[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
           DISAPPEARING TAX DOLLARS; WHAT CHANGES ARE NEEDED?
=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            OCTOBER 3, 2002

                               __________

                           Serial No. 107-234

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform







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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             CAROLYN B. MALONEY, New York
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
C.L. ``BUTCH'' OTTER, Idaho          ------ ------
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                 MAJOR R. OWENS, New York
ADAM H. PUTNAM, Florida              PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
             Bonnie Heald, Staff Director and Chief Counsel
                Dan Costello, Professional Staff Member
                          Chris Barkley, Clerk
           David McMillen, Minority Professional Staff Member





                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 3, 2002..................................     1
Statement of:
    Antonelli, Angela M., Chief Financial Officer, U.S. 
      Department of Housing and Urban Development................    45
    Calbom, Linda, Director, Financial Management and Assurance, 
      U.S. General Accounting Office.............................    10
    Martin, Jack, Chief Financial Officer, U.S. Department of 
      Education..................................................    56
Letters, statements, etc., submitted for the record by:
    Antonelli, Angela M., Chief Financial Officer, U.S. 
      Department of Housing and Urban Development, prepared 
      statement of...............................................    48
    Calbom, Linda, Director, Financial Management and Assurance, 
      U.S. General Accounting Office, prepared statement of......    13
    Everson, Mark W., the Deputy Director for Management, in the 
      Office of Management and Budget, prepared statement of.....    73
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Martin, Jack, Chief Financial Officer, U.S. Department of 
      Education:
        Followup questions and responses........................ 83, 89
        Prepared statement of....................................    59
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............     7


           DISAPPEARING TAX DOLLARS; WHAT CHANGES ARE NEEDED?

                              ----------                              


                       THURSDAY, OCTOBER 3, 2002

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:10 p.m., in 
room 2247, Rayburn House Office Building, Hon Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn and Schakowsky.
    Staff present: Bonnie Heald, staff director; Henry Wray, 
senior counsel; Dan Daly, counsel; Dan Costello, professional 
staff member; Chris Barkley, clerk; Ursula Wojciechowski, 
intern; David McMillen, minority professional staff member; and 
Jean Gosa, minority assistant clerk.
    Mr. Horn. I ask unanimous consent that the subcommittee 
hearing begin before completion of today's full committee 
hearing.
    I'm sorry that we can't immediately go forward. We'll do 
the best we can. But the fact is, we've got a situation on the 
Floor where votes are called about every 5 to 10 minutes. So 
I'm going to start in on my opening statement until we have to 
go and cast our votes again. We've already gone through this 
bit for the last five votes.
    A quorum being present, this hearing of the Subcommittee on 
Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order. Today's hearing 
is on the important subject of improper payments made by 
Federal agencies. Each year, the Federal Government wastes 
countless billions of dollars of the taxpayers on improper 
payments. Some of these payments result from fraud and waste. 
Others represent simply mistakes. No matter what the cause, 
improper payments are a chronic problem that must be stopped.
    These improper payments occur for a number of reasons. In 
some cases, agencies lack appropriate approval structures. 
Sometimes, the payments are simply not being monitored. And in 
some cases, there is a widespread circumvention of agency rules 
and guidelines. When an agency lacks proper controls to monitor 
payments, it promotes a rubber stamp environment in which 
payments are made with little or no supporting evidence.
    The General Accounting Office has found that the purchase 
card problems at the Department of Education and the Department 
of Housing and Urban Development suffer from a lack of adequate 
internal controls. HUD, the Housing and Urban Development 
department, was unable to provide the GAO, the General 
Accounting Office, headed by the Comptroller General, with an 
adequate support for more than $2 billion in purchase card 
transactions during fiscal year 2001. The Department of 
Education was unable to find over $200,000 worth of computer 
equipment that employees bought using their Government 
guaranteed purchase cards.
    In addition to the purchase card problem, the General 
Accounting Office found that HUD's multi-family program is 
extremely susceptible to improper payments. The GAO discovered 
that HUD had made payments to multi-family property managers 
for services that were never performed and for goods that were 
never received. The GAO also determined that the Department of 
Education's loan and grant programs are at high risk for 
improper payments. The Departments could not provide adequate 
documentation for $8.5 million in grants that were disbursed 
over a 26 month period.
    As alarming as these numbers are, they are only the tip of 
the iceberg. The extent of improper payments in the Federal 
Government is unknown because Federal agencies are currently 
not required by law to estimate them. According to the GAO, the 
handful of agencies that do report voluntarily estimate that 
they make improper payments of about $20 billion a year. And 
just today, the Office of Management and Budget has given us an 
updated estimate of over $33 billion in improper payments for 
many of the same programs.
    I've introduced legislation, H.R. 4878, The Proper Payments 
Information Act of 2002, that will require nearly all Federal 
agencies to begin measuring the extent of this problem. 
Enactment of this bill would provide a major step toward 
addressing this wasteful and abusive loss of taxpayers' 
dollars.
    Now I welcome our witnesses today, and I look forward to 
discussing some strategies to resolve this egregious problem. I 
now yield for an opening statement to the ranking member, Ms. 
Schakowsky, the lady from Illinois. I am going to go and vote.
    [The prepared statement of Hon. Stephen Horn follows:]
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    Ms. Schakowsky. Thank you, Mr. Chairman, for holding this 
hearing. And I thank the witnesses for taking time out of their 
busy schedules to testify today.
    I have worked closely with the chairman throughout this 
Congress to highlight the lack of fiscal management in the 
administration. Most of our work has focused on the Department 
of Defense, and it is clear that DOD is wasting public funds at 
an alarming rate. I'm pleased that today we're looking beyond 
DOD.
    I believe it is important that we confront waste throughout 
the Government. GAO has told us that the Department of 
Education, since its original testimony in April, has made 
significant progress in correcting the management failures in 
the purchase card program. HUD, however, continues to be more 
like the management at DOD.
    I believe these issues are important because dollars wasted 
by the Government are dollars that are not available for the 
important programs within these agencies. However, even if we 
eliminate all of the purchase card problems at the Department 
of Education, there will not be enough money to fund Title I 
and Pell Grants and all the other important education programs. 
We are confronted with a more fundamental problem. There is 
simply not enough money to fund the Government next year. This 
problem exists not because of the events of September 11, but 
because of President Bush's tax cut. Given the title of this 
hearing, Disappearing Tax Dollars, it seems fitting that we 
look at this important information as well.
    On the easel is a chart that summarizes a study by the 
Congressional Budget Office. CBO looked at the deterioration of 
the surplus since last year, and concluded that the main cause 
for the disappearing surplus is not September 11, and it is not 
the Bush recession. The main cause of the disappearing surplus 
is the Bush tax cut. The Bush tax cut has ended the brief 
period of surpluses and returned us to massive deficits.
    The second chart shows just how dramatic the change is. If 
Congress does not restore the fiscal restraint that 
characterized the budget process during the Clinton 
administration, we face massive deficits over the next 10 
years. As most economists will tell you, those deficits will 
have a chilling effect on the economy.
    When President Clinton signaled to the world that he was 
serious about balancing the budget, it had an important effect. 
International investment began to flow into the U.S. economy 
and was one of the engines of the expansion of the 1990's. 
These deficits will have the opposite effect, holding back the 
economy and taking a toll on everyone. We have already seen 
that happening. Last week, the Department of Commerce announced 
that the poverty rate was up, and household income was down. 
The last time we saw poverty go up and income go down was 
during the recession in 1991. The tax dollars that disappeared 
because of the Bush tax cut are already having an effect on 
programs designed to help the neediest of our citizens, some of 
which are at the agencies before us today.
    The failure of this administration to follow through on its 
commitment to education is shameful. The President's program, 
Leave No Child Behind, was supposed to provide our children 
with the resources needed to obtain the best education 
possible. Instead, the President's education budget for 2003 
would stop 6 years of steady progress and Federal support to 
local schools. The President's education budget would reduce 
Pell Grants, eliminate funding for rural education and 
technological training for teachers, resulting in 16,000 fewer 
teachers getting trained and 50,000 fewer children in after-
school programs. It is clear that in the President's budget, 
children are being left behind.
    This afternoon, Ms. Calbom from GAO will testify about the 
waste, fraud and abuse at the Department of Housing and Urban 
Development. Quite frankly, I'm not surprised. I am dismayed at 
the insensitivity of the leadership at HUD toward the people 
they are supposed to serve. Last year, I introduced the 
Domestic Violence and Sexual Assault Victims Housing Act, which 
had bipartisan support, it does have, and over 100 co-sponsors. 
One of the main provisions of that bill, funding for 
transitional housing for domestic violence victims, was 
included in the bill sponsored by Chairwoman Marge Roukema of 
the Housing and Community Opportunities Subcommittee. The 
Secretary of HUD opposes these provisions and argues that there 
are sufficient programs for these victims. Why then does the 
HUD Commission's evaluation of transitional housing programs 
find that among all people served battered women are the least 
likely to experience improved employment and stable housing?
    If the Bush administration can turn its back on these 
victims, it is not surprising that it turns its back on the 
financial management responsibilities at the Department. If 
financial management is any indication of clear priorities, 
then I guess I shouldn't be surprised.
    As the chairman knows, I feel strongly about waste in our 
Government, because it steals money from those programs that 
are already under-funded. As the President leads our Nation on 
a path toward war, financial management in his administration 
is actually a national security liability. I commend him on his 
leadership on these issues, and it has been a pleasure to work 
with him on the subcommittee. While this isn't the last 
hearing, I want to say, even in his absence, I want to salute 
the chairman of this subcommittee for his many accomplishments 
under his leadership.
    Thank you. And I'm going to go vote, too. We'll be back 
soon.
    The subcommittee is at recess. Thank you.
    [The prepared statement of Hon. Janice D. Schakowsky 
follows:]
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    [Recess.]
    Mr. Horn. We will need to have you take the oath, so if you 
would stand up and raise your right hands.
    [Witnesses sworn.]
    Mr. Horn. Thank you.
    The clerk will note that all three witnesses affirmed. And 
we will now start from the witnesses in the order. You've been 
here many times, Linda, and we thank you, Linda Calbom, 
Director, Financial Management and Assurance, General 
Accounting Office.

 STATEMENT OF LINDA CALBOM, DIRECTOR, FINANCIAL MANAGEMENT AND 
           ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Calbom. Thank you, Mr. Chairman. I'm pleased to be here 
today to discuss the results of our improper payments reviews 
of selected areas of the Departments of Housing and Urban 
Development and Education, and also to talk about some 
strategies these and other Federal agencies can use to better 
management their improper payments.
    Improper payments occur for many reasons, but the root 
causes can typically be traced to a breakdown in internal 
control. This certainly was the case at both HUD and Education 
for the areas we reviewed, which included purchase card 
transactions at both HUD and Education, grant and loan 
disbursements at Education and multi-family contractor payments 
at HUD. First, purchase cards. We found, as you were 
mentioning, Mr. Chairman, that both HUD and Education lacked 
fundamental internal controls over their purchase card program.
    For example, neither agency had an effective review and 
approval process. While both had policies requiring supervisory 
review of monthly purchase card statements and supporting 
documentation, this process was not carried out effectively for 
77 percent of our sampled transactions at HUD and 37 percent of 
our sampled transactions at Education. Combined with the lack 
of monitoring over these programs an environment was created at 
HUD and Education where improper purchases could be made with 
little risk of detection.
    Inadequate controls over these expenditures, along with the 
inherent risk of fraud and abuse associated with purchase 
cards, likely contributed to the $3 million of fraudulent, 
improper and questionable purchases we identified at HUD and 
Education. The bulk of these transactions, about $2.3 million, 
relates to questionable purchases at HUD from vendors such as 
Lord and Taylor, Clean Cuts Music and the Cheesecake Factory, 
for which the agency could provide little or no supporting 
documentation.
    We also identified over $1 million of likely split 
purchases at HUD and Education. These are purchases that are 
split into two or more transactions in order to circumvent the 
$2,500 micro purchase limit. Education has taken a number of 
actions to address our recommendations we made to them 
regarding the problems with purchase cards that we identified 
in our review. I'm sure that you'll hear about that in a few 
minutes. We will be making similar recommendations to HUD in a 
forthcoming report.
    Controls were also an issue in Education's grant and loan 
disbursements, which did not include a key edit check or 
followup process to help identify schools that were disbursing 
Pell Grants to ineligible students. Our test and followup 
investigation identified four schools that fraudulently or 
improperly disbursed about $3.4 million of Pell Grants to 
ineligible students. We referred the results of our 
investigation of these four schools to Education's Inspector 
General. We also identified 31 other schools that had similar 
disbursement patterns, and we have referred those to Education 
for followup.
    Now I want to talk a little bit about some of the problems 
we found with contractor oversight at HUD. HUD contracts with 
two property management firms to oversee the operation of its 
multi-family properties, including arranging for repairs, 
maintenance and renovation. We found that one of these property 
management firms regularly circumvented HUD controls by 
alleging that construction renovations were emergencies, thus 
not requiring multiple bids or HUD pre-approval, and splitting 
renovations into multiple projects to stay below the $50,000 
threshold of HUD-required approval.
    HUD failed to comply with its own policies that require 
quarterly onsite inspections and management reviews, and thus 
did not question these practices, which based on our review 
resulted in several cases where HUD paid for work that was not 
performed. In one such case, HUD's contractor submitted 
falsified documents indicating emergency replacement of 15,000 
square feet of sidewalk at a cost of $227,500. The work was 
billed on five identical invoices for $45,500 each, for 
replacement of concrete sidewalk in front of five buildings.
    With the assistance of an independent construction firm, we 
determined that only about one-third of the work billed and 
paid for was actually performed. As an example, we brought a 
photograph today, which I think is in your packet there, Mr. 
Chairman, that shows the front of one of the buildings; the 
outlined portion is the portion of the sidewalk that was 
actually replaced. The other portion that's not outlined was 
billed for but had not been replaced.
    As a result of this, for the work done at the five 
buildings, more than $164,000 of the $227,500 billed and paid 
for emergency installation of concrete sidewalk appears to be 
fraudulent. The HUD OIG and GAO Offices of Special 
Investigations are now investigating this case, as well as 
other improprieties we found during our review of this 
contractor.
    Mr. Horn. That insert will be in the record at this point, 
and it's HUD Improper Payments, $164,000 overpayment for 
sidewalk repairs.
    Ms. Calbom. Yes, thank you, Mr. Chairman. By the way, that 
picture is also on page 17 of my written statement.
    I'd like to shift gears just a little bit now and talk 
about some of the things that HUD, Education and other Federal 
agencies can do to comprehensively address their improper 
payments. Our executive guide, which is entitled Strategies to 
Manage Improper Payments, Learning from Public and Private 
Organizations, which was issued last October, identifies 
strategies that other organizations, both here and abroad, 
found effective in reducing improper payments. And it provides 
some case illustrations and other information for Federal 
agencies to consider when addressing improper payments.
    Again, we have another insert, Mr. Chairman, that I think 
is in your packet, and we also have a chart here that really 
shows the five key areas of internal controls which can be used 
to combat improper payments. As is shown in this chart, it's a 
circular process, and that indicates that it really is a 
continuous process that's interrelated.
    The first area, which is the perimeter, is the control 
environment. This really deals with instilling a culture of 
accountability. Setting the tone at the top is critical in this 
area and must include clearly communicating from the top the 
need for improved program operations and changes in 
organizational culture. As the chart shows, this area surrounds 
and reinforces all of the other control areas.
    The next area is risk assessment. This is determining the 
nature and extent of the problem. It's very easy to rationalize 
avoiding addressing a problem if you don't know how big it is. 
And it's just critical that the problem be identified and 
measured through a systematic risk assessment process and 
openly communicated to all relevant parties. Mr. Chairman, this 
is exactly what your bill calls for. It's absolutely key to 
this whole process.
    Control activities are the next area. And that's taking 
action to address identified risks. Organizations need to 
tailor their activities to fit their particular needs. There's 
a wide range of activities, both high tech and low tech, that 
can be efficiently and effectively used to address improper 
payments. Information and communication is the next area. 
That's using and sharing knowledge to manage improper payments. 
An important part of this strategy involves the education of 
agency employees, contractors and beneficiaries about what is 
expected of them and the consequences of not meeting those 
expectations.
    Finally, monitoring is tracking the success of improvement 
initiatives. Just putting control activities in place is not 
the end of the process. Monitoring progress and results is 
essential and must include the involvement of top officials.
    In closing, Mr. Chairman, I want to emphasize that high 
levels of improper payments need not and should not be an 
accepted part of running Federal programs. And I know that you 
agree with that.
    The organizations in our study found that they could 
effectively and efficiently manage improper payments, using the 
strategies I just outlined that are discussed in detail in our 
executive guide. While HUD, Education and other agencies have 
taken some steps in these areas, effectively addressing 
improper payments requires a comprehensive strategy that 
permeates the entire organization. Implementation of this 
process in the Federal Government will not be easy or quick, 
and it will take money. However, as shown in our study, such 
investments ultimately pay for themselves in program savings, 
and also produce large dividends in the form of renewed public 
trust and confidence.
    That concludes my statement, Mr. Chairman.
    [The prepared statement of Ms. Calbom follows:]
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    Mr. Horn. Thank you. The reporter will put in the Managing 
Improper Payments through Internal Controls with the various 
segments, control, environment, monitoring, risk assessment, 
information and communications, control activities, with the 
objective of manage improper payments.
    We will now go with the second witness, the Honorable 
Angela M. Antonelli, Chief Financial Officer, Department of 
Housing and Urban Development. Thank you for being with us.

STATEMENT OF ANGELA M. ANTONELLI, CHIEF FINANCIAL OFFICER, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. Antonelli. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for the opportunity to appear 
before you today to discuss HUD's initiatives to identify and 
reduce erroneous payments. Every dollar that HUD pays in error 
is a dollar that is not available to serve the intended low-
income beneficiaries of our housing and community development 
programs.
    Improved financial performance, including erroneous payment 
reduction, is a key components of the President's management 
agenda. HUD Secretary Mel Martinez and his leadership team are 
focused on meeting the President's goals. I am pleased to 
report that HUD is making real progress in strengthening 
internal controls and reducing the risk of erroneous payments. 
And I applaud your efforts, Mr. Chairman, to aggressively 
tackle this issue.
    I am pleased to appear before you today with Jack Martin, 
the CFO at Education, as well as Linda Calbom from GAO. As I'm 
sure my colleague from Education will agree, GAO and its fine 
staff, like Linda Calbom, have issued very useful guidance for 
more effective management of erroneous payments by Federal 
agencies. The GAO's extensive audit work at HUD also has been 
instrumental in identifying vulnerable areas in need of 
stronger internal controls to reduce the risk of erroneous 
payments. My testimony today will focus on two such areas 
reviewed by GAO.
    Before I continue, I would like to request that my more 
detailed written statement be submitted for the record.
    Mr. Horn. I should have said in advance, it automatically 
goes in the record once you are noted. All of that goes in.
    Ms. Antonelli. Thank you.
    I would also like to introduce two people who are with me. 
Behind me are seated Vickers Meadows, HUD's Assistant Secretary 
for Administration, and John Weicher, HUD's Assistant Secretary 
for Housing and the FHA Commissioner.
    First, I want to discuss HUD's efforts to reduce the risk 
of erroneous payments in its Government credit card program. 
I'll first start with our travel card to illustrate what I 
believe HUD can accomplish with strong leadership and an 
effective plan. This was a good place for Secretary Martinez 
and his new leadership team to start to create a culture of 
accountability at HUD.
    When I became HUD's CFO in mid-July 2001, HUD had a 
recognized payment delinquency problem in its travel credit 
card program. We took aggressive action that included staff 
training, travel payment system improvements, and the use of 
salary offsets for more egregious cases. We also began to 
produce monthly delinquency reports that the Deputy Secretary 
distributed for followup and action at monthly executive 
management meetings with all of HUD's assistant secretaries. 
I'm proud to say that action reduced the monthly balance of 
delinquencies over 60 days and reduced it by 96 percent.
    In July 8, 2002, in the Federal Times, HUD and the 
Department of Justice were reported as tied for first place 
with the lowest travel card delinquencies, with only 1 percent 
delinquent, versus a 6 percent Government-wide average. It's 
clear HUD's travel card users now understand the rules and 
follow them with appropriate management oversight to assure 
they do.
    The story on HUD's purchase credit card program is not yet 
as good. But it will be. HUD's Office of Administration 
administers the purchase credit card program. HUD's new 
Assistant Secretary for Administration was not confirmed to 
serve in her position until March 2002. She will provide 
leadership in this area. Earlier this year, the Director of OMB 
requested all agencies to review the adequacy of their internal 
controls over purchase card use and establish remedial action 
plans to address deficiencies. Working with OMB, HUD's Office 
of Administration developed plans for stronger program controls 
and increased oversight.
    However, HUD's GAO briefing on the results of their audit 
of HUD's $10 million fiscal year 2001 purchase card activity 
disclosed the need to strengthen controls and oversight 
immediately, and we've begun to do so. Of particular concern 
was the GAO's finding on purchase card holders failing to 
maintain adequate documentation in support of their purchases. 
The Office of Administration has initiated interim action to 
advise all purchase card holders of the need to use a 
designated HUD form to clearly document a description of the 
purchase, the business need for the purchase and the required 
approvals. Also, a staff person has now been assigned to work 
exclusively on the internal audit functions of the program. 
Failure to maintain required documentation and obtain required 
approvals will result in the card holder's loss of the purchase 
card and possible other appropriate disciplinary action.
    HUD staff will be fully accountable for the purchase card 
program activity and our goal is to establish a model purchase 
card program in fiscal year 2003. I am confident we will 
achieve this.
    The GAO also recently performed a vulnerability assessment 
and audit of payments for contracted services for the 
management and maintenance of HUD-owned multi-family housing 
property inventory. The GAO detected possible fraud. Pending 
conclusion of an investigation by GAO and HUD's IG, HUD does 
not have complete information at this time on the specifics of 
the GAO review, and has been restricted in its ability to 
pursue any necessary followup actions on the activities now 
under investigation. Nevertheless, the Office of Housing is 
proactively analyzing its existing contract activity to 
determine if there are other, similar circumstances requiring 
immediate attention.
    In addition, even before GAO's reporting of the preliminary 
results of its review, the Office of Housing had already 
initiated several actions that would bring greater control and 
accountability to the property management control activity. 
These actions are designed to collectively establish a strong 
quality control program for HUD's existing property management 
contracts and new contracts to begin in January 2003. The 
actions strengthen HUD's oversight of all property management 
contractor activity, as well as the property management 
contractors' oversight of their own subcontractor activity. 
Further details on these actions are provided in my written 
statement.
    Mr. Chairman, HUD embraces the content of GAO's October 
2001 executive guide on strategies to manage improper payments. 
As the GAO has referenced in recent testimony and reports to 
Congress, HUD's current administration is already well 
underway, taking action and doing well to address erroneous 
payments in its largest program area, rental housing 
assistance. Our rental housing assistance program constitutes 
over two-thirds of HUD's budget authority, with over $21 
billion of expenditures in fiscal year 2001. And in fiscal year 
2001 financial statements we reported an estimated net annual 
housing assistance overpayment of $2 billion. We will continue 
to improve these estimates. In addition, the President's 
management agenda has set a goal for a 50 percent reduction in 
that amount by 2005.
    HUD also will need congressional support to reduce the 
overpaid housing assistance. As noted in the OMB testimony 
submitted for the record, of particular importance is the need 
for statutory authority to perform computer matching with 
available Federal sources of income data for use by HUD and 
HUD's program administrator in correctly calculating housing 
assistance.
    Mr. Chairman, HUD will continue to focus on reducing the 
risks of erroneous payments in its rental housing assistance 
program area, and to address other internal control 
deficiencies identified by the GAO and our IG. In addition, we 
will increase the efforts of HUD managers to assess erroneous 
payment risks in other areas and to strengthen controls.
    That concludes my remarks, and I would be happy to answer 
any questions.
    Thank you.
    [The prepared statement of Ms. Antonelli follows:]
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    Mr. Horn. Thank you.
    We will now go to the Honorable Jack Martin, Chief 
Financial Officer for the Department of Education.

    STATEMENT OF JACK MARTIN, CHIEF FINANCIAL OFFICER, U.S. 
                    DEPARTMENT OF EDUCATION

    Mr. Martin. Mr. Chairman, and members of the subcommittee, 
good afternoon. I want to thank you for the opportunity to 
discuss the Department of Education's progress toward improving 
financial management, including the reduction of improper 
payments and instituting an improved culture of accountability. 
I would also like to thank you for your continued efforts in 
helping Federal agencies identify and address management 
problems and supporting our efforts to improve the overall 
efficiency and management of Government operations, 
particularly in the area of financial management.
    The Department supports the need to effectively address the 
issue of improper payments in the context of improving the 
overall financial management of Federal programs. Recognizing 
the work of the General Accounting Office, the Inspector 
General community and others, the President's Management Agenda 
initiative for improved financial performance specifically 
identifies erroneous payments as a critical problem that needs 
to be addressed by Federal agencies. To insure a coordinated 
approach to erroneous payments Government-wide, OMB, through 
the Chief Financial Officer's counsel, established an erroneous 
payments committee approximately 1 year ago. This committee's 
membership is comprised of staff from more than a dozen CFO Act 
agencies. The Department's Deputy CFO chairs this committee.
    The President's Management Agenda directs agencies to 
establish baselines on the extent of erroneous payments within 
the Federal Government. In their fiscal year 2003 budget 
submissions, Federal agencies were required to include 
information on erroneous payment rates in the form of actual 
rates, as well as targeted rates of reduction for benefit and 
assistance programs over $2 billion. For the first year of 
reporting, the Department of Education was required to provide 
information on four program areas: Title I, special education 
grants to States, vocational rehabilitation grants to States, 
and student financial assistance. We have established at the 
Department specific annual targets for the reduction and/or 
elimination of both the numbers and amounts of erroneous 
payments by 10 percent per year through fiscal year 2007. 
Secretary Paige has assigned me the responsibility for 
establishing policies and procedures for assessing agency and 
program risks of improper payment, assuring actions are taken 
to reduce those payments and reporting the results of the 
actions taken.
    We have made much progress to date. In response to specific 
concerns raised in GAO's recent audit reports, we have taken 
additional measures to strengthen our internal controls, 
including a 2-hour internal control training course for all 
Department employees and an 8-hour internal control course for 
all Department managers. With respect to purchase cards, we 
have implemented new policies and procedures to reduce the 
Department's vulnerability to future improper purchases. We 
issued a revised Procedures Directive in January 2002 that 
provided instructions to card holders and to approving 
officials who are responsible for reviewing and approving 
purchase card transactions.
    We have trained all approving officials and all alternate 
approving officials in the new procedures and have increased 
the number of approving officials and program officers where 
disbursement reviews were considered inadequate. We have 
accepted GAO's suggestion and are conducting compliance reviews 
of a random sample of purchase card transactions. As of 
September 30, reviews have been conducted of all Department 
Program Offices at headquarters and in all regional offices. A 
quarterly review is ongoing. These reviews will ensure that 
purchases are not above thresholds and that there are no split 
purchases, that goods and services were properly received and 
accepted, and that appropriate separation of duties existed 
between the card holder and the approving official.
    The Department has blocked more than 300 Merchant Category 
Codes for purchase cards that are clearly not business related 
or appropriately chargeable to a purchase card. In addition, 
computer equipment cannot be purchased on a purchase card 
without the consent of the Office of the Chief Information 
Officer and new policies have been designed to maintain control 
over the procurement of computers and related equipment.
    We also initiated data mining technology to proactively 
identify potential improprieties in purchase card use and 
payments. By January 2003, we anticipate expanding data mining 
to analyses to identify potential improprieties in travel 
cards. We believe that all of these efforts will be effective 
in eliminating the types of abuse that GAO and the IG noted in 
our purchase card process.
    But we can't stop there. So we continue to communicate to 
our employees and managers as well as our delivery partners the 
importance of these and future internal control initiatives.
    Turning now to Federal Student Aid [FSA], GAO's financial 
management audit report of the Program's loan and grant 
disbursements found that four schools disbursed $3.4 million in 
Pell Grants to ineligible students. While this represents a 
very small percentage of the FSA disbursements that GAO 
reviewed, the Department recognizes the importance of 
identifying and correcting the underlying causes of internal 
control weaknesses that allowed these erroneous payments.
    Thus, FSA has begun to perform various types of data 
analysis to identify areas where problems may exist. Working 
with GAO, FSA has adopted techniques to locate unusual 
concentrations of students with particular characteristics, has 
determined what the norm is for concentrations of such students 
and has begun to determine what constitutes abnormal 
concentrations which warrant further review. Cases where fraud 
and abuse are suspected are referred to the OIG.
    FSA routinely conducts matches with the Social Security 
Administration to ensure that applicants have valid Social 
Security numbers. In fiscal year 2000, we enhanced our student 
eligibility edits by matching information supplied on the 
application for Federal student aid with the Social Security 
Administration's dead file to intercept attempts to secure 
Federal funding using a false Social Security number. In 
addition, the Department's Central Processing System [CPS] 
performs pre-screening matches to ensure that applicants who 
are in default on Federal loans or who owe over-payments of 
Federal grant funds do not receive additional funds.
    Hundreds of millions of dollars of potential improper 
payments a year are averted because of these matches. The 
Secretary has set as one of his highest priorities the goal of 
getting the student financial assistance programs off the GAO 
list of high risk programs. But to do that, we need Congress' 
help. In 1998, as part of the reauthorization of the Higher 
Education Act of 1965, Congress authorized a data match with 
the Internal Revenue Service on student aid applicant data. 
However, because return information may not be disclosed to 
third parties unless authorized by the Internal Revenue Code of 
1986 itself, the match described in Section 484(q) of the 
Higher Education Act could not be implemented. Section 6103 of 
the Internal Revenue Code must be amended to allow for this 
critical verification.
    In early June 2002, Treasury informally provided draft 
legislation to the Joint Committee on Taxation for technical 
review that would address this issue. The Director of OMB and 
the Secretaries of the Treasury and Education formally 
transmitted the proposed amendment to Congress on August 9, 
2002. Staff from Treasury and Education are currently 
identifying and agreeing on processes and procedures to support 
the match once authorized, including necessary followup with 
applicants and schools in a manner that will protect the 
privacy of the taxpayer in accordance with the proposed 
legislation.
    Implementation of the proposed data match between the 
Department and IRS has the potential to ultimately eliminate 
over $300 million in erroneous payments in the Federal Pell 
Grant program each award year. I urge Congress to consider this 
proposal in the near future.
    I believe our efforts thus far demonstrate our firm 
commitment to address the overall problems of improper payments 
and to complete necessary improvements in the administration of 
the Department's programs. They have strengthened internal 
controls throughout the Department. We are actively monitoring 
the use of purchase cards and analysis of travel expenditures. 
In our student financial assistance programs, we have a very 
clear focus on integrating systems, maintaining critical 
accountability while improving customer service, demonstrating 
a balanced yet accountable school monitoring approach and 
addressing quickly suspected anomalies in the payment of funds 
to recipients.
    We will periodically report on our progress in reducing 
erroneous payments to OMB and the Congress, as well as 
announcing any future plans for controlling improper payments.
    I would like to close by saying that our management 
improvements have clearly put us on a very positive course 
toward our goal of becoming a model agency of management and 
program excellence. I have come before you today with 
confidence to assure you that corrective actions are being well 
targeted throughout our Department.
    This concludes my testimony. I will be happy to answer any 
questions you may have.
    [The prepared statement of Mr. Martin follows:]
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    Mr. Horn. Thank you very much.
    We have a statement to put in the record by the Honorable 
Mark W. Everson, the Deputy Director for Management, in the 
Office of Management and Budget. Without objection, that's put 
into the record.
    [The prepared statement of Mr. Everson follows:]
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    Mr. Horn. So we will move now to go to a few questions. It 
seems like things are improving, thank heavens.
    Questions for Ms. Calbom, how would you characterize the 
responsiveness of these Departments to your requests for 
documentation concerning questionable purchase card 
transactions?
    Ms. Calbom. Education was very responsive in the work we 
did there. That's been, I guess about a year or so ago when we 
started our work, or maybe 18 months ago. We actually got all 
but about I think maybe 1 or 2 percent of the information that 
we asked for.
    At HUD, we had a little more difficulty in getting the 
information that we needed, and that would be the support for 
transactions. I believe it was about 68 percent of the dollar 
amount of transactions that we asked for support for HUD was 
not able to provide. So we did have a little more difficulty. 
And just in general, there was, I think, a more cooperative 
spirit at Education. I think that is part of why you're seeing 
the differences in levels of documentation provided.
    Mr. Horn. When you look at these various types of line of 
years going back probably 50 to 100 years in some cases, and 
HUD and Education, it's a newer agency, what was the role of 
the Inspector General in all the cases that you looked to them, 
and is a good part of the documentation put up by the Inspector 
General or what?
    Ms. Calbom. Actually, the Inspector General didn't have any 
role at all, typically, in providing the documentation, unless 
there happened to be transactions that their employees entered 
into. We pretty much dealt with either the CFO office or the 
program offices, in the case of HUD, to come up with our 
documentation. The Inspector General played a role in both 
agencies when we referred certain items to them for further 
followup and investigation.
    Mr. Horn. And did that happen?
    Ms. Calbom. That has happened and is happening now, yes.
    Mr. Horn. Are there any agencies you can name that they 
might serve as examples of best practices for reducing improper 
payments?
    Ms. Calbom. I think there are agencies where pieces of the 
agencies would serve as good examples for reducing improper 
payments. And of course, that's what your bill is trying to get 
more and more people to do. And actually, HUD has been one of 
the agencies, for their rental assistance programs, where they 
have been measuring the payments. And that, is key because 
you've got to know how much the problem is before you can 
figure out how many controls you need to put in place, and how 
much money you need to spend addressing the problem.
    Also, Social Security Administration has been one that's 
been doing a fairly good job in measuring the improper payments 
and taking a lot of good actions in trying to address the 
improper payments in their big programs. Also, we do note in 
our executive guide, there are several States, actually, that 
have done an excellent job, Kentucky, Illinois and Texas are 
three States that we talk about in our guide that do a lot of 
data matching and that kind of thing, and some real good 
monitoring on their improper payments.
    So there are a number of agencies that are doing some 
things. What isn't being done is really an across the board 
program that has all of these components that I talked about, 
so that there is really a program that permeates entire 
organizations.
    Mr. Horn. It was noted, Mr. Martin, that Education is 
missing a high number of computers acquired with purchase 
cards. Would you please elaborate on this, and also on your 
comment that there are indications of similar problems at HUD?
    Mr. Martin. I didn't comment, Mr. Chairman, that there were 
similar problems at HUD.
    Ms. Calbom. I could comment on that, after you answer the 
original question.
    Mr. Martin. We have implemented a new fixed asset inventory 
management system. I think that system should be fully 
implemented by the end of December. We have inventoried all of 
our computer equipment. I think practically all of that 
equipment has been accounted for.
    Mr. Horn. Well, give me an idea of that. Is this a GS-9, a 
GS-12, 13, whatever, to supervise it?
    Mr. Martin. That's conducting the inventory?
    Mr. Horn. Yes.
    Mr. Martin. We are using an outside contractor to conduct 
the inventory, and we do have probably GS-12s and 13s working 
with that contractor to help facilitate the completion of the 
inventory.
    Mr. Horn. How long will that contractor be doing that?
    Mr. Martin. The contractor should be wrapped up, Mr. 
Chairman, I would guess. I can get you an absolute date if you 
require that. But I think the contractor should be----
    Mr. Horn. Tell us who it was, tell us how much it cost, how 
long will they be around, etc. And that will go at this point 
in the record.
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    Mr. Martin. OK. They should be complete, I think, by the 
end of November, no later than that. And I will get you the 
name of the contractor and----
    Mr. Horn. How much they're getting paid and how long and 
for what.
    Mr. Martin. OK. I will provide that information.
    Mr. Horn. Because you know, these contractors come in, they 
go out and you do it for one audit, and if you don't do that, 
the whole thing goes back.
    Mr. Martin. I think at Education we're very sensitive to 
that problem.
    Mr. Horn. The question is, if they're really a fixed asset, 
as you say, we've got to have some sort of structure in there 
so it doesn't come every month, every quarter, every half year, 
every budget year, and have to have all this be spread out 
again.
    Mr. Martin. The system that we're implementing will track 
our purchases and disposals, so that we will have good balances 
that we will be able to use in our financial statements.
    Mr. Horn. You indicated something earlier--would you please 
elaborate on not just the computers, but what else a person can 
use with not thinking about it, and did any of them come from 
their own personal life that they want to do it with that 
Government card, and did you find much of that?
    Mr. Martin. Mr. Chairman, I'm not quite sure I understand 
the question.
    Mr. Horn. Well, let me give you an example. We started in 
on this in the U.S. Navy in San Diego. It was unbelievable. I 
mean, hundreds of people were out spending the taxpayers' 
money. And we want the U.S. Attorney to move in on them. So 
fraud is what we're talking about. And we ought to be serious 
about it.
    So in one case down there, one of the worst, the Navy 
somehow palmed that person off here in the Pentagon, in the 
Army. I couldn't believe it. I said, what kind of idiocy is 
this. Senator Grassley and I sent a letter several months ago 
to Secretary Rumsfeld, we gave him about 800 names. You can 
start going to them. And he was just livid. He's got a task 
force over in the Pentagon now, the Secretary is beginning to 
move very quickly and quietly and try to get the message to 
everybody, ``Hey, this is important, do something about it.''
    So I'm just curious, what's your strategy, and whether it's 
one person or ten people or something, is it worth doing?
    Mr. Martin. We just implemented a table of penalties that 
applied to any employee that is discovered to be using either 
travel cards or purchase cards improperly. I think right now 
we've identified, since 1999, there are 58 employees that have 
been subject to formal disciplinary action as a result of mis-
use of travel cards. And we have another 38 recently that we 
are reviewing with no actions concluded for mis-use of purchase 
cards.
    So in any case, the penalties have been communicated to the 
employees. They have been essentially reviewed with our union 
representatives, and the union has agreed to our table of 
penalties. We are vigorously enforcing penalties where there is 
any indication of mis-use of travel or purchase cards.
    Mr. Horn. What are the types of sanctions?
    Mr. Martin. They can range from a temporary suspension of 
the use of the cards to termination from the Department. And 
that's the range that's shown in the table of penalties.
    Mr. Horn. Has anyone been put out of the Department?
    Mr. Martin. I believe one person has been terminated, Mr. 
Chairman, and I will get that information to you.
    Mr. Horn. It will go at this point in the hearing.
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    Mr. Horn. Now, Ms. Antonelli, you've got a handful, no 
question about it. Of all of these agencies, that's why you're 
there, and that's why Congress has put in Inspectors General 
and the Chief Financial Officer, the Chief Information Officer, 
all of them are very important. They can't just sit in their 
office, they've got to go and find out how this system works in 
HUD or Education or Agriculture, whatever it is.
    So what can you do to educate us as to what's happening, so 
we don't have to go through this every year?
    Ms. Antonelli. Well, in the time that I've been at HUD, and 
the example that I presented on the travel card, I think 
there's a tremendous amount that we can do, in my opinion, in a 
relatively short period of time to address many of the issues 
that have been raised by GAO. I believe we've already taken 
significant steps to tackle the two specific issues that GAO 
has raised today with respect to its work at HUD.
    In the case of the purchase card program, we will be doing 
many of the similar things that we had done in the case of 
travel cards. I do believe that by the time 1 year from now, if 
you are asking us about what we've done at HUD in terms of our 
purchase card program, I'm confident that we will be able to 
come back to you with a very positive story. Because this kind 
of issue, along with any of these other types of financial 
management issues, are a very high priority for Secretary Mel 
Martinez to address.
    It is given monthly attention within the Department. All 
the assistant secretaries are fully engaged. They will be 
receiving reports on people in their program offices who hold 
these purchase cards, what levels they're approved for use of a 
purchase card. There will be training of staff who have 
purchase cards. In instances where we discover abuse of the use 
of purchase cards, we will take appropriate disciplinary 
action. As in the case of travel cards, we are reviewing the 
policies and procedures that are in place. We will review the 
course of disciplinary actions that can be taken to make sure 
they are in place, and that they are communicated clearly to 
staff. And again, to the extent that we identify problems, we 
will take appropriate action.
    I believe that we can address many of the concerns. 
Documentation we've already taken steps to address. The 
splitting of purchases is another area where, to the extent 
that we more adequately train card holders as well as approving 
officials, review who the card holders are, review who the 
approving officials are, we should be able to more effectively, 
through training, identify who these officials should be, and 
through the use of automated systems, through working with Bank 
One that manages the purchase cards, be able to make 
significant steps to identify in real time as opposed to the 
paper and manual reporting that could take as much as a month 
or more, more quickly identify these kinds of problems when 
they occur.
    We were all very disturbed to see what GAO had uncovered. 
Again, I believe that I speak not only for myself but for the 
Secretary and my colleagues, the assistant secretaries, that we 
take this very seriously and will move very rapidly to address 
it.
    In addition, GAO has said that it has reviewed our 
remediation plan, it still thinks that it can be improved. We 
agree, and we will continue to work with GAO and with OMB and 
the IG in the days and weeks ahead and look for their 
additional feedback and assistance to further strengthen our 
remediation plan that we will aggressively implement in 2003. 
We would be more than happy to report or submit that plan to 
the committee once we have the feedback and agreement from all 
parties that they feel comfortable with that plan.
    Mr. Horn. You mentioned the assistant secretaries. It rang 
a bell with me. How is the management situation in HUD? Does it 
work with a weekly or monthly deputy secretary and in the room 
are the assistant secretaries?
    Ms. Antonelli. That's correct.
    Mr. Horn. And any under secretaries floating around?
    Ms. Antonelli. Deputy assistant secretaries do attend those 
meetings as well. But it has been a priority from as long as 
I've been there, day one, with the Secretary and the Deputy 
Secretary that communication and making sure a culture of 
accountability is established, that it permeates the 
organization, is a very high priority. And those monthly 
meetings are a very good vehicle for the Deputy Secretary to 
communicate these types of concerns fairly rapidly to the 
senior team. And the senior team works very well together and 
in turn works with their staffs to address these kinds of 
issues.
    So we're very happy and we're committed to seeing the type 
of improvements we saw in travel cards with purchase cards as 
well. Again, I'm very confident that we can achieve that same 
level of improvement in a very short period of time.
    Mr. Horn. Well, I hope it works. What happens to the 
employees in your Department that if they are caught using 
their cards in properly, in other words, what are the types of 
penalties? We've, I think, gone with that.
    Ms. Antonelli. I think the penalties that Education, that 
Mr. Martin had mentioned, are not dissimilar from the ones that 
we would employ at the Department of Housing and Urban 
Development. Anything from reprimand to dismissal from the 
position, depending on the severity of the offense. In the case 
of travel cards, for example, early on we discussed, we sat 
down internally with our general counsel, asked for them to 
review the procedures, the disciplinary actions that were 
currently on the books to make sure that they were 
satisfactory, whether or not they needed to be strengthened. 
Our general counsel had reviewed it, said those were 
satisfactory. To the extent we identified problems, we could 
then take those actions.
    We have not, to my knowledge, dismissed anyone at this 
time. But certainly to the extent that we have some problem in 
the future that we identify, I can assure you that we would be 
aggressive in addressing it.
    Mr. Horn. Well, do you find that the assistant secretaries 
really care about this and under them are the real working bit 
of HUD or Education or Agriculture, whatever, and the question 
is, you can talk about it at the top and it doesn't mean a 
thing because you've got 12 different layers and several 
thousand people. So how are you going to get to that? It really 
takes the Secretary, the Deputy Secretary, to go after it.
    Ms. Antonelli. Well, another way that the emphasis on 
improved financial performance is communicated throughout the 
Department, we have these monthly meetings led by the Deputy 
Secretary. Our Deputy Secretary and Secretary, unlike previous 
Secretaries and Deputy Secretaries, have made working with our 
field offices a very high priority, making it one Department, 
not headquarters versus field, but an integrated Department. 
Many of these monthly management meetings that we have don't 
simply focus on headquarters. Every month they then go out to 
the field and meet with the field and communicate these 
messages to our field offices.
    Our Secretary and Deputy Secretary have, to the best of my 
knowledge, pretty much been to every region, probably more than 
once, to probably almost every field office. So it's very 
important that these messages are communicated, not just by the 
assistant secretaries, the Secretary and the Deputy Secretary, 
in headquarters, but two-thirds of our Department is in the 
field. They are using these purchase cards. This kind of 
message gets carried out to the field on a regular basis. These 
management meetings are done not just in headquarters, but in 
the field.
    Mr. Horn. Well, besides e-mail or whatever, do you ever 
swap between field and Washington for a day or two, so they 
understand what a region does? Because often people don't, 
believe it or not, they just don't know. Because that's been 
their career, a lot of the career people just remain in 
Washington.
    Ms. Antonelli. Right.
    Mr. Horn. And that's where part of the problems are. Are we 
getting people back and forth so they know what everybody's 
doing and why?
    Ms. Antonelli. I believe that has very much been a message 
that's been communicated by the Secretary and Deputy Secretary. 
Again, that the field cannot be forgotten, it is an extremely 
important part of the ability of the Department to execute its 
programs and our ability to manage those programs well. So 
everything that we're talking about here in terms of improving 
financial performance, the issues of erroneous payments, is a 
message that's not carried just in Washington, but it is 
carried to the field. And an effort to have the folks in 
Washington get out to the field and see what is being done in 
the field, where they are really where the rubber hits the 
road, and the execution of our programs, and similarly our 
field folks certainly come into Washington.
    Mr. Horn. In order to, and this is directed at both HUD and 
Education, the order to manage the problem of improper 
payments, you must first understand the size of the problem . 
In the future, how do you plan to measure the amount of 
improper payments that your Departments are making?
    Ms. Antonelli. In the case of HUD, our rental housing 
assistance area, one of the areas that's identified as high 
risk by GAO, it is by far the largest area of expenditure in 
terms of HUD's budget. We have the $2 billion estimate of 
erroneous payments. That has been a very, very, very high 
priority for this Department, this administration, to continue 
to improve those estimates. We will do another estimate, re-
estimate, in 2003 of the extent of the subsidy overpayments, 
under-payments, net overpayment in the rental housing 
assistance area. We have a very detailed plan of action that 
we've developed to reduce those overpayments. We have a 50 
percent reduction target by 2005. We have interim targets, we 
hope 15 percent in the next year, 15 percent in 2004, and then 
ultimately 50 percent by the time we reach 2005.
    The estimation is extremely important. GAO is certainly 
right in that regard. In our other areas, we will certainly do 
what we can to identify where there are erroneous payments, 
estimate it to the extent that we can. But again, by far our 
largest area is the rental housing assistance, and we are 
focusing a tremendous amount of resource, time and energy in 
trying to do that right and to actually accomplish our goal, 
finally, within the next couple of years.
    Mr. Horn. Let's take that as an example. Tell me what 
happens when the client gets so much, and then they have extra 
left over that they shouldn't have had? How do you see this?
    Ms. Antonelli. In the case of rental housing assistance, 
it's the process by which the public housing authorities, 
project owners and agents estimate the amounts of subsidies 
that need to be paid. Because we have to work through so many 
intermediaries, several thousand, there's quite a challenge. We 
have very complex rules for determining the amounts of the 
subsidies and there's often errors that are done by those who 
actually have to do the subsidy determinations. In addition, we 
have issues related to the tenant.
    Mr. Horn. Give me an example of subsidies and how you deal 
with them, and where does the improper aspect come in?
    Ms. Antonelli. The amount of subsidy that a family, an 
eligible family or individual would be entitled to, there has 
to be a determination of what that subsidy amount is. It has to 
be based on the amount of income that family holds. There are 
types of exclusions and deductions to determine the amount of 
rent, and the amount that has to be subsidized of that rent.
    It's a very complex process and we need to do a better job 
of educating public housing authorities about how to go about 
doing those calculations, so that they do them more accurately. 
At the same time, the individual or the family in terms of 
presenting income information sometimes makes errors. They may 
under-report their income. There's a variety of different 
reasons why the calculations may be erroneous.
    So from our perspective, we need to do a lot in the way of 
additional program guidance and training. We're developing a 
rent calculator, something that is just more computerized, that 
makes it much easier for someone to enter the data and do the 
calculations, rather than for it to be a manual exercise that's 
much more prone to basic mathematical mistakes.
    Anything that we can do in terms of education guidance, the 
use of technology, to make the subsidy calculations more 
accurate, so that we can reduce the levels of error. So there 
are many different things that we're going to be needing to do 
and to develop over time. And also, our communication efforts 
with the public housing authorities and other stakeholders, to 
help them understand what we're trying to do. Obviously to the 
extent that we could reduce the level of erroneous payments, 
we're able to serve a greater, larger population of people who 
are eligible for benefits. So ultimately, that's a great 
motivator for us to reduce the level of erroneous payments. And 
I think our stakeholders see those benefits.
    Mr. Horn. Do you find the housing people in the county or 
the city need education and how do you educate them? Have you 
had various types of panels for them or what?
    Ms. Antonelli. The effort within the Department is led by 
our Assistant Secretary for Public and Indian Housing.
    Mr. Horn. I'm not talking about within HUD now, I'm talking 
about their clients.
    Ms. Antonelli. I understand. It's the Public and Indian 
Housing, along with Office of Housing, working together, 
certainly have plans in place to do greater outreach and 
greater communication efforts to work with stakeholder 
organizations to talk more about this effort and the directions 
in which we want to go. Because I think ultimately, information 
and communication is one of the steps in managing improper 
payments and that's extremely important. The degree to which we 
do that well is going to have a significant impact on our 
ability, ultimately, to succeed.
    Mr. Horn. Is there an inventory up in HUD as to what kind 
of housing we have put up and invested the taxpayers' money?
    Ms. Antonelli. Is there an inventory----
    Mr. Horn. Inventory, yes.
    Ms. Antonelli. Of housing?
    Mr. Horn. Yes.
    Ms. Antonelli. Yes, to the best of my knowledge. 
Absolutely.
    Mr. Horn. Well, I'll give you an example. Four years ago, 
one of the cardinals was looking at the housing situation. When 
he got to the city, they couldn't find the housing. And yet the 
special authority or the city or whatever had simply given them 
the money and they ran and never even put a brick on the 
ground. So is that the Inspector General's role, the Chief 
Financial Officer, or we can always use GAO?
    Ms. Antonelli. Well, certainly GAO obviously helps us 
identify those kinds of problems. But certainly we do have 
these inventories of our properties. If there's a specific 
example, we'd be more than happy to look into that and get back 
to you about it to see what the issue was, perhaps where the 
problem is. I certainly would assume that the type of example--
--
    Mr. Horn. It wasn't under this administration. It was about 
4 to 10 years.
    Ms. Antonelli. Well, we certainly don't want it to be an 
example in this administration. Again, we'd be happy to respond 
to any specific situations that you might be aware of, and look 
into it in more detail.
    Mr. Horn. Well, how do you work out these situations, 
you're the Chief Financial Officer, with the Inspector General? 
How does that work out?
    Ms. Antonelli. Certainly from my perspective as the CFO at 
the Department, and the Secretary and the Deputy Secretary and 
HUD's leadership team are all in agreement that we want to and 
believe that we do have a very good working relationship with 
our Inspector General. And again, as is the case with the 
General Accounting Office, much of the work that they do, the 
audits that they conduct, the investigations, obviously 
supplement the work that we do, highlight areas of 
vulnerability that allow us to turn around and to develop plans 
of action to address problems.
    So we have a very good working relationship with the IG. I 
believe we've just finished a third semi-annual reporting 
period where we've reached management decisions on all 
outstanding audit findings. Previously, that was never done, in 
previous administrations. So I think that reflects how much of 
a priority we've made it in this administration to work with 
the IG to address audit findings, come to management decisions 
on how we're going to address those findings. So it's been a 
very, very high priority for the Department to work very 
closely with the GAO as well as the Inspector General.
    Mr. Horn. Now, let's get back to the General Accounting 
Office, and Ms. Calbom. You've noted that there are various 
practices that we ought to be using on what you and the 
Controller General have called the best for reducing improper 
payments. Upon what you've heard what else ought to be tagged 
on that hasn't come up yet?
    Ms. Calbom. I think again, at both HUD and Education, 
they're doing some good things in some areas. But what I think 
needs to happen there as well as at all Federal agencies is, it 
needs to be something that encompasses the entire organization. 
I think people are starting to do that in the Federal 
Government. But as I said in my testimony, it takes money to do 
this. But what people have found in the study we did, and we 
went to Australia and the United Kingdom and several other 
places, they found that the money they saved in implementing 
this kind of a strategy paid for the program itself. And as I 
said, when you're a steward of taxpayer money, I think it's 
absolutely critical that the public have trust in these 
agencies and that their money is being spent appropriately.
    So it is going to take an up-front investment. It is going 
to take the support from the Congress, things like your bill 
and the President's management agenda. We're beginning to see 
more and more agencies addressing this issue. OMB is pushing 
this issue very hard with the agencies. And so it's beginning 
to happen. We just need to keep the momentum going now.
    Mr. Horn. Very good. Are there any comments you want to add 
to the record that we haven't brought up, or you haven't, let 
us know, and we'll wind it up. Anything you want to add to it?
    Ms. Calbom. Mr. Chairman, I'd like to just add one thing. 
On a personal note, I want to thank you for all the efforts 
that you've made in improving financial management in the 
Federal Government. Certainly there have been tremendous 
improvements, and a lot of that is a result of these kinds of 
hearings that you've been holding, and your efforts in this 
area.
    Mr. Horn. Thank you. I appreciate that.
    I want to thank the people here on the Hill that have 
helped us with getting this proper-improper bit, because that 
is new to everybody. Bonnie Heald is the staff director, Henry 
Wray, senior counsel, Dan Daly, counsel, has been the person 
leading on this in particular, Dan Costelo, professional staff 
member, then Chris Barkley, the majority clerk, right over 
there, his hands are always full, and Ursula Wojciechowski, our 
new intern.
    Minority staff, David McMillen, professional staff, Jean 
Gosa, minority clerk. And our court reporter was Mary Ross. 
Thank you very much.
    With that, we are adjourned.
    [Whereupon, at 3:25 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

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