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



 
     OVERSIGHT OF THE GENERAL ACCOUNTING OFFICE'S HIGH-RISK SERIES
=======================================================================


                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM
                             AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION
                               __________

                           FEBRUARY 13, 1997
                               __________

                           Serial No. 105-16
                               __________

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 H. 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 Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas                 CAROLYN MALONEY, New York
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida             MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South     ROD R. BLAGOJEVICH, Illinois
    Carolina                         DANNY K. DAVIS, Illinois
JOHN E. SUNUNU, New Hampshire
------ ------

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                   J. Russell George, Staff Director
                 Anna Miller, Professional Staff Member
                          Andrea Miller, Clerk
           David McMillen, Minority Professional Staff Member
          Mark Stephenson, Minority Professional Staff Member









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 13, 1997................................     1
Statement of:
    Dodaro, Gene L., Assistant Comptroller General, Accounting 
      and Information Management Division, U.S. General 
      Accounting Office, accompanied by Keith O. Fultz, Assistant 
      Comptroller General, Resources, Community, and Economic 
      Development Division, U.S. General Accounting Office; and 
      Henry L. Hinton, Jr., Assistant Comptroller General, 
      National Security and International Affairs Division, U.S. 
      General Accounting Office..................................     9
Letters, statements, etc., submitted for the record by:
    Dodaro, Gene L., Assistant Comptroller General, Accounting 
      and Information Management Division, U.S. General 
      Accounting Office:
        Information concerning exposure to fraud.................    61
        Prepared statement of....................................    16
    Hinton, Henry L., Jr., Assistant Comptroller General, 
      National Security and International Affairs Division, U.S. 
      General Accounting Office, information concerning military 
      officers...................................................    55
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California:
        Followup questions and responses.........................    88
        Letter dated February 13, 1997...........................    80
        Prepared statement of....................................     4
    Sessions, Hon. Pete, a Representative in Congress from the 
      State of Texas, prepared statement of......................     8











     OVERSIGHT OF THE GENERAL ACCOUNTING OFFICE'S HIGH-RISK SERIES

                              ----------                              


                      THURSDAY, FEBRUARY 13, 1997

                  House of Representatives,
Subcommittee on Government Management, Information, 
                                    and Technology,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 311, Cannon Office Building, Hon. Stephen Horn (chairman 
of the subcommittee) presiding.
    Present: Representatives Horn, Sessions, and Maloney.
    Staff present: J. Russell George, staff director; Anna 
Miller, professional staff member; Andrea Miller, clerk; and 
David McMillen, and Mark Stephenson, minority professional 
staff members.
    Mr. Horn. The Subcommittee on Government Management, 
Information, and Technology will come to order. Today's hearing 
is on the Oversight of the General Accounting Office's High-
Risk Series.
    We are going to take a look at what I have called the 
catalog of horrors, the areas of Federal agency mismanagement 
that the General Accounting Office monitors, and brings to our 
attention at the beginning of every Congress, that makes up 
this series. The GAO has done an outstanding job in going into 
the agencies, following a series of misadventures, and warning 
both executives and members of the oversight committees and the 
legislative branch as to some of the problems that exist.
    They have been compiling this list since 1990. And 7 years 
later, 10 of the original 14 areas are still listed as at high-
risk for fiscal mismanagement. Seven years is a long time. Long 
enough, one would imagine, for an agency that really wanted to 
improve its management of the funds entrusted to it to make the 
changes that would have tangible results.
    Not so, apparently, for those agencies that were 
characterized in 1990 as lacking the controls needed to ensure 
that Federal funds were not being wasted, stolen, or otherwise 
spent inappropriately.
    In many cases, the General Accounting Office noted that 
these agencies were aware of the problems, aware that they were 
not in compliance with the requirements of the Federal 
Managers' Financial Integrity Act, yet did nothing to correct 
the problems. And 7 years later in 10 cases, they still have 
done very little or nothing about it.
    As many of you know, the Federal Managers' Financial 
Integrity Act of 1982 required agencies to establish systems of 
internal control that would ensure that funds, property, and 
other assets were safeguarded against waste, loss, unauthorized 
use, or misappropriation.
    I think that something needs to be done to ensure that the 
Federal agencies make at least some sort of effort to comply 
with the laws that the Congress has passed. If they do not, 
then the executive branch is really out of control.
    The 10 cases that were on the initial high-risk list and 
have made so little improvement that they remain on that list 
year after year and Congress after Congress, include the 
Internal Revenue Services' receivables, farm loans, student 
financial aid, defense inventory management, defense 
acquisition system, asset forfeiture programs, Medicare 
fraudulent claims, and contract management in the Department of 
Energy, the National Aeronautics and Space Administration, and 
the Superfund.
    The Internal Revenue Service is what I have called 
repeatedly a basket case agency. Its collections rate is 
extremely poor, and the entire agency seems to have this mind-
set that makes them hunker down, think of excuses, and resist 
change, rather than try to improve.
    The debt collection legislation, which I offered and Mrs. 
Maloney, the ranking Democrat, co-authored, will improve debt 
collection throughout much of the Federal Government, but it 
has not yet applied to the Internal Revenue Service. But we are 
told that the Committee on Ways and Means will report a bill 
almost similar to our own. And yet a year has gone by.
    The IRS claims that it is hampered by privacy 
considerations. So we need to do more to encourage them to 
adapt and to make the attempt to collect from the deadbeat 
taxpayers what is owed to the other taxpayers. Because when 
they cannot collect what is owed, it means that the rest of us 
are paying the bills of the Federal Government. Agencies need 
to work together on this, to share information on the deadbeats 
before they hand out more money.
    And that is what got me into this thing, when I read about 
a farmer in northern California, who had a farm loan, and was 
defaulting on that. And then he gets a loan to get an apartment 
building in Santa Barbara, even though he was in arrears on the 
first loan.
    If we could root out this waste of Federal funds, we could 
go a long way toward balancing the budget. There are actions 
that the agencies can take that would immediately stop this 
hemorrhaging of funds. A foolproof ID card would certainly 
eliminate fraudulent claims. That has been done in Los Angeles 
County, and thousands of people suddenly quit claiming welfare. 
Because they knew that the 5 or 10 claims that they had filed 
under different names at different offices, that they would 
then have some criminal action taken against them.
    Checking on people's eligibility status would send a 
message that we are serious enough about paying benefits only 
to those who deserve them, and many of the disabled are not 
adequately paid. And if we could get rid of the people that are 
bogus disabled, we could help those that are really in need.
    It would cut down on improper claims if we had the proper 
identifications, and it would let more money go out to those 
who truly need it.
    It is possible to get off the General Accounting Office's 
high-risk list. Four programs from the 1990 series have gotten 
off. They were the Resolution Trust Corporation, the Pension 
Benefit Guaranty Corporation, the Federal Transit 
Administration Grant Management, and the State Department 
Overseas Property Program. The Bank Insurance Fund was on for 
only about a year.
    So it is possible to improve. The question is: why do the 
other areas not show similar rates of improvement? I hope that 
the General Accounting Office in its testimony today will shed 
some light on this.
    Today, we will also spend time discussing the five new 
areas added to the list in 1997, as new challenges for this 
Congress and this administration. Two of the new areas that 
were added are Information Security and the year 2000 computer 
problem. This subcommittee has been conducting active oversight 
in both of these areas, and will be doing more in this 
Congress.
    Also added are fraud in the Supplemental Security Income 
Program, the Defense infrastructure, and the Decennial Census 
for the year 2000. We will hear more about these areas from the 
representatives of the General Accounting Office.
    Mr. Gene Dodaro, the Assistant Comptroller General in GAO's 
Accounting and Information Management Division, will give an 
overview of the areas in the 1997 series. He will be 
accompanied by Henry Hinton, the Assistant Comptroller General, 
National Security and International Affairs Division, and Keith 
Fultz, Assistant Comptroller General, Resources, Community, and 
Economic Development Division. They will all be available, as 
will additional staff in the room, to answer questions in 
specific areas. And we look forward to your testimony.
    We will give the oath after the ranking member gives her 
opening statement. And I would ask the leadership of GAO that 
is here to decide who is going to testify besides you. And we 
will have one mass swearing in of whoever you suggest, Mr. 
Dodaro, rather than have to go through giving the oath every 
time somebody comes up to the table.
    So I am now delighted to call on the distinguished ranking 
member from New York, Mrs. Maloney.
    [The prepared statement of Hon. Stephen Horn follows:]
    [GRAPHIC] [TIFF OMITTED] T1799.001
    
    [GRAPHIC] [TIFF OMITTED] T1799.002
    
    Mrs. Maloney. Thank you very much, Mr. Chairman. And I 
welcome Mr. Dodaro to the hearing.
    As you know, I am a big fan of the high-risk series. I have 
always found the series to be a valuable tool for focusing our 
efforts in this committee, and in my own personal legislative 
agenda. So I thank you for this series. It is tremendously 
helpful.
    It is a sad commentary that so little progress has been 
made in these programs over the last 2 years. Most of the 
problems on the high-risk list have been there since the list 
began in 1990. But as you said to me yesterday, Mr. Dodaro, 
these programs are the culmination of years of neglect, and 
they cannot be fixed overnight.
    Let me turn first to the items added to the list this year. 
Information issue dominate the list of the new items. This 
reflects a belief that I brought to Congress from my experience 
in New York City, that good management practices begin with 
good information.
    I congratulate the GAO for adding the 2000 census to this 
list. I was dismayed by the report passed by this committee 
last year, which would prohibit the Census Bureau from using 
techniques that would make the census more accurate, more fair, 
and less expensive. I plan to work during this Congress to make 
sure that the 2000 census is as accurate as possible, and fair 
to all Americans.
    But problems with the census may just be the tip of the 
iceberg of problems with the Federal statistical system. 
Federal Reserve Chairman Greenspan has focused attention on 
problems with the Consumer Price Index, and we have seen how 
that affects our measures of productivity and the Gross 
Domestic Product.
    I hope that the chairman will work with me to pass the 
Statistical Confidentiality bill that we introduced last year, 
which will provide some of the tools necessary to prepare our 
statistical system for the 21st century.
    I would also like to draw attention to the issues that are 
important to this subcommittee: the year 2000 computer problem, 
and information security. The former was brought to public 
attention by this subcommittee. The latter is one that I have 
been concerned about, and look forward to working with Chairman 
Horn to see that Government agencies protect the information 
entrusted to them.
    I am dismayed to see that there is so little improvement at 
the Department of Defense. In fact, a new trouble spot has been 
identified, the inability of the Department to shrink the 
infrastructure to be parallel with the reduction in forces over 
the past 6 years. Meanwhile, problems with financial 
management, contract managements, and inventory management 
continue.
    Also, it is distressing to see so little progress at the 
Internal Revenue Service. While the GAO makes the point that 
HUD is the only agency where the entire agency is at risk, the 
IRS is not far behind.
    I am reminded of a prediction by my colleague, Senator 
Daniel Patrick Moynihan, that the United States would have a 
flat tax by the year 2000. Not that he supports a flat tax, but 
he said that it would be the only system that the IRS will be 
able to administer.
    There are a number of issues here, like Medicare, that 
highlight the importance of Congress and the administration 
working together. For too long, Congress has pressed the 
administration to speed up payments, and then turned around and 
beat them up over errors resulting from that haste.
    We need to work together to craft a system that does not 
delay payments to doctors and insurance companies, and at the 
same time, prevents fraud and abuse.
    I look forward to working with Chairman Horn on these 
issues on this committee. With GAO's help and cooperation from 
the administration, I am sure that we can make progress on many 
of these risky projects.
    I would like to end by saying that I appreciate the 
chairman's comments on the Debt Collection bill. That was a 
very exciting bill for me, to have worked together on it, and 
to have passed it, and to have a prediction from Treasury that 
it will bring in $10 billion over 5 years.
    I would also like to mention the work that we did on 
royalty collection, which I believe will bring in $2 billion, 
but it needs a lot more work. And I would just like to thank 
the chairman for his help in the past, and hope that he will 
schedule hearings on the royalty issue, and particularly the 
global settlements. Because it is very timely and important.
    Thank you very much.
    Mr. Horn. Well, we thank you.
    And now, ladies and gentlemen, if you have decided, Mr. 
Dodaro, who will testify with you, just have them stand, and we 
will swear them in.
    [Witnesses sworn.]
    Mr. Horn. I take it that there is affirmation from 
everybody, and the reporter will note that. Please be seated.
    Mr. Dodaro, may I say I guess before we start that we have 
an additional member, the vice chairman of the committee, Mr. 
Sessions, who has spent a lot of work on this.
    Would you like to make an opening statement at all?
    Mr. Sessions. Mr. Chairman, I am glad to be here today.
    [The prepared statement of Hon. Pete Sessions follows:]
    [GRAPHIC] [TIFF OMITTED] T1799.067
    
    Mr. Horn. I agree with you on that approach to opening 
statements.
    Mr. Dodaro.

 STATEMENTS OF GENE L. DODARO, ASSISTANT COMPTROLLER GENERAL, 
 ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL 
  ACCOUNTING OFFICE; ACCOMPANIED BY KEITH O. FULTZ, ASSISTANT 
    COMPTROLLER GENERAL, RESOURCES, COMMUNITY, AND ECONOMIC 
DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE; AND HENRY 
    L. HINTON, JR., ASSISTANT COMPTROLLER GENERAL, NATIONAL 
   SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL 
                       ACCOUNTING OFFICE

    Mr. Dodaro. Good morning, Mr. Chairman, Congresswoman 
Maloney, and Congressman Sessions.
    We are pleased to be here today to testify on GAO's 1997 
high-risk series. As you pointed out, many of these areas we 
have been tracking for the last 7 years. We have made hundreds 
of recommendations aimed at correcting the fundamental core 
problems of accountability underlying many of these high-risk 
areas.
    We have seen in the last few years progress being made by 
the agencies, as well as greater attention by the Congress in 
passing some specific legislative proposals and broad 
management reforms.
    However, none of these actions have yet come to fruition. 
And as a result, the 20 areas that we have been tracking since 
the 1995 series remain on the list, and we have not yet removed 
their high-risk designation. And as you pointed out in your 
opening statement, we are adding five new areas to the list.
    I thought I would focus my opening remarks on taking a 
quick tour through the 20 areas that are still on the list, and 
then discuss the new ones quickly. And then we can enter into 
some questions.
    As you pointed out, many of the areas focus on the Defense 
Department. Our focus there is focusing in on accountability 
for a large percentage of the Federal Government's budget, as 
well as making sure that Defense has a cost effective means of 
carrying on its mission.
    Many of these problems have been entrenched, serious ones 
for a number of years. Department officials to their credit 
have recognized the seriousness of the problems, in many cases 
for the first time, and are beginning to take some action.
    We have seen in the contracting area some effort to 
streamline the process. In the inventory area, there has been 
some attention to limited parts of the inventory, especially 
medical supplies and foodstuffs. The Department is trying to 
get on top of its billions of dollars in problem disbursements. 
And there are some efforts to reform the acquisition process by 
buying more commercially available goods, as well as the 
Congress implementing the new Federal Acquisition Streamlining 
Act.
    So we have seen some progress, but nowhere near what is 
needed to really correct these programs. And as a result of 
these problems not being corrected, we are at risk of 
continuing to make millions of dollars of overpayments to 
contractors. We are at risk of spending over several billion 
dollars of inventory that is not needed. As of 1995, about half 
of the $70 billion in defense inventory, or about $35 billion, 
was not needed.
    We are also at risk of not properly accounting for the 
Department's funds. No major component of the Defense 
Department has yet to receive a positive audit opinion. And the 
prospects of any part of DOD receiving a clean opinion are 
extremely dim at this time. We are also at risk for continuing 
to have inefficiencies in our weapon systems procurement 
process.
    And as a result of all of these activities, basically you 
have a department that accounts for over $1 trillion in assets, 
and accounts for $250 billion or about half of the total 
discretionary spending of the Federal Government, not able to 
have an accurate accounting for its activities and programs.
    And you are also at risk for billions of dollars of money 
being drained away from being productively invested in 
enhancing our military readiness, and also from being able to 
support properly the activities weapon systems that really need 
to be acquired and fielded in the Department to make sure that 
it is best able to enhance its mission.
    Now in the next area, we highlight problems not only in how 
the Federal Government accounts for money that it spends for 
its activities, but how it has difficulties in accounting for 
money that it takes in from the American taxpayers.
    Over the past 4 years we have been unable to render an 
audit opinion at the Internal Revenue Service, because of its 
ability to not substantiate balances of total amounts collected 
for $1.4 trillion in revenues with the account balances of 
individual taxpayers. They also have been unable to 
substantiate balances by type of tax.
    And we have been unable to verify the accuracy of accounts 
receivable, both the valid amounts for delinquent taxes, as 
well as how much is actually collectable and could be dealt 
with appropriately.
    The IRS has responded to some of these changes. We have 
seen some improvements. We now have a statistical sampling 
method with them to estimate accounts receivable. 
Unfortunately, it has not been carried out properly. So we 
still have problems there.
    IRS is making some efforts in better accounting for its $7 
billion in appropriated funds. They have about reconciled their 
fund balance with Treasury, and we are verifying all of these 
activities as we complete our 1996 financial audit of IRS, 
which will be out in the next few months.
    The problems remain, though. We are still a long way in the 
revenue accounting system from having full compliance with the 
Chief Financial Officers' Act. There are some interim measures 
that we have suggested that IRS is pursuing, but it is going to 
be some time before they get on top of these issues and have 
proper accounting for tax revenues.
    Also in the receivables area, we give IRS a bit of credit 
for accelerating collections, to try to get to these things 
faster in the process. Collections are up a bit, however, we 
still have serious problems related to the lack of good 
information to accurately measure the receivable balances, and 
actually go after effectively and collect these large amounts 
of money that are owed the Federal Government. So that problem 
remains a serious one.
    Also, filing fraud grew dramatically from 1991, where we 
had about 11,000 filing fraud returns to 77,000 in 1994. In 
1995, it came down to 62,000. IRS put in some better up front 
filters to screen out people, for example, who are eligible to 
do electronic filing. But the fact remains that we still have a 
serious filing fraud problem at IRS that needs continuing 
attention.
    There were still 60,000 returns filed in 1995 with 
estimated values of over $100 million; this is still a serious 
problem in need of attention.
    I would turn your attention to another one of the Federal 
Government's major activities, which is granting loans. We have 
about $1 trillion in loans and loan guarantees. The Federal 
Government is the largest lender in the United States.
    In the three areas that we have been tracking, we have seen 
important progress in the past few years, particularly in the 
farm loan area, with the passage of the Agricultural 
Improvement Act. The student loan area has had some success 
implementing previous congressional reforms, but it still 
remains at risk, because of the inability to have accurate 
information to measure the amounts of money that the Federal 
Government is liable for, and to effectively manage the 
collections process, and keep defaults at a minimum.
    HUD, which was the original impetus for the high-risk list 
back with the scandals in the late 1980's, remains a problem. 
They have made some progress in correcting some of their 
fundamental problems, which revolve around poor controls and 
systems. They have also had problems with clear organizational 
accountability between headquarters and the regions, as well as 
difficulties in having the appropriate number of skilled staff 
necessary to carry out their activities.
    They made some progress in each of those areas, but many of 
their actions are not yet complete. And we think that it is a 
good opportunity at this point to look at HUD and its mission, 
and possibly the need to consolidate some of its programs, 
moving forward.
    In addition, in that area, we think, as mentioned in your 
opening statements, that the Debt Collection Act that was 
passed is an important tool. And we are monitoring it as it 
unfolds over the next few years. And we supported the passage 
of that legislation, and think that will make a difference in 
these programs and other lending programs across the 
Government.
    In 1995, we added a major new category of information 
technologies projects. We added four multi-billion dollar 
activities on the part of the Federal Government, which have a 
great deal of importance.
    The IRS tax system modernization effort, which affects IRS' 
dealings with individual taxpayers and has a broad effect on 
the citizens; the air traffic control modernization effort, 
obviously of great import to national safety in carrying out 
the air traffic system; the National Weather Service, which 
gathers important data for weather forecasting purposes, 
particularly for severe activities; and, the Defense 
Department's multi-billion effort to revamp its information 
technology projects and information systems.
    We have seen a litany of problems in these areas. And there 
are some common problems that have been identified, and I will 
not go through each one right now. But some of the common 
problems are the failure to have the modernization activities 
governed by a well-defined plan and a business strategy: What 
exactly do we want to accomplish? This was at the heart of the 
IRS' problems, for example.
    No. 2, we have seen a lack of an overall systems blueprint, 
or technical architecture, for carrying out those activities.
    No. 3, we have seen Federal agencies, as they go through 
and develop software on their own, do it in a rather haphazard 
fashion. We have rated many aspects of the Federal Government 
according to the Software Engineering Institute criteria, and 
we found them to be at the bottom level, initial level, which 
means that the software development is ad hoc and chaotic. And 
that is the reason why you do not get quality systems developed 
on time and within cost and performance goals.
    The fourth area is that we found that Federal agencies are 
not much better at managing contractors developing software 
systems, either. This was true at the FAA, of defining 
requirements and monitoring the contractors. We found similar 
problems at IRS with their cyber-file effort that has been 
abandoned in the past year.
    Part of what we have done over the last few years is to 
work with the Congress and the administration to go out to the 
private sector and look at how organizations in the private 
sector successfully put in place information technology 
projects to increase their effectiveness, as well as to reduce 
their costs.
    And the Congress in the last couple of years has 
reauthorized the Paperwork Reduction Act, and passed the 
Clinger-Cohen Act. For the first time in over a decade now, we 
have modern management practices that take lessons learned in 
the private sector and apply them to Government.
    We have got a requirement now for chief information 
officers to lead these efforts, and to support chief executives 
in carrying out their missions. We now have got better 
information investment processes to focus on, are we really 
going to get a return on this investment.
    We encourage the development of modular procurements, not 
multi-year efforts that you cannot track whether you are 
getting activities or not. There is also a requirement now for 
architectures to be put in place.
    So a lot of the management tools that have been 
successfully applied in the private sector are now requirements 
for Federal agencies. We are encouraged by this, but we are 
also cautious about the fact that we have seen reforms put in 
place before, and it takes a long time for them to get 
implemented.
    So we would encourage this subcommittee and other 
committees of the Congress to really monitor how well this 
legislation is being put in place especially the quality of the 
chief information officers, and whether we are going to get the 
Federal Government into the information technology age.
    This is a pivotal point and one of the greatest risk 
categories that we have, because unless the Federal Government 
can manage technology better, we are not going to have good 
service delivery to our citizens, and we are going to continue 
to waste billions of dollars that could be better productively 
invested.
    The next area has to do with benefit programs. We have had 
Medicare on the list from the beginning. This is a program that 
continues to be ripe for exploitation. Fraud estimates in the 
Medicare programs range from 3 to 10 percent, which means about 
$6 to $20 billion a year we are losing out of that program 
because of fraudulent activities.
    Again the Congress has responded in the past year in 
passing legislation to put back some program safeguards and 
screens into the process, as well as providing some additional 
money for the Inspector General's Operation Restore Trust 
Program, which is to track down people who are taking undue 
advantage of the system.
    But some of the best tools that need to be applied here are 
more up front better software with commercially acceptable 
screening packages to prevent fraudulent payments from going 
out in the first place, rather than the pay and chase 
mentality. And HCFA is putting together some reforms. They are 
also moving toward a new Medicare Transaction System, which is 
intended to put some of these benefits in place. We have 
identified some risks with planning for that system, and HCFA 
has responded. And they are retooling that program now, and we 
are continuing to evaluate it. But that will be an important 
factor.
    In the last category, a number of critical Government 
functions have been carried out historically by private 
contractors. In these three areas, Energy, NASA, and Superfund, 
we have seen some improvement over the past few years with 
contract management reforms under way. However, in all of the 
cases, there are still remaining problems. And we are a bit 
reticent to take any of them off the list until we actually see 
some of the practices put in place.
    For example, in the Energy area, the notion of having more 
competition for the contracts has yet to become the rule rather 
than the exception. And we are also concerned that the 
contractors' priorities mesh with the Department's priorities 
as well.
    In the Superfund area, there continues to be a problem with 
prioritizing what best areas for clean-up, as well as 
monitoring contractors; recovering all of the costs that are 
due to the Government, particularly in the indirect cost area; 
and making sure that we are not overpaying the contractors.
    Now in addition to these 20 areas, we are adding 5 new 
areas in 1997. Defense infrastructure. About two-thirds of the 
Defense budget right now is spent for operations and support 
activities. We have had a reduction in the force structure, but 
we have not had a commensurate and concomitant reduction in the 
support structure.
    And, as a result, you have excess capacity in laboratories, 
health care areas, transportation, and in old facilities that 
are being maintained at an extraordinary cost.
    We advocate a structured approach to get on top of this 
issue similar to the base closure activities that have been 
carried out in the past, and maybe looking toward whether or 
not we need to start another process like that again.
    Information security in the year 2000. This is the first 
time in the high-risk series that we are adding government-wide 
issues. We have been very concerned in the information security 
area. For example, we issued a report last year that talked 
about hackers getting into DOD systems.
    But in 1995 alone, about 250,000 intrusions were reported, 
64 percent were successful, and many speculate that this is 
just the tip of the iceberg, and not all activities are being 
reported. Over the last 2 years, we have issued thirty reports 
on information security problems across the spectrum of Federal 
agencies with some very serious problems.
    We have also issued a report to OMB to encourage them to 
take more government-wide leadership in this area. This is just 
a very serious problem. Our information systems right now are 
porous, and we need to get on top of this issue, particularly 
as we move more in a network environment.
    The year 2000 problem is one that this committee needs no 
spelling out of the problems. Indeed, the committee has taken a 
leadership role in this area over the past year. We agree with 
the subcommittee that this is a serious problem, and could have 
disastrous consequences on how the Federal Government delivers 
benefit services and carries out its operations.
    We are currently looking at the readiness of the Department 
of Defense, the IRS, the Social Security Administration, and 
the Health Care Financing Administration. We are developing a 
best practices guide based upon lessons learned in dealing with 
this problem in the private sector. And we are going to use 
that guide to evaluate Federal agencies' readiness and report 
their progress.
    The SSI program is another new area we are adding. It is a 
fast-growing program. Currently, it is over $22 billion a year. 
We estimate about 5 percent, or $1 billion, in overpayments. 
There are difficulties here controlling the eligibility, both 
the initial determination and the ongoing eligibility for the 
SSI program.
    We have issued reports in the past about people who are not 
currently eligible continuing to receive benefits, including 
prisoners that are receiving checks.
    The welfare reform legislation last year put in place some 
eligibility determinations to tighten this for immigrants, for 
example. But determining eligibility in this case has been a 
concern from the beginning, and we think that with the growing 
potential work load in this area, that it is time for us to 
raise the visibility of the problem.
    The last area is the 2000 census. Now this is an area that 
does not necessarily fit neatly into the categories in the 
high-risk areas that we have been tracking, but it would be 
very late as we do our next update in 1999, to alert the 
Congress to the growing problem here.
    The problem with the census has been that in the last few 
censuses the cost has grown dramatically. The response rate for 
the questionnaire has gone down, which requires enumerators to 
go from door to door. For almost one-third of the households in 
the 1990 census, the Bureau had to send a person to the door. 
And the quality of the count has gone down.
    The Census Bureau has developed a plan to do statistical 
sampling. We think that merits looking at, although the quality 
of the sampling plan is important, and we are looking at that. 
By no means is that an easy task, and it needs to be carried 
out successfully.
    But we think that the Congress and the administration need 
to agree on the methodology for conducting this census. We are 
running out of time. In about another year, the census will 
conduct their dress rehearsal. And if we are going to make any 
major changes, we need to focus attention on this in the next 
year. And that is the reason that is on the list.
    In closing, Mr. Chairman, all of these high-risk areas 
present huge opportunities for savings to the taxpayer. They 
also present opportunities to improve service to the public. 
They really have at their core fundamental accountability 
problems. And we need to get on top of this, and make sure that 
we can give the American people the accountability that they 
deserve for how we use their tax dollars.
    We are not there yet. The Congress has put in place some 
important management reforms with the Chief Financial Officers 
Act, the Government Performance and Results Act, the technology 
reforms, Debt Collection, and the Federal Acquisition 
Streamlining Act.
    But we need to make these reforms work. They cannot just be 
hollow echoings and exhortations. They need to be actually put 
in place. And they will address many of the underlying problems 
in these high-risk areas. So we would encourage the Congress to 
continue oversight of how the agencies implement these broad 
reforms.
    That completes my statement. My colleagues and I would be 
glad to answer any questions.
    [The prepared statement of Mr. Dodaro follows:]
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    Mr. Horn. That is very helpful, and we thank you on that 
very good summary.
    Do either of your colleagues want to add something at this 
point?
    Mr. Dodaro. We thought that we would get right into 
questions.
    Mr. Horn. All right. What we are going to do is have 10 
minutes to a person, so they can thoroughly get through, since 
some of these areas are a little complicated. Mr. Sessions will 
be asking most of the complicated questions for the majority. I 
am just going to get into some of my pets in my 10 minutes. 
Let's start with the census.
    Has GAO had an opportunity to check the statistical 
reliability, credibility, and validity of what the census did 
in 1970, 1980, and 1990 in terms of statistical analysis?
    I was on the Civil Rights Commission for 13 years as vice 
chairman and a member, and we did two studies in the 1970 and 
1980 census. Our conclusion was that there was a large minority 
under-count. And that is one of the questions I think that 
concerns everyone from urban America.
    As you suggested, this is not just to apportion. What I 
read in the study, it is not just to apportion the House of 
Representatives anymore. Although as most of us are concerned, 
the only reason the fathers put it in here is they had no 
concept of benefit payments that would be adjusted based on 
census track and everything else.
    So what has GAO found out about the statistical approach 
versus the let's knock on all doors approach, which as a kid I 
recall doing in our end of the county?
    Mr. Dodaro. Basically, we have been tracking the census 
over a number of years, and we have looked at the quality of 
the count. And we found continuing problems that have occurred, 
and the under-count has grown I believe in a number of areas. 
The cost definitely has gone up.
    There have been problems. The basic problem here is the 
reluctance of the American citizen to fill out the 
questionnaire. The questionnaire response rates have gone down 
from the 1980 census of around 70 percent or 72 percent or so 
down to 65 percent.
    The Census Bureau has not shortened the form, as we have 
suggested in the past, to improve the response rate. And they 
are still carrying it out basically the same way they had. The 
census activities have become more complex.
    I have asked Bernie Ungar, who is our expert in this area, 
to come to the table and elaborate a little bit further on our 
research here. Bernie.
    Mr. Ungar. Yes, Mr. Chairman. We have looked at the error 
rates, as you suggested, and came to the same conclusion that 
you came to, that the error rates have gotten worse. We have 
looked at the results of the 1990 census, as well as the cost, 
and came to the conclusion that something would have to change 
in a very significant way in 2000, in order to avoid the 
errors.
    And we did suggest in that time, which was in 1992, after 
we made a thorough assessment of the results of 1990, that the 
Bureau ought to explore the use of sampling techniques over and 
above or further than they had used them then. Subsequently, 
the National Academy of Sciences had come out with a study, 
which concluded the same thing. Over the last several years, we 
have supported or promoted the Bureau's exploration of the 
sampling alternative, and we still support that.
    We were a little concerned last year because we had hoped 
that the Bureau would come out with additional data that would 
demonstrate that the concept would produce less error. It was 
fairly clear that it would be less costly, but it was not 
entirely clear how much of a difference the error rate would 
be.
    Fortunately, the Bureau in late December or early January 
did provide those data, which would suggest very clearly that 
sampling, if properly implemented, could reduce the error 
rates, as well as reduce the cost.
    Mr. Horn. One of the concerns that we have in the southwest 
and the southeast is the illegal alien count problem. Now that 
is great to add seats to Florida, and to add seats to Texas, 
and New Mexico, and Arizona, and California.
    And as I have told my eastern colleagues one-on-one, many 
of them, that if you do not want to help us on some of these 
problems, you are just going to lose one or two seats, as 
Pennsylvania did, another one seat as Kentucky did, and New 
York will lose, and so forth.
    So I would think that would be a concern to those Members 
of Congress. And I am glad to say that they are finally waking 
up to the impact of the census. And the fact that when you go 
to some houses in southern California, that there are 26 people 
living in the house.
    Now how do you handle that on the statistical side? And on 
the count side, do you have a better chance of handling it? And 
I will say now what I would say later. One of the great tools 
that the census has not been using is the postal worker. The 
postal worker in my end of urban Long Beach, she knows 
everybody. She has been walking that route for years.
    And I do not understand why the census does not say, 
``Let's pay the postal workers a little something extra to walk 
their route.'' They would know more, and it would be more 
accurate. They know if 10 or 20 people live in a house. And it 
is very hard for anybody else to know that. Because they see 
the mail, and they see 20 different names getting mail there.
    Sometimes three or four I have found are the same name, 
because that is way that some of the South Asian families are 
named. Just like some of ours, with junior, and senior, and so 
forth.
    So what do you think on some of those thoughts?
    Mr. Ungar. Mr. Chairman, I definitely agree that the Census 
Bureau ought to rely more on the Postal Service. In fact, we 
made that suggestion back in the early 1990's. And the Census 
Bureau has responded in a positive way. It has been working 
with the Postal Service, and is going to rely substantially 
more on the Postal Service, to make sure that it has as good an 
address list as it could possibly have.
    I do not believe that the Bureau has gone as far as you are 
suggesting, at this point anyway, as to having the postal 
workers actually help with the census. I think that is 
something that we could look at and see what discussions have 
taken place, and what the advantages and disadvantages of that 
are. I know that the Bureau is going to have a substantial 
problem in recruiting and hiring the large number of 
enumerators that it is going to need.
    Mr. Horn. Well, yes. You are not going to find the people 
who are going to want to go into some of urban America, and 
that is what leads to the under-count in part. The postal 
workers do go into urban America. In some areas, they have got 
difficulty accessing, but generally they do it.
    Mr. Ungar. That is correct.
    Mr. Dodaro. Mr. Chairman, just to add on to that. The 
Postal Service has been a little reluctant in the past to get 
involved in the way that you are talking about. So I would 
encourage you as part of the dialog to get them involved.
    They have often argued that the new way that they deliver 
mail in some cases to large apartment buildings and to cluster 
boxes in neighborhoods, that a lot of their activity now has 
shifted away from door to door.
    But that is an avenue worth exploring. And I would just say 
that engaging them early in the debate would be an important 
part of it as well.
    Mr. Horn. When you talk to politicians here, you can 
realize that we walk door to door many times in precincts. And 
the gated community without question is a major problem, unless 
you have got a friend inside who lets you through the door. And 
that is obviously resented in some communities. So you weigh, 
are you going to alienate them, or are you going to gain some 
friends?
    But that is also a problem with the census count, because 
we gate America one street after the other. Well, I am 
concerned about that, and I am sure that all of us are. And we 
would just like to see a fair count. I do not want to deprive 
States of their benefit, and I do not want to give extra points 
to other States, just simply because we have no way to--well, 
we are over-counting in some areas. I guess I would say that 
too.
    Now let me move to the FAA/IRS technological innovations. I 
sat on the Aviation Committee in the 103d Congress. And Mr. 
Oberstar took Mr. Mica and I out to look at the mess. And you 
could tell right away that it was not being managed. And now we 
read about IRS, and you are suggesting also lack of management.
    Why do we not learn something, and in what area of the 
Federal Government should that learning take place? I would 
think that it is OMB.
    Does OMB get on top of these management issues in a major 
procurement like that?
    Somewhere we have got to have the sort of inventory on 
management practices that we used to have in the old Bureau of 
the Budget.
    Mr. Dodaro. I think clearly or particularly in the 
information technology arena that OMB needs to play a more 
active role in screening the investments to make sure we are 
going to get what everybody expects to get out of the 
investments. They have not played that role in the past. I have 
reported and testified on the fact that in the tax system 
modernization effort that we have encouraged them to become 
more involved.
    I am concerned though, however, and we have recommended 
that OMB go to some outside resources to bring in the technical 
expertise that they need. They do not have enough of the right 
type of resources to do this. And it cannot be centrally 
managed, but somebody has to screen these investments 
carefully.
    OMB has set up councils and boards, but it is all people 
within the Federal Government. And we need to bring additional 
expertise in to bear.
    So we are clearly on record that OMB needs to augment its 
resources. We have made similar recommendations to OMB in the 
security area as well. They have complained that they do not 
have enough resources to deal with that. Our point is if you do 
not have it, you need to go out and get it, and put it in a 
central location. The world is changing, and the technology 
issues you need to be on top of.
    This is an area that I really have been concerned about for 
a period of time. The whole issue of technical expertise, it is 
not there in enough numbers that the Government needs.
    Mr. Horn. On that point, Mr. Dodaro, have any of the 
nominees of the President in any administration--I have 
forgotten how long you have been at GAO.
    Mr. Dodaro. Twenty-four years.
    Mr. Horn. Twenty-four years. We can cover quite a few 
administrations.
    Have any of them ever come over to GAO and sat down and 
said, ``Look, you ladies and gentlemen are examining the 
Federal Government, what could you tell me as a new cabinet 
officer or a new assistant secretary for whatever, or a deputy 
secretary.'' That is the first thing I would do, if the 
President was ever dumb enough to appointment me to something.
    I would walk over and I would see your people, and I would 
see the budget examiners in OMB. And I would say OK, you guys 
have been here, you have been looking over this apparatus that 
I am going into, this system of human beings, most of whom are 
very good, they just need leadership.
    Has anybody ever done that?
    Mr. Fultz. I can speak to the Air Traffic Control 
Modernization System, and I think you are raising a very good 
point. We have seen in FAA a revolving door quite frankly in 
the leadership of that agency over a number of years. And we 
believe that is one of the reasons why it has taken so long to 
get this new modernization program up and running.
    As you know, it is very long overdue, and way over cost. In 
fact, I believe they have had something like eight different 
administrators over a 5-year period; over a very key and 
integral part of the development of this process.
    Mr. Horn. Did they ever come over and sit down with your 
people?
    Mr. Fultz. They have not asked specifically. But I have to 
assure you and other members of this committee that we make an 
effort to talk with the agency officials. In fact, I am waiting 
for the name of the new FAA administrator. As soon as he or she 
is named, I plan to set up a meeting with that individual, and 
talk about the problems with the Air Traffic Control 
Modernization Program, as well as the safety and security of 
the air traffic system that we have in the United States.
    And I will be taking with me Mr. Robert Levin, who is 
sitting to my right, who has been monitoring the Air Traffic 
Modernization Program for about 7 years.
    Mr. Horn. Well, has any Director of OMB ever come over to 
GAO and said gee, you know, I am getting into this job now, and 
it is the second most powerful job in the United States. Well, 
you have got Mr. Greenspan that we have got to think about. 
When he coughs, things happens. I do not know how much the 
Director has to cough to have things happen.
    Mr. Dodaro. Our policy has been to outreach to all new 
cabinet agencies, as they come in. But typically, the outreach 
is on our part, and not people soliciting advice from us. The 
one exception probably has been in the IRS. Each new 
commissioner has contacted us early in the process. That is the 
only one I could say that there has been a pattern over time.
    Mr. Horn. Where they have sat down with you?
    Mr. Dodaro. Yes.
    Mr. Horn. And you have told them the facts of life?
    Mr. Dodaro. Right.
    Mr. Horn. And we still have them on the agency list?
    Mr. Dodaro. Right.
    Mr. Horn. The high-risk list?
    Mr. Dodaro. Mr. Chairman, in the time I have been at GAO, 
the problem has not been necessarily us communicating the 
problems. We have done that very effectively, and people have 
listened. The problem is lack of management follow-through and 
attention to these issues.
    Mr. Horn. I agree with that. But the start is to find out 
what the problem is. And if you are a new manager, all of you 
people ought to be sitting around the table. And I hope you are 
issuing an invitation to any new cabinet appointee, assistant 
secretary, deputy under secretary, or secretary, and say we are 
available. That is all you can do.
    Mr. Dodaro. Right. And we do do that.
    Mr. Horn. If they have any common sense, they will take you 
up on it.
    Mr. Dodaro. We do that.
    Mr. Horn. And if they do not, maybe we ought to find out 
before the confirmation in the other body as to whether they 
have common sense. And one thing would be heading in your 
direction.
    I now yield 10 minutes to the ranking minority member.
    Mrs. Maloney. Thank you, Mr. Chairman.
    I was particularly interested in your statement on the 
census, because I am likewise concerned about the census. And I 
would like to begin my questioning with that. In 1995, the GAO 
testified that sampling should be part of the design for the 
2000 census.
    Is that still your recommendation?
    Mr. Dodaro. Yes. We think that it is a viable option that 
should be explored. I would ask Mr. Ungar to expand upon that. 
Bernie.
    Mr. Ungar. Yes, Mrs. Maloney. We certainly do support it at 
this point in time, at least conceptually. As you may know, the 
Census Bureau has not worked out all of the details yet of its 
plan. And we are certainly waiting to see what those are before 
we feel more comfortable. But at least at this point----
    Mrs. Maloney. When are they supposed to be through with 
their plan?
    Mr. Ungar. Well, that is a good question. Unfortunately, to 
our knowledge, there is no overall project plan that the Bureau 
has completed yet that lays out the specific dates, which of 
course is a concern to us. And we would have hoped or at least 
felt more comfortable if the Bureau were done earlier. But I 
would suspect that as the next several months unfold, the 
Bureau will unroll more and more details of its plan.
    Particularly because of the dress rehearsal that is 
scheduled for 1998, we think that it is critical that the 
Bureau lay out these plans hopefully by summertime, so we, as 
well as the Congress, can look at these and weigh in on them, 
and hopefully put the Bureau in a position that it would be 
testing what it is actually hoping to implement in 2000.
    Mrs. Maloney. I intend to write the Secretary of Commerce, 
and ask for the plan, and exactly where they are going with it.
    You say in the report that the Census Bureau has not 
effectively communicated with Congress the importance of 
sampling.
    What would you recommend to improve that communication?
    Mr. Ungar. Mrs. Maloney, I think that what we would like to 
see and what we have not seen is for the Bureau to provide to 
you when it provides its proposals the data that would support 
the concept or the contention that No. 1, that costs will be 
reduced; and No. 2, that quality will be improved, as well as 
comparing what their proposal is to the alternative or 
alternatives that exist.
    And, of course, one of those alternatives is the approach 
that was used in 1990. We have been asking the Census Bureau 
for the last year for that data. And as I mentioned, starting 
at the end of December and the first part of January it has 
provided that to us, at least part of that data. And I think 
that the Bureau should be providing that to you.
    Mrs. Maloney. And when you get this data, what are you 
going to do with it? Are you going to analyze it, or what are 
you going to do with it?
    Mr. Ungar. Yes, we are going to analyze it. And actually, 
we are scheduled to issue a report to the Senate in the next 60 
days hopefully, and that data will be contained in that report.
    Mrs. Maloney. OK, great.
    If the Congress continues in the direction that it is 
currently heading, the result could be a census without 
sampling and an overall budget of only about $3 billion, 
instead of the $4 billion that is needed.
    What would the level of error be in a $3 billion census 
without sampling?
    Mr. Ungar. Mrs. Maloney, I am not quite sure what it would 
be. I think that it would be substantially higher than it was 
in 1990, not only the gross error or the net error the 
differential undercount as well. And my guess would be that 
unless the Bureau or somebody else can come up with an 
alternative that has not been put on the table yet, the results 
could be very unsatisfactory to the point where the Congress 
would not be comfortable, nor would anybody else be comfortable 
with, using or relying on the results.
    Mrs. Maloney. Could it be the worse census of the century?
    Mr. Ungar. Well, it could be.
    Mr. Dodaro. I think you run a high risk, and that is why we 
are advocating an early decision and agreement on the 
methodology, and then the proper funding to carry it out. If 
you have to switch courses and go back to the old enumeration 
approach that they have used without proper funding, you run a 
significant risk.
    Mrs. Maloney. I would like to touch on Medicare. I am 
getting complaints from my constituents. They complain to me 
that they are being billed by Medicare for services which they 
have not received.
    Is this a problem that you have documented in your work on 
Medicare, and what can be done to address this problem?
    Mr. Dodaro. It is a very significant problem. Our reports 
have shown and those of others that the fraud rate is extremely 
prevalent and high, and we are losing billions of dollars. Bill 
Scanlon is our expert in the Medicare area, and I am going to 
ask him to elaborate on that a bit.
    And then I want to link back part of the solution in this 
area to implementation of some of the management reforms that I 
talked about earlier. Bill.
    Mrs. Maloney. I just want to state that I will walk into 
senior centers, and the seniors will literally run up with 
pieces of paper on which they are mentioned as being billed for 
all kinds of thousands of dollars worth of services that they 
claim they have not gotten. We just mail it in to the IG. But I 
would like more information. As I said, it happens quite 
frequently, which is scary.
    Mr. Scanlon. As Mr. Dodaro indicated, we believe that the 
amount of fraudulent billing is a significant problem. And in 
fact, beneficiaries are one of the first lines of defense. Over 
the years, many of the fraudulent schemes that have been 
uncovered have been uncovered because there have been tips from 
beneficiaries and their families about services that were not 
received, or services that were billed at excessive rates.
    We reported about some of the services, that beneficiaries 
are never given notice that the services have been billed to 
Medicare on their behalf. There are services that require no 
co-payments, such as laboratory services and home health.
    And in the Health Insurance Portability Act enacted last 
summer, there was a provision that beneficiaries will now 
receive an explanation of benefits for every service regardless 
of whether they have any co-insurance obligation.
    We think this is a positive step. It is something that we 
recommended, because it alerts the beneficiary that a provider 
may be billing fraudulently for a service that they never 
received.
    Mrs. Maloney. When did that go into effect, that the person 
receiving it has to get it?
    Mr. Scanlon. It was enacted in August, and it is being 
implemented at the beginning of this year.
    Mrs. Maloney. So it has not even gone into effect yet?
    Mr. Scanlon. It has not even gone into effect. So if you 
are seeing some of these explanation of benefits that the 
beneficiaries say are services that they have not received in 
the past, those are some of the areas where there is a problem 
as well, but we are also going to be uncovering problems in new 
areas.
    Some of our work identified that in the areas of home 
health and laboratory services, there was fraudulent billing, 
that beneficiaries never were aware of.
    This is a very important way for the program to identify 
fraud. However, many services that are identified this way turn 
out to be legitimate. Because of the complexity of medical 
care, someone may not understand about the lab tests that they 
received.
    And therefore, some of these investigations turn out to 
show that there is no fraud involved. That is why we do need 
more systematic ways to try and identify the potential for a 
fraudulent scheme, and to use the limited resources we have for 
safeguards to the maximum extent to uncover the fraud.
    Mrs. Maloney. Are you tracking in any way if this is 
widespread, say a firm moves in and bills a lot in my district, 
and then moves to Congressman Horn's and bills a lot in his 
district, and just keeps moving around the country?
    Mr. Scanlon. We have noted instances where a firm or 
individuals will operate in different areas and that once there 
is a discovery of their activities in one area, that they will 
relocate to another area. One of the difficulties though, of 
tracing those kinds of actions is that they may change their 
identity.
    It is very easy to become a certified provider in the 
Medicare program. You have to have very little experience in 
providing the services that you are going to offer, and you can 
become a certified provider.
    So an entity can open up, bill the program for a period of 
time, and be discovered to be billing fraudulent services, 
close down, and move to another area and reopen, and start the 
process over again.
    Mrs. Maloney. How much do you estimate that we are losing 
because of this activity?
    Mr. Scanlon. As Mr. Dodaro indicated, there are estimates 
that have been made of between 3 and 10 percent of program 
spending, which translates to between $6 and $20 billion.
    It is harder to get a very precise estimate of these 
losses. Because frankly, just like the hackers who break into 
the Defense Department computers, people who are interested in 
defrauding the program are very clever, and they are numerous. 
And it is often difficult to uncover the scams and schemes that 
they have to defraud the program.
    Mr. Dodaro. Two of the systemic improvements that we are 
trying to put in place as a result of congressional mandates. 
Fiscal year 1996 was the first year that we are doing a 
financial audit of the Medicare program. GAO is doing it 
jointly with the HHS IG. We have been spending $200 billion a 
year without financial accountability. We are taking a Nation-
wide sample of claims, and looking at their validity. The other 
issue is we have encouraged HCFA to look at----
    Mrs. Maloney. You are going to begin this financial audit 
when?
    Mr. Dodaro. It has been underway. We are almost finished 
with the claims review. It is for the financial statements and 
reports for fiscal 1996. It should be available this summer. 
That is when we are targeting to have all of the claims work 
done. But we are actually getting the data from the providers, 
and checking the error rates, and whether or not the services 
were not only valid, but also whether they were medically 
necessary. It is a statistical sample.
    We have also advocated that HCFA look at using automated 
systems and software that are widely available for commercial 
purposes that other insurance carriers use, and adapt that to 
screen and provide more sophisticated screening of the 
applications as they come in. And they are now finally testing 
that. But we had difficulty originally in getting them to look 
at some of this commercially available technology.
    And as Bill indicated, as part of the financial audit, we 
are also looking at the computer controls that HCFA has 
available to guard against unauthorized access to their 
computer systems, both at the carrier level as well as at the 
computer facility in Baltimore.
    Mrs. Maloney. Could a solution be something as simple as a 
person receiving the service, having them contact and make sure 
that they got the service?
    Mr. Dodaro. I think that the volume is really the big 
dilemma here. I do not know, Bill, what the volume of claims 
are. But it is enormous and growing.
    Mr. Scanlon. Today it exceeds 800 million. We have been 
growing at more than 10 percent a year in terms of the number 
of claims. So we will soon be at a billion claims. And many of 
those claims are for very small amounts. And so we have often 
been very concerned about the amount of resources that we can 
devote to the review of a single claim. Today it is less than 
$1.
    Mrs. Maloney. If you reviewed say claims of over $1,000, 
would that be cost effective?
    Mr. Dodaro. That is one of the issues that we had a problem 
with. HCFA had a claims review function in place, which they 
diminished funding over the years. And that is part of this new 
legislation that passed last year, to restore some of that 
medical review at the end.
    But my personal view on this is that you need to rely on 
the beneficiaries as one level of safeguard. But you also need 
to have proper technology in place to handle the volume of 
these claims. And it is going to grow with the aging of our 
population, and the expected enrollment in Medicare by the year 
2010. We are going to have an enormous problem. And unless we 
avail ourselves to modern technology, we are not going to have 
a handle on it.
    Mrs. Maloney. How many individuals in America would you say 
are in Medicare now?
    Mr. Scanlon. There are approximately 38 million.
    Mrs. Maloney. There are 38 million.
    Thank you. My time is up.
    Mr. Horn. I will just add a question at the end to round it 
out on the Medicare. GAO has said for several years that you 
suspected an estimated 10 percent fraud, waste, and abuse in 
Medicare. Your testimony today now was 3 to 10 percent.
    Where did the three come in?
    Mr. Dodaro. Bill.
    Mr. Scanlon. There have been some other studies that other 
organizations have done that have reported fraud estimates as 
low as 3 percent. Because of the difficulty of being precise in 
this area, we felt that it was fair to report the range, 
recognizing that at either end of that range that this is a 
serious problem. It is a problem that we think that HCFA needs 
to devote the limited resources that it has available to it in 
a better way to try to reduce that volume of fraud.
    Mr. Horn. I might add, and I do not know to what degree GAO 
is involved, you ought to be I would think, but the Ways and 
Means Subcommittee dealing with Medicare, one of the intents of 
that in saving Medicare from bankruptcy is that you reward the 
senior citizen to read that bill. And if they send it in, 
hopefully there will be something to alert them, and money 
helps.
    And I think that is exactly what is needed here. Because 
like the gentlewoman from New York, when I get these cases, we 
refer them to the Inspector General. And the Inspector General 
who is, as you know, a very able person, having dealt with the 
Pentagon, she can certainly deal with this.
    She told me, I guess a year ago, that the preceding year 
she collected $6 or $7 billion. I do not know what the current 
figure is, in fraud, waste, and abuse from various recipients. 
But there is no question that the commercial equipment you are 
talking about that every insurance company and every HMO uses, 
which you can screen that bill, and if certain things are not 
related to what the operation was about, the flags come.
    One woman in one case that I am aware of said she read her 
bill very carefully, and she turned it over, because she went 
into the hospital for a hip operation, and was also charged for 
a mastectomy. Now she recalled having that 10 years before, and 
did not see how she could have another one.
    Some of the people are not very bright in their fraud. But 
when we are talking about a $300 billion program here in a few 
years, and we are almost there, you are talking about $30 
billion in waste, fraud, and abuse a year based on your 
percentage.
    I am delighted now to yield to the vice chairman of the 
subcommittee, who has immersed himself in this subject, and who 
will ask you all of the hard technical questions, instead of 
the softballs that I have been giving you.
    Mr. Sessions. Mr. Chairman, thank you. I appreciate the 
introduction also.
    I am interested in this. And as I sat back and listened to 
the testimony here today, I really believe that in another life 
that I would like to grow up and be in the GAO, and be a 
wannabe for what you do. But that did not befall me in this 
life. So I take what I get.
    My parents still introduce me as the son who simply had no 
bearing in life, so I became a Congressman. I am certainly the 
least successful of the siblings.
    I would like to, if I could, for just a minute, before I 
get into a more esoteric discussion about the things that you 
have, I want to go back directly to what has been discussed 
here today.
    Part of what you touched on was the IRS. And certainly, the 
$4 billion worth of the spending from the computer project. But 
you also, I believe, at some point talked about some sort of a 
random sample audit. You went in and tried to look at how much 
money the IRS actually takes in.
    My question would be this, in any of your samples dealing 
specifically with the IRS, is there any indication that there 
is fraud involved, not waste, not abuse, not mismanagement, but 
fraud that was uncovered where more digging needs to be done?
    Mr. Dodaro. Well, we have been looking at several different 
aspects of the IRS. The sampling that I referred to is doing 
sampling of their accounts receivable inventory to get a figure 
as to how much is actually in that inventory. They put a lot of 
things for collectability purposes in there that are not valid 
receivables. And then we try to estimate how much is 
collectable.
    For example, when we started this in 1992, IRS was showing 
$110 billion on their books for receivables. Once we completed 
a sample, it was more like $65 billion. And of that, only $19 
billion was actually deemed to be collectable. Since then, we 
have had problems. We did 100 percent verification of that 
sample that year. We turned over to IRS the responsibility for 
doing the sample. And then we take a sample of their sample, 
and verify whether they have done it properly.
    The problems we run into is that some of the records have 
been unavailable, missing, or destroyed. And that IRS has been 
unable to successfully complete that sample.
    In that case, we run into what we call error situations and 
problems. I do not think that we have encountered through that 
sampling process any systemic fraud problems.
    Separately, however, we have had a high-risk area for a 
number of years looking at filing fraud problems. And the 
filing fraud problems have grown. In 1991, it was about 11,000 
returns. And 77,000 is what it rose to in 1994. In 1995, it has 
come down to about 62,000 returns. The filing fraud is a 
problem.
    Those are the amounts that IRS detects. And so part of this 
problem, for example, was if you wanted to be a person that 
could file electronically and take returns in, it was sort of 
like the Medicare providers that Bill talked about, it was very 
easy to get the ability to do the electronic filing.
    IRS now does fingerprinting and checking. Before that in 
1995, they screened out about 350 people who wanted to do that 
that they eliminated. They also are now checking Social 
Security numbers at the time that they are processing the 
initial returns. And I believe that the number of Social 
Security numbers that have popped up for them as a result of 
their checking rose from 1 million to 4 million in 1995 
returns, indicating that there was a problem.
    Ultimately, they let go about 2 million of the returns, 
because they did not have enough time to check it, and let the 
refunds go and check it later.
    But that screening up front is real important, and they 
have not had that in the past. So that is the explanation of 
the fraud versus the sampling.
    Mr. Sessions. Good.
    Did any of your work also get into looking at the IRS and 
the accessibility of employees to individual filings; did you 
address this at all, and can you please give me any information 
that you have, or that you have uncovered in that regard?
    Mr. Dodaro. Sure. I am going to ask Lynda Willis who is our 
expert in the IRS tax area to come up.
    We noted, and in fact it was part of our first financial 
audit in 1992 that we uncovered some internal IRS reports that 
talked about the browsing problems within the IRS of IRS 
employees looking at an ex-spouse's return or a return of a 
celebrity. That was a significant problem at that time, and it 
continues to be a problem.
    Lynda, do you want to add to that?
    Ms. Willis. What I would add is that it continues to be a 
problem, and we expect to issue a report later this spring 
addressing our most recent work. We have found problems with 
the systems that IRS has put in place to identify browsing 
incidents, in part because they do not allow an efficient way 
for IRS managers to get in and track through where they have a 
real problem or potentially a perceived problem. IRS is 
continuing to work on this, but there is more work that needs 
to be done.
    Mr. Sessions. So at this point, you have no quantification, 
you simply are aware that it is a problem?
    Ms. Willis. Right.
    Mr. Sessions. You believe that the IRS is aware of that, 
and is trying to take steps to alleviate this?
    Ms. Willis. Yes.
    Mr. Dodaro. There are numbers on the number of browsing 
cases that have been reported, and what the disciplinary action 
has been. That will be in our report.
    Mr. Sessions. And that is what I was going to ask, is there 
disciplinary action?
    Mr. Dodaro. Right.
    Mr. Sessions. Did you look at their what I would call a 
``code of conduct'' that is required, and does that fit the 
circumstance?
    Mr. Dodaro. Right. There is a penalty set that they use for 
various methods. But IRS' own internal studies point at some 
problems with inconsistency, and how that penalty code, if you 
will, is enforced from one part of the country to another. And 
we made some recommendations that they develop better 
information for tracking and browsing, and tracking how the 
consistency of the penalties are put in place.
    And that report will be available soon. We are doing that 
at the request of Senator Glenn, who has had us tracking this 
problem for a number of years now.
    Mr. Sessions. My earlier question to you, I believe you 
answered carefully, but I would like to go a little bit further 
in relationship to your audit of the IRS, specifically related 
to the money that comes in as revenue to the Government, not 
related to the filing or whether one was done fraudulently or 
not, and not related to how many people file and do not file, 
but specifically as some national columnists say the money.
    Mr. Dodaro. Right.
    Mr. Sessions. The money that comes in, is there any 
evidence or any evaluation that you have made, and did you look 
at the trail from the check to the bank to the correct place it 
is supposed to be, or the account?
    Mr. Dodaro. Right.
    Mr. Sessions. Can you elaborate on that?
    Mr. Dodaro. Sure. I will ask Greg Holloway, who is on my 
far left here, who has been leading our financial audits for 
the past 4 years. I will ask Greg to answer that.
    Mr. Sessions. Good. Thank you, Greg.
    Mr. Holloway. I would answer your----
    Mr. Sessions. Have you been sworn?
    Mr. Holloway. Yes.
    Mr. Sessions. OK. Thank you.
    Mr. Holloway. I was in the third row.
    Mr. Sessions. Thank you. I am sure you have been sworn at. 
We all join in that.
    Mr. Holloway. That is exactly right.
    Mr. Sessions. Yes, sir.
    Mr. Holloway. I would answer your fraud question a couple 
of ways. As a result of some of the detailed testing we have 
done--you have to keep in mind that IRS has a lot of what they 
call under reporter programs, where they effectively check for 
under reporting by individuals as well as entities to ensure 
that people report the revenue and the related tax associated 
with what they owe.
    And part of what comes out of our testing is looking at 
those cases to identify what IRS has called its matching 
program, where they seek to identify that.
    The difficulty of the word fraud is that it becomes a very 
legalistic term in terms of levels of evidence, part of which 
suggests intent. And our work certainly does not try to 
determine intent. But in terms of the equity, I guess that 
would probably be a more accurate question.
    Certainly, our testing has shown in quantitative ways to 
some extent where IRS has identified in some cases, and in 
other places where we have seen cases, I do not know that I 
would call it fraud, but I have certainly seen cases where it 
appears that the taxpayer probably paid more than they owed, 
and cases where they did not pay enough based on third party 
evidence.
    One particular case comes to mind in terms of the reverse 
of that where the taxpayer probably paid more than they owed 
was a case where an individual had a company, and he filed as a 
Subchapter S. Somewhere along the line, his filing got lost. As 
part of that, IRS then assessed a tax on to the individual's 
company saying that they have incorrectly, and so then assessed 
a greater amount of tax.
    Over the course of the process, as they went into their 
files and looked at it, and this was a case that came out in 
our testing, what they discovered was that there was evidence 
in their case file that showed that the individual had 
communicated with them inquiring about where IRS stood in 
responding to their filing request to be Subchapter S.
    And through their own internal documentation, they 
concluded on something that they called hazards of litigation, 
which in English means if this thing goes to court that we may 
not win, let's settle. And the person ended up settling and 
paying probably at 50 percent for something that they did not 
owe anything.
    Now is that fraud? I do not know that I would call it 
fraud, but it certainly looked inequitable. So we see a lot of 
those kind of cases. And we certainly see cases that have 
surfaced out of IRS' under reported efforts, where people 
appear to be paying less than what they owe based on the way 
that they filed their return.
    Mr. Dodaro. You might want to also explain how we do the 
testing of the revenue stream.
    Mr. Holloway. Right. Basically, what we have done, IRS had 
a detailed what they call master file record of everybody that 
files taxes. So they have a record on this country, and 
effectively what we do is pull down that whole file of 
transactions, and we use statistical sampling to test that 
sample.
    I do not want to get into all of the technical boring parts 
of auditing, but the thrust of it is that we use what they call 
Dollar Unit Sampling, which puts the focus on the higher dollar 
cases, for us to then go look at what is the make-up and the 
nature of the transactions of the higher dollar cases.
    And we then go in and look at the detailed tax returns and 
case files to determine whether or not what is reflected in 
IRS' records is consistent with the source documentation, which 
would be the tax return, which would be the FTD coupon, or 
other manner of payment that the recipient made, going back to 
your question, and trying to track it from the point of payment 
throughout IRS' process into the taxpayer's record.
    And that is what we test for. So when we find these kinds 
of things, it is the result of trying to determine whether or 
not IRS's records on individual taxpayers accurately reflects 
what the supporting documents suggest that it should.
    Mr. Sessions. Do you believe, as you have looked at these, 
that you have given adequate, proper feedback for adequate 
control back to the IRS?
    Mr. Holloway. I do not think that there is any question. We 
have endless lines of reports. And we continue to work with 
them looking for ways to improve it. But part of the problem is 
that many of the financial systems that IRS uses--IRS is 
basically a return processing factory. And many of their 
systems were set up to process tax returns, and get them out. 
They were not set up necessarily and always to focus on trying 
to financially report, and accurately summarize and report out 
what they have done and collected.
    It is a challenge for them to try to take something that 
was designed to do one thing to make it do something else.
    But yes, we have reported out over the last 5 years 
numerous reports, and testified many times before Chairman Horn 
and this subcommittee, and subcommittees before that.
    Mr. Dodaro. We have made approximately 60 recommendations 
to IRS as a result of these audits. Greg, and I, and Lynda meet 
monthly with the Chief Financial Officer and the Deputy 
Commissioner in IRS to try to get on top of this issue. We have 
worked out a specific action plan with them. The Appropriations 
Committee last year mandated that that action plan be provided 
to the Congress by March 1st. We have looked at IRS' draft 
plan.
    So, we are working hard and trying to help them come up 
with some short-term solutions to these problems, as well as 
some longer term system fixes.
    Mr. Sessions. And you believe that you have not only their 
attention, but that they are addressing these issues?
    Mr. Dodaro. They are working on it. It is just a difficult 
problem, and is going to take awhile. Particularly the 
receivables area. And the receivables area is one that I think 
that we need to go further. We are going to issue a specific 
report on the tax receivables this year with some additional 
recommendations of what needs to be done. And we are learning 
more too, as we go through the process.
    Mr. Sessions. I am sure they are also.
    Mr. Chairman, do you mind if I take a few more minutes?
    Mr. Horn. I have a question before you leave.
    Mr. Sessions. I want to go to the military. So, Mr. 
Chairman, why don't you go ahead.
    Mr. Horn. Let me just ask you about the systems that IRS 
has, if they know that a file has been penetrated in terms of 
the browsing bit, is there any way that they can trace back 
which computer in IRS was celebrity searching, or browsing, or 
spouse searching, whatever you want to call it, how do they 
deal with that?
    Mr. Dodaro. They have an automated system that they put in 
place to track one major system for accessing taxpayer files 
called the IDRS system. One of the recommendations that we have 
made, however, is that their method of tracking that system 
with the automated processes is cumbersome, and it kicks out 
too many things to followup on.
    And second, they do not have in place systems to detect 
access through other systems that you can get into them. And we 
have to continually make recommendations.
    Mr. Horn. Are you telling me that every IRS employee with a 
computer could get into that system, and not leave a trail?
    Mr. Dodaro. It depends on what system that they use. Let me 
ask Dr. Rona Stillman to come to the table. She is our chief 
scientist for computers and telecommunications. Rona has been 
leading our work in the IRS tax system modernization effort. 
She could address that question.
    Ms. Stillman. There are numbers of systems that IRS 
employees can use to access taxpayer data. One of those systems 
is called IDRS. That is the primary system that tax assistors 
use to access data. That system is monitored by a system called 
EARL. And what EARL does is it profiles. It has got a profile 
of what it assumes would be legitimate activity of a tax 
assistor. And if his pattern of accesses differs substantially 
from that, it will report it.
    There are two problems with EARL. EARL only works with 
IDRS, and not with six or seven other systems that employees 
can use to access taxpayer data. And second, the problem with 
EARL is that it does not distinguish very well between 
legitimate activity and illegitimate accesses to which an 
employee has no right as part of his job.
    So it reports tremendous numbers of potential violations, 
most of which are not violations at all. And it takes a 
tremendous amount of effort on IRS' part to distinguish one 
from the other.
    Mr. Horn. Now as a scientist in this area, are you aware of 
systems that they could use that say private industry uses, and 
banks use, whatever?
    Ms. Stillman. We have not evaluated what is used in private 
industry, but clearly IRS could do a whole lot better in 
detecting and preventing browsing on its own.
    Mr. Horn. Let's take the Department of Defense, and NSA, 
and whatever; have they various systems that can track access 
to some of their files, or CIA, that would be useful if IRS had 
it to solve the problem?
    Ms. Stillman. Actually, we have not done work to evaluate 
those specific systems. The problem itself for IRS is a 
difficult problem, in that these are authorized users. These 
are not hackers. These are authorized users.
    Mr. Horn. Right. I understand that. And we are going to be 
holding a number of hearings this year on the whole problem of 
security. I notice that the Science and Technology Committee 
the other day had a topic, I did not have a chance to watch it 
on C-SPAN, but a topic on computer security.
    But I think that it is a very real problem when you have 
confidential Government files, and I know that the IRS is very 
sensitive on that point. But the fact that they do not have a 
system that really deals with their other systems that 
employees could use, is sort of the fox guarding the chicken 
coop.
    There is somebody whose curiosity is getting the better of 
them, and how do you know? You might know that it happens. It 
might be leaked to the Enquirer or something. And maybe 
somebody is getting some money even for it. That is a pretty 
sad state of affairs, if we have not in GAO, and IRS, and DOD 
shared whatever knowledge, we have to get the best 
confidentiality system possible.
    And in that $4 trillion boondoggle so far down there, was 
one part of it trying to deal with the confidentiality thing, 
or do we know yet where they went wrong?
    You see, I do not understand how you can spend $4 trillion, 
let alone $1 million, let alone $1 billion. And I guess that I 
just do not understand Government.
    Ms. Stillman. A critical shortcoming of the TSM effort was 
the fact that it did not have what we call an integrated 
systems architecture, and part of that is a security 
architecture. IRS did not have a complete analytical approach 
defining how they would provide security in the system. It did 
not exist, and it does not exist at this moment.
    Mr. Horn. And this report of yours is going to come out 
when?
    Ms. Stillman. We have issued reports at least since 1995 
specifically citing the absence of a security architecture as a 
major problem, and recommending that they complete one.
    Mr. Horn. Can you bundle up three sets of those, one for 
the Democratic side, one for the Republican side, and one for 
me?
    Ms. Stillman. Absolutely.
    Mr. Horn. And mark it personal, or I will never see it.
    Ms. Stillman. Absolutely.
    Mr. Dodaro. I might add to that.
    Mr. Horn. They will check it for bombs, but that is OK.
    Mr. Dodaro. I might add, Mr. Chairman, that the IRS by the 
appropriation bill last year was required by February, this 
month, to provide the Congress a plan for implementing all of 
our recommendations that we made in the tax system 
modernization effort. The Treasury Department has also been 
directed to provide quarterly reports.
    So there will be a number of activities occurring over the 
next few months on this timetable that would, I think, provide 
opportunities to review where they are in implementing our 
recommendations. And we will be happy to share that information 
as it comes available to us as well.
    Mr. Horn. Now one of the things that I have discussed with 
the Commissioner over the last 2 years is the system that they 
have to collect the receivables.
    Now what have you found out this year on how they are doing 
it? As I remember, there are a few pilot projects under way.
    Mr. Dodaro. Right.
    Mr. Horn. Did you look at those projects, were they fairly 
awarded? Because they are sure fighting us on using private 
collectors, which everybody else uses in the country, but IRS. 
And I get this static about oh, well, the tax records are 
confidential. I said what is confidential, you give them 
$5,000, if that is what they owe, give them the address, and 
let them make a deal. Because right now, you are writing off 
over $100 billion, which I regard as a scandal.
    We are sitting around here grappling with every $10 million 
in trying to balance a budget. And $100 billion goes 
uncollected. So that bothers me. And I just wonder: what are 
they doing in your judgment? You are a fair neutral in this 
thing.
    Mr. Dodaro. That is a very good question, and I will give 
you two answers on that. Lynda will answer from the private 
debt collection standpoint. And then I would like Greg to 
elaborate on the quality of the information in the data base 
that is available either to IRS employees or private debt 
collectors. Lynda.
    Ms. Willis. Let me answer a little more than just the 
private debt collection question, because I think that there 
are some things that IRS has done in terms of improving their 
collection efforts, partially in response to our 
recommendations, and partially in response to some of their own 
work.
    For the last year, one of the things that they have done 
that we believe has increased collections is they have improved 
their ability to access taxpayers by telephone. And accessing 
them earlier in the system, so that the debts are not so old by 
the time that IRS goes out and attempts to find the taxpayer.
    They have also improved some of their notices, reduced the 
number of notices, and get the notices out there quicker, and 
more money is coming in from there as well.
    And Greg will speak to this after I talk about private debt 
collection. But one of the issues that remains is that how 
effective these programs are on the margin. They are not 
solving the underlying problems with accounts receivable, which 
gets back to the quality of the information that is in the 
files, the accessibility of the information, and basically 
overall what we know about not only accounts receivable in the 
aggregate, but individual cases in terms of how to best target 
our compliance programs.
    So going to the private debt collection initiative, GAO has 
supported for some time testing the use of private debt 
collectors. And IRS does have an ongoing program right now with 
contractors, five different companies, that are looking at 
collecting selected types of cases and accounts.
    We are in the early stages of reviewing that for the Ways 
and Means Committee. We continue to have some of the same 
concerns that we had when the pilot was set up. And that is 
that these private collectors are going to face the same 
problems that IRS collectors face, i.e., the accounts are old.
    Mr. Horn. How ``old'' is old in your definition?
    Ms. Willis. Well, some of the accounts may be 5 or 6 years 
old before they ever hit this point.
    Mr. Horn. Well, I agree with your point. And I have told 
the Commissioner that. I would not mind Government employees, 
the first 30 or 60 days. But you are absolutely right, that you 
need to be phoned, so people say gee, I have a debt to pay.
    You see this with students. And that is why we had a better 
record when we started counseling students that this guaranteed 
Government loan is not a grant, and you are going to have to 
pay it back. And that helps when you educate the person that a 
debt has been ensued here, and you need to do something about 
it.
    You are telling me that they are doing better on the 
telephoning at least from the beginning?
    Ms. Willis. They are telephoning people earlier. They have 
moved more resources into earlier contact with the taxpayer.
    The thing that we hope to get out of the private debt 
collection project is feedback from the private debt collectors 
in terms of better practices for collecting these types of 
debts, insurmountable problems with the cases in terms of 
either age, identifying or locating the taxpayers, et cetera.
    So I think that in terms of best practices that there are 
still things out there that IRS can learn from private debt 
collectors.
    Mr. Holloway. I would just want to add on the quality 
aspect of this, that I think that are two core problems. I mean 
having worked in the private sector and in a financial 
institution where collecting debts is a key part of it, two 
very important things are missing at IRS.
    The first one, and when we talk about improved telephone 
and other things, the rudimentary problem is the untimeliness 
of even identifying who owes the money. One of the fundamental 
things that they have, and until it is corrected, I do not care 
if you bring in the Army, Navy, Air Force, and Marines; if you 
do not identify who owes you the money sooner, collecting it is 
always going to be tough.
    I mean IRS' matching program, for example, which is 
probably its best program of identifying people who owe money 
that are non-compliant, what we found in our testing typically 
does not identify to the point where they can then notify and 
begin the telephone and all of that until anywhere from 18 
months to 3 years after the fact.
    If anybody in the private sector took that long to figure 
out that somebody owed them money, I do not care who you 
brought in to try to collect it, it would be a challenge.
    The second myth of IRS is a lot of the accounts receivables 
by design are not even collectable. One of the things that we 
found, and we looked at several cases of what we call over $10 
million cases, many of those, for example, are cases where they 
set up receivables to close tax loopholes.
    Back when several banks were failing, a lot of acquiring 
institutions were making money on NOL carry-backs by buying 
failed institutions using the benefit of those losses and carry 
them back over prior taxes that they paid.
    One of the loopholes that IRS closed was assessing taxes 
against those failed institutions, so as to preclude any NOL 
carry-back to be recovered.
    Now those sit in IRS' tax files. As a matter of fact, a 
large portion of what is deemed uncollectable are cases that 
nobody could collect. They are people who have died. They are 
defunct corporations.
    Part of the problem of bad information and the lack of 
quality information is you do not cut to the bone to figure out 
what is the real population here.
    So I think what they have got to do is get a much more 
precise analysis of what the content is of what is really owed. 
Because I suspect what you will find is that there is a big 
bucket of things that you could just throw away, whether it was 
private or IRS, it would not even matter.
    And then when you got to that, when you look at how long it 
took to identify the ones that are left, even if the private 
sector went after it, you run into the problem of being unable 
to locate people. And then they have the basic fundamental 
problem that they cannot pick their borrowers.
    Mr. Horn. That is very well said. But I am concerned about 
the ones who have taken bankruptcy to avoid the taxes, and pop 
up somewhere again.
    Does IRS have any way to really know when that individual 
is playing the bankruptcy game to avoid taxes, and popping up 
in another State, or with another small business, or whatever?
    Mr. Holloway. Yes, they do, unless the person designs a new 
alias and pops up under a different name and Social Security 
number. But effectively, what IRS does in many cases, and this 
is where the statute that has been extended to the 10 years 
comes into play, they typically will have on file what they 
call debit modules, which means an indicator that somebody owes 
them money based on that taxpayer identification number.
    So if that person were ever to file to get a refund or 
anything like that, it should kick in. And that is one of the 
things that we test for.
    Mr. Horn. Taking refund for the previous tax debt?
    Mr. Holloway. That is right. They would go back and check 
to see if that person owed any moneys and any other tax modules 
that are sitting in that file.
    So they do have some of those kinds of things. But the 
untimeliness of identification, and continuing to report on 
amounts that nobody could collect.
    Mr. Horn. In the testimony, one of you mentioned that IRS 
does fingerprinting, and checking the Social Security number. 
Well, that is great. That should have been done, of course, 
years ago. But the fingerprinting intrigued me.
    How are they getting them to get fingerprints?
    Mr. Dodaro. Lynda can answer. This is on the electronic 
filing.
    Ms. Willis. These are fingerprints that they are getting on 
people who are involved in the business of electronic filing 
returns with IRS. These are not fingerprints vis-a-vis 
individual taxpayers. If someone wants to be certified as an 
official, or have the ability to file electronically other 
people's returns with IRS, they do now have to have fingerprint 
records as well as background checks.
    Mr. Horn. Now where do they go, the local police, to have 
that done for them, or the sheriff's office or what, how do we 
get this done?
    Ms. Willis. I am not positive, but I believe they go 
through the FBI to have those done.
    Mr. Horn. OK. Well, it is just a matter of people out in 
the countryside can electronically file, but might not have the 
agency that they are designating be able to get the prints. But 
I think that is a great idea, and let us get some information 
on that. I think that we would all feel a little better. And, 
of course, we would feel a lot better if the welfare 
organizations of the Government did the same thing.
    I think that I cited the other day to some of you, L.A. 
County, when they went to a photo and fingerprinting, thousands 
of people voluntarily got off the rolls. This was on general 
relief. Because they knew they would be caught in the five 
different names they had used and all of the rest, when they 
knew Government was asleep. And so L.A. County moved in that 
area.
    And to IRS' credit, a good example of that is when they 
started requiring Social Security numbers on dependents. Quite 
a few people lost a lot of dependents after that happened. 
Right.
    Mr. Holloway. The family shrunk.
    Mr. Horn. That is right. We did not know family planning 
was at work.
    Mr. Holloway. That is right.
    Ms. Willis. Family planning through the tax code.
    Mr. Horn. I thank the gentleman from Texas for letting me 
round out some of my concerns on IRS. Please go ahead.
    Mr. Sessions. Thank you, Mr. Chairman.
    I would now like to redirect some of my questions probably 
to other panel members. I would like to talk about the Pentagon 
and the Defense Department for just a minute, if I could.
    And I try to put things into a simple form. When you are 
from Texas, you try to boil it down to something that you can 
talk about and think about.
    I kind of think about the entire Federal Government as 
being like 10, or 12, or 13 Exxons, the size of that. And if 
you break down the Government, you can put the Pentagon as 
probably two or three Exxons, I guess, and the rest of the 
Government as the rest of that. So I know it is big.
    And you have talked about a lot of the problems, the waste, 
the fraud, the abuse, and the mismanagement that goes on there.
    In many companies, and certainly within Exxon, they are 
concerned about continuation training for their people who are 
the managers of the business, and leading edge issues related 
to their business. And I know that the Pentagon and the Defense 
Department is not any different.
    A good number of the officers as they rise in rank are 
required to get masters degrees, and are required to get these 
sorts of training.
    Can you discuss with me going back to the military 
academies forward through the process of the masters programs, 
of a continuation in learning, has the military through the 
Secretary of Defense instructed or given instructions down 
through the Secretary of the Air Force and the other 
Secretaries that listen, this is a problem, include this as 
part of our training about identifying waste, fraud, and abuse, 
and about looking at and knowing generally accepted standards 
of accounting practices, so they can spot these things?
    Can you give me just some sort of a feeling, have you 
looked at this, do you know it exists, what would be your 
thought process on the Defense Department's recognition of the 
problem. Have they made sure that it is in its training program 
and in its educational programs, such that it is an identified 
problem?
    Mr. Hinton. Mr. Sessions, I think the answer to that is 
yes, they are starting to get their arms around that. It is a 
problem for them right now, having all the skills that they 
need to keep the records in the Department.
    On the other side of the fence, if I could use the 
acquisition side, they have a very good plan for training 
people who work the acquisition work force. And I am going to 
ask Lisa Jacobson to tell you about on the accounting side of 
things.
    Mr. Sessions. And please, as much as possible, give 
methodology a feeling about how broad this is.
    Are we dealing with personnel only in those areas? I am 
interested also in a broad overview to where the military 
understands that this is a problem. Just as the security of our 
country is a mission statement for them, so should be effective 
use of resources.
    Ms. Jacobson. In the financial management area, we have 
been doing a lot of work on this very issue. We are undergoing 
some work dealing with companies like Exxon, and asking them to 
provide us with some basic data on what kind of people they 
would expect to be in the types of positions running their 
companies, and performing the financial management activities 
in their organizations.
    So we will have some base line data very soon to compare 
with the Department of Defense. The Department of Defense under 
the CFO Act that you were a party to is required, as the other 
agencies, to look at their personnel, and assess where they 
stand, and whether or not they have qualifications. They have 
not done that to date.
    And they are participating with us in a review to assess 
their personnel in the financial management area, and see where 
they stand.
    Most of these employees in financial management are 
civilian, as opposed to military. And we have done some 
preliminary work in DFAS, the Defense Finance Accounting 
Service, which does the vast majority of their accounting, and 
found that they have very few CPAs in the top ranks. They have 
very limited accounting. About half of the people have less 
than they are required, the number of hours of accounting for 
an accountant in the Federal Government.
    So we questioned whether or not they are adequately 
educated. And then training beyond that, there is no training 
curriculum or requirements within the Department.
    Mr. Dodaro. I would say overall on the business side in the 
financial management arena that the emphasis on training is 
nowhere near as great as it has been on the military side, 
obviously. And that is true not just in the Defense Department, 
in the financial management area, but across the Government.
    In my view, I have often characterized financial management 
and the accounting function of the Government as sort of an 
administrative backwater for the last 40 years. There needs to 
be, and we have urged, continuing professional education 
requirements. We have put out some core competencies, GAO, OMB, 
and Treasury together, to get this material to the agencies.
    This is an area that I think your instincts are correct, 
that there is not enough emphasis going into it. And this is 
one area that we are trying to give more visibility to by 
comparing the gap. We know that there is a big gap in the 
qualifications, and we are trying to provide more impetus to 
improve training.
    Part of the problem is that at the same time we are trying 
to elevate the importance of training, and upgrading the 
quality of the financial management work force across the 
Government, it is the same time that personnel reductions and 
the down sizing in a lot of agencies are taking place, and 
training money is becoming tight because of greater 
competition.
    But that needs to be worked through. But you are on the 
right track in terms of your assessment in that area, and it 
needs a lot more attention.
    Mr. Sessions. In other words, your statement as to whether 
there is training specifically at the military academies, you 
really do not know at this point. That is a requirement for all 
graduates to understand some basic techniques in identifying 
waste, fraud, and abuse, and identifying that we really do 
count things in this organization, that you have resources and 
assets that the taxpayer expects to be utilized efficiently.
    That here is generally if you did come into an audit, here 
is what they are looking for and asking for, and a basic 
understanding of a filing system to where if you have 88 
raincoats and you normally use 4 in a year, do not order until 
you get to a specific level. Just these basic things that are 
Accounting 101.
    Mr. Hinton. Some of that through the military side does 
occur, Mr. Sessions. And it will be dependent on their military 
occupation specialty that they will sign up to.
    Mr. Sessions. That is what I heard you say. But not a 
general across the board management.
    Mr. Hinton. It would depend on the specialty that you are 
going into. But I think that I can provide for the record some 
more details around this, if you would let me do that.
    Mr. Sessions. I would ask that you do that.
    And I would also like to have you render a conclusion right 
now, am I still on the right track for asking for those things?
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    Mr. Hinton. Yes, yes. And I think that you will see, as we 
get into all of the areas here, that we are talking about 
business practices. That permeates across acquisition, 
inventory management, financial management, and there are 
deficiencies in all of those.
    Mr. Sessions. Good.
    Mr. Hinton. And a lot of it depends on the skills of the 
people, and their ability to deal with the problems.
    Mr. Sessions. Without going back into too much of my 
history about myself, I served as a scout master for quite a 
long period of time. And even a scout master has to understand 
waste, fraud, and abuse when he sees it. So I think that 
certainly a military officer could receive this training, 
understand it, and apply that theory and training to what needs 
to be done.
    Mr. Dodaro. As part of training under the Federal Managers 
Financial Integrity Act, I know that the Department does some 
training in raising the visibility about the need for internal 
controls and systems. And we can include it as part of our 
discussion for the record on that issue.
    I think that your questions go a couple of levels. One is 
the general training for everybody as sort of a core training. 
And what we are also talking about is specialized training for 
people who are in these different occupational series, 
particularly the accounting and finance people. And we will 
provide the information on both levels for you.
    Mr. Hinton. Let me ask Mr. Warren, Dave Warren, who is 
Director of our Defense Management area to comment.
    Mr. Warren. I would just like to add that a lot of that 
training is included in the fundamental type courses that you 
are talking about, particularly for military officers and for 
civilian employees, but particularly for the military officers. 
However, when they get into the operational environment, and 
this is an issue that we stress particularly in the high-risk 
inventory report, is that you are dealing with a cultural issue 
in terms of them in fact in an operational environment focusing 
on economy and efficiency.
    When the officers move into the operational environment, 
their first duty and highest priority, they feel, from a 
cultural mind set, and again I will go to inventory, is to make 
sure that they have those items there when they need them. And 
then costs become secondary.
    And what we are trying to stress in our reports, and just 
as you are saying, is that there needs to be a better balance 
here. We need to accomplish both missions, and have effective 
stewardship over the Defense dollar.
    So the training, I have seen a lot of it introduced, and 
people are aware of it. But when you get into the operational 
environment, what priority in fact is placed on that is an 
issue. So I think that is a critical part of the answer.
    Mr. Sessions. The answer would always be reasonableness. 
And you do not know where that is. I mean, we cannot predict 
these kinds of things always. But I know that is a problem. But 
if we cannot have them to be managers of the business, then we 
are all in trouble.
    Mr. Hinton. You are clearly on the right track.
    Mr. Sessions. Yes.
    Mr. Horn. Would the gentleman yield for a minute?
    Mr. Sessions. Mr. Chairman, I was just going to say that I 
am now leaving this area. If you would like to join in, please.
    Mr. Horn. Yes. I will tell you that I think you have asked 
an excellent series of questions on this. Because what we are 
talking about is basic accountability of what one does when you 
are in a large organization, be it military or not. I think 
that the military does a superb job of post-collegiate 
education for its officer class.
    I can recall in General Powell's memoirs that he recalls 
going to George Washington University for his masters degree in 
computing. I do not know if he felt it helped him that much to 
be a leader. But the military has been very good at this, way 
ahead as you said of the civilian side of most agencies.
    That leads me to the obvious, what is OPM doing in this 
area? And when we have a bill like the Clinger-Cohen bill and 
these other bills, are there workshops being systematically 
developed by OPM that Departments can have access to? Has this 
been decentralized, or as we call it here devolved to the 
Departments, and OK, you are on your own, where are we on that 
basic training of new skills that we all need to know?
    Mr. Dodaro. Basically, OPM still provides some training 
functions. It has been awhile since I have looked at that, and 
I will confine my remarks to the financial management area for 
right now. But OPM has not been as active as I believe they 
could be in this area. And basically, it devolved, the 
responsibility to the Chief Financial Officers Council, and to 
the agencies to develop a lot of training.
    There are schools, for example, the graduate school at the 
Agriculture Department, that offers training courses. When the 
Chief Financial Officer Act passed, and we said we have a 
problem across Government, let's do something about it. And 
part of the goal and objective was to improve the 
qualifications of financial management personnel.
    But, OPM has not been actively engaged in addressing those 
issues. That is just my sense of dealing with the players on 
these issues. It is not based on any analytical studies.
    We did do a review of OPM, a management review, years ago, 
that we were responsible for in the late 1980's, and concluded 
that not only from a training standpoint, but from strategic 
planning, human resource planning; OPM was not providing enough 
governmentwide leadership.
    Mr. Horn. And when was that study done?
    Mr. Dodaro. That was in 1988.
    Mr. Horn. 1988.
    Mr. Dodaro. I can provide that.
    Mr. Horn. I would like to see it. So we are 9 years from 
that. Is it not time that GAO goes back and takes a look at the 
broader aspect?
    They should be the creator group or the facilitator group 
that is ahead of the curve, when all of these new practices 
start commonly in the civil service. And it just seems to 
methodology that there ought to be some leadership there to do 
this. And maybe there is, and I just do not know about it.
    But I would think that Mr. Mica in his subcommittee would 
be very interested in that. And certainly, we would, just on 
the economy and efficiency grounds that we are interested in.
    Mr. Dodaro. OK.
    Mr. Horn. Because you cannot be very efficient if you have 
not trained people correctly.
    Mr. Dodaro. This is a very true statement, and it is 
something that needs a lot of attention.
    Mr. Horn. I yield to the gentleman to pursue his next area.
    Mr. Sessions. Thank you, Mr. Chairman.
    I have neared the end of my time here today. And I know 
that you have been here for a long time also. I want to really 
thank each and every one of you from the GAO, who has not only 
participated and been here, but I want to applaud you and pat 
you on the back and urge you to continue the work that you are 
doing.
    I am somewhat amazed in the marketplace, as I was in 
private industry. We used to look across and find out where who 
was leading edge, who was developing things that we felt like 
would aid and abet our cause. So I would be interested some day 
in finding out how many of you were actually hired by these 
competing interests in the Government, because you represent I 
think a good thought process.
    And I wish that they would reach out and take you within 
their agencies, but perhaps that goes on every day. I just do 
not know. But if I had a word to say to each cabinet officer, I 
would say go and hire one of these people within your own area.
    So I applaud you for the work that you are doing, and want 
you to know that throughout this 105th session, that I am very 
interested, and I want to be involved in what you do. And most 
of all, I want to say to you please go do it, because you 
represent the essence of what good Government is all about.
    Mr. Chairman, thank you for allowing me to serve with you. 
I have got to skip out for a little while. But it has been a 
pleasure for me to be with you. Thank you.
    Mr. Horn. I am delighted to have you here. You have asked 
some excellent questions. And we will see that those are 
pursued.
    Let me just go through a few things I marked down as you 
were talking. And the staff will send you some other questions, 
which if you do not mind filing the answers for the record, we 
can do that.
    But as I listen to you on the electronic filing, that is of 
great interest to me. And we see some of the groups that 
represent senior citizens. They are not keen on electronic 
filing. And yet, those are the people being exploited, people 
living in the low income slum areas of our cities. The crooks, 
and the robbers, and the thieves, and the exploiters know 
exactly when that Social Security check or that welfare check 
is coming.
    And you have this tremendous number of reports of missing 
checks, in brief stolen out of the person's postal box and so 
forth.
    Where are we on electronic filing throughout the Government 
in terms of what the Government does if they are writing checks 
to go directly to the bank, and in terms of filing reports?
    In one of my hearings, and I forget which committee it was 
now, it might have been Transportation and Infrastructure, we 
had very good testimony from the California Environmental 
Protection Agency that they had worked out with business, 
because it was mostly business filings, the filing of both 
their reports, and their original applications, and all of the 
rest of it. And it saved warehouses filled with trees that we 
call paper.
    And so I wonder what your estimate is of what is going on 
in the Federal Government, and what could we do to stimulate 
some of that? Well, we have passed some laws in this area.
    Mr. Dodaro. Right.
    Mr. Horn. Is there anything else that needs to be done?
    Mr. Dodaro. Offhand, I would say that we are making some 
good progress in that area. I know that in the Federal 
Government, Treasury is encouraging people, all Federal 
employees, to receive their checks and do business 
electronically.
    The Government is moving toward electronic benefit 
transfers for programs. That is being tested, and as Keith 
knows for many of his agencies, for benefit programs, and food 
stamps, et cetera is being tested as well.
    IRS has put up a new system in Treasury to get electronic 
fund transfers for the revenues coming in. It is an area that I 
would like to give a little more thought to your question, Mr. 
Chairman, as to what additional things could be done.
    But I think that there are a number of initiatives under 
way that I am generally encouraged about. The problem is making 
sure that everybody has appropriate access and that the 
appropriate protections are taking place. But it is definitely 
the way that we need to move as a Government.
    Mr. Horn. Do you have any estimates from your surveys as to 
the degree of fraud or robbery that might be occurring, because 
we have not used electronic filing, and we are still doing it 
the old-fashioned way of sending the check to the person's 
house. Do we have any data on that from agencies, or postal 
inspectors?
    Mr. Dodaro. I do not think that there is any systematic 
data available on that. We know that there are high error rates 
in many things, because of the manual transactions and 
processes. And that is a big part of the Defense Department's 
accounting problems and other accounting problems. I am not 
aware of anything.
    Mr. Horn. Well, furnish us with that. I would like to go 
through that.
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    Mr. Horn. You mentioned that we ought to look at HUD 
regarding its mission. Now could you elaborate on that a little 
bit for the record? I realize that some of this is in print. I 
have got them all behind me. But I have not read them all, 
since they just came out yesterday for us.
    How do you feel about HUD? Do we have a confusion of 
mission within there in terms of what they are doing, or how 
would you put it?
    Mr. Dodard. I would like to have Judy Joseph, who is 
sitting to my right, respond to your specific questions. But I 
would like to give an overall statement in response to your 
question of how do we feel about HUD.
    HUD is the only agency that we have on the list that the 
entire agency is listed as high-risk. In fact, when I met with 
you a couple of weeks ago, I explained that that is because the 
problems that we have seen with HUD have developed over 20, 30, 
and 40 years. And they are very systemic, and they are very 
deep-rooted. And it is going to take a substantial number of 
years before they can work their way out of it.
    Judy has testified on numerous occasions on areas needing 
improvement at HUD. She has met with the Secretary and his 
chief of staff on numerous occasions, trying to work them 
through to solve some of their problems. And she can respond to 
any question you might have.
    Mr. Horn. OK.
    Ms. Joseph. Regarding the mission, I think the real 
question falls in the area of what is the Federal housing 
policy that the Congress and the administration can come to 
consensus on. And I think that really is a part of the real 
issue with HUD, and why we have HUD on the high-risk list. 
Until we really understand as a county what we want our Federal 
housing policy to achieve, it is awfully difficult to have 
numerous programs.
    At last count, there were over 240-some programs, and many 
initiatives that have been either earmarked or identified by 
the Congress or by the administration as a way of trying to 
address some pretty sorely needed problems, addressing some 
very, very serious problems.
    HUD's financial management, its information systems, its 
organizational structure, its skills and abilities of its 
staff, its internal controls are fundamentally the basis by 
which we originally put them on the list, because I viewed it 
as an infrastructure concern.
    No matter what the Congress and the administration wanted 
to choose to have as Federal policy, we needed to have good 
information on which to base those decisions from a public 
policy perspective. And we needed to have good systems in place 
to oversee and manage those programs.
    But as we have been at HUD and have seen the numerous 
programs that exist there, and many of them are programs that 
really have the opportunity to be consolidated or streamlined, 
or in some cases perhaps viewed in a broader context of Federal 
housing policy outside of HUD; when you think of housing policy 
also being a part of the tax code, obviously housing policy 
through programs at the Agriculture Department in rural 
housing. We have VA, Veterans Administration housing, and then 
we have numerous economic and community development programs 
throughout the Government.
    So when you think about housing policy or housing and 
economic policy, it really is a lot larger than HUD. And 
because there are so many other players, I think that it 
continues to confuse the real role and mission of HUD to some 
extent.
    And in many ways, that is why we feel that we need to work 
to build or strengthen HUD's infrastructure from a management 
perspective, but then we have to really set them in a course or 
a direction that really gets to what you all are most concerned 
about in terms of housing, the Nation's poor as well as people 
of middle and upper income.
    Mr. Horn. Let me read you a letter from my good friend and 
colleague Rick Lazio, Chairman of the Subcommittee on Housing 
and Community Opportunity of the Banking and Financial Services 
Full Committee. This just appeared on my rostrum here. It is 
dated today.

    Dear Chairman Horn: Last September, I sent a letter to the 
General Accounting Office, asking them to devote significant 
effort to their ongoing investigation of the Department of 
Housing and Urban Development as a high risk agency. I commend 
you for holding this timely hearing on the waste, fraud and 
abuse within Federal departments and programs.
    In their latest evaluation of HUD, GAO concludes that the 
Department is still very much a high-risk government agency. 
HUD's long-standing deficiencies in internal controls, 
information and financial management systems, organizational 
structure, and developing staff expertise continue to leave the 
Department vulnerable to program mismanagement.
    HUD's Office of Inspector General recently released its 
Semiannual Report to Congress in which it recognized 
improvements in some aspects of HUD's performance. However, it 
also noted that under current circumstances ``the prospects for 
further improvement are dim.'' In particular, it found that the 
number and varied types of HUD programs and initiatives are 
beyond the capability of HUD staff to carry out. In addition, 
the Office of Inspector General found that various components 
of HUD are ``not equipped to provide reasonable stewardship 
over taxpayer funds expended for their programs.'' Of the 
offices listed as incapable of exercising appropriate oversight 
over funding, of greatest concern is the Office of Multifamily 
Housing. This office will manage more than $10 billion in 
Section 8 contract renewals in fiscal year 1998. Even more 
alarming are the number of contracts coming due over the next 
several years. The cost of renewing these contracts, if left 
unchecked, could consume HUD's entire discretionary budget 
within the next 5 to 7 years. We must continue to work together 
with the administration to create a permanent solution that 
deals with the approaching crisis.
    As we roll up our sleeves for the work of the 105th 
Congress, we look forward to building communities of 
opportunity in our cities and towns along with HUD's new 
Secretary Andrew Cuomo. During his confirmation hearing, 
Secretary Cuomo stated that HUD's mission must be ``the 
development of self-sufficiency, not the perpetuation of 
government programs.'' Secretary Cuomo looks forward to a 
``future in which everyone willing to do his or her part will 
be empowered with the tools to reach as high as their talents 
and hard work will take them.'' Those words echo President 
Clinton's recent Inaugural Address that the ``pre-eminent 
mission of our new government is to give all Americans an 
opportunity--not a guarantee, but a real opportunity--to build 
better lives.''
    On the first day of the 105th Congress, I introduced H.R. 
2, the Housing Opportunity and Responsibility Act of 1997, 
which comprehensively reforms our nation's public housing 
system, removes disincentives for public housing residents to 
work and encourages self-sufficiency. Rather than imposing 
Washington-knows-best prescriptions tied to a hand-out, we 
offer working families a hands up the ladder of personal 
success. H.R. 2 is the first step in transforming public 
housing from a way of life into a way to a better life.
    In the present environment of finite resources, HUD must 
devote all of its energies toward a tightly focused mission. As 
President Clinton has stated, we must learn to do more with 
less, and do it even better. H.R. 2 provides the tools to help 
accomplish this by deregulating the operations of well-run 
public housing authorities, giving greater power and 
flexibility to local governments and communities to manage 
housing programs, and permanently eliminating Federal 
regulations that have concentrated the poorest families in the 
worst housing. H.R. 2 repeals the last vestiges of the welfare 
state by replacing the United States Housing Act of 1937. The 
bill declares that it is the policy of the Federal government 
to promote and protect the independent action of citizens, 
state and local governments, and private and non-profit 
organizations to develop housing opportunities and strengthen 
their own neighborhoods.
    Last session, Congress devoted tremendous effort and 
resources toward enacting permanent housing reform legislation. 
This year, we have hit the ground running. Majority Leader 
Armey, in a recent Republican radio address stated that public 
housing reform is one of the priorities of the 105th Congress. 
We will be working every step of the way with House Members on 
both sides, Republicans and Democrats in the Senate, and HUD's 
new administration under Secretary Cuomo. I am confident that 
this will be the year that Congress passes the reforms crucial 
to our neighborhoods and communities.
    That said, I must express my serious concern regarding 
HUD's continuing management and oversight deficiencies. In 
1994, the National Academy of Public Administration concluded 
that if HUD was not operating under a clear legislative mandate 
and in an effective accountable manner in 5 years, Congress and 
the Administration should consider dismantling the Department. 
During the last several years, I have convinced many colleagues 
that we must preserve a place at the President's Cabinet table 
for American communities. Despite former Secretary Henry 
Cisneros' noble efforts, HUD still sways under the sword of 
Damocles. Permanent reform legislation is a significant part of 
the solution. The remaining problems outlined by GAO and HUD's 
Inspector General must be addressed by the Department itself 
and Secretary Cuomo's continuing efforts to reform HUD from 
within.
    I look forward to working with Secretary Cuomo, and am 
confident that Congress will pass bipartisan housing reform 
legislation with support from the Administration. Again, I 
commend you for holding this hearing on a subject of such 
critical importance to all Americans.
    Rick Lazio, Chairman, Subcommittee on Housing and Community 
Opportunity.

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    Mr. Horn. Does the GAO have any feel for what the Secretary 
is talking about, is it the way to go, or what is the feeling?
    Ms. Joseph. Well, the reform legislation he is speaking to 
focuses primarily on public housing. And many of the issues 
that concern us are outside of public housing. There are 
clearly management issues as well as program design issues in 
public housing, but we have issues and concerns in the FHA 
multi-family portfolio area. And we have concerns as it relates 
to the management and financial infrastructure of the agency as 
a whole.
    So there are a number of issues beyond what H.R. 2 actually 
addresses. It is obviously a beginning, and there are many 
things about that bill, which largely reflects the bill that 
was introduced last year. Many things about it really would 
streamline public housing.
    Mr. Horn. Well, we passed it, and then it was over at the 
other body, as we say.
    Ms. Joseph. Yes, sir.
    Mr. Horn. What I am curious about is in GAO studies of HUD, 
are there parts of HUD that should be in other agencies, for 
example? I am thinking of lending programs generally. Maybe 
they ought to be under one roof, if we are going to get 
efficiency out of it. Although the argument would be you are 
taking them away from the mission of the agency broadly 
construed. And that is just a mechanical way of carrying out 
part of the mission.
    Ms. Joseph. Right. There are a couple of aspects of HUD's 
mission that could possibly be performed in other places. 
Obviously, the guaranteed loan programs for home ownership, 
single family home ownership, as well as multi-family housing 
could possibly be consolidated with the Veterans 
Administration's rural housing program. Those have never been 
put together on the table for discussion.
    We have looked at FHA from the standpoint of determining 
whether it should be separated from HUD and be a stand-alone 
Government corporation. And there are pros and cons to that 
particular activity. The single family side of FHA----
    Mr. Horn. Is there a report on that that GAO has?
    Ms. Joseph. Yes, sir. Actually, we are in the process of 
issuing on the 21st of this month a report based on a request 
from the Senate subcommittee dealing with oversight of HUD. 
Chairman Faircloth had introduced a bill last year on the 
dismantlement of HUD. And he asked GAO to do a review of the 
implications of his bill.
    And in that, we do discuss a proposal that he makes to move 
FHA to the Treasury, actually completely changing the way we 
would do single family mortgage insurance. It would be quite 
different than the way that the Government does it today. And 
his bill also would eliminate completely multi-family loan 
insurance as a program for the Federal Government.
    Mr. Horn. That is interesting.
    Mr. Fultz. Excuse me, sir, if I could just add.
    Mr. Horn. As you were talking, I had the thought that 
Treasury could manage some of these, and talk about it as a 
business-type program. So I would be very interested in seeing 
the letter that you are sending to the Senator.
    Mr. Fultz. Mr. Chairman, if I could add to Judy's comments. 
One of the agencies that I also have responsibility for is the 
Department of Energy. And as you know, there have been numerous 
proposals and thoughts about abolishing it also. As a caution 
we have suggested to many different committees that one has to 
be careful where those programs might go, and what agencies 
they would be assigned to.
    Because then you would need to restructure the priorities 
and the responsibilities of those receiving agencies. And we 
would suggest that if those agencies, or if parts of these 
agencies are moved, a very careful thought process has to 
evolve with clear understanding of measures given to the 
receiving agencies, and an understanding of what Congress 
expects to happen, and how those programs are to be folded 
within those other agencies.
    Mr. Horn. Did GAO historically ever get involved in the 
various reorganizations going back to the Hoover's Commissions 
1 and 2, going back to the Nixon administration where they had 
probably the last substantive recommendations of any 
administration in terms of reorganization of the Government, 
was GAO ever consulted in history? Do we know that?
    Mr. Dodaro. I would have to do a little research with you 
people who are a little older than me, Mr. Chairman.
    Mr. Horn. Elmer Statts will know.
    Mr. Dodaro. Elmer will know. I will consult with Elmer and 
Chuck, and give you an answer. I do not think so. If my memory 
serves correctly, we would be commenting on some of the 
proposals after the fact, but not consulted during their 
development.
    Mr. Horn. Well, you were not into the program analysis 
aspect in those days, as much as you are now anyhow. You had to 
wait until Speaker Rayburn left, and Mr. Cannon the head of 
Appropriations left, because they fought that for years.
    So you are in it now, and we all depend on you for some 
objective advice here. And I appreciate your comments. And we 
will be getting to certain agencies again. Certainly, Commerce 
is the easiest one probably to pick off, since there is very 
little commerce. What we need is a Department of International 
Trade, and make the Patent Office an independent agency, and 
try to get things out of the Cabinet that are not 
controversial, and sort of do their thing, leave them alone, 
you know. At least, that is where I am coming from on it.
    Now the information age. You mentioned getting the Federal 
Government into the information age. The question is, again, it 
gets down to education, training, and using best practices, 
that you have done so well and all of that.
    What is the feeling of GAO as to how well the executive 
branch is doing in learning from each other, learning from 
business, and getting into the information age, and what else 
should be done?
    Mr. Dodaro. A couple of things. One, I think that we are 
making some progress, but it is very incremental. I am very 
worried about the success of the reforms ushered in by Clinger-
Cohen and the Paperwork Reduction Acts. I do not think that we 
are off to a rapid start in many aspects of implementing that 
legislation.
    The first thing that ought to be a high priority for the 
Congress. GAO has a number of activities planned to try to 
assess implementation of that, is to get moving on it. We no 
longer can afford delays in implementing and getting into this 
arena.
    We also have to look hard at squeezing the money down to 
make sure that we do not make bad investments, as we have had 
in the past. And we have to look at upgrading the technical 
capabilities of agencies in order to do that.
    Now that is one aspect of the Clinger-Cohen Act that really 
is not addressed, the technical capabilities, other than making 
sure that we have good quality chief information officers.
    Now we know that having good quality chief financial 
officers have helped, but you need the underpinning in the 
organizational structure to do it. And that is a very serious 
concern about whether we are going to be able to turn the 
corner on that issue.
    But I would encourage the Congress to have a tight hold on 
the purse strings until it sees that agencies have good plans 
and good strategies, and that this situation is under control.
    Effectively assessing how well that legislation is being 
implemented is essential, and that is where I would start, and 
then go from there. And we are looking at the other 
possibilities for enhancements to that core legislation.
    Mr. Horn. What year did we start the chief financial 
officers in actual implementation?
    Mr. Dodaro. The act passed in November 1990. So during 
1991, we started implementation of aspects of the act, putting 
in place the leadership structure. The financial audit, one was 
on a pilot for awhile. We do not have that aspect of the CFO 
Act being fully implemented across Government until the fiscal 
1996 financial statements and audits.
    Originally, a lot of the CFOs were just anointed for people 
who were already in place, and we had a problem then. So we 
lost 2 or 3 years earlier bringing in some additional qualified 
people. And I do not want to see that happen in the chief 
information officers.
    Mr. Horn. Well, that is what I am leading to.
    Has GAO done a sort of story of the implementation of the 
CFO Act, just a case study you would call it in a business 
school or a school of public administration, and can we learn 
something from that in administering the CFO Act, have you got 
some material in that area?
    Mr. Dodaro. Yes, we do. We have been tracking progress and 
giving updates on the progress in implementing the CFO Act, and 
there are many lessons to be learned. First of all, to make 
sure that you get the qualified person in place, you do not add 
additional duties and responsibilities. That is a problem. And 
that you get the investment processes. And the CFO has to have 
the proper amount of authority to enforce many of the 
investment provisions and requirements in the act. So getting 
the right person and the right type of authorities is 
important.
    We are planning a series of evaluations to provide that 
information to the Congress. As you know, that act became 
effective in August 1996. So we are not that far into it yet. 
But we think that early assessments in dealing with the 
problems are critical.
    That is the biggest lesson learned, not only out of the CFO 
Act, but many management reforms that have been tried to be 
implemented over the years. If there is not active 
congressional oversight and pushing, a lot of those things just 
do not happen.
    Mr. Horn. I realize that there is not a Comptroller General 
in full term at the present time.
    But when an assistant secretary is nominated by the 
President, has the GAO ever said here is the bundle of reports 
that relate to the function you are about to take over, and 
good luck, here they are? Do we send them to them, or is that 
considered too aggressive?
    Mr. Dodaro. No. We meet with everybody right away. As Keith 
indicated earlier, we are in an outreach mode constantly, 
meeting with new people, and talking to them, and encouraging 
them, and offering assistance.
    Mr. Horn. Do you do that before confirmation?
    Mr. Dodaro. We do not. And actually, a lot of the people 
who are pending confirmation are advised by the White House not 
to talk to us, because they are not in an official capacity 
yet. So there are very strict limits on people during the 
confirmation.
    Mr. Horn. That is another stupid decision by the White 
House. You know, it is just insane. They are not giving policy 
views, but they ought to be semi-educated on the 
responsibilities that they are undertaking. Because once they 
get over there, the confirmation period is a very good time for 
them to read those reports. Because it will help them to answer 
some questions of various Senate committees.
    And I just cannot imagine an appointee that would not want 
to read those reports, and see where the snakes are, after they 
have charmed him to come here, and give up his home in Okatella 
or wherever. And it just seems to me that that is the kind of 
necessary information that a nominee ought to have, to know 
what the ground is that he or she is going into.
    Mr. Dodaro. Actually, that is a good point. One of the 
things that we could look into is I do not know if there is----
    Mr. Horn. Just send it to him in a blank envelope or 
something.
    Mr. Dodaro. Well, it may not have to be blank. But that is 
what I was going to suggest. Your thought stimulated that. 
There is no reason we cannot correspond.
    Mr. Horn. It is one thing for them to sit over in the 
agency. And we have had a few sad cases there, where they were 
making decisions and all of the rest, and they have not even 
been confirmed yet. That happened a few administrations ago, as 
I remember.
    Mr. Fultz. Mr. Chairman, if I could also add. As part of 
our outreach effort, in dealing with congressional committees 
and Congressmen like yourself, we also have ongoing dialog with 
the staff of various committees.
    And during the confirmation process, or in interviews that 
we might have with the members of responsible committees, we 
will suggest questions or issues that need to be addressed. And 
often, those questions and issues do come up in the 
confirmation process.
    Mr. Horn. Well, that is great. And I think that is very 
helpful. Well, we could all stay here and go through other 
questions. But
the hearing record here will remain open to allow for followup 
questions that have been prepared by both staffs that we have 
not had a chance to answer today. And if you would be good 
enough to have those answered and submit them for the record, 
we will put them at this point.
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    Mr. Horn. I might add that we also established a quorum in 
this hearing, at the end of my first page of my opening 
statement. So we have conducted ourselves according to the 
House rules.
    Again, I share what Mr. Sessions said to you. I 
congratulate you as both an institution and as individuals for 
doing a superb job on this.
    I happened to have gone through the other series you did. I 
have only gone through about two booklets of the current one, 
since I spent most of last night down here arguing about bills 
coming up in the next few months.
    But thank you all, and it was good to see the staff that 
backs up Mr. Dodaro. I knew that he was bright, and I knew that 
he was articulate, but now I know why. I thank all of you for 
coming. You have each made a contribution.
    And with that, if you do not have any last words, we will 
adjourn this hearing. Thank you.
    Mr. Dodaro. My only last words are to thank you and Mr. 
Sessions for your comments. Thank you very much.
    Mr. Horn. And I would like to thank the following people: 
J. Russell George, staff director; Anna Miller, professional 
staff member; Andrea Miller, clerk; David McMillen, minority 
professional staff member, Mark Stephenson, minority 
professional staff member; and Patricia Kueber, court reporter.
    The subcommittee is adjourned.
    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]



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