[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
SHOW ME THE TAX DOLLARS--HOW MUCH IS LOST TO IMPROPER PAYMENTS EACH
YEAR?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 13, 2003
__________
Serial No. 108-39
__________
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
______
88-736 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma C.A. ``DUTCH'' RUPPERSBERGER,
NATHAN DEAL, Georgia Maryland
CANDICE S. MILLER, Michigan ELEANOR HOLMES NORTON, District of
TIM MURPHY, Pennsylvania Columbia
MICHAEL R. TURNER, Ohio JIM COOPER, Tennessee
JOHN R. CARTER, Texas CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota ------
MARSHA BLACKBURN, Tennessee BERNARD SANDERS, Vermont
(Independent)
Peter Sirh, Staff Director
Melissa Wojciak, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Philip M. Schiliro, Minority Staff Director
Subcommittee on Government Efficiency and Financial Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma MAJOR R. OWENS, New York
CANDICE S. MILLER, Michigan CAROLYN B. MALONEY, New York
MICHAEL R. TURNER, Ohio
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Larry Brady, Professional Staff Member
Amy Laudeman, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 13, 2003..................................... 1
Statement of:
Springer, Linda M., Controller, Office of Federal Financial
Management, Office of Management and Budget................ 5
Weems, Kerry N., Acting Assistant Secretary for Budget,
Technology and Finance, Department of Health and Human
Services................................................... 29
Williams, McCoy, Director, Financial Management and Assurance
Team, U.S. General Accounting Office....................... 14
Letters, statements, etc., submitted for the record by:
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
Springer, Linda M., Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared
statement of............................................... 8
Weems, Kerry N., Acting Assistant Secretary for Budget,
Technology and Finance, Department of Health and Human
Services, prepared statement of............................ 31
Williams, McCoy, Director, Financial Management and Assurance
Team, U.S. General Accounting Office, prepared statement of 16
SHOW ME THE TAX DOLLARS--HOW MUCH IS LOST TO IMPROPER PAYMENTS EACH
YEAR?
----------
TUESDAY, MAY 13, 2003
House of Representatives,
Subcommittee on Government Efficiency and Financial
Management,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd R. Platts
(chairman of the subcommittee) presiding.
Present: Representatives Platts and Blackburn.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Larry Brady, Kara Galles, and Tabetha Mueller,
professional staff members; Amy Laudeman, clerk; Mark
Stephenson, minority professional staff member; and Cecelia
Morton, minority office manager.
Mr. Platts. We are going to get under way. Our vice chair,
Marsha Blackburn, apparently is en route in the building and we
will go ahead and get started, rather than waiting any further.
This hearing of the Subcommittee on Government Efficiency
and Financial Management will come to order. I believe all of
us here today can readily agree that taxpayers have a
fundamental right to know how their tax dollars are being
spent. Improper payments by Federal agencies are a serious and
growing problem which costs taxpayers billions of dollars each
year. We have seen some estimates that put the improper payment
figure as high as $35 billion. As I said prior to the start of
the hearing to a couple of you, coming from a community in
which we still have 99 cents breakfast specials, when we start
to talk billions of dollars, we pay close attention.
I cannot help but comment that as I sat down here with my
Diet Pepsi, and on the front is a campaign promotional piece
about $1 billion live on TV that you could win, so we are
talking about 35 live winnings every year of $1 billion when we
are talking about improper payments.
Commendably, President Bush has made the reduction of
improper payments a significant part of his management agenda.
A lack of consistency in calculating, defining and accounting
for erroneous payments further complicates agencies' efforts to
combat this problem. The Improper Payments Information Act
signed into law just last November is designed to address these
concerns and requires OMB to issue guidance by the end of this
month which will establish governmentwide procedures for
dealing with erroneous payments.
An improper payment is any payment that should not have
been made. It can be an incorrect payment, an over-or under-
payment, and include among other things a payment to an
ineligible recipient; a payment for an ineligible service; or a
duplicate payment, as well as a payment for service not
received at all.
While we do not yet have our arms around the total extent
of this problem, what we do know is that these mistakes, which
occur throughout government, are made because agencies do not
have adequate internal financial controls and business process
systems in place to protect against these types of errors. As
we have pointed out time and time again during our last three
hearings, agencies can get clean audit opinions, unfortunately
without having sound internal financial controls that would
prevent improper payments--what we described as heroic end of
the year efforts to get that clean opinion, even though
throughout the year their financial controls were not well
planned or well implemented.
Over the years, various agencies have estimated the amount
of improper payments, but many believe that these estimates
represent only the tip of the iceberg. Last year, my esteemed
former colleague, Congressman Steve Horn, who served as
chairman of this subcommittee, was successful in securing the
enactment of the Improper Payments Information Act of 2002.
This law has helped bring to the forefront the need to address
this issue more aggressively. Now, agencies will be required to
make estimates of erroneous payments, and if those estimates
are more than $10 million, to develop plans to reduce or
eliminate these errors.
Today, we look forward to exploring the draft guidance from
OMB and learning from GAO about strategies to identify and
reduce improper payments. We are also eager to hear from HHS on
the challenges they faced and the successes they have had in
dealing with this problem.
[The prepared statement of Hon. Todd Russell Platts
follows:]
[GRAPHIC] [TIFF OMITTED] T8736.001
[GRAPHIC] [TIFF OMITTED] T8736.002
Mr. Platts. Today, we are pleased to have with us the
Honorable Linda Springer, Controller of the Office of Federal
Financial Management in the Office of Management and Budget;
Mr. McCoy Williams, Director of the Financial Management and
Assurance Team in the General Accounting Office; and Mr. Kerry
Weems, Acting Assistant Secretary for Budget, Technology and
Finance in the Department of Health and Human Services. Thank
you for coming and we look forward to your testimonies here
today.
We will give our vice chair a second to catch her breath. I
understand you do not wish to make an opening statement?
Ms. Blackburn. No, Mr. Chairman.
Mr. Platts. OK. We will then proceed to our witnesses. I
would ask each witness if you would stand, and anyone who will
be advising you during your testimony to also stand, and take
the oath together.
[Witnesses sworn.]
Mr. Platts. Thank you. The clerk will note that all
witnesses, as well as others who will be advising them, have
affirmed the oath. We now would like to proceed directly to the
testimonies. Ms. Springer, we will begin with you, followed by
Mr. Williams and Mr. Weems. The subcommittee appreciates the
substantive written testimonies that each of you have provided
for the record. We would ask that you keep your verbal
testimonies here today to less than 5 minutes.
Ms. Springer, please proceed with your testimony.
STATEMENT OF LINDA M. SPRINGER, CONTROLLER, OFFICE OF FEDERAL
FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
Ms. Springer. Thank you, Mr. Chairman. I appreciate the
opportunity to be before this subcommittee again. One of the
reasons I am glad to be here is to continue the partnership
that exists between the administration and the subcommittee in
advancing many of the President's initiatives to improve
management in the executive branch. This partnership is
critical to the success of our efforts, particularly in the
area of erroneous payments. We will need changes in law, some
of which have already been proposed, to improve our payment
processes. I ask for your help to get those tools which I will
address in more detail in a moment.
Today, we are discussing the President's initiative to
reduce erroneous payments made with Federal dollars. This
committee is more familiar than most with the status of efforts
in the government to address this critical problem. Not long
ago, based on GAO compilations of erroneous payment estimates
reported in agency financial statements, the estimate of
governmentwide erroneous payments was said to be around $20
billion. GAO also said as significant as this amount is, the
actual extent of improper payments governmentwide is unknown,
and is likely to be billions of dollars more and will likely
grow in the future without concerted and concentrated efforts
by agencies, the administration and the Congress.
That statement is as true now as it was when GAO made it
last summer. What we can say is that we know a lot more and we
are doing a lot more than ever before about the extent and
cause of erroneous payments made by the Federal Government.
As you know, Mr. Chairman, the President announced as part
of his management agenda a renewed effort to reduce erroneous
payments. Initially, the initiative focused on the government's
major benefit programs. The administration identified programs
that make in excess of $2 billion in payments annually and
require those agencies to assess the risk, the extent, and to
put in place a strategy to reduce erroneous payments. Based on
the estimates of erroneous payments made in programs making
almost $1 trillion in payments annually, erroneous payments
exceed $35 billion a year. Error rates for those programs range
from almost zero to more than 30 percent. That is obviously an
unacceptable situation. We have an urgent duty to the American
taxpayer to improve our stewardship over their resources.
There are agencies that we should commend, like the Office
of Personnel Management, which manages the Federal Employees
Health Benefits Program, with an error rate of just over 1
percent; Federal Retirement Benefit programs, less than 1
percent; and the Department of Defense which manages military
retirement, 0.05 percent error rate, for keeping those error
rates low. We should also commend Medicare and food stamps,
which have shown remarkable progress in bringing their
erroneous payment rates down.
Other programs for which we have estimated the rate of
erroneous payments have not yet shown progress. I want to
emphasize that the administration's initiative to reduce EITC,
that is Earned Income Tax Credit payments, is one that we are
also focused on. It has an error rate of almost 30 percent. Our
initiative is not happening at the expense of the IRS's efforts
to pursue other enforcement priorities, so there is a global
effort with respect to tax issues. I am assured that the IRS is
increasing its efforts to pursue with vigor those in upper-
income brackets who would evade their taxpaying obligations.
Another area where the error rate is unacceptably high is
in housing subsidies. The Department of Housing and Urban
Development overpays more than $2 billion annually in low-
income rent subsidies. The causes include incomplete reporting
of tenant income and improper calculation of tenant rent
contributions. HUD has committed to a goal of 50 percent
reduction in these erroneous payments by 2005, but it needs a
tool to achieve this goal. HUD needs access to the national
directory of new hires so it can verify tenant income.
Congressman Sessions has recently introduced legislation, H.R.
1030, to grant HUD this authority. If enacted, this legislation
is expected to potentially garner up to $5 billion in savings
over 10 years.
It is remarkable that we now have error rates for programs
that make up almost $1 trillion in payments annually, but those
programs targeted as part of the President's Management Agenda
make an additional $300 billion in annual payments. With the
passage of the Improper Payments Information Act, we are
targeting even more programs that make hundreds of billions of
dollars in payments annually for which we have no adequate
measure of erroneous payments. As a result of legislation
proposed by this committee, portions of recovered erroneous
contract payments can now be used for recovery audit
activities. Agencies are using this tool to identify erroneous
payments made, reveal why they were made, and most importantly,
prevent erroneous contract payments in the future.
Of course, this subcommittee also authored the recently
enacted Improper Payments Information Act in 2002. That law
will require agencies to identify programs and activities in
which there is a risk of erroneous payments, estimate the
extent of the erroneous payments, and report to Congress all
such programs and activities that make erroneous payments in
excess of $10 million a year.
I am pleased to report that the administration's guidance,
required by law to be issued by the end of May, will be
distributed to agencies around the end of this week. We would
like to hold that up and get the benefit of any information
that comes out of this hearing as well, and reflect it. The
result of the law and the guidance will be greater uniformity
in the estimation and reporting of erroneous payments. For
example, agencies will be required to estimate the extent of
erroneous payments based on a statistical sample, with a 90
percent confidence level and 5 percent precision. That is 2.5
percent around either side, plus or minus, of the estimated
rate. They will be required to report the extent of their
payments in their annual performance and accountability
reports.
Through all these activities, we are improving the payment
accuracy of government programs and activities. The urgent duty
I spoke of earlier is to ensure that America's taxpayer dollars
are administered with the greatest integrity possible. Where we
identify problems in payment processes, we are working
diligently to address them. Where we do not know the extent of
the problem, we will find it out. The end result will be
better-administered programs and fewer wasted dollars. We are
at the beginning of this process to reduce erroneous payments,
but we could win this race with your continued support.
I would be glad to answer any questions. Thank you.
[The prepared statement of Ms. Springer follows:]
[GRAPHIC] [TIFF OMITTED] T8736.003
[GRAPHIC] [TIFF OMITTED] T8736.004
[GRAPHIC] [TIFF OMITTED] T8736.005
[GRAPHIC] [TIFF OMITTED] T8736.006
[GRAPHIC] [TIFF OMITTED] T8736.007
[GRAPHIC] [TIFF OMITTED] T8736.008
Mr. Platts. Thank you, Ms. Springer.
Mr. Williams.
STATEMENT OF MCCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND
ASSURANCE TEAM, U.S. GENERAL ACCOUNTING OFFICE
Mr. Williams. Thank you, Mr. Chairman and vice chairwoman.
Thanks for the opportunity to discuss the governmentwide
improper payment problems.
In general, improper payments are payments the government
made in error or in the wrong amount and often result from
weaknesses in systems of internal control. As we testified
before this subcommittee last month, improper payment estimates
disclosed in agency financial statements totaled approximately
$20 billion each year for both fiscal years 2002 and 2001. OMB
recently estimated the amount of improper payments at about $35
billion annually.
However, the scope of the problem is likely greater because
most agencies have not yet estimated or publicly reported the
magnitude of improper payments in their programs and
activities. In October 2001, we issued an executive guide that
provided information on strategies used successfully by public
and private sector organizations to address their improper
payment problems. We found that entities using these best
practices shared a common focus of improving their systems of
internal control.
Most recently, in a report issued last August, we pointed
out that existing guidance did not require all Federal agencies
to estimate the improper payments in their programs and
activities, or offer agencies a comprehensive approach to
measuring improper payments, developing and implementing
corrective actions, or reporting on the results of actions
taken. Today, we are seeing important leadership action, both
from the Congress and from the administration, to address the
improper payments problem.
I would like to highlight two areas and provide my
perspective as to their potential impact. First, on the
legislative side, two recent pieces of legislation, the
Improper Payments Information Act of 2002 and Section 831 of
the National Defense Authorization Act for Fiscal Year 2002,
provided an impetus for all agencies to systematically address
improper payments activities annually, and to identify and
recover contract over-payments. To illustrate this, the
Improper Payments Information Act of 2002, that this
subcommittee sponsored, requires agency heads to annually
review all programs and activities that they administer, and
identify those susceptible to improper payments. For those with
estimates of significant improper payments, the legislation
requires further analysis and reporting. The law also requires
OMB to prescribe agency guidance to implement the requirements
of the act.
The National Defense Authorization Act for Fiscal Year 2002
contains a provision that requires agencies entering into
sizable contracts to carry out a cost recovery program for
improper payments made to contractors. With the passage of this
law, the Congress removed multiple barriers and granted
agencies a much-needed incentive for identifying and reducing
their improper payments.
Second, on the administrative side, the President's
Management Agenda has identified improper payments as a key
element in the administration's initiative to improve financial
performance throughout the Federal Government. As described in
the agenda, OMB will work with agencies to establish goals to
reduce improper payments for each program over $2 billion. In
addition, OMB recently issued draft guidance on the
implementation of the Improper Payments Information Act of 2002
for agency comment. The guidance should help ensure
transparency in reporting for those agencies with programs and
activities with significant risk for improper payments. As I
stated earlier, recent legislation and other actions have
brought the government's improper payment problems to the
forefront. Implementing the legislative provisions and other
actions I have discussed today is a shared responsibility. It
will require continued strong support and active and
cooperative involvement from the Congress, the administration
and agency management.
In closing, I want to emphasize our commitment to
continuing our work with the Congress, the administration and
Federal agencies to ensure that improper payments are fully
addressed governmentwide, and that actions are taken to reduce
or eliminate the government's vulnerabilities to the
significant problem of improper payments.
Mr. Chairman, this concludes my prepared statement. I would
be happy to respond to any questions.
[The prepared statement of Mr. Williams follows:]
[GRAPHIC] [TIFF OMITTED] T8736.009
[GRAPHIC] [TIFF OMITTED] T8736.010
[GRAPHIC] [TIFF OMITTED] T8736.011
[GRAPHIC] [TIFF OMITTED] T8736.012
[GRAPHIC] [TIFF OMITTED] T8736.013
[GRAPHIC] [TIFF OMITTED] T8736.014
[GRAPHIC] [TIFF OMITTED] T8736.015
[GRAPHIC] [TIFF OMITTED] T8736.016
[GRAPHIC] [TIFF OMITTED] T8736.017
[GRAPHIC] [TIFF OMITTED] T8736.018
[GRAPHIC] [TIFF OMITTED] T8736.019
[GRAPHIC] [TIFF OMITTED] T8736.020
[GRAPHIC] [TIFF OMITTED] T8736.021
Mr. Platts. Thank you, Mr. Williams.
Mr. Weems.
STATEMENT OF KERRY N. WEEMS, ACTING ASSISTANT SECRETARY FOR
BUDGET, TECHNOLOGY AND FINANCE, DEPARTMENT OF HEALTH AND HUMAN
SERVICES
Mr. Weems. Good afternoon, Mr. Chairman, Madam Vice
Chairwoman. Thank you for inviting me before you today. It is a
pleasure and an honor for me to have the opportunity to speak
about the Department of Health and Human Services' efforts to
reduce improper payments in the programs it administers.
One of the Department's foremost strategic goals is
achieving excellence in its management practices. In meeting
this objective, the Department is committed to ensuring the
highest measure of accountability to the American people. The
Department was accountable for more than $493 billion in gross
outlays in fiscal year 2002. Reducing improper payments and
improving the related methods and systems is critical to
achieving the excellence we seek.
The Department consists of 12 operating divisions that
manage more than 300 programs with diverse missions. However,
seven of those programs--Medicare, Medicaid, SCHIP, TANF, Child
Care, Foster Care and Head Start--account for close to 90
percent of the total outlays of HHS. The Department expects to
be reporting erroneous payment rates for these seven programs
in the future, and is presently evaluating whether other
programs would be covered under the Improper Payment
Information Act of 2002.
The success of HHS's improper payment efforts can be traced
to five fundamental efforts. First and foremost, our leadership
is committed to this initiative. Publicly identifying and
correcting errors is not without political risk, but the public
benefits are enormous. Second, creating partnerships with all
the parties with an interest in the program is critical for
developing successful corrective actions. For instance, HHS
works with the States across a number of programs, including
Medicaid, SCHIP, and Child Care, just to name a few. Third, the
Department has benefited from having one of the strongest
Inspectors General in the Federal Government, and maintains a
close relationship between the Office of the Inspector General
and my Office of the Chief Financial Officer. Our two offices
work closely together to monitor programs and reduce errors.
Fourth, we actively work with all parties to educate them
on proper payment and program procedures, especially our
clients and our intermediaries such as States, as well as our
contractors, who in turn work with the ultimate client or
beneficiary. Fifth, where there is a history of noncompliance
with statutory and regulatory authority, we have sought civil
and other legal remedies. Between the effort to educate and
legal remedies, there is a wide spectrum of corrective actions
the Department uses to identify and reduce improper payments.
Finally, in the case of fraud, as opposed to innocent error,
parties are prosecuted.
The Department's largest program, Medicare, accounts for
close to 50 percent of the Department's outlays. For the
Medicare program, HHS has been a leader in monitoring and
mitigating improper payments. We began measuring errors in the
Medicare program in 1996 and have made progressive strides in
reducing errors. The fiscal year 2002 rate of 6.3 percent is
less than half of the 13.8 percent reported in fiscal year
1996. However, we have determined that substantially more
detailed data are necessary to bring the error rate down
further. HHS will be deploying a Comprehensive Error Rate
Testing program to calculate improper Medicare payments. The
CERT program, as it is called, will allow the Department to
estimate specific error rates for individual contractors and
provider types, in addition to a national error rate. It is our
intention to publish contractor-specific error rates, as well
as rates by provider type. We will keep this committee informed
of our progress in this area.
Building on Medicare's success in measuring error, HHS is
well into the process of creating a payment accuracy measure in
the Medicaid program. Medicaid is a substantial program,
accounting for over 30 percent of departmental outlays, but
unlike Medicare, it is administered primarily by State
governments. Each of the 56 State and territorial governments
run their own unique program. To account for program variation,
we are taking an incremental approach in the development of a
national Medicaid error rate. Nine States entered the program
in the first year; 12 states will participate this year; 25
States are targeted in 2004, and the program will be
implemented nationwide in 2005. This collaborative approach
will create a measure that is accurate and useful to the
Federal Government, as well as State governments.
The Department administers a number of State-based programs
that promote the economic and social well-being of children,
families and communities. Those programs account for about $48
billion of outlays in the President's fiscal year 2004 budget.
The Department closely monitors improper payments in these
programs through the Single Audit Act, reviews of financial
data, and program-specific mechanisms. Through the Single Audit
Act, the vast majority of programs are audited at least once
every 3 years, if not more frequently. In addition to the audit
and the other mechanisms, HHS is taking steps to establish
erroneous payments for the several State-based programs and we
expect to be reporting on those soon.
Mr. Chairman, in conclusion, HHS has a robust program for
identifying improper payments, taking appropriate management
actions to reduce the incidence of improper payments, and
exploring and developing innovative ways to increase
compliance. We attribute our success to a strong commitment of
our leadership, the focus on building and maintaining close
relationships with the Inspectors General of the States and our
contractors.
I hope that the information that I have provided today will
be of value, and I am happy to answer any questions you might
have.
[The prepared statement of Mr. Weems follows:]
[GRAPHIC] [TIFF OMITTED] T8736.022
[GRAPHIC] [TIFF OMITTED] T8736.023
[GRAPHIC] [TIFF OMITTED] T8736.024
[GRAPHIC] [TIFF OMITTED] T8736.025
[GRAPHIC] [TIFF OMITTED] T8736.026
[GRAPHIC] [TIFF OMITTED] T8736.027
[GRAPHIC] [TIFF OMITTED] T8736.028
[GRAPHIC] [TIFF OMITTED] T8736.029
[GRAPHIC] [TIFF OMITTED] T8736.030
[GRAPHIC] [TIFF OMITTED] T8736.031
[GRAPHIC] [TIFF OMITTED] T8736.032
[GRAPHIC] [TIFF OMITTED] T8736.033
[GRAPHIC] [TIFF OMITTED] T8736.034
[GRAPHIC] [TIFF OMITTED] T8736.035
[GRAPHIC] [TIFF OMITTED] T8736.036
[GRAPHIC] [TIFF OMITTED] T8736.037
Mr. Platts. Thank you, Mr. Weems, and all of our panelists
for your testimonies, and again, the efforts of you and your
staffs in preparing your even more substantive written
testimonies.
We will proceed to questions, with just two members. While
we will alternate, we will not worry about being that strict
with the 5-minute rule as far as alternating back and forth as
we proceed through the questions.
Ms. Springer, one, I would like to commend OMB as you
prepare to issue the guidance as required under the Improper
Payments Information Act in a timely fashion, and your sharing
some of where you stand with that. Could you give us a little
more detail on what the agencies and all of us can expect to
see from the guidance you are going to issue--for example, some
of the things, how you are going to define improper or
erroneous payments, will fraud be included in the definition,
what are some of the more detailed specifics of the guidance,
what will it be?
Ms. Springer. I would be glad to do that, Mr. Chairman.
First of all, the guidance is almost final. It has been
vetted over the past several months throughout the
administration, partly through the partnership with the CFO
Council and its subcommittee on erroneous payments, which is
jointly made up of the Inspectors General community, as well as
the financial community in the agencies. We have gotten very
good feedback there, and have a process that really includes
four steps. The first step is the requirement for agencies to
inventory their programs and their activities.
The second step, then, based on that inventory, is to
assess the risk of erroneous payments in those programs and
activities. That risk assessment is really the key first
activity point. Based on that, where the risk is high, we will
ask the agencies to estimate based on the formula--and I will
go over that formula with you in a moment--to actually do a
statistically valid estimate of the amount of erroneous
payments. That, as well as plans for remediation will be
reported each year in the performance and accountability
reports that are due back from the agencies. The first
reporting period where that will be included will be in the
November 2004 performance and accountability report. That is
the first one where it will be required under the act.
We will continue to ask for information on erroneous
payments, consistent with the directive that went out under the
President's budget, under the A-11 guidance. So in the interim
until we get to November 2004, we will continue to get that
information and obviously I would be glad to share that with
you and with the committee.
As far as the definition of erroneous and improper
payments, to answer the question about fraud, yes, fraud is
included in that definition. You mentioned earlier in your
opening statement, Mr. Chairman, some of the types of erroneous
payments. Certainly, it includes the very obvious ones of
incorrect amounts, both over-and under-payments. We will be
getting information very specifically about over-and under-
payments that will not be a net amount. It will be the absolute
value, if you will, or gross amounts, and we will be able to
have those separately identified.
Of the $35 billion figure that we currently have for the
$900 billion amount of programs, the $35 billion is made up
roughly of $30 billion of over-payments and $5 billion of
under-payments. So we will be able to continue to identify
those separately.
Other categories in that definition would include
inappropriate denials of payments for services. It would
include payments made to ineligible recipients or for
ineligible services; duplicate payments; payments that do not
include the proper accounting for discounts that may be
applicable. ``Payment'' means any payment that is derived from
Federal funds or Federal sources, or down the line, from a
Federal entity. So for example, Federal funds that go to a
State and then from the State to an ultimate recipient, if that
was made improperly, that would count and should be in the
universe of what is reviewed under the guidance.
It also includes Federal awards that are subject to the
Single Audit Act, and the Single Audit Act, obviously, and
recovery auditing all provide additional tools, in addition to
the very explicit guidance that we will be issuing later this
week.
I could go on for a while, but maybe you have some very
specific questions.
Mr. Platts. Actually, I have a couple of followups of
things that you did highlight. One is, you mentioned that the
first reporting under the act will actually be November 2004.
It sounded like from what you said that while that is the first
time we will actually see the reports pursuant to the new act,
that there will be a constant oversight between now and then.
So in some of our previous hearings where we have talked about
where we would get to the end of the year, and where we have
the financial accounting requirements, and we have these heroic
efforts to get the books in order at the last minute. It sounds
like OMB is going to be day-in and day-out, or month-in and
month-out, between now and November 2004, working with the
agencies, that they are moving forward pursuant to the guidance
being offered to ensure that they are putting in place those
internal controls, that when we get to the November 2004,
deadline, that we have accurate information readily available.
Ms. Springer. Yes, that is a good characterization. We
certainly are not in the business of just issuing guidance and
then being inactive. We expect to meet as soon as the guidance
itself is issued, and hear about the plans; make sure there is
a good understanding of the guidance, first of all, at the
agency level and hear some feedback from the standpoint of its
first assessment. Do we need to provide outside authorities,
make them available, because these do involve some statistical
formulas that need to be met and statistical standards. We
believe that agencies will need to get some assistance from
some outside parties that have been involved in this activity.
So we will be involved in that respect.
We will want to get the plans. Similar to what we are doing
on the financial reporting side, we will actually get from each
agency the plan. The reporting in 2004 is just the culmination
of the execution of that plan.
Additionally, we will continue to get information for a
broad number of agencies that cover roughly half of Federal
payments that were targeted under the President's Management
Agenda. So that will not stop. That will be replaced by the act
and the new guidance requirements, but up until that 2004 first
reporting, we will continue to get the reporting that was
required under the President's Management Agenda. So there will
not be a lapse in information coming or a lapse in our
involvement.
Mr. Platts. OK. You touched also on guidance related to our
Federal programs, but administered by the States. Mr. Weems
also referenced them, such as Medicaid. How detailed, how
involved will your guidance be in trying to get agencies to
work with States who are really on the front lines of improper
payments relating to those State-run, but federally funded
programs?
Ms. Springer. Right. The dollars associated there are not
small, either. We have done several things. The guidance will
certainly address that. We make reference to audits performed
under the Single Audit Act, and that is probably the key focal
point of activity, that Single Audit Act, in dealing with
integrity issues in programs that involve the States. My staff
and I have attended and worked with the State and local
auditors, controllers and treasurers. We have been to their
meetings. We have shared the guidance with them. I was on the
phone as recently as yesterday with one of the State auditors
general.
As a matter of fact, OMB just clarified where there was a
point of confusion in recovery auditing, where the States had
actually instructed contractors to not audit programs that were
funded with Federal dollars because they felt--there was some
misinterpretation out there--that the dollars that would be
found could not be available to help pay for the cost of the
audit, which was totally wrong. The Federal Government was not
getting the attention it deserved from these audits. We have
issued late last week, I believe, clarification, so we are
making calls. So we are actively engaged is the message I am
trying to give to you, and we have shared the guidance with
them and gotten their input.
Mr. Platts. Let me yield to our vice chair, Ms. Blackburn.
But just to put it in perspective, when we talk about these
numbers--$35 billion--and we talk about Medicare and adding
prescription drug benefits, over 10 years of spending $400
billion for that new plan. If even these conservative estimates
of the erroneous payments are accurate, it would in essence be
the cost of that new benefit being added, if we totaled it over
10 years. So we truly are dealing with some significant sums of
money that can be put to much better use for our taxpayers.
Ms. Springer. Right.
Mr. Platts. Ms. Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman.
Mr. Williams, I want to just tag onto what he was saying,
and come back to you. The $35 billion estimate, from your
testimony, I was unclear as to whether you included what you
thought may be erroneous payments in Medicaid in that amount or
not, from your written testimony?
Mr. Williams. The $35 billion is the amount that OMB has
estimated. What we are saying at GAO is that you have to put
the procedures in place to have all agencies in the Federal
Government go through the process of identifying where they
have weaknesses and where they have improper payments, and, at
that particular point in time, have all of those agencies
report that information. We have recommended that reporting be
transparent so that the Congress and the American people will
have some idea as to what the improper payment number is
governmentwide. Until you establish that base, we are saying
that you do not know what the total picture of this problem is.
Ms. Blackburn. OK. Thank you for that clarification. I
appreciate that.
So basically what you are saying is that until we get to
November 2004, with some procedures in place, you think we do
not have a solid estimate? Would that be correct?
Mr. Williams. Until we get to that point where we have the
entire government, that will be the first step, because this
process is going to take some time for some agencies. Some
agencies are already estimating their improper payments, and
they have procedures in place where they can do a good job. For
other agencies, this will be the first time, so it will
probably take them some time to get up to speed with this
particular process. So we will be getting closer to it at that
particular point in time.
Ms. Blackburn. Thank you, sir.
Ms. Springer, we thank you for being back with us. Looking
at the private sector, I know that GAO had an executive guide
in October 2001 that provided some information on strategies
used by private sector organizations. Now, how much of those
private sector solutions have you incorporated into the draft
guidelines that you had mentioned, for the Improper Payments
Act?
Ms. Springer. We have drawn from the GAO study. We have
reviewed it, and we have looked at the techniques and the
plans. There are really four or five main principles that are
in that document. We have incorporated those. We believe that
what we have in the guidance is very consistent with what GAO
has put out in that August 2002 report.
If I may, may I just add one other piece to round out the
scope of the problem that might be helpful to you as well. If
you--and I did not bring a pie chart; if I had a little more
time, I should have--but if you view the total government's
budget as the universe of expenditures--a little bit in excess
of $2 trillion--there is $900 billion of that that has been
measured. Out of that, we had the $20 billion that was
originally estimated from GAO and another $15 billion or so
that surfaced as a result of the President's Management Agenda.
So that is $900 billion. Another close to $200 billion,
rounding off numbers, would be related to Medicaid, which has
not yet been reviewed. Then there is another $100 billion or so
that would take us up to the total encompassed by the existing
original OMB guidance. That really leaves another roughly $1
trillion that would be picked up as a result of the act from
last year. Included in that other $1 trillion is about $250
billion that is already covered by recovery auditing, to some
degree. So there is another $750 billion or so that really has
not been looked at. That makes up the full pie chart. So we
have roughly covered half of that, between recovery auditing in
the $900 billion that we have looked at so far.
Ms. Blackburn. OK. Thank you. That makes it come together a
little bit better. Sometimes as we read testimonies and review,
you guys know the total picture and we are trying to pull that
together. It does get confusing with different testimonies and
different numbers used as those benchmarks in those references,
so I appreciate that.
Ms. Springer, going back, you mentioned the guidance on
improper payments, with the inventories and the risk
assessments in those four items. Now, other than that, or prior
to issuing those guidances, what have you all done with the
agencies in helping them address improper payments?
Ms. Springer. I would say to a large degree we have worked
with the agencies and identified for them which programs we
think they should be looking at. We have talked with them about
contractors that they can use that we understand from the
private sector have done a good job. We have not put out any
one single formula prior to this guidance. I think in
anticipating that the act was moving along at a good pace that
we did not actually sit down and put out a formula and then
have to go back and modify to be consistent with the act. So we
have worked with the agencies to just understand their own
formulas, but now with this guidance we will actually be
putting out something that is more directive, as opposed to
just reacting to what they were doing.
Ms. Blackburn. Mr. Weems, looking at Medicaid specifically,
is there anything that you all are doing to reduce erroneous
payments with that program?
Mr. Weems. Yes. We began a pilot project last year with
nine States where we asked them to develop their own method for
calculating error. We expect to expand that to 12 States this
year; 25 States in 2004; and then by 2005 be able to produce a
national error rate.
Ms. Blackburn. To followup, OK, so you are letting the
States take the lead in designing their program for the
tracking?
Mr. Weems. Not entirely.
Ms. Blackburn. Not entirely, OK.
Mr. Weems. With the nine that we have begun with, we gave
them, within a framework, the ability to do that. We are going
to take that now and analyze it; look at the methods they used
and make sure that what we do in the next round will have a
higher degree of consistency and a higher degree of rigor; then
in the next round, an even higher degree of consistency and a
higher degree of rigor so that we can come to a point where all
of the States will be using a method that will accurately give
us a measure that is valid for the State, and also a national
Medicaid error rate. We are proceeding in this fashion because
States are an important partner in the Medicaid program. Right
now, the funds are not quite evenly divided. I believe we spend
about $160 billion and the States spend about $122 billion of
their own money in the program. So, it is important for us to
proceed with them as a partner. Their interest in this, given
the state of State budgets right now, is obvious, but we want
to proceed in a way that it is not just the Federal Government
telling the States how to do it, when in fact we have
significant variation across the States in the way that they
run their own programs.
Ms. Blackburn. Mr. Chairman, may I continue on?
Mr. Platts. Yes.
Ms. Blackburn. OK. Thank you very much.
Do you have a budget? What is it costing you to run the
pilot programs--just the implementation and the oversight of
those?
Mr. Weems. I believe we expect to spend $10 million this
next year to do that, and then we will have to look at it again
when we phase it up to the 25 States.
Ms. Blackburn. OK. So basically, you are going through it--
the nine States, you will develop a list of learned lessons and
best practices, and use those with the 12, and then on with the
25.
Mr. Weems. Yes, that is correct. Yes, ma'am.
Ms. Blackburn. OK. Alright. Thank you very much.
Mr. Chairman.
Mr. Platts. I am going to continue, Mr. Weems, on the
Medicaid issue. The nine States came on board in 2002?
Mr. Weems. Yes.
Mr. Platts. Are there any initial results from those nine
States, or is it too early because of it being a new pilot
program?
Mr. Weems. There are results, but I would be reluctant to
characterize them right now because of the diversity of the way
that the States approached it, and also the amount of rigor
with which the States might have approached it. So it is
possible that one State could have ended up reporting a very
low error rate, when the degree of rigor they applied might not
have been the same. So I would be reluctant to characterize. I
would say that there is some variation. We are going to look at
that, use the lessons learned from those 9 States, then as we
proceed with the 12, apply more rigor.
Mr. Platts. But am I understanding correctly that as you go
from the 9 to the 12, and the 25 and then ultimately to all
States, that at some point you envision having a uniform system
for every State to take the same approach so that you are
comparing apples and apples, one State to the other?
Mr. Weems. Yes, for precisely the reason that you state,
Mr. Chairman--for the sake of consistency so that if we say
there is a national error rate and then one State has a certain
error rate, it should be comparable to another State.
Mr. Platts. Is that something that is going to take
legislative change to require States to implement this uniform
plan? Or is it something that you believe you have the
authority to require already?
Mr. Weems. We believe that we have the authority to do it
now. If we discover that we need additional authority, we will
be right back with you. Also, as we have proceeded so far, it
has been a 100 percent federally funded effort. Whether or not
we will sustain that through the future also remains a
question.
Mr. Platts. Do you envision with recovery audits, where
there is an ability to use some of the funds recovered for
costs under the program, that you will have something similar
for States, so there is an incentive to be more diligent and
more of their costs are offset?
Mr. Weems. Absolutely, Mr. Chairman. That is the incentive
for States to be our partner, as we have discussed.
Mr. Platts. OK. A question maybe for all three of you--the
disparity between error rates is pretty significant from the 30
percent in the EITC to some of the ones, Ms. Springer, in your
written testimony you highlight the Federal Employees Health
Benefits Program--1.4 percent; DOD when it comes to the
military retirement, 0.05 percent error rate. Is it simple--I
don't know if ``simple'' is the right word--but simply the
internal controls in place that results in a 30 percent, which
is a huge error rate compared to 1 percent or 0.05 percent
rate. What would be your best estimates from the three of you
why the great disparity that one program is doing such a great
job and another program is doing such a horrific job?
Ms. Springer. I will open with a couple of thoughts on
that. I think some of it is the nature of the program. I think
there is a certain amount that may be related to controls, and
I will talk about controls in a minute. But I think some of it
is the nature of the program. Ones like Federal employee
benefits programs I think are going to be less prone to the
types of verification--it would be easier to verify
eligibility, to demonstrate that you are the right recipient;
and the amount might be clearer to assess the right amount to
pay. I think there are certain programs that just by their
construct are more easily dealt with and it is easier to be
accurate about the process of payment and to test it and to
ascertain in fact that things are being executed properly.
Mr. Platts. Excuse me for interrupting--so would that be an
example like with HUD, where Congressman Sessions is proposing
legislation to give access to more information that would allow
that control to be more significant of the decision of whether
this is a valid payment or not?
Ms. Springer. That is right. That would be a tool there.
The information is available, in the case of the better
players, the better actors, to make the assessment, as well as
the construct of the program. HUD, and in some other
situations--the Department of Education is another one for
verifying direct student loans, where the administration would
like to be able to provide the Education Department with access
to information from the IRS, to be able to validate income
levels and eligibility there. They do not have that tool yet.
So where the tools exist, you will see lower rates; where the
tools are not there and the construct of the program is a
little bit more challenging, you will tend to see higher rates.
Mr. Williams. I would like to add to that. It is probably a
combination of issues. As stated earlier, certain programs have
inherent risks of improper payments. You might have one
particular program in which the improper payment rate is 10
percent, and you would have another program in which the
improper payment rate might be 4 percent. It might turn out
that, when you do a total assessment that the 10 percent rate,
people at that agency are doing a better job than the one that
has 4 percent. So you have to look at the overall picture as
far as what are the inherent risks in the particular program.
You have to look at the commitment from management to address
the program. Some programs might have a higher number because
the agency is doing a better job of identifying its improper
payments. Other agencies might have low numbers because their
methodology of identifying the improper payments could be
improved. So it is a combination of factors that you have to
look at. That is why you want to get procedures in place that
you can look at across the government, and you can make some
comparisons and say that this particular program is doing a
great job and getting a handle on its improper payments and
doing a great job in trying to reduce that number, but you
should not expect to see where every department or agency
within the Federal Government would have the same number or the
same percentage, just because of the variations in the
programs.
Mr. Platts. That is a point well taken, that goes into the
many variables. It is something that I, until reading some of
the testimony, assumed that access to information, like the
student aid applications, access to the income data, was
available. As one who is about to pay my last student loan
payment after many years, for law school and undergrad, I want
people who either have it to pay it back, or not get it if they
are not eligible. I assume that that information was part of
the review, to verify. Obviously, I have learned that it was
not, and we need to correct some of those challenges that
should not be challenges, but should be just readily shared
between agencies.
Mr. Williams. That is correct.
Mr. Platts. Would you like to add anything, Mr. Weems?
Mr. Weems. Mr. Chairman, our experience in the Medicare
program--Medicare has both a risk and it is a complex program.
In a lot of ways, Medicare is an honor program in that we are
billed for services. We do not have Federal employees go and
check with beneficiaries and see if in fact those services are
rendered. It is only through the audits or looking back through
claims that we are able to actually discover some of those
kinds of errors. We do have pre-payment gates in effect where
we can look at a claim and determine, is this person a Medicare
beneficiary, and does the service look valid. The classic one
is, is this a male and is the procedure a hysterectomy--we
would not pay that claim, for instance.
In our first experience, we found that many of the claims
that we looked behind did not have proper documentation. That
is, when we asked for the medical record, the medical record
was improperly documented or there was not any documentation at
all. So we called that a payment error. Now, it could quite
possibly have been a correct payment, we were just not in a
position to determine that. So given the complexity of the
Medicare program, we have spent an awful lot of time and money
educating our providers through the contractors on how to
properly submit a Medicare claim; how to code them correctly;
and how to properly document a procedure. As a result, our
error rate has fallen and also the proportion of the error rate
that is explained by improper documentation has fallen even
more dramatically.
We understand those risks and I think from our experience
we would say working with our clients and providing good
education is a good way of mitigating both the inherent risk in
the program and the complexity.
Mr. Platts. Maybe I would describe it as a kinder and
gentler approach to not having wrongful payments in the first
place, with that cooperation. It kind of goes to the internal
controls of the provider. We are talking here about the
internal controls of the agencies, because that is something
when one of my work days I spent in an emergency room for about
12 hours with emergency department doctors and nurses,
administrative staff. One of the things that was a little
overwhelming was the paper documentation that went with
treating any patient, including or maybe even especially, a
Medicare patient. What came through to me is that they
understand that they need to be very thorough so that if after
the fact there is a review of what has been paid to determine
whether it was a proper or improper payment, that the
documentation--the ducks are all in a line as need be.
Mr. Weems. That is very important to us, because looking
across all of the programs in HHS, we administer very few
directly. Most we administer either through the States or
through contractors. So it is very important that the States
and the contractors have in place proper controls.
Mr. Platts. And that highlights a point that while the
estimates may be as high as--using Secretary Rumsfeld, I think
he has been on record that as much as 5 percent of the payments
by the DOD are improper in some fashion--correlating that to
the whole budget and appropriations, would be as much as $80
billion a year; that some of that is intentional deception or
fraud, but a lot of it is just not properly documented. It
might be a legitimate payment, but we are not dotting the I's
and crossing the T's, and we need to do a better job internally
with the government and with the providers or contractors out
there.
Mr. Weems. That is exactly right.
Mr. Platts. Ms. Blackburn, did you have further questions?
Ms. Blackburn. Yes. I think I want to go back to the point
the chairman had made about incentivizing some of the agencies
and the levels of government through the recovery audit. In
doing that for a job well done, what kind of penalties are we
looking at for the agencies who still have high rates of error
payments, or is there any thought to that?
Ms. Springer. My recollection is in the act as they are set
out now, both the recovery audit guidance, and also the new
guidance, I do not know that there is specifically a penalty
that is laid out. It is an interesting thought. Certainly, one
thing that does come into play here is that we have the
performance assessment rating tool, the PART process that we
have, that is meant to tie performance to the budget. In a
certain sense, I would expect to see the erroneous payment rate
become a part of those assessments of programs.
To the extent that there is not progress in bringing that
rate down to a targeted rate, I would expect that to be a
factor in the appropriations and the budget submission process.
That could work in two ways. It could manifest itself in saying
we could do more--even somebody who is making progress, but
slowly could say, well, we would like to do more, but we would
like to get some funding. If you can demonstrate progress, then
maybe that could work as an additional amount. It could also
work in the opposite direction as more of a penalty. So I think
there is an opportunity through the PART process for that to
have some consequence for agencies that are not making
progress.
Ms. Blackburn. Thank you.
Mr. Williams, you spoke just a moment ago about the
different rates, and where 10 percent can be a good rate at
one, and 4 percent at another one.
Mr. Williams. Yes.
Ms. Blackburn. Now, when you know that there are these
improper payments that are out there, and we know it is never
going to hit zero all across the board, what do you think is
more or less a benchmark of an acceptable rate, or do you have
a set rate that you are looking to get these down? And what is
your timeline for getting these down? Is it November 2004 or
where are we on that?
Mr. Williams. There is no specific number right now that I
could give you for the various agencies in the Federal
Government. The first thing that you have to do is to get a
handle on the process. I think the legislation has gone a long
way by requiring agencies to go through the process of
assessing their operations. What you have to do at that
particular point in time is make your assessment and form a
baseline. Then you are in a position to set targets and goals,
and look at your operations and say, this is where I would like
to get to. So at this particular point in time, it is very
difficult to say what a good number would be for the various
agencies.
There are some that, as I said earlier, have been doing
this process. They have a good feel for what is going on. But
across the government, to get this issue addressed
governmentwide, you need to have all of the agencies go through
this process. What might be a good number for one agency would
not be for another. So you have to take it on an agency-by-
agency basis and take it from there.
As far as the timeline, one of the things that you have to
consider in this area is that some agencies are further along
than others in this particular process. Just getting in the
information in fiscal year 2004 might be good for some, but it
could take some additional time before agencies get to the
point where they really do have a good handle on what those
numbers should be.
Ms. Blackburn. I know. I think it is just troublesome to
some of us who watch this process to think of how many years
this has gone on, and how many billions of dollars have been
improperly tracked and unaccounted for. There has seemingly
been no recourse or no change of activity. I think that does
make it difficult.
Mr. Williams. Yes.
Ms. Blackburn. In that vein, what specific recommendations
for action do you all have on making the information on
improper payments per agency more readily available and more
transparent?
Mr. Williams. I think the Congress has taken the action
that we suggested in our August 2002 report, and, with the
passage of the legislation, to require the agencies to report
this information, to go through the process. That is the first
step. I think if you look at this from a root cause of these
problems, most times it can be traced back to the lack of good
internal controls in place. As we talk about our framework for
establishing a good internal control system, the first thing
that we talk about is the control environment. We talk about
setting the tone at the top. I think the President's Management
Agenda and the Congress passing legislation requiring agencies
to take these various steps to identify and to report improper
payments all point to us heading in the right direction. So I
think the Congress has taken the step that we need to get this
process under way to do more than just talk about it, but to
have some accountability here in which agency management is
responsible for identifying and addressing the improper payment
issue.
Ms. Blackburn. Yes, I think you are right. The public has a
tendency to get tired of talk, and they want to see some
action.
One more question.
Mr. Williams. OK.
Ms. Blackburn. Mr. Weems, I am new to Congress this year. I
came from a State Senate. We were always tackling and working
through TANF and Child Care, and some of the problems that
surrounded that. Now, you have spoken of Medicaid, the work
there with the audits and the improper payments. What are you
doing specifically looking at Child Care dollars and improper
payments there?
Mr. Weems. Child Care--we are at the point of evaluating
that program and doing our initial risk assessment on it. That
is one that I would say is farther back in the queue for us. It
is on our list of seven. We are just not as far along on it as
we are for the others. With respect to TANF, as you know, in
the TANF legislation, the Federal Government does not have a
substantial ability to review data and information from that
program. One of the tools that we will need in the TANF program
is legislation to open that up a bit so that we can get that
information. We are currently in discussions to craft that
legislation correctly and get it up to the Congress.
Ms. Blackburn. Will you review that basically more than in
a macro sense, I would assume?
Mr. Weems. Because of the variation in the States, we will
have to look a little farther in. At initial blush, the thing
that we are going to concentrate on is the actual cash
payments, rather than some of the other things that are
possible under the TANF program.
Ms. Blackburn. Thank you very much.
Thank you, Mr. Chairman.
Mr. Platts. Thank you.
The followup on that with specific suggestions--you had
identified the administration of the foster care program I
believe as well. Is there specific legislation that you have in
mind, or is that still in the draft stage?
Mr. Weems. It is still in the draft stage. We are still
discussing our needs with our colleagues, but we expect to be
able to provide the Congress something soon.
Mr. Platts. Because as I stated earlier, one of the
benefits of these hearings is not just for the general public
and for Members to understand how agencies hands are tied in
some ways, with Congressman Sessions addressing the issue at
HUD and access to information there. We talked about student
loans, foster care, TANF--that we can all be on the same page
and working diligently if there are legislative changes needed,
that we identify them and try to move forward as quickly as
possible to give the agencies that information. Because we are
putting the onus on developing the internal controls, but if
there is information outside of their ability to acquire that
is still going to hinder their efforts, then it is something
that we should not really be holding them responsible for--our
inability to get them that additional information.
The question--and Mr. Williams, you talked about a baseline
and the Improper Payments Information Act will help establish
that now by requiring all the agencies to identify their
improper payments--and that coming forth in the 2004
performance and accountability standards report. As a general
taxpayer, sometimes watching the various TV broadcasts or
reading the paper about this improper payment that comes to
light, I will be watching a show at night at home and my wife
will say, ``Is that really happening? Why don't you stop it
from happening?''
Why so long? Even though the guidance is just coming out
now, the agencies have known since November when it was signed
into law that this was going to be a requirement, why the 2004?
Although not required to be in the 2003 reports, what would
hinder us from getting it in the 2003 report, a year sooner, so
we get on track and get that baseline established a year
earlier?
Mr. Williams. Yes. I would support any early reporting of
this information because the sooner that we start reporting
this information and put as much transparency in the reporting
process as we can, the better, in my opinion. I would say also
that there are some things that you have to look at when you
are talking about an issue like this, and using this internal
control framework. I will repeat what I said earlier, and that
is, in order to address these issues, you have to have a
control environment. I am not just talking about at the
agencies, but I am talking about you need a control environment
that collectively involves the Congress, the administration,
agency management--the entire government. So it is going to
take a coordinated effort of everyone working toward addressing
this issue. You are going to have to continue to hold hearings
like this to hold people accountable for what they are doing. I
think it all gets back to accountability as to what needs to be
the focus in this particular process.
I have worked on other issues. I have seen longstanding
problems. But one of the things that I have observed in a lot
of the issues that I have addressed over the years is that you
have to have things like this. You have to have these hearings
to hold people accountable, to make sure that they are aware
that the Congress is looking at this process. It should result
in getting some action. You need to get progress reports. This
is where we are at this particular point in time. This is where
we are trying to get to.
So that is what needs to be done--that tone at the top,
which as I stated in my opening statement--I am beginning to
see that. I think that is going to result in some positive
events as we move down the road in addressing this problem.
Mr. Platts. Maybe that leads into a followup question, Mr.
Weems. You mentioned about the tone at the top of HHS that has
really helped to put a focus within that agency. Can you share
some examples of the actions at the leadership of HHS that have
helped to set that tone on the right track, that this is a
serious issue and we are really going to dive into it in all
ways possible?
Mr. Weems. Absolutely. In this case, certainly Secretary
Thompson is an extremely energetic boss that demands an awful
lot of accountability from his employees, as he should. He also
is from Elroy, WI, where I am sure one can still get a 99 cent
breakfast. [Laughter.]
These are large numbers to him. So he sets that tone, and
we do a number of things. First of all, the management
agreement that we have with our colleagues with OMB and with
the President is reflective of that commitment. We have been
and our colleagues have been very aggressive in coming to that
commitment and to that arrangement. Also, once a month we have
management meetings with the senior management leadership in
the Department where we are expected to report on our results,
where we are on the management plan. This is part of it. And
then quarterly, the entire leadership of the Department meets
to go over where we are on our management objectives. It is
something that is with us night and day.
Mr. Platts. And with the Secretary being a big fan of
Harley-Davidson, and his District is home to a large
manufacturer of Harley-Davidson, a plant, we think well of the
Secretary as well.
Ms. Springer, how about--and realizing that the agencies
are heading in the right direction and HHS is an example of
that, trying to bring more scrutiny and more focus and energy
to this issue, is OMB considering--you mentioned how you are
going to have this information being shared in a more voluntary
sense, or part of the management plan between now and 2004.
Would OMB consider strongly encouraging it being in the 2003
reports as opposed to waiting until 2004?
Ms. Springer. Certainly for the programs that reflect that
$900 billion--that roughly half--there is no question that we
have requested that, and we could make that available, and we
can ask them to put that in their plans. That covers 15
agencies. So even though it is only roughly half of the total
Federal outlays, most agencies will have some piece that they
are already required to do, and we can certainly make that a
requirement for 2003 for those plans.
Mr. Platts. OK. I am checking my notes here. As we share
questions and in your opening statements, you covered a lot of
the issues I wanted to explore a little further, but I want to
see if I missed anything.
I want to come back to a final question. We kind of touched
on this earlier when we talked about the EITC program and
trying to get our arms around that 30 percent error rate. If I
remember my numbers correctly, the administration has asked for
about $100 million of additional funds to get our arms around
it, to try to reduce that; that if we spend that $100 million,
we will save a lot more than that if we can get a better plan.
Can you give more detail what you envision that $100 million
being used for, and what the cost-benefit analysis is if we
spend that $100 million, we estimate we will maybe save X
dollars or reduce our error percentage of X amount?
Ms. Springer. Yes. Well, just to put the full perspective
on it, the EITC program has been under review by various
consultants that the IRS has brought in. They estimate the
total erroneous payments to be in excess of $9 billion. That is
one of the largest single program amounts in the $35 billion
total--close to one-third of it; I guess one-quarter. So in any
event, out of $9 billion, I do not know the exact percentage. I
could find that out for you. They actually came to OMB and
asked last fall for even more money than the $100 million. We
thought $100 million was a good amount--they could get a lot
accomplished with $100 million and then based on the
accomplishments associated with that, how much they could bring
back in the way of improvements, then they could in effect re-
up for additional funding.
There are three basic causes of erroneous payments in the
EITC area. There are income reporting errors; there are
taxpayers that claim that they have a qualifying child, and
they do not always; and then there are also taxpayers that will
claim the wrong status. They will claim that they are married
when they are really single, and that affects it as well.
Sometimes you also get a child being claimed more than once. So
there are a variety of things there and it can be done at the
front end.
In most cases, it will not involve any additional paperwork
or effort on the part of the applicant. It is just that we will
be able to verify that the information is correct, and then if
there is a followup, we would need to get some additional
information to support what they have requested. Again, I do
not know the exact percentage of the $9 billion, but it is not
an insignificant number and I could get back to you with that.
Mr. Platts. If you could followup on this in maybe a little
more detail on what that $100 million is proposed to actually
do--how you are going to go about trying to reform the program
and what that projected benefit is.
Ms. Springer. Right. I would be glad to do that. I do know
that again, there was a study done in advance. It was not, give
us $100 million and we will try and figure something out. They
actually have had a consultant on board and are doing an
assessment, so we will be able to get that for you.
Mr. Platts. Mr. Williams, in one of GAO's previous reports,
there was acknowledgement of departments or agencies changing
their goals and objectives, which perhaps has had an impact on
ability to really assess the level of improper payments.
Mr. Williams. Yes.
Mr. Platts. I assume that with the new law in place that we
will overcome that because of establishing more of a uniform
approach to evaluating improper payments. Is it your sense, or
was it in that statement in the report, that there was an
intentional effort to try to hide that level of error rate, or
to reorganize and start over because we will see if we can do
better? What is your read on that effort?
Mr. Williams. My sense is that this was agencies' attempt
to better report their performance in the GPRA. I do not think
it was an attempt to hide what the amount of their improper
payments were, but we have been critical of agencies in their
GPRA reporting over the years. I think you see these changes as
agencies attempt to better report how well they performed over
the years. So I think that is what the focus would be more on.
Mr. Platts. Not just presenting their information in a more
positive light under GPRA?
Mr. Williams. That is correct.
Mr. Platts. A question for all three of you, and I think
maybe my final question is on having more accountability and
internal controls. As part of the Sarbanes-Oxley financial
reforms regarding publicly traded companies, we required audit
opinions on their internal controls. I would be interested in
each of your opinions on whether we should require audit
opinions on the internal controls of each of our departments
and agencies within the Federal Government, as we are now
requiring these publicly held companies to do.
Mr. Williams. We at GAO have always supported having an
opinion on the internal controls. We think that this would be,
at least we consider this to be a best practice. We think it
would provide more information on the various control
weaknesses in an organization. The current reporting basically
is one in which the auditor talks about those areas in which
they look at and which they consider material, but we think it
would be much better to have the auditor look at the entire
control process. Without getting too technical, there is a
process that we as auditors go through in identifying the
controls. We use that information for various reasons. I am of
the belief that in order to get to the point where you would be
in a position to issue an opinion, there would be additional
testing that would be required to put you, as an auditor, in
the position to do that. We think that would be much better
information under a control environment at an agency than the
current report model.
Mr. Platts. Ms. Springer.
Ms. Springer. Yes, it is a good question. It is a timely
question. Let me just provide you with an understanding of what
is done today, versus what is not done today, that would be
contemplated under expressing an opinion. It is very consistent
with what Mr. Williams just mentioned.
Today, as far as the internal control environment goes, the
independent auditor gets an understanding of the control
environment. They assess the risk of any kind of material
weakness. They will test the internal controls and report any
findings. They stop short of expressing an opinion. So there is
a lot of work that is done, but it is a testing type of review,
as opposed to an opinion level review. There is a difference.
But the fact that they do not express an opinion does not mean
that there is no testing or risk assessment or review for
material weaknesses.
It is my understanding that the IG community estimates that
it would cost an additional 20 to 30 percent of existing audit
fees to go from that testing review up to signing an opinion.
What we would need to do--and I am not prepared to say that it
is worth that or not; I have not seen a cost-benefit
assessment--but that is the assessment that would need to be
made to determine whether or not that additional rigor, and
there would be some additional, is warranted and what the
benefit is. We believe that within the context of this
discussion of erroneous payments that there is a lot of ground
that we can get by just instituting these practices that we
talked about today, over and above just what we would get from
this extra 20 or 30 percent cost.
So it is not as if there is nothing, and that is the point
that I want to make.
Mr. Platts. Yes.
Ms. Springer. The fair amount of review today just stops
short of rendering an actual opinion. It is not inappropriate
to look at the merits of that, but I am not sure where we come
out.
Mr. Weems.
Mr. Weems. I agree with Ms. Springer. Our audits do
significant testing on internal controls and doing risk
assessments of those controls. We are concerned about the cost.
Without a cost-benefit analysis, and this is certainly
something that we need to pursue, some of our instincts tell us
that marginal dollar might be spent on correcting identified
weaknesses, rather than seeking an audit opinion on the
internal controls themselves.
Mr. Platts. Ms. Springer, I was not sure, is there a cost-
benefit being done to look at that? Or are you just saying that
you would want that to be done before moving to that level?
Ms. Springer. The latter.
Mr. Platts. OK. Because I am not certain of that total cost
of that testing level of audit that is done today, and what 20
or 30 percent equates to, and then to make a comparison when we
are talking $35 billion or as much as $70 billion or $80
billion in erroneous payments, and whether there is an added
benefit to the level to make that worthwhile. But for those in
scrutinizing from somebody from the outside, that audit opinion
of the internal controls would certainly help OMB in looking at
all the departments and agencies, or Congress in looking at
just not it has been tested, but here is our opinion of how it
is working or not--that would give some added information to
assess who is being thorough and doing a good job, and who is
doing something, but not necessarily as good a job as they
could otherwise do.
Ms. Springer. There is no question that being able to have
an opinion to point to is like having that Good Housekeeping
seal of approval, and that answers any questions.
Mr. Platts. You know that is going to be public, so there
is maybe more pressure to fine-tune your controls.
Ms. Springer. Right. And it is indisputable. I agree with
you 100 percent. The only question that I would still need to
have answered for me is the cost-benefit--proving that there
really is an added-value to it; a cost-justified value. I will
tell you that it is an issue that has come up. You are
familiar, I think, with the fact that the principals--the
Director of OMB, Comptroller General Walker and Secretary Snow,
and OPM Director James and I and some others meet at least
quarterly and review financial management issues within the
government. We met last week and this was an issue that we
discussed. We will not lose track of this.
Mr. Platts. I was wondering what you are doing with
Medicaid in 9 States and 12, to pick a small department, maybe
a large agency, to pilot it to see in actual implementation
whether there is a benefit worth the investment? Is that part
of the discussion?
Ms. Springer. It is possible. We have not specifically had
that teed up, but that is a possible way.
Mr. Platts. OK.
Mr. Williams. Could I add a point to that? One of the
things that you have to take into consideration in that process
of looking at it from a cost-benefit standpoint. If you never
look at those areas that you have not tested, it might be
difficult in coming up with the benefits you would gain because
you do not know what the control weaknesses may be. You also do
not know how much those weaknesses could be costing you from
the standpoint of not identifying what those weaknesses are and
having agencies put procedures in place to plug those
weaknesses. So it might be a difficult challenge to look at
what is the cost-benefit of having auditors issue an opinion on
internal controls.
One thing that you would know for sure by having that
opinion is that the auditors have looked at the whole operation
and assessed the controls of the entire agency or component
that you are looking at. But how much do you save by not
looking at an area? If you have not looked at that area, you do
not know what those weaknesses are. It might be difficult to
determine.
Ms. Springer. And I guess it is the issue of beyond just
looking at it, to actually rendering the opinion.
Mr. Platts. Right.
I do have one final question, Ms. Springer. With your final
guidance about to be issued, I assume that there will be for
each of the departments and agencies, I will call him an
ombudsman or a point person at OMB that will be responsible for
working with each department or agency as you move forward and
the guidance being actually acted on and implemented?
Ms. Springer. Yes, that is absolutely right, in several
ways. OMB, as you know, on the budget side is already
constructed with focal points for each agency, but within my
office, the Federal Financial Management Office, there is a
person that is dedicated for each agency, so they will also be
charged with the erroneous payments review. I expect
personally, as well as with one of my associates who has been
leading this effort, to meet with all of them as well. So, yes.
Mr. Williams. Mr. Platts.
Mr. Platts. Sure.
Mr. Williams. We at GAO would strongly support that. We
think it would be a great idea for OMB to take a very active
role in that particular process. We have had an opportunity to
look at the guidance. One of the things that is mentioned in
the guidance is it recommends that agencies take a look at our
best practices report that we issued a couple of years ago and
use that as a tool. One of the things that we would encourage
OMB to do is to work very closely with the agencies to develop
additional tools--tools that would be specific to the
individual agency. Individuals that will be working with the
various agencies on this issue should consider what additional
tools can we come up with to help address this improper payment
problem.
Mr. Platts. So the guidance being kind of a broad floor on
which you build, depending on the individual needs of that
agency?
Mr. Williams. That is correct. In addition to that, we have
begun some work in which we are following up on the
recommendations that we made in our August 2002 report. We will
continue to look at this process to see what agencies are
doing, and, as part of that process, what is OMB doing in
working with the individual agencies, as well as the various
councils in the Federal Government in the overall coordinated
effort that we have stated is needed to address this improper
payment issue.
Mr. Platts. OK.
I want to thank each of you for your testimony, and the
partnership that is clear between the executive branch with
OMB, congressional efforts with GAO, and then the agencies out
on the front lines. I think that is an important message we
want to come out of this hearing is that there is a coordinated
and very dedicated effort that we get to the bottom of these
erroneous payments. I would again highlight my predecessor,
Chairman Horn, in his great work in getting the legislation
enacted into law that we are now talking about and moving
forward with. Cooperatively, we can do right by the taxpayers.
Thanks for your efforts here today and in your respective
agencies day in and day out.
In closing, I also want to thank our staff, both majority
and minority staff, who do an exceptional job and once again
have been great in putting together this hearing. As this
hearing has demonstrated, improper payments are unfortunately a
widespread problem across our Federal agencies. Although it may
be unrealistic to expect a perfect system with no erroneous
payments, the American taxpayer deserves far better than the
current situation. We must have internal controls and financial
management systems that work to prevent this kind of
unacceptable handling of the taxpayer's hard-earned dollars.
Since improper payments occur across all agencies, establishing
sound internal controls, providing guidance to agencies, and
working together to learn from each other's successes and
failures will ensure that taxpayer dollars are being used in
the most efficient way possible.
We will certainly welcome the additional information that
will be provided as we discussed in the hearing, and we will
hold the record open for 2 weeks from this date for those who
may want to forward submissions for possible inclusion.
This meeting is adjourned.
[Whereupon, at 3:35 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T8736.038
[GRAPHIC] [TIFF OMITTED] T8736.039
[GRAPHIC] [TIFF OMITTED] T8736.040
[GRAPHIC] [TIFF OMITTED] T8736.041
[GRAPHIC] [TIFF OMITTED] T8736.042