 
I think we need to look at the role of the guaranty agencies. 
And I guess to draw the picture, you have thousands of 
financial institutions and banks making loans and they work 
through I think it is 37 or 39 guaranty agencies. And all the 
guaranty agencies have different systems, different ways to 
format the data. I think we have to look at what guaranty 
agencies do, whether we need so many of them.
    Again, I'm a big believer in competition, but you know 
there are 37 of them. They don't really compete against each 
other. Maybe we need significantly fewer guaranty agencies. It 
is a pretty hot political issue, though.
    And then you asked has the Department--could the Department 
have done a better job? I think the Department could have rode 
hard on the guaranty agencies much more than they have, 
particularly I think in the last 10 or 15 years to get the 
data, to force them to get the data. The interesting thing 
about the 1995 audit is that it really was a catalyst to get 
the guaranty agencies to work with the Department, and their 
association, NCHELP, has been very interested in working with 
us to make the data better because they now see that it is in 
their better interest. There hasn't been enough pressure put on 
by the administration and we do have somewhat of a flawed 
design that you in Congress could take care of.
    Mr. Snowbarger. Let me follow up. Specific suggestions for 
legislation? You said that there are plenty of things that we 
could do, and that is nice, but I still haven't heard anything 
specific that we can do that you are proposing.
    Mr. Bloom. Well, I'll--I'll give you--there are three 
specific things in my testimony. They don't all relate directly 
to direct lending, but I'd like to get them to the record 
again. One is the IRS match. Give us the ability to get in and 
check our records with the IRS records. Very important to us.
    The other is performance measures for schools. There are 
bad schools out there that aren't educating these kids. Let's 
legislate mandated performance measures. Seventy percent 
graduation rate. Seventy percent placement rate.
    And the third thing would be separate regulations for the 
trade schools. The nondegree granting schools ought to be 
regulated differently than a 4-year university. Harvard 
shouldn't be regulated the same way as the Steve McNamara 
School of Beauty. They are different entities. I made that up. 
There is not----
    Ms. Blanchette. We were going to look into that, Steve.
    Mr. Snowbarger. Let me go back to the IRS match. We have 
gone through the process of applying for student loans for a 
child.
    Mr. Shays. You personally?
    Mr. Snowbarger. Me, personally. Yes. Me personally on the 
line for these things, too. I know I had to give an awful lot 
of information, including at least 1 year's tax returns, if not 
two.
    Are we assuming that people are giving fraudulent tax 
returns? I find it hard enough to fill out a form once, much 
less going back to fill out an IRS form the second time to 
defraud someone.
    Mr. Bloom. Well, they have. There are many people who have 
come up with fake 1040's. In fact, there have been ``marketing 
companies out there that have been in the business of producing 
fraudulent tax returns.'' So that's a big issue.
    The other thing is, and I don't know whether it's the 
regulations or the statute, we only ask for verification--it is 
a sample. It's 30 percent of the students actually have to 
bring their tax returns in for verification. It would just be 
so much easier if we could, we the Department, could send over 
the list with the adjusted gross income number, the social 
security number, and the name over to the IRS and the IRS could 
kick back those that don't match within a certain tolerance. We 
wouldn't want all the ones that are $1 off or $10 off, but they 
could send back the nonmatches so that the population that we 
would be looking at would be relatively small and there would 
be good reason for looking at it.
    As I said in my oral testimony, I am a big believer in 
privacy, and the Privacy Act, and privacy of our tax returns. 
But I think it is different when you are asking for Federal 
money. We ought to take whatever steps we can to ensure as much 
privacy as possible. But I do believe that match ought to be 
made.
    Mr. Snowbarger. Is that perhaps just as simple as having 
them sign a release?
    Mr. Bloom. This ends up being a fairly complicated question 
with the IRS. There are some folks that believe that the IRS 
could now do it, but there are folks at the IRS that believe 
that maybe they can't. It is a real tickling legal question. 
Steve.
    Mr. McNamara. We currently have a program called the Income 
Contingent Repayment Program in Direct Loans which makes people 
make payments on their loans according to their income and 
their ability to repay. To get into that program now you have 
to sign a waiver so that the IRS can tell us your income. So it 
would be probably something similar to what we currently have 
under ICR.
    What we found was that a lot of people lied. We had several 
people, four or five or six, who made somewhere between 
$300,000 and $1.6 million and they said that they didn't file a 
tax return. And so in our audit we turned up a lot of folks 
that made a lot of money that said they didn't file or didn't 
make any money. This would protect us from that.
    Mr. Snowbarger. Well, I hear you saying that at least for 
some programs you ask for that waiver to be signed, and the IRS 
is not cooperating with that? Or----
    Mr. McNamara. No, they are cooperating with the Income 
Contingent Repayment match. But that's only for that program. 
We don't have the authority--IRS is very reluctant to give 
anybody any information.
    Mr. Snowbarger. They may become a little more compliant 
here in a little bit if they're still around.
    Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman.
    I have a number of questions and I just want to preface it 
by saying that the purpose of this hearing really is to educate 
the staff and your testimonies give a lot more detail and we 
are going to followup on it. But I am just wrestling in general 
with a number of different issues. I would like both of you to 
tell me where the Department is most vulnerable to waste, 
fraud, and abuse.
    Ms. Blanchette. Where in terms of which programs?
    Mr. Shays. Yes. Just emphasize again where you think it is 
most vulnerable to waste, fraud, and abuse.
    Ms. Blanchette. Well, of course the postsecondary financial 
aid programs as a general category.
    Mr. Shays. That was the one that I really highlighted in my 
opening statement, because it seems to me, one, it is both in 
terms of process, but also in terms of the amount of dollars 
involved. Would you agree with that, Mr. Bloom?
    Mr. Bloom. Yes, absolutely. That's where we spend almost 75 
percent of our time in the IG's office looking at student 
financial assistance.
    Mr. Shays. How much of the total amount of the Department 
of Education's budget is in higher education loans and grants?
    Mr. Bloom. Well--half. Plus remember we have the guarantee 
portion--the guaranteed financial loans that are kind of above 
and beyond. That's a contingent liability and $40 billion a 
year goes out in that program, but of course we only pay out $2 
billion a year in guarantees.
    Mr. Shays. $2 billion, is that covering losses?
    Mr. Bloom. That's the losses. Not net of recoveries, but 
the gross loss number.
    Mr. Shays. And then we recover some?
    Mr. Bloom. Yes. In fact, recently we have been recovering 
almost as much as we have been losing. But that's--remember, we 
are collecting----
    Mr. Shays. You have a big pile.
    Mr. Bloom. You have a big pile from which you are 
collecting from and at some point that pile is going to 
dwindle.
    Mr. Shays. Let's just take higher ed, loans and grants 
aside, and then tell me where the biggest area of potential 
waste, fraud, and abuse is.
    Mr. Bloom. I guess this probably relates to student 
financial aid to a certain extent but it really is the systems 
area. The other programs tend to be pretty straightforward 
grants out with pretty good controls in a lot of instances.
    Mr. Shays. I will get back to the chief information 
officer, because I want to pursue that a second.
    Ms. Blanchette.
    Ms. Blanchette. I'm hard pressed to identify a particular 
program, but I will say--and there are certainly lots of 
probably programs that we haven't looked at in detail but for 
the few that we have over the course of a number of years, the 
problem with accountability is the nature of the beast. So to 
speak, education. We have the Federal Government supporting 
education in this country, but the responsibility lies with 
States and the control is at a local level. So even when 
Federal funds are used to help disadvantaged populations----
    Mr. Shays. You are not always sure how it is spent.
    Ms. Blanchette. We are not sure how it is spent and that is 
by design.
    Mr. Shays. So what I am hearing you say is that if there is 
a grant application, you look at the grant, the grant makes 
sense, but there is a lot of flexibility in how the grant is 
spent and not necessarily tremendous oversight.
    Ms. Blanchette. Right, absolutely.
    Mr. Shays. Isn't there another problem in the Department 
that you have a lot of small grants without any critical mass?
    Ms. Blanchette. That's right.
    Mr. Shays. There are some grant programs that are not 
funded that are on the books. I remember we eliminated a number 
of them, and I remember the political heat that we took for it 
and they hadn't been funded for years. But it didn't matter 
because they had some great sounding names and it sounded like 
I had lost my mind in not wanting these programs to continue. 
So one would be a concept of critical mass, a lot of little 
programs and a lot of oversight.
    Have we ever taken a look at some of these smaller programs 
and figured out the administrative costs versus how much 
actually gets out into the field?
    Ms. Blanchette. We looked in general in terms of the money 
that goes to SEAs, and I'll let Eleanor Johnson talk about that 
because she led that effort.
    Mr. Shays. She is looking at you like she doesn't want to.
    Ms. Johnson. I have my magic pin.
    We did look on some very small studies at Chapter 1 several 
years ago and we looked how the money was spent on the local 
level. Seventy-three percent went right to the classroom 
directly. There was another, I believe, 18 percent that went 
for support services of various sorts and only 10 percent went 
to administration.
    Generally, there is a specific amount, a specific 
percentage of the grant which is set aside for administrative 
purposes. To our knowledge, there has not been a case where 
more than that amount has actually been spent on administrative 
things and not gone to the classroom.
    Mr. Shays. The Chief Financial Officer has been around for 
how long now?
    Mr. Bloom. The Chief Financial Officer Act was a 1990 act.
    Mr. Shays. Right. But how long have we had a Chief 
Financial Officer?
    Mr. Bloom. Since 1991.
    Mr. Shays. Some departments took a heck of a long time. 
Have you seen a positive impact of having a Chief Financial 
Officer?
    Mr. Bloom. Absolutely. Of course, I was a Chief Financial 
Officer at a department.
    Mr. Shays. Well, you are disqualified.
    Mr. Bloom. I think it has been a tremendous impact. I think 
everyone would say the Chief Financial Officer Act has been a 
tremendous success.
    Mr. Shays. Ms. Blanchette, would you say tremendous or just 
a success?
    Ms. Blanchette. Well, I am not within the group at GAO that 
looks at implication of the Chief Financial Officer Act, so I 
don't know that I would want to distinguish between the 
successful and tremendously successful.
    Mr. Shays. Wouldn't you come in contact with the Chief 
Financial Officer in your work?
    Ms. Blanchette. GAO does, yes, and I would imagine--Mr. 
Eglin is over here saying yes.
    Mr. Shays. And do you have any opinion whether it has been 
a good positive or strong positive?
    Ms. Blanchette. I will let Jay answer this, but of course 
it has been positive because you have someone focusing on the 
financial.
    Mr. Shays. Not necessarily. I don't make that assumption 
nor do you actually, right? I mean, the intent is good and so 
on, and so it would be logical, but I don't know if it is 
really working.
    Ms. Blanchette. Right.
    Mr. Eglin. I think that in the student financial aid area 
it has made a significant impact on making some improvements. 
As we have talked, there were a lot of problems with data 
integrity and accuracy in the data systems, and I think the 
Office of the Chief Financial Officer has done a lot to build 
that organization up and build up the systems to complement 
that.
    And as Mr. Bloom mentioned earlier, the Department has a 
set of financial statements together and however they may not 
have been able to get a clean opinion, that was pulled 
together. It has come a long way in the last couple of years, 
and I think we have seen the CFO has had a lot to do with that.
    Mr. Shays. The Chief Information Officer does not yet exist 
in the Department of Education, correct?
    Mr. Bloom. Actually, there is an Office of Chief 
Information Officer. They had named an acting chief information 
officer. I think he took that position in July 1996. Now Leo 
Kornfeld was the fellow who occupied that chair. Leo left 
earlier this month. He resigned. He retired. That position is 
now vacant. It is a very important position.
    Mr. Shays. We had one of the other departments that 
combined the CFO and the CIO, and I think that goes contrary to 
the intent of our legislation. I am not sure but I suspect that 
someone in that position in the private sector would be making 
a quarter of a million dollars.
    Mr. Bloom. At least.
    Mr. Shays. And just imagine how amazing it is to think in 
terms of the Department, the Social Security Department, the 
incredible information systems they have there, and their 
inability to compensate someone in a way that would be 
commensurate with the kind of benefit they could provide to the 
entire Nation.
    So I guess I am going to ask this question: Do you think 
that the Department is taking seriously the intent of our 
legislation that we really want a chief information officer and 
we want someone who is full time and who is going to be there a 
while?
    Mr. Bloom. Well, I believe they are certainly interested. 
I'd like to see them----
    Mr. Shays. Interested? Everybody is interested.
    Mr. Bloom. I'd like to see that level of interest 
heightened on that part. I would like to see them--and it may 
cost a few dollars--to hire a recruiting firm or whatever 
circumstances you need to find that person who wants to do some 
good government service. Many of us have taken pay cuts to 
serve in these positions, and I'd like to see a concerted 
effort to find that chief scientist from IBM or someone from 
Apple that would see this as a challenge.
    But you really have to have heightened interest to make it 
happen, and I think it takes secretarial involvement. When a 
secretary of a Department of Education calls you up and asks to 
you take a job, it's kind of hard to say no.
    Mr. Shays. The Government Performance and Results Act? Is 
it being taken seriously by the Department of Education?
    Mr. Bloom. I think the short answer is yes. In certain 
parts, they are doing a really good job on that, particularly 
the strategic plan side. They came up with a strategic plan 
earlier than was called for in the legislation. Actually, they 
were one of the first to have a strategic plan.
    They are in the process of completing their performance 
measures. They've asked us to take a look at them, and they've 
asked us to use a critical eye to make sure they're measuring 
the right things and they are going to measure them in the 
right way.
    You know, I think they've got a good start. Again, it is 
one of those things, we need to keep their interest, and we 
need to keep focused on it, and I think the Congress ought to 
continue to ask those questions and put the pressure on them. 
We are going to continue to ask those questions because, again, 
you have heard me say what you measure you get, and I really 
believe that we need to measure.
    Mr. Shays. Now, I basically have a few more questions. Do 
you have any more, Vince? OK.
    Getting to higher education loans--excuse me, let me just 
ask you about Head Start. There was a concern on the part of 
Congress that we were putting more money into the Head Start 
program than the communities were able to absorb. Did you have 
any sense that that was happening or a concern that that might 
be?
    Mr. Bloom. That's not anything that--I don't know the 
answer.
    Mr. Shays. It is actually HHS. I'm sorry. It's HHS. Head 
Start is an HHS program, and you would not--even though I view 
it as education, this would not--you would not interface with 
this in any way.
    Mr. Bloom. We haven't in the past. It is a good question, 
whether we should or not.
    Mr. Shays. One of the things we learned which was really 
shocking to us is that 49 percent of all the education programs 
in the Federal Government are outside the Department of 
Education. Which tells you that various chairmen of various 
committees wanted that education program and since they didn't 
oversee the Department of Education they just put it in their 
own department. But if we were really intending to have a 
Department of Education it would strike me that we would bring 
some of these education programs all in one area.
    Let me conclude on this last point, and that is we had an 
amazing hearing--I thought it was amazing. But we had a hearing 
that basically left me dumbfounded that we would have spent 
$750 million in 1 year for a school of cosmetology program. Are 
we finding that the money just goes where the proprietary 
schools manage to get students? If you told me we should be 
putting $750 million in student loans in cosmetology or to help 
fill the void of high-tech needs in the greater DC area, there 
is no contest to me. Considering that half the students in 
cosmetology never end up doing cosmetology.
    Mr. Bloom. That's an excellent point that really supports 
our saying if you put measurements on these schools for 
graduation rates and placement rates, then the job marketplace 
would determine where the students are.
    Right now, it is whoever is out there--whoever has got the 
best rope to rope in the students. Stay home some afternoon and 
watch what's on TV. Who's got the commercials on TV? It's the 
proprietary schools. It's the trade schools, the cosmetology 
schools.
    Mr. Shays. Your point to the committee is that if we want 
ultimately for it to go to where we might consider there are 
great national interests, that the mere fact requires that a 
certain percent have jobs will begin to kind of focus some 
money in those areas.
    Mr. Bloom. We believe that strongly.
    Mr. Shays. Mr. McNamara, did you want to comment?
    Mr. McNamara. Absolutely. Mr. Chairman, we testified a 
couple of years ago when we put out what we call the Hair MIR 
or the Cosmetology MIR; and basically what that said is what 
Mr. Bloom just said. That, right now, we make money available 
to students to go wherever they want to go; and unscrupulous 
schools that don't offer an education can get them in their 
program, leave them with no education and no way to pay back 
their loan; and millions and millions of dollars can be going 
to places where it doesn't do any good.
    What we recommended then is by simply putting measures on 
that that will require them, in effect, to be real schools, it 
should radically change the student aid program.
    Mr. Shays. Is there a question that you wish we had asked?
    And some of those who have accompanied the Inspector 
General and GAO, if you all would like to just make closing 
comment. I learn a lot from those who just sit and listen.
    Ms. Johnson, do you have any closing comment you would want 
to make?
    Ms. Johnson. We have been spending the last 3 or 4 years 
not really looking a lot, as far as elementary and secondary 
education is concerned, at the Department programs. We have 
spent most of our resources gathering basic information about 
some of the needs in education finance around the country.
    The question that really comes to my mind, do we know that 
the programs are getting the money to the place where we 
intended it to go? When I looked at some of the very excellent 
strategic plans that the Department has put out and also what 
they're looking at in terms of analysis, they're looking at a 
lot of program effectiveness, but they aren't necessarily 
looking at the financial management that goes along with that, 
except in very specific instances like bad data. And because I 
am with GAO and, therefore, financial management is close to my 
heart, that is one of the questions that I would ask.
    Mr. Eglin. I think most of the issues on the student 
financial aid side have pretty well been documented by the 
high-risk report that we issued, and that speaks for itself. I 
think those are issues that are still dear to our heart, also.
    Ms. Van Riper. We say in investigations that our work 
begins when other people's work ends, and the majority of our 
work in investigation is centering on the trade and the 
technical schools with the short-term programs.
    I would also second what has already been said about 
performance measures. We have a case inventory of about 325 
major complex investigations, 67 percent of which are of the 
larger entities like banks, guaranty agencies and schools. All 
of the school investigations are trade and technical short-term 
programs. Performance measures would go a long way in handling 
some of the fraud and abuse that we are seeing in student aid 
programs.
    Mr. McNamara. I don't have anything. Thank you, Mr. 
Chairman.
    Mr. Shays. Mr. Bloom or Ms. Blanchette, do you have any 
closing comments?
    Ms. Blanchette. I would just emphasize a point we made--
great time for my voice to go out; right? I would like to 
emphasize a point we made in our statement and that I made in 
my summary of the statement.
    The problems that the Department has in terms of its 
managing not only its higher ed programs but some of its 
elementary and secondary programs as well stem from I think a 
lack of discipline in management. It's not because there are 
people there necessarily who don't want to do a good job or who 
want to defraud anyone, but they come to work every day, and 
they probably spend their time putting out fires and taking 
care of problems rather than having systems in place that allow 
them to make sound, rational management decisions.
    And with improved technology, as Mr. Bloom indicated, and 
with some of the processes that have come into place because of 
recent legislation that we have mentioned here today, that 
discipline is going to be imposed on the Department as well as 
other Federal agencies. And if those systems remain in place 
and if oversight continues and, therefore, gives the officials 
an incentive to keep things in place, then I think things will 
improve. But in the absence of processes and systems that allow 
competent people to do their jobs, things aren't going to get a 
whole lot better.
    Harriet.
    Ms. Ganson. Yes, just in terms of what you were saying 
about what the committee could do, I think that what you have 
done in terms of the Results Act and the Clinger-Cohen Act has 
provided the framework for improvement. Part of the GPRA is to 
have consultations with Congress.
    This is a good opportunity for the committee to talk with 
the Department of Education about the strategic plan, about 
their performance measures, and about the financial management 
issues that Ms. Johnson talked about. I know that the 
Department has started the process of meeting with the 
committees and subcommittees about their performance plans and 
getting input in terms of what those measures should be.
    Mr. Shays. You just really triggered something that I was 
thinking that this committee should do and a number of us 
should go and meet, Mr. Towns, with the Secretary in an 
informal way, in their offices, and have them tell us where 
they're headed and get a sense that way of what they're doing, 
and then have a more formal hearing later on. I think that 
would be really interesting.
    I thank you for your contribution, and I would say to you 
that the Department of Education did not get as much attention 
from our committee in the past years as I think it will get in 
the next 2, so we look forward to our paths crossing a little 
more often.
    At this time, I am going to call our next and last panel. 
It is Beverly Sgro, secretary of education, Commonwealth of 
Virginia--please remain standing, and we will swear you in--and 
Paul Steidler, director of education reform project, the Alexis 
de Tocqueville Institution.
    Do you have anyone accompanying you or are all on your own 
here?
    Mr. Steidler. No, I do not.
    Ms. Sgro. No, I am on my own also.
    [Witnesses sworn.]
    Mr. Shays. Thank you very much.

      STATEMENTS OF BEVERLY SGRO, SECRETARY OF EDUCATION, 
   COMMONWEALTH OF VIRGINIA; AND PAUL STEIDLER, DIRECTOR OF 
EDUCATION REFORM PROJECT, THE ALEXIS dE TOCQUEVILLE INSTITUTION

    Mr. Shays. Why don't you, Mr. Steidler, just tell me what 
your institution is and where you're based; and then we will go 
with Ms. Sgro.
    Mr. Steidler. Yes. We are a think-tank based in Arlington, 
VA, that focuses on a number of issues; but education is one of 
the largest.
    Mr. Shays. OK. Welcome.
    Ms. Sgro. Thank you.
    Mr. Shays. You didn't have far to come, did you?
    Ms. Sgro. No, I didn't. I came from Richmond and did a 
little other business while I was here this morning. No moss 
grows under our feet, sir.
    It is a pleasure for me to be here with you, Mr. Chairman 
and members of the subcommittee. I want to start with giving 
you a little brief introduction of Virginia, because I think it 
is very pertinent to what you are attempting to do today.
    In Virginia, we have seriously addressed the issue of 
educational reform to meet the needs of all of our students in 
the Commonwealth. We accomplished a great deal with the support 
of our citizens and without the interference of the Federal 
Government.
    We believe, as do the citizens of this great country, that 
education is primarily a State function. The March 14, 1997, 
Wall Street Journal/NBC news poll reinforces this position. The 
poll indicates that almost half of Americans believe that the 
primary responsibility for education still rests with the 
States and local governments, a quarter see State government as 
having the primary responsibility for education reform, and 
only 13 percent think the Federal Government should play a 
major role.
    Virginia has established high academic standards that are 
measurable and understandable; Statewide tests that assess 
student performance on those standards; a system of 
accountability that ties school accreditation to student 
performance; and a system of public reporting that will provide 
the public with information on how we are progressing toward 
those standards at the school, school division, and Statewide 
level.
    The American Federation of Teachers recently reported that 
Virginia, and Virginia alone, received an exemplary rating for 
its standards in the four academic subjects of English, math, 
science and history. We involved over 5,000 citizens 
representing teachers, school administrators, parents, business 
persons, the State Board of Education and educational experts 
in this community effort by civic-minded individuals who 
volunteered their time. This process is in stark contrast to 
the failed efforts of the Federal Government that contracted 
with revisionist historians at the University of California at 
Los Angeles to produce a set of national history standards at a 
cost of $2.2 million.
    Virginia has accomplished these important educational 
reforms in 3\1/2\ years with no Federal funding. Governor 
George Allen and the citizens of Virginia believe that 
education is one of the most important responsibilities of 
State government, and we believe that we can continue to make 
progress without the excessive and sometimes inappropriate 
involvement of the Federal Government.
    I believe the role of the Federal Government should be 
limited primarily to two areas.
    The first is funding and coordinating the collection and 
dissemination of useful data that can be used by State 
policymakers to compare their State relative to other States. 
The U.S. Department of Education and other Federal agencies are 
in a unique position to collect, collate and distribute data 
relative to education and demographics that are helpful to 
policymakers. While this is an important function of the U.S. 
Department of Education, often the data is not published in a 
timely manner. Its usefulness is greatly decreased. If the 
Department were not attempting so many other programs, it could 
produce these reports in a more timely fashion.
    Second issue I think is important for the Federal 
Government is one that's kind of interesting since you have 
just had a very lengthy discussion on student financial aid. 
But I am still going to say that thing is a role that the 
Federal Government should be playing. However, I will add the 
caveat that I think it can be done much more efficiently and 
certainly in a more effective manner as well.
    College student financial aid has been relatively 
successful for students because these programs are established 
to provide loans and grants directly to students. In fact, 
these programs should be and probably are a good example of 
vouchers to students. It is important to have these programs 
administered from the Federal level since it gives students 
greater flexibility and greater choice.
    Attending out-of-State institutions is possible because the 
money can follow the student. In fact, it would be advantageous 
if Federal aid to public education were distributed in much the 
same way for students--a specific amount per student could be 
allocated to each State. And the money would follow the student 
no matter where the student attended school--be it a charter 
school, a public school, or other type of facility.
    But all of us know, the reach of the Federal Government 
extends well beyond these two functions. Its role extends well 
beyond its contribution.
    Since inception, the budget of the U.S. Department of 
Education has doubled; and, at the present time, there are 760 
Federal education programs in 39 different departments and 
agencies.
    A compelling example of the disproportionate role of the 
U.S. Department of Education is illustrated by its involvement 
in special education programs. When the Education of the 
Handicapped Act--now the Individuals with Disabilities 
Education Act--was passed initially, the Federal Government 
indicated that it intended to fund 40 percent of the costs 
associated with the legislation. Currently, however, Federal 
funding covers only 8 to 9 percent of the mandates in special 
education. States and local governments cover more than 90 
percent of those costs. In Virginia, the State contributed $158 
million to its special education requirements. Localities spend 
another $520 million. The Federal Government contributes only 
$57 million. Yet the regulations that are forced on local 
school systems by the U.S. Department of Education for special 
education programs are the most intrusive, pervasive and time 
consuming that school administrators face in any school year.
    Just recently, the Fourth Circuit Court ruled in favor of 
Virginia and against the U.S. Department of Education which 
argued that students in special education could not be 
suspended from school or expelled even when their dangerous or 
egregiously inappropriate behavior was in no way related to 
their disability. The U.S. Department of Education position 
defies logic and common sense.
    According to the U.S. Department of Education, a student 
with a minor reading disability could not be disciplined for 
striking a teacher, for bringing a loaded handgun to school or 
for selling drugs. Imagine the message this policy sent to our 
students. One student bragged to teachers and students that he 
could do anything he wanted because school administrators could 
not discipline him for any reason.
    Despite our best efforts to reason with the U.S. Department 
of Education, this agency threatened to withhold Virginia's 
allocation for special education even after our policy of 
disciplining special education students only when it could be 
established that their behavior was not related to their 
disability had been in existence for years.
    This type of interference in the rights of States to 
develop and administer policies is an usurpation of the State's 
role in education by the Federal Government. This particular 
case has been in litigation for more than 3 years.
    The role of the Federal Government should be reduced 
substantially, and the block granting of funds should be 
implemented. Similar to the model that Congress adopted in 
welfare reform, education matters should be turned over to the 
States so that each State can establish its own model for 
education reform.
    Some programs will be emulated by others, much like our own 
academic standards in English, math, science and history. Our 
standards of learning are being studied, and in some cases 
adopted, by more than 30 States at this time. Other programs 
that are less successful will be discarded. Thus, national 
success in educational reform will grow out of individual State 
efforts. Adopting this model will result in the decrease of the 
hundreds of programs at the U.S. DOE that are ineffective. The 
money saved by reducing the Federal bureaucracy should be 
returned to the States and sent directly to the classroom, 
where students will benefit from these tax dollars.
    I hope that you will act now to strengthen and increase the 
flexibility that is presently purported and which was 
originally claimed. If you set general priorities, give us 
``true'' block grants and the room to work, States will produce 
results.
    There will always be a local, State and Federal partnership 
in education. However, in a true partnership, everyone has 
something to give, and none of the partners are perceived as 
intruders.
    Thank you very much for allowing me to address, and I would 
be glad to answer any questions.
    [The prepared statement of Ms. Sgro follows:]
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    Mr. Steidler. Mr. Shays, Congressman Towns, thank you for 
the opportunity to testify today about the U.S. Department of 
Education's mission, management and purpose.
    One of the most critical education problems we face today 
is the quality of elementary and secondary schools in the inner 
cities. Yet, there are a plethora of Department of Education 
programs that are of questionable value to students in these 
schools as the programs in large part benefit bureaucracies, 
teachers, and students that are not poor.
    The array of these trickle-down programs include a literacy 
program for prisoners, Goals 2000, professional development 
assistance for teachers, and even something called parent 
training.
    It is, however, the primary Federal education program for 
the poor, Title I, that should be examined most closely. Title 
I has a mixed history at best.
    Since its inception in 1965, Title I has been reauthorized 
eight times, most recently in 1994. The program, which has 
spent roughly $100 billion, was envisioned as a way to help 
disadvantaged children. Many studies have questioned its 
effectiveness. For example: In 1980, noted education scholar 
Jonathan Kozol observed, ``If Title I were not a mere expanded 
version of the errors of the past, we would not have more 
illiterate adults today than in the year in which that 
legislation took effect.''
    A 1987 Phi Delta Kappan report found, ``The children who 
are tutored under Chapter 1--now Title I--do somewhat better on 
the average in the basic skills in the early grades than 
similarly disadvantaged pupils who have not been tutored. But 
by the middle grades this advantage disappears.''
    In 1992, the Commission on Chapter 1, a group of 28 
education leaders, criticized the $6.1 billion program--then in 
52,000 schools--particularly for its practice of pulling out 
students from regular classes for extra help, thus stigmatizing 
them.
    The U.S. Department of Education's Final Report on the 
National Assessment of the Title I Program, released in 
February 1993, stated, ``The program today does not appear to 
be helping to close the learning gap.''
    Is Title I now meeting its purpose of improving educational 
opportunities for low-achieving children living in low-income 
areas? Currently, an area is eligible to receive Title I funds 
if it has at least 10 low-income children and these children 
represent just 2 percent of the student population. At the risk 
of stating the obvious, many areas that are not poor now can 
and do receive significant amounts of Title I funds.
    Title I funds are now increasingly being used for school-
wide programs which allow schools to, ``upgrade the entire 
educational program in the school to support systemic reform.'' 
As a result, this may lead Title I grants to serve 10 million 
children in 1998 versus approximately 7 million in 1996. This 
raises questions about the dilution of Title I aid to the 
neediest children.
    Indeed, there are other indications that the aid is not 
going to those who need it most. Research by the Alexis de 
Tocqueville Institution found that the 15 wealthiest counties 
in the U.S. received $56 million in Title I aid in fiscal year 
1996.
    Education Week, a highly respected publication in the 
education field, has also found disturbing signs about the 
program. It recently noted that Marin County, America's 
wealthiest county, will have 20 school districts sharing $1.2 
million in Title I money in the current fiscal year. In nearby 
San Francisco, Jefferson Elementary School, in a neighborhood 
with a 14 percent poverty rate, receives no Title I money.
    At a time of continued deterioration among inner-city 
schools and concern about the focus and effectiveness of 
Department of Education programs, there are three steps that 
Congress can take to bring education decisionmaking closer to 
the people who need assistance.
    First, Title I money could be provided in the form of a 
block grant so that States will direct the funds to the areas 
that need them most.
    Another alternative would be to allow States to use Title I 
and other Federal education funds in combination with State, 
local and private money to provide scholarship/voucher 
opportunities for students in problem-plagued schools. Here, 
low-income parents would have an opportunity to decide what is 
best for their children. The scholarship/voucher plans would 
immediately enable many of our most disadvantaged children to 
obtain a much better education.
    Third, Congress could reduce or eliminate many trickle-down 
programs to finance scholarships/vouchers. Modest savings of 
$500 million, for example, would provide enough money for over 
165,000 poor children to have a $3,000 voucher to attend a 
private or parochial school of their choice. Bolder measures, 
of course, would have more of an impact.
    I thank you for your time and look forward to your 
questions.
    Mr. Shays. Thank you very much.
    [The prepared statement of Mr. Steidler follows:]
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    Mr. Shays. Basically, two messages are coming through loud 
and clear. Some of it gets more into an ideological debate than 
a debate on, say, financial or data information.
    The general message I'm hearing from the Education 
Secretary of Virginia is that you believe that the Government's 
role should be limited and primarily in two areas. The message 
I'm getting from you, Mr. Steidler, is that you believe that 
the money is misdirected to wealthier areas primarily--and 
what?
    Mr. Steidler. I believe that we are not getting the maximum 
bang for the buck of money that's going out there. There are a 
lot of places that are getting money that clearly do not need 
it as much as other areas do.
    Mr. Shays. The report--no one can accuse me of self-
interest, since Fairfield County, which I represent, is one of 
your targeted 15 communities. But what would be helpful is to, 
say, take Bridgeport, which is one of those communities in 
Fairfield which is 1 of the 10 poorest in terms of the number 
of students who are poor per capita in the country. So you have 
a Fairfield, CT--not the county, the town of Fairfield--which 
has a 3-percent minority population and a very wealthy 
community next door to Bridgeport, CT, which has an 85-percent 
minority population.
    I would generally agree with you that, for instance, one 
reason why we tried to change the school lunch program was that 
we subsidize all children 30 cents for school lunches--all 
students. And given my congressional salary of $133,000 and my 
wife's salary as a teacher, we make approximately $200,000. I 
am dumbfounded to know why my daughter should be subsidized.
    What we allowed in our bill last year, 2 years now, was to 
allow State and local governments to direct money away from New 
Canaan, CT, for students who could afford lunches and direct it 
to the Bridgeports and the Stanfords in my district that 
couldn't.
    Which really leads me to a question: Isn't the real issue 
with the State departments, local departments, that they would 
just like a little more flexibility on how they spend the 
money? Could you elaborate on that?
    Ms. Sgro. Yes, that is one of the most difficult things for 
us, is that we have the opportunity to acquire Federal money, 
so to speak, and then it comes with so many regulations with it 
that it becomes, in some cases, very, very difficult for us to 
manage the money and to put it exactly where we want it, which 
is in the desk with those little children in the classroom. We 
want to get all of that money there, but sometimes we don't 
have the flexibility, and a program that might be wonderful for 
California might not be very advantageous for Virginia.
    So the greater flexibility that we can have, the less 
tentacles that come with the dollars, the more likely we are to 
have real education reform and to have children who really are 
learning and are prepared for the work force.
    Mr. Shays. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Madam Secretary, what are your views on vouchers?
    Ms. Sgro. Virginia has not discussed vouchers in any formal 
setting at all. We have attempted for the last 4 years in the 
general assembly to institute--implement--get a bill passed for 
charter schools. We were unsuccessful in this last general 
assembly session. But Virginia, at this point, is not 
interested in vouchers per se.
    Mr. Towns. Thank you. Why do you think that vouchers are 
the solution? What happens to those children that are not lucky 
enough to get a voucher?
    Mr. Steidler. The first thing I would say, Congressman, is 
that providing vouchers and looking for systemic public school 
reform are by no means mutually exclusive issues. And I think 
one of the unfortunate things about the debate that has gone on 
is that, by saying that you support vouchers, you are somehow 
deemed not to support those changes that are going to affect 
public school reform.
    Again, I would just make that point that those two issues 
are by no means mutually exclusive; and whether one favors or 
opposes vouchers, that this should be recognized.
    I think another thing that is quite telling about the need 
for vouchers is that while hopefully the education system as a 
whole in many troubled areas will be fixed in the next couple 
of years, that is often scant comfort for the mother of a 7th 
or 8th grade child who is looking for an immediate way in which 
their child's education can be improved. And by providing a 
voucher or scholarship program to them, they are immediately 
able to get into a much better school and out of a school that 
might be chronically troubled and take a number of years to get 
fixed.
    I would also add that I think it's the option aspect that 
should be very important here for States and localities. By 
giving them the flexibility about how to deploy these funds, 
that that is something where they are going to be able to make 
the decisions that will be most appropriate for their 
communities.
    Mr. Towns. If the State does not assume, say, a certain 
academic level of excellence, then the Federal Government 
should not be involved in that at all?
    Mr. Steidler. I think----
    Mr. Towns. I want to make it very clear. And, of course, 
block grants do the kind of things that you are saying and then 
all of a sudden we realize that nothing is really happening. 
What role should the Federal Government play? After all, that 
is our money?
    Mr. Steidler. I'm not sure what role the Federal Government 
should play in that case.
    I would make the observation that I think one of the 
difficult things that we have now is that many people in 
communities feel very frustrated about pushing for education 
change because they perceive that there are controls in 
Washington that are in effect and that it is much more 
difficult to effect that change. And I think that by block 
granting money, you put the money closer to the people who are 
affected by it and you give them more possibility to petition 
those who can make change and who can institute meaningful 
reforms.
    Just getting back to the Title I situation, I would also 
make the observation that when Congress reauthorized the 
measure back in 1994, it has taken a stab at improving the 
program. Hopefully, the program will be improved and function 
much better than it has over the past 29 years or so since its 
initial inception.
    But I think that if you allow States and localities to find 
ways in which to deploy that money and make it much more 
effective, you are going to have more opportunity for getting 
the right deployment of funds and the right programs in place.
    Ms. Sgro. Mr. Towns, may I respond to that also?
    Mr. Towns. I was going to ask you to.
    Ms. Sgro. Thank you. I will jump in first.
    In Virginia, one of the aspects of our reform that we 
believe is critically important, first step was establishing 
standards.
    The second was to establish a testing assessment program in 
which the test is really designed to test the standards, which 
is kind of a unique idea and not very prominent idea across our 
Nation.
    The third part is probably the piece that you're asking 
for, and that is a report card. We are going to publicize how 
each school--how the children perform in each of those schools 
across the State, so that parents can actually see how well 
their children are doing compared with the other children in 
the State.
    We also have a component in our test that will allow us to 
compare our students with other students across the United 
States. That's an important mechanism.
    I believe that if Congress were to grant block grants to 
the States then States can be held accountable by the public, 
by the taxpayers, the people who are sending the money up here. 
They will have every opportunity to vote in, vote out those 
local school boards and influence the people who are running 
their schools; and I think people will be very intolerant if 
they see that one school is not performing well and another 
school is performing well.
    We have several measures on that report card, not just a 
single test. Let me assure you of that.
    I would not be a proponent of that. But looking at 
retention rates, looking at dropout rates, looking at 
attendance records of students and teachers and how many 
special education students are receiving services, those kinds 
of measures--what is the behavior of the children? How many 
serious disciplinary incidences have occurred in a school? And 
you want to see a school that is always improving, and a school 
that is not should be held accountable.
    Mr. Towns. Thank you.
    On that note, let me go into something else which I am 
certain you have heard it and this will not be brand new to you 
when I say it.
    One of the major criticisms of the Virginia new educational 
standards is that you rely too heavily on rote memory and not 
enough on critical thinking skills. How would you respond to 
that? I know it is not new. You have heard it.
    Ms. Sgro. I have heard it a few times, just once or twice 
in the last several years. Quite honestly, I would----
    Mr. Shays. Would you repeat your answer? Because he needs 
to hear it twice.
    Ms. Sgro. I would be so bold to say, Mr. Towns, that that 
really is a specious argument, that in fact our standards 
provide the academic basic skills, knowledge that a student 
needs to have in order to, in fact, do critical thinking, if 
you want to separate it. I do not think that you can separate 
critical thinking from what is taught.
    Clearly, if you don't know how to--you don't have the 
basics of fixing a car, you don't have any idea how those 
pieces go together, you are not going to be able, as a 
wonderful car mechanic, be able to hear it go down the street 
and do a diagnosis as so many of our best people do. The same 
is true in the academic arena as well. You have to know when 
certain wars were fought and who are major leaders for this 
Nation and be able to create the framework that goes with that. 
So I think that really and truly is a specious argument.
    Mr. Towns. Well, let me thank you for your comments and to 
say to you, Mr. Steidler, I am still concerned about those 
youngsters who, for some reason, that will not be able to get a 
voucher and be left out there, because something has to be done 
for them. And I am not sure I understand what you would do for 
them. That's not clear to me. I just wanted to say that 
important part.
    I understand in terms of--but the point is that those who 
are not fortunate enough, what would happen to them, that's the 
part that troubles me. And we might be leaving out somebody who 
has a cure for cancer.
    Mr. Steidler. Yes. I would just emphasize again that I do 
not believe that the two issues are mutually exclusive. We 
should have high standards and we should be willing to spend 
what needs to be spent to improve the quality of education in 
the public school system.
    I think another thing that is very critically important is 
that schools need to be freed up of regulations, but I think 
they also need greater flexibility in terms of how they 
operate. They need more ability to be able to reward those 
teachers who are the best and the brightest to pay them what 
they need, and they need the flexibility to get rid of those 
teachers who are incompetent or who are just not doing the job. 
And that involves making some fundamental changes in terms of 
how the schools interact with the teacher unions.
    You know, I'm not saying that a voucher program for a few 
children is going to be the silver bullet out there, but it 
does provide--it does provide a mechanism for many children to 
immediately get a much better education. I think it would also 
help put pressure on some systems that have been very 
unresponsive to change to undertake those changes that are 
appropriate.
    I would just like to make the final observation that it 
strikes me as very mindboggling that right now the 
administration has proposed what is, in effect, a voucher 
program for college students where somebody--someone who is 
making $95,000 a year can send their child to Notre Dame and 
get a substantial tax break on that or any private and 
parochial school of their choice; and we are not providing that 
same opportunity to those parents of secondary and elementary 
schoolchildren that are in areas that are quite troubled and 
need to get some immediate help.
    Mr. Shays. I am going to weigh in a quick second. May I?
    Mr. Towns. Sure.
    Mr. Shays. I would love to experiment, say, in the city of 
DC, with a voucher system; and I would love then to see its 
impact. But, right now, what we have done is we have imprisoned 
some students in some schools that are in pathetic conditions.
    Having said that, I haven't been to some of these schools. 
I have read about them. One of the things that may be 
interesting as a committee is to use DC, as kind of our testing 
area and also, just in terms of our information area, is really 
see how good or bad the DC schools are. And then just see what 
possible alternatives.
    I would quickly like to know why charter schools failed, 
because they seem to me to be a happy compromise between the 
voucher. Why did they fail in Virginia? Was it a partisan 
debate?
    Ms. Sgro. It was a partisan debate. Yes, it failed on a 
partisan vote.
    Mr. Shays. Was the VEA--do you call it the VEA there?
    Ms. Sgro. Yes, VEA. They weighed in very heavily against 
charters. They have been against charters since the outset of 
this debate.
    It was interesting, because Secretary Riley was there at 
the very closing week of our general assembly, and I certainly 
wrote him a letter. He was the guest speaker at the Democratic 
Caucus fundraiser, and I personally wrote him a letter and 
requested that he speak with the Democratic members of the 
general assembly to explain the benefits of vouchers, the fact 
that Virginia would be eligible to compete for additional 
funding to get them started. I think he was quite--of course, 
he is very much in favor of them but was not able to carry the 
day for really partisan reasons, unfortunately.
    Mr. Shays. But the administration here in DC, does it 
support the concept of charter schools?
    Ms. Sgro. Yes, very much so. It was an interesting week, 
because the President had just made his very strong endorsement 
of charter schools, Secretary Riley had, and just our 
Democratic Members in Congress were still reticent to pass a 
charter school law. And, in honesty, that is probably the very 
weakest charter school bill that has been put forward across 
the United States.
    Mr. Towns. I thank both of you for your testimony.
    Mr. Shays. Thank you both for being here. We appreciate you 
being here.
    Ms. Sgro. Thank you very much. We appreciate the 
opportunity.
    [Whereupon, at 12:05 p.m., the subcommittee was adjourned.]

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