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





$35 BILLION AND COUNTING--A REVIEW OF THE IMPROPER PAYMENTS ACT OF 2002

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
                        AND FINANCIAL MANAGEMENT

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 15, 2004

                               __________

                           Serial No. 108-176

                               __________

       Printed for the use of the Committee on Government Reform


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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     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
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          ------ ------
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
                   David Marin, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

     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
CANDICE S. MILLER, Michigan          MAJOR R. OWENS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
KATHERINE HARRIS, Florida

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     Mike Hettinger, Staff Director
                 Larry Brady, Professional Staff Member
                          Sara D'Orsie, Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 15, 2004...................................     1
Statement of:
    Gerow, Charles, chairman, Pennsylvania Chapter, Citizens 
      Against Government Waste; and Paul Gessing, National 
      Taxpayers Union............................................    63
    Springer, Linda M., Controller, Office of Federal Financial 
      Management, Office of Management and Budget; and McCoy 
      Williams, Director, Financial Management and Assurance 
      Team, General Accounting Office............................     6
Letters, statements, etc., submitted for the record by:
    Gerow, Charles, chairman, Pennsylvania Chapter, Citizens 
      Against Government Waste, prepared statement of............    67
    Gessing, Paul, National Taxpayers Union, prepared statement 
      of.........................................................    74
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     4
    Springer, Linda M., Controller, Office of Federal Financial 
      Management, Office of Management and Budget, prepared 
      statement of...............................................     9
    Williams, McCoy, Director, Financial Management and Assurance 
      Team, General Accounting Office, prepared statement of.....    15

 
$35 BILLION AND COUNTING--A REVIEW OF THE IMPROPER PAYMENTS ACT OF 2002

                              ----------                              


                        THURSDAY, APRIL 15, 2004

                  House of Representatives,
Subcommittee on Government Efficiency and Financial 
                                        Management,
                            Committee on Government Reform,
                                                          York, PA.
    The subcommittee met, pursuant to notice, at 2:30 p.m., at 
the Yorktowne Hotel, Lafayette Room, York, PA, Hon. Todd R. 
Platts (chairman of the subcommittee) presiding.
    Staff present: Mike Hettinger, staff director; Larry Brady 
and Tabetha Mueller, professional staff members; Amy Laudeman, 
legislative assistant; and Sarah D'Orsie, clerk.
    Mr. Platts. This hearing of the Subcommittee on Government 
Efficiency and Financial Management will come to order, and I 
appreciate everyone's attendance here today at this first field 
hearing in the 19th District. We have traveled to our vice 
chairwoman's district in Tennessee, but delighted to certainly 
be here in York County, my hometown. I appreciate our 
witnesses, both from Washington as well as here from the local 
community, for participating in today's hearing.
    Today, as millions of Americans pay their Federal taxes, 
and a number of friends, who have commented to me in the last 
24 hours how they were rushing to beat the deadline, it seemed 
like an appropriate time for us to focus on the issue of 
improper payments by the Federal Government and how we are 
seeking to better protect the expenditure of the hard-earned 
tax dollars of our citizens. Unfortunately, as we will hear 
today in our testimony, billions of dollars continue to be lost 
to payment errors each year. While some of these payments are 
recoverable, a majority are not, and you know, are lost and 
never to be recovered.
    To his great credit, President Bush and his administration, 
along with Congress, and my predecessor especially, Chairman 
Steve Horn, now retired, have made the reduction of improper 
payments a significant issue and a priority focus. In support 
of this effort, the subcommittee believes that the 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 cost taxpayers billions of 
dollars. The Office of Management and Budget estimates that $35 
billion is wasted through improper payments, and there is much 
belief that this number is just the tip of a much larger 
iceberg.
    An improper payment is any payment that should not have 
been made. It can be a correct payment, an over or 
underpayment, and can include, among other things, a payment to 
an ineligible recipient, a payment for an ineligible service, a 
duplicate payment, or a payment for a service never received.
    In 2002, my colleague, who I mentioned, Congressman Steve 
Horn, who was then Chair 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. All Federal 
agencies will soon be required to make estimates of erroneous 
payments, and if those estimates are more than $10 million 
annually, to develop plans to reduce or eliminate these errors. 
On May 26 of last year, the Office of Management and Budget 
issued guidance which established governmentwide procedures for 
dealing with erroneous payments.
    While we do not yet have our arms around the total extent 
of this problem, we are beginning to get a better sense of the 
total picture. What we do know is that mistakes, these mistakes 
which occur throughout government, are made because agencies do 
not have adequate internal controls and business process 
systems to protect against these errors.
    Today, we look forward to exploring the process of agencies 
in implementing the act, review the status of OMB's guidance, 
and learn from GAO about strategies to better identify and 
reduce improper payments. We are also eager and grateful to 
hear from Citizens Against Government Waste and the National 
Taxpayers Union, who will express their views on this issue and 
on how to get a better handle on improper payments and reduce 
government waste.
    We will have two panels today. Our first one features the 
Honorable Linda Springer for the White House Office of 
Management and Budget, and Linda, thanks for being with us 
again. You are getting to be a regular with us, that may be 
good or bad for you, I am not sure, we think it is good.
    Ms. Springer. So do we.
    Mr. Platts. And we are delighted to have your mother here 
with us from Lancaster over to participate, sit in on the 
hearing, and your second time with us as well. Once in D.C., so 
thanks for being with us, as well as McCoy Williams, of the 
U.S. General Accounting Office. And McCoy, we, as always, 
appreciate your work, participation and efforts, hand in hand 
with our committee.
    Mr. Williams. Thank you.
    Mr. Platts. In our second panel, we will have a gentleman, 
Mr. Charlie Gerow, representing the Pennsylvania branch of the 
Citizens Against Government Waste, and Paul Gessing, from the 
National Taxpayers Union. We appreciate both of you making the 
efforts, and Charlie, I think, has the shortest commute for our 
witnesses. And we are delighted to have all of you, and 
Charlie, we especially appreciate the Pennsylvania perspective 
that you will bring to the issue on behalf of the national 
organization, Citizens Against Government Waste.
    Could we have all four of our witnesses take the oath up 
front, and then we will get into our first panel testimony and 
questions. So, if we could have our four witnesses come forward 
and stand, please.
    [Witnesses sworn].
    Mr. Platts. We certainly appreciate what I call my hearing 
homework, your written testimonies, which allows me to, in 
advance of today's hearing, review your comments and deliberate 
on the thoughts you want to share, and will lead to a better 
discussion today. Typically, we do ask for our opening 
statements to be roughly 5 minutes, but with the importance of 
the issue, and also, as we are in a smaller setting, I am 
certainly not going to be strict in holding to that, but if you 
want to--as you best feel--summarize your written statements, 
and share whatever you think is most appropriate in your 
opening statements, that would be great. And Linda, we will 
begin with you, and then move to McCoy.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

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[GRAPHIC] [TIFF OMITTED] T5220.002

STATEMENTS OF LINDA M. SPRINGER, CONTROLLER, OFFICE OF FEDERAL 
  FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND 
 McCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE 
                TEAM, GENERAL ACCOUNTING OFFICE

    Ms. Springer. Thank you, Mr. Chairman.
    I do appreciate the opportunity to testify again before 
this subcommittee, this time on the propriety of government 
payments. And as you mentioned, I am pleased to be near my 
family today, which resides in Lancaster County, in a 
neighboring district.
    First, I would like to say that eliminating improper 
payments by the Federal Government has been, and continues to 
be, a major focus of President Bush and this administration. We 
strongly feel that one of the most important requirements in 
executing our missions is the responsible spending and 
efficient stewardship of taxpayer dollars, and we view them as 
taxpayer dollars, not OMB dollars or anyone else's dollars.
    It is the goal of the administration to ensure that every 
dollar spent by the Federal Government is a dollar that is 
spent wisely and for the purpose to which it was intended. No 
payment made by the government should be wasted or spent in an 
erroneous or improper fashion. Given the Federal Government's 
current budget, in excess of $2 trillion annually, and the many 
competing important priorities, we believe our mission is more 
important today than it has ever been before.
    Since the President's management agenda was first announced 
in 2001, early in the term, the elimination of improper 
payments has been a key component of the improving Financial 
Performance Initiative of the President's agenda. As part of 
that initiative, we have been working very hard with Federal 
agencies, both to identify and to eliminate improper payments 
within their major programs and their activities.
    Specifically, at the Office of Management and Budget [OMB], 
it is our job to make certain that government agencies review 
their payments, and assess whether a risk of improper payment 
exists. If a risk does exist, it is our job to make sure the 
corrective action is taken to ensure that it won't happen 
again. We anticipate that all of these ongoing efforts will 
ultimately lead to a review of every single dollar for which 
the government intends to spend. The total $2 plus trillion we 
expect to be inventoried and subject to scrutiny, to ensure 
that taxpayer money is spent for that purpose for which it was 
intended.
    Our initial efforts to eliminate improper payments focused 
on Federal programs making annual payments in excess of $2 
billion. That is per program. In total, that amounted to about 
$1 trillion, or roughly half of the budget in a given year. 
There were 40 programs included, found within 15 different 
agencies. These agencies were directed to follow necessary 
requirements set out in Section 57 of OMB Circular A-11 and 
report on their programs within their--the context of their 
budget submissions. That was the initial approach used by OMB.
    Collectively, these Section 57 programs, as I mentioned, 
comprise about $1 trillion in government spending. We 
estimated, as you mentioned earlier, Mr. Chairman, that 
improper payments just on that first $1 trillion exceed $35 
billion, and I use the word exceed because that is the initial 
report that we have gotten, and we believe that not all of 
those dollars have been fully measured yet. But--so that it 
is--we believe $35 billion is the bottom threshold of what we 
expect, just on those Section 57 programs.
    Our goal to eliminate improper payments, as first 
envisioned in the PMA, was later endorsed, as you mentioned, by 
the Improper Payments Information Act of 2002 passed by 
Congress. And again, it is a credit to the work of this 
committee, and not only to Congressman Horn, but to yourself as 
well, in bringing that legislation to fruition. It is the 
administration's belief that the provisions of the act, 
combined with the start that we have gotten--and again, I would 
just characterize it as a start through Section 57, will ensure 
that all Federal payments and all Federal dollars are looked 
at, and ultimately spent only for the purpose for which they 
are intended.
    Following the enactment of the act, OMB issued last year, 
in May 2003, guidance for agencies' compliance with the act. 
There are six steps outlined in the guidance, and if you look 
at the chart that we have brought--OMB doesn't usually do 
charts for hearings, but we decided to follow the lead of some 
of our fellow panelists and actually bring one this time, you 
will see that the six steps are listed there.
    They start with the first one, of compiling the inventory 
of all payments and outlays. Second, conducting the initial 
risk assessment. This is an assessment of the susceptibility to 
risk of the program. The third step is to conduct a statistical 
analysis for those programs that are susceptible to risk. The 
fourth step, then, would be to develop corrective action plans. 
Next would be to develop a baseline of the current level of 
erroneousness, if you will, and then, to set improvement 
targets. And then next and last, report each year to Congress. 
Those are the steps that we believe are directed in the act, 
and those are the ones that we have been communicating through 
the guidance and working with the agencies to comply with.
    In the fall of 2003, I personally met with the Offices of 
the Chief Financial Officers and at the same time, in a joint 
meeting, the Offices of the Inspectors General of each of the 
major agencies that are covered and subject to the act, and 
ultimately, they account for the full $2.4 trillion. Following 
those meetings, we directed all agencies to submit, by the end 
of November 2003, their plans for compliance with the act. All 
of the agencies met that goal. After our review of the plans, 
in January 2004 we responded back in writing to each of the 
Chief Financial Officers with specific comments and questions 
that we thought would improve their plans and close any gaps 
that we saw. And again, I should mention these are all steps 
that we have taken subsequent to our hearing last year. I want 
to sort of update you, since the guidance was only just coming 
out at that point.
    So, the meetings with the CFOs and IGs, the submission of 
plans, review by OMB of the plans, with feedback, at the 
beginning of this year. Then subsequently, we have had another 
series of meetings with the CFOs again, and the IGs during this 
past February and March. At these meetings, we finalized the 
plans for compliance, and directed agencies to set specific 
target dates for each of the required steps, each of those six 
steps, as they applied to that agency and to their programs. We 
also made sure that their inventories would total up to the 
full $2.4 trillion of outlay, so that when we report back to 
Congress, we will be able to say with assurance, here is the 
full $2.4 present and accounted for. We now have specific dates 
in which each of the key milestones are expected to be 
completed, and OMB's job will be to track and to make sure that 
these deadlines are met over the coming months.
    So where are we right now? At this point, most of the 
agencies have completed step one, which is the compilation of 
their program inventories. Looking ahead to the rest of the 
steps, we expect the risk assessments to be pretty much 
completed by the end of May for most agencies. Statistical 
sampling in most cases done by the end of June, corrective 
action plans and the baseline and improvement targets by the 
end of September, which is the end of the fiscal year for the 
Federal Government. So, that is really a marker. At that point, 
then, agencies along with all their other financial reporting 
will be compiling that, putting that together into their 
performance and accountability reports, which are due out by 
November 15, 2004. And we thought that combining it in with 
their other financial report and their audit report was a 
logical vehicle. It is already submitted to Congress, and that 
was why we chose that particular vehicle to communicate their 
compliance with the act.
    So we are comfortable that we have a plan. We are 
monitoring it closely, and we have a good start. I would, in 
fairness, want to communicate to you, Mr. Chairman, that there 
are significant challenges that remain. Most notably, we are 
working with agencies to develop ways to measure the full 
stream of payments that are made. In many cases, we have 
payments in some of the programs that are on this other chart 
that are made to States and then to local governments, or to a 
university and then to another university downstream, and our 
job doesn't start with that first payoff from the government. 
If a payment is made, for example, a grant from the Federal 
Government to a university for science, and then that 
university turned around and gave it to another university, and 
they built a gymnasium with it, that would be an improper 
payment, even though we gave the right amount to the right 
university. It is a very difficult thing to go all through 
those steps for some of these programs, but that is a 
complexity that we are dealing with, and we intend to get a 
process in place.
    I know that you have a number of questions that you will--
and we will--I will address those as they come up, but I want--
I hope that you can see that we believe several things. One, 
that every tax dollar must be spent wisely, efficiently, and 
for the purpose for which it was intended. We believe that this 
administration, under President Bush's leadership, has taken--
undertaken with the help of Congress the most comprehensive 
effort ever to deal with the problem of improper payments. And 
for the first time ever, to my knowledge, we are reviewing 
every Federal program to determine if it is at risk of making 
an improper payment. And we believe we are making progress, and 
so we are happy to share that with you today, and we look 
forward to your questions.
    [The prepared statement of Ms. Springer follows:]

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    Mr. Platts. Thank you, Ms. Springer, and--I turned it off 
because when I touch the table, you are going to hear it, but--
we appreciate and we will get into questions after Mr. 
Williams' testimony, but I do appreciate the review, and do 
acknowledge the ongoing efforts by you and the entire Bush 
administration on the issue of financial management, including 
improper payments.
    Ms. Springer. Thank you.
    Mr. Platts. Mr. Williams, if you would like to begin your 
testimony.
    Mr. Williams. Thank you, Mr. Chairman.
    Mr. Chairman, I am pleased to be here today to discuss the 
governmentwide problem of improper payments in Federal programs 
and activities.
    First, I would like to respond to your request that we 
review the fiscal year 2003 performance and accountability 
reports of 15 agencies for improper payment information on 46 
programs.
    Second, I will discuss the importance of effective internal 
control to the success of the Improper Payments Information Act 
of 2002. In this regard, it is important to recognize that 
various legislative and administrative initiatives have called 
for continuing assessments and improvements in internal control 
and financial management systems over the past two decades. 
Meeting the requirements of these initiatives should have 
resulted in agencies having significant information available 
on their programs and activities that are susceptible to 
improper payments.
    We found that the fiscal year 2003 performance and 
accountability reports typically contained limited amounts of 
improper payment information, even for those programs 
previously cited in OMB Circular A-11, for which a reporting 
requirement has existed for 3 years; 7 of the 15 agencies 
involved reported all three categories of information you asked 
about for 9 programs; 4 agencies did not report on any of the 
three elements for the 11 programs. Further, the reports 
contained improper payment estimates totaling almost $36 
billion for 31 of the 46 programs listed in the circular, 
information on agency initiatives to prevent or reduce improper 
payments for 22 programs, and impediments to reducing or 
preventing improper payments for 11 programs.
    A strong internal control system is key to the effort to 
reduce improper payments in Federal programs. Since 1982, 
various legislative and administrative initiatives have focused 
on and required agency assessments of internal controls over 
programs and financial management activities. Although these 
initiatives may not specifically target improper payments, by 
emphasizing internal controls, they have recognized the 
importance of internal controls in ensuring that Federal 
programs achieve their intended results, and that Federal 
agencies operate them effectively and efficiently.
    We believe that only with diligence and vigorous 
implementation will the Improper Payments Act have a 
significant impact on governmentwide improper payments. The 
level of importance each agency, the administration, and the 
Congress place on the efforts to implement the act will 
determine its overall effectiveness, and the level to which 
agencies reduce improper payments and ensure that Federal funds 
are used efficiently and for their intended purpose.
    Hearings such as this one today are critically important 
demonstrations of the congressional commitment to efficient and 
effective management of Federal programs and funds. And 
ensuring transparency of Federal efforts to address the 
governmentwide improper payments problem.
    Mr. Chairman, I would be glad to respond to any questions 
that you may have.
    [The prepared statement of Mr. Williams follows:]

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    Mr. Platts. Thank you, Mr. Williams, as well. And as I said 
earlier, you and GAO played a very important role as we have 
sought to partner with your agency, as well as with OMB, and 
really all of the Federal Government to really try to get our 
arms around this issue.
    Ms. Springer, I would like to begin with you, and as we 
talked about the guidelines and your timeframe, and based on 
where the various agencies and departments are now, as we are 
about to enter the month of May, and they have some benchmarks 
to meet, based on the guidance that OMB as a whole provided, 
and what they should have already done, and have what they 
should have, the risk assessments coming up in May. What is 
your best estimate of the guidance as it stands? Is it going to 
be pretty solid, or do you think you are going to--as you go 
through these next couple months, going to have to revise it 
and, the departments and agencies are not stepping up as much 
as you maybe hoped they would in fulfilling these requirements?
    Ms. Springer. Well, we think, Mr. Chairman, that the 
guidance is holding up pretty well, as the agencies have had to 
develop plans all the way through each step. It has been a good 
opportunity to vet the clarity of the guidance. The section 
that has the most challenge for us, and the CFOs are working 
along with the Inspectors General, to get further definition, 
is in those stream of payment issues. And also, some of the 
more complex programs, and how you actually define the rate. 
And the need for an annual rate, in some of these cases, where 
they have only been doing them every 3 or 4 years, so I think 
those are places where we are issuing some further clarity, but 
the basic steps are holding up fine.
    Mr. Platts. Is there a consequence that has been delineated 
to the agencies or departments that if they are not meeting 
these, they better have a good explanation of why, or else this 
happens? Especially as we approach the November 15 PAR reports. 
What if they don't? And I ask that especially in light of Mr. 
Williams' testimony, written and mentioning here as that--under 
the Section 57 requirements, in those 40 odd programs that were 
to be disclosing in their 2003, that a large percentage of them 
really didn't, you know, do a very good job. What is going to 
be the consequences as we go through and they are not meeting 
the requirements?
    Ms. Springer. I can't say that we have actually said if you 
don't do this, then this will happen to you, or you won't get 
your funding, or that type of thing, but what we have done is 
to work with every agency to make sure, first of all, that they 
do have very specific steps and plans in place, with dates, and 
I think that they didn't have that in the past. We just more or 
less said here is what you need to report in your budget 
submission, and then we let them go for the year, and then we 
saw what came in at the end, and as you say----
    Mr. Platts. Right.
    Ms. Springer. There are holes in that. And I think it was 
the first time that some of these programs, frankly, started to 
deal with these issues seriously, and found it was difficult to 
do. And that is not an excuse, but I think it was an 
observation. By having each of the steps, it allows us to make 
sure they don't get off track, and we have ways to work with 
them. And we will be partnering with the IGs as well throughout 
all of this to make sure that their independent oversight, not 
just the administration's, but the independent oversight of the 
Inspector General, will help to keep them on track as well.
    Mr. Platts. As you meet with the CFOs and the others 
involved in the process, we certainly will be watching those 
who comply or don't comply.
    Ms. Springer. We tell them that, too.
    Mr. Platts. And as we get to that November 15 deadline, 
again, it will be meant in a positive way, but we will 
especially be interested in having those agencies or 
departments who aren't in full compliance as of November 15, 
and to share publicly, you know, what is the challenge, and why 
aren't they--and I am sure, as you have stated, there are some 
really significant challenges. How to define the improper 
payments, how to get your best estimate, but it does worry me 
that the consequence on the--because, as in--Mr. Williams, in 
your written testimony, you have--in recounting the history 
through the 1980's, the 1990's, and then even the response to 
the Section 57, that there really, even when it is--
administrative focus is there, and congressional action occurs, 
that the agencies and departments continue to show a hesitancy 
to really embrace the guidance or the statutory requirements 
put in place to go after this, and I hope, and I think there is 
maybe an important difference, and that is the fact that this 
President has, as part of his management agenda, made financial 
management a top priority.
    In that example from the top, through OMB, through the CFO 
Council, can make a difference, but I do worry that they need 
to know that there is some consequence for noncompliance, and--
--
    Ms. Springer. Right.
    Mr. Platts. Mr. Williams, is there anything from your 
perspective that we should have better included in the original 
legislation, a statutory consequence, or is there something we 
should contemplate?
    Mr. Williams. No, I think we have laid the groundwork for 
requiring the agencies to report the information that we need. 
I think from a legislative standpoint, if I was assessing you 
to give you an opinion, you would get a clean opinion, from the 
standpoint of using the Green Book criteria, the tone has been 
set at the top, right from the beginning, from you and the vice 
chair. You have held hearings, and you have made it known the 
importance of this issue, so I think at this particular point 
in time, we have done the things that we need to do. If there 
is any other thing that you might want to consider, is 
something similar to what we have reported in previous years, 
and that is you might want to consider coordinated efforts with 
the authorizing committees, and the appropriators of some of 
these programs, to make sure that Congress is in sync, and that 
all three committees are working very hard to make sure that 
this issue is addressed.
    Mr. Platts. And that is an important suggestion for me, as 
a member, and for our committee staff with those other 
committees that--those that have the most egregious numbers, 
when it comes to improper payments, that those authorizing and 
appropriating committees for those programs are aware of that 
as they go through their appropriations process, are maybe 
asking similar, specific, and tougher questions.
    Mr. Williams. Tougher questions, right.
    Mr. Platts. Yeah.
    Mr. Williams. Exactly.
    Mr. Platts. As part of that review.
    Mr. Williams. Exactly.
    Mr. Platts. Ms. Springer, last year, we touched on this, I 
have to reexamine it, because there are now two parts of--about 
going after every dollar, and to focus on, you know, every 
expenditure is closely scrutinized. And in your written 
statement, where you talked about ensuring that every dollar is 
wisely spent, and no payment should be wasted. The 2.5 percent 
caveat that has been placed on the threshold standard is one 
that still seems to me to be contrary to that commitment of 
every dollar, because the original legislation started at $1 
million, as introduced by Chairman Horn. The compromise was $10 
million, but with no other caveat, and then, as OMB issued the 
guidance, added the $10 million, and that is at least 2.5 
percent, which excludes some payments that won't be looked at 
and disclosed and able to be acted on. And I guess in 
revisiting that, as you have moved through this process, do you 
have any new thoughts or have you given any more consideration 
to the appropriateness of that 2.5 percent additional caveat?
    Ms. Springer. Well, we have been asked that question, as 
you know, by your colleague on the Senate side, Senator 
Grassley, as well, and actually, I brought up copies I would 
like to have entered into the record, if I could, of----
    Mr. Platts. Sure.
    Ms. Springer [continuing]. The letter we sent to him.
    We view it that, first of all, the first step of the act, 
or actually, the second step, of conducting the risk 
assessment. This is the review to see if there is a significant 
susceptibility to risk, and the actual words in the law, in the 
act, are ``susceptible to significant improper payments.'' That 
is the thing that agencies are directed to identify. That is 
the full definition that is in the act. The $10 million 
threshold doesn't come in until steps three and beyond. So, 
because there was no further specificity, we felt that agencies 
would be looking for some definition beyond--what is 
susceptible, what is significant improper payment? How do you 
define that? And what we had to go on to--what is--our 
experience in the first trillion dollars of programs, where we 
had seen a threshold of 3.5 percent, $35 billion over the first 
trillion dollars of payments, at a minimum, and so that average 
3.5, we felt actually would probably be higher, once we were 
fully informed about that, and so we said we wanted to pick a 
percentage below that number for the programs that are not 
already covered by Section 57, and that is an important 
clarification. Any program that is in this first trillion, 
these large programs, Social Security, Medicare, Medicaid, 
unemployment insurance. All of those go through the entire 
portfolio and protocol of steps. They won't stop. If their rate 
was only a half of a percent, it wouldn't matter. They have to 
go all the way through all of the steps. So, we are only really 
talking about the balance of the programs, which are typically 
less small and less susceptible. But we used, as a benchmark, 
our experience on this first trillion, and we said let us use 
2.5, in addition to the 10, that comes later on in the act, to 
make sure that efforts, the agencies' efforts, were focused 
where it would be most meaningful and most fruitful.
    And I understand that is--jumped off the page, if you will, 
to some of the observers of the guidance, but it was really 
done, really, to make sure that efforts were focused, frankly, 
to get us the best results. We are focused on results, on 
getting these payments back under control, and we didn't want 
agencies chasing after nickels and dimes. We wanted them to 
focus their efforts in the most meaningful places.
    These bigger programs will be, will regardless of what 
their rate is, they have to go through every step. They won't 
stop at step two.
    Mr. Platts. But how is that for the longevity of these regs 
and guidance being in place, in a future administration? A 
future administration could eliminate the 2.5 percent. You are 
saying even if their rate is below, for these larger ones, you 
are still requiring them.
    Ms. Springer. And that is in the act. That is actually in 
writing in the act. That is not just, you know, a sort of a 
desk drawer rule.
    Mr. Platts. Right. In the----
    Ms. Springer. So that is provided for in the--not in the 
act, in the guidance.
    Mr. Platts. Right. That is in the guidance.
    Ms. Springer. Right.
    Mr. Platts. The answer is that a future administration can 
maintain that, you know, requirement, or choose----
    Ms. Springer. Sure. They could. I mean, I guess, I would 
turn it around, the perspective around a little bit, and say 
that all programs under the Section 57, plus the universe of 
the balance of the programs that are above that threshold, that 
we think is a pretty low threshold, frankly, based on what we 
have seen on these others, we think we are going to capture--
there is very little that is going to fall through the cracks. 
And if we could get all of that under control, that is going to 
be a big universe for the agencies to deal with. If the time 
came when we felt that was well in hand, then we could always 
revisit the guidance and reset that threshold for those 
programs that aren't in Section 57.
    Mr. Platts. The kind of twofold concern, one is, looking at 
what is a significant improper payment, is, in reading the act 
in total, would take that Congress said for an agency any--the 
total of $10 million for that agency, are significant. The fact 
that we didn't put a percentage in there, from a statutory 
interpretation standpoint, would be that $10 million is 
freestanding, not with something else attached. And I guess the 
other is that for some smaller agencies, that they know, even 
though their dollar amounts are smaller, and not going to be 
the big, you know, prize that we are after, that they should be 
equally focused on this, and is that, you know, through the CFO 
Council, and through the various interactions, you know, that 
OMB is having, that even if they are not technically required, 
that they still know that they had better be going after this?
    Ms. Springer. Yeah, they are. They are. Absolutely. I mean, 
that is just part of the level of management scrutiny that we 
want them to have, is good financial management, managers 
across the board. One other thing that is important to note, 
too, is that the programs have to be aggregated in ways that 
are meaningful within an agency. So, an agency can't just take 
very small pieces and apply the $10 million and the 2.5. They 
have to be--it is all of the grants of an agency, for example.
    Mr. Platts. Right.
    Ms. Springer. We are really trying to safeguard that things 
don't fall through the cracks. Our only intention there with 
the 2.5 was to provide a definition to what significant meant, 
and then to focus efforts where the problems really were 
biggest, and you know, again, as I say, if we had to, down the 
road, once all the rest of these dollars are well in hand, we 
could revisit. I would imagine that we will still have, of the 
$2.4 trillion, easily two thirds to three quarters of dollars 
going beyond step two, even with this rule. It wouldn't 
surprise me at all. So, we are going to have our hands full.
    Mr. Platts. Right.
    Ms. Springer. Even with this rule.
    Mr. Platts. So, maybe the message is that you are--this is 
a starting point, and when all goes well now, with--as it is, 
will your----
    Ms. Springer. We could come back and----
    Mr. Platts. Will you go to the next level----
    Ms. Springer [continuing]. Take a look at it.
    Mr. Platts. And dig a little deeper, and Mr. Williams, your 
thoughts from GAO, I guess in a twofold sense----
    Mr. Williams. Yes.
    Mr. Platts. One is if you want to comment on the 2.5 
percent additional requirement----
    Mr. Williams. OK.
    Mr. Platts [continuing]. But also, Mr. Gerow is going to 
talk in his testimony, his written testimony, that the $10 
million, you know, being high, and given that Chairman Horn's 
original legislation was $1 million, should we be looking at 
trying to go back to the original intent, or are we at a good 
place to start, and see how it plays out?
    Mr. Williams. I think that the issue surfaced here from the 
standpoint of the interpretation of significant, and based on 
what we have heard today, I think as we go forward, we need to 
take a close look to see if we are getting the coverage that we 
need to get to make sure that we are addressing this particular 
issue. You raised a very good point, from the standpoint of one 
of the reasons why you get certain things put into legislation 
is because you want to have a process in place that will stand 
the test of time, regardless of who is in charge. That statute 
would be there from the standpoint of making sure that we are 
addressing the improper payments issue. Time will tell, I think 
time will tell whether we are getting adequate coverage or not. 
I think at this particular point in time, we just have to wait 
and see. I was aware that at one point in time, it was $1 
million, that was in the original draft legislation. What we 
need to do is to take a look, as they come in, on this $10 
million, and if it turns out that there are some programs that 
are slipping through the cracks, then we might need to revisit, 
from the standpoint of lowering that number. It could go in 
either direction. We just need to get through this first year, 
see what type of information we are getting from this 
particular process, and then reevaluate. So, it is a work in 
process, I believe, at this particular point in time.
    Mr. Platts. Staying with the guidance issue, in the 
implementation of those guidelines, one of the challenges, Ms. 
Springer, you talked about is the payments that are State 
administered, and how to track them. They are Federal dollars, 
but each State handles them in various programs. Can you expand 
on the guidance that you are giving agencies, as far as how to 
try to go after that chain of command of the money as it goes 
through, and also they should be working with the States. How 
close are you working with the departments and agencies 
regarding those type of State implemented Federal payments?
    Ms. Springer. Right. And that probably is the single most 
important issue that we have as a challenge. We are working 
very closely. We have a committee of the CFO Council and 
membership on that committee with the Inspectors General, 
working with us, with the agencies that have those types of 
payments, and to develop ways and to share practices among 
them, on how to deal with it.
    Now, each agency is dealing with it in their own way. 
Medicaid, for example, or Medicare, and Medicaid, with payments 
to the State, are working with pilot groups of States to try to 
look into and at the State level, be able to do reviews of the 
payment process. As they learn more about this pilot group, 
then they will be able to extend those practices to a broader 
group of States, and that is a learning experience for them. We 
are looking to strengthen the Single Audit Act, which looks at 
payments, grants payments, for example, and other payments that 
are made, and has auditors at that level of the recipients, to 
ensure that the payments are used for the purposes that they 
were intended. We think that the Single Audit Act, and those 
auditors will be able to help us, almost as an extension of the 
agency to determine the appropriateness of the payment.
    And then third, we believe that some of these entities have 
their own audit staffs. States certainly have audit programs in 
place, and it is my goal to try and partner with them wherever 
we can to not duplicate their efforts, but benefit from them, 
and add that to our array of tools.
    Mr. Platts. The pilot programs that are ongoing, those are 
really in response to the Improper Payments Act being passed?
    Ms. Springer. Actually started with the OMB directive, 
because there are programs that were on the initial Section 57 
list.
    Mr. Platts. OK. So, the Section 57----
    Ms. Springer. Certainly, the act reinforces it.
    Mr. Platts. OK. And with the States, is there--as your--and 
maybe it is, again, as those pilots are kind of getting a base 
of information, but is there anything being contemplated to the 
States that, if you want to have these tax dollars made 
available to you from the Federal Government for your citizens, 
that you will have to implement, you know, something similar. 
Maybe if they have it, you don't want to duplicate it, I agree.
    Ms. Springer. Right.
    Mr. Platts. But you know, what is the guidance being given 
through the agencies to States to say, you know, it may not be 
this year, but we are going to be looking at either having your 
own that we can extrapolate the information, or we are going to 
require you to adopt something that we are doing.
    Ms. Springer. Right. I am--the reason I am looking here is 
that I don't really have the program on the tip of my tongue, 
but there was a program that--where money was given to the 
States, and I am not sure if it is an unemployment program, or 
it may have been school lunch. But there was a program, and I 
can get for you which one it was, where payments actually were 
withheld. And don't quote me that it was school lunch, but 
there was some program----
    Mr. Platts. Right.
    Ms. Springer [continuing]. Where there was actually--the 
dollars distributed were tied to a better treatment and better 
accuracy of handling of payments. I will get for you which one 
it--which program that was.
    Mr. Platts. Yeah, and I would appreciate your following up 
with this, because when I look at some of the dollar figures, 
the sums that really are State implemented, some of them are 
pretty significant.
    Ms. Springer. Yeah.
    Mr. Platts. And if we are really going to have great 
success Federal Governmentwide, those States that are actually 
implementing, or administering those dollars really are going 
to be a key part of the effort.
    Ms. Springer. Yeah, I am being told that it was the food 
stamps program.
    Mr. Platts. OK.
    Ms. Springer. Where there was something of that type, and 
it is a way to test it. If it works there, you are absolutely 
spot-on that it is the best way to be able to get some good 
enforcement.
    Mr. Platts. So, is OMB looking at taking that type of 
example, and moving it to other programs? Is that part of----
    Ms. Springer. Making a----
    Mr. Platts [continuing]. That pilot review, or----
    Ms. Springer. Well, it's making agencies aware that this is 
an option, and we expect them to use that option wherever they 
can.
    Mr. Platts. So basically, given the agency, saying one way 
or another, we expect you to be able to attest to the accuracy 
of your payments, and one option is to get the States to 
implement a program that you can--that the Federal agency----
    Ms. Springer. That is right.
    Mr. Platts [continuing]. Can use?
    Ms. Springer. That is right.
    Mr. Platts. OK. Staying on the issue, or related to the 
guidance and every dollar every payment being focused on, it is 
analogous to my concern on the 2.5 percent being added, is the 
agreement with the Social Security Administration on the 
``unavoidable payments,'' and how they will be treated. I know 
one example is with disability payments, and--where Social 
Security, if they are making a payment and they determine that 
a recipient of that disability payment maybe is not eligible, 
the courts have ruled you have to go through the due process, 
and you keep paying, and even if at the end of the due process, 
you find yeah, we were right, they shouldn't be paid, there is 
no ability to recoup, the courts have said. As you know, 
unavoidable. Is that an accurate example, in----
    Ms. Springer. That is an example.
    Mr. Platts. Where----
    Ms. Springer. I am not sure if they can recoup in that 
case----
    Mr. Platts. Where they----
    Ms. Springer. But----
    Mr. Platts. Because--I guess where they can recoup, but----
    Ms. Springer. They can recoup it, but they can't until 
after the decision, because until the courts agree that there 
has been----
    Mr. Platts. Right.
    Ms. Springer [continuing]. An accurate determination of the 
continued disability or recovery----
    Mr. Platts. Right.
    Ms. Springer [continuing]. You really can't say that it is 
an improper, or that it is a recovery until the courts agree, 
because of the due process. We certainly wouldn't want to take 
away the due process.
    Mr. Platts. Right.
    Ms. Springer. Make that recommendation. The agencies in 
those cases, where they have to continue to pay, and agency is 
the wrong word, Social Security, and that is the only agency to 
which this explanation or elaboration on the guidance applies. 
No other agency has come to us on this. It is just strictly a 
Social Security issue.
    Mr. Platts. At this point, just being Social Security, are 
we establishing a precedent that other agencies are going to 
say hey, we are going to go after that same argument to lessen 
what they have to report what they are showing as improper 
payments.
    Ms. Springer. We haven't seen any indication of it. The 
only thing that I could even potentially imagine would be if 
there was a legal impediment, or a statutory court type 
impediment, similar to the due process issue. But none have 
raised that. We are not aware of any. None of--no agencies have 
come to us with it. So--but where there is a--bound by the law, 
then we really have our hands tied. But there are some other 
practical situations with Social Security as well. For example, 
payments that are made after death. If a death isn't reported 
on a timely basis, once that is known, then at that point, we 
have told Social Security, you have to recover those funds. If 
you don't recover them pretty quickly, then that becomes an 
improper payment. That has to be added in to your rate. So, it 
is just a matter of time until it gets to the rate. They are 
capturing the dollars. They know how much it is. And--but at 
the point of time when the payment was made, they didn't know 
that the person had deceased. There are some other situations 
where there are estimates of earnings, and the actual earnings 
aren't known until they are actually earned, so--but the 
payment is made in anticipation of a level of earnings that has 
been estimated. That could be higher, it could be lower. Once 
the actual earnings are known, then in all likelihood, it would 
turn out that the payment should be revised, or would have been 
different. And then, it is up to Social Security to make that--
recoup that amount. If they don't, that also would enter into 
their improper payment rate. So, it is really just a matter of 
the practicality of what information is available, or the due 
process issue. It covers the vast majority of the issues.
    Mr. Platts. Your example in the Social Security death 
payment or after death payment, is a good example. It was 
actually one that I was talking about in a previous speaking 
engagement earlier today, because of the wrongfulness of how 
the law works today, where someone can pass away at 1 minute to 
midnight on the last day of the month, and that next first day 
payment, first of the month payment is for the month that the 
person lived all but 1 minute.
    Ms. Springer. Right.
    Mr. Platts. And Social Security says we win, you lose, even 
though you have bills for the entire month. And I came to learn 
of it through the passing of my father on June 25th, sitting 
with the funeral director, and my mom already was aware of it, 
because of a bad experience with one of her friends, where the 
husband died the last day, or the next to the last day, a check 
went in, was taken out, which threw the widow's account off, 
she didn't know what was going on. And that is a separate issue 
of equity or fairness within Social Security, but I guess my 
concern with the approach that you are taking with Social 
Security in this specific example. It is not the acknowledgment 
that there are some--and the due process is a perfect example. 
The courts are requiring them to make it, it is not improper 
when they are making it, because the due process hasn't run its 
course, but how we disclose them. And I would like your 
comments, and for OMB to consider that you don't free the 
departments or agencies, in this case, just Social Security 
thus far, from reporting those type of payments that maybe are 
unavoidable, but rather report them with a different title, 
that they are unavoidable improper payments. So then we still 
know that these type of improper payments, even unavoidably, 
are being made, especially if some of them relate to statute, 
where they are improper, but statute is requiring them to make 
it, we need to know that, Congress, because maybe the statute 
needs to be amended. And if they are not reported at all, and 
not disclosed at all, then we don't get that base of knowledge 
to act on. And so, I think you are being very responsible in 
working on Social Security, and saying there are some payments 
that are going to be a different breed here, and we need to 
address that. But to not require any disclosure of those, I 
think, is not going to be the best approach. And I would be 
interested in your comments. Widow's account office.
    Ms. Springer. Well, I appreciate your recognition of that 
there is this different category, and--that doesn't fit nicely 
into the black and white model. I think the part that you--that 
we would be reporting that doesn't get reported today, is the 
small part for the interim period, before it moves from a not 
known to a known. Because once it is known, then, and the short 
time that we give them to act on it and recover it. It is that 
short period, because once--if Social Security doesn't act 
promptly on it, it will go in and be reported as an improper 
payment. So they are--it is just this small window of time from 
when, say, the court rules and says yes, it really is an 
improper--or, they are not eligible, until Social Security 
doesn't move quickly. So, the question is what do we do in that 
window there.
    Mr. Platts. Well, you have more faith in the quickness of 
our courts, in the sense of it being a quick resolution, versus 
perhaps a lengthy process, and that is going to vary----
    Ms. Springer. Yeah.
    Mr. Platts [continuing]. By the circumstances, but----
    Ms. Springer. Well, and the timing is probably different. 
It is--I am sure it is longer there than it would be in the 
case of the--probably most of the death claims, although some 
of those can go for a long time as well. We will look--we will 
certainly look at it, Mr. Chairman.
    Mr. Platts. Yes. And Mr. Williams, I would be interested in 
your thoughts of that aspect of the guidance, the unavoidable 
payments.
    Mr. Williams. Yes, Mr. Chairman. GAO basically supports the 
concept of classifying them as avoidable and unavoidable, but 
we think from a transparency standpoint, it is very important 
that information be disclosed, because as you stated earlier, 
there could be some decisions that the Congress might need to 
make based on those two categories. But we definitely support 
the position of transparency of this issue, and disclosing the 
avoidable as well as the unavoidable.
    Mr. Platts. Yes, and that is, I think what again, as we 
partner, is what we are all after, is the best way to get our 
arms around this challenge is the more information, the better.
    Mr. Williams. That is correct.
    Mr. Platts. And I think we are--I am worried that we are 
going to exclude a base of information that may be--fall back 
to Congress to be the ones responsible, because it is 
statutory, and that is causing these unavoidable improper 
payments. So it is something I do envision following up with 
you on, but I would appreciate your--you and the agency--be 
giving more thought to the approach you are taking, for now, 
just with Social Security, but also because of what precedent 
we are setting, that we try to get it as right and responsible 
up front now, so that if there are any other agencies that have 
similar challenges, and--I would think Social Security, the 
examples you have given, I can think of Veterans Administration 
would be one that would jump out, where there is similar type 
of payments that maybe, you know, down the road something is 
determined that we did something that wasn't right, either too 
much or not enough. Often, I find with the VA, is that we are 
undercompensating our veterans wrongfully. But that we take a 
close look at that, and err on the side of disclosure and 
transparency, and not on less information.
    Mr. Williams, what would be, in your review, and you have 
looked at, I guess, now, really, the Section 57 programs----
    Mr. Williams. Yes.
    Mr. Platts. Your summary is a good one, of compliance, of 
the ones that kind of fulfilled all three categories, and there 
weren't a whole lot of the total 40 some. Is there one or more 
that really jumped out, as the best approach to this issue, and 
really, setting an example for the others?
    Mr. Williams. There are a couple that I would like to talk 
about. One is the food stamp program. That is one that I have 
been involved with, going back to 1995. I have worked with the 
agency from the standpoint of trying to come up with a good 
number to disclose in the financial statements. So, I am very 
familiar with that particular program. I think they have done 
some good things in coming up with samples, and as mentioned 
earlier today, there has been some penalties imposed on the 
States, etc., for not meeting certain error rates that they 
established. If you take a look at the numbers that are 
reported today, you would have to look at them real close if 
you are looking at them over 2 or 3 year period, because at 
first glance, just looking at the improper payment amount, it 
looks like it has gone up at the agency, when in fact, the rate 
has gone down. And the reason for that is because the base that 
rate is calculated on has increased over the last 2 or 3 years. 
So, I think that would be one of the programs. In previous 
testimonies before this subcommittee, we have talked about the 
Medicare program, and I think that would be another example of 
one that other agencies might--would want to take a look at, 
and consider some of the experiences of that particular program 
in establishing, maybe some best practices in how to go about 
identifying and reporting their improper payments.
    Mr. Platts. The opposite side of the coin, that is, of the 
11 that didn't meet any of them, what is--from a subcommittee 
responsibility----
    Mr. Williams. Yes.
    Mr. Platts. Which ones should we be most worried about?
    Mr. Williams. You know, it is difficult to say, because 
when an agency is not reporting amounts----
    Mr. Platts. It is hard to know.
    Mr. Williams [continuing]. You are in the dark as to what 
is actually going on in that particular agency, so I would 
basically suggest that you put them all in one group, and say, 
you know, we need this information, because there are some 
critical decisions that we need to make about these particular 
programs, so this information is definitely needed for the 
decisionmaking process.
    Mr. Platts. And that additional scrutiny may be, Ms. 
Springer, has OMB gone to the 11 programs that did not comply 
with the guidelines for the Section 57 requirements, and have 
not reported their estimated improper payment amounts, didn't 
report their initiatives, didn't report their impediments as 
they were to in the 2003 PART acts? Have they gotten special 
attention in saying, hey, that was an OMB internal decision? 
Now, it is the statute we are going to be implementing, and 
this zero compliance of those 11 are not going to be acceptable 
come November 15? Are they getting additional focus or scrutiny 
from OMB?
    Ms. Springer. Yeah, they are, and you know, we have spent 
extra time with them, not only in their methodology for 
determining their rate and sounding out the problem, but in 
also how they should do their reporting, the format. One of the 
things we are doing is working with all of these agencies, and 
we are going to prescribe a format for the PART for, starting 
for 2004, which is really the first year required under the 
act.
    Mr. Platts. Right.
    Ms. Springer. The 2003 requirement was one that OMB added 
just as----
    Mr. Platts. A good example of----
    Ms. Springer. It is like kind of a dry run.
    Mr. Platts [continuing]. The administration trying to----
    Ms. Springer. Yeah.
    Mr. Platts [continuing]. To take charge and lead the way.
    Ms. Springer. Right. And I think that, while we always 
expect full compliance when we issue guidance, and this was 
short of it, for a variety of reasons, but we really viewed 
this as, to use 2003 as a dry run to see what they would do on 
their own, and we can see which ones were able to do it, and 
which ones weren't. But we also got some very good formats, and 
good presentations, that we are now going to make uniform, so 
it will be easier for you, for any reader of the PAR to be able 
to readily determine the report, and to be able to assess it.
    Mr. Platts. Will the as part of that uniform reporting 
approach in PAR, identify some of the substance of how they got 
to the numbers they have? I mean, some of the process.
    Ms. Springer. Yes.
    Mr. Platts. That is going to be part of that----
    Ms. Springer. Yes.
    Mr. Platts [continuing]. Uniform requirement?
    Ms. Springer. Yes.
    Mr. Platts. And I gather from your testimony, written 
statements, and information from the past as well that 
transparency of the process is something that is important to 
GAO, to how it is working.
    Mr. Williams. That is correct. That is correct, and I would 
just add that while these are the agencies that we focused on, 
I would like to scope it up a little bit, and say that in our 
review, we looked at some of the other agencies that were not 
required to report, and there was an example of maybe one or 
two that probably had some good practices also, that reported, 
that were not actually required this year, so you need to look 
at the whole universe and try to get your best practices, not 
just from these that were required under A-11.
    Mr. Platts. OK. Just one, maybe, final question for our 
first panel here, and that is kind of the underlying cause of 
financial troubles in our agencies and departments, and 
especially regarding improper payments, is the internal control 
issue. And GAO certainly for years has pushed the importance of 
this, and that is establishing that foundation, and----
    Mr. Williams. That is correct.
    Mr. Platts. Under the President's management agenda, that 
has been a priority and identified. Ms. Springer, do you want 
to expand on--as you are working with departments and agencies 
and moving forward to the November 15 compliance, the specifics 
regarding internal controls, and getting agencies to better 
embrace that understanding, that if they get their internal 
controls, they are going to be much more proud to report their 
improper payment amounts, because they will be a lot less?
    Ms. Springer. Internal controls is one of the major reasons 
why things get to this point. There is no question about it. We 
certainly agree with the observation of GAO. And incidentally, 
the $35 is made up of $30 billion of overpayments and $5 
billion of underpayments, neither of which is good, $35 total. 
But regardless of the type, over or under, a lot of it traces 
back to the--some weaknesses in the control environment of some 
of those programs. I think that you have been in the forefront, 
in your committee, of suggesting that agencies look at 
strengthening their control environments, in the--with the 
backdrop of Sarbanes-Oxley, for example, we have had other 
hearings where we have discussed this issue. The CFO Council 
and the Inspectors General are right now working on a 
comprehensive review of internal controls. What is required 
today, under the FMFIA statute, what OMB's A-123 guidance to 
implement that, how that lines up in a gap analysis, in effect, 
against Sarbanes-Oxley. To be able to say here are some places 
where maybe we need to strengthen our guidance and our 
direction to agencies, as well as getting them to enforce and 
take even more seriously than they do today, and give greater 
scrutiny to the existing A-123 direction. I could tell you that 
gap isn't as--there is a gap, but it is not as great as maybe 
some people think. The Federal Government did have a jump, by 
virtue of its foresight with FMFIA, but I would say that there 
is need for tightening, and this type of issue will benefit 
from that process.
    Mr. Platts. Well, and I think your reference to Sarbanes-
Oxley is an important, are because as we are demanding the 
private sector to, you know, be responsible and do right with 
investor funds, that we set the example ourselves, and do the 
same, and hopefully, do even better, because we are talking 
about the public's funds.
    Ms. Springer. Right.
    Mr. Platts. And through their taxes. Mr. Williams, did you 
want to add anything on that?
    Mr. Williams. Well, I would just like to reinforce some of 
the points that have been made already, and that is we do 
believe that the internal control weaknesses that have been 
identified throughout the years, at the various Federal 
agencies, is one of the primary causes for the improper payment 
problem that we are talking about today. I think we need to 
take a look at them from a couple of standpoints. One, I think 
as mentioned earlier today, that there is a lot of work that 
needs to be done, from the standpoint of working with the 
States to make sure that we have procedures in place. Another 
area that I think we need to take a hard look at, in numerous 
reports that I have reviewed, I have responsibility for eight 
of the CFO agencies, and the Department of Homeland Security. 
And in numerous reports, I continue to see system weaknesses, 
and areas where processes need to be reengineered. So, I think 
those are two prongs that you have that really need focused 
attention, and then when you get back to the basic point of 
internal controls, we break it down into two components. There 
are what we call detective controls, and there are preventive 
controls, and an audit function, for example, would be 
classified as a detective control. A preventive control would 
be a procedure in which you wouldn't have the same person that 
is responsible for maintaining the books also maintaining the 
cash and depositing the cash. I think that the detective 
controls that are put in place will help with the transparency 
and the reporting of the improper payments, but we need to put 
a lot of focus on the preventive controls, because once you get 
those in place, then you will not be having as many of these 
improper payments as we are seeing today.
    So those are some of the areas that I think we need to 
focus on.
    Mr. Platts. As a subcommittee, we certainly are going to do 
our best to try to keep promoting and pushing those issues, and 
hand in hand with GAO, and Ms. Springer, with OMB, and as I 
have said in many of our hearings, and continue to believe, 
that there is a change in the attitude and approach in 
Washington right now----
    Mr. Williams. Yes.
    Mr. Platts [continuing]. With this administration, and the 
GAO----
    Mr. Williams. Yes.
    Mr. Platts [continuing]. And Comptroller General Walker, 
and I am certainly going to do my best as Chair of this 
committee, and Ed Towns, our ranking member, that we all 
continue to partner and really stay focused on ensuring that 
tax dollars are accounted for and spent responsibly, so again, 
I appreciate both of you for coming up here, and please come 
back and spend lots of money in York County while you are here 
today.
    Mr. Williams. OK.
    Mr. Platts. You know, we want----
    Ms. Springer. We will spend it wisely.
    Mr. Platts [continuing]. Promote the economy locally, so I 
will----
    Mr. Williams. OK.
    Mr. Platts. I have to, you know, as a proud York Countian, 
remind you that you are in the first capital of the United 
States. The Articles of Confederation were signed two blocks 
from here when the Congress was here for 9 months in 1777, and 
we are delighted to have you here, and we will continue to look 
forward to working with you.
    Ms. Springer. Thank you.
    Mr. Williams. Thank you so much.
    Mr. Platts. Thank you. Give Ms. Springer and Mr. Williams a 
chance to gather their materials, and then we will have our 
second panel come forward. We are delighted to have both of our 
guests here. Charlie Gerow, the chairman of the Pennsylvania 
chapter for Citizens Against Government Waste, and Paul 
Gessing, the director of Government Affairs for the National 
Taxpayers Union. One, I thank you for being here, and two, for 
your patience in being the second panel. There is some 
positives, because you get to hear the dialog with our first 
panel witnesses, but it also means that you have to be patient, 
and I do appreciate your patience as we try to explore these 
issues. And I want to also publicly thank each of you and your 
organizations for the commitment that you have to protecting 
the taxpayers funds, and all of our citizens work hard for the 
money, and we all understand the need and the importance of 
paying our fair share in tax dollars, and I think what I most 
often hear about is certainly depending on the tax, how much we 
pay, what is--how we spent what citizens pay. And that would be 
if they are going to give up their money, they have to be truly 
wisely and responsibly spent on behalf of all Americans, so 
your organizations certainly for years have been leaders on 
that front, and we welcome you here today.
    Mr. Gerow, and it is hard for me to say Mr. Gerow, because 
Charlie----
    Mr. Gerow. Charlie is fine, Mr. Chairman.
    Mr. Platts. It is odd for me, but if you would like to 
begin, and the floor is yours.

 STATEMENTS OF CHARLES GEROW, CHAIRMAN, PENNSYLVANIA CHAPTER, 
 CITIZENS AGAINST GOVERNMENT WASTE; AND PAUL GESSING, NATIONAL 
                        TAXPAYERS UNION

    Mr. Gerow. Well, thank you, Mr. Chairman, and good 
afternoon. I thank you especially for the opportunity to 
testify this afternoon before your House Subcommittee on 
Government Efficiency and Financial Management.
    My name is Charlie Gerow, and as chairman of the 
Pennsylvania chapter of Citizens Against Government Waste, I am 
here this afternoon representing the more than 1 million 
members and supporters of CAGW nationwide, as well as the more 
than 45,000 members here in Pennsylvania. CAGW was created 20 
years ago after the late J. Peter Grace presented President 
Ronald Reagan the nearly 2,500 findings and recommendations of 
the Grace Commission, which was formally known as the 
President's Private Sector Survey on Cost Control. These 2,478 
recommendations provided a blueprint for a more efficient, 
effective, less wasteful, and smaller government.
    Since 1984, the implementations of the Grace Commission and 
CAGW recommendations have helped save taxpayers more than $700 
billion.
    In your hearing last year on this issue, you noted that 
President Bush has made the reduction of improper payments a 
significant part of his management agenda, and that your 
committee believes that taxpayers have a fundamental right to 
know how their tax dollars are being spent. And we concur. CAGW 
appreciates that your committee has decided to hold periodic 
hearings on improper payments, and that you will be asking 
agencies to provide you with their record on compliance. Asking 
us to join you here this afternoon and to testify before your 
committee on this very important and significant issue is both 
an honor and a privilege, and I should note it is especially a 
pleasure for me to be with my Congressman here in my 
congressional district, and as you noted earlier, to have the 
least travel time to this afternoon's deliberations.
    CAGW works tirelessly to educate the American public about 
wasteful government spending, and the long-term implications of 
a bloated Federal bureaucracy. We have long supported efforts 
to reduce improper payments. This is a bipartisan, good 
government issue. The solutions are well-known, but it will 
take vigilance and oversight, including hearings such as this, 
to make Federal agencies more accountable. Today is tax day, 
and so, as Americans rush to finish their taxes, the problem of 
wasted Federal dollars is even more amplified.
    In 2002, President Bush signed into law the Improper 
Payments Information Act of 2002. The purpose of the act is to 
require Federal agencies to make annual estimates of improper 
payments. Agencies must undertake a four-step process to meet 
the requirements of the act. First, to identify programs 
susceptible to significant improper payments. Second, to 
identify the amounts of such improper payments in the 
susceptible programs. Third, to implement a plan to reduce the 
improper payments, and fourth, to report the estimates.
    An improper payment, as you, Mr. Chairman, pointed out at 
the beginning of today's proceedings, is any payment that 
should not have been made for a statutory, contractual, 
administrative, or other legal requirement. It can be an 
incorrect payment, an over or underpayment, and can include, 
among other things, a payment to an ineligible recipient, a 
payment for an ineligible service, a duplicate payment, or a 
payment for a service that was not received.
    If an agency finds that it has made improper payments of 
more than $10 million and 2.5 percent of program payments 
annually, it must report the improper payments and develop a 
plan to reduce or eliminate these errors. Unless there is good 
reason, CAGW suggests that threshold be lowered, and I know 
that we have heard some discussion. I am sure we will get some 
when we come to the questions at the end of this testimony. 
Surely, there must be a dollar amount at which the cost of 
government action to eliminate improper payments is worth the 
savings gained. It is troublesome that we have come to the 
point where we are willing to lightly brush off $10 million. We 
would encourage the committee to consider reevaluating this 
threshold, because as Senator Everett Dirksen once noted, ``A 
million here, a million there, and pretty soon, you are talking 
about real money.''
    Improper payments, however, are a serious issue. According 
to the OMB, improper payments may be as much as $35 billion a 
year. That amounts to $120 for every man, woman, and child in 
our country. The Office of Management and Budget has found that 
the top 10 areas of improper payments for fiscal year 2002 were 
the Medicare fee-for-service, at $13.3 billion, the Earned 
Income Tax Credit, at $9.2 billion, the housing subsidy 
programs, at $3.3 billion, SSI at $2.6 billion, unemployment 
insurance at $2.2. billion, food stamps at $1.3 billion, old 
age and survivors' insurance at $875 million, disability 
insurance at $825 million, Medicare cost reports at $493 
million, and student assistance Pell Grants at $336 million.
    Citizens Against Government Waste has long pointed out that 
improper payments made through the Department of Health and 
Human Services [HHS], and in particular, the Medicare fee-for-
service programs. Medicare represents about 50 percent of HHS' 
outlays. HHS provides the mother lode when it comes to improper 
payments, and continues to deserve close scrutiny by the 
Department's Inspector General, OMB and the GAO, Government 
Accounting Office. Here are just a couple examples of improper 
payments that represent, in effect, gross theft of our tax 
dollars.
    In California, the Lovelace Health System was accused of 
falsifying its cost reports for the years 1988 through 1998. 
Among the allegations that were levied, Lovelace failed to 
report and reimburse overpayments and knowingly used inaccurate 
square footage measurements on certain cost reports in order to 
inflate reimbursement. As a result of an employee from 
Healthcare Financial Advisors, a financial health care 
consulting firm that reopened certain cost reports and filed a 
qui tam action, Lovelace agreed to pay back $24.5 million and 
to implement certain integrity requirements to resolve its 
liability under the False Claims Act.
    In Virginia, a male individual created bogus medical 
invoices and pharmacy receipts that he submitted to an 
insurance company for reimbursement. He ultimately was 
sentenced to 15 months imprisonment and ordered to pay $126,000 
in restitution.
    A Missouri pharmacist was found to have diluted and 
tampered with drugs on several occasions, conspired to traffic 
stolen drugs, and caused the filing of false Medicare claims by 
not disclosing to physicians who received the tampered and 
diluted drugs. He was sentenced to 30 years in prison and 
ordered to pay $10 million in restitutions, and a fine of 
$25,000 for tampering with and adulterating chemotherapy drugs 
he prepared for cancer patients.
    Medicare is the largest, but not the only program 
responsible for improper payments. Student aid programs, the 
largest dollar outlays administered by the Department of 
Education, is another area rife with improper payments. In a 
recent semi-annual report to Congress, #47 in particular, the 
Department of Education's Inspector General noted that while 
the Department has made some progress, reducing risk in student 
aid programs continues to be a significant management 
challenge. The report also points out a lack of proper 
oversight by guaranty agencies. It also suggests that the 
Department needs to improve its management controls for 
evaluating accrediting agencies that participate in Title IV 
programs.
    The IG of the Department of Education also found increased 
incidents of identify theft and not receiving direct loan 
refunds in a timely manner, if at all, from institutions where 
students had already left the particular school.
    Just a couple examples of the Department of Education's 
improper payments include an individual who was arrested at 
Mesa Community College in Arizona after he tried to claim a 
student loan check under an assumed name. The investigation 
showed that the person had used identities of inmates serving 
lengthy prison terms in order to obtain more than $300,000 in 
student aid.
    A trade school owner, which had been barred by the 
Department for prior improper activities, subsequently 
purchased a beauty school in Puerto Rico, concealing his own 
ownership of the school, and subsequently embezzled $600,000 in 
Pell Grants. As a result, he received a second prison term, and 
was ordered to pay $600,000 in restitution.
    A financial aid director of a photography school in Boston 
used a fictitious name to submit and certify several Federal 
Family Education Loan Program applications. He received more 
than $14,000 in loans as a result of that fraudulent activity. 
After an investigation, he pleaded guilty as well.
    In 2002, the GAO Office of Special Investigations created a 
fictitious foreign school that the Department of Education 
subsequently certified as eligible to participate in the 
student loan program. The investigators successfully obtained 
approval for student loans totaling $55,000 on behalf of three 
fictitious students.
    The Department of Education's Inspector General stated that 
more effective monitoring is necessary to make sure that 
taxpayer funds are used effectively and efficiently. In 
addition to more effective monitoring, the Inspector General 
also recommended an income match with data submitted to the 
Internal Revenue Service. The Inspector General stated that 
such an income match would help to reduce improper payments by 
ensuring that the information on the applicant's student aid 
application matched the income on their tax returns, and we 
agree.
    My testimony today, Mr. Chairman, points out just a couple 
of examples of improper payments. CAGW's membership appreciates 
the hard work that is undertaken by Inspectors General in the 
various departments, and their work to root out this expensive 
problem, and the auditing work conducted by both the General 
Accounting Office and the Office of Management and Budget to 
make certain and sure that government agencies are doing what 
needs to be done in order to make sure that taxpayer dollars 
are well-spent.
    We applaud your committee's leadership on this issue as 
well, Mr. Chairman. With the approaching appropriations battle, 
Congress needs to keep in mind that there are still millions of 
dollars of improper payments, and that it needs to continue to 
apply all necessary pressure to keep spending in line and to 
fight waste, fraud, and abuse of our tax dollars.
    Mr. Chairman, it is up to Congress to ensure that the 
Improper Payments Information Act is effectively implemented by 
the various Federal agencies. I can assure that Citizens 
Against Government Waste and its members, wherever possible, 
will do whatever it can to make sure that taxpayer dollars are 
protected. We offer our help to you and this committee in 
undertaking this very important task.
    And I thank you for this opportunity to testify before your 
committee. This concludes my testimony, and I will be happy to 
answer any questions, either at this time, or after Mr. Gessing 
has testified.
    [The prepared statement of Mr. Gerow follows:]

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    Mr. Platts. Thank you. Thank you, Mr. Gerow. And we will 
wait and do both, and then take questions. And I would comment 
in your closing, you are talking about the responsibility of 
Congress to oversee and ensure the effective implementation of 
the Improper Payments Information Act is one of the charges 
that, as successor to Chairman Horn, as Chair of this 
committee, and his leadership on that issue is one of the very 
important charges I believe I have. Because the act won't mean 
much if it is not fully and responsibly implemented, and as you 
heard in my questions, we continue to have an ongoing dialog 
with OMB, as they implement it, and fulfill what we believe is 
the intent of the law, and the requirements of the law, versus 
where they do have discretions.
    Mr. Gessing, if you would like to give your statement.
    Mr. Gessing. Good afternoon, Chairman Platts. Thank you for 
holding these important hearings today. My name is Paul 
Gessing. I am director of Government Affairs with National 
Taxpayers Union, America's oldest and largest taxpayer lobbying 
organization, with 350,000 members in all 50 States nationwide. 
You can learn more about NTU and our education affiliate, the 
National Taxpayers Union Foundation, on our Web site, 
www.ntu.org.
    I come here today to offer testimony regarding the problem 
of improper payments, an improper payment being an over or 
underpayment, a payment to an ineligible recipient, a payment 
for an ineligible service, a duplicate payment, or a payment 
for a service not received. As you know, today is April 15, the 
Federal tax filing deadline also known as tax day. Today, in 
Washington, DC, and around the country, NTU and thousands of 
fiscal conservatives will be holding events to focus attention 
on our tax burden, rising government spending, and the 
outrageous size of the Federal budget deficit. For that reason, 
this hearing to shed light on the problem of improper payments 
is particularly timely. With the budget in increasingly bad 
shape and recently passed tax cuts in jeopardy, renewed 
dedication to dramatically reducing the problem of improper 
payments is sure to become an important issue in the months 
ahead.
    It is certainly the opinion of NTU and its members, all of 
whom pay Federal taxes, that the government takes far too much 
of our money regardless of how it is used. Yet, the recent 
estimate by the Federal Government that Washington pays out at 
least $35 billion each year improperly is a bitter pill to 
swallow. Of course, this figure is probably only the tip of the 
iceberg, since no one knows just how big the problem is. In 
fact, the $35 billion figure doesn't even include Medicaid, 
much of the Department of Defense, and several other agencies. 
Defense Secretary Donald Rumsfeld, for example, estimates that 
5 percent of his budget is wasted. Thus, the Pentagon is 
probably making about $20 billion in improper payments above 
and beyond the oft-cited $35 billion figure.
    Over the years, various agencies have estimated the amount 
of improper payments, but most acknowledge that the problem is 
big and getting bigger. In 2002, Congress passed the Improper 
Payments Information Act, Public Law 107-300. the act requires 
executive branch departments and agencies to review all 
programs and activities they administer, and identify any that 
may be susceptible to significant improper payments. Agencies 
are also obligated to estimate the actual amount of improper 
payments for those programs. With respect to any program or 
activity of an agency with improper payments exceeding $10 
million annually, the agency must report to Congress on the 
causes of the improper payments, the status of the actions 
taken to prevent them, whether the agency has the appropriate 
information systems in place to minimize the improper payments, 
and the steps being taken to hold agency managers accountable 
for reducing improper payments.
    NTU is aware that the law is not being fully implemented. 
Agencies are delinquent in reporting to Congress on the 
estimates, on identifying the causes, and in providing the 
status of the actions taken to prevent improper payments. For 
the sake of taxpayers as respect for the law, NTU calls upon 
the administration to renew the effort to identify all 
erroneous payments and put systems in place to eliminate them.
    NTU understands that a vast majority of erroneous payments 
are wasted dollars, unrecoverable to taxpayers, but this only 
makes prevention of mismanagement all the more vital. What is 
more, this is not a matter involving only a few dollars. Having 
analyzed just under $1 trillion in Federal spending, out of a 
budget, a Federal budget of more than $2.4 trillion, the $35 
billion in erroneous payments is a significant sum of money 
even for the Federal Government.
    Even worse than the government having already lost billions 
of taxpayer dollars to improper payments, is the prospect of 
losing billions of additional dollars due to higher spending 
levels on programs that have in the past been prone to improper 
payments. In fact, out of the $35 billion lost to taxpayers in 
fiscal year 2003, Medicare accounts for nearly $12 billion. If 
accounting and management at Medicare is not dramatically 
improved in short order, that number is likely to rise 
exponentially with implementation of the prescription drug 
benefit.
    In order to resolve, or at least mitigate the problem of 
improper payments by the Federal Government, the Office of 
Management and Budget must enforce strict compliance with the 
Improper Payments Information Act and be vigilant in monitoring 
individual agencies to ensure that they are actively working to 
eliminate or dramatically reduce the frequency of improperly 
made payments.
    In conclusion, it is most ironic that the government 
requires corporations to abide by strict accounting standards 
under the newly enacted Sarbanes-Oxley law, although nearly all 
Federal agencies find it impossible to meet the standards 
imposed on the private sector. Taxpayers should expect more 
from the government than rampant waste followed by widespread 
unwillingness to comply with the law. I urge the committee to 
take the necessary steps to remedy this problem, and to work 
closely with OMB to ensure agency compliance.
    Thank you, Chairman Platts, for allowing NTU to testify 
today, and for your work on this important topic. NTU and its 
350,000 members stand ready to work with you in tackling the 
improper payments problem.
    [The prepared statement of Mr. Gessing follows:]

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    Mr. Platts. Thank you, Mr. Gessing, and again, to both of 
you for your testimony here today, your written statements that 
you have submitted, and again, for your personal and 
organization efforts regarding protecting tax dollars.
    Maybe, Mr. Gessing, lets begin with you, and actually, Mr. 
Gerow, both of you, if you want to comment. NTU maybe is more 
involved in following the implementation, in some ways, with 
the guidance on--of where we stand, and Ms. Springer talked 
about kind of their timeframe and the various steps that are 
going to be required and where they are in that process. What 
is NTU's assessment of how the administration is moving forward 
with the implementation, and OMB's guidance especially, that 
has been given thus far, as far as how effective you think it 
will be once we get to that November 5 deadline?
    Mr. Gessing. We are generally happy with the direction they 
are going--don't know that it is moving along speedily enough. 
I would say that they are certainly well-intentioned, but I am 
not sure that they are aggressively moving fast enough.
    Mr. Platts. Mr. Gerow, would you like to add anything?
    Mr. Gerow. Well, as you know, Mr. Chairman, I spend my days 
up here in Pennsylvania, not down in the city where sound 
travels faster than light, but I would think that the 
leadership of CAGW more or less concurs with what Mr. Gessing 
said, in terms of being generally pleased.
    There is the issue that I spoke to in my prepared testimony 
of the $10 million threshold, or the 2.5 percent threshold 
being laid over on top of that, and it just seems to me that 
the controls are going in the wrong direction, i.e., they are 
not becoming tighter, they are becoming more loose.
    You have gone from what Chairman Horn had predicated the 
act on at $1 million, to $10 million, to now the additional 
requirement, or the additional threshold of 2.5 percent of the 
program's payments annually, which could, of course, fail the 
$10 million test on its face, and that, I think is a concern, 
and it may be up to Congress to help statutorily tighten that 
up.
    I listened closely to Ms. Springer, and as you know, I am a 
great supporter of this administration, and I believe that they 
are doing a good job, and have not only admirable intentions, 
but good controls in place to effectuate the ultimate policy 
goal here. But administrations do change. This is a long-term 
problem, and I think that Congress, and your committee in 
particular, needs to look at ratcheting down a little bit of 
the ``loose ends'' that remain in the interpretation of some of 
the statutory language initially, and I know that there were 
some definitional problems, and there was the definition left 
open, as to what substantial was going to be, and perhaps 
Congress needs to go back and take a second look at that.
    Mr. Platts. And I would concur with your statements that we 
certainly have seen great progress in the focus being where it 
needs to be, on financial management and financial 
accountability by this administration, and this dialog that Ms. 
Springer and I had today is kind of an ongoing one of, as they 
focus their efforts and move this process forward, whether we 
let them go through this first round, and see what comes 
through in the 2004 PAR reports, and how that $10 million/2.5 
percent does play out, and we have a base of knowledge. And 
give them that opportunity, because one of the things that, and 
she expanded on it a little more today, is that there is a 
basis for them taking the 2.5 percent. It wasn't a random 
number, even though I see it as an additional caveat there, 
that wasn't intended by Congress, that there was some basis for 
selecting that in how they are moving forward, and how they are 
actually imposing that requirement. But I share that concern, 
that while they are focusing, as I said, we want to err on the 
side of more disclosure, and more scrutiny and focus, not less. 
And that relates on the dollar amount, is that the--Chairman 
Horn's original proposal, what your organization would envision 
as probably the best threshold that, if we were, see how it 
plays out, but maybe with an eye toward trying to get back, 
tightening it up back to that $1 million number instead of the 
$10 million.
    Mr. Gerow. Absolutely, Mr. Chairman. I think that you would 
agree, and probably most of your colleagues would agree that 
your constituents would have a hard time understanding that $10 
million is an inconsequential number. You know, if your----
    Mr. Platts. Yes. Especially here in central Pennsylvania.
    Mr. Gerow. I was about to say that there are a lot of 
factory workers in York, or folks out at snack food companies 
in Hanover, or retail clerks around the district, who would 
say----
    Mr. Platts. Forklift operators at Harley, like my brother, 
who----
    Mr. Gerow [continuing]. That at $20 an hour, if you taxed 
somebody at 100 percent of their income, it would take 500 
people an entire year to accumulate $10 million. That has some 
gravity. And as Ms. Springer pointed out, ultimately ``Federal 
money'' is money that is earned by the sweat of the brow and 
the muscled arms of people all across this country who get up 
early in the morning and work hard all day to create those 
dollars. And I think there is a tremendous oversight 
responsibility for every one of those dollars. And we 
understand that, while ultimately, you know, there is a point 
at which you have to have the cost savings recognized by the 
threshold, that the threshold really should be much lower than 
$10 million, and when you put the 2.5 percent in there, you 
have in effect broadened that threshold----
    Mr. Platts. Right.
    Mr. Gerow [continuing]. Or raised that bar. The bar ought 
to be becoming more tight.
    Mr. Platts. Mr. Gessing, did you want to add anything on 
the dollar amount or the percentage aspect?
    Mr. Gessing. No, but I certainly agree that $10 million is 
relatively high, fairly generous, and that could come down and 
should come down.
    Mr. Platts. The related issue, that is, the unavoidable 
payments, unavoidable improper payments, and the guidance that 
OMB has given to the Social Security Administration, in a 
restricted or limited sense, but sets a precedent for other 
entities, perhaps, pursuing similar exception, a similar 
exception to how they report, and your thoughts, is the idea of 
maybe acknowledging that there are ``unavoidable improper 
payments,'' but still requiring their disclosure. You know, I 
would assume that your organizations would lean, again, on the 
side of that disclosure, more transparency, as opposed to kind 
of letting them off the hook?
    Mr. Gerow. Yes, Mr. Chairman. I think Mr. Williams spoke 
very well to that issue, in saying that there needs to be 
transparency, that disclosure ought to be the rule of the day, 
that taxpayers ultimately have a right to know, and that to the 
greatest extent possible, they ought to be so noted, and that 
there ought to be transparency, full disclosure, and that 
citizens ought to understand, without great pains, how their 
dollars are being spent.
    Mr. Gessing. Yes. Contrasting that with--what the Federal 
Government does with what it expects of private companies, in 
which the taxpayers have much less of a stake, that is--it is 
ironic that you see very strict accounting measures for private 
industry, and much more lax for the government.
    Mr. Platts. Yes, and it goes to that, and we should be 
setting a good example, and whatever we are requiring of the 
private sector, we should require of ourselves. The Department 
of Health and Human Services, and that is certainly a big focus 
here with the Medicare being almost a third of your total 
amount that we are talking about, certainly jumps out. And in 
some ways, it is held as a good example, where they are trying 
to disclose and get their arms around, but when you look at Mr. 
Williams' chart, and the Section 57 programs that were 
reviewed, while HHS was in good shape with Medicare, that was 
the only of 7 HHS programs that were in good shape. The other 
six were all in the zero for zero category, with no compliance 
at all.
    We are in ongoing discussions with GAO in how to try to 
take a more specific look at HHS, and what we need to be doing 
from an oversight role with GAO, regarding HHS. Is there 
anything in particular that you would like us, as a committee, 
to be aware of, and GAO, as we continue that dialog, and try to 
fine-tune how we are going to approach that agency, that 
department, in ensuring better compliance with the Improper 
Payments Act?
    Mr. Gessing. Well, this list is kind of similar to, in some 
ways, an Alcoholics Anonymous meeting. You--the first step is 
admitting you have a problem, so at least Medicare has admitted 
that they have a problem, and they are, you know, they laid it 
out there, so with them, you know, you can then target specific 
aspects of the problem, that they can rectify.
    The rest of the list, simply getting them to put the first 
step forward, and admit that they have a problem, and lay that 
problem out there and get a grip on that number, whatever that 
number may be, whether it is higher or lower, or better or 
worse than what Medicare is dealing with. You know, pushing in 
that direction is the most important priority at this point.
    Mr. Gerow. Well, Mr. Chairman, as I noted in my prepared 
testimony, Citizens Against Government Waste has, for a long 
time, pointed out the improper payments made through HHS, and 
in particular, the Medicare fee-for-services program. And in a 
broad sense, yes, they are deserving of, particularly, and a 
special close scrutiny by both the Department's Inspector 
General, OMB, and the GAO, but I would be happy, Mr. Chairman, 
to get for you some of the specific recommendations that CAGW 
has made over the years, and allow you to have those spread 
upon the record if you would like me to do that.
    Mr. Platts. Actually, that would be great, and I would 
welcome them, and be part of our dialog with GAO and how we 
kind of fine-tune that oversight, scrutiny.
    Mr. Gerow. And I will see to it that your staff gets that, 
Mr. Chairman.
    Mr. Platts. That would be great. Yes, when we talk about 
the thoughts of a taxpayer here in central PA if we ask do they 
think $10 million is a lot, if we asked them a similar 
question, and based on the lack on information, the way we have 
to assume with a program like Medicaid, and given the size of 
that program, that you know, their--as far as their reporting, 
or have reported in their 2003 PAR, that they don't have any 
improper payments, which, I don't think anyone is going to even 
begin to believe that. And you know, I think you make a good 
approach that, to get our arms around this problem, we have to 
admit there is a problem, and those agencies that aren't 
complying are needing to better acknowledge that there is a 
problem and be more open about their approach to it.
    What about--given that lack of compliance with HHS, six of 
their programs not complying with 2003 Section 57 requirement, 
and then the other five as well that were zero compliance? Is 
there any suggestions you have that OMB should be thinking 
about, or we should be looking at for consequences, as we 
approach the November 15, 2004 PAR reports for agencies that 
don't? Should there be, you know--obviously, there is going to 
be public scrutiny. I mean, we are going to be looking at those 
reports, and we are going to be seeing who is complying and who 
is not, and those who aren't will get added focus from our 
committee, as well as from GAO, I am sure, but is there 
something that either of your organizations would suggest that 
we should consider for a consequence to put more teeth into 
these requirements?
    Mr. Gessing. Some sort of, you--just like the Sarbanes-
Oxley, you have someone sign off, a responsible party sign off 
on the accounting documents. I think an approach similar to 
that, where you hold the head of an agency, or you know, 
several people who are in charge, in authority, at these 
Federal agencies, and you know, there could be employment 
related consequences, or you know, funding for their agency 
related consequences, anything that really aggressively tackles 
the problem, and/or puts a name out there in front as being 
someone who is essentially not doing their job. So, something 
along those lines would be a real forward, you know, response 
to this problem.
    Mr. Gerow. Well, Mr. Chairman, I don't have any specific 
questions for so-called, you know, punitive measures in that 
regard, but I think that Mr. Gessing gets pretty close to it 
when he says, or suggests that the use of the appropriations 
process tends to get folks' attention in that regard, and as 
you begin to go through that process, I think that in the 
hearings that you hold, those questions need to be asked, and I 
would be glad to again, go back and consult with our folks in 
Washington to see if we can't provide you with a list of some 
specific measures that might be taken to provide a little bit 
more teeth and a little bit more bite to those who fail to live 
up to their responsibilities.
    Mr. Platts. And again, I welcome any additional specific 
suggestions, and my concern is that 11 of the 40 some programs 
didn't comply in 2003, and really nothing happened, other than 
we identified that they didn't comply, but there was no 
significant consequences to the personnel there, and the 
suggestion that the appropriate agency head or department head 
in a more public way acknowledging their department's failure 
to comply with Federal law, because as citizens, if we don't 
comply with Federal law, there certainly are always 
consequences to us. I certainly would welcome any suggestions, 
and we will do our best as a committee from the oversight and 
public scrutiny, and try to use the power of public disclosure 
and focus to encourage their compliance. But it does worry me, 
given how many did not file the OMB Section 57 requirements.
    One other specific department, and Mr. Gerow, you touched 
on it with Department of Education, and their challenges in 
this area. And it is an area that we look at one, because of, 
as a person who, but for student loans and grants and things, 
wouldn't have been able to get through undergrad and law 
school, and also, who celebrated, less than a year ago my final 
student loan payment basically, feeling that these programs 
need to be properly run, and that people shouldn't be wrongly 
compensated, and those who borrow money should be held 
accountable and pay their sums back. There is a number of 
specific student aid programs that seem to jump out as 
problematic, and I don't know if here today, or again, through 
written followup from the organization, if there are some 
specific proposals that we should be looking at regarding those 
Department of Ed programs, and especially the student aid 
programs, I would certainly welcome that. And if that is part 
of, maybe, that subsequent information, that would be great.
    Mr. Gerow. Yeah, Mr. Chairman, and I think the other thing, 
I don't know what the status is of the Inspector General's 
recommendation that there be a match with the data submitted to 
Internal Revenue, and those numbers that are put on 
applications.
    Mr. Platts. Right.
    Mr. Gerow. But that seems, to me, to be a worthwhile 
recommendation.
    Mr. Platts. And that is--I am checking my staff, see, I am 
trying to pool my memory here. There is some dialog going on 
with staff, with--and the hesitancy is IRS, their privacy 
protections, and they are appropriately being very protective 
of their information, because of the sensitivity of it, but if 
you want something from the Federal Government, there needs to 
be some understanding that you need to be more disclosing, but 
that is, and your reminder of that one is one that is under 
consideration in how to better match the systems. Because--and 
it is not just with student loans we are seeing it, in the last 
month or so, with defense contractors, that contractors 
continue to get millions of dollars in contracts, yet they 
haven't paid their Federal taxes in years. And we are not 
matching the systems. That really goes to our discussion with 
the first panel, with internal controls, but then 
communications within departments and agencies, or between, not 
just within, but between departments and agencies, that we need 
to do better with.
    Those are the areas I wanted to followup with you on, and 
your organizations' focus on these issues certainly adds much 
to the public debate in Washington and throughout the country, 
and helps to generate the public's interest, because I say, as 
the chairman of this committee, and as thoroughly--as one who 
is thoroughly enjoying and grateful for this opportunity to be 
Financial Management and Oversight and Government Efficiency, 
but for the average citizen, it is often not the most exciting 
issue, when we get into some of the auditing aspects of it and 
stuff, and when we put it into dollar terms, and I think, Mr. 
Gessing, your testimony about--or actually, both of your 
testimony about Medicare being such a big animal here with 
improper payments, and we are about to add a $395 or $530 
billion, over 10 years, new program, prescription drug for that 
average citizen, I say if you think about the average cost, and 
if you take the CVO estimate for the new prescription drug 
program, you take the OMB estimate, and you--somewhere in 
between, we are somewhere $35 to $40 billion a year is the cost 
of the new program. And then you realize that we are making 
improper payments of roughly that sum, at least, probably 
double that. It really puts it in perspective that if we really 
get our hands around this problem, how we help meet the 
commitments we have made to seniors and others as well in other 
programs, but specifically with Medicare.
    So, I thank you both for your testimony, and again, your 
organizations' efforts year round, and we will look forward to 
receiving the additional information. We will keep the record 
open for about 2 weeks to allow time for that information from 
you, as well as from Ms. Springer on the first panel. I want to 
thank all who are here today and our staff. I want to 
highlight, being York County, that two of our staff members, 
Amy Laudeman and Sarah D'Orsie over here, are York County 
natives, a proud York Catholic High School grad, and a 
Dallastown High School grad, who are members of our full-time 
staff on the subcommittee, and I know, great to have them back 
in the home community for today's hearing as well.
    So I think that concludes the hearing, and we stand 
adjourned.
    Mr. Gerow. Thank you.
    [Whereupon, at 4:19 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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