[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





  CUTTING OUT WASTE, FRAUD, MISMANAGEMENT, OVERLAP, AND DUPLICATION: 
  EXPLORING IDEAS FOR IMPROVING FEDERAL ORGANIZATION, MANAGEMENT AND 
                                SPENDING

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 16, 2003

                               __________

                           Serial No. 108-69

                               __________

       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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                            WASHINGTON : 2003
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                     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
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 16, 2003....................................     1
Statement of:
    McFarland, Patrick E., Inspector General, Office of Personnel 
      Management, accompanied by Dennis K. Black, Deputy 
      Assistant Inspector General for Audits, Office of Personnel 
      Management; and Norbert Vint, Assistant Inspector General 
      for Investigations, Office of Personnel Management.........    21
    Posner, Paul L., Managing Director for Federal Budget and 
      Intergovernmental Issues, Strategic Issues, General 
      Accounting Office, accompanied by Ralph Block, Tax Group, 
      General Accounting Office..................................    46
Letters, statements, etc., submitted for the record by:
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     5
    Davis, Hon. Jo Ann, a Representative in Congress from the 
      State of Virginia, March 20, 2003 Congressional Record 
      insert.....................................................     3
    McFarland, Patrick E., Inspector General, Office of Personnel 
      Management, prepared statement of..........................    24
    Posner, Paul L., Managing Director for Federal Budget and 
      Intergovernmental Issues, Strategic Issues, General 
      Accounting Office:
        Information concerning demonstrations....................   101
        Prepared statement of....................................    50
    Putnam, Adam H., a Representative in Congress from the State 
      of Florida, prepared statement of..........................    19
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........    16
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    10

 
  CUTTING OUT WASTE, FRAUD, MISMANAGEMENT, OVERLAP, AND DUPLICATION: 
  EXPLORING IDEAS FOR IMPROVING FEDERAL ORGANIZATION, MANAGEMENT AND 
                                SPENDING

                              ----------                              


                        WEDNESDAY, JULY 16, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, Ose, Lewis, 
Jo Ann Davis of Virginia, Putnam, Blackburn, Waxman, Kucinich, 
Tierney, Ruppersberger and Norton.
    Staff present: Peter Sirh, staff director; Melissa Wojciak, 
deputy staff director; Keith Ausbrook, chief counsel; John 
Hunter and David Young, counsels; Robert Borden, counsel/
parliamentarian; David Marin, director of communications; Scott 
Kopple, deputy director of communications; Teresa Austin, chief 
clerk; Joshua E. Gillespie, deputy clerk; Phil Barnett, 
minority chief counsel; Michelle Ash and Althea Gregory, 
minority counsels; Earley Green, minority chief clerk; Jean 
Gosa, minority assistant clerk; and Cecelia Morton, minority 
office manager.
    Mrs. Davis of Virginia [presiding]. The committee will come 
to order. I apologize for the delay. The chairman has been 
delayed in another meeting. I am going to go ahead and start 
the hearing and I will read his opening statement.
    The fiscal year 2004 budget resolution requires each 
congressional committee to identify waste, fraud and 
mismanagement in mandatory spending programs within its 
jurisdiction and report their findings to the Committee on the 
Budget.
    Unlike discretionary programs, where each Federal agency 
must justify its spending each year for the Appropriations 
Committee, mandatory spending proceeds on autopilot unless the 
Congress takes an active role in overseeing these programs and 
intervening where appropriate. The purpose of this hearing is 
to examine the mandatory programs for which this committee is 
responsible and identify where these programs are vulnerable to 
waste, fraud and mismanagement.
    The Budget Committee, pursuant to the budget resolution, 
has directed this committee to find savings of $827 million in 
fiscal year 2004, $4.5 billion over the next 5 years, and $9.9 
billion over the next 10 years. We have been directed to find 
these savings in waste, fraud and mismanagement, not through 
changes in policy. This will prove to be a challenging task. 
This is the third highest total that any committee in the House 
has been asked to find.
    Nearly all of the mandatory spending under this committee's 
direct jurisdiction consists of payments to Federal retirees--
pensions, disability and health benefits--which are 
administered by the Office of Personnel Management.
    We have asked the Inspector General of OPM, the Honorable 
Patrick McFarland, to testify today about the ongoing effort to 
combat waste, fraud and mismanagement in these programs and to 
recommend legislative changes that might further his efforts.
    The Federal Employees Health Benefits Program, the 
retirement programs, and the Federal Employees Group Life 
Insurance Program represent OPM's three largest programs that 
are within the mandatory spending jurisdiction of this 
committee.
    In the administration of the Health Benefits Program, the 
Inspector General has identified potential savings by ending 
improper payments by the government to carriers for claims made 
by health care providers and suppliers. According to the 
Inspector General, these improper payments include false claims 
for services not rendered, falsified billing codes that result 
in higher rates of reimbursement, illegal or unnecessary 
procedures for patients, and defective pricing.
    Savings in the retirement programs can be achieved by 
preventing erroneous payments of benefits after an annuitant's 
death and by reducing computation errors.
    Chairman Davis also looks forward to hearing about the OPM 
Inspector General's initiative to utilize computer technology 
to develop effective data warehouse and data mining techniques 
to more effectively recover funds diverted through waste, fraud 
and mismanagement. Implementation of these applications should 
lead to a more comprehensive claims auditing process, which 
should in turn result in increased discovery and recovery of 
fraudulent overpayments.
    I believe, however, that we will have to look beyond 
erroneous payments to Federal retirees in order to meet the 
savings target set in the budget. This committee has a unique 
legislative jurisdiction that allows us to look at the overall 
management and efficiency of government operations and 
activities, as well as efforts to reorganize government 
agencies.
    We are the only committee in the House that has the 
jurisdiction to address management and reorganization issues on 
a governmentwide basis. When the budget resolution was 
considered in the House, Chairman Davis received assurance from 
Chairman Nussle of the Budget Committee that we would receive 
full credit for addressing these issues that are within our 
governmentwide legislative jurisdiction. Without objection, I 
will submit that colloquy for the record.
    [The information referred to follows:]
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    Mrs. Davis of Virginia. We have invited the General 
Accounting Office to testify about both the savings that might 
be achievable in the committee's mandatory spending and on the 
broader issues where this committee may be able to play an 
important role. I have asked GAO to draw from its ongoing work 
in its High-Risk Series and from the work on its annual 
Budgetary Implications report to address these areas.
    In the case of payments to ineligible individuals that 
waste taxpayer dollars and undermine benefit programs, I am 
hopeful that today's testimony will help us continue our 
efforts to promote governmentwide solutions that address 
improper payments in government benefit programs.
    GAO will also highlight for us programs where streamlining 
and consolidation can save the taxpayer money, while continuing 
to provide the same Federal services. GAO Managing Director 
Paul Posner will enlighten the committee on these subjects.
    We will also question the witnesses about potential 
solutions. For example, can we reduce posthumous payments to 
annuitants by requiring prompt reporting of deaths, or will 
providing more resources for the OPM Inspector General yield 
substantial reductions in improper payments?
    Rooting out waste, fraud and mismanagement is neither a 
Republican nor a Democratic issue. I hope that we will work 
together to identify and address areas that can reduce spending 
while maintaining the benefits that our Federal employees and 
retirees have earned. I welcome today's witnesses, and I thank 
them for their willingness to testify on such short notice.
    [The prepared statement of Chairman Tom Davis follows:]

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    Mrs. Davis of Virginia. I now recognize the distinguished 
ranking member, Mr. Waxman, for his opening statement.
    Mr. Waxman. Thank you very much, Madam Chair, for this 
opportunity to make an opening statement and for holding this 
hearing on waste, fraud and abuse in the mandatory spending 
programs in the jurisdiction of the Committee on Government 
Reform.
    Unfortunately, this hearing may be barking up the wrong 
tree. I support eliminating fraud in programs like the FEHBP 
and the pensions of Federal retirees, but the amount of funds 
that can be saved in these mandatory programs is relatively 
small. The only way to save large amounts from these programs 
is to cut people's health and retirement benefits, which I hope 
is something we will all resist.
    But there is real waste, fraud and abuse in the Federal 
Government, particularly in the discretionary spending of 
agencies that rely heavily on private contractors. The 
Inspector General of the Department of Defense says that the 
Department of Defense, which contracts out more work than any 
other agency, cannot account for $1 trillion of the taxpayers' 
money. Let me just repeat that statement, because it is 
astounding. It cannot account for $1 trillion of taxpayers' 
money.
    The DOD appropriation for fiscal year 2002 represents 18 
percent of the U.S. total budget and 48 percent of 
discretionary funds. Simply linking the Department's 
appropriations to the requirement that it receive a clean audit 
could literally save billions.
    Federal contracting is increasing at a dramatic rate. In 
the 6-year period from fiscal year 1997 to 2001, contracting 
increased from $213 billion to $335 billion, an increase of 
over 15 percent. This administration's focus on outsourcing 
Federal jobs is driving these numbers even higher.
    The Federal Government's increasing reliance on private 
contractors coincides with the increasing use of abuse-prone 
contracting vehicles and diminishing government oversight. 
These contract vehicles are a confusing alphabet soup of 
acronyms--ID/IQ, GWACS, and multiple award contracts--but they 
often spell lucrative sole-source awards for large corporations 
in the Defense Department, whose contracting budget is more 
than double the next nine largest Federal agencies combined. 
Let me repeat that. The contracting budget for DOD is more than 
double the next nine largest Federal agencies combined.
    Billions are awarded in noncompetitive contracting, most 
often to companies that are favored campaign contributors, like 
Halliburton and Lockheed Martin. To illustrate the problem, in 
1999 the DOD IG audited 124 randomly chosen multiple-award 
contracts. The IG found that nearly half were sole-sourced. Of 
those that were soul-sourced, only eight had a valid 
justification.
    In 2001, the Inspector General's office updated its work 
and found that 72 percent were awarded on a sole-source or 
directed-source basis. Injecting competition, ensuring that 
multiple contractors were eligible to bid on specific task 
orders, could cut costs to the taxpayers by up to one-third. So 
if we simply allowed competition, some kind of market forces, 
in the awarding of these contracts, we could save billions of 
dollars rather than choose special companies for special 
contracts on a sole-source basis.
    In essence, companies like Bechtel and Halliburton are 
getting sweetheart deals while we review retirement benefits of 
little old ladies and that is just not right. In addition, 
contract oversight is abysmal. In 43 out of the 67 cases of so-
called performance-based contracts reviewed by the DOD IG, 
contract offices failed to provide adequate oversight of 
payments.
    This would be a recipe for waste, fraud and abuse even if 
we had a robust acquisition work force and adequate procurement 
oversight, but we don't. The Federal Government's acquisition 
work force has declined 22 percent in the decade between 1991 
and 2001.
    External oversight is also disappearing. For example, the 
Department of Defense's Deputy Inspector General testified 
before this committee in 2000, ``in recent years our oversight 
of Defense acquisitions has been severely constrained by 
resource shortfalls and conflicting priorities.''
    He added, ``[a]udit coverage has been inadequate in nearly 
all defense management sectors that we and the General 
Accounting Office have identified as high-risk areas.''
    Madam Chairman, if we are serious about curbing waste, 
fraud and abuse in the Federal Government, we have to stick to 
the old adage, ``follow the money.'' Under this administration, 
we are pouring billions into the pockets of large corporations 
in the name of privatizing government. That is where we should 
be focusing our resources on reducing government waste, fraud 
and abuse.
    I yield back the balance of my time.
    Mrs. Davis of Virginia. Thank you, Henry.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Mrs. Davis of Virginia. I know I can speak for Chairman 
Davis and myself that we absolutely have no intention of doing 
anything to eliminate the benefits for anything for our Federal 
workers. I think that was in the first part of your opening 
statement. And, as you know, we are concentrating today on our 
mandatory spending. And maybe Chairman Davis will be happy to 
do--you can talk to him about doing a hearing on discretionary 
spending at another time.
    But, Mr. Ruppersberger, do you have a statement?
    Mr. Ruppersberger. Thank you, Madam Chairman, for calling 
the hearing. The purpose of this hearing, as we know, is to 
produce a report that will outline areas where the committee 
believes we can save some Federal taxpayer dollars.
    Today we are going to look at ways of saving Federal 
taxpayer dollars, while today we are going to look mainly at 
mandatory spending, and I hope that the discussion can go 
further and look into waste, fraud and abuse. And I also hope 
that we can discuss innovative programs and ways to save 
dollars, such as a program called Gain Sharing.
    I was a former Baltimore County executive. I understand how 
and why government needs to reshape its thinking, its ways of 
spending dollars, and how to reform its workers to get everyone 
involved in order to make government more efficient and more 
cost-effective.
    Now, we have to look at ways to increase the efficiency in 
government. As county executive, we implemented this gain-
sharing program, which is an employee program, a group program, 
based on frontline workers coming together and finding ways to 
improve efficiency. If efficiency goes--and productivity goes 
up, costs goes down, some of the employees receive 
remuneration. But, more importantly, the frontline workers 
involved in the process, they become shareholders. They look 
together at ways to make things better. Of course, whenever 
there is change, people and employees, especially, especially 
in a big Federal Government like this where there is a lot of 
distrust of administration, are concerned when you hear 
reforming government.
    Reforming government doesn't always mean you have to 
downsize. Prior to implementing the gain-sharing program in 
Baltimore County, we ensured our county employees that if there 
was going to be any outsourcing, they would have the 
opportunity to compete; and second, they would be given the 
tools and the resources, which a lot of times is not done in 
big bureaucracies, to compete against a private company's 
proposal.
    And with that goal in place, and to save taxpayers 
dollars--our employees went to work and, you know, our 
employees always beat out the private companies. They were 
innovative. They were energetic, and they became a part of the 
team. Management and employee relationships improved. But 
everyone has to remember that in order for government to save 
dollars, everyone needs to be involved from top to bottom, 
including frontline workers. Everyone
needs a goal, and most importantly, they need the tools and the 
equipment to reach these goals.
    I look forward to hearing your testimony.
    Mrs. Davis of Virginia. Thank you, Mr. Ruppersberger.
    [The prepared statement of Hon. C.A. Dutch Ruppersberger 
follows:]

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    Mrs. Davis of Virginia. Are there any other Members who 
have an opening statement?
    Members may have 5 legislative days to submit opening 
statements for the record.
    [The prepared statement of Hon. Adam H. Putnam follows:]

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    Mrs. Davis of Virginia. Our witnesses today are, and I 
appreciate the patience from all four of you, the Honorable 
Patrick E. McFarland, Inspector General, Office of Personnel 
Management. Accompanying Mr. McFarland are Dennis K. Black, 
Deputy Assistant Inspector General for Audits; and Norbert E. 
Vint, Assistant Inspector General for Investigations; Paul L. 
Posner, Managing Director for Federal Budget and 
Intergovernmental Relation Issues, Strategic Issues, from the 
General Accounting Office.
    It is the policy of this committee that all witnesses be 
sworn in before they testify, so if you would please rise and 
raise your right hands.
    [Witnesses sworn.]
    Mrs. Davis of Virginia. Please be seated. And we are now 
joined by the Chair. We will go ahead and start.
    I would like to thank our witnesses for taking the time 
from their busy schedules to appear before us today. I would 
like to recognize--first we will start with you, Mr. McFarland.

STATEMENT OF PATRICK E. McFARLAND, INSPECTOR GENERAL, OFFICE OF 
 PERSONNEL MANAGEMENT, ACCOMPANIED BY DENNIS K. BLACK, DEPUTY 
  ASSISTANT INSPECTOR GENERAL FOR AUDITS, OFFICE OF PERSONNEL 
 MANAGEMENT; AND NORBERT VINT, ASSISTANT INSPECTOR GENERAL FOR 
         INVESTIGATIONS, OFFICE OF PERSONNEL MANAGEMENT

    Mr. McFarland. Chairman Davis and members of the committee, 
thank you for giving me the opportunity to testify on our 
successes in fighting waste, fraud and abuse in mandatory 
programs of the U.S. Office of Personnel Management, and our 
strategy to increase our effectiveness in the future.
    As you noted in your invitation for my testimony, your 
committee's mandatory spending jurisdiction includes payments 
for civil service employees' annuities for health benefits, 
retirement and life insurance. Accordingly, my testimony will 
highlight our recent efforts and future plans to achieve cost 
savings and initiate new ways to attack waste, fraud and abuse, 
particularly with regard to the Federal Employees Health 
Benefits Program [FEHBP].
    We recognize that oversight of the retirement and insurance 
trust funds administered by OPM is, and will remain, our most 
significant challenge. These trust funds are among the largest 
held by the U.S. Government. Their assets totaled $619 billion 
in fiscal year 2002. Their revenue was $79 billion, and their 
annual program and operating expenses were $104 billion. The 
amounts of their balances are material to the integrity of the 
government's financial position. I continue to allocate the 
vast majority of my office's efforts and resources to trust 
fund oversight and to apply new technology and strategies to 
recover fund losses.
    Audits and criminal investigations of the OPM-administered 
trust fund programs and commitments by program management to 
recover funds have resulted in significant financial recovery 
to the trust funds. In fiscal year 2002, these recoveries and 
commitments totaled approximately $116 million. This equates to 
approximately $12 of positive financial impact for each direct 
OIG program dollar spent. In addition, my office's audits and 
criminal investigations provide a significant deterrent against 
future instances of waste, fraud and abuse.
    Our success is best illustrated by a recent, high-profile 
settlement of a case negotiated by the Department of Justice, 
which was dependent on the work of our auditors and criminal 
investigators amounting to almost $64 million. In this case 
against PacifiCare Health Systems, the government alleged 
health plans owned by PacifiCare overcharged the FEHBP by 
charging premiums substantially higher than it charged to 
employee groups in the private sector similar in size to the 
FEHBP, contrary to OPM rating instructions.
    Starting in early 1999, our auditors' and criminal 
investigators' involvement in this case intensified after a 
former plan employee brought a qui tam suit, and we performed 
five additional audits of PacifiCare. The process required a 
relentless focus on detail, involving analysis of highly 
complex information provided by PacifiCare over an extended 
period of time.
    The Government and PacifiCare settled the case last year 
for $87 million, with approximately $64 million being returned 
to the FEHBP. This was the largest settlement amount ever paid 
by a carrier in the FEHBP.
    We have made significant recoveries through our 
responsibility under the FEHBP to audit the carriers for the 
purpose of identifying funds improperly paid to them under 
their contracts with OPM. In dealing at the insurance carrier 
level, I would classify these improper payments primarily as 
waste of government funds rather than as fraud or abuse. Such 
improper payments occur from poor coordination of benefits with 
Medicare, duplicate payments, and paying amounts larger than 
the covered benefit permits.
    OPM is justifiably proud of operating the FEHBP programs 
with relatively small amounts of waste. While we estimated 
improper payments amounting to about $160 million in fiscal 
year 2002, not an insignificant figure, this constitutes less 
than 1 percent of FEHBP premiums paid.
    Another serious area of waste as well as fraud and abuse 
within the FEHBP is in the rate-setting process for community-
rated health benefit carriers. This occurs when the FEHBP does 
not receive the same discount that a carrier gives to other 
large groups similar in size to the FEHBP.
    We have developed a new approach referred to as a rate 
reconciliation audit, which differs in that these audits are 
performed prior to the settlement of the final rates with OPM. 
These rate reconciliation audits have resulted in significant 
dollar savings to the FEHBP. Since inception in 1986, we have 
completed a total of 119 rate reconciliation audits that 
identified over $64 million in overcharges to the FEHBP. I am 
pleased to say that in the last couple of years the 
noncompliance rate has dropped from 70 percent to approximately 
40 percent of the carriers.
    The largest amount of FEHBP fraud and abuse occurs at the 
health care provider or supplier level. Adding to our 
difficulty in estimating the extent of provider fraud is the 
indirect nature of OPM's contractual relationship with health 
care providers. They are not government contractors or 
subcontractors, and only have such relationships with the 
carriers. Therefore, my criminal investigators respond to 
allegations of provider fraud or abuse or irregularities 
detected through our audits or through criminal investigative 
sources. I do not have authority to audit health care providers 
generally. However, OPM is seeking contractual changes to 
provide audit authority for the very largest providers, such as 
pharmacy benefit managers, to better detect what I believe is 
significant and substantial waste, fraud and abuse in the 
FEHBP.
    While my office focuses primarily on waste, fraud and abuse 
in the FEHBP, we also guard against it in the retirement 
programs, including both the Civil Service Retirement System, 
and the Federal Employees Retirement System. The retirement 
program has an erroneous payment rate of less than one-half of 
1 percent of payments made, or about $100 million in fiscal 
year 2002. Most of the erroneous payments are the result of 
computation errors identified and corrected by the agency 
itself. However, there is other waste, fraud and abuse within 
the retirement program, notably the failure of next of kin to 
notify OPM of any annuitant or survivor's death, resulting in 
improper continuation of retirement program payments.
    OPM has tried to eliminate the erroneous payments by 
routinely performing computer matches using OPM's annuity rolls 
and the Social Security Administration death records.
    We assist the agency by proactively reviewing retirement 
program annuity records for any type of irregularity, such as 
reaching an excessive age. If we discover an irregularity, we 
conduct independent queries with other data bases to determine 
if annuitants are deceased. We will continue as necessary and 
as our resources permit to verify annuitant status, including 
onsite visits.
    My office has embarked on an initiative to greatly improve 
the efficiency and effectiveness of our audits relating to the 
FEHBP, combining the use of affordable computer technology with 
our expertise in health benefit analysis. The goal is to 
develop a data warehouse, employ programwide review strategies 
and ultimately implement sophisticated data mining techniques 
to thoroughly analyze FEHBP health benefit payments. We 
envision that this data warehouse/data mining project will 
significantly increase our ability to highlight trends of 
potential health care fraud in the FEHBP. The project will also 
provide our criminal investigative staff with the ability to 
react quickly to investigative leads.
    Using the data warehouse concept, we are able to analyze 
claims on a global rather than on a plan-by-plan basis. These 
user-friendly, computer-assisted audit techniques have 
standardized the audit process, while allowing our auditors the 
necessary flexibility to adjust the applications to the 
specific requirements of their assignment. By empowering our 
auditors to complete more routine computer analyses, our 
computer specialists in turn are free to concentrate on more 
complex issues.
    This completes my opening statement, and we are certainly 
pleased to respond to any and all questions.
    Chairman Tom Davis [presiding]. Thank you very much.
    [The prepared statement of Mr. McFarland follows:]

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    Chairman Tom Davis. Mr. Posner.

  STATEMENT OF PAUL L. POSNER, MANAGING DIRECTOR FOR FEDERAL 
BUDGET AND INTERGOVERNMENTAL ISSUES, STRATEGIC ISSUES, GENERAL 
   ACCOUNTING OFFICE, ACCOMPANIED BY RALPH BLOCK, TAX GROUP, 
                   GENERAL ACCOUNTING OFFICE

    Mr. Posner. Thank you, Mr. Chairman. It is a pleasure to be 
here today with the committee. My role at the hearing, and my 
statement, move beyond the specific OPM programs that are in 
the committee's jurisdiction to discuss opportunities for 
savings and oversight through the committee's broader role in 
overseeing the broad range of Federal programs, management 
operations and tools.
    As you know, the Budget Resolution mandates savings targets 
for the committee and, in addition, it mandated that GAO do a 
report that can be useful for the committee to be released in 2 
weeks, highlighting options based on all of our work over the 
past several years for congressional requestors. We culled 
through that to find options that potentially yield savings and 
we worked with CBO to screen the options.
    For perspective, savings obviously is important in itself 
in a time of deficit, but it is always difficult to reach these 
savings targets as our deficit reduction efforts of the 1990's 
have shown. If there is a silver living, it is the opportunity 
to use savings targets to address longstanding performance 
problems in government programs and services.
    I consider GAO's options, many of which are included in my 
statement, as well as those in our forthcoming report, to 
constitute ``weak claims;'' programs, operations, tools, and 
activities that really don't stand up to audit and evaluation 
that have significant problems in fraud, waste, abuse, 
efficiency, effectiveness, and ultimately relevance to today's 
and tomorrow's world. And that is what I want to highlight.
    I am going to talk about three basic areas that are in the 
statement. One addresses risks that drain resources and 
undermine program integrity. Two addresses significant 
opportunities for us to improve economy and efficiency. And 
three is reassessing priorities and effectiveness.
    Again, one of the things I want to try to highlight in my 
oral statement is that while many of the examples are program-
specific, effective action to address each of these areas 
requires the kind of governmentwide, cross-agency, cross-
cutting initiatives that this committee could lead and prompt. 
And so those are the kinds of things I am going to try to 
address.
    In the high-risk area, as you know, GAO has been doing a 
high-risk list and identifying areas particularly vulnerable 
since 1990. Our examples and targets range from Medicare and 
Medicaid to unpaid taxes, Federal real property and a variety 
of other weaknesses in financial and contract management.
    The size of improper payments is unknown. We issued a 
report last year just, based on the financial statements, 
saying there is about $20 billion. OMB thinks it is about $35 
billion. We think that is a work in progress. Addressing 
improper payments calls for persistence, leadership, design 
changes, providing better incentives, and risk-sharing on the 
part of agency staff and third parties, and a variety of tools 
and even investments.
    I want to illustrate by talking about tax compliance. The 
IRS no longer keeps systematic data on what we used to call the 
tax gap, but we do know that there are significant problems in 
certain sectors of the economy with Tax Code compliance. IRS 
has been challenged to reach these areas by not only a rising 
workload but declining staff resources and greater complexity 
in the Tax Code itself. Audit rates for corporations and 
individuals have been declining significantly over the past 10 
years. The ability of the IRS to collect taxes that is 
ultimately assessed, the so-called accounts receivable, has 
declined, so that they now have a substantial inventory of over 
$100 billion of collectible taxes that people owe and have not 
paid.
    The solution to this involves partly staffing and partly 
reengineering and modernization of IRS's systems. What I want 
to highlight is how important other agencies are to IRS 
achieving this mission. For example, 1 million people who owe 
$26 billion in tax debt receive Federal salaries, grants, 
contracts, and loan payments. IRS has recently attempted to 
recoup some of this by levying some of those payments, but 
these efforts are far from complete. IRS has blocks on too many 
actions that agencies could take. There are no levies, for 
example, applied to Medicare and Medicaid payments. Concerned 
about the workload, IRS is not fully implementing this levy 
program the way that we think that they should.
    Federal loan payments is another area where progress can be 
made. Although OMB Circular A-129 requires loan agencies to 
check whether recipients have tax debt, in fact, work we have 
done shows that significant numbers of loan recipients have 
accounts receivable with IRS that are not routinely checked by 
agencies. So this is definitely a work in progress.
    Another multiagency issue involving the tax system is, how 
we can use IRS as a lever to control improper payments in other 
agencies. We have already done this through the Treasury Offset 
Program so that when there is an outstanding nontax debt from a 
payment from a Federal program, we can go after the refund owed 
to that person.
    Another key is data-sharing to permit more agencies and 
State and local administrators of Federal programs to gain 
access not only to tax data but new-hire data kept by the child 
support program to control improper payments at the front end 
rather than chasing people once they get in debt. Let's control 
this at the front end by having quality information so agencies 
and staff can tell, up front, what the underlying incomes and 
assets of people are who are claiming their program.
    In one study the Inspector General of the Education 
Department reported that over $100 million in Pell Grant 
overpayments could have been avoided if the Education 
Department had access to this tool and many other agencies need 
this tool as well. SSA, for example, needs to know, but does 
not have, data routinely on State and local government pension 
recipients and whether they are entitled to Social Security 
payments or not.
    Non-tax debt is another area where agencies are not doing 
enough in a coordinated way to apply wage garnishing, which 
they are authorized to do through the Treasury.
    So these are areas where greater enforcement requires 
greater coordination, greater leadership on the part of central 
agencies and in the Congress.
    Another area is improving economy and efficiency and I have 
outlined some issues in the written statement. We have many 
examples of longstanding problems with the targeting of Federal 
programs; with the fragmentation that seems rife across many 
areas that we really care about, but have multiple players 
across multiple agencies; with the fact that we are not 
recovering costs like we should from users of Federal programs, 
from corporations that are inspected by Federal agencies; and 
often with outdated organizational models as we go forward into 
the 21st century.
    In the area of targeting, for example, just as poor 
controls can convert scarce money from needy recipients, so can 
poorly targeted programs. Our Federal grant system gives over 
$300 billion of scarce funds through really poorly-designed 
formulas. As a result, States and local governments with less 
relative need and greater fiscal capacity get more money than 
places that need it more.
    The current formulas we use are not well-designed. The 
Medicaid formula, for example, goes back to the 1940's, uses 
per capita income and has not been updated to reflect better 
measures of poverty and fiscal capacity. As a result, some 
States get too much while other States get too little compared 
to their capacity.
    Community development block grants are another example. 
While we use housing and poverty as a factor, the formula does 
not reflect the relevant wealth and fiscal capacity of the 
jurisdiction to provide services on its own. So, as a result, 
Greenwich, CT, in the study we did several years ago, get over 
five times the amount of per person-in-poverty under CDBG than 
Camden, NJ. Broadly, a review of the grant system is really in 
order.
    In other words, we look at procurement reform as a system, 
and we think of multiple opportunities to address savings 
opportunities. The grant system is an equally rich target 
because there are fundamental flaws in the design of these 
programs, not only in the targeting area, but in widespread 
substitution of Federal for State and local dollars that could 
be controlled if we took a more systematic look at what we are 
trying to do and how we are doing it.
    Targeting is important for benefit programs as well. For 
example, the Federal Employees Compensation Act--the workers 
compensation for Federal employees injured on the job--said 30 
percent of the recipients receive 100 percent of their previous 
replacement income and another 40 percent receive over 90 
percent, well in excess of standard replacement rates for 
compensation in disability programs. This is based on a flaw in 
the formula that we have identified that needs to subtract 
taxes from gross wages as the basis for making payments.
    Fragmentation is another area that we can talk about. Food 
safety is an area we have highlighted with multiple players: 
the Agriculture Department, the Federal Food and Drug 
Administration and others, which we can talk about more in Q 
and A. Moreover, substantial reorganization opportunities 
exist. For example, the location of Veterans Health hospitals, 
Coast Guard facilities and USDA's county services all need to 
be fundamentally reexamined as these agencies go forward in a 
modern technological environment with an infrastructure that is 
largely inherited.
    Finally, one other opportunity I want to mention is a 
governmentwide opportunity that I know your committee has 
addressed: real property reform. We have teed this up as a 
high-risk issue for the first time. Excess costs and 
opportunity costs are carried by Federal agencies with 
thousands of acres and facilities that are unused, that are 
either condemned or simply unusable. Deferred maintenance is a 
substantial problem in the National Park Service and other 
areas.
    We are not using sound capital planning to identify which 
places and facilities should be sold and how to best acquire 
state-of-the-art facilities for Federal workers and agencies. 
We know legislation has been proposed to provide better 
incentives to agencies, and to improve the state of what is 
known in agencies about their inventory. Many agencies don't 
even keep an inventory of their assets like they should.
    This is an area where we think greater leadership on the 
part of OMB, through the scorecard approach or possibly a 
commission, could best help us ferret out what properties are 
truly excess and unneeded and how can we best motivate agencies 
to start turning these things over.
    Ultimately, what we need to do is to reexamine the base of 
programs. We spend a lot of time debating new programs and we 
don't spend nearly the time we should on new programs on the 
base going forward. This is not an easy thing to do but we have 
legacies of programs that have been carried for years that need 
to be reexamined.
    I have mentioned disability in my statement. The disability 
criteria, notwithstanding advances in medicine and workplaces, 
have not been updated. VA still uses a schedule going back to 
1945 to compute the share of replacement that people receive 
for different service-connected disabilities.
    So these are areas where we need to have a fundamental 
reexamination and that can best be done on a governmentwide 
basis by a committee like this that cuts across agencies. 
Disability, for example, cuts across agencies and committees. 
So what we want to try and suggest is, the need to think about 
tools and approaches that are more governmentwide in nature, 
like the governmentwide performance plan under GPRA that has 
never really been implemented, that could become a vehicle to 
tee up all of the different players, tools and agencies that 
attempt to achieve common outcomes, and see how your committee 
and OMB and others can work together to really highlight those 
areas that are most promising and those areas that are in need 
of fundamental change.
    That concludes my statement.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. Posner follows:]

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    Chairman Tom Davis. Let me start. Mr. Posner, you have 
raised some issues on tax collections and going back and forth 
with this. Were we to put more resources into collecting back 
taxes at IRS, that could have a significant impact, couldn't 
it?
    Mr. Posner. Potentially it could. What has often happened 
is that, when we have done these various revenue initiatives, 
either for collections or examiners, the mandatory costs IRS 
faces for additional energy, postage, employee benefits, and 
salary increases are not covered. And so often, just to keep 
the lights on, what has happened is they have used the funds 
that we have provided for the additional agents to keep the 
lights on because they have these large mandatory costs they 
carry.
    But when we are able to finally get some new hires on the 
other end, we do get some results, there is no question about 
it. They have experienced an attrition of staff over time that 
could be reversed with some real benefit.
    Chairman Tom Davis. Here is the concern: Each year you have 
people that are eligible to pay taxes, and after a certain 
number of years, it goes off and becomes uncollectible. What if 
you went after that on a contingency basis outside? Is there 
money to be gained in that situation if it costs so much to do 
it inside, or is that----
    Mr. Posner. Well, I don't know. I brought with me Ralph 
Block. Ralph is with our tax group.
    Mr. Block. I know that is a pilot that IRS has been trying. 
I think that the main problem with IRS is its own staff has 
undergone so much attrition that I think they are just not able 
to get to the kind of mainline business.
    So your point is very well taken, that if you don't work 
cases, they get so old that they do become uncollectible. It is 
absolutely an important point.
    Chairman Tom Davis. It looks to me as though this is some 
low-hanging fruit for us if we would go after it, and if we can 
do it in-house so much the better. But if there are obstacles 
that we need to know about there--in the meantime this fruit 
shrivels up, and it is gone, and you can't harvest it.
    Mr. Block. The sooner you go after a delinquent taxpayer, 
the better your chances are of collecting the money. But right 
now there is over $112 billion in delinquent taxes. Some of it 
could be collected, but we are only doing one out of every 
three cases that is associated with that. So obviously, if they 
had more staff and more computer capability, they could 
definitely get at these delinquent taxpayers a lot faster.
    Chairman Tom Davis. And would it be easier to do that in-
house where we have this set up?
    Mr. Block. Well, right now IRS is starting a program where 
they are going to have some private debt collectors try to go 
after some of these taxpayers, but there is a lot that IRS can 
do in-house based on the knowledge and skills that the revenue 
officers have to collect these taxes.
    Chairman Tom Davis. And additional officers would help in 
that regard?
    Mr. Block. Definitely.
    Chairman Tom Davis. How about rewriting rules and giving 
them more flexibility? That is a tough political issue, isn't 
it?
    Mr. Block. Yes.
    Chairman Tom Davis. And I understand there are rules that 
say you can't call after certain hours.
    Mr. Block. Well, you have to balance any enforcement 
activity with the burden you might place on a taxpayer. I think 
we have testified in the past on the IRS Reform Act of 1998, 
which placed some additional restrictions on IRS. We didn't 
think that those restrictions were harmful enough to prevent 
IRS from going out and doing the job.
    Chairman Tom Davis. OK. I might want to get some more on 
this because obviously this is a key issue. To the extent that 
we are not collecting revenue, and everybody is conscious of 
the big bad tax collector coming after people, we have to sell 
bonds, many of them held by foreigners, and pay the interest on 
that.
    If you have any additional thoughts on that, we would be 
happy to hear them.
    Mr. Posner. I would just add that I think it is not just 
staff but data-sharing, as I said. To the extent which IRS, for 
example, can get State data on small business licenses and 
other assets owned by taxpayers they are going to be more 
effective.
    Chairman Tom Davis. Can we do that statutorily from here?
    Mr. Posner. I think you could. I think there are some 
things that IRS can do. We would have to look into what more 
they need from you.
    Chairman Tom Davis. OK. Mr. McFarland, you noted that the 
IG's office recovers approximately $12 for every $1 that we 
spend. Is that fair?
    Mr. McFarland. Yes, sir, that is correct.
    Chairman Tom Davis. Now, at what point, if we add more 
people there, does it come down? Or is it still going to be 12 
to 1 if we keep adding people? Do you think we would get more 
value back?
    Mr. McFarland. No. I think clearly the more people we add, 
to a certain point, obviously, we would absolutely collect 
more.
    Chairman Tom Davis. OK. I think that is good. Thank you 
very much.
    First questioner over here. Mr. Ruppersberger.
    Mr. Ruppersberger. Reading your testimony, Mr. Posner, the 
issue of reassessing what government does, I think you were 
right on as far as where we need to look. We need to look at 
our program, what we might call program review, and decide why 
are we doing this. Can we afford to do this? Is this in the 
best interest of our government, our employees and our 
citizens?
    Then, you referred to the issue, as an example, of the 
disability criteria. As we know, we have a lot of veterans and 
it takes a long time to even see a doctor right now. Are we 
using antiquated programs, things that we have always been 
involved with and we are afraid to make the change? That is a 
statement that I think that you were right on target as far as 
program review.
    The issue of the fraud and the mismanagement. How would you 
relate those issues to your program review? What would you see 
that we could do, just as an example in the disability area, as 
it relates to fraud, mismanagement and also service to clients, 
and, say, as an example, the veterans that are an issue that we 
are dealing with right now?
    Mr. Posner. I think there is a relationship. In disability 
we actually took the SSI program off of our high-risk list, 
because they have actually done some proactive things to 
encourage people to go back to work and reduced improper 
payments.
    Mr. Ruppersberger. What were they, though? Why aren't they 
being done in other areas?
    Mr. Posner. They got access to this new-hire data base that 
the Office of Child Support Enforcement, one of three agencies 
that has access to that, which has real-time data on who is 
employed and who is not, so they can identify ineligibles right 
there on a real-time basis. They provided greater incentives 
for people to go to work, for example, by letting them keep 
eligibility for Medicare, with a legislative change.
    So part of this, how you get people back to work is 
providing the incentives, and part of it is, again, reassessing 
the definition of who is able to work. And one of the things we 
found about the administrative procedures in some of these 
agencies is they assess disability status based on the current 
condition, not how the condition could change if the person got 
appropriate medical treatment and intervention. And so if they 
thought about it that way, we think the rolls could be reduced. 
There would be more people who are going to have more 
incentives to go to work and be encouraged to go to work. But 
that requires a different mindset on the part of the disability 
administrators.
    Mr. Ruppersberger. Almost a change in culture.
    Mr. Posner. A change in culture.
    Mr. Ruppersberger. How would you recommend that we 
implement that in that specific area?
    Mr. Posner. Well, that is the kind of thing that warrant 
congressional oversight. I am not sure how legislation could 
actually affect that, but I think that we have already seen 
some positive examples from the Ticket to Work Act and the 
Foster Care Independence Act, for example, that have really 
enabled SSI to get off our high-risk list.
    So I think that further legislation would help to give 
agencies guidance on what they should consider to be disability 
in the first place. These are fundamental statutory issues.
    Mr. Ruppersberger. Now, there was an issue about how we 
have a tremendous amount of money that is out there. I think 
the chairman referred to it as low-hanging fruit that we might 
be able to grab. But in order to do that, what I am hearing is, 
we have to reinvest in staff and computer technology.
    Mr. Posner. That is absolutely right. Some of the savings 
that we get requires up-front investment. That is true across 
the board, whether it is Medicare overpayments, and we know 
that, just as with the OPM, if Medicare gets more money for 
contractor oversight, they realize $10 in savings for every $1 
they spend on those salaries.
    Mr. Ruppersberger. Do you feel that the technology is out 
there to move forward to receive the gains that we are looking 
for? If we can put in more money, can we get more resources in 
the area of technology? Do you feel the software, the programs 
are in place to do it, or can't we afford it? Are they not 
implemented, or have we not trained people to use it?
    Mr. Posner. I am not the best person to answer that. Our 
technology experts are probably better suited. I will tell you 
that our work has found that the primary barriers to doing this 
data-sharing are not technology, they are legislative. It is 
the fact that IRS data is not readily available to many 
agencies, that the new-hires data base that the Office of Child 
Support Enforcement keeps is only available to three agencies, 
that State and local governments and universities that 
administer student aid and low-income housing do not have 
access to any of this data. Those are the barriers more than 
technology.
    Mr. Ruppersberger. Do we have any idea on the costs to 
implement this? I mean, is the cost just so large that we can't 
take a step forward?
    Mr. Posner. I think the costs are not so much--I mean, the 
costs are partially an investment in people, as we said. There 
is a concern about privacy that we have to be very cautious 
about, how we do this, how we share this data. For example, IRS 
has section 6103, which is a very strong statute that 
guarantees the privacy of taxpayer data. So when we provide 
that data to administrators at the Federal or State and local 
level, we have to have assurances that they have proper 
security in place.
    So that is a cost. That is probably the most significant 
cost that people are concerned about.
    Mr. Ruppersberger. OK. Thank you.
    Chairman Tom Davis. Thank you very much.
    Mrs. Davis.
    Mrs. Davis of Virginia. Thank you, Mr. Chairman.
    Before I ask Mr. McFarland a question, I just was curious, 
how many employees do we have in IRS right now?
    Mr. Posner. About 100,000. I think that is down from--I 
used to be involved in leading our work on IRS about 15 years 
ago, so I have a before/after comparison. In the late 1980's it 
was 120,000. And if I might add in response to the chairman's 
question, in the late 1980's when I looked at accounts 
receivable, the collectible amount was $25 billion and now it 
is $112 billion, a fourfold increase.
    Mrs. Davis of Virginia. Thank you.
    Mr. McFarland, could there be changes made to the False 
Claims Act that would result in better recoveries for the 
government? Is there something legislatively that we could do 
there?
    Mr. McFarland. I don't think that there is anything 
specific that we can do right now with false claims. It seems 
to me that false claims, when handled aggressively, is rather 
successful.
    Mrs. Davis of Virginia. When you handled them aggressively. 
Are you still handling them aggressively?
    Mr. McFarland. Yes. I am saying when the False Claims Act 
is utilized as aggressively as possible, by as many agencies as 
possible, then I think there is an abundance of success and 
monetary reward from that.
    Mrs. Davis of Virginia. In your testimony, you said that 
health care providers, including pharmacy benefit managers, are 
the source of the greatest amount of abuse in the health 
benefits program, but that such abuse is difficult to detect. 
And complicating your efforts is the fact that you don't have 
the authority to audit them. If IG were given that authority, 
would it significantly help you in recovery?
    Mr. McFarland. Yes, it absolutely would, especially in the 
case of the larger providers, such as the pharmacies as opposed 
to just individual doctors. But by the same token, the more we 
can do, then obviously the more resources we need. At what 
point you cut that off, I don't know; where you say you know 
you have reached a point of no return because of the additional 
cost of bringing people on board. I would say clearly that the 
more people that we have to move in that direction would 
definitely be advantageous and very successful for the most 
part. But there would be a point where you would have to decide 
how many more.
    Mrs. Davis of Virginia. So what I think I'm hearing from 
both of you is that you can collect more and you can stop the 
false claims and the waste, but it's going to cost us up front 
to do it, and that might be a gamble.
    Mr. McFarland. Yes, it will. And I think in our particular 
situation, we have used as best as possible the technology 
that's available for our computer work. We've trained auditors 
to be information systems people; they have the expertise 
there. We are ready and able as the technology evolves to move 
forward, but there is an absolute upfront cost.
    Mr. Posner. If I could just add to that. It's really 
applying an investment criteria rate of return analysis to 
these things. One of the complications is, at least in the old 
budget process, you could save money on the mandatory side, but 
you had to spend money on the discretionary side to do it. And 
those are two different walls that, you know, generally you 
don't cross. So we've had to develop very complicated 
arrangements, and IRS and disability determinations, and 
Medicare contracting hires to try to permit Congress to cross 
those walls and get credit for increasing discretionary 
spending when we know the savings from this will vastly 
outweigh that in the long term.
    Mrs. Davis of Virginia. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Mr. Tierney.
    Mr. Tierney. Thank you. Mr. Chairman, I have to tell you, I 
came to this hearing today expecting to be bored stiff. And I 
have to tell you, it may be dry, but it is certainly 
interesting. And I would think, Mr. Chairman, that somewhere in 
here there is a great bipartisan project. We shouldn't have to 
tussle over programs and policies; we should be able to come 
together on this. And I would ask the chairman at the next 
business meeting of this committee that we consider bringing 
forth the proposition of having a working group established of 
just a couple of Members on each side and the chairman perhaps 
and the chairman's designee and our friends from GAO to 
identify what needs to be done in terms of oversight, rules and 
regulation, legislation in the areas where we could make some 
substantial savings, identify also what the return of the 
investment would be so that we could make a case for how we 
might go about it, and then recommend back to this committee so 
that we might have some bipartisan legislation or whatever it 
takes to move that forward. I see some substantial savings 
here, and I know that the people are getting the feel that the 
system just isn't fair. And one of the reasons people feel that 
is that we're probably not always doing all that we can do to 
make sure that these types of things are done. It's not a 
Republican issue or a Democratic issue; it's just straight up 
business.
    Mr. Posner, I am looking at your recommendation on the OMB 
Circular A-129. There are recommendations there I would suspect 
that could be made ensuring that the IRS modernizes its 
business systems. I think that is one area that obviously 
should be done. You made recommendations with respect to that 
in the past. They've not been followed or they haven't been 
effective or what's happened there?
    Mr. Posner. Well, this IRS modernization is a long-term 
project that's been under way in various incarnations for maybe 
20 years. They seem to be getting closer to achieving it. What 
we had in mind on that particular point was that the OMB 
circular says that agencies have to check to see if a loan 
recipient that they're considering is delinquent in their tax 
debt, but we go in and do studies and find they are not doing 
it. And whether it's the Small Business Administration--several 
years ago we did a study. And so we feel that some kind of 
legislative impetus might be required to get agencies to do 
that.
    Mr. Tierney. So that would be a great example.
    Mr. Posner. Exactly.
    Mr. Tierney. I look again at the outpatient drug--Medicare 
paying list prices. I can't think of anything more absurd. You 
know, with all the debate that we have about the overpayment of 
pharmaceutical companies or whatever, they're paying $1 billion 
more than other purchasers. You have the buying power that they 
have. Might that not be some area where we could get together 
and come up with some recommendations on how to stop that 
absurdity?
    Mr. Posner. We've had recommendations on that, yes.
    Mr. Tierney. First of all, what were some of the 
recommendations? And what happened to them?
    Mr. Posner. Well, one of them was to get--to have Medicare 
be able to charge what the going rate is on some of these 
things instead of retail to permit Medicare to realize the 
savings that other insurers were realizing. And there have been 
some demonstrations that Congress has done that. It's something 
that is still, I guess you could say, a work in progress. There 
are some areas where some of this may be going forward but 
basically Medicare does have a long way to go.
    As to the resistance, I just don't think I could speak to 
that. That's not my area. But I do know it's been an uphill 
struggle.
    Mr. Tierney. Can you identify for me where some of those 
demonstrations have taken place and the nature of them?
    Mr. Posner. I can do that for the record.
    Mr. Tierney. Would you do that for me, please?
    Mr. Posner. Absolutely.
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    Mr. Tierney. And I would very much like to see what those 
have been and what the progress has been on them and see 
whether or not we can bring them up to spec a little bit and 
move forward on that basis.
    Mr. Posner. Right.
    Mr. Tierney. I'm also interested to see here an 
acknowledgment that States are scamming the system on Medicaid, 
apparently to a significant degree. I would think that this 
might also be something that a working group could get together 
with your office on and come up with either some rules and 
regulations or some government oversight prospects or some 
legislation that would eliminate that or hopefully diminish 
that. I look at the examples here, and they are just crazy.
    Mr. Posner. You know, this is an area, if I could say, that 
is, again, one of those--all these areas that are large are in 
some ways long-term propositions. And we have been at this 
since the early 1990's and it seems like they keep one step 
ahead of us. When we shunt off one way that they can gain more 
reimbursement, they find another way. Right now, the way is to 
funnel payments through local government health entities. And 
we do think that legislation could help there. No question. And 
we would be glad to work with you on these things.
    Mr. Tierney. I can go on and on. I think you have put forth 
an excellent brief here, and that will be a good guide for us.
    Mr. Chairman, I will yield back my time, just asking if you 
would be amenable to considering that type of a prospect at our 
next business meeting, probably just two and two and your 
leadership?
    Chairman Tom Davis. I will talk to you. I think that's 
appropriate to get some of our members who are interested in 
this to try to work on it and use our staff available. That's a 
good suggestion. Thank you very much.
    The gentlelady from Tennessee.
    Mrs. Blackburn. Thank you, Mr. Chairman. And thank you to 
all of you. I'm one of those that enjoys reading every single 
word that you have to say about government efficiency. And we 
have had a wonderful hearing this week in Tennessee. I see Mr. 
Williams there. He did a wonderful job as we talked about 
Medicaid erroneous payments and the TennCare program in 
Tennessee and some of the problems that exist there with waste, 
fraud, and abuse. And just reading through your statements and 
looking at some of the things that are before us, I wanted to 
see if possibly you all were amenable to looking at some 
outcome-based scrutiny or a project similar to what the 
Mercedes Institute is doing, where you would actually go in and 
place some statistical calculations on the expenditures and the 
outcomes and see where the greatest efficiencies are being 
achieved?
    And I will offer this question to the panel, and whomever 
would like to respond, I certainly would be interested in 
hearing your response, because I believe that it is time that 
we have a discussion on what the priorities of government ought 
to be. I think it is time that we have a discussion on where 
our emphasis should be and what 21st century government ought 
to look like and how it ought to perform and the business model 
that should be followed. And this should be systemwide. I think 
many of the problems that we have with process and procedure 
are systemic. We find them in every single department. We hear 
them time and again from individuals that come before us. I'm 
simply asking a question as to what your thoughts would be on 
some kind of outcome-based scrutiny. And, to whomever. Thank 
you, sir.
    Mr. Posner. I can just start the discussion, because I 
think it's a very important area that you are talking about 
now. As you know, the Government Performance and Results Act 
for 10 years has been pushing us in this direction. We are 
getting a better infrastructure of data. Where agencies were 10 
years ago, GAO would go in and often have to create our own 
data sets to answer some very simple questions about what the 
program was accomplishing because the data simply wasn't there. 
We are seeing much better data now being kept, agencies holding 
themselves accountable and performance plans for at least 
outputs. Outcomes are a little more difficult sometimes, 
because often with what we do at the Federal level, we don't 
have direct influence on those when we are working through 
States and local governments and things like that. So we have 
to develop more sophisticated measures to gauge our impact.
    I think what we have to start doing is not only improve the 
measures and the data, like Mercedes has been doing and like 
the agencies are doing, but really reach the second stage, 
which is integrating what we are getting into the 
decisionmaking process. Not only in the budget process, but in 
the personnel assessment process, in the way the agencies 
manage their States, you know, the relationships with the 
States, implementing things that EPA has called performance-
based partnerships, where a State and the agency would agree on 
a set of goals, outcome goals. And if there's a shortfall and 
you can't explain it, there would be some funding consequence.
    That's the way you not only, as you say, create outcome-
based measures, but also create outcome-based government that 
uses those measures as a basis for making decisions and 
implementing programs. And I think it is a very important area 
that you are addressing here, and one that--we are on the right 
track, but we have a long way to go.
    Mrs. Blackburn. OK.
    Mr. McFarland. I might suggest that the President's Council 
on Integrity and Efficiency, which, as you know, is the 
flagship for the IG's. It's an advisory group. Part of the 
charter for the PCIE is that we do governmentwide projects in 
addition to our own specific agencies. So possibly that would 
be a forum whereby such a study or a concept could be looked 
at.
    Mrs. Blackburn. OK. I appreciate those thoughts and 
comments. I'm one of those that feels that, possibly, if we 
did, if we placed a greater emphasis on a project such as 
outcome-based scrutiny, if we spent a little bit more time with 
the data that has been input and doing some statistical 
calculations as to where we are arriving at some efficiencies 
and what is beginning to yield some benefits, that it may go a 
long way in helping to achieve what would be the goals of the 
President's Management Agenda or of GPRA. Sometimes it takes an 
action to fast-start a process. And for those of us who feel 
like GPRA is far enough down the road that it should be 
beginning to yield some results, not just yielding information 
that can be integrated into other information that we have, 
that we should be beginning to see some results. And I think 
that the taxpayers of this country are growing weary of not 
having some quantifiables to which we can point.
    And I see my time has expired, and I thank you all very 
much.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    Mr. McFarland, what changes could we make in the False 
Claims Act that could, in your opinion, result in better 
recoveries for the government?
    Mr. McFarland. As I mentioned before, Mr. Davis, I don't 
think that there are any particular changes that are necessary 
in the False Claims Act. I think the aggressive pursuit of that 
in the different agencies would be very beneficial. I know we 
certainly deal with that all the time in our office. And we 
find that it's a successful tool for our purposes. But I don't 
know of any additional suggestions to enhance that. I think 
it's sufficient the way it is.
    Chairman Tom Davis. OK. So no statutory changes? The law is 
there, it's just that we need to do a better job of enforcing 
it?
    Mr. McFarland. Exactly, sir.
    Chairman Tom Davis. In your testimony, you indicated that 
health care providers, including pharmacy benefit managers, are 
the source of the greatest amount of abuse in the health 
benefits program, but that such abuse is very difficult to 
detect. Complicating the IG's efforts to investigate claims of 
abuse against health care providers is the fact that you don't 
have the authority to audit them.
    Mr. McFarland. That's correct.
    Chairman Tom Davis. If the IG were given such authority, 
could that significantly affect the recovery of fraudulent 
claims in that area?
    Mr. McFarland. Yes, no question that it would.
    Chairman Tom Davis. OK. Mr. Posner, data sharing could help 
programs ensure that only legitimate beneficiaries receive 
Federal benefits. Are there any legislative changes that come 
there? Is this basically an executive branch----
    Mr. Posner. No. I think there are legislative changes that, 
as I said, there are a number of agencies that by law are not 
allowed to have taxpayer data or the Office of Child and 
Support Enforcement New Hires Registry, which is a relatively 
new data source from the Child Support Enforcement changes 
under TANF. And that, in particular, is a prized data set that 
Federal agency benefit administrators would like to be able to 
access. That will require law changes as well; access, for 
example, by the Department of Education to the IRS data will 
require changes in laws. And as well the opportunity for more 
leadership at the central level.
    Chairman Tom Davis. One of your recommendations for 
eliminating disbursement of Federal payments to individuals and 
businesses owing delinquent taxes is for Congress to enact the 
provisions of OMB Circular A-129, which precludes agencies from 
allowing individuals or businesses to participate in Federal 
credit programs if they owe money to the Federal Government; 
that makes sense.
    If we were to enact this measure, any estimate of what this 
could save the Federal Government?
    Mr. Posner. Not right at this point. I don't know if we 
could generate that. I know that we did a sample back several 
years ago identifying 1,700 recipients from SBA's loan programs 
that were tax delinquent that nonetheless got their loans. But, 
no, we don't have that information at this point.
    Chairman Tom Davis. OK. Any other ideas where Congress can 
play the more vital role in identifying opportunities for 
reducing the overlap and duplication?
    Mr. Posner. Well----
    Chairman Tom Davis. You talked about Congressional 
Performance Resolutions.
    Mr. Posner. Yes. The Congressional Performance Resolutions 
are the notion we have come up with which really builds on the 
governmentwide performance plan where we think most of the key 
issues are governmentwide or multi-agency in nature and no one 
is addressing them. PART doesn't address them, PART is program-
specific. The GPRA is agency-specific. So the perspective of 
this committee needs to be institutionalized in this process. 
One notion we had, just like in 1974 when the President was the 
one who proposed the budget and Congress just abrogated it, we 
developed a budget process to consider the whole. And we're 
talking about that for Congress on performance. Particularly 
with the PART process, as the OMB continues to look at these 
programs, they are looking at the programs and making their own 
judgments. They're selecting the programs based on their 
criteria, and we are doing a study for Mr. Platts's 
subcommittee on this very program.
    But Congress needs to get in the act of identifying its 
oversight and performance priorities and concerns, possibly on 
an annual basis. We saw a little bit of this process play out 
in Arizona when they went to a biennial budget. One of the 
things they did is they developed a leadership-driven process 
to identify the major performance concerns they wanted to 
address in a given year of a legislative session. And all the 
committees who had jurisdiction were required to work on those 
priorities. And that was based on performance data from the 
agencies and reports from auditors. This is one of those things 
that I think we need to talk more about and work on, but it 
seemed to us that one of the things missing from the 
performance management approach was this cross-cutting 
perspective.
    Chairman Tom Davis. If you could do two or three things 
where we could quickly try to get some money in, what would you 
prioritize?
    Mr. Posner. Oh, boy.
    Chairman Tom Davis. Tax revenue?
    Mr. Posner. I think the tax side would be one that would 
really be quite productive in terms of that investment that we 
were talking about. I think data sharing, putting more 
information in the hands of more program administrators with 
proper controls for privacy, would be another, including the 
loan area. Those are two, certainly, that come to mind. And 
also I think the bigger dollars and the more important 
activities are really the slower ones to rule out. 
Reorganization, consolidation, those are things obviously you 
are not going to get the quick hit on, but those are areas 
where--the Federal Employee Compensation Program is another 
one--where a formula change was scored by CBO when we did this 
last year as saving funds fairly quickly.
    Chairman Tom Davis. OK. Mr. McFarland, do you have an 
answer to that question? Three quick things you'd try to get?
    Mr. McFarland. Well, I believe that data sharing, for us, 
has been very successful. I think a primary example of this is 
the coordination of benefits that we're doing with our office 
and the health field. We have been able to identify on a global 
basis recently $20 million that we did in 6 months; otherwise, 
if we'd have gone our normal way over the years, it would have 
been closer to 3 years before we accomplished that. So I think 
that in itself is very important. Along with that, of course, 
is extreme protection of that information.
    Chairman Tom Davis. OK. Those are my questions. Any other 
questions, Mr. Ruppersberger?
    Mr. Ruppersberger. No.
    Chairman Tom Davis. Well, if not, let me just say to this 
panel, thank you very much for taking time from your busy 
schedules to appear today. You have given us a lot of food for 
thought. We are under a mandate from the Budget Committee and 
the leadership to look at savings and this has been very, very 
helpful in terms of identifying some of them so we thank you 
very much. Thank you. The committee stands adjourned.
    [Whereupon, at 11:24 a.m., the committee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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