[Senate Hearing 110-319]
[From the U.S. Government Publishing Office]
S. Hrg. 110-319
ELIMINATING AND RECOVERING IMPROPER PAYMENTS
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 29, 2007
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES,
AND INTERNATIONAL SECURITY SUBCOMMITTEE
THOMAS CARPER, Delaware, Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri PETE V. DOMENICI, New Mexico
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
John Kilvington, Staff Director
Katy French, Minority Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 3
Senator McCaskill............................................ 7
WITNESSES
Thursday, March 29, 2007
Hon. Linda Combs, Comptroller, Office of Federal Financial
Management, Office of Management and Budget.................... 7
McCoy Williams, Director, Financial Management and Assurance,
U.S. Government Accountability Office.......................... 8
John W. Cox, Chief Financial Officer, U.S. Department of Housing
and Urban Development.......................................... 20
David M. Norquist, Chief Financial Officer, U.S. Department of
Homeland Security.............................................. 23
Timothy B. Hill, Chief Financial Officer, Centers for Medicare
and Medicaid Services, U.S. Department of Health and Human
Services....................................................... 25
Terry Bowie, Deputy Chief Financial Officer, U.S. National
Aeronautics and Space Adminstration............................ 27
Lee White, Executive Vice President for U.S. Operations, PRG-
Schultz International, Inc..................................... 40
Alphabetical List of Witnesses
Bowie, Terry:
Testimony.................................................... 27
Prepared statement........................................... 106
Combs, Hon. Linda:
Testimony.................................................... 7
Prepared statement........................................... 47
Cox, John W.:
Testimony.................................................... 20
Prepared statement........................................... 84
Hill, Timothy B.:
Testimony.................................................... 25
Prepared statement........................................... 92
Norquist, David M.:
Testimony.................................................... 23
Prepared statement........................................... 88
White, Lee:
Testimony.................................................... 40
Prepared statement........................................... 109
Williams, McCoy:
Testimony.................................................... 8
Prepared statement........................................... 51
APPENDIX
Questions and responses for the Record from:
Ms. Combs.................................................... 122
Mr. Williams................................................. 138
Mr. Cox...................................................... 147
Mr. Norquist................................................. 153
Mr. Hill..................................................... 158
Mr. Bowie.................................................... 161
Public Law 107-300............................................... 163
ELIMINATING AND RECOVERING IMPROPER PAYMENTS
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THURSDAY, MARCH 29, 2007
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:48 a.m., in
room 342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, Coburn, and McCaskill.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. The hearing will come to order. I just want
to start off by apologizing for Senator Coburn, myself, and our
colleagues for starting about 45 minutes late. The Senate has
been voting on the supplemental appropriation to provide
largely for additional money for our forces in Iraq and
Afghanistan and we have just finished the bill a few minutes
ago, so now we are here starting late, but we are grateful to
each of you for your patience and for those of you who have
come to testify and to respond to our questions.
When I first arrived in the Senate about 6 years ago, we
were debating just what to do with a very large budget surplus.
Just a few short years later, we find ourselves wrestling with
record budget deficits and wondering how we were ever going to
get our heads above water again.
I think we took an important step toward addressing our
serious fiscal problems last week with the passage of what I
thought was a sound budget resolution. Going forward, however,
we are going to need to do a lot more difficult work to close
the budget deficit and put ourselves on stronger footing in
preparation for the difficult fiscal period ahead when the baby
boomer generation--that is my generation--begins to retire.
We are going to need to find a way to collect some of the
hundreds of billions of dollars in taxes that are owed to the
Treasury that are uncollected each year, and we actually began
to address that a bit in the budget resolution itself. We are
going to need to control spending in some areas and in others
to cut or maybe eliminate it altogether. And I am certain we
will have a healthy debate about how best to do all of this,
but I am equally certain that we can get just about everyone to
rally around an effort to reduce what we call improper
payments.
When my staff and I first began our work on this
Subcommittee more than 2 years ago, working with Senator Coburn
and his staff, we held meetings with, among others, OMB, GAO,
and various agencies to learn about some of the financial
management challenges that the Federal Government faces and
what was being done about them. We were shocked--outraged,
even--to learn that at such a difficult time in our Nation
fiscally, some Federal agencies were making literally tens of
billions of dollars in avoidable improper payments year in and
year out.
In fiscal year 2006, agencies made some $42 billion in
improper payments, according to OMB's estimates. Most of these
improper payments were overpayments. Similar amounts of money
were wasted in fiscal year 2004 and fiscal year 2005, the first
2 fiscal years that agencies were required to report on the
improper payments that they make.
What Senator Coburn and I have learned through our
oversight work is that, unfortunately, these estimates aren't
always very meaningful. In fact, to a large extent, they are
only the tip of what could be a pretty large iceberg. The true
cost of a number of agencies' inability to implement the kind
of sound financial management practices that could prevent
improper payments, is likely billions of dollars higher than
OMB's estimates.
The official improper payments estimates that OMB releases
each year do not include any estimates for Medicaid. They don't
include estimates for the Medicare Advantage Program, the
Medicare Prescription Drug Benefit, Temporary Assistance for
Needy Families, or the school lunch program. They don't include
estimates for a number of programs in the Department of
Homeland Security, Department of Justice, NASA, and elsewhere
that have not even been examined to determine their
susceptibility to improper payments.
While we clearly have our work cut out for us, I applaud
the focus that OMB and the Administration have placed on the
improper payments problem. Eliminating improper payments is now
a major initiative under the President's Management Initiative
and progress is clearly being made as a result of that
emphasis. More programs are reporting improper payments each
year, and some programs have seen a sustained reduction in
their annual improper payments estimates.
That said, we need to step up our efforts, and by ``we,'' I
mean this Subcommittee, OMB, and more importantly, those
agencies out there that still don't appear to take their
responsibility under the law seriously when it comes to
eliminating improper payments.
About 2 weeks from now, taxpayers in Delaware, Oklahoma,
and across this country will be rushing to post offices to
submit their tax returns just as the filing deadline arrives. I
suspect a good portion of them will be none too pleased. They
would be even less pleased if they knew that the Federal
agencies entrusted with their hard-earned dollars, including
some who are represented here today and many who are not, have
proven incapable of complying, at least to this point, with
even the most basic elements of the Improper Payments
Information Act--the main tool that we use to address the
improper payments problem. Taxpayers also would not be pleased
to learn that agencies, including some that report significant
amounts of improper payments each year, may not be doing all
that they can to recover overpayments that they have made.
A number of agencies are required under the Recovery
Auditing Act to review their books each year, identify
overpayments, and attempt to collect those overpayments.
According to data compiled by GAO, however, less than a third
of the overpayments identified by auditors each year are
actually recovered. On top of that, the only overpayments made
subject to collections under current law are those made to
contractors.
It should be clear, then, there is a lot more work to be
done. I think we have the leadership now from the
Administration. Senator Coburn and I have been working hard,
along with our staffs, to provide constructive oversight. We
have been joined by Members of our Subcommittee, most
especially Senator McCaskill, former Auditor of the State of
Missouri.
But what we need to do now is to get agencies to be more
transparent about the mistakes they are making, start cleaning
up the management and internal controls problems that lead to
improper payments, and to work aggressively to recover those
improper payments that can be recovered.
I think I speak for all of my colleagues, and I don't need
to speak for Dr. Coburn, but I will try to for a moment, when I
say that this Subcommittee stands ready to help in the effort
to eliminate improper payments in any way that we can. I know
that the Administration has already submitted some suggested
legislative fixes that we are going to be considering. Senator
Coburn and I have already been working together to get two
amendments, including this last week in the Senate-passed
fiscal year 2008 budget, that would allow us to dedicate the
revenues generated from reducing improper payments and
increasing recovery auditing to deficit reduction.
My thanks again to our witnesses for taking the time to
participate in our hearing this morning to help us find a way
to bring agencies into compliance with the Improper Payments
Information Act and to reduce as much as we can the amount of
money that we waste each year through improper payments.
Senator Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Senator Carper, thank you so much for
having this hearing. Before we start, I want to commend Linda
Combs and OMB. They have been highly cooperative. I think from
her efforts, we have seen a lot of progress on improper
payments. I have some real disagreements with some of the
decisions associated with that, but nevertheless, the
cooperative nature and the way in which we have been able to
work together is very much appreciated.
I also want to thank GAO, and particularly Comptroller
General David Walker and McCoy Williams, for their outstanding,
fantastic work for the Congress. We would be imminently less
effective without both these agencies' help. I think it points
to the fact that the Executive and the Administrative Branch,
in conjunction with GAO, can have an impact.
I would just like to make a couple of comments. This is our
fifth hearing on improper payments and I think we ought to
assess what we are seeing. I disagree with Senator Carper. If
you do real accounting, one time in the last 50 years, we have
had a surplus, other than $3 billion one year in the 1990s, if
you do real accounting. The rest of the time, we have never had
a surplus and it is the game. It is just like this year we
reported a $175 billion deficit. If you use that same
accounting technique, we have never had a surplus, if you use
the same combined accounting technique.
So the national debt now stands at almost $8.9 trillion. We
added $400 billion to it last year. Medicare and Social
Security are likely bankrupt for our children and certainly for
our grandchildren. Congressional restraint has not improved. As
a matter of fact, you don't even have to worry about improper
payments. We tried to put some teeth in it with an amendment on
the 9/11 bill and the Senate won't enforce it. So consequently,
even though we were going to have this hearing, there is not a
will in the Senate yet to make sure that there are teeth
associated with enforcing the law, not a desire, not a rule,
but a Federal law that says the agencies have to comply.
We also see that there is a lack of Congressional
restraint. We have an emergency bill that just passed. Although
it is controversial, we added $20 billion outside of the budget
that will go straight to the deficit with a bill that we just
passed that is getting ready to be conferenced with the House.
Mr. Chairman, I have a rather lengthy statement and I think
what I would like to do is submit that for the record, since we
are late. I would say, and I will get into the area, there are
rulings by OMB that go directly against what the law states.
The law states that a risk assessment will be formed every
year, not every 3 years, but every year. That is what the law
states. And I don't believe that, although the spirit of
cooperation is great, I think we have a real problem there. I
am especially concerned with NASA.
I also would make one final point, as I ask for this to be
placed into the record.
Senator Carper. Without objection.
Senator Coburn. The three testimonies we received, two late
yesterday afternoon, one last night--I asked the Chairman that
those people not be able to actually give their testimony and
just be here, as we do in several other committees within
Congress. I think it is highly important--and there is no
excuse, this hearing has been on the docket for a long time--
for us not to have had that testimony. Whether that is OMB
holding it up or who, it doesn't matter to me. The fact is, it
is inappropriate for Congress to get testimony the night before
a hearing and expect for us to stay up and prepare all night
because the Administration doesn't want to get its job done in
a timely fashion.
So I would suggest if that happens in the future, I would
kindly ask the Chairman that those who are late with their
testimony are not allowed to give their testimony and just have
to respond to questions.
Senator Carper. Thank you, Dr. Coburn.
[The prepared statement of Senator Coburn follows:]
OPENING STATEMENT OF SENATOR COBURN
INTRODUCTION
I want to commend OMB and Linda Combs in particular for their
efforts to tackle the problem of payment errors. Ms. Combs, your
efforts have been Herculean and I appreciate your work. We may not
always agree on everything, but I can't thank you enough for how well
your office has worked with this subcommittee. It has been a model for
how the legislative and executive branches ought to work together to do
the very best for the American people.
I also want to thank GAO, particularly Comptroller General David
Walker and Mr. Williams, who is with us today. As new Members and their
staffs come into the Congress, we would be infinitely less effective on
technical issues such as today's topic without the hand-holding and
painstaking analysis you all provide us.
CONTEXT
As we embark on our fifth hearing on improper payments in the past
two years, let's review the nation's fiscal outlook.
The national debt stands at $8.8 trillion.
Medicare and Social Security are likely to bankrupt for
our children and certainly for our grandchildren.
Congressional restraint has not improved since the
elections--``exhibit A'' is that the House recently passed an emergency
war spending bill, but not before saddling this $100 billion spending
with $20 billion more of pork and carve-outs for special interests such
as spinach and peanut storage.
PROGRESS ON PAYMENT ERRORS
That's the big picture. Let's look at today's part of that
picture--payment errors.
The Improper Payments Information Act of 2002 requires the
following:
Perform a risk assessment to determine whether or not
programs and activities are susceptible to making ``significant
improper payments,'' (defined by OMB as program where at least 2.5% of
all payments are improper AND the absolute dollar figure associated
with that 2.5% or more totals at least $10M.)
Develop a statistically valid estimate of improper
payments for all programs and activities identified as susceptible to
significant improper payments in the risk assessment.
Develop a corrective action plan for all programs where
the statistical estimate exceeds $10 million in annual improper
payments, The remediation plan must contain annual targets for reducing
improper payment levels.
Report the results of IPIA activities on an annual basis
to Congress, and in the DHS Performance and Accountability Report.
So that's what the law requires. Where are we?
In the third year of IPIA reporting, only 18 of the 36
agencies have reported even reviewing all programs and activities as
part of the risk assessment process.
In other words, only half of all Federal agencies have
completed their required risk assessment.
Twelve agencies provided enough details that indicated
some level of review.
Another six agencies have yet to report ANY information
on their risk assessment.
We have also made little progress in finding a proven,
reliable methodology to determine accurate risk assessment data.
Some agencies still use non-statistical sampling, while
others use single audits to identify risk assessments. Others,
including witnesses today, are incorrectly claiming that their recovery
audits are valid proxies for the statutorily required statistically
valid risk assessment.
Both methods lack the depth and detail required to
determine adequate risk assessments.
So how does this status translate into dollars?
This year, the government-wide improper payment estimate totaled
$42 billion, up from $38 billion last year. Yet, given that only HALF
of the agencies have provided complete risk assessments and that there
is a lack of consensus on the methodology used to determine improper
payment estimates, we're still in the dark when it comes to
understanding the total magnitude of the problem.
RECENT DEVELOPMENTS
One of the more troubling discoveries this year is the fact that
OMB revised IPIA implementing guidance in a way that is fundamentally
at odds with the law and Congressional intent.
Despite the overwhelming evidence that we're not yet properly
identifying risk-susceptible programs, the revised guidance lightens
the burden and allows for agencies to perform risk assessments every 3
years for those programs not deemed susceptible to significant improper
payments.
This is alarming for several reasons. First, the IPIA is still in
its infancy. GAO reported that for fiscal years 2004 through 2006,
``some agencies still had not instituted systemic methods of reviewing
all programs and activities or had not identified all programs
susceptible to significant improper payments.'' GAO also reported
further that ``agencies employ different sampling methodologies to
estimate improper payments and certain agencies risk assessments appear
questionable.'' These facts suggest that there's not a consensus that
we've got the risk assessment process well-in-hand enough to go easier
on agencies in risk assessment.
For instance:
In 2005, the Department of Agriculture's Marketing
Assistance Loan Program had an error rate of 0.7%. This year, it
skyrocketed to 20.3%.
Another example is the Department of State's
International Information Program-US Speaker and Specialist Program. In
2005, the improper payment estimate totaled $1.9 million, with an error
rate of 81.2%. In 2006, the error rate dropped to 23.8%, HOWEVER, the
improper payment amount tripled to $6.7 million.
I don't think we need to spend energy weakening the law and
figuring out which programs should be exempt from annual risk
assessments until a consistent, statistically valid method is
established government-wide to identify payment errors.
RECOVERY AUDITS
I am encouraged by the potential that recovery audits can bring to
the problem of payment errors. A provision in the National Defense
Authorization Act for FY 2002 requires that agencies that enter into
contracts in total excess of $500 million in a fiscal year must carry
out a cost-effective program for identifying and recovering amounts
erroneously paid to contractors. Recovery audits are a win-win. First,
they recapture lost payments. In Fiscal Year 2006, $256 million was
recaptured.
Unfortunately, that's only about a third of the amount that was
identified as needing to be recovered. But the amount we're talking
about here isn't even a billion dollars. With payment mistakes totaling
over $40 billion, we need to do more than just recover a billion, which
is why the second benefit of recovery audits is so useful.
These audits help us determine weaknesses in our financial systems
responsible for the payment errors in the first place. Agencies should
pay close attention to the recovery audit reports as they provide
useful insights about where their vulnerabilities exist and what
effective internal controls can be implemented for prevention.
I do want to note however, that recovery audits are only required
on contracts larger than $500 million. They are also generally
retrospective beyond the most recently ended fiscal year. In other
words, under no circumstances can they serve as legal ``proxies'' for
the statutorily required statistically valid risk assessments for the
sake of estimating likely rates of payment errors for agency estimates
for previous fiscal years. I am dismayed that some agencies seem to be
in error on this point.
Ultimately, transparency and risk assessment data are only the
beginning of accountability, not the end. We can conduct oversight
hearings until we all turn blue in the face. Exposing the true scope of
the problem has been hard enough, and we're still not there with any
sort of methodological rigor.
LACK OF POLITICAL WILL
However, even if we were, it grieves me that so far, this Congress
has not had the political will to address the problems that have been
exposed. I have offered numerous amendments to bills in the past 2
years to address payment errors and most of them have failed.
Things are different here in Washington. If an employee at a
private firm made a major payment error, he would probably face
disciplinary action, and might even be fired or forced to pay for the
lost funds. But if a government official makes a major payment error,
or oversees a program which routinely makes payment errors, there is a
strong possibility he would face few consequences, and that's assuming
that the mistake were even discovered.
Much of our Federal spending is too incoherent to be audited, much
less pass an audit. If Members of Congress had to vouch for the
integrity of our financial statements the way we require private firms
to do under Sarbanes-Oxley requirements, we'd either have to admit we
couldn't do it, or else go to jail for deceiving the public.
Although progress has been made by this President, and he inherited
the accumulated mess of decades of out-of-control government growth,
still, the status quo is shameful. I hope that this Congress will be
the Congress that finally finds the courage to bring the painful, but
necessary accountability to address this problem.
I want to thank our witnesses for coming today.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you. I do not have an opening
statement. I do, however, have to leave and preside at noon. I
am hoping that--I am anxious to talk to the second panel about
their failure to provide risk assessments. I know you all have
worked on this for years and I appreciate both of your work on
it and I want to just add to your chorus on this that it is
unacceptable that we do not have risk assessments from these
departments. If I am not here to hear it, I know that you all
will do a great job of asking the questions for me as to what
in the world their excuse could be not to have risk assessments
in those departments.
Thank you, Mr. Chairman.
Senator Carper. I hope you will have that opportunity to
ask the second panel. Thanks.
Again, I am not going to introduce at any length Ms. Combs
and Mr. Williams. We are delighted that you are here. Thank you
for your good work that you do and for the spirit of
cooperation that you bring to this effort. Ms. Combs.
TESTIMONY OF HON. LINDA M. COMBS,\1\ CONTROLLER, OFFICE OF
FEDERAL FINANCIAL MANAGEMENT, U.S. OFFICE OF MANAGEMENT AND
BUDGET
Ms. Combs. Mr. Chairman and Members of the Subcommittee, I
am very pleased to be here to speak with you today on the
progress being made in implementing the Improper Payments
Information Act and the Recovery Auditing Act.
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\1\ The prepared statement of Ms. Combs appears in the Appendix on
page 47.
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Today, I am glad we can discuss accomplishments in
implementing the IPIA, the government progress we have made,
and how Congress can assist us in achieving our shared
objective of eliminating improper payments. The Federal
Government is achieving measurable results in meeting the
President's goal to eliminate improper payments and fulfilling
the requirements of IPIA. Since the first reporting under IPIA
in fiscal year 2004, our efforts to eliminate improper payments
have been centered on three primary requirements of IPIA:
Identifying the risk-susceptible programs, eliminating the
annual amount of improper payments in those risk-susceptible
programs, identifying the root causes of those improper
payments, and correcting the errors.
In fiscal year 2006, agencies strengthened their methods
for risk assessing their programs and activities for improper
payments. As a result of these improvements, the amount of
Federal outlays determined to be susceptible to improper
payments increased from $1.4 trillion to $1.7 trillion. This
increase reflects the continued commitment of Federal agencies
to ensure that all potential sources of error are reported.
Efforts are continuing to move the Executive Branch to full
reporting under IPIA by 2008. Eighty-one percent of all risk-
susceptible outlays are being measured for improper payments,
and when the fiscal year 2008 results are reported, almost 100
percent of risk-susceptible dollars will report an error
measurement.
The amount of improper payments in programs originally
reported in 2004 were reduced from a baseline of approximately
$45.1 billion to $36.3 billion this year, a nearly $9 billion
or 20 percent reduction. These original programs continue to
represent a significant majority of the 2006 improper payments.
The overall Federal 2006 improper payment rate was 2.9 percent
and total improper payments equalled $40.5 billion.
Let me take this opportunity to express my sincere
appreciation to the Senate for providing over a billion dollars
in adjustments to the discretionary caps for program integrity
and tax compliance efforts in the Senate budget resolution, as
reported out of the Budget Committee. We would, of course,
encourage the House to include these cap adjustments in their
budget resolution, as well, and we welcome your leadership,
along with ours, in helping to make this happen.
Additionally, we are most appreciative of the Senate's
interest in including language to newly authorized bills that
stress the importance of program integrity. We also invite your
leadership in assisting in the enactment of the other program-
specific reforms that are included in the President's fiscal
year 2008 budget. Those are listed in my written testimony,
which I submit for the record.
This Administration will continue to hold agencies
accountable under our tool of the President's Management Agenda
Eliminating Improper Payments Initiative, and further build
upon recent results to address remaining challenges. We are
optimistic that our current efforts, complemented by the
enactment of the program integrity reforms proposed in OMB's
annual IPIA report, and full funding of the President's request
for program integrity efforts will continue to pave a path
forward in achieving our shared objectives to eliminate
improper payments.
And I will add that the success that we have had to date
and the success that we will have in the future would not have
been possible without the cooperation of both the Legislative
Branch, my colleagues at GAO, as well as our colleagues here on
the Hill, and we look forward to continuing to work with you in
ways that will, indeed, do the best for every taxpayer and that
will focus our resources on the very best return for each
dollar we put into this program. Thank you.
Senator Carper. Thank you, Ms. Combs. Mr. Williams.
TESTIMONY OF McCOY WILLIAMS,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Williams. Thank you, Mr. Chairman, Members of the
Subcommittee. I am pleased to be here today to discuss the
government-wide problem of improper payments and agencies'
efforts to address key requirements of the Improper Payments
Information Act and Recovery Auditing Act. Our work over the
past several years has demonstrated that improper payments are
a longstanding, wide-spread, and significant problem in the
Federal Government.
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\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 51.
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At the outset, let me commend this Subcommittee for
continuing to hold oversight hearings on this important issue.
Also, OMB has played a key leadership role in addressing this
problem. For example, OMB continues its commitment to identify
and eliminate all improper payments government-wide by working
with the agencies to establish corrective action plans to
address their root causes. OMB also annually reports on
agencies' efforts to address IPIA and Recovery Auditing Act
requirements.
Mr. Chairman, my testimony today will focus on three areas:
Trends in agencies reporting under IPIA for fiscal years 2004
through 2006, challenges in reporting improper payment
information, and agencies' reporting of Recovery Auditing
efforts to recoup improper payments.
First, since 2004, agencies have made some progress in
reporting improper payment information. The total number of
programs reporting improper payment estimates for fiscal year
2004 totaled 41, compared to 60 programs for fiscal year 2006.
The total improper payment dollar estimates was $45 billion for
fiscal year 2004, $38 billion for fiscal year 2005, and about
$42 billion for fiscal year 2006. The increase in the estimate
from 2005 to 2006 was primarily attributable to 15 newly
reported programs totaling about $2.4 billion, and a $1.6
increase in USDA's Marketing Assistance Loan Program estimate
due to improvements in how it measures improper payments. In
addition, several programs experienced increases in their
improper payment estimates as a result of lax up-front
eligibility controls related to benefit delivery to victims
devastated by Hurricane Katrina.
Now I would like to highlight some of the major challenges
that remain in meeting the goals of the Act and ultimately
improving the integrity of payments. First, some agencies have
not yet reported for all risk-susceptible programs. For
example, the fiscal year 2006 total improper payment estimate
of about $42 billion did not include any amounts for 13
programs that had fiscal year 2006 outlays totaling about $329
billion.
Second, certain methodologies used to estimate improper
payments did not result in accurate estimates.
Finally, GAO noted that internal control weaknesses
continued to plague programs susceptible to significant
improper payments. For example, in the Department of
Education's fiscal year 2006 PAR, the OIG reported that
identifying and correcting improper payments remains a
challenge for the agency due to ineffective oversight and
monitoring of policies, programs, and participants.
With regard to recovery auditing, Mr. Chairman, again, we
have seen some progress. For fiscal year 2004, 12 agencies
reported recovering about $53 million, compared to 18 agencies
that reported recovering about $256 million for fiscal year
2006. Given the large volume and complexity of Federal payments
and historically low recovery rates for certain programs, I
would like to emphasize that it is much more efficient and
effective to pay bills and provide benefits properly in the
first place.
In closing, Mr. Chairman, we recognize that measuring
improper payments and designing and implementing actions to
reduce them are not simple tasks and will not be easily
accomplished given today's budgetary pressures and the American
public's interest and increasing demand for accountability over
taxpayer's funds. Oversight hearings such as this one today
help keep agencies focused on the goals of IPIA and being
accountable for results.
I look forward to continuing to work with this Subcommittee
as well as Federal agencies and the Administration to address
this problem. This concludes my statement. I will be pleased to
respond to any questions you or Members of the Subcommittee may
have. Thank you.
Senator Carper. Thank you very much. I think we are going
to take 7 minutes for questions and I will try to keep us close
to that. I will certainly stay close to that myself.
Thank you very much for your testimony. Let me start, Ms.
Combs, with a question for you, if I may. Speaking on behalf of
OMB and the Administration, what do you feel is especially good
that you all have been doing over the last 3 or 4 years since
the law was passed in 2002? What do you feel especially good
about and where is the heavy lifting that still remains to be
done?
Ms. Combs. Thank you, Mr. Chairman. I think the thing I
feel especially good about is that the trends that Mr. Williams
just spoke about are continuing to go the right way. We
obviously still have an awfully lot to do. It is clear when we
look at the challenges with particularly State administered
programs, that is where our challenges remain.
We have some very good things to be proud of. They are
included in my written testimony as well as GAO's, so I won't
go over those. But probably it serves us all best to
concentrate on where the challenges are.
Senator Carper. If you would, please.
Ms. Combs. I think that the federally-funded programs that
are State administered pose the greatest challenge for our
agencies and departments as well as for the work that we are
all doing in a more collective way.
Senator Carper. Can you give me some examples of those?
Medicaid and what else?
Ms. Combs. Well, there are several of those and let me just
say where I think the critical challenges are.
Senator Carper. OK.
Ms. Combs. The critical challenges, I think, are to make
sure that the roles and responsibilities for what is a State
responsibility versus what is a Federal responsibility is very
important. I think a lot of States have situations where they
really need to understand how the money is distributed. They
have their own requirements. I think what we have done with
meeting with some of the State agencies and some of these State
representatives, I personally have met with some of them to try
to ferret out what we can do individually with States and
collectively and I appreciate the partnerships that we have had
with the Association of Government Accountants, for example. We
have had additional meetings continue as we work with those
groups of people.
And I think that one of the things that we have talked with
you and your staff about that we will continue to do and that
continues to help all of us is that when statutes are enacted,
making it very clear to have the authorization in there that
lets the Federal components do what needs to be done in order
to work with the agencies and put in program integrity roles
and responsibilities, making sure those are clearly defined and
that the program integrity funds are set aside so that we can,
indeed, assure that we don't have improper payments like we
have now.
Senator Carper. Mr. Williams, it is clear to me, at least,
that when you look at the major high-risk programs that have
not yet reported improper payment estimates, that some of them
have a lot in common. They all spend a lot of money. Many of
them seem to involve grants or some shared administrative
responsibilities with States, as Ms. Combs has just said. Why
do you suppose programs like this have had so much trouble
reporting improper payment estimates? What does OMB do to help
them along and what can Congress do to help make that job
easier? Do we need to make it clear to States or to grant
recipients in some way that they have a responsibility to help
agencies make sure the program funds are spent properly?
And as sort of an adjunct to that, one of our later
witnesses talks about incentivizing States. It is hard, as an
old governor, to expect States to do a whole lot of extra work
if they don't get something out of it. If there is a shared
responsibility to administrate in recovering these funds, I
think as sort of an adjunct to that, common sense would be that
they ought to share in some of the gain.
So if you could sort of reflect on those series of
questions, I would be grateful. Thank you.
Mr. Williams. Mr. Chairman, we issued a report last year, I
believe it was in the spring--I don't remember the exact
month--but it looked at those particular programs and we
basically reported that there is about $400 billion in grants
that the Federal Government issues each year. I think our
bottom line message was that this is going to take a
coordinated effort between the Federal Government and the
States to address this improper payment issue. Everyone has a
responsibility to make sure that the funds make it to the
intended recipient.
So I think that needs to be taken into consideration, and I
think that one of the other components of your question related
to why this is such a difficult area to get a handle on. I
think OMB has basically stated in its reports, and we would
agree, that if you look at the Medicaid program, for example,
within the Federal Government framework, each State has its own
rules and regulations as to how it operates, so you have to
work with these individual States and see if you can come up
with the method where you can actually identify a methodology
that you can come up with a number that is reasonable and that
will give you that baseline that you need to begin identifying
and reporting so that the ultimate job of reducing the improper
payments can get underway in these particular grant programs.
Senator Carper. Ms. Combs, you stated that certain
methodologies used to estimate improper payments that did not
result in accurate estimates. Could you just take a moment and
explain to us what that means and what needs to be done to help
ensure that amounts reported by agencies are, indeed, accurate?
Ms. Combs. The rationale is that any of our guidance
documents, we try to ensure that the cost of requirements that
we impose on agencies are justified by the benefits that are
realized. I think that one of the things that we have an
opportunity to do here is, as we mentioned earlier, to do what
is best for the taxpayer and to focus our resources on what is
the best return possible.
Senator Carper. We may come back to that one after we go
one time through. Dr. Coburn.
Senator Coburn. Thank you, Mr. Chairman.
Do you want to reflect back now and answer the Chairman?
Ms. Combs. OK.
Senator Coburn. I will give you some of my time.
Ms. Combs. I was going to mention the 13 programs. They
have been mentioned here earlier. And all I wanted to say was
that we have all 13 of those programs scheduled to report an
error measurement and they all have a timeline for reporting.
You have mentioned TANF. That has a component rate coming in
this year. One of the components is going to report in 2007,
and then the full rate will be in 2008. And CCDF will report a
component rate in 2008. Medicare Advantage, Medicare
Prescription Drug Benefit are all going to report component
rates in 2008. I just wanted to get that on the record.
Senator Coburn. Thank you. Mr. Chairman, I have several
questions I would like for us to be able to submit in writing
to the witnesses, if we can----
Senator Carper. Without objection.
Senator Coburn [continuing]. And have a prompt response.
I also want to enter into the record, Public Law 107-300,
and here is what it says in Section 2.\1\ The head of each
agency shall, in accordance and with guidance prescribed by the
Director of OMB, annually review all programs and activities
that it administers and identify all such programs and
activities that may be susceptible to significant improper
payments. Estimation: With respect to each program and activity
identified, the head of the agency shall estimate the annual
amount and submit those estimates to the Congress. It couldn't
be more clear.
---------------------------------------------------------------------------
\1\ Public Law 107-300 appears in the Appendix on page 163.
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Ms. Combs. A proven track record of low rate of improper
payments.
Senator Coburn. Like what?
Ms. Combs. National Science Foundation, education and
research programs. They reported in 2004 and 2005 and they have
a 0.02 error rate.
Senator Coburn. OK.
Ms. Combs. VA insurance programs reported in 2004 and 2005
a 0.02 percent error rate. EPA Clean Drinking Water and State
Revolving Fund Programs reported in 2004 through 2006, 0.18
percent.
Senator Coburn. OK. I just wanted one.
Ms. Combs. OK.
Senator Coburn. That's fine.
Ms. Combs. I realize that there has been some contention
over this and we are certainly--we have an open book, as you
know.
Senator Coburn. I know you do.
Ms. Combs. We have offered many times that if there are
specific programs that we need to scrutinize more closely, we
will do so.
Senator Coburn. Here is the point I am going to. IPIA has
only been reporting 3 years, so how do you have a proven track
record if we have only been doing this for 3 years.
Senator Carper and I were successful, along with several
other Senators, in passing the Transparency and Accountability
Act. In 2009, all this stuff is going to be on computer. All
this stuff is going to be on a website. There isn't going to be
a reason why something can't be reported or followed.
Is all these contracts and all these State-run programs
that we supposedly have problems with, like TANF, Medicaid,
CDBG, Child Care Block Grant, Food Stamps, and everything else,
has to come online at the same time? Otherwise, we are going to
be out of compliance with that law like we are this one. So
what assurance can you give me that we are on track on the
others and staying on track as far as the payment error
problem?
Ms. Combs. Well, I just want to say, Dr. Coburn, I
certainly commend the Senate and your efforts, and the
Chairman's efforts, in making these things possible because it
is through our collective efforts that all of us have been able
to work together to give the kinds of pushes that we have
needed to make these things happen.
I think all of these new technologies that are coming into
play will do nothing but accelerate our efforts. All I am
appealing to you today to let happen is let us get the very
best dollars we possibly can for the American taxpayer by using
the resources we have to make sure that there aren't any huge
holes in there like we saw in 2004. I am convinced of that and
I do believe that the statistics that we have and that we have
worked through play out to that effect, not that we are where
we need to be. We can all do more.
Senator Coburn. Right. I understand. We are shooting at a
moving target, but we are getting better, and----
Ms. Combs. Yes, we are.
Senator Coburn [continuing]. I have no complaints with OMB
other than on some of the decisions they have made with what is
in compliance and what is not.
Explain to me, Mr. Williams, if you will, how you all can
find NASA out of compliance and OMB can find them in
compliance. How does that happen? I mean, we have 2004 from you
all saying they are not in compliance and OMB is saying on the
basis of the look-back 10 years ago on a recovery audit that
they are in compliance. How does that fit with the law?
Mr. Williams. Let me just speak for GAO. We took the basic
requirements of the law, which basically states that you are
supposed to do your risk assessment and then develop your
statistically valid estimates, come up with some corrective
action plans, and report. We are basically saying that they are
not in compliance because the review that was done by the
auditors, it questioned the risk assessment. So in our opinion,
if you did not do all four of those requirements, then you are
not in compliance. So that is how we came up with the non-
compliance.
Senator Coburn. So the auditors had a question about the
risk assessment that was made----
Mr. Williams. Yes. On a lot of these agencies that we are
talking about, we basically refer to the work that the auditors
performed in the area of IPIA while they were performing their
financial statement audit. As you know, the law itself
basically does not require the IG or an IPA to do an
independent review to see as far as the quality is concerned.
As you probably noticed in my testimony, we kind of referred to
that, that might be a good idea to have that independent set of
eyes, because we view the risk assessment as the basic
foundation for making sure that you are actually carrying out
the steps----
Senator Coburn. So if you have a questionable risk
assessment, then, what that means is you can't comment on
whether or not you are in compliance or not.
Mr. Williams. I guess an analogy is kind of like if you
miss out on the introduction to accounting, you are probably
lost the rest of the way through accounting.
Senator Coburn. I have got you. Thank you. My time is
expired.
Senator Carper. Thank you, Dr. Coburn. Senator McCaskill.
Senator McCaskill. Thank you. The estimates that we are
using for improper payments, I am uncomfortable with those
estimates. I know that there is appropriate back-padding going
on as it relates to progress, but if we are using estimates
that we know are too low, I don't know that we are really doing
anyone a service on this. I want to make sure I understand
correctly, Mr. Williams, I think that your testimony is what
touches on this because GAO is the one who has done this work--
that there are 13 risk-susceptible programs that have outlays
of $329 billion in fiscal year 2006 that are not even included
in these estimates. Is that correct?
Mr. Williams. That is correct. That number is approximately
$329 billion, and what we are basically saying is that--and I
guess our overall message is that, yes, progress has been made,
but we are not at the point where we have our hands around the
entire picture and these 13 programs are the ones that we are
talking about that over the next couple of years, it appears
that they will have these risk assessments in place. But until
then, we are not for sure what the total number is.
We are using some baseline data based on those agencies
that reported in those years, but at no point in time up to now
do we have a number that represents the entire Federal
Government.
Senator McCaskill. And how confident are you of the
baseline data? Are you confident of the baseline data? It makes
me nervous.
Mr. Williams. The baseline data is a first step. We have
identified problems over the last 2 years with some of the risk
assessments, some of the sampling, and we have reported on
situations in which agencies have basically said one thing and
the independent auditors have gone in and contradicted that
statement.
So I think that while there has been progress, there is
still a lot of room for improvement. There are a lot of things
to be done before I am comfortable with saying that I think we
know what we are dealing with. I think we still have work to do
in identifying what is our universe of improper payments?
Senator McCaskill. Ms. Combs, the significant designation
guidance from OMB, the significant improper payment, that you
all have indicated that to be significant, it has to exceed $10
million and 2.5 percent of outlays. The ``and'' in that
phrase--I am curious why we need the ``and,'' because we are
talking about potentially hundreds of millions of dollars that
could not be significant if you are dealing with some of these
programs, and frankly, some of the programs that right now are
not even part--I mean, we are talking about $329 billion that
we haven't even gotten any kind of indication yet.
Ms. Combs. Well, if we start from the universe of the $2.7
trillion of outlays and we know now that we have a high-risk
outlay of $1.7 trillion of that $2.7 trillion, and we look at
where are the best places to put our resources in taking care
of that $1.7 trillion in high-risk that is currently being
tracked today, we decided that the basis for the $2.5 trillion
was to make sure that Federal agencies indeed focused on the
resources for the programs that would provide the most return
on investment for the taxpayer. If you look at the first seven
programs we came out with in 2004, those seven programs are
still the most significant programs in our 2006 reporting where
we have the most improper payments.
So in order to help you with your confidence level a little
bit, hopefully, if you look at those and realize that is 95
percent of that $1.7 trillion, then most of that is
encapsulated in that. So that is some confidence. Granted,
there is still a lot out there, as Mr. Williams just talked
about. There are still some things that we don't know. But we
do have risk assessments. We have 81 percent of these high-risk
programs have measurements today, and by 2008, 100 percent of
them will have.
So those are the kinds of things that we know we are making
progress on. We are not there yet and we welcome the
opportunity to work with you and the Subcommittee to work on
specific programs. If you know of some that are out there, we
have an open invitation that we will be glad to monitor and
follow those----
Senator McCaskill. That is a dangerous invitation to extend
to me. Very dangerous. [Laughter.]
Calling something that might be more than $10 million
insignificant just kind of sticks in my craw and I think that
is problematic.
Let me ask both of you about the recovery audits, my
experience has been that there are all kinds of companies out
there that are willing to do this and absorb the costs in
return for a cut of the money. I assume that is the case in the
Federal Government, that these contractors that are being used
on these recovery audits are being paid a percentage of what
they recover?
Ms. Combs. Yes, that is correct.
Senator McCaskill. Well, then why is it not cost effective
for everybody to do it?
Ms. Combs. Cost effective for every agency to do it?
Senator McCaskill. And every program. I mean, if the
recovery audits are all being done on contingency, in other
words, if we don't have to put any money out of our pocket and
we hire people and they are the ones that are taking the risk
and they are the ones that have to have the overhead, and if
they recover money, we get what they recover and they take a
piece of it, then why in the world are we waiting until 2010 in
CMS and other places to make it system-wide? Why do we want to
do pilot programs? Why don't we say, come one, come all. If you
are in the private sector and you think you can recover money
for us, sign up, and if you do, we will give you part of it and
the taxpayers are the winner there.
Ms. Combs. Well, I think that those are some things that we
could sit down and talk about. There are, as I mentioned
earlier, some very complicated issues when it comes to trying
to address a one-size-fits-all. It does not one-size-fit-all,
so we welcome your suggestions and look forward to meeting with
your staff and talking about that.
Senator McCaskill. If I could tell one story--when there
was a flood in Kansas City and I was a prosecutor, I saw people
lined up to get Food Stamps in an area of town where water had
not come near. I sent my investigator down to interview people
in the line--the line stretched around the block--and started
asking people in line if they had flood damage. People readily
admitted, no, they just told you to come and sign up and you
got Food Stamps.
So I held a press conference the next day and said, if you
got Food Stamps and you didn't deserve them, if you turn them
in in the next 2 days, we won't prosecute you. It was kind of a
recovery program. And we had hundreds of thousands of dollars
of Food Stamps that were turned in voluntarily. Now, someone
from the Federal Government called me and asked me what the
heck I thought I was doing. They wanted to make it complicated.
They wanted to know where I asked the people to turn them in
and what kind of authority I had to ask them. Well, I just
asked people if they got them and they didn't deserve them and
they thought they had done it illegally, they should turn them
in. I just worry sometimes that we make this more complicated
than it needs to be, and that gets in the way of just going
after it. Thank you, Mr. Chairman.
Senator Carper. Thank you very much. I think maybe we will
take a couple of minutes apiece for follow-up and then we will
turn to our second panel.
A number of high-risk programs have had trouble reporting
estimates on the Improper Payments Act. Thus far, they have
goals in place to begin reporting, I believe in 2007 and 2008.
There are, I think, at least four major programs--we have
talked about them already--the Child Care Development Fund,
Medicare Advantage, Medicare Prescription Drug Program, and the
Temporary Assistance for Needy Families Program--that are not
reporting and, as I understand it, don't yet have a timeline in
place for coming into compliance with the Act.
This is probably more for Ms. Combs than not--what
progress, if any, has been made in bringing those four specific
programs into compliance and when you think that we can expect
estimated improper payments from them?
Ms. Combs. TANF will report a component rate by 2007 and a
full rate by 2008. CCDF will report a component rate in fiscal
year 2008. Medicare Advantage----
Senator Carper. Say that again.
Ms. Combs. Fiscal year 2008.
Senator Carper. For what?
Ms. Combs. CCDF, Child Care----
Senator Carper. Yes, but what will they do by 2008?
Ms. Combs. Child care.
Senator Carper. What will they do--what will be
accomplished by 2008?
Ms. Combs. They will report a component rate. One of their
divisions will report, so they will be reporting what we would
call a partial rate.
Senator Carper. Alright.
Ms. Combs. Medicare Advantage and Medicare Prescription
Drug Benefits will both report component measurements in fiscal
year 2008.
Senator Carper. Mr. Williams, should we take some comfort
from that, what Ms. Combs has just responded?
Mr. Williams. Well, anytime that you have an agency or
component within an agency that is not reporting and there is a
timeline, that is better than some that we have seen in the
past in which there was no information at all, that we were not
for sure when anything was going to be reported. So yes, there
is some progress there, but as I have stated earlier, the
sooner that you are able to get your hands around the entire
universe, the better I think we will all be in looking at this
particular issue of getting that good base of improper payments
government-wide.
Senator Carper. Alright, thanks. And the only other
question I have, I want to go back to how do we incentivize
States. When we have these partnership programs, how do we
incentivize the States to work with us so they can come out
ahead, the Federal Treasury comes out ahead, the taxpayers come
out ahead, both in the States and at the Federal level?
Ms. Combs. I think you are going to hear from the next
panel one of the very good success stories of how we
incentivize States to do that. Rather than stealing their
thunder, maybe you should hear directly from them. But there
are some very good ways. When we work collectively with States
and hear their concerns, know what it takes for incentives for
them to work through these situations, which are very
complicated, in their own individual States with their State-
administered programs, we really can have some good, positive
lessons learned, and I think you will hear that in the next
panel coming up from particularly one or two of these.
Senator Carper. Mr. Williams, I want to ask you the same
question. How do we incentive States, more broadly? I
appreciate the fact that we are going to hear from at least one
witness in the next panel, but how do we do it more broadly,
because there are a number of programs where there is this
shared partnership, as you know.
Mr. Williams. Yes.
Senator Carper. It is those programs where we have some of
the biggest problems in recovering improper payments.
Mr. Williams. Yes. I think we have to look at that
particular process, and one of the things that I have seen in
the past is that if you take these programs and if money is
recovered, for example, and you are able to keep that rather
than it going back to another fund or going to another
operation, then if there is some incentive there that if I get
this money back, I can use it to carry out this program
further, and I think that type of an incentive is something
that you really want to have in place. But if you have a
program in which there is an improper payment, for example, and
if the money is collected it goes back into a fund that cannot
be used for the purpose of carrying out that particular
program, then there is no incentive there. So you need that
type of incentive.
Just from an overall accountability standpoint, one thing
that, if I could add to all of this, as far as not just the
incentives are concerned, but as I stated in the testimony, the
recovery component of it is your second choice. You really want
to have systems, policies, and procedures in place----
Senator Carper. You make that point in your testimony----
Mr. Williams [continuing]. To prevent this from happening
in the first place.
Senator Carper. Good point. And I am going to come back and
ask each of you to reply to that same question again in writing
because I want you to think it through. How do we take these
specific results that we are going to hear in the next panel
and how do we broaden that application throughout this shared
partnership. Thank you.
Senator Coburn. Well, first of all, I want to say how
pleased I am Senator McCaskill is on this panel.
Senator Carper. Me, too.
Senator Coburn. It is refreshing and greatly needed to have
the help and thank you for being here.
The thing you will notice is that you did not get an answer
to your question, and that is not a criticism of Ms. Combs. She
doesn't have the ability to agree with you because of the
constraints that she operates under. But that is the question
that ought to be answered for the American public.
The Recovery Act limits it to $500 million or more, so the
first question is how do we change that Act to where we move
that down the scale, which is one of the things that needs to
be done. But I agree with you, it needs to happen.
I am going to ask almost a rhetorical question, because I
think I know the answer, but I would like for both of you to
respond. Other than two small programs in the Defense
Department, right now, the Defense Department as a whole really
isn't reporting under the Improper Payments Act, is that
correct?
Mr. Williams. I will take it. Dr. Coburn, as you know, in
last year's legislation, there was a mandate for GAO to take a
look at DOD's compliance in the area of travel because of the
various reports that we had been issuing about the travel
issue. That work is currently underway and we are looking at it
very closely from the standpoint of, again, using those basic
four criteria that we have talked about here. And we will take
those criteria and we will go through and we will look at each
one to see what is DOD doing in that particular area. But in
addition to that, we are also looking at the Recovery Auditing
Act. We got a request from the Subcommittee or the full
Committee--I am not sure right now which one--to take a look at
the Recovery Auditing Act with DOD and look at other IPIA
reporting.
At first glance, you look at an agency that large and I
think it would raise the point that was brought up earlier when
you talk about whether this is in compliance or not. You have
to take into consideration that there are probably some very
large numbers, but when you throw in the 2.5 percent criteria,
that might put some of those programs under the radar. So it is
difficult for us to say at this particular point in time.
Senator Coburn. So there is no question, I think Senator
Carper and I have come to some agreement that we need to modify
the IPIA Act to a little degree to address one of the areas
that Senator McCaskill raised, and this is this 2.5 percent and
$10 million. Congress didn't set that. OMB set that, and there
are some practical reasons for why they set it, but I am not
convinced that is the threshold that we need to have and I
think we need to address that.
Senator Carper. Thanks very much. Senator McCaskill.
Senator McCaskill. I will yield to the Chairman and let
these folks go and maybe get a chance to hear from the second
panel before I have to leave, Senator Carper. Thank you.
Senator Carper. OK, fair enough. Alright. Ms. Combs, Mr.
Williams, thank you for joining us today. Thank you for your
testimony. Thank you for responding, and we will be providing
some additional questions and would appreciate your prompt
response.
Mr. Williams. Thank you.
Senator Carper. Clearly, some progress is being made here.
There is a good deal of work for us all to do, as you know. I
always like to say, if it isn't perfect, make it better, and
this is not a perfect situation and we need to work hard to
make it better and obviously we need to work together to make
it better. But our job is to try to provide some oversight to
hold someone's feet to the fire and we will be endeavoring to
do that. When people are doing a good job, agencies are doing a
good job, we put a spotlight on them and applaud them. Those
that aren't, we will put a spotlight on them, as well, and let
the lack of action or inaction speak for itself. Thank you both
very much.
Mr. Williams. Thank you.
Ms. Combs. Thank you.
Senator Carper. Mr. Williams, I am just going to ask you if
you would take a seat in the front row, if you could.
Mr. Williams. OK. That is fine.
Senator Carper. Just don't go away too far. We may want to
call you back to the table to respond to some further
questions. Thank you.
Mr. Williams, Lee White, who is Executive Vice President of
U.S. Operations for PRG-Schultz, is going to testify on a third
panel, so he is not going to be needing this seat right now, so
we have an extra spot there and just feel free to take that
one. We appreciate your flexibility here.
We want to welcome each of our witnesses for our second
panel today. I am not going to provide lengthy introductions,
but I will say that John W. Cox, who is the Chief Financial
Officer of the Department of Housing and Urban Development, we
are grateful that you are here. We appreciate your presence and
your work.
David Norquist is the Chief Financial Officer of the
Department of Homeland Security. Mr. Norquist, one of the
things we are going to be asking you is why we didn't get your
testimony on time. I am sorry that Dr. Coburn is not here to
hear that response, but I am sure his staff will convey the
message. But when you speak, one of the first things I want you
to do is to explain that.
We want to welcome Timothy Hill, who is the Chief Financial
Officer of CMS. Thank you for coming.
And Terry Bowie, Deputy Chief Financial Officer at NASA.
Mr. Bowie, thank you for coming, as well.
I am just going to ask Mr. Cox, if you will, just to lead
it off. You have about 5 minutes. Your entire statement will be
made part of the record. We welcome your presence and your
testimony. Thank you.
TESTIMONY OF JOHN W. COX,\1\ CHIEF FINANCIAL OFFICER, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Cox. Thank you very much, Mr. Chairman and Senator
Coburn, and distinguished Members of the Committee, my name is
John Cox, the Chief Financial Officer for Housing and Urban
Development. I want to thank you for inviting me here to appear
before this Subcommittee today to speak about the results of
HUD's efforts to reduce improper payments.
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\1\ The prepared statement of Mr. Cox appears in the Appendix on
page 84.
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The Department has aggressively complied with the Improper
Payments Information Act of 2002 and was the first agency to
achieve green status on the President's Management Agenda
Initiative for Eliminating Improper Payments. I would like to
go over a few of the Department's accomplishments since my
office last testified before this Subcommittee on this very
topic in September 2005.
We are in the process of updating our Fourth Annual
Improper Payment Risk Assessment. Our most recently completed
risk assessment covered $58.8 billion in payments made by the
Department in fiscal year 2005, and no new high-risk programs
activities were identified. Over the past 3 years, the results
of HUD's annual risk assessments called for the measurement of
improper payment levels in 11 major program areas with the risk
potential to exceed the $10 million high-risk program
threshold. Those 11 programs constitute about 65 percent of the
Department's annual budget and payment activity. Five of the 11
programs measured exceeded the $10 million threshold to require
corrective action planning, annual reporting, measurement, and
follow-up efforts to reduce improper payment levels.
We completed and verified corrective actions to reduce
improper payments to an acceptable level in two of the five
programs originally determined to be at risk of significant
improper payment levels, payments under the Single Family
Acquired Asset Management System and the Public Housing Capital
Fund.
We exceeded our internal goals for reducing improper
payment levels for HUD's three remaining at-risk program areas,
the Public Housing Tenant-Based Assistance and Project-Based
Assistance Program, collectively referred to as HUD's Rental
Housing Assistance Programs. This reduction, and more
importantly the underlying internal control components, was one
of the key reasons HUD's Rental Housing Assistance Program area
was removed from the GAO high-risk list in January 2007.
The reductions in housing subsidy determination errors
resulted from HUD efforts to work with its public housing
industry partners and multi-family housing projects through
enhanced program guidance, training, oversight, and
enforcement. The reduction of erroneous payments due to tenant
under-reporting of income resulted from improved income
verification efforts by housing program administrators,
increased voluntary compliance by tenants due to promotion of
the issue, HUD's initiation of improved computer-matching
processes for up-front verification of tenant income, and an
improved methodology for reviewing income discrepancies
identified through computer matching to better determine actual
cases of under-reported income which impact subsidy levels.
In fiscal year 2006, HUD implemented its new Enterprise
Income Verification System for use by public housing agency
program administrators in conducting improved verifications of
tenant income during the annual recertification process. I want
to thank our agency partners at the Department of Health and
Human Services and the Social Security Administration for their
assistance in this project. This new web-based secure
verification system will be expanded to the multi-family
housing project-based assistance programs during the current
fiscal year. This computer matching capability has the
potential to eliminate the majority of the remaining estimated
improper rental housing assistance payments. This system is not
only fast and more efficient, but just as importantly, it
affords more privacy to tenants by eliminating the previous
paper income verification letter that was formerly mailed to
the assisted tenant's employer.
HUD's long-range strategic goal is to reduce improper
rental assistance payments to less than 2.5 percent of total
payments by the end of fiscal year 2008. That would be quite an
accomplishment given the high degree of complexity of the
housing subsidy determinations and the decentralized nature of
the program administration.
In conclusion, Mr. Chairman, I want to thank Secretary
Jackson, Deputy Secretary Bernardi for their leadership, the
employees of HUD, our industry and agency partners for working
together to tackle the tough issue of improper rental housing
assistance payments. These efforts not only reduced improper
payments, which allows more funds to be able to serve HUD's
mission, but we also proved that by working together, we could
correct these longstanding issues.
I am now pleased to answer any questions you may have.
Senator Carper. Mr. Cox, thanks very much.
Senator McCaskill, I know you have to go preside at noon.
Did you want to ask a question of this panel before you leave?
That is a little bit out of order, but I want to afford you
that opportunity if you would like.
Senator McCaskill. Well, I would appreciate, Mr. Chairman--
thank you for this opportunity. Just quickly, I want to make
sure that anybody who doesn't have a risk assessment, I would
like to know specifically for the record, and you don't need to
answer it now, but anyone who has not done a complete risk
assessment, and I know there are several departments
represented here who haven't, I would like to know why, and if
the law requires it, why it hasn't been done.
And second, specifically for CMS, why wait? If the three
pilot programs have been successful, why wait until 2010? Why
not just put them all open for contract now and say, go to it?
Mr. Hill. That is what the RFI requires. The 2010 date is
in statute, so we are sort of benchmarking ourselves against
the statute----
Senator McCaskill. You are not supposed to do it until 2010
in the statute?
Mr. Hill. The statute requires it by 2010, and so that----
Senator McCaskill. But is there any rule that says you
can't do it earlier?
Mr. Hill. Nope, and we would like to get it done earlier if
we can.
Senator McCaskill. Well, wouldn't that just mean like
opening it up for contracts and saying, we want you to propose
coming in and doing a contingency recovery audit, like now?
Mr. Hill. The RFI for that contract is on the street as we
speak.
Senator McCaskill. For system-wide?
Mr. Hill. Yes.
Senator McCaskill. And when does it have to be responded
to?
Mr. Hill. I can get back to you for the record on that. I
don't have all the details with me----
[The information provided for the Record follows:]
INFORMATION PROVIDED FOR THE RECORD
CMS released a Request for Information (RFI) on March 16, 2007. The
RFI included a draft Statement of Work (SOW) and capability statements
for small businesses. Responses to the RFI are due to CMS on April 9,
2007.
Senator McCaskill. The idea that we know that these are
going to be successful and we know they are going to recover
hundreds of millions of dollars, it seems to me that the minute
you have a pilot program--frankly, I don't even know why the
pilot was done. Once you know you can do it and it is legal to
do it, I don't understand why every department isn't signing up
immediately for these recovery audits, because there is
absolutely no cost, right?
Mr. Hill. You will get no argument from me. We are very
happy with the recovery audit process. The history here was
some of the arcania in the Medicare statute not allowing us to
do it before we had the demo, but we are very excited about it
and we are ready to move forward.
Senator McCaskill. Is there any other department that is
represented here that does not see the light in terms of
recovery audits and how important they are and that they don't
cost us anything to do, but they have the potential of
recovering lots of money? Is there any other department that is
represented here that wants to express some kind of reluctance
or reticence to engage in those kinds of contracts?
Mr. Norquist. We use those types of contracts and they are
effective and they don't cost the taxpayer, and to be clear, we
use them even on low-risk programs. The answer is you use high-
risk assessments, but even on programs that are low-risk, those
organizations bring in teams to go through and look for cases
even within a low-risk program where there is an opportunity to
recover funds.
Senator McCaskill. And, Mr. Cox, do you do it at HUD?
Mr. Cox. We do not, Senator. I am very familiar with that
from the private sector. Our experience at HUD, we actually had
an outside party look at the potential for that and the
potential, if I recall from a couple years ago, was very low.
It was a couple hundred thousand dollars. And the reason for
HUD is most of our contracts are firm fixed-price contracts. We
have a a government transaction specialist (GTS), on each one.
So we actually did a study to look at the potential, and at
least in our case, an outside party conducted that and found
that there was very little evidence. In fact, of the $200,000,
on further review, the actual number was reduced to zero.
So the potential, and again, I am very familiar with it
from the private sector, the potential at HUD, given the nature
of our contracts and our funding, was very small. We will
certainly look at it again, but it was very small at that time.
Senator McCaskill. Well, to me, it would be something that
you wouldn't even need to study. I mean, if somebody is willing
to do this work at no cost to the government and we get the
money back, I don't know what there is to study. Now, maybe if
you put it out for proposal and nobody makes a proposal, it
seems to me the market has told you----
Mr. Cox. Right. That is right.
Senator McCaskill [continuing]. That there is no chance for
recovery.
Mr. Cox. Right.
Senator McCaskill. It doesn't seem to me we need to hire
anybody or have an outside consultant because the market is
going to look at what the program is. All of the privatization
that has gone on in our Federal Government under the guise of
more efficiencies, and it just is amazing to me that there is
any kind of reluctance anywhere just to let the private sector
have a whack at this.
Thank you, Mr. Chairman, for giving me that opportunity.
Senator Carper. You bet, and thanks for being with us
today. Good luck in the Chair.
Senator McCaskill. Thank you.
Senator Carper. They will be pretty quiet over there.
Senator McCaskill. They will be very quiet.
Senator Carper. Alright. Mr. Norquist, we have a policy
here, as I think the other witnesses know, that testimony
should be submitted 48 hours before our hearings begin. Not
everyone complied with that. A number of our witnesses did. The
most egregious offender was the Department of Homeland
Security, and I would just ask why?
TESTIMONY OF DAVID M. NORQUIST,\1\ CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF HOMELAND SECURITY
Mr. Norquist. Sir, there is no acceptable answer. We know
the timeline you gave us. We know that OMB needs to review it.
It is our responsibility to get it to them enough in advance
and we didn't do that. That is my responsibility because the
folks working on it worked for me and I apologize to you for
that. We will not do that again.
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\1\ The prepared statement of Mr. Norquist appears in the Appendix
on page 88.
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Senator Carper. Thank you. You are recognized. Proceed with
your testimony.
Mr. Norquist. Thank you, sir. Thank you, Chairman Carper,
Ranking Member Coburn, and Members of the Subcommittee for this
opportunity to testify before you regarding the Department of
Homeland Security's efforts to reduce improper payments.
Secretary Chertoff and I are committed to strengthening the
processes needed to implement the Recovery Auditing Act of 2001
and the Improper Payments Information Act of 2002.
I also want to thank you for S. Res. 94. Your statement of
support and recognition for the DHS workforce is greatly
appreciated.
In 2005, the Department's improper payment testing and
reporting was limited. However, in 2006, we improved our
process and executed statistically valid sample test plans.
They identified two high-risk programs, FEMA's Individuals and
Households Program and their vendor payments. We also conducted
sampling on 16 other programs across the Department, totaling
over $7.3 billion in payments, and determined that these
programs were not high-risk.
This year, we expand the scope and quality of our testing,
and to ensure the long-term effectiveness of this program, our
2008 budget requests some additional resources so my office can
evaluate the components' testing procedures. We are a new
department. We will be doing these tests for a long time, and I
want to make sure that as we do these tests that we are
confident that they have done rigorous risk assessments and
they have done quality testing. So while we have outside folks
helping us, we are looking to be able to evaluate those and
confirm the quality of them.
I would like to now briefly touch on our two high-risk
programs. In the wake of Hurricane Katrina, FEMA tested and
identified two programs under the Disaster Relief Fund as being
high-risk for improper payments, the Individuals and Households
Program and vendor payments. This evaluation was designed to
determine if improper payments occurred, assess the cost of
improper payments, and develop corrective action plans to
mitigate the risk of future occurrences.
For the Individuals and Households Program, FEMA selected a
statistical sample covering the period of September 2005
through March 2006, the days immediately following the
hurricane, resulting in an estimate of 8.6 percent for improper
payments. FEMA initiated corrective action plans to address the
root causes, and this included preventing duplicate
registration, confirming applicant identity, handling a high
volume of transactions, and an enhancement to the post-payment
reviews. Moving forward, FEMA has taken steps to strengthen
compliance with IPIA and to implement OMB guidance, and so a
second round of IPIA testing and risk assessment is currently
underway for the payment period of March to November 2006.
Regarding vendor payments, FEMA's statistical sampling over
the same period estimated 7.4 percent of total payments as
improper and they have initiated corrective action plans to
include enhanced training guidance for invoice processing,
developing a vendor payment quality assurance program, and
reviewing contract language for consistency of similar goods
and services.
In conclusion, DHS has made progress on IPIA and we are on
track to make more progress this year. We will continue to work
closely with Director Paulison and FEMA to strengthen their
core capabilities and capacity to manage payments. We will also
continue to work closely with the Office of Management and
Budget to ensure continued progress in eliminating and
recovering improper payments.
I appreciate the support we have had from the Congress and
this Subcommittee. Thank you for your leadership and your
continued support of the Department of Homeland Security. I
would be happy to answer any questions you may have.
Senator Carper. Thanks, Mr. Norquist. Mr. Hill.
TESTIMONY OF TIMOTHY B. HILL,\1\ CHIEF FINANCIAL OFFICER,
CENTERS FOR MEDICARE AND MEDICAID SERVICES
Mr. Hill. Good morning, Chairman Carper, distinguished
Members of the Subcommittee. I am honored to be here today to
discuss with you CMS's efforts to measure and reduce improper
payments in Medicare, Medicaid, and the SCHIP program.
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\1\ The prepared statement of Mr. Hill appears in the Appendix on
page 92.
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When I last testified before this Subcommittee about 18
months ago, I discussed CMS's aggressive targets for reducing
improper payments in our programs and I am pleased to be here
today to tell you that our efforts are showing substantial
results. I want to use my remarks this morning to briefly
discuss the status of our measurement programs for Medicare,
Medicaid, and SCHIP, describe for you some of our corrective
actions, and briefly touch on what I believe is our biggest
challenge to continuing our efforts.
On the measurement front, much has been accomplished over
the last 18 months. For Medicare, last year, we reported an
error rate of 4.4 percent, a significant decrease from the 5.2
percent reported in 2005 and a reduction of greater than 50
percent from the error rate we reported in 2004. This is a
cumulative savings to Medicare and the taxpayers of over $10
billion. With continued monitoring and error reducing efforts,
our goal is to achieve an error rate of 4.3 in 2007 and 4.1 by
2009. I am happy to report that our preliminary data indicate
that we are on track to meet our 2007 goals.
In the coming year, we will be adding payments for Medicare
Part D and C into this calculation to bring all of Medicare
into full compliance with IPIA. We have completed preliminary
risk assessments and are in the process of developing pilot
areas to test payment risks across C, D, and the retiree drug
subsidy program. We plan to use this information from the risk
assessment and pilots to report component level error rates for
these programs in the 2008 PAR next November.
In Medicaid and SCHIP, we have made much progress since I
was last before the Subcommittee. Last August, we published
final regulations creating the Payment Error Rate Measurement
Program (PERM), which requires States to assist us in measuring
and reducing improper payments in Medicaid and SCHIP. We began
implementing this program in 17 States across the country this
past year and will be reporting an error rate for Medicaid
claims in the 2007 PAR, which will be issued this fall. Our
efforts will continue through the coming fiscal year as we
extend our error rate calculation to Medicaid Managed Care and
to the SCHIP program, and we are on track to have a fully
compliant report in the 2008 PAR next November.
Let me now turn to our remediation efforts. As you know,
calculating the error rates is only one step in the process.
Remediation is the key to IPIA compliance. The cornerstone of
our remediation efforts in Medicare is our error rate reduction
plan, which includes agency-level strategies to clarify CMS
policies and implement new initiatives to reduce improper
payments. It lays out how we use improper payment information
to manage our contractors that process our claims and to target
our activities in particularly error-prone benefit-type areas.
We are also using new tools to recover improper payments.
In 2004, we implemented a recovery audit contract demonstration
to identify improper payments. Based on early results, we see
the RAC program is an indispensible tool in reducing and
eliminating future improper payments. To date, the RACs have
identified more than $400 million in improper payments and have
collected $144 million. We have an aggressive time table to
meet the statutory requirements for implementing RACs
nationwide.
We expect our remediation efforts in Medicaid to be equally
robust. To reduce Medicaid improper payments that are
identified through the PERM program, we will require States to
submit corrective action plans that describe the actions they
will implement to address major areas of concern. We expect
that the corrective actions taken by States as well as our
active monitoring and oversight of States will lead to
reductions in the reported Medicaid rates over time.
Finally, let me turn to what I foresee is our biggest
challenge as we continue our efforts in this area, and that is
allocating scarce resources to fund our activities. Under the
PMA, Federal agencies are mobilizing people, resources, and
technology to identify improper payments. Consistent with these
efforts, CMS is firmly committed to ensuring the highest
measure of accountability. Unfortunately, since funding for our
efforts has been capped since 2003, we have sustained a huge
degradation of our purchasing power relative to inflation.
Thus, to preserve our commitment to program integrity, the
President's 2008 budget requests an additional $183 million in
discretionary funds to build upon our programs so that we can
continue our proven record for accountability.
We are proud of our results. CMS is setting the standard in
identifying, reducing, and recovering improper payments. But
while we continue to make great strides, there is more room for
improvement. We look forward to continuing to work
cooperatively with this Subcommittee and to strive to protect
the taxpayers we serve and ensure financial management of
Medicare and Medicaid programs.
I look forward to answering any questions you might have.
Senator Carper. Mr. Hill, thank you very much. Mr. Bowie,
you are recognized. Thank you.
TESTIMONY OF TERRY BOWIE,\1\ DEPUTY CHIEF FINANCIAL OFFICER,
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
Mr. Bowie. Chairman Carper, Senator Coburn, and Members of
the Subcommittee, thank you for the opportunity to appear today
to discuss NASA's progress in identifying, eliminating, and
recovering improper payments. In my testimony today, I will
outline the steps NASA has taken to address improper payments,
including complying with the Improper Payments Act.
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\1\ The prepared statement of Mr. Bowie appears in the Appendix on
page 106.
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I would like to briefly explain the composition of NASA's
contracts and how that affects our payments. Contractors
support the execution of many of NASA's research and
development programs. The variable and often unpredictable
nature of this complex R&D work leaves NASA to use cost versus
fixed-price contracts. While both contracts are used in various
NASA programs, cost contracts represent approximately 88
percent of payments made and fixed-price contracts represent
the remaining 12 percent.
NASA has implemented a multi-pronged approach to oversee
integrity of the payments for its R&D programs and associated
contracts. Effective contract and financial process controls
represent one element of our approach and are the cornerstone
of NASA's efforts to ensure proper payments.
As an important second element to our approach, the Defense
Contract Audit Agency (DCAA), reviews cost contracts and our
contractors' adherence to accounting controls and requirements.
For cost contracts, the DCAA also conducts contract close-out
audits that may identify questionable costs. Any questionable
costs are then reviewed by the NASA contracting officer for
resolution.
As a third element complementary to our program integrity
activities, the agency has established an Acquisition Integrity
Program. This program was formally launched in December 2006 by
NASA's Deputy Assistant Administrator, Shana Dale, and this is
a collaborative effort among the Office of the Inspector
General, the Chief Financial Officer, General Counsel, and
procurement.
Finally, in accordance with the Improper Payments Act and
consistent with OMB guidance, NASA, as well as other agencies,
is required to complete an Improper Payments Risk Assessment.
For its fiscal year 2006 risk assessment, NASA used the results
of the prior year's recovery audit. Through that process, NASA
reviewed approximately $57 billion of cost and fixed-price
contracts across all programs dating back to 1997. Based on the
results of that assessment, NASA found the total value of
improper payments that had not already been identified and
reported in prior years to be $256,255. This formed the basis
for the amount reported in our fiscal year 2006 Performance and
Accountability Report. In that document, NASA reported that the
agency's risk assessment and actuals represented for the past 3
years had shown NASA's improper payments to be less than a
benchmark 2.5 percent of program payments and less than $10
million.
There have been several observations regarding questioned
questions and the relationship to improper payment figures
reported in NASA's PAR. Questioned costs are not analogous to
improper payments. Rather, they are costs that NASA's Office of
Inspector General recommends be reviewed by NASA to determine
validity. There are more categories of possible questioned
costs than exist for improper payments, and since these audited
questioned costs are not always sustained, the IG report would
have a higher figure for questioned costs than the amount that
would be reported in terms of improper payments.
For fiscal year 2007, NASA's risk assessment approach
incorporates all the lessons learned from the prior year's
audit, recovery activities, and incorporates OMB's instructions
in their memorandum dated August 10, 2006. This risk assessment
addresses disbursement activities on programs based for both
cost and fixed-price contracts. A statistically valid sample of
payment transactions will be obtained and tested, after which
NASA will report the results.
We have taken steps to bring our program into compliance
with OMB guidelines for implementing improper payments, the
Improper Payment Act. We will continue to adopt lessons learned
for future recovery audits to make sure that we are making the
most of those efforts.
In closing, NASA is fully committed to ensuring that the
agency's payments are properly made and that the agency fully
complies with the Improper Payments Act. Mr. Chairman, I am
pleased to respond to any questions you or other Members of the
Subcommittee may have.
Senator Carper. Thanks, Mr. Bowie.
We have at this table a number of agencies whose improper
payments are measured annually not in the millions of dollars
or the tens of millions of dollars, but literally hundreds of
millions of dollars. We have heard of the efforts that have
been launched particularly in HUD and CMS to go out there to
identify those improper payments and to reduce them, to recover
monies that have been improperly paid.
When I read your testimony and listening to it again today,
what I take away from it is that you have identified in your
agency--roughly what is your agency's budget on an annual
basis?
Mr. Bowie. Roughly $16 billion.
Senator Carper. How much? Sixteen billion?
Mr. Bowie. Sixteen billion, yes.
Senator Carper. What I took away from it was the belief
that there is really not much, given the way that you award
contracts and the work of your contracts, in the way of
improper payments that are made, and I think I heard the figure
$250,000. I don't want to put words in your mouth, but it
sounds like you have looked at your payments and you just don't
think, at least with respect to your agency, that it is a
problem.
Mr. Bowie. I believe that we have to always be vigilant in
terms of ensuring that taxpayer dollars are properly accounted
for and we will look and judge every dollar based upon that. We
would not automatically assume that there are no problems.
There always could be an issue and we will always be vigilant
to tackle those issues as they arise.
Senator Carper. But as you look back at 2004, 2005, 2006,
what I take away from your testimony is that you don't believe
there are any really material problems with respect to
mispayments, overpayments, or improper payments?
Mr. Bowie. In looking at the criteria as established by OMB
for reporting, the 2.5 percent or over $10 million, that would
be the conclusion.
Senator Carper. Mr. Williams, let me just ask you to
reflect on that for a moment, if you would.
Mr. Williams. Mr. Chairman, in listening to the testimony,
as I was reflecting back to the 1980s when President Reagan and
President Gorbachev used to get together and President Reagan
used to always tell President Gorbachev to trust but verify,
and I have this professional skepticism, I guess, that is just
basically ingrained in the work I do.
In reflecting back on the point that I made earlier, in
listening to some of the statements and looking at what the
auditors had reported, it makes me want to reiterate the other
point that I made, that while not required, it would be a good
idea at each one of these agencies that independent set of eyes
would be required to take a look at this process, because I am
looking at a couple of the agencies and I think the auditors
basically stated that there was a potential non-compliance at
NASA, I believe, because of the supporting documentation that
they questioned. I think at Homeland Security, the auditors
basically stated that the risk assessment was not performed for
all of the programs and I also think that there were some
questions raised about the sampling at that particular agency.
And I think, in conclusion, we kind of get back to this
issue that we talked about earlier, also, of this $10 million
and 2.5 percent criteria. As I have stated in previous
testimonies before this Subcommittee on that particular issue,
I was involved, or I was asked to take a look at the original
drafting of the legislation, and as I have stated, it
originally started out at $1 million. It was any agency that
had improper payments of $1 million would be required to go
through the steps that are listed on the board up there.
Looking at it from a cost-benefit standpoint, we did suggest,
and our suggestion was taken into consideration, to raise it to
$10 million.
So I have a little bit of institutional knowledge of what
the Congress was intending in this area and I think that not
just members on this panel now, but if you look at some of the
other agencies that have looked at this issue, I think when you
throw in the 2.5 percent criteria and the word ``and,'' it kind
of takes some of these issues below the radar screen.
Senator Carper. Alright. Thank you.
Mr. Cox, if I could come to you. In Ms. Combs' testimony
earlier today, I think she held out HUD as an example of an
agency that has done a good job in trying to identify improper
payments and eliminating them. I just want to ask you to
briefly sketch for us some of the best practices and processes
you think that you have adopted over the years to address
improper payments, to try to reduce them, and is there
something in that list that you all have done that maybe some
other agencies, including some at the table, but a number who
aren't at the table, could emulate?
Mr. Cox. Thank you, Mr. Chairman. I think if you look at
the large area for us of improper payments, it centers around
our Rental Housing Assistance Program, and there are really
three areas that we look at to determine improper payments. The
first is, is this subsidy itself calculated correctly? Second,
is the tenant's income reported correctly? And third, once we
have determined one and two, have we been billed correctly for
what was determined in step one and two?
The biggest efforts--and I will set aside No. 3 for just a
second, but the biggest efforts we have made is to, first of
all, educate the public housing authorities and the multi-
family owners on the complexity of those calculations. They are
very complex. There are over 40 income deductions and
exclusions, so that is a very complex, not unlike the tax code.
No. 2, probably our biggest success, and I would say, Mr.
Chairman, where other agencies could use it, is our income
verification system. Working with the Department of HHS and
Social Security, we actually get secure data off-line but then
put on-line on a public housing authority by public housing
authority basis, and they are able to verify what the tenant
has told them is their income, which is a key component of
determining what the subsidy could be.
Senator Carper. Excuse me for interrupting. A long time ago
when I was a member of the House of Representatives and served
on the Banking Committee Housing Subcommittee, one of the
things that I focused on was tenant income verification and we
were trying to make sure that, given the fact that you had a
lot of people in waiting lines to get into public housing, we
wanted to make sure that the folks that were there were
actually income-eligible. We tried to figure out, working with
the State and local folks, how best to make that verification,
do so in a way that was respectful of people's privacy rights
but also in a way that would enable us to quickly and regularly
make an identification of who was appropriately there and
eligible and who was not.
My recollection is that we used Department of Labor data
from folks who were employers that were paying, had people on
their payrolls, and submitted on a regular basis employment
data, and I don't think you mentioned that. I think you said
that you were doing it through a couple of other things. How do
you do it today?
Mr. Cox. We used the National Registry of New Hired Data,
which is now captured by HHS, and so we used to use Department
of Labor data, but there were some delays in reporting on a
quarterly basis and in some cases even on an annual basis. So
the information that we have today, Mr. Chairman, is actually
more current, or is the most current that we can get.
Senator Carper. Alright. Do you want to add anything? I
interrupted you. Do you want to complete your thought from
earlier?
Mr. Cox. I would just say, again, any program that is based
on income--ours clearly is, the majority of ours, but I would
say--you asked the specific question, what can other agencies
look to, I would say this is a good example of both interagency
cooperation as well as working with our industry partners and
that is a big success story here to reduce improper payments by
over $2 billion since 2001.
Senator Carper. Alright. That is a lot of money.
Mr. Cox. It is a lot of money.
Senator Carper. Thank you. Again, if I come over to Mr.
Hill for a moment, if I could. We are going to hear, I think,
on the next panel some testimony that CMS serves as an example
of how a successful government audit recovery program can be
run and should be run. I just want to ask you to provide us
with your perspectives on why the recovery work underway in
Medicare has been successful and describe your plans to expand
this program. I know you spoke just a little bit in response to
Senator McCaskill's questions, but how do you plan to expand
this program beyond the three States which are now underway?
And also, do you have any sense for how much money could be
saved once you are doing this nationally, not just in three
significant States, but in all 50 States?
Mr. Hill. Thank you. We plan on having our national RACs up
and running. We are going to chunk the country up a bit. We are
not going to have one contractor do the entire country. We will
sort of set up some regions and describe in a general way who
will be responsible for which area.
There is a procurement, a request for comment on the
street. It is a little special in terms of the work that has to
be done. It is not like looking at a vendor payment or an
invoice. We are looking at actual medical records and claims
that are coming in from providers and beneficiaries and so we
want to be sure the RACs have the appropriate medical skills on
staff to be able to review those claims and to be able to do
that work, and so there will be some review of the contracts as
they come in.
We expect to be able to have those contracts out and let
and beginning to run in calendar 2008. That is our timeline.
A significant issue for us as we roll this out nationally
is educating and working with the providers and the
beneficiaries we serve, because this is a new entity that is
sort of going to interject themselves into the Medicare system,
and physicians and hospitals are going to be getting letters
from companies that they have never heard of before saying you
owe the Federal Government some money, and so we want to be
sure that we have done all the appropriate leg work there to be
sure that there is no surprises.
In terms of the money to be saved, I mean, we have
identified just in the three States in the short time that we
have been doing it, $400 million in overpayments, and I think a
lot of that has----
Senator Carper. Say that again? How many?
Mr. Hill. Four-hundred million dollars.
Senator Carper. And was that for 1 year or several years?
Mr. Hill. Since January 2005, so it is over several years.
But again, it has taken a while for them to get up, get
familiar with the data, get familiar with the areas that they
are going to be working in, so we have seen that grow over
time. Month to month, it gets higher and higher. I expect that
the recoveries will, I am hoping, certainly get into the
``b''s, out of the millions and into the billions, over time.
When that will start and how soon we can get there remains to
be seen, but we are anxious of get started and we are anxious
to continue the relationship we started with these contractors.
Senator Carper. Thank you. Talk with us again a little bit
about improper payments with respect to Medicaid and the SCHIP
program. What kind of timeline are you on there?
Mr. Hill. Right now, we are out in the field collecting
data and measuring rates in 17 States. We had some sort of fits
and starts getting going with Medicaid. We finally got our
final regulations out in the summer of 2006, sort of
articulating exactly how we are going to implement the IPIA for
the State programs, and the way we are doing it is in a phased,
cyclical approach. So we will do 17 States each year to get to
all 50 over a 3-year cycle. We began the first 17 this past
year.
We will be reporting on those rates in this year's PAR and
that is for one component of Medicaid, the biggest component,
the fee-for-service component. For the Medicaid Managed Care
piece, which in some States is big but nationally it is a
smaller piece, and SCHIP will be done beginning in fiscal year
2008 for a report next year, in next year's PAR.
The challenge for us here has been, of course, as folks
have identified already, is dealing with 50 different States
and 50 different entities and setting up a process that ensures
we get the data we need to do the appropriate calculations but
sort of does it in a way that the State is sort of working
cooperatively and has the incentive to be sure that they give
us that data. Quite frankly, some of the comments that we got
from some of the States on the regulations that we put out were
less than favorable in terms of them viewing this as a State
activity versus a Federal activity, so it has become quite a
challenge to sort of convince them that, yes, this is, in fact,
in their best interest to do this measurement and help us do
the assessments.
Senator Carper. Alright. Dr. Coburn is back, so why don't
you just jump in and take as much time as you would like.
Senator Coburn. Thank you.
Senator Carper. We have, I think, one more panel.
Senator Coburn. Mr. Bowie, in your statement, you described
that NASA conducted last year's risk assessment--let me put the
poster up here--for its 2006 risk assessment, NASA used the
results of the prior year's recovery audit. Through that
process, NASA reviewed approximately $57 billion of cost and
fixed-price contract payments across all programs dating back
to 1997. Based on the results of that assessment, NASA found
the total value of improper payments that had not already been
identified and reported in prior years to be $256,000. This
formed the basis for the amount reported in the fiscal year
2006 PAR document. You also reported in that document that the
agency's assessed risk and actual results for the past 3 years
have shown NASA's improper payments to be less than the
benchmark of 2.5 percent of program payments and less than $10
million.
I have some concerns with this risk assessment on several
levels. First of all, I am kind of fuzzy on how you conducted
this assessment. So what I would like for you to do is break
that down for me sentence by sentence. First is, NASA used the
result of the prior year's recovery audit. First of all, how is
that a valid risk assessment for present? We already had the
GAO testify that recovery audits are the more expensive way to
do that. The least expensive is have the program integrity
there in the first place. It lacks the depth and detail
necessary to carry out a thorough and comprehensive review of
the entire agency because you are limiting that to programs of
$500 million to begin with. That is what the recovery audit
requirements are.
So the IPIA mandates that the entire agency and all of its
programs perform an improper payment risk assessment. Do you
believe the results of an improper payment, this passes muster
for a valid risk assessment?
Mr. Bowie. For 2007, we will be doing a very robust risk
assessment. For 2006, since we did have the recovery audit that
examined basically all contracts dating back to 1997 and there
was no dollar threshold imposed on that, so it was open, that
we felt that if we had, even in doing a risk assessment, we
would have still projected similar results as the actual
results of the audit themselves.
Senator Coburn. What was found in the recovery audit? How
much money was found in the recovery audit?
Mr. Bowie. For the recovery audit, it was approximately
that $256,000.
Senator Coburn. That is all that you found going back to
1997? In your recovery audit, you found $256,000 in payment
errors?
Mr. Bowie. That had not already been resolved or corrected.
Senator Coburn. I know, but that is my whole point. What
was the amount that had already been resolved or collected?
Mr. Bowie. For 2004, it was $70,000. For 2005, it was
$617,442.
Senator Coburn. OK. So your testimony is that for NASA,
your total payment errors, your estimate of your total payment
errors is this $256,000 plus $70,000?
Mr. Bowie. And the $617,000.
Senator Coburn. Six-hundred-and-seventeen thousand dollars.
Mr. Bowie. Those are for past years.
Senator Coburn. OK, but your risk assessment by law has to
be for every year. So you are using a recovery audit to state
an assessment of 2006. Mr. Williams, what do you think about
that?
Mr. Williams. Dr. Coburn, as you know, this Subcommittee
has requested GAO to take a look at NASA and the scope of that
particular work is basically looking at how well did they go
about doing their risk assessment. From looking at the numbers
and what we have in our report, in 2004, there was no report,
and the $70,000, I guess, is the number, while it wasn't
reported.
But when you add these two numbers together--and as I
stated earlier, we believe that the risk assessment is the
foundation of this whole exercise that we are going through,
and using recovery auditing, as I stated in my written
testimony, even using the single audits, we don't think that
those are good bases for going about doing a thorough risk
assessment that is needed in order to do the things that need
to be done to properly identify those programs that are
susceptible to significant risk.
Senator Coburn. Don't get me wrong. I love NASA, OK. I just
hate waste. I have trouble believing that on a $56 billion
program, that is the amount of waste that was there in terms of
improper payments when I look across all the rest of the
Federal Government and don't find hardly anybody that can
compare to that. And I know that NASA is good, but they are not
that good. So I have real doubts about the accuracy of what you
are reporting and also whether or not--and I would tell you, by
law, a recovery audit does not pass muster with what the law
states on the Improper Payments Act. You can read that. I have
introduced that into the record. You heard me do that.
Is it possible that NASA could commit to fulfilling what
GAO would like to see in terms of a recovery audit for next
year?
Mr. Bowie. That is our intention.
Senator Coburn. OK. So you are going to do a true risk
assessment next year?
Mr. Bowie. Correct.
Senator Coburn. Well, that is great to hear.
Mr. Bowie. That is already in place and we have already
done the first phases of that risk assessment by program and we
are moving to the test phase.
Senator Coburn. That is great. Mr. Chairman, I have heard
what I wanted to hear.
I would like to submit the rest of my questions so that
these people don't have to wait such an extended period of
time, and I apologize for my absence during your testimony.
Senator Carper. That is quite alright.
I want just to follow up on what Dr. Coburn said. I hope
the amount of improper payments are as low as you have
suggested here, and if they are, maybe we will ask you to come
back and we can figure out how the rest of the Federal agencies
and States can learn from what you are doing.
Mr. Williams, we look forward to the closer scrutiny that
you all are going to take with respect to NASA and we will see
what we can find.
A couple of questions, if I could, for Mr. Norquist from
Homeland Security. First of all, one of the issues that has
been raised by GAO, and I think by your auditors, is that your
Department has not yet performed risk assessments on all of its
required programs to determine whether they are susceptible to
improper payments. When do you expect that work is going to be
completed?
Mr. Norquist. Sure. That is a great question. Two years
ago, they asked the components to look at the risk and
basically everyone answered, we are not high risk. That was
considered not an adequate answer, so last year, they simply
used a dollar threshold. Whether you think you are high-risk or
not, if you are spending in certain areas over a certain amount
of money, do the sample testing, and there were 16 more
programs where we did that. The numbers came in with error
estimates of less than $1 million, but we felt it was
worthwhile to do that test even where people weren't asserting
it.
This year, we have issued the guidance to do a proper risk
assessment. We will be working with our organizations to make
sure they do that. We understand the dollar threshold alone is
not an adequate substitute for risk assessment. My predecessor
thought it was better than accepting the answers he had been
receiving previously about what was risk. But we are going to
work with the components to ensure that the risk assessment is
done consistent with the law.
Senator Carper. Alright. Thanks. I understand that as a
secondary measure to help improve the Department's improper
payments, that recovery audits were being performed at three of
the Department's components. At the time of your improper
payments reporting for the last fiscal year, fiscal year 2006,
however, the recovery auditing work had progressed but was not
yet at a point where it could yield any kind of conclusive
results. Discuss with us for a minute or so, if you could, the
current status of that work and the results that have been
yielded.
Mr. Norquist. I would be happy to, sir. At the end of last
year, they had a challenge getting some of the recovery audit
teams on board. There was a clearances issue. In most of those
cases, they are on board and operating, and while we only have
them in a few components, those components are service
providers and do the finance and accounting for a number of
other organizations in DHS, so it is a much broader group.
Those efforts are ongoing at Coast Guard and ICE, and I
will have to get the number for the record, but there are
several hundred thousand, I believe, that was being reviewed at
Coast Guard as potential candidates for recovery. Again, not
enormous sums, but sums worth following. These are not high-
risk programs, but as I mentioned to the Senator before, they
are programs that are worth looking into because there is the
opportunity to recover as long as you have the recovery audit
teams working alongside you.
We expect to have all those teams in place for this year,
and again, they are going back over 2004 and 2005 payments, as
well.
Senator Carper. Alright. A couple of people made the point
in their testimony, I think Mr. Williams among them, that it is
all well and good that we do risk assessments. It is good that
we identify improper payments that were made. It is good that
we go out and recover after the fact monies that have been
misspent, inappropriately spent. But the best thing we could do
is to make sure that we don't make the mistake in the first
place. Take a moment and talk to us about what Homeland
Security is doing in that regard.
Mr. Norquist. OK. Well, let me do a couple of things. The
biggest area, the highest-risk area was in FEMA's Individuals
and Households payments. That was the program that last year's
sample fell right during the start of the response to Hurricane
Katrina, and so you had a number of issues that contributed to
that.
First of all, given the immediacy of responding to people's
needs and the sheer volume of people they had to assist, they
relaxed some of the controls to put an emphasis on helping
people, in addition to which some of the controls one would
like to have in place--a person goes and visits the individual,
visits the location--were not possible because of the extent of
the damage. So that resulted, when we tested that, as clearly
showing up on our high-risk list.
FEMA has put in corrective action plans. We have published
those in our PAR. They also include putting in--when you have
this surge in applicants, people started coming in registering
on the phone and on-line and not all of those had the
appropriate controls to check, was it the right individual,
were we getting duplicate registrations, and so FEMA has been
putting in the controls in those places to both put the strong
controls in up front, recognizing they are going to happen
during a surge in activity, during a point of urgency, and
still trying to strike that balance but yet----
We have a process underway to recoup those funds, but
again, it is a long, slow process and it is much more effective
to be able to have those controls in place on the front.
Senator Carper. Alright. Mr. Williams, any comment in
response to what Mr. Norquist just said?
Mr. Williams. Mr. Chairman, it seems like after each one of
these, I make the same statement, but we do have a review
underway also looking at improper payments at the Department of
Homeland Security. That job is currently underway and we are
looking at the basic steps that we have talked about up there.
I would like to add that in talking about the last point
that you made there, about it is better to prevent improper
payments from occurring, I would also like to add to that
statement that in our previous testimonies, we have always
talked about that if you trace down the root cause of these
improper payments, it goes back to a breakdown in internal
controls.
There is also another component to that and that is also
you get improper payments when programs are poorly designed. So
that is something that we also need to take a look at, and by
that I mean that if you have got a program that is set up in
such a way that you basically open yourself up to improper
payments from occurring, we need to take a look at some of
those designs, also.
Senator Carper. Alright. Thanks.
Mr. Norquist. If I can join in, that is an excellent point.
The entire control environment matters. One of the initiatives
that we have started at Homeland Security in our financial
field is everyone who is a new hire, regardless of whether they
are hired by my office or one of the components, we brought
them in last week for a week of training and we gave them,
among other things, training on fiscal law and internal
controls because they need to be aware of their
responsibilities in that area, and if you can do up-front
training of the employees, if you can have adequate controls in
place, you dramatically reduce the amount of effort we have to
put on the recoupment and recovery side, and I think that is a
very good recommendation to respond to and that is one we have
tried to tackle.
One quick correction. I misquoted on the Coast Guard. It
was 19 cases and $134,000 that their recoupment team had
identified so far.
Senator Carper. Alright. Thanks. The last question I will
ask, and I will start it with Mr. Hill. Last week when we were
debating the budget resolution in the Senate, Senator Coburn
and I offered, and it was adopted, legislation that says that
to the extent monies are recovered in the next several years
from improper payments, those monies should be used for deficit
reduction. It was unanimously accepted, without objection.
When I think about our efforts to try to get States to be
our partner in some of these programs, Medicaid, SCHIP, and
others. I don't want us to be saying that we have somehow tied
your hands or the hands of the States or others that are
administering these joint programs with States. I don't want to
feel that we have tied your hands by saying, none of the monies
that have been recovered can be used to incentivize the States
to be our partners. I just want to ask if that is a fear that
may be misfounded or not, and Mr. Williams, I would ask you to
respond, as well.
Mr. Williams. I would like to start with it, and I would
like to refer to the Food Stamp Program, in which there are
bonuses and there are penalties in this particular area. States
receive bonuses if they get that number down and there are also
penalties that have been mandated by the Federal Government,
that if your improper payment rate is above the national
average, I believe it is. So the Congress has put some things
in place that will, in my opinion, bring the States to the
table to realize that we are in this together.
Senator Carper. As a former governor, I remember full well
how those carrots and sticks work. [Laughter.]
Mr. Hill, let me ask you to respond.
Mr. Hill. As Mr. Williams said, I think the carrot and
stick approach is one that we have to employ. Unfortunately, I
think that to the extent that, say, for example, we have an
improper payment recovery in Medicaid and now under the
resolution it is going to deficit reduction. The State's first
reaction to me is going to be, well, it is not my deficit. It
is a State dollar that is now going somewhere else.
So I think the real trick for us is going to be, and it has
been and will continue to be sort of being sure the States
understand--let us use Medicaid for a minute--a dollar saved on
Medicaid or a dollar recovered in improper payments, on
average, 50 percent of it is going back to the State and 50
percent of it is going back to us. The more we can sort of
build that into the relationship and be sure that the States
are seeing the incentive and the pay-back that they are going
to get from investing in these kinds of activities, the more
likely they are that they are going to invest in them.
At the same time, I do think, ultimately, there will need
to be a stop-gap, because you will get a State out there or
somebody will say they don't want to make the investment, or
they may think that the recoveries that we are getting aren't
big enough to make the investment, and I think at some level,
the Federal Government is going to need to be able to step in
with the stick, if you will, and say, well, you need to.
Whether it is a penalty or however we build that policy, there
needs to be some of that sort of pain going back the other way
if there is not the appropriate reaction, and unfortunately,
that is not in the IPIA now. It is the sort of Federal--it is
going to require some unique solutions by program to be sure we
can be compliance by program.
Senator Carper. Alright. Thanks. Anybody else want to
respond on this particular point? Mr. Cox.
Mr. Cox. Senator, I would just say that we have a similar
issue, except instead of dealing with States we are dealing
with 4,100 public housing authorities and over 22,000
individual private property owners. So again, it is going to be
challenging to incent them. Now, we do have, as others have
mentioned, Mr. Hill mentioned, we do have some sticks. We
believe, like Mr. Williams, the best way to do this is on the
up-front and it is a process, an internal control issue, and we
do have a couple of sticks there where we can actually monitor
use of the Enterprise Income Verification, the new web-based
system, and if you are not using it, actually, we can reduce
some of their administrative fees that they receive. So there
is a little bit of a stick there that we can use.
But I would say, in general, your general question of can
we assume that they will take some of that or not sit back
while we take the rest for deficit reduction, as much as I
support it, I think our industry partners and private owners
are not going to sign up for that.
Senator Carper. Alright. My last question for this panel
would be, and this is a question I ask of a lot of panels, we
expect a lot of the agencies in terms of complying with the
law. I think in terms of being able to comply with the law, it
has to be a reasonably law, reasonably explained. We need
enforcement and someone like GAO looking over the shoulders of
the agencies to make sure that you are doing what you are
supposed to under the law. There have to be some incentives for
you to comply. You need strong leadership in order to comply
and you need the kind of systems that will enable you to
comply.
And we have a role to play, too, in oversight, in putting a
spotlight on those agencies that are doing a particularly good
job and to ask of you, how can we learn from your good
performance, and from those agencies that aren't doing the kind
of job that we want or, frankly, that they know they ought to
do, to put them on really a little bit of a hot seat.
The last question that I want answered is what further do
we need to do, not just this Subcommittee, not just this
Committee, but the Congress and the Legislative Branch? What do
we need to do? Mr. Hill, I think you may have spoken to this a
little bit in one of your comments, but let me just close by
asking, what further do we need to do to better ensure that the
Improper Payments Act is complied with, that the monies that
are being inappropriately spent, misspent, that we will
continue to reduce that, in some cases start reducing it in
certain agencies?
Mr. Hill. Right. Two things I think I would say. The first
is, I think, your continued oversight is needed. I think it is
very helpful. Anybody who sits in a CFO job will tell you that
in many ways, our job is as much persuasion as anything else,
getting folks in program components or States or others to pay
attention to things that we believe they need to pay attention
to, even if it is in the statute, and to the extent that the
Congress is taking an active role in overseeing and ensuring we
comply, that makes our jobs that much more easy to implement
this law that needs to be implemented.
The other piece I would mention and I mentioned in my
testimony, this is not a cost-less exercise. It is an expensive
exercise. The recovery audit contracts are a tool that are
helpful when you are recovering overpayments, but they are not
a tool that is helpful when you are trying to comply with the
other pieces of the statute. The President's budget, as Ms.
Combs mentioned and I mentioned, includes some requests for
additional funds to continue these activities over time. I know
that in both the House and Senate budget resolutions, there has
been room included for those activities and I would encourage
you to encourage your colleagues to continue to look upon that
favorably.
Senator Carper. Is there anybody at the table who agrees
with that? [Laughter.]
Mr. Cox. I would just say, Mr. Chairman, we would not have
been able to reduce improper payments 60 percent without the
use of technology. It just simply would not have happened. And
if you look at how we do risk assessments, we have to use
technology. So I would echo Mr. Hill's comments. For a
relatively low investment, in our particular case in our
working capital fund, we get a huge payback for that. So that
is one thing that Congress can help us out with.
Senator Carper. What would be helpful here, and I don't
know who to direct this to, I will just direct it to you, what
would be helpful in trying to make the point when we get into
the back-and-forth on the appropriations bills and how much to
actually appropriate in accordance with the budget resolution
that we have adopted would be to know what that payback is.
For, what did you say, $160 million that the Administration was
asking for, for every one of those dollars, what is the return
to the Treasury? That would be very helpful. If you could help
us with that, I would be grateful.
Mr. Cox. Alright.
Mr. Norquist. Senator, on that theme, this is--those of us
who work on this, this is why we do this for a living. We get
to protect the homeland, in my position, and we also get to
help protect the taxpayers' dollars. It is sort of the passion
we bring to this work.
But the description of the initiatives does not come across
as sexy. I mean, phrases like ``acquisition workforce
training'' in a budget request will not grab attention, but it
is the front end of the type of controls that GAO and others
are talking about. And you will see them in accounts with
unexciting names like ``management,'' and so as you are working
through this, particularly things like appropriation and
authorization bills, keep in mind that some of the initiatives
that have these payoffs have relatively unexciting titles and
to be able to help ensure that as they go through, that people
recognize the payoff there. That would be greatly appreciated
by everyone.
Senator Carper. My colleagues and I don't always appreciate
some of the terms that you may have just mentioned, but we do
appreciate a $20 return for $1 invested, so that is the kind of
thing that could be very helpful as we debate these issues
going forward.
This is a work in progress. As you know, we have been
working on this for about, I guess this is about the fifth year
since the law was adopted. In some respects, I am encouraged
here today by the work, the good work that is being done that
is represented by a number of your agencies. I think for some
of you, you have got a whole lot of work ahead of you, but I am
encouraged that you are beginning to take those
responsibilities seriously, not seriously enough to help all
those folks who are going to be mailing in their tax payments
on April 15, but it is good to know that some help is not just
on the way, but some help has actually turned up some dollars
that we can use to reduce budget deficits and our tax burden.
As I said at the beginning, everything I do, I know I can
do better, and I think that is probably true for all of us. We
appreciate the work that you are doing and we just urge you to
continue it and to go from those three States with Medicare to
another 47 and let us get started on Medicaid and SCHIP, and
Homeland Security, you have got your work cut out for you. Mr.
Bowie, I hope that NASA is as good as you guys think you are.
We will find out in the times going forward. Mr. Cox, thank you
for giving a trip down memory lane to recount an old war tale
on tenant income verification. Thank you all.
We are now pleased to welcome our very patient third
witness, Mr. White. Thank you all.
Lee White, you are a good man to come and to have been as
patient as you have been and to share with us your testimony.
The room has begun to empty out, but I think in reading the
testimony, a lot of it was valuable for me, but I think maybe
the most valuable and instructive testimony that I read in
preparing for this hearing was your own testimony. While there
may not be many people in the room right now, believe me, I
very much look forward to what you are about to share with us
and you are recognized for 7 minutes. You are the Executive
Vice President for U.S. Operations of PRG-Schultz, is that
right?
Mr. White. Yes.
Senator Carper. First of all, tell us a little bit about
that, about your firm and what you all do, and after that we
will start the clock and you can present your testimony. But
thank you for coming and thank you for your patience.
TESTIMONY OF LEE WHITE,\1\ EXECUTIVE VICE PRESIDENT FOR U.S.
OPERATIONS, PRG-SCHULTZ INTERNATIONAL, INC.
Mr. White. Thank you, Mr. Chairman and other distinguished
Members of the Subcommittee. PRG-Schultz is the largest
recovery audit firm in the United States.
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\1\ The prepared statement of Mr. White appears in the Appendix on
page 51.
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Senator Carper. How long have you all been around?
Mr. White. Well over 20 years.
Senator Carper. OK.
Mr. White. And recovery audit has become an accepted part
of American business. Large corporations as well as mid-sized
corporations have embraced the process and it has evolved over
time. It used to be that people audited literally out of boxes,
looking at invoices and contracts, but now it has become quite
sophisticated and we literally evaluate billions of
transactions that are very data-intensive and we use
proprietary methods and approaches for how we do that.
Each year, we audit many of the Fortune 100 and other
companies and we review over $1 trillion of their spending
transactions representing approximately 7 percent of GDP, and
for them, we recover over $1 billion. So it is quite
significant and it has evolved, as we discussed. Our corporate
clients have really found that the effort that they expend to
support this process is justified, and as my testimony
indicated, they view that the juice is worth the squeeze.
Senator Carper. Now, when I read that, the juice is worth
the squeeze, where did that come from? Is that yours, or is
that----
Mr. White. It has been going around our company and our
industry for a while, and I think it has everything to do that
if you squeeze an orange, you are really looking for the juice.
Senator Carper. Well, I am going to use that one. I guess I
don't have to attribute it to you, though, so----
Mr. White. Absolutely not. You may feel free to use it any
way that you see fit.
Senator Carper. Thank you. Alright. Thanks.
Mr. White. Recovery auditing in government, I think equally
represents a great potential. I think the opportunity is to
apply the same principles and practices that we have been
applying in the commercial marketplace, along with state-of-
the-art technology, to the incredible complexity and also
volume of spend that is represented by the government agencies,
both that previously testified here and then the rest that
exist.
We also recognize that recovery auditing is a tool and it
is not a panacea. I think that the agencies as well as the GAO
and OMB did a good job of describing the other efforts that
they are expending. Even the IPIA obviously speaks to the risk
assessment and other vehicles that need to be employed to truly
get your arms around the totality of the issue. So we are only
one tool and certainly should not be viewed as a panacea.
With our successful corporate clients, we find that a
number of different things have to be available to create a
rich program. They include massive databases of their
transaction history. They usually have large and complex
spending environments and they do have central management of
that spend. The same characteristics exist in government, and
therefore, I think that they lend themselves to the same type
of approach.
We have entered into contracts with GSA, HHS, the
Departments of Justice, Transportation, Defense, Interior,
State, and Agriculture, so we do have quite a bit of experience
in the government sector, and to date, we estimate that
contingency recovery auditors government-wide have returned
over $600 million to the taxpayer. However, we believe we could
have done much better and we believe that the greatest success
will come when agencies make recovery of overpayments a
significant priority and where they are willing to provide us
access to data and then the support we need to successfully do
our jobs. Where that prioritization is not there and where the
access to data has been lacking, we haven't had good results.
Our experience is that motivation is key and incentives are
really an important part of that motivation. We find that with
the profit motivation most of our corporate clients have, and
their obligation is to serve their shareholders, they really
look to get the money back and it is a very important part of
it. So even if they are not trying to do anything else, just
recovering the money is a sufficient motivation and causes the
behavior that you would expect. If we want the agencies to have
that same sort of motivation to use recovery audits as a tool,
we believe they need to be incentivized as well.
We did highlight in the written testimony that we believe
that to be a very successful program, although it was a pilot
program, it was exemplified by CMS. There, as Mr. Hill
testified, they identified over $400 million in recoverable
overpayments and they actually have recovered $144 million of
that so far. That is only operating in three States, and as a
participant in one of those States, there is a significant
ramp-up period to get started and to create the relationships,
analyze the data, actually identify potential overpayments, and
do all the things associated with recovering it. We would be
happy to tell you that we have not yet hit our stride, and
therefore we don't believe that we're necessarily close to the
total potential that exists.
CMS officials have proven to be very motivated and willing
partners and they have helped reduce the normal start-up kinds
of things that you would expect as well as other impediments
that might have kept us from being as successful as we would
like to be.
So incentives are a very important element, but they are
not the only element, and we believe that access to data,
recovering valid claims, and helping resolve any disputes are
the rest.
Because I am running short on time, I would really like to
bridge to the recommendations we made.
Senator Carper. Let me say, my time is yours, so if you
need a little extra time, you have got it.
Mr. White. Well, thank you very much. I will try to keep it
brief.
As part of the Improper Payments Information Act, we think
it would be good for agencies to be required to report on their
recovery audit efforts; where they have contracts in place,
whether they are using internal or external resources, what
their results are, what efforts they have made to remove
impediments, and then finally, what instances have happened
where overpayments were identified but, for one reason or
another, they elected not to pursue them. We think that would
add teeth and clarity to the Act and, therefore, provide more
information for analysis.
We suggest establishment of a joint industry and OMB task
force, which would be comprised of key agency officials and
recovery audit firms, like ourselves, so that we could
establish the scale of collectable overpayments, overpayments
that are conducive to recovery audits, to look at standardized
protocols that could be applied, contracting vehicles, those
types of things, and then ultimately to develop a road map for
removing those impediments that might exist so that everybody
could benefit from the experience that each group may be having
individually.
We also believe that the recovery audit process should be
institutionalized as part of the traditional internal
government erroneous payment identification techniques. We
think it augments the other sampling and risk analysis
techniques that exist and can provide collaboration and
validation of the amounts that are being identified and may
help address some of the questions that were raised about the
NASA numbers to see if they could be independently verified as
they use recovery audit to generate them in the first place.
Along these lines, we think that a contract vehicle and a
standard set of protocols could be developed which could lead
to a government-wide disbursement audit of all centralized
payment facilities.
Picking up on the CMS theme, we did suggest that we believe
the same approach being used in Medicare can be applied to
Medicaid. We think the key thing there is to provide incentives
to the States. Although in aggregate 50 percent of the dollars
that may be recovered could accrue to the States or could
accrue to the Federal Government, in practice, sometimes the
amount recovered actually accrues directly to the Federal
Government and the cost associated with us as well as any
resources necessary to support the program accrue to the State.
So they actually are hindered and not rewarded for their
recovery efforts and we think there are ways to create
incentives that would ameliorate that concern.
To provide the incentives we think are so critical for
motivation, we believe that agencies should be allowed to keep
a portion of the funds that are recovered in order to be able
to be reinvested in efforts to reduce erroneous payments. One
mechanism would be to create a Government Efficiency Fund,
where recovered money would be made available for government
efficiency initiatives that would be reported. We would
advocate they would be reported for Congressional oversight
annually, but they would be earmarked for new programs either
around process improvements, policy improvements, new
technology, or whatever could be applied directly to reducing
improper payments.
We also recommend removal of the restrictions of the
Paperwork Reduction Act. Some of those impede the issuance of
appropriate documentation requests or payment demand letters. I
think this is an area where one well-intended legislative
action could be impeding another.
Last but not least, we recommend examination of the Single
Audit Act to facilitate recovery audits for programs such as
grants to States by Federal agencies that currently are
prohibited from a secondary audit under that Act. The
provisions of the Act should be reviewed to see if programs
where there is evidence of intolerable levels of erroneous
payments should be subjected to a secondary audit.
Thank you, Mr. Chairman. I am prepared to answer any
questions you might have.
Senator Carper. Thank you for your excellent testimony.
Let me return to a theme that was sounded a number of times
in the course of this hearing, and that is incentives, and
particularly with respect to Medicaid borne partly by the
Federal taxpayers, borne partly by State taxpayers as we
attempt to provide health care to low-income folks, in some
cases nursing home assistance for our elderly. The comment I
think you made was that as we look at efforts to recover
improper payments or monies allocated inappropriately, States
tend to bear the costs and the Federal Government tend to keep
the dough. Is that a fair characterization of what you said? If
it is, there is no wonder not a whole lot is being recovered
and I certainly think I see a road map there for changing that.
Mr. White. Not trying to put too fine a point on it, what I
said was that although the characterization was made that if
there were overpayments, frequently, they were split 50-50. It
is not quite always that simple, and in some instances, it is
split 50-50. In some instances, it may be that the State
recoups the entire amount, and in other instances, it may be
that the Federal Government recoups the entire amount. So what
we were advocating was setting up a system where if a State has
a good productive recovery audit program, perhaps through some
sort of a rate adjustment or something, they would get a better
recoupment or keep a better portion of the split for those
funds that are recovered.
Senator Carper. OK. Good. We might want to explore that
with you a little bit more.
Mr. White. Sure.
Senator Carper. Thank you. You have given us a pretty good
to-do list for those of us here in Washington, in the Executive
and Legislative Branchs, of things that we need to do
differently. I am going to ask you to go back and just
reiterate those again, if you would, please.
Mr. White. Sure. I really made a series of six
recommendations. The first one had to do with the reporting in
the IPIA itself, and what we were encouraging Congress to
evaluate is whether you could augment that reporting by not
only reporting the statistics of what had been identified and
what steps have been taken to pursue it, but whether there was
a recovery audit program at all. Whether there were impediments
that had been identified, and then what steps have been taken
to ameliorate them. One of the issues that we have seen is
where overpayments are identified, but for one reason or
another, they are not pursued and we would request and think it
would be wise to get an explanation for why they were not
pursued.
The second recommendation was the joint task force with
OMB, or OMB leading the task force between the agencies and the
industry. The third was basically a standard contracting
vehicle to make it easier for agencies to employ recovery audit
firms as well as standard protocols and a government-wide
disbursement audit.
We talked about the CMS Medicaid extension of their current
efforts, and then we talked about incentives quite a bit with
the Government Efficiency Fund, the reduction of the Paperwork
Reduction Act, and then last but not least, the Single Audit
Act and its sometimes effect on not being able to audit grants.
Senator Carper. Dwell on that one for a little bit. If you
had been here at our last hearing, I turned out to be, I think,
the author in the House of Representatives when I was a
Congressman for the Single Audit Act, encouraged by State
auditors like former State Auditor McCaskill. What kind of
changes do you think we ought to make in the Single Audit Act?
Mr. White. I think the one that we are recommending is to
review particular grant types for high degrees of erroneous
payments, and if those thresholds are exceeded, then waive the
Single Audit Act and allow a secondary audit.
Senator Carper. OK. A couple more questions, if I could.
You mentioned at a couple of points in your written testimony
that you believe that private sector auditing firms can do a
better job and be more efficient in recovery auditing than
agencies' internal auditors can be.
Mr. White. Yes.
Senator Carper. I just want to know why you think that is
the case.
Mr. White. For a number of different reasons. First, it is
all we do. Second, we are used to dealing with the size of the
spend categories and the data. Third, we are independent and
sometimes just a fresh point of view where you don't have as
much ingrained history can be refreshing. This is a standard
practice also in the commercial world. I think it has become
accepted because of the reasons that I just expressed.
Senator Carper. OK. Thank you. Senator McCaskill raised the
question when we were talking with our earlier question from
CMS and we were talking about the pilot work that is being done
in three States with respect to recovery of Medicare improper
payments. I think you indicated that your firm is involved in
one of them. Which State are you all involved in?
Mr. White. We are involved in California.
Senator Carper. OK. Senator McCaskill asked, well, we are
getting such good results in these three States, why don't we
just do the other 47? I remember the old, what was it, Nike
ad----
Mr. White. Just do it.
Senator Carper [continuing]. Let us just do it. Why don't
we just do it?
Mr. White. I agree with you. I think we should move as
rapidly as possible. One of the points that Senator McCaskill
made was that basically we bear all the cost and risk, and that
is partially true. We do bear the majority of the cost and
risk, but these programs are not cost-less nor risk-less for
the States and/or for CMS, HHS, or any of the other agencies.
They do have to invest resources to put the programs in place.
They need to be supported. They have to provide data. They have
to help us setting up regulations and protocols. They have to
deal with the provider education and all the things that they
described. It does take a little bit of time.
Senator Carper. I can see that.
Mr. White. I do think that CMS, by their approach to the
legislation that was passed in December, is moving very
aggressively. They do have the RFI already out. It is due April
9. The bid process would ensue apparently shortly thereafter.
So I think they are moving very expeditiously and I think their
intent is to be in all 50 States ahead of the deadline.
Senator Carper. OK. Another question, I understand that
some agencies that have employed maybe you or a competing firm
and sometimes wall off entire portions of their budgets to keep
the auditors away and maybe even decline to recover some
overpayments that you have uncovered. Let me just ask, how
often does that kind of thing happen? Why does it happen, and
how can we push agencies to be more open and more aggressive in
collecting what is owed to them?
Mr. White. Well, I think we have talked about the incentive
side of it enough, so I probably should put that aside.
Senator Carper. OK.
Mr. White. Why they do it, I think that they perceive there
are some areas and programs that are particularly sensitive,
and therefore either for security reasons, privacy reasons, or
other reasons, they have to be very judicious in who they allow
to look at it, and I think is a viable and valid concern.
I think they also, with the OMB interpretation of the
legislation that exists, set thresholds, and then whether it is
$10 million and 2.5 percent, whether that is exactly the right
threshold, I am not really here to comment on it one way or the
other, but thresholds do make some sense because if the agency
is incurring some effort and if we are incurring some effort,
you have to have a reasonable amount of spend in order to make
it worthwhile. You can't go look at every dollar cost
effectively.
So I can understand why some of those things exist and they
are very practical. On the other hand, I think that,
frequently, people perceive either people from the outside as
being a threat or they perceive any examination of erroneous or
improper payments as being critical of their previous efforts
and they are naturally protective of their previous efforts and
therefore, they may take that to a bit of an extreme.
Senator Carper. OK. Well, there is an old saying about
saving the best for last. I don't know that this testimony and
these responses are the best, but they are really good and very
helpful. I want to say for myself, for our staff, for the
Members that were here and those that had to leave, thank you
for sticking around and for your patience today and----
Mr. White. Thank you for all the work that you are doing.
Senator Carper. Oh, no, we get paid for this, and as it
turns out, I guess you do, too. [Laughter.]
But you gave us some really good insights, and as I said, a
very helpful to-do list, as well. We thank you for coming and
for being with us this morning and this afternoon. There is
still plenty of work to do for all of us, but I think we are
maybe better informed now as we approach those
responsibilities.
The hearing record is going to be open for 2 weeks for the
submission of additional statements and questions. I would ask
you and our other witnesses who have been kind enough to join
us today for your cooperation in getting some prompt responses
to any questions that we may submit for the record.
Again, thank you very much for your input and for your
patience, and for that of the witnesses that preceded you.
With that, the hearing is adjourned. Thanks very much.
[Whereupon, at 1:13 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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