[Senate Hearing 110-501]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-501
 
                   ELIMINATING AGENCY PAYMENT ERRORS 

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

                                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

                             SECOND SESSION

                               __________

                            JANUARY 31, 2008

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

       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 R. 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
                       Monisha Smith, Chief Clerk



















                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator Coburn...............................................     4
    Senator Levin................................................    20

                               WITNESSES
                       Thursday, January 31, 2008

Daniel I. Werfel, Acting Controller, Office of Management and 
  Budget.........................................................     6
McCoy Williams, Managing Director, Financial Management and 
  Assurance Team, U.S. Government Accountability Office..........     8
Hon. Charles R. Christopherson, Jr., Chief Financial Officer, 
  U.S. Department of Agriculture.................................    25
Anthony J. Dale, Managing Director, Federal Communications 
  Commission.....................................................    26
Charles E. Johnson, Assistant Secretary for Resources and 
  Technology and Chief Financial Officer, U.S. Department of 
  Health and Human Services......................................    28
David A. Rust, Acting Deputy Commissioner for Disability and 
  Income Security Programs, U.S. Social Security Administration..    31

                     Alphabetical List of Witnesses

Christopherson, Hon. Charles R., Jr.:
    Testimony....................................................    25
    Prepared statement...........................................    88
Dale, Anthony J.:
    Testimony....................................................    26
    Prepared statement...........................................    96
Johnson, Charles E.:
    Testimony....................................................    28
    Prepared statement with attachments..........................   102
Rust, David A.:
    Testimony....................................................    31
    Prepared statement...........................................   121
Werfel, Daniel I.:
    Testimony....................................................     6
    Prepared statement...........................................    47
Williams, McCoy:
    Testimony....................................................     8
    Prepared statement...........................................    53

                                APPENDIX

Question and Responses for the Record from:
    Mr. Werfel...................................................   129
    Mr. Dale.....................................................   137
    Mr. Johnson..................................................   140
    Mr. Rust.....................................................   145
Charts submitted for the Record from Senator Carper..............   154


                   ELIMINATING AGENCY PAYMENT ERRORS

                              ----------                              


                       THURSDAY, JANUARY 31, 2008

                                 U.S. Senate,      
        Subcommittee on Federal Financial Management,      
               Government Information, Federal Service,    
                              and International Security,  
                          of the Committee on Homeland Security    
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:34 p.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Levin, and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. All right. The hearing will now come to 
order. Welcome, one and all, and to McCoy Williams and the real 
Danny Werfel. Thank you for joining us today.
    And to our second panel of witnesses and others--some of 
our colleagues will be coming in and out, and we look forward 
to their joining us.
    When is Ground Hog Day? Is it in February?
    Senator Coburn. It is a movie.
    Senator Carper. I know it is a movie. But when it comes to 
this issue of improper payments, I feel a little bit like 
Ground Hog Day. This is something we have continued to visit 
and revisit, and we should.
    I think the President, this current Administration, decided 
early on in their first term to make the issue of improper 
payments part of the President's Management Initiative, and, as 
I recall, the Improper Payments Information Act was enacted--I 
want to say around 2004? Does that sound right? Or was it a 
little before that?
    Mr. Werfel. 2002.
    Senator Carper. Maybe we came online in 2004 in terms of 
folks actually having to comply with it or beginning to comply 
with it.
    And although we made a lot of progress in those last 
several years, there is still a whole lot of progress to be 
made, and I know that, and I think we all realize that.
    We spend a whole lot of time around here talking about 
numbers. We are talking about a stimulus package that might be 
$140 billion, $150 billion, $160 billion, so, after a while, 
numbers like that begin to lose their meaning or impact.
    But I want to take just a moment to put in perspective the 
number of $55 billion. And $55 billion is what we believe for 
2007 was the amount of improper payments made by agencies, some 
of it overpayments, some of it underpayments, but mostly I 
think overpayments.
    But when we try to say, well, what does it actually mean, 
it is about one-third of what we are discussing for a stimulus 
package. And over here, on these charts,\1\ an improper payment 
imbalance of about $55 billion would be--it looks like it is 
more than the GDP of Croatia, more than the GDP of Slovakia, 
and about the GDP of Vietnam.
---------------------------------------------------------------------------
    \1\ The charts referred to appears in the Appendix on page 00.
---------------------------------------------------------------------------
    And if you actually look at the second chart closest to Dr. 
Coburn and me, you can see that $55 billion would be the 
combined GDP of 44 countries, some of them pretty small 
countries. But Delaware is a pretty small State. So they are 
still countries, and they count.
    But in any event, $55 billion is real money, and it is real 
money that we are concerned about, and ought to be concerned 
about.
    I think, Dr. Coburn, when we were here about a year ago, we 
had a similar kind of hearing. We were looking at improper 
payments of closer to $40 billion. And we expected--I expected 
it might be bumped up a little bit because we are covering in 
2007 some other major programs like Medicaid, the school lunch 
program, and the school breakfast program are reporting for the 
first time, so there is more that is really coming under the 
microscope here of improper payments, and so we should not be 
surprised that it has bounced up a little bit.
    But again, it is a lot of money involved, and it is money 
that we have to be concerned about, and I am. Dr. Coburn is, 
and we know the Administration is, and we want to make sure 
that we continue to focus on it and be vigilant on it so that 
we continue to ratchet this number down as time goes by.
    I think there are some major programs that we have yet to 
bring under the umbrella of scrutiny under improper payments. I 
believe Temporary Assistance for Needy Families might still be 
out there. I want to say that the State Children's Health 
Insurance Program is still outside their surveillance, if you 
will, and Medicare Prescription Drug Program, which is about a 
$50 billion a year program. These are all actually very 
substantial programs that are still outside of the improper 
payments surveillance. And as they come on board, I think next 
year, I would not be surprised to see the $55 billion bump up 
again a little bit, but my hope as to what happens as we go on 
beyond that is that programs start actually reducing improper 
payments. And some of those programs that have been under the 
gun since 2004 actually are seeing the incidence of improper 
payments come down.
    So we know that some progress is being made, and we are 
mindful of that and grateful for that. It is positive, but 
there is a whole lot more that needs to be done.
    Earlier today, I have introduced legislation, legislation 
that Senator Coburn and I and our staffs have worked on. We are 
calling it the Improper Payments Elimination and Recovery Act. 
I wish we could think of a good acronym for that, Senator. I 
bet if we put our hands to it, we could. I-P-E-R-A. I do not 
know what we call that, but we could probably come up with some 
acronym. We have them for everything else.
    But it is legislation that is designed to make what I think 
are some dramatic improvements to the way that agencies 
identify and root out their improper payments problems. And it 
really comes after a couple of years, maybe 3 years, of our 
focusing on these issues as a Subcommittee under Dr. Coburn's 
leadership and mine. It is the stuff we both care about and 
have worked on together, and we will continue to do that going 
forward.
    Our bill starts by improving transparency. OMB, right now, 
has set the reporting threshold for improper payments too low, 
meaning that millions of errors go unreported and potentially 
unaddressed each year.
    Let us take for example, if we would, the Medicare Part D 
Program. If we use the rubric $10 million or 2.5 percent--it 
has to be both--in order for us to be analyzing a program for 
improper payments. And 2.5 percent of $50 billion is--what 
would that be, $1.25 billion dollars. That is a lot of money.
    And under the current guideline, we do not trigger improper 
payments reporting threshold unless we exceed $10 billion and 
2.5 percent. Then unless we are talking about something in 
excess of $1.25 billion dollars of improper payments, Medicare 
Part D would not be reporting or taking remedial action.
    And I do not think that is too smart, and maybe some of the 
rest of you do not either. That is about half of the budget of 
the State of Delaware on an annual basis for a reference point.
    But I think we need to lower the reporting threshold so 
that Congress and the general public have a better picture of 
the problem that we face.
    This bill would also help to prevent improper payments from 
happening in the first place by requiring that agencies come up 
with detailed corrective action plans and error reduction 
targets. It would also implement a recent recommendation from 
GAO--and I just want to say our thanks to McCoy Williams and 
others at GAO who have given us good input as we try to craft 
this legislation.
    But we want to implement a recent recommendation from GAO 
that calls on OMB to develop a process whereby agencies would 
receive regular audit opinions on the financial controls used 
to prevent improper payments before they happen.
    This bill would also force agencies to be more aggressive 
in recovering improper payments that they make. I think in an 
ideal world, we would like to have no improper payments. We 
know that we all are human. We make mistakes, including Federal 
agencies. So the goal should be to figure out how we can make 
fewer improper payments.
    But as long as we are improperly spending $45 billion, $50 
billion, $55 billion, we need to be able to go out and do the 
recoveries, too.
    Some agencies and most private sector firms regularly go 
over their books to identify payment errors and to get back 
overpayments made to contractors and others that they do 
business with. I do not think we have done enough of that in 
the Federal Government, and as you can see from the charts, 
where we have improper payments, which shows that we have 
bounced between $45 billion and, say, $55 billion since Fiscal 
Year 2004.
    The chart that reflects overpayments that have been 
recovered. And I think we can probably do better than that.
    And eventually, we want to do a whole lot better by taking 
the top line there and bringing it back down, heading back down 
towards zero. And in the meantime, while there are these 
improper payments, we want to take overpayments recovered and 
we want to send that up a little bit higher on the chart.
    So there is work to do there. But even as agencies report 
greater improper payments, we are seeing actually fewer 
improper payments recovered.
    And what we propose to do in the legislation is to change 
this by requiring that all agencies with outlays of $1 million 
or more perform recovery audits on all of their programs and 
activities, if doing so is cost effective. I will say that 
again, if doing so is cost effective.
    If it is not cost effective, then we are not going to 
insist on that, and we should not.
    Finally, and perhaps more importantly, this bill would hold 
agencies accountable. Today, as I mentioned, some agencies do 
not appear to be taking the responsibility to deal with their 
improper payments problems as seriously as we would like to see 
happen. I want us to compel agencies to hold top managers 
accountable for their progress or the lack of progress and 
doing something to take better care of the tax dollars we 
entrust to them.
    I look forward to working with my partner, Dr. Coburn, on 
this issue, and we are going to continue to focus on it, and we 
look forward to working with our witnesses here and the 
agencies that all of you represent.
    It is not acceptable for us to know the amount of improper 
payments that we make every year and then to sit around 
watching the payments, improper payments, grow and know that we 
are not actually recovering more of those dollars. That is not 
acceptable.
    As I like to say, if it is imperfect, make it better. This 
is imperfect. We can make it better, and, with the efforts of 
all of us, we will. Thank you. Dr. Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Senator Carper, for having this 
hearing. You all are not the enemy. I understand that.
    So as we discuss this, please take our comments in the 
light that we are trying to solve this problem. I have a 
statement for the record--I would like to have put into the 
record, if I could.
    Senator Carper. Without objection.
    [The prepared statement of Senator Coburn follows:] ???
    Senator Coburn. First of all, I do not believe the number 
that we have, I think it is about twice that. I sat and looked 
at Medicare and then I looked at what was just recently been 
documented in the State of Florida. Just by capturing one ring 
of people in Medicare, we dropped the billings $1.4 billion, 
$1.4 billion just by breaking up one ring of false billing.
    I do not think our numbers are accurate. We say Medicaid 
improper payments are $13 billion. I think it is that in New 
York State alone based on what I am looking at and what I am 
seeing.
    Do we really have a handle? And what we really know is we 
really do not, especially in the bigger programs. And there is 
some things we are going to talk about with OMB in terms of, 
with the direction that has been given, we allow NASA to use 
anything under $500 million is not to be looked at. Well, that 
cannot be right. And that certainly is not what we intended.
    The impending financial crisis that we are seeing a little 
peak right now, as the world looks at the value of our dollar 
and whether or not we can repay the borrowings under which we 
are trying to operate for the next generation, it is really 
going to become important that you all in all your areas of 
expertise cut no slack in this area.
    And I know each of you are dedicated to that, but I think 
the biggest problem is that we do not really yet know how big 
the problem is. We still have lots of agencies that are not 
even about doing the first things to develop how big the 
problem is.
    So when we look at the number, what we know is the number 
is not right. And, the one thing as an accounting major is it 
is the old computer adage, if the numbers we are putting in are 
not right, the numbers we are going to get out are not going to 
be right as well.
    So, when we are looking at a portion of the pie, granted we 
are looking at a bigger portion of what we did, and that is to 
all of you, you should be complimented in terms of we are 
making progress, but it is not near to the level that we need 
to be, and it is not to the degree we need to be.
    And I compliment Senator Carper in working with us on this 
new bill. We are not quite comfortable yet, I am not, in terms 
of how aggressive I want it to be, and how, because of what we 
have seen, how we limit some of the flexibility in this.
    But nevertheless, I think it is a very important that we 
are moving in that direction, and I thank him for it. And I 
will redirect most of my questions and my statement as we get 
into the questions. Thank you.
    Senator Carper. Thank you, Dr. Coburn.
    Our first witness is Daniel I. Werfel, the Acting 
Controller of the Office of Management and Budget. And in that 
position, I understand that you lead OMB's efforts to improve 
government-wide financial management improvements and oversee 
work in priority management areas such as property management, 
one that we are very much interested in, and thank you for your 
help, and in improper payments, too.
    I understand you hold a master's degree in public policy 
from Duke and a J.D. from the University of North Carolina. 
That is an interesting juxtaposition--I think I have mentioned 
that before--and you were a starting quarterback at the 
University of Florida. That is quite a triumph for a guy----
    Mr. Werfel. I get around.
    Senator Carper. You do. You get around--spread pretty thin. 
But we are happy you are here. Thank you for being here again 
today, and it is nice to see you again.
    And we also are pleased to welcome back McCoy Williams. It 
is a good thing you do not charge us by appearance before this 
Subcommittee. We would be broke.
    But we are happy that you are back, and we appreciate very 
much the work that you and your colleagues at GAO do with us in 
this effort and others, but I am told you are the Managing 
Director of the Financial Management and Assurance Team in the 
U.S. Government Accountability Office. This team is GAO's 
largest unit with oversight of financial management and audits 
across the Federal Government.
    Mr. Williams has over 27 years of experience on these 
issues, and he has received numerous GAO awards, including the 
Distinguished Service Award for Exemplary Leadership. He holds 
an M.S. in Accounting from Virginia Commonwealth and is a CPA.
    And with that said, gentlemen, we see you not as the enemy, 
but as our colleagues on this initiative, an important 
initiative, and we are delighted to have you here today.
    I am going to ask Mr. Werfel to be the lead-off hitter, and 
then we will turn it over to Mr. Williams.
    And your entire statements will be made part of the record. 
Feel free to summarize as you wish. Thank you.

STATEMENT OF DANIEL I. WERFEL,\1\ ACTING CONTROLLER, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Werfel. Thank you. I would like to begin by thanking 
Chairman Carper and Ranking Member Coburn for having this 
hearing today and inviting me to speak.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Werfel appears in the Appendix on 
page 47.
---------------------------------------------------------------------------
    Four years ago, the President and Congress charged Federal 
agencies to identify, measure, and eliminate improper payments 
across government. In each of these areas--identification, 
measurement, and in elimination of improper payments--
significant results have been achieved.
    Today, OMB issued our annual report on improper payments 
that summarizes results from Fiscal Year 2004 and outlines a 
path forward for addressing ongoing challenges and building on 
the results achieved to date.
    I would like to begin by briefly going over the results for 
2007.
    First, in terms of identifying improper payments, under the 
current legislative and regulatory framework, Federal agencies 
are expanding the universe of high-risk programs that are 
measured and are audited each year.
    Agencies identified $1.9 trillion in program outlays to be 
measured for improper payments and subjected an additional $330 
billion in high-risk contract payments for recovery auditing.
    This means that 80 percent of all Federal outlays are being 
actively measured and/or reviewed for improper payments.
    Second, in terms of measuring improper payments, the 
Federal Government is making steady progress toward closing all 
reporting gaps so that the full extent of government-wide 
improper payments will be available in the next few years.
    Agencies are reporting measurements on 85 percent of all 
program dollars deemed high risk for improper payments, 
including 14 programs reporting error measurements for the 
first time this year.
    Third, in terms of eliminating improper payments, once an 
agency has identified and reported improper payments, it has 
demonstrated the ability to implement corrective actions and 
reduce those errors in subsequent years.
    The error rate for the group of programs that first began 
reporting in Fiscal Year 2004 has declined from an original 
high of 4.4 percent to 3.1 percent today. This represents a 
$7.9 billion reduction in improper payments.
    Similarly, programs that first reported in Fiscal Years 
2005 and 2006 have seen improper payments cut in half, 
representing a $2.3 billion reduction.
    Now, we must look forward to Fiscal Year 2008 and beyond. 
We believe that we are well positioned to sustain current 
progress on the identification and measurement of improper 
payments. However, to eliminate the $55 billion in improper 
payments reported in Fiscal Year 2007, Federal agencies need 
additional tools.
    Our top priority going forward is to obtain those tools 
through these following strategies.
    We must start by maximizing the impact of our program 
integrity efforts. Nine programs account for 90 percent of the 
government-wide improper payment total. We must ensure that 
agencies are implementing effective improvement plans in these 
programs before initiating additional activities in lower-risk 
areas.
    Within these nine programs, agencies must target the 
largest causes of error and utilize return on investment 
analyses to inform on the best uses of program integrity 
resources.
    Where are the largest sources of improper payments? Today's 
OMB report concludes that the largest source of error is the 
inability of programs to verify eligibility information. In 
fact, program eligibility errors account for approximately 80 
percent of government-wide improper payments and are a primary 
cause of error in our largest nine programs.
    Our report also identifies, thankfully, the most effective 
approach for addressing this problem and that is through 
verifying applicant data with third-party data sources.
    The President's budget, therefore, proposes several 
initiatives that will expand agency access to third-party data 
sources in programs such as unemployment insurance, which is 
one of the nine programs that I mentioned earlier, and we need 
Congress to support these proposals for expanding access to 
third-party data sources.
    Congressional action is critical, not only for data 
matching, but for other tools that agencies need to eliminate 
payment errors.
    Specifically, each year since 2003, the President has 
proposed discretionary funding for activities with a proven 
track record for reducing error and generated program savings.
    These proposals are often referred to as cap adjusted 
funding. Despite anticipated savings of nearly $4 billion over 
10 years, Congress has enacted only a small portion of these 
proposals and did so only in 2006.
    When the cap adjustments are combined with the President's 
other proposed legislative reforms for improving payment 
accuracy, the anticipated savings total approximately $18 
billion over 10 years.
    Thus, for every year that these proposals are not enacted, 
the Federal Government and, therefore, the taxpayer loses 
approximately $1.8 billion in unrealized error reductions and 
savings.
    The Congress and the Executive Branch must work together to 
expand access to third-party data sources to verify applicant 
eligibility, to fund and implement program integrity activities 
with a proven track record for eliminating error, and to enact 
legislative reforms that facilitate error reduction in our 
highest and larger dollar programs.
    Initiating these improvements will be essential if we are 
to meet the President and Congress charge to eliminate improper 
payments.
    Thank you, again, for the opportunity to testify today, and 
I look forward to answering your questions.
    Senator Carper. Good. Thanks very much, and I look forward 
to coming back and just revisiting, among other things, the 
things that you need for us to do at our end of Capitol Hill.
    OK. Mr. Williams, your whole statement will be made part of 
the record. Feel free to proceed. Thank you.

 STATEMENT OF MCCOY WILLIAMS,\1\ MANAGING DIRECTOR, FINANCIAL 
 MANAGEMENT AND ASSURANCE TEAM, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Mr. Williams. Thank you. Mr. Chairman, Dr. Coburn, thank 
you for the opportunity to be here today to discuss agencies' 
efforts to address key requirements of the Improper Payments 
Information Act of 2002 and the Recovery Auditing Act.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Williams appears in the Appendix 
on page 53.
---------------------------------------------------------------------------
    Since 2000, we have issued a number of reports and 
testimonies aimed at raising the level of attention given to 
improper payments.
    In addition, OMB has played a key role in the oversight of 
the government-wide improper payments problem. For example, in 
2005, OMB established eliminating improper payments as a new 
initiative under the President's Management Agenda.
    OMB also continues its commitment to address government-
wide improper payments by working with the agencies to 
establish corrective action plans and address their root 
causes.
    Mr. Chairman, Fiscal Year 2007 is the fourth year that 
Federal agencies were required to report improper payment 
information. Agencies reported improper payment estimates of 
almost $55 billion in their Fiscal Year 2007 PARs or annual 
reports, an increase from the Fiscal Year 2006 estimate of 
about $41 billion.
    The reported increase was primarily attributable to the 
Medicaid program reporting improper payments for the first 
time.
    We view this as a positive step to improve transparency 
over the full magnitude of improper payments. The $55 billion 
estimate consists of 78 programs in 21 agencies and represents 
about 2 percent of total Fiscal Year 2007 Federal Executive 
Branch agencies' government outlays of almost $2.8 trillion.
    In addition, the $55 billion largely consists of improper 
payments made in eight large programs, such as Medicaid and 
Supplemental Security Income. Collectively, the eight programs 
account for about 88 percent of the total estimate.
    Mr. Chairman, while showing progress, major challenges 
remain in meeting the goals of the Act and ultimately improving 
the integrity of payments.
    For example, not all the agencies reported conducting risk 
assessments of all of their programs or activities as required 
by Improper Payments Information Act (IPIA). Also, for risk 
assessments conducted, we and selected OIGs have raised 
concerns regarding the quality of the risk assessments 
performed. Further, the total improper payment estimate does 
not yet reflect the full scope of improper payments, as 
agencies have not estimated for 14 risk susceptible programs 
with outlays totaling about $170 billion.
    Additionally, non-compliance issues continue to exist. For 
example, some agencies did not measure improper payments for a 
12-month period, as generally required by OMB's implementing 
guidance, nor did the estimates reflect improper payments for 
the entire program.
    Agencies also reported that statutory or regulatory 
barriers may limit corrective actions to reduce improper 
payments.
    Mr. Chairman, with regards to recovery auditing, 21 
agencies reported identifying about $121 million in improper 
payments for recovery and actually recovering about $87 
million, a decrease of about $217 million when compared to the 
reported amount identified for recovery in the prior year.
    Most of the decrease can be attributed to DOD's decision to 
stop reporting voluntary refunds received from contractors.
    Mr. Chairman, I would like to emphasize that effective 
internal control calls for a sound ongoing invoice review and 
approval process as the first line of defense in preventing 
unallowable contract costs. Prevention is always preferred to 
detection and collection.
    In closing, we recognize that measuring improper payments 
and designing and implementing actions to reduce them are not 
simple tasks. Further, while internal control should be 
maintained as the front line of defense against improper 
payments, recovery auditing holds promise as a cost effective 
means of identifying contractor overpayments.
    We are pleased that agencies are identifying and reporting 
on more risk susceptible programs and have reported that 
overall program error rates have decreased since IPIA 
implementation. Yet we also note that both we and agency 
auditors continue to identify deficiencies in agencies' efforts 
to comply with IPIA.
    Successfully meeting the requirements of IPIA and the 
Recovery Auditing Act will require sustained attention to 
implementation and oversight to monitor whether desired results 
are being achieved.
    Mr. Chairman, this concludes my statement. I would be 
pleased to respond to any questions that you or other Members 
of the Subcommittee may have. Thank you.
    Senator Carper. Thank you very much, Mr. Williams.
    Mr. Werfel, I think you said in your testimony that about 
80 percent of the outlays are now covered. What was--$1.7 
trillion?
    Mr. Werfel. One point nine trillion dollars in outlays are 
currently identified as high risk on the program side. And on 
the contract side, we are reviewing an additional $330 billion 
in contracts each year.
    Senator Carper. OK. So under the law, do you have to look 
at high-risk program sources, is that the way it works?
    Mr. Werfel. Yes. The law basically establishes a 
requirement that agencies break up their outlays into two 
buckets. One are the low risk and the other are the high risk. 
And, as you mentioned in your opening remarks, OMB in our 
guidance indicates that the definition of a high-risk program 
is one that has a 2.5 percent error rate and $10 million in 
error each year. That is the assessment that the agency makes, 
and if they make that assessment, then all the requirements of 
the law trigger, going out and statistically sampling and 
measuring those programs, implementing corrective actions, etc. 
And under that framework, even with the $10 million and the 2.5 
percent, we are still seeing agencies identify a tremendous 
amount of programs and outlays and activities as high risk, as 
I mentioned $1.9 trillion out of the $2.8 trillion in total 
Federal outlays.
    Senator Carper. All right. What is still out there that we 
have not covered? You said 80 percent of our high-risk outlays 
are now covered? Just describe for us the ones that are not. I 
seem to recall it is Temporary Assistance for Needy Families 
(TANF) and----
    Mr. Werfel. Yes. Well, those programs have been identified 
as high risk. The $1.9 trillion figure that I provided are all 
those programs that are in a universe of programs that need to 
be measured.
    Now, we have not measured all of them. We have measured 85 
percent of all those outlays. And the remaining programs that 
still need to be measured are the programs that you mentioned. 
There is TANF. There is the Child Care Development Fund. There 
is the non fee for service components of Medicaid. There is 
Medicare Part D Prescription Drug and a couple of other 
programs.
    The Department of Homeland Security identified 12 new 
programs this year as being high risk and because this was the 
first year they have been identified, we do not have 
measurements for them yet, but will in the coming years.
    Senator Carper. So when we say--I want to make sure I have 
got this right--$2.8 trillion of overlays overall?
    Mr. Werfel. That is correct; $2.8 trillion.
    Senator Carper. And they are not all high risk?
    Mr. Werfel. Not all of them are.
    Senator Carper. Of that $2.8 trillion, how much would be 
high risk?
    Mr. Werfel. One point nine trillion dollars in program 
dollars; $330 billion in contract payments.
    Senator Carper. So a little over $2.2 trillion would be 
high risk?
    Mr. Werfel. That is correct.
    Senator Carper. Of that $2.2 trillion, 85 percent agencies 
are actually beginning to measure?
    Mr. Werfel. They are actively measurement. We are reporting 
a measurement for 85 percent of all the programs that have been 
determine high risk, and----
    Senator Carper. And out of that 85 percent of the $1.9 
trillion, we have determined that in 2007, there is $55 billion 
worth of improper payments; is that right?
    Mr. Werfel. That is correct.
    Senator Carper. All right. And what additional programs 
come on line in 2008?
    Mr. Werfel. The 12 programs for the Department of Homeland 
Security will be coming online next year. And--let me see--
Temporary Assistance for Needy Families will be coming online, 
Child Care Development, and then the Managed Care and 
Eligibility portions of Medicaid and State Children's Health 
Insurance Program (SCHIP).
    So a significant chunk of the remaining programs will be 
on. The only remaining programs after next year that will be 
left to measure and report on will be Medicare Advantage Part C 
and Medicare Prescription Drug Part D. And those we are 
targeting a Fiscal Year 2010 report date.
    So as I mentioned, right now, of the $1.9 trillion, 85 
percent we have an active measurement on, and that is the $55 
billion. By next year, we will have over 90 percent of that 
$1.9 trillion measured and reported on.
    Senator Carper. I think I understand. Good. You mention in 
your testimony, you talked about a couple of the largest 
sources of error, and I think you mentioned that ID benefit 
eligibility. Just give us a couple of examples of that.
    Mr. Werfel. Well, many of the programs that I--remember I 
said that there were nine programs that make up 90 percent, and 
those programs, just to rattle off some of them, Food Stamps, 
public housing, Medicaid--those programs are what we call--or 
Social Security--those are means tested programs where the 
program has to make a determination of whether certain 
eligibility criteria are met.
    And typically, the way those programs are designed, a 
person is eligible based on their income status, their work 
status, their household status, and it is verifying that 
information is being reported to the Federal agency accurately 
is our number one challenge.
    So an individual comes to apply for a benefit, and let us 
say the eligibility criteria are that the adjusted gross income 
for that individual's household has to be $50,000 a year or 
less. And that individual reports a $45,000 adjusted gross 
income for their household.
    Well, when we sample these payments and we go down and we 
find whether we made mistakes or not, we often find that 
individuals are underreporting their income, or, if they are 
not underreporting income, we are taking in the income 
information wrong, however the mistake happens. We do not have 
an accurate assessment of what that individual's income is, and 
there are methods that we can use to validate that information 
that we are not currently utilizing today.
    I think one of the simple-to-understand examples is with 
the unemployment insurance program. When individuals go back to 
work, we need to stop paying them unemployment insurance. And 
often, they get back to work. The Department of Labor does not 
realize in time that they are back to work, and we are still 
issuing them unemployment checks. And how do you fix that? And 
that is one of our challenges, and we believe that these types 
of third-party data sources, where we can go out and validate 
that John Smith on December 15, was he working or not, before 
we make that payment, that is the type of things we need to do. 
And as an example, one of the President's Budget legislative 
reforms is to enhance a current database that is out there 
right now to improve the Department of Labor's ability to go 
out and get that information on accurately determining 
someone's work status.
    Senator Carper. In my last term in the House, in 1991 or 
1992, one of the things that we worked on was trying to make 
sure that folks who were applying for affordable housing, 
public supported housing, to make sure that they were eligible 
by income. We had some folks that did not report their 
employment status and their income. We wanted to try to make 
sure that a benefit that was scarce and that is affordable 
housing, public housing, was made available to people who were 
truly needy.
    And what we ended up doing was to try to go through the 
Department of Labor to find out who is working and to get 
information that as timely so that when people went to work we 
could get the information quickly for program verification.
    I think that is the kind of third-party initiative that you 
are interested in getting some help on.
    But my time has expired for this round. I want to come back 
and just go back to that point, particularly to focus on how 
can we be helpful with respect to the Administration's 
initiatives in this regard and other related ways. How can we 
be helpful in making sure that the agencies have the tools to 
do their jobs, including the benefit eligibility piece?
    All right. Thank you. Dr. Coburn.
    Senator Coburn. Thank you. The last thing we want is make-
work for the agencies, and the OMB cited the change that 
actually--you changed the annual review.
    What statute or regulation do you use to cite the authority 
to deviate from that was required by this law for an annual 
review? What did you all use to give you the authority to 
change what the Congress has said about annual reviews?
    Mr. Werfel. Dr. Coburn, let me first clarify that I have 
the right deviation in mind. Are you referring to----
    Senator Coburn. From the risk assessment.
    Mr. Werfel. From the risk assessment. OK.
    We look at the Improper Payments Information Act as 
establishing at its outset a risk management framework. It 
requires agencies to not look at every dollar across the board 
and trigger all these activities, but to do a risk assessment 
and break things up into low risk and high risk.
    Once a program is identified as low risk, the agency looks 
at it and says we have information available to us based on the 
complexity of the program, based on the number of times Federal 
funds change hands, etc., whatever process they go through. 
They have identified as low risk, and then we had a question to 
ask ourselves in terms of how to implement the bill.
    Once it has been designated as low risk, what should we 
require the agencies to do each year in order to continue to 
validate its low-risk status.
    Senator Coburn. I do not have any problem with that. Where 
did you get the authority to change what we told you to do? 
What did you use to say--what we said in the law is we require 
you to make a risk assessment yearly, not every 3 years, 
regardless of what you have done, that is what the law said?
    All I am asking is where did the authority come to change 
that? What do you cite as an authority? I am not saying it is 
not common sense. I am not disagreeing with it. I am just 
saying where did you get the authority to do that?
    Mr. Werfel. We believe that the authority is in the 
Improper Payments Information Act. It is the provision that 
requires a risk assessment generally, and our interpretation of 
that provision and we may have differing interpretations. Our 
interpretation of that provision is that once a program is 
designated low risk, we are not telling agencies to ignore that 
program and to put it out of their minds completely.
    We require in our guidance that agencies have to reevaluate 
that program if exigent factors or new factors emerge, like the 
program changes or there is an influx of money into that 
program or conditions change, and it is the fact that the 
agencies have to keep apprised of potential changes, because 
they have done a baseline risk assessment and found it low 
risk.
    Senator Coburn. Yes. But let me use a specific example. We 
had a hearing about CDBG block grants. We had a great look at 
it. This is somebody that is low risk, and yet in our hearing, 
the Inspector General found $100 million in fraud and abuse and 
only 35 of the 1,080 grantees. That is just at the first 35 
they looked at--$100 million in fraud.
    And yet, under your program, it is low risk. They do not 
have to do another risk assessment.
    So where do we catch this so that this falls back in? I am 
not critical that you say people. We do not want them to keep 
doing the same thing. But here you got CDBG block grants, with 
$100 million out of the first 35 programs that they looked at 
of fraud and documented fraud, and yet, they fall outside of 
what your guidance is to say that they do not need to do a risk 
assessment. And yet, it is $100 million going out the door 
every year.
    How do you firm that up? You are trying to accomplish 
something on the front side to not give anybody make-work, but 
how do we catch it on the backside when it obviously missed it, 
and we want to pick it up?
    Mr. Werfel. That is a good question. The way we would focus 
on this problem going forward is the risk assessment that 
initially designates a program as low risk needs to have been 
sound; otherwise the framework that I just outlined does not 
really work that well.
    Senator Coburn. So where does HUD fall back in this, 
because under your guidance right now HUD is not under. They do 
not have to do a risk assessment even though they had $100 
million run out the door?
    Mr. Werfel. There is flexibility in the guidance, and we 
have implemented that flexibility to target certain programs 
that, even though they are designated for low risk, that we 
require the agency to go back annually and we do not provide 
them this type of ability to do the full-scope risk assessment 
each year. And CDBG is one of those programs.
    Senator Coburn. So it is not going to fly under the radar? 
It is coming back in. It is going to be relooked at?
    Mr. Werfel. Yes. Absolutely. And really what we need is a 
partnership between OMB, GAO, and the inspectors general to 
identify the CDBGs in the world, where there are questions 
about that initial risk assessment.
    Senator Coburn. Yes.
    Mr. Werfel. If an agency made a good initial risk 
assessment and then no environmental factors changed and the 
IG, GAO, OMB, and Congress were all not seeing things that need 
to be extra focused on, we are comfortable generally in 
allowing the agency to move forward, and a full-scope risk 
assessment every 3 years.
    But programs like CDBG, where in partnership, we can 
pinpoint and say I know you risk assessed it low, but it does 
not add up when you look at other factors that we consider at 
play; risk assess it again.
    Senator Coburn. Yes.
    Mr. Werfel. And that is what is going on with CDBG right 
now.
    Senator Coburn. Yes. But you would admit you could, under 
the way you all do it, you could get low risk, but there could 
still be fraud?
    Mr. Werfel. Yes.
    Senator Coburn. OK. So, for example, it is really important 
that Congress do oversight; is it not? I mean, had somebody not 
asked for this IG look, had we not had the Subcommittee look, 
would we have found this? The real question is would we have 
seen this $100 million going out the door had somebody not said 
IG do a look at this and let us have a hearing on it.
    And so, which is the point I try to make to my fellow 
Senators all the time. The reason that we have as many problems 
as we have is we are not doing enough oversight to look at to 
see where the problems are; asking the right questions.
    Let me go to one other area. I still have a little problem 
with your risk assessment threshold, this 2.5 percent, and I 
think that is going to be identified in what Senator Carper is 
planning in terms of legislation, but is there not areas where 
we are missing things when we have the threshold that you all 
have designed, and I know we have been over this, but kind of 
help me with that, if you would?
    Mr. Werfel. Certainly. There is a couple of factors at 
play. So, as I described, we have a current framework, where we 
have this 2.5 percent and $10 million.
    OMB's guidance goes beyond that and says if we know about a 
program that has a low error rate, but high improper payment 
dollars, then we are not going to let the agencies off the hook 
for those programs.
    So it is not an automatic exemption if you hit those two 
categories. And the way the results have played out, back in 
2004, under this framework, agencies were identifying $1.4 
trillion in high risk. And that was at about 60 percent of all 
outlays.
    That was quite stunning in and of itself; that even with 
this framework, you had $1.4 trillion being caught and saying 
yes, this is a problem. This is high risk.
    Since 2004, now we will flash forward to 2007, now we are 
at $1.9 trillion, and what you see, as I had mentioned earlier, 
DHS and the Department of Justice designated 12 programs high 
risk. And other agencies are coming forward with additional 
high risk programs.
    We look at those numbers and those trends, and we say the 
framework is working, because $1.4 trillion right off the bat 
was quite impressive in terms of a net to cast, but since then, 
and over time, the process is still generating more and more 
looks. And I have to compliment the Government Accountability 
Office, and when I talked about partnership, they were the ones 
who shook their head at DHS and said something is not adding 
up.
    You are risk assessing these things as low. Go back again. 
And that was all GAO.
    Senator Coburn. Well, the one that comes to mind to me is 
NASA. Do we really feel comfortable that NASA has no payment 
problems? I mean, does anybody in the room want to stand up and 
say NASA has no payment problems and, yet, that is what they 
have reported? They have no high-risk programs? I mean, can we 
really accept that with the amount of money they spend? There 
is no fraud in contracting. There is no significant improper 
payments made by NASA. Can we really say that and can we 
believe it?
    Do we believe it? I mean, does OMB believe it?
    Mr. Werfel. No, we do not. But we would categorize NASA as, 
in looking at NASA's expenditures, they are spending a 
predominant amount of their money on contracts. So 
distinguished from the earlier programs--food stamps, public 
housing----
    Senator Coburn. Yes.
    Mr. Werfel [continuing]. The benefit payment world, which 
we believe is that is the sweet spot for the IPIA, where NASA's 
expenditures are it is in all the contracts that they expend 
on, and that is really the Recovery Auditing Act.
    And under the Recovery Auditing Act, NASA absolutely is 
responsible under the threshold in the current bill, which is 
$500 million a year in contract payment, they are absolutely on 
the hook to be doing a thorough review and to be implementing 
Recovery Auditing Act procedures, and the unfortunate thing 
that occurred this year was that NASA did not get off the dime 
quick enough and start up their Recovery Auditing Act process. 
And it was too late by the end of the year to get the process 
started, and so for 2007, they had a significant gap in their 
reporting.
    Believe me, that did not go undetected by OMB. We are very 
concerned about that. We are putting a lot of focus with NASA 
on getting back on track, and we anticipate that in 2009 we 
will see a very thorough review of the contract dollars.
    Senator Coburn. My time has expired. I just want to make 
the last point, and then I will not ask a second round on this.
    The President in his wisdom put in CFOs everywhere; right? 
Everywhere. That is their job. Somebody ought to be hanging if 
there was no recovery audit at NASA.
    Senator Carper. Well, I do not know that it was the 
President in his wisdom.
    Senator Coburn. Somebody did.
    Senator Carper. It might have been Senator Bill Roth, my 
predecessor, who I think might have been the lead sponsor of 
that in the Senate.
    Senator Coburn. It happened. Let me just say that.
    Senator Carper. A Congressman, one of his colleagues from 
Delaware might have been working on it with him over in the 
House. I do not know.
    The President was at least smart enough to go along, and we 
sort of worked together. One hand washes the other in this 
stuff.
    I want to come back, Mr. Williams. Let me just sort of 
telegraph my pitch, so you will have a chance to think about 
this, but I want to come back and ask you to give us some 
thoughts on the recovery of some of these monies that have been 
improperly paid. And just some things that we ought to be doing 
that we are not doing well; some things that we can do better 
on that front.
    But while you think about that, let me just go back to Mr. 
Werfel and ask you to return with me, if you will, to the 
discussion we were having about benefit eligibility and that 
sort of thing.
    And apparently, there are a number of things that the 
Administration has asked the Congress to do in this regard, and 
it sounds like you are getting a little bit of help, but not as 
much as you would like to have.
    What are some things you all have been asking for that you 
have gotten that we have done a decent job in supporting. What 
are some things you are asking us to do where you have not 
gotten the kind of support that you would like to have?
    Mr. Werfel. Well, as I mentioned earlier, we are looking at 
the data and trying to make smart strategic decisions about how 
to tackle the $55 billion, and the nine programs, as I 
mentioned, make up the $55 billion.
    And so what we have asked agencies to do is to help us 
figure out the root causes of error in those programs and what 
kind of tools they need to be most effective in rooting out 
error.
    And what the President's budget does is it encapsulates and 
OMB's Improper Payments Report encapsulates what we believe are 
the critical tools that we do not have now.
    Let me walk through some of them. The first, as I mentioned 
in my opening remarks, are what we call cap adjustments, which 
is not plain language and nobody outside the Beltway knows what 
that means.
    But what essentially it is is it is program integrity 
dollars to do activities that we have looked at, and we said if 
we spend this money, it is going to have a positive return on 
investment for taxpayers. A dollar spent will return more than 
a dollar in terms of error reduction and savings.
    So we have asked agencies to explore--do you have things 
that you could be doing that you are not doing today that would 
have this type of return?
    And the Social Security Administration, who is going to 
testify today, is a best practice model agency at this. Their 
return on investment analysis for the Supplemental Security 
Income Program, which is one of the big nine programs, is based 
on an actual past experience. It is very rigorous.
    We have briefed many members of the Hill and staff on it, 
and everyone has been impressed by the level of rigor in the 
analysis. Some of those activities are upwards of one dollar 
invested on an $11 return.
    And what it is, in going back to that primary cause of 
error in terms of eligibility, what Social Security needs to be 
able to do that they are not doing today enough of are things 
like continuing disability reviews and redeterminations, 
because as people are receiving benefits, because they were 
initially found eligible, they do not always stay eligible. 
They get healthy. They get more money, whatever happens.
    But if they stay on those rolls, those are improper 
payments, and Social Security currently does not have the 
funding that they need to do all the continuing disability 
reviews and redeterminations to capture all that.
    And the President's budget proposes a level of funding that 
is going to get Social Security up and running to do those 
things. And the result is for Social Security alone, you are 
looking at approximately $2.6 billion in savings over 10 years.
    Similarly, we have similar types of program integrity 
funding requests for HHS, Health Care Fraud and Abuse; for IRS 
Tax Enforcement; and for the Unemployment Insurance Program. 
And that is where--and these requests have been in the 
President's budget since 2003, and again, they seem to fall out 
somewhere along the line during the appropriations process.
    And what we have tried to do--the reason why it is called 
cap adjusted is because we have tried to put a protected fence 
around it so that it does not really impact spending limits or 
what are known I guess as 302(b) allocations in the 
appropriations process.
    And if we can get that commitment from Congress up-front 
that money is protected and is not going to be negotiated 
around come appropriations time, that is the kind of thing we 
are looking for, because again, it has that return on 
investment.
    We have additional legislative proposals beyond just these 
activities. I mentioned one of them earlier, and that is 
enhancing our third-party data sources in the UI Program, 
Unemployment Insurance. We want to be able to know immediately 
or as soon as possible when people are going back to work so we 
can stop those unemployment checks from going forward.
    So we have a legislative reform to do that. That, if we can 
get that one going, is $3.6 billion over 10 years. The Earned 
Income Tax Credit----
    Senator Carper. How much over 10 years was the last one?
    Mr. Werfel. The Unemployment Insurance?
    Senator Carper. The last one. Three point----
    Mr. Werfel. $3.6 billion over 10 years.
    Senator Carper. Over 10 years; right. Give us some idea, 
Mr. Werfel. That is how much? Is that a net number or is that 
costs after investment?
    Mr. Werfel. No, there is no up-front. To distinguish it 
from the program integrity cap adjustments, those required up-
front investment of dollars. They just have a return on 
investment.
    The reforms that I am going to go through now, and I will 
try to do it quickly, are no up-front investment. It is just a 
change to the law. It is creating a new data element and 
database. It is changing the way the eligibility formula works, 
sort of simplify it, different approaches like that--tools to 
give to the agencies. No additional funding.
    Senator Carper. Would you describe this as low-hanging 
fruit?
    Mr. Werfel. I would definitely describe it as low-hanging 
fruit. It is our first major cut at what we think we need to do 
to impact the $55 billion in a big way.
    Senator Carper. Why do you suppose the Congress has not 
picked up on it? I guess it is the appropriators? It sounds 
like it is the appropriators. Why do you suppose we have not 
picked up on it to date?
    Mr. Werfel. I think we have gotten--with respect, the 
appropriators certainly are the responsible authority for the 
cap adjustments, and we have done a lot of work with the staff 
up there, and have had briefings, and really pushed it and 
tried to make it a significant priority.
    It seems to fall out at the end. It seems to not survive 
those last-minute negotiations on things like the Omnibus.
    So, for example, last year's budget resolution, it was in 
there, and we were doing a celebration back at OMB, because we 
figured if it was in the budget resolution, it was a pretty 
good chance that it was going to be in the final appropriations 
bill. But again, the way the appropriations process played out 
this year, always is a unique and challenging situation and it 
fell out at the end.
    So I think there is interest. I think it is just we have 
not been able to get across the end zone line so to speak.
    Senator Carper. Yes. Well, the President will be submitting 
his budget I guess in a couple of weeks? Sometime in April or 
so I expect that Congress will try to grapple and come up with 
a budget resolution. It sounds like that we included in the 
budget resolution roughly 8, 9, 10 months ago for 2008, these 
initiatives, the authorization, the expectation that we do 
this, and then when the actual money has maybe been 
appropriated, we did not follow through?
    Mr. Werfel. That is correct. It did not----
    Senator Carper. Is that right?
    Mr. Werfel [continuing]. Make it into the final bill.
    Senator Carper. I would just say to my friend, Dr. Coburn, 
we may have a great opportunity here to follow up.
    Senator Coburn. I like amending the Appropriations Bill.
    Senator Carper. I know it is something that is hard for you 
to do, but all right.
    Well, that is real helpful. Let me go back to Dr. Coburn. I 
know you said you did not have anymore questions for this 
panel. Anything else, because I want to ask Mr. Williams a 
couple of questions.
    Senator Coburn. Actually, I have some questions, but I will 
submit them because of our time.
    Senator Carper. OK.
    Senator Coburn. And I have a Judiciary hearing starting at 
4 p.m.
    Senator Carper. OK. I understand Senator Levin is on his 
way, and he would like to ask a couple of questions. I think 
his quote was I would want to grill these two witnesses. Do not 
let them get out of the room.
    No, he did not say that, but it gives me the chance to ask 
Mr. Williams to visit with us again this issue of recovery and 
somewhere in my prepared questions I have a question on this, 
and if I have enough time, I will dig into it.
    But what are we doing well on recovery and what are we not 
doing well on recovery?
    Mr. Williams. Well, Mr. Chairman, if you remember, the 
first year that I testified and talked about recovery auditing, 
the numbers were very small relative to the amount of 
contracting activity in the Federal Government.
    Over the years, while the number is down this year, we have 
seen the amount identified and actually recovered to be going 
up this year with the point that we make about money that is 
automatically returned has been excluded in the DOD component 
of the number.
    Senator Carper. Explain that change in DOD. Just explain 
that to me. I do not understand.
    Mr. Williams. Basically, if I am a contractor and you owed 
me $10, you paid me $20, and I returned the $10 to you before 
being asked, just voluntarily returned that $10 to you, then it 
is not reported as being recovered is the difference according 
to my understanding.
    Senator Carper. OK. God bless those contractors, those 
defense people.
    Mr. Williams. And may I add to that is that even though it 
might not be reported as a component under the Recovery Audit 
Act, there was still an improper payment made in that case. In 
GAO's views amounts collected and identified under the Recovery 
Auditing Act, they are improper payments also.
    You asked for some general thoughts about the program and 
basically if you have got a recovery auditing program and if it 
is free, then my statement to that is let us implement it 
everywhere. It is not going to be free. There are some costs 
associated with setting up the program, etc. But we believe 
that it should be utilized to the greatest extent possible, and 
it should follow the concept that was mentioned earlier during 
the discussion, and that is you need to look at it from a cost 
benefit standpoint.
    And as I have always stated before this Subcommittee with 
regards to this particular issue is that you should never spend 
a dollar and one cent to collect a dollar. So it should be cost 
effective.
    So those are a few thoughts that I have on the program.
    Senator Carper. All right.
    Senator Coburn. I have a question.
    Senator Carper. Go right ahead, please.
    Senator Coburn. What happens, if anything, for an agency 
that does not comply with the law or OMB guidance right now on 
improper payments?
    Mr. Werfel. Currently, there are two particular 
implications that come to mind. First, the independent auditor 
would include in the audit report a finding of indicating non-
compliance with that particular law or regulation.
    And second, the impact from an OMB standpoint is we would 
downgrade their score in the President's Management Agenda----
    Senator Coburn. All right.
    Mr. Werfel [continuing]. And make that public.
    Senator Coburn. OK. All right. Thank you.
    Senator Carper. We have been joined by Senator Levin, and 
we are glad to recognize you at this time. Thanks for joining 
us.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Mr. Chairman. Let me add my 
welcome to our witnesses. Many of the overpayments that were 
targeted in the GAO report involved payments of relatively 
small amounts to individuals such as payments for school 
lunches, Social Security checks, and payments under the Earned 
Income Tax Credit Program. And that is well and good.
    But there is another whole category of improper payments 
involving hundreds of millions of taxpayer dollars that receive 
very little attention, and those are the overpayments, double 
payments, and other type of mistaken payments that are made by 
Federal agencies using taxpayer dollars to vendors and 
contractors.
    Those type of payments happen all the time, but the 
information on the extent of that problem and what is being 
done to recover those payments that do not receive as much 
attention in the GAO report or the OMB testimony is 
apparently--and I am sorry I missed it--for instance, take a 
look at Appendix II of the GAO's prepared statement, item four, 
involving the Department of Defense.\1\
---------------------------------------------------------------------------
    \1\ The chart referred to by Senator Levin appears in Appendix II 
of GAO's prepared statement that appears in the Appendix on page 81.
---------------------------------------------------------------------------
    The chart shows that in 2006, the DOD identified $550 
million in improper payments under the category of commercial 
pay, which means payments made to vendors or contractors.
    So that is half a billion dollars in improper payments. In 
2007, however, the figure disappears. And the category for 
commercial payments shows zero and my staff has been told that 
the Department of Defense did not report any figure in 2007 for 
this category because at least as a possibility the Department 
was advised that vendor and contractor payments are not covered 
by the Improper Payments Information Act.
    Now, that is not my understanding of the Act, and I am just 
wondering, GAO, what is your interpretation of the Improper 
Payments Information Act? Should Federal agencies be reporting 
improper payments to vendors and contractors as well as 
improper payments to employees or program beneficiaries?
    Mr. Williams. Senator Levin, as I stated just before you 
came in, it is GAO's opinion that those categories of 
activities that you just described, we call those improper 
payments also, and they should be included under the 
requirements of IPIA.
    Senator Levin. All right. Now, if this territory has been 
covered, I am not going to repeat it.
    Senator Coburn. Go ahead. We covered it on recovery audits, 
but we did not talk about it at this point.
    Senator Levin. OK. All right.
    Now, why did the Department of Defense decide to stop 
reporting a category of improper payments last year, which was 
about half a billion dollars? Mr. Werfel, do you know?
    Mr. Werfel. Well, I think that we might have a numbers 
question here, but let me tell you what I do know, and that is 
that under the Improper Payments Information Act, which came 
out and was enacted about the same time as the Recovery Audit 
Act. The Improper Payments bill requires agencies to do an 
estimate of their improper payments, and we interpret that to 
go out and pull a sample of payments and then extrapolate that 
sample to a universe and say what your payment error is; 
whereas the Recovery Auditing Act requires more of a targeted 
review--every risk payment and figure out whether their errors 
were.
    And we look at that and say that makes sense to us.
    For contracts, where have that type of control and direct 
knowledge of the specific things going on with those payments, 
we should be doing more universal look at every payment versus 
a Social Security or a food stamp situation where sampling 
makes more sense.
    Senator Levin. Was that interpretation in effect in 2006?
    Mr. Werfel. It has been in effect, from OMB's standpoint 
and the way we have structured our guidance, since Fiscal Year 
2004.
    Senator Levin. So that there was zero in 2007 and half a 
billion in 2006?
    Mr. Werfel. According to, again, and I hope we do not have 
a numbers problem here, but according to my data that I have 
from the Defense Department, they subjected under Recovery 
Auditing Act $189 billion----
    Senator Levin. No, I am talking about the Improper Payments 
Information Act. It was half a billion dollars in 2006 and zero 
in 2007; is that correct?
    Mr. Werfel. I am not aware of that. My information 
indicates that the Department of Defense did, in fact, report 
improper payments in their non-contract payments, such as 
military health and military pay, in Fiscal Year 2007, and I 
can get you those numbers.
    Senator Levin. No, that is not what I am referring to, 
though. I am talking about vendor and contractor payments. 
According to my staff, in 2006 there was $550 million in 
improper payments under that category in 2006 and zero in 2007; 
is that what your data showed?
    Mr. Werfel. I do not have that information.
    Senator Levin. Well, let's find out from Mr. Williams.
    Mr. Werfel. Yes.
    Mr. Williams. Senator Levin, that is the information that 
we have pulled from the PAR Report, and I am just asking the 
staff right now if we can bring that up here, so we can take--
--
    Senator Levin. All right. Assuming that my staff is right, 
and they have got a thousand percent----
    Mr. Williams. OK.
    Senator Levin [continuing]. Except when they do not, 
assuming that is true, what is the explanation, Mr. Werfel?
    Mr. Werfel. Well I would say, first of all, that I would 
hope that OMB in putting together our report that was issued 
today would pick on an outlier like that.
    Our approach has been, and we have asked agencies to comply 
with, that for benefit and individual payments that they report 
under the Improper Payments Information Act and for vendor 
payments they report under Recovery Auditing. And for both----
    Senator Levin. But you said that was true in 2006, too?
    Mr. Werfel. It has been true since Fiscal Year 2004.
    Senator Levin. OK. Take a look at page 28 if you would then 
of this report?
    Mr. Werfel. I will.
    Senator Levin. I am sorry--the GAO testimony.
    Senator Coburn. Can I interject here for a second?
    Senator Levin. Of course.
    Senator Coburn. The guidance that OMB gives is 2.5 percent 
or $10 million. Well, $500 million is two-tenths of a percent. 
Therefore, they do not have to report, which is nuts.
    Senator Levin. It is not only nuts. It is inconsistent.
    Senator Coburn. Well, the footnote for that zero says that 
the Defense Department did not report.
    Senator Levin. Yes, but my question is why. What changed?
    Senator Coburn. I suspect it is because they do not fall 
under the 2.5 percent or $10 million rule.
    Senator Levin. But did they not fall under the same thing 
in 2006?
    Senator Coburn. Well, but once--again it is the 2.5 percent 
because it is such a small percentage even though it is $500 
million, they have 2 years--they are not required under the----
    We covered this before you came in.
    Senator Levin. OK.
    Senator Coburn. Under the interpretation, OMB's guidance to 
them. I don't know if that is right or not.
    Senator Levin. No, I think I got it, but that may explain 
zero in 2007 that it is wrong guidance I think--I will not 
speak for anyone else in terms of the purpose of the Act. But 
that is not my question. My question is the same guidance you 
said was in effect in 2006?
    Mr. Werfel. Yes, and I need to--I think I am going to ask 
you to indulge me and let me get back to you on that, because I 
do not have that information at my fingertips in terms of why 
that number appeared in 2006 and did not in 2007.
    Senator Levin. Right. And I understand what Senator Coburn 
is saying, and that is not an acceptable----
    Senator Coburn. It is not an acceptable----
    Senator Levin [continuing]. Interpretation for me, either, 
and I will not speak for our Chairman, but I agree with that. 
That is not acceptable, but it also seems to be a change in 
guidance of some kind between those 2 years, and I want to know 
if that is true, and, if not, what explains the zero. That is 
my question for the record. Thank you. And thank you for 
letting me buzz in this way.
    Senator Carper. No, not at all. Just before you arrived, we 
were in some back and forth with Mr. Werfel. He had mentioned 
in his testimony that the Administration has asked the Congress 
to do a number of things through appropriations legislation and 
others to enable us to reduce improper payments and do a better 
job on recovery.
    And it sounds to Senator Coburn and me as if we may have, 
we the Congress, may have used some of those initiatives in our 
budget resolution for pay fors, to reduce outlays over 5 years, 
over 10 years, to enable us to pay for other things.
    But then, when it came time to actually do the 
appropriation, to follow up and make those pay fors possible, 
we may not have done that. And that is I think--that is fertile 
ground for us to work together and work with the Administration 
to make sure if that is indeed what happened, that we do not 
make that mistake again.
    Senator Levin. Thank you, both.
    Senator Carper. Yes. Good to see you. Thanks so much for 
joining us. I have got a couple more questions for the record, 
Mr. Williams----
    Mr. Williams. OK.
    Senator Carper [continuing]. And Mr. Werfel. Anything else, 
Dr. Coburn? All right. Gentlemen, again we appreciate your 
being back with us today. Mr. Williams, I understand you can 
stay a bit longer for the second panel. If you could do that, 
we would be most appreciative.
    Mr. Williams. OK.
    Senator Carper. But thank you so much.
    Mr. Williams. Thank you.
    Mr. Werfel. Thank you.
    Senator Coburn. While you all are being seated, I have to 
go to a Judiciary Committee mark up.
    I just wanted to express my appreciation for the work that 
you do. It is often not appreciated. The importance of it is 
often not recognized. This Subcommittee recognizes it, and 
although I will not be here to hear your testimony or ask 
questions I wanted you to know how much I appreciate it, and I 
think I am speaking for Senator Carper as well--the fine work 
that you do. And we have noticed progress in the last 3 years. 
I think you all have as well, and I think that should be noted. 
Thank you.
    Senator Carper. Dr. Coburn, keep them straight on that 
Judiciary Committee.
    Mr. Coburn. I will do my best.
    Senator Carper. I know you will. Well, let me take a moment 
here to introduce our second panel. The first we have Charles 
Christopherson, Chief Financial Officer and Chief Information 
Officer of the U.S. Department of Agriculture. Who is the 
Secretary of Agriculture now?
    Mr. Christopherson. The Secretary is now Ed Schafer.
    Senator Carper. How is he doing?
    Mr. Christopherson. He is doing wonderful.
    Senator Carper. Not bad for an old governor, huh? Give him 
my best.
    Mr. Christopherson. Great for a governor. He is a great 
guy.
    Senator Carper. Good. Well, we had a couple of governors 
there.
    Mr. Christopherson. We have.
    Senator Carper. Yes. Prior to your confirmation by the 
Senate in 2005, you were a co-founder of a consulting firm that 
specializes in company turnarounds and cash management, and you 
hold an MBA from Oregon Executive MBA Program, and you are also 
a CPA. Welcome.
    Next is Anthony Dale, Managing Director of the Federal 
Communications Commission and he has served in that position I 
am told for about 2 years?
    Mr. Dale. Yes, sir.
    Senator Carper. All right. In that position, we are told 
you are responsible for the agency's operations and management 
functions, including the FCC's financial and accounting 
activities and that you worked at the FCC in a variety of 
management and staff attorney positions for about a decade?
    Mr. Dale. Yes, sir.
    Senator Carper. Charlie Johnson is the Assistant Secretary 
and Chief Financial Officer for Resources and Technology at the 
U.S. Department of Health and Human Services.
    Mr. Johnson previously served as a CFO of APA. He was also 
previously the president of the Huntsman Cancer Foundation and 
served as a member and as chair of the Utah State Board of 
Regents, which oversees all public institutions of higher 
education in the State.
    He was also a chief of staff to the Governor of Utah. Which 
governor?
    Mr. Johnson. Governor Leavitt, now Secretary Leavitt.
    Senator Carper. I have heard that name. I was with him on 
Monday night, though for the state of the States. Always good 
to see him. Served as chief of staff to Governor Mike Leavitt 
and served as Director of the Governor's Office of Planning and 
Budget for 2 years. In total, Mr. Johnson has spent 31 years in 
the practice of public accounting, having started at the age of 
14.
    Mr. Johnson. Exactly.
    Senator Carper. Finally, we have David Rust, the Acting 
Deputy Commissioner for Disability and Income Security Programs 
at the Social Security Administration, and formerly the 
Executive Secretary of the Social Security Administration.
    When were you the Executive Secretary, Mr. Rust?
    Mr. Rust. Actually, I still am.
    Senator Carper. OK. But you are not former. You are 
currently?
    Mr. Rust. Correct.
    Senator Carper. All right. Mr. Rust has previously held a 
number of leadership positions in the Federal Government, 
including the Department of Health and Human Service and the 
Department of Agriculture. Who was the Secretary when you were 
at Agriculture?
    Mr. Rust. Several of them. Secretary Espy, Secretary--get 
two or three of them in there.
    Senator Carper. OK. I am going to invite you all to proceed 
with your testimony, and, Mr. Christopherson, since I 
introduced you first, we will ask you to go first.
    Your whole statement will be made a part of the record, and 
you can summarize as you see fit.

STATEMENT OF THE HON. CHARLES R. CHRISTOPHERSON, JR.,\1\ CHIEF 
       FINANCIAL OFFICER, U.S. DEPARTMENT OF AGRICULTURE

    Mr. Christopherson. Thank you, Mr. Chairman. Mr. Chairman 
and Ranking Member Coburn, and Members of the Subcommittee, 
thank you for your invitation to appear before you today to 
provide the Subcommittee with the status of the U.S. Department 
of Agriculture's progress on the President's goal to eliminate 
improper payments.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Christopherson appears in the 
Appendix on page 88.
---------------------------------------------------------------------------
    I am Charles Christopherson, the Chief Financial Officer 
and Chief Information Officer at the USDA. And my role as the 
Chief Financial Officer is to lead the Department's efforts in 
eliminating improper payments.
    At USDA, we believe that eliminating improper payments is 
not only important but it is essential. The Department 
obligates about $100 billion of taxpayer's money annually 
through more than 300 programs worldwide.
    Many of USDA programs operate through an extensive network 
of Federal, State, and local cooperators. We have a complex 
tapestry of systems. Many date back to the 1970s and 1980s. 
These old systems often require our employees to complete 
manual reviews of qualifying paperwork for USDA programs.
    While we still face many challenges, USDA has made progress 
in identifying programs that are susceptible to significant 
improper payments.
    In Fiscal Year 2006, we increased the number of programs 
measured and we clarified the measurement and reporting 
criteria for improper payments. Then in Fiscal Year 2007, USDA 
achieved a major milestone by measuring all programs with 
significant risks for improper payments.
    This includes 16 programs with total outlays of over $72 
billion. The measurement of these programs estimated that for 
Fiscal Year 2007 improper payments totaled $4.4 billion, an 
error rate of 6.1 percent. This is a decrease from Fiscal Year 
2006 with improper payments of $4.6 billion and an error rate 
of 7 percent.
    I believe it is important to note that this reduction 
occurred even though two additional nutrition assistance 
programs were measured and reported for the first time in 
Fiscal Year 2007.
    In Fiscal Year 2006, we were transparent with both the 
Congress and our employees on the improper payment rates in the 
Farm Service Agency. This transparency, along with dedication 
of FSA's employees, helped us to decrease the rate of improper 
payments in their seven high risk areas in Fiscal Year 2007.
    This progress was made through reinforcement of 
administrative procedures, implementation of checklists, and 
the implementation of data matching process with the Social 
Security Administration's Death Master File.
    In Fiscal Year 2007, USDA's Food and Nutrition Service 
measured for the first time the National School Lunch Program 
and the School Breakfast Program. The estimated amounts of 
improper payments, including under and overpayments for the 
School Lunch Program, were $1.4 billion, an error rate of 16.3 
percent. The estimated amount of improper payments, including 
under and overpayments for Breakfast, were $520 million and an 
error rate of 24.9 percent.
    FNS has worked closely with OMB, Congress, the States, 
schools and advocacy group for two decades to better understand 
the improper payments in the Food Assistance Programs and to 
find ways to reduce them.
    In an effort to reduce the number of improper payments, FNS 
has developed and requires annual training for schools on 
certification and accountability issues. FNS employees provide 
technical assistance to States and to schools to help: First, 
reduce the payments of the administrative errors; second, 
improve program integrity; third, improve compliance with 
program nutrition; fourth, improve compliance with menu 
planning standards; and, last, increase the accuracy of meal 
counts.
    Through this same type of proactive partnership, FNS has 
seen improvements in food stamp program error rates that bring 
it to 5.99 percent. This improved performance reflects the 
effective partnerships with States administering--or the State 
administering agencies. Twenty-five States now have an error--
or have payment accuracy rate greater than 94 percent.
    USDA agencies often work together to reduce improper 
payments. The Natural Resources Conservation Service, the Farm 
Service Agency, Rural Development, and the Agricultural 
Marketing Service staffs meet monthly to discuss and resolve 
overlapping issues.
    The result of this interagency communication and the 
program integration has reduced improper payments related to 
the conservation easements and farm subsidies.
    We also continue to improve our processes and systems. As 
an example, the Department is currently in the midst of 
implementing a paperless invoice tracking and processing system 
that will improve the accuracy and efficiency, and thus 
reducing the risk of making improper payments.
    Prompt pay interest should be dramatically reduced when 
this system is fully implemented.
    In closing, I would like to thank the Subcommittee for this 
opportunity to share the status and progress of USDA on this 
important subject. We feel that in this last couple of years 
that we have seen some very dramatic changes at USDA as we have 
included additional programs and as we have also adjusted our 
guidance as a management team at USDA. So thank you, sir.
    Senator Carper. Thank you, Mr. Christopherson, and I look 
forward to coming back and asking you a couple of questions. 
Mr. Dale, you are recognized.

  STATEMENT OF ANTHONY J. DALE,\1\ MANAGING DIRECTOR, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Mr. Dale. Good afternoon, Mr. Chairman. Thank you for the 
opportunity to appear before you today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Dale appears in the Appendix on 
page 96.
---------------------------------------------------------------------------
    In November 2007, the FCC reported for the first time an 
estimate of improper payments affecting one of our programs, 
the Universal Service Fund. This afternoon, I will provide a 
summary of the steps we have taken to assess, measure, and 
address improper payments.
    The Universal Service Fund (USF) helps to ensure access to 
telecommunications services for consumers in high cost and 
rural areas, and promotes access to advanced services for 
schools, libraries, and health care service providers in rural 
areas.
    It consists of four programs: The High Cost Program, the 
Schools and Libraries Program, the Low-Income Program, and the 
Rural Health Care Program. The total annual size of the program 
is about $7 billion a year.
    The Fund is administered by a non-profit corporation, the 
Universal Service Administrative Company, that receives and 
reviews applications for benefits, disburses funds to 
beneficiaries, and collects funds from service providers, and 
performs certain oversight functions under the oversight of the 
Inspector General.
    In March 2004, the Commission performed a risk assessment 
and concluded that two USF programs, the High Cost Program and 
the Schools and Libraries Program, were at risk for improper 
payments.
    To estimate improper payments, the Commission relied on the 
expert audit oversight of the Inspector General.
    The Inspector General oversaw the completion of a 
statistically valid sample of audits of program beneficiaries 
and contributors. The IG's audits examined more than $825 
million in disbursements and more than $450 million in 
contributions. This was the largest, most comprehensive 
examination of Universal Service Fund beneficiaries and 
contributors done to date.
    The Inspector General concluded that, in general, the 
audits indicated compliance with the Commission's rules, 
although erroneous payment rates exceeded 9 percent in most USF 
programs.
    The specific erroneous payment rates the IG identified 
were: 16.6 for the High Cost Program, 12.9 percent for the 
Schools and Libraries Program, 9.5 percent for the Low Income 
Program, 20.6 percent for the Rural Health Care Program, and 
5.5 percent for Contributor payments.
    The IG reported that improper payments to USF beneficiaries 
could be more than $900 million and incorrect payments from USF 
contributors could be more than $350 million.
    The Inspector General plans to significantly expand the 
audit program in order to provide a more precise estimate of 
the error rate.
    We expect that these upcoming audits would be used to 
determine the baseline of improper payments in the program. The 
IG identified several causes for improper payments, including 
inadequate document retention, inadequate accounting systems, 
weak internal controls, a lack of compliance with Commission 
rules, problems with the application review process, incorrect 
interpretation of program rules, data entry errors, and 
inadequate supervision of consultants.
    We are concerned about the error rates the Inspector 
General identified. Our primary goal is to safeguard the 
Universal Service Fund so as to ensure the program works as 
Congress intended.
    We are working hard to address the problem identified by 
the Inspector General.
    First, we are working to recover any improperly disbursed 
funds. After the IG released his initial analysis of the audit 
results, we instructed the non-profit administrator to start 
recovering funds, and this process is currently underway.
    Second, the Commission adopted rules that address many of 
the IG's problems that he had identified in the audits.
    The Commission's new rules establish tighter document 
retention requirements, provide for a uniform standard for 
recovering improperly disbursed funds, provide for better 
oversight of the administrator, and provide stricter penalties 
for contributors who fail to make timely payments.
    In addition, the Commission's new rules also allow the 
Commission to debar any party from continuing to participate in 
the program if they had defrauded any of the programs.
    Third, we directed the administrator to carefully review 
the IG's audit results and recommend additional steps the 
administrator should take to prevent and reduce potential 
improper payments.
    We also directed the administrator to identify any 
additional resources that may be needed to further safeguard 
the Fund. We are currently reviewing the administrator's 
reports to determine what additional actions may be required.
    Fourth, the Commission tightened oversight of the 
administrator by establishing a Memorandum of Understanding to 
ensure the administrator performs its functions in an 
efficient, effective manner.
    Fifth, program participants that violated the FCC's rules 
could be subjected to potential enforcement action.
    And finally, we sought $21.38 million of additional funding 
for the Inspector General to enhance oversight of the Universal 
Service Fund. We recently received authorization for this 
funding level, and the IG is ramping up his oversight 
accordingly.
    Thank you for this opportunity to report on the 
Commission's efforts in this area. I will be happy to answer 
any questions you may have.
    Senator Carper. Good. And I will have some. Thank you very 
much for that statement. Mr. Johnson, Governor Johnson.

  STATEMENT OF CHARLES E. JOHNSON,\1\ ASSISTANT SECRETARY FOR 
  RESOURCES AND TECHNOLOGY AND CHIEF FINANCIAL OFFICER, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Johnson. Thank you. Thank you, Chairman Carper, for 
your leadership, along with Dr. Coburn. It is very important to 
have that kind of leadership over this program.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Johnson appears in the Appendix 
on page 102.
---------------------------------------------------------------------------
    I would like to start with some good news. For the very 
first time----
    Senator Carper. Let us go to the next witness. We do not 
have time for that good news, Mr. Johnson. Well, in your case, 
we will make an exception.
    Mr. Johnson. OK. We have had a winding road, a stop and 
start, but for the first time for 2008, we will report on all 
seven of our high-risk programs. So you will have numbers on 
all seven.
    It has been a long time coming.
    Senator Carper. So that is for 2008?
    Mr. Johnson. Yes. We will report for----
    Senator Carper. All right. For 2007, how many of the high-
risk programs did you have?
    Mr. Johnson. Well, we had three and then partials on 
others. And so we will have the full national error rates for 
2008.
    Senator Carper. My guy Leavitt is pretty good, yes?
    Mr. Johnson. Yes.
    Senator Carper. We should keep him on.
    Mr. Johnson. I think we should.
    Senator Carper. All right. Maybe we should keep you on. 
Thanks. Go ahead. Thanks for the good news.
    Mr. Johnson. Further good news is that for those mature 
programs, that is, Medicare, Head Start, and Foster Care, we 
have shown that the rates have dropped considerably since 2004.
    Senator Carper. Just explain those charts, if you will.\1\
---------------------------------------------------------------------------
    \1\ The charts referred to appear at the end of the prepared 
statement of Mr. Johnson and appears in the Appendix on page 118.
---------------------------------------------------------------------------
    Mr. Johnson. OK. On the far left, it is Medicare and it 
shows the rate in 2004 around 10 percent and then a drop to 
around 4 percent for the current year. That is Medicare. On 
Foster Care, about the same, a little over 10 percent and drop 
below 4 percent. And then on Head Start, it was about 4 
percent, down to something less than 2 percent.
    So that is the mature programs. And so I wanted to start 
with that good news and also that our recoveries are up, and I 
will get to that later.
    Senator Carper. All right.
    Mr. Johnson. But for the first time then this year, we 
reported a partial disclosure of our Medicaid rate. That will 
be rather startling, an 18.5 percent error rate, which, as you 
indicated, translates to $13 billion, and if you add the State 
share, it is $22 billion.
    Now, that number will go down because most of it was with 
the documentation. If you put that other chart up? I would like 
to just compare that so--yes, the third chart, please.
    I would like to compare it because it reflects where we 
were with documentation when we started with Medicare in 2004. 
And you can see that the blue----
    Senator Carper. Just explain them for us.
    Mr. Johnson. Yes.
    Senator Carper. They are a little hard to see from this 
distance.
    Mr. Johnson. Yes. I am just going to give you----
    Senator Carper. I can tell they are charts. I can tell 
that.
    Mr. Johnson. Good. And that is blue, and that shows 70 
percent in Medicare, which would be the documentation error 
rates.
    For Medicaid, it is 82 percent. So we start very high with 
documentation errors, and then we work it down. And so as you 
get the documentation in, then you start to find more errors in 
the things you really care about--medically necessary, coding 
errors, and that sort of thing.
    So, I think we are basically on the right track.
    Our four other programs depend almost entirely on 
eligibility, and eligibility is really where you get 
recoveries. If you have a person that is eligible, they are 
entitled to all of the benefits and ought to be. If you have 
someone that is not, they ought to be cut off. And it is pretty 
black and white in eligibility.
    In general, we have eligibility on individuals or we have 
it on providers. And so we are working that eligibility side 
very hard.
    But this is all about results. I mean, it is fine to 
measure error rates and it is fine to get percentages, but a 
statistical sample is taken and then applied to the whole. But 
you cannot recover from a statistical sample. You can only 
recover from a case-by-case one at a time, find out who is a 
violator, who is not.
    And so we use some of the things that Mr. Werfel talked 
about--the data matching systems, public assistance data 
matching systems between us and various Federal agencies and 
State agencies.
    We use the National Directory of hires. Just a couple 
examples, if I may.
    In New York, by using the public assistance databases, 
since--from 2003 to 2007, they removed 26,000 individuals from 
the active rolls at a savings of $192 million. Now, 
Pennsylvania, 7 years, 13,000 removed, a savings of $73 
million. On the National Directory of hires, we have about 82 
percent of our States that are now using that--82 percent of 
the TANF covered population.
    So we are making good progress there.
    The other big thing that happened this year was our 
recovery audit contracts on Medicare. We had three pilot 
States. We gave them $239 billion in claims. That is billion 
dollars in claims. So you can see the size of our program. They 
recovered----
    Senator Carper. Say that again? You gave them how much in 
claims?
    Mr. Johnson. We gave them in claims to examine $239 billion 
between three States. And they have recovered to date on that 
mass, $432 million. So we are starting to generate some genuine 
money.
    That program is not without some controversy, but we have 
been working with Congress and others, and we are going to 
expand it to all 50 States, because it has proven to be a very 
lucrative source of recoveries.
    Senator Carper. And the monies that are recovered, what do 
we do with these? What do you all do with those?
    Mr. Johnson. Well, that is an interesting thing. First, 
these are contingency-based contracts, so the contractor does 
get a piece of the recoveries. And then the remainder goes to 
Treasury or into the Trust Funds, depending on the nature of 
it.
    Senator Carper. All right. Thank you.
    Mr. Johnson. On our fraud and abuse efforts, that is, as 
has been pointed out from Dr. Coburn, we have had over $12 
billion in 10 years on that portion of it. And then our 
Medicaid Integrity Program is $13 for every $1 spent. The last 
number I saw it was something like a recovery of $82 billion.
    Senator Carper. You mentioned that you have been working 
with contractors in three States for Medicare recovery?
    Mr. Johnson. Right.
    Senator Carper. And you hope to extend that to the other 47 
States?
    Mr. Johnson. Correct.
    Senator Carper. I saw somewhere in testimony I thought you 
might be able to do that by Fiscal Year 2010? Is that correct?
    Mr. Johnson. We are moving onto it this year. I do not know 
how quickly we will get all States onto it, but we are moving 
very rapidly. We have had a lot of negotiations to take the 
pilot program and adapt it to something that is more acceptable 
to both the Congress and the States.
    I cannot tell you exactly the timeline, but we are 
expanding it to all 50 States.
    Senator Carper. Could you let me know that for the record?
    Mr. Johnson. Yes, we will get to you.
    Senator Carper. If somebody would just let me know for the 
record. Thanks very much.
    Mr. Johnson. Yes. Finally, I would like to talk about this 
resources issue and the ability to sustain these programs on 
recovery.
    I mentioned if you have a recovery audit, and you give a 
contractor a percent of their findings, that is covered.
    But we had on our fraud and abuse, we had $383 million in 
the Senate past appropriations bill; in the Omnibus bill, zero. 
We had about $6.2 million for TANF, Foster Care, and Child Care 
in the bill. When we received the Omnibus back, zero. And so 
these numbers are being stripped out at the end, as Congress 
finally passes these bills. So we could use a little help in 
that area.
    Senator Carper. Great. Could I just ask you to be a squeaky 
wheel on that point, will you?
    Mr. Johnson. Well, we will, and we will continue.
    Senator Carper. Be real squeaky.
    Mr. Johnson. And Secretary Leavitt talks about this a lot.
    Senator Carper. Good. Well, make sure he talks some more to 
me, too. Thanks.
    Mr. Johnson. Thank you.
    Senator Carper. All right. Thank you, sir. Mr. Rust.

  STATEMENT OF DAVID RUST,\1\ ACTING DEPUTY COMMISSIONER FOR 
 DISABILITY AND INCOME SECURITY PROGRAMS, U.S. SOCIAL SECURITY 
                         ADMINISTRATION

    Mr. Rust. Mr. Chairman, before I begin, my aging memory has 
recovered and the five Secretaries I worked for were Madigan, 
Espy, Glickman, Veneman, and Johanns. So it was a long run over 
there.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rust appears in the Appendix on 
page 121.
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    Senator Carper. Some pretty good names there.
    Mr. Rust. I would also like to just take a second before I 
begin to thank Mr. Werfel for his kind remarks about Social 
Security Administration's (SSA's) attempts to address the 
improper payments issue.
    Senator Carper. I do not think he is still here. Is he? OK. 
Do you hear that?
    Mr. Werfel. You are welcome.
    Senator Carper. A shout out for you, Mr. Werfel. There you 
go. We don't get those everyday.
    Mr. Rust. Thank you for the opportunity to discuss several 
of the efforts that the Social Security Administration is 
undertaking to strengthen and maintain the integrity of its 
programs.
    As you said in the introduction, I am David Rust. I am 
currently the Executive Secretary of the Agency and since 
August I have been the Acting Deputy Commissioner for 
Disability and Income Security Programs. My responsibilities 
include oversight and coordination of policy and operations for 
a wide range of programmatic issues for the Old Age and 
Survivors Insurance (OASI), Disability Insurance (DI), and 
Supplemental Security Income (SSI) Programs.
    I would like to just make an aside and say that both 
Commissioner Astrue and I were saddened to learn of the death 
of former Social Security Commissioner Robert Ball this week. 
He left an indelible mark on the Social Security 
Administration, and his programs and his leadership will be 
long remembered.
    Senator Carper. Wait. He died this week? Do you know?
    Mr. Rust. Yes, he did, sir.
    Senator Carper. Oh, he was a giant, was he not?
    Mr. Rust. A giant and at the age of 93.
    Senator Carper. I came to the Congress in January 1983, and 
we were grappling at the time with the Social Security Trust 
Fund. It was about to go under, and my recollection is the 
Commission that was chaired by Alan Greenspan included a bunch 
of people, among them Senators Dole and Moynihan and 
Congressman Pepper, and others. My recollection was that Mr. 
Ball was a big part of that.
    Mr. Rust. And he remained active well until his recent 
illness on issues related to social insurance. So he was a 
towering figure at Social Security, our longest serving 
Commissioner, as a matter of fact.
    I would like to take this opportunity to thank the Members 
of the Subcommittee for your support on behalf of SSA in the 
appropriations process. The $148 million appropriated above the 
President's request will make a real difference in our ability 
to meet the needs of the American people.
    Last year, the Social Security Administration paid $576 
billion in retirement, survivor, and disability benefits to 
nearly 50 million Social Security beneficiaries and nearly $40 
billion to 7.3 million Supplemental Security Income 
beneficiaries.
    Our beneficiary rolls continue to grow. However, it is 
important to note that while our workloads are increasing with 
the benefit population, our resources have been dwindling. We 
have had to reduce some of our stewardship activities in order 
to devote necessary resources to basic service delivery, and 
our payment accuracy has suffered as a result.
    Let me give you an example: In Fiscal Year 2006, our 
payment accuracy with respect to overpayments in the 
Supplemental Security Income Program was 92.1 percent, a 
significant decline from the Fiscal Year 2005 rate of 93.6 
percent.
    We directly attribute the decrease to the reduction in the 
number of Supplemental Security Income redeterminations that we 
were able to conduct. The redeterminations are periodic reviews 
of non-medical SSI eligibility requirements.
    In Fiscal Year 2004, we processed over 2.2 million 
redeterminations. In Fiscal Year 2005, that number dropped to 
1.7 million, and in Fiscal Year 2006 and Fiscal Year 2007, we 
conducted just over 1 million of redeterminations.
    We would like to explain that these and other program 
integrity issues also need additional resources. The 
President's Fiscal Year 2009 budget includes a proposal similar 
to the one submitted last year for Congress to provide SSA with 
funding outside the spending caps in the budget, specifically 
for program integrity activities.
    This funding would support additional SSI redeterminations 
and the continuing disability reviews (CDRs), our most 
important tools in maintaining and improving program 
stewardship.
    CDRs are periodic reviews of the medical eligibility for 
SSI and disability benefits. CDRs are estimated to save about 
10 program dollars for every dollar spent conducting them, 
while the additional SSI redeterminations are estimated to save 
about $7 for every program dollar spent.
    Another effective debt reduction tool is the Access to 
Financial Information Project, which automates access to 
financial data. Unreported bank accounts and account balances 
that are in excess of the prescribed limits are one of the 
leading causes of overpayments in the SSI Program.
    The resources available for this project constrains us to 
only using it in a few States. Additional funding would help us 
to eliminate many of the SSI overpayments.
    We also have comprehensive debt collection programs that 
use both internal and external tools to collect what we are 
owed. Internal debt collection methods include benefit 
withholding and cross-program recovery. External methods 
include tax refund offsets, administrative wage garnishment, 
and Federal salary offset.
    In conclusion, Mr. Chairman, I want to assure you that SSA 
is committed to ensuring that the public receives the benefits 
they are due and assuring taxpayers that the Trust Funds and 
general revenue funds are accurately and efficiently spent. We 
are responsible for over $610 billion in OASI and SSI benefit 
payments annually, and we take seriously our stewardship 
responsibility.
    We focus our program integrity efforts on those activities 
that yield significant returns on investment, and we believe 
that our efforts have yielded significant results so far.
    We know that if Congress provides SSA with sufficient 
administrative funding, we will be able to do even more.
    Again, I want to thank the Subcommittee for giving me this 
opportunity to discuss our program integrity activities. As 
always, we welcome this opportunity to work with you and to 
provide any additional information you may need. And I will be 
happy to answer any questions you may have.
    Senator Carper. Mr. Rust, thank you very much, and thanks 
for the work that you all are doing, the good work that you are 
doing on this front.
    I want us to start off by focusing on this issue of what 
more the Congress could be doing to support you in your 
efforts. I think you call it program integrity activities. It 
sounds like there is more that we ought to be doing, could be 
doing, or that you could be asking us to do on program 
integrity activities.
    Where are we falling short, we, collectively, the Congress? 
It sounds like the President is asking for resources in his 
budget to do these various things, these activities, and it 
sounds like we are not providing those to the extent that maybe 
we should.
    Mr. Rust. Until the current year, as I stated, with a 
concerted effort on the part of the Congress, we received the 
President's budget plus a little bit more, $148 million over 
the President's budget.
    But for the previous six budget requests, we were almost a 
billion dollars under the President's budget in terms of the 
actual appropriations, about $919 million cumulatively over 
those 6 Fiscal Years.
    Senator Carper. I am sorry. Say that again. I lost that 
thought.
    Mr. Rust. In Fiscal Year 2008, the Congress appropriated 
the President's budget plus a little bit more. In the six 
preceding years, we were under in every one of those years, and 
the aggregate for those 6 years was almost a billion dollars, 
$919 million below the President's budget request.
    Senator Carper. So in 2008, the current Fiscal Year, we 
actually appropriated the President's budget request to support 
these activities?
    Mr. Rust. The first time was Fiscal Year 2008, the current 
year.
    Senator Carper. Well, that makes me still----
    Mr. Rust. In fact, if you go back to 1975--I want to double 
check this--I believe we have only received the President's 
budget request five times in the last 33 years.
    Senator Carper. Yes.
    Mr. Rust. Part of our problem is that we are an agency 
under stress because we have the baby boomers beginning to 
retire. We have a smaller workforce. In the 1970s and 1980s we 
had about 85,000 to 87,000 employees, and now we are down to 
about 60,000, a number that matches where we were in 1973. So 
in terms of human resources and other resources, we are an 
agency under stress.
    Senator Carper. OK. Earlier, when I think Mr. Werfel was up 
here, I was suspecting that the President asked for certain 
resources to support these program integrity activities; was 
asking for them in his budget. We were putting language in the 
budget resolution at least paying lip service to supporting 
those requests, but then when we were actually appropriating 
the money at the end of the line, we were not necessarily 
providing the dollars that were reflected either in the request 
or in the budget resolution.
    And now, it sounds to me like we actually, at least with 
respect to the Social Security Administration, that we actually 
did our job with the fiscal stewards and the partner that you 
had been looking for, at least for this current Fiscal Year.
    Mr. Rust. In the current Fiscal Year, yes, sir.
    Senator Carper. Well, that is good. Mr. Johnson, can you 
share with us your perspectives from your department in the 
same regard and that is us being a fiscal steward and a partner 
with the Administration on these activities?
    Mr. Johnson. Yes. Well, again, sticking with the resources 
side of it for just a moment, as I indicated, Congress did at 
least beginning--it was more than lip service. I mean, you took 
those--that $383 million on fraud and abuse right to the very 
end, but on the very last night that was stripped, and I guess 
we need more people looking out for that on that very last 
night.
    But the other thing I was thinking of on these recovery 
auditors, where we do----
    Senator Carper. You may recall--just let me interrupt you 
again.
    Mr. Johnson. Yes.
    Senator Carper. We had, as you recall, a disagreement with 
the Administration. The Administration was asking for a lot of 
extra money, a lot of it to go for the War in Iraq. But he was 
asking for about $190 billion more in this Fiscal Year for the 
War in Iraq and Afghanistan, and we had proposed spending $22 
billion more than he had asked for in domestic discretionary 
spending.
    And at the end, he said--basically, the President said if 
any appropriations bills exceed that $22 billion difference, I 
am going to veto those.
    Mr. Johnson. Yes.
    Senator Carper. And I think my recollection is at the 11th 
hour, we made some tough choices as to where to trim back in 
order to stay within the President's parameters. And that is 
where the money I think----
    Mr. Johnson. I know. We were caught in the tough choices 
problem, and I understand.
    The other thing, though, is on recovery audit contracts, 
and this issue of whether or not you can pay contingent 
payments. I mean, there is a lot of controversy about that. You 
have--Congress now has been allowing that in some cases, and 
this Medicare breakthrough is very large for us. It does not 
mean that there will not be a lot of pushback on that whole 
issue.
    But that actually works. It gives us our resources paid for 
as a result of the construction of the contract itself, 
contingent payments.
    But I suspect that it will be----
    Senator Carper. Sort of like lawyers working on a 
contingency basis; is that right?
    Mr. Johnson. Well, yes, and we are not doing it----
    Senator Carper. Yes.
    Mr. Johnson [continuing]. But they are.
    Senator Carper. Yes.
    Mr. Johnson. Yes.
    Senator Carper. But what is happening with these 
contractors?
    Mr. Johnson. Well, I am just saying there is a lot of 
pushback on that, I mean, both from those who say it is an 
abusive tactic--if you start to pay them on a contingency 
basis, they will be rather abusive. It certainly has to be 
controlled, but I do not think eliminating that, which some are 
suggesting that we should eliminate that type of contract, I 
would just say that it is one that works for us. I think it 
works for the taxpayer; and after all that we ought to be 
working for the taxpayer.
    Senator Carper. Oh, for sure. How can we work for the 
taxpayers, but eliminate the abuse or safeguard against the 
abuse that some have cautioned against?
    Mr. Johnson. Yes. Well, again, we have looked at this on 
other fraud and abuse cases. Right now, the fraud and abuse 
cases are--we get the money appropriated and then they go out 
and find and abuse.
    But that is another case where it is potential to use 
contingency contractors. I am just saying there is a potential 
for expanding that concept.
    Senator Carper. OK. All right. Let me come back to Mr. 
Dale. I am not sure I really understand the history of how 
these improper payments were identified within the FCC.
    Mr. Dale. Yes, sir.
    Senator Carper. I think I understand the nature of the 
program, the Trust Fund, if you will, and how it is created, 
but when was the Trust Fund first created? Do you recall?
    Mr. Dale. After the Telecommunications Act of 1996.
    Senator Carper. So about a decade ago?
    Mr. Dale. Yes, sir.
    Senator Carper. And from the Trust Fund, monies began being 
disbursed roughly when?
    Mr. Dale. About 1998, 1999--that timeframe.
    Senator Carper. And when did somebody start looking to 
determine whether or not there were improper payments being 
made?
    Mr. Dale. Well, there were audits of various aspects of the 
program that started as early as about 1999. I think between 
the period 1999 and before this most comprehensive set of 
audits that the Inspector General did, there were about 500 or 
it might have been about 600 audits that have been done of 
different beneficiaries of the program, typically of the 
Schools and Libraries Program, but some of the other programs 
as well as part of the USF.
    So over about a 6-year period, there were about 600 audits 
that were done.
    Senator Carper. OK. How much was identified in the IG's 
work in terms of--you mentioned this, but I just do not recall, 
in terms of improper payments----
    Mr. Dale. Sure.
    Senator Carper [continuing]. And for what year?
    Mr. Dale. The Inspector General did his audit work for the 
year 2005.
    Senator Carper. Remind me again what was discovered in 
improper payments in that year?
    Mr. Dale. Sure. Well, there are sort of two data points 
here. There were direct improper payments to beneficiaries that 
were audited, and then his projection to the universe, his 
extrapolation of those results.
    The first data point, which are direct improper payments 
that he had identified, is in the vicinity of about $46 million 
of beneficiaries of the program that were found to have various 
problems of one sort or another. And then extrapolated to the 
universe of program participants, the Inspector General 
estimates more than $900 million could be at risk for improper 
payments.
    Senator Carper. All right. Now, that was for 2005?
    Mr. Dale. Yes, sir. We reported it in our PAR for 2007 at--
he used data for the period 2005----
    Senator Carper. PAR stands for President's--what is it?
    Mr. Dale. Oh, I am sorry--Performance and Accountability 
Report. I have trouble keeping these----
    Senator Carper. So do I.
    Mr. Dale [continuing]. In my head sometimes.
    Senator Carper. You only have one agency to worry about.
    Mr. Dale. Sure. The Inspector General started his audits in 
the summer of 2006, did about 460 audits total of program 
participants, both beneficiaries of the program and also 
contributors in the program, and then, from getting the audits 
started, auditors up and running, working with independent 
accounting firms to actually conduct these government auditing 
standard audits of beneficiaries and their compliance with 
Commission rules, between that time, summer of 2006 and about 
14 months later, he delivered the report to us with the 
estimate and the projections across the entire program.
    Senator Carper. All right. So, if I understand, the program 
was created in 1997 by the Telecom Act. Monies began flowing by 
1999----
    Mr. Dale. Yes, sir.
    Senator Carper. The hundreds of audits it sounds like were 
done between 1999 and 2005----
    Mr. Dale. Yes, sir.
    Senator Carper. And then the IG did his work. Was it before 
2005?
    Mr. Dale. It did the work; started in 2006, but the data he 
was using was 2005.
    Senator Carper. Yes. And it sounds like the IG found a 
whole lot of improper payments?
    Mr. Dale. Yes, sir. He found error rates above 9 percent 
and most of--actually in all the programs except the 
Contributor Program.
    Senator Carper. Now is that consistent with what was found 
for the earlier audits done between say, 1999 and 2004?
    Mr. Dale. No, it is not. It is higher error rates than were 
found----
    Senator Carper. A lot higher?
    Mr. Dale [continuing]. In error rates. It is hard to do an 
apples-to-apples comparison because the audits that were done 
beforehand were not a statistically valid set of audits and 
some of the programs were not audited with the sort of rigor 
that the Inspector General did this time.
    Senator Carper. Was there anything in the audits that were 
done between 1999 and 2004 that would suggest improper payments 
of this magnitude?
    Mr. Dale. No, and, from my understanding, the Inspector 
General relied on the earlier audit results and using the 
statistical formula from the Office of Management and Budget 
determined that the number of auditees that would be--or audits 
that would be taking place in this program, and so the error 
rates that he was looking at beforehand informed his decisions 
about the number and type of audits to do this go around.
    And looking at these error rates, there is also an 
associated margin of error that is outside the Office of 
Management and Budget's guidance on what the margin of error 
should be. And so the Inspector General is expanding the number 
of audits that he is going to do going forward so that we can 
get a more precise estimate of the baseline of improper 
payments in the program.
    Senator Carper. OK. I think you maybe just answered this, 
but let me just ask it anyway.
    Mr. Dale. OK.
    Senator Carper. When Mr. Werfel and Mr. Williams were up 
here, I understood them to say that the programs that we have 
been looking at for improper payments since 2004 we have 
actually seen the level, for the most part, of the improper 
payments diminish over that period of time, because we are 
focusing on the agencies; we are focusing on them, and they are 
getting better at doing their job.
    Is there reason to believe that you can now drive these 
numbers down?
    Mr. Dale. We certainly hope so.
    Senator Carper. I hope so, too.
    Mr. Dale. We have been working hard really to exceed the 
standards that you had established about the type of work that 
we need to do. So, when we had identified with our risk 
assessment two programs, and I think this is part of the 
benefit of having the Inspector General do this work, the 
Inspector General wanted to do not just the two programs, but 
to evaluate compliance with all four of the USF programs.
    It has turned out that one of the programs that we thought 
was not at risk, the Low Income Program, had a higher error 
rate than we anticipated.
    So, now, we are at the stage where this year, the Inspector 
General should complete this expanded audit program for all 
these funds that we have here.
    Senator Carper. For what years?
    Mr. Dale. I believe he will be auditing for the 2006 period 
and so we plan to get--he has informed me that he expects to 
get these results completed by the end of this Fiscal Year. So 
we would get that in our PAR for 2008, the financial statements 
that we report in 2008.
    Senator Carper. Now, for the monies that have been 
identified as improper payments in 2005, how do you go about 
recovering those?
    Mr. Dale. Right. There is an administrative process that is 
established under the Commission's rules. We work with this 
non-profit company that basically issues a letter to those 
parties who have been found to have not complied with the FCC's 
rules, and we start to take the money back. In some of these 
previous audits that I had mentioned that took place recoveries 
have been underway. I think we have recovered out of those 
previous rounds of audits, I think there is about $38 million 
or $40 million that we have already recovered from the earlier 
set of audits. I had mentioned earlier there is something on 
the order of $60 million to $70 million total that is 
identified for potential recovery out of the Inspector 
General's audits this time.
    Those recovery efforts are underway. A very small amount 
has been recovered right now just because we are early in the 
process.
    Senator Carper. What happens again to the monies that are 
recovered? How do you dispose of them?
    Mr. Dale. The administrator is supposed to recover the 
money, and they effectively issue a letter and then the 
parties, the program participants, could appeal the decision or 
not and so sometimes it falls into litigation.
    So we have some millions of dollars that we have tried to 
recover from various program participants in the past that is 
currently caught up in litigation.
    Senator Carper. Have any dollars been recovered?
    Mr. Dale. Yes, sir. At least $38 million have been 
recovered.
    Senator Carper. And what has happened to that $38 million?
    Mr. Dale. That has gone back into the fund so it can be 
used for the program. And then for the Inspector General's 
audits that he just completed that are used to estimate our 
error rates for improper payments, it is a little less than a 
million dollars has been recovered in the past 3 months. And I 
believe there have been something on the order of $5 million or 
$6 million that has been really at the start of the pipeline of 
recovery and then we are working to recover the remaining. It 
is about $60 million or $70 million.
    Senator Carper. OK. Thanks. Mr. Christopherson, I think you 
told us that the School Lunch and School Breakfast Programs are 
now being examined or have been examined for the first time.
    And what we found is that monies were improperly spent--not 
a big surprise. We have a son who is still a senior in high 
school, so I have got some idea what the challenge that schools 
have to try to identify who is eligible for the School Lunch 
and School Breakfast Programs.
    We were talking earlier, I think it was with Mr. Werfel and 
Mr. Williams about how one of the challenges is to have access 
to some kind of third-party data to be able to verify that 
folks are eligible or not eligible.
    Let me use that as a way to ask how are we identifying? 
What kind of difficulty are we having in identifying folks who 
are eligible or not eligible for these programs, considering 
they are in thousands of schools across America? What kind of 
difficulty are we having in getting the third-party data to be 
able to verify whether folks are or are not eligible? It has 
got to be difficult.
    And then, when you identify them, how do you go back and 
recover?
    Mr. Christopherson. I think you know that these programs 
are fairly complex, and we serve somewhere close to about 
100,000 schools per day. And as we are looking at our first 
year in measuring these programs and pretty tough on our 
agencies as we go through this, but we have put it into two 
separate buckets, which is kind of qualifying paperwork, which 
is about half, and then the count and the certification, so it 
comes back to menu items and things like that.
    So, did you get your vegetable or your fruit, because there 
is a specific menu that has to be an approved menu, and if it 
is not an approved menu, then you fail. If a child goes through 
and they pick up one vegetable and they get to the end of the 
line and they are supposed to have a vegetable and a fruit, 
based on the requirements under the program, that is a failure. 
If they have been qualified as a partial subsidy when they 
should be a full subsidy under the program, that is a failure.
    So there is a lot of different areas where this has a very 
complex tapestry in the way that it operates and, obviously, 
Food and Nutrition Service has been very heavily involved in 
that.
    But as you were saying, we have, under the last WIC 
authorization, we are allowed to actually go in and have a 
mandatory direct certification into the food stamp system. That 
is being deployed out to the schools. It will probably take 
several years to actually put that in.
    And what will happen is those children that are--or those 
families that are in the system they will not have to go 
through the qualifying paperwork, which will be exceptional.
    The other ones that are not in the food stamp program----
    Senator Carper. Just let me interrupt you. Just explain in 
real simple terms for me, if you will. How does the system work 
now? How is it going to be made more effective or more cost 
effective?
    Mr. Christopherson. OK. In the simplest terms, the program 
now works----
    Senator Carper. Feel free to give me some examples. That 
helps me.
    Mr. Christopherson. That if you came in and you requested--
--
    Senator Carper. You being?
    Mr. Christopherson [continuing]. Food assistance, being a 
citizen and in the school district, you came in and requested 
food assistance under the School Lunch Program and the 
Breakfast Program, you would be handed a form. You would go out 
and fill out that form. Under the current legislation 
requirements, a school would then go through and they would 
take about 3 percent of that pooling of forms and then request 
additional information based on that and that additional 
information would be a qualifying pay stub or some sort of 
information that would say that you truly qualified for that 
program.
    So that is the simplest approach that I can give you, which 
is pretty close to the way it is.
    Under the new program--in the new methodology what will 
happen is that if you are already on food assistance, then you 
will not have to go through the qualifying paperwork.
    Senator Carper. And for food assistance, what we used to 
call food stamps?
    Mr. Christopherson. Right. The Food Stamp Program.
    Senator Carper. So going forward, for families that are 
eligible for food stamps, they will automatically be eligible 
for free and reduced price lunches or breakfasts?
    Mr. Christopherson. Both. If you qualify under the Food 
Stamp Program, then you would qualify and then you would have 
the ability--the schools will have the ability actually to 
queue that record to see if that family is in there, which 
obviously will shrink the pool of risk then, both on the two 
different aspects of this, those that have at risk that they 
appear that they only qualify for a partial payment when they 
should qualify for a full or vice versa. And so we will 
eliminate a lot of that risk.
    So the pool will shrink and then we will have the people 
that come in and request if, that they are not in the food 
assistance program.
    And so, therefore, when we get into the 3 percent, we will 
have a smaller pool that we are judging as well.
    Senator Carper. OK.
    Mr. Christopherson. So I should be very helpful.
    Senator Carper. OK. Good. We are right about at the end of 
where I hope to wrap up.
    One of the things I would like to ask this last question. 
Other questions we will simply submit for follow up from you.
    But one of the things, and I like to do this a lot when we 
have a panel like this, just to remind me of our takeaways. For 
those of us who serve on this panel and on this Subcommittee, 
what should our takeaways be from the testimony that we have 
heard to date to enable you to really ensure that your agencies 
and other agencies--some out there are doing a good job on this 
stuff, and some that are not. But what are the takeaways for 
us.
    And, Mr. Rust, if you would like to lead it off. If you do 
not, then we will ask Mr. Johnson to.
    Mr. Rust. No, I think there are several legislative 
proposals in the President's budget that will be coming up next 
week. I think that if you would consider those seriously, they 
would help us to, for instance, greatly simplify our program. 
Part of the problem we have, the same problem that many of our 
colleagues on this panel have, and that is a very complicated 
program. For example, when you have individual eligibility, a 
person could be eligible at the time we grant the benefit and 
then that person could lose that eligibility for some reason in 
the coming months or years.
    In order to address these types of issues, we have several 
proposals to simplify the program. For instance, one of the 
things that we will be asking the Congress to look at would be 
a change in the offset for the Workmen's Compensation benefits 
that would greatly simplify the program. I think it would make 
it easier for us to administer the provision and reduce the 
overpayments and underpayments. That proposal will be in the 
President's budget.
    Senator Carper. OK.
    Mr. Rust. That is certainly one of the things that I would 
mention. There are several other provisions that we will be 
sending to Congress during the course of the year that will 
help us with program simplication.
    Senator Carper. When will you send those up, Mr. Rust? Are 
they part of the budget? Are they part of some other request? 
How do they come to us?
    Mr. Rust. Well, they will come in different ways. But two 
or three of them are contained in the President's budget and 
have been for the last couple of years. They have not been 
enacted, and it would be helpful to the agency if the Congress 
would consider them.
    Senator Carper. And what committee in the Senate would have 
jurisdiction? Any idea? Would it be the Finance Committee? 
Would it be the Health Committee?
    Mr. Rust. Probably the Finance Committee would be the 
committee of jurisdiction.
    Senator Carper. All right.
    Mr. Rust. If it would be helpful, we would be glad to 
advise you and your staff.
    Senator Carper. Yes. I have learned after 7 years in the 
Senate that sometimes it is helpful to convene not a hearing, 
but what I call a roundtable, where it is just less formal, 
less structured and it is an opportunity for a lot of give and 
take, and maybe we could have a roundtable that would focus on 
what we can be doing and ought to be doing on the legislative 
side to support what you all are trying to get done in the 
Executive Branch in this regard.
    Mr. Rust. We would be glad to participate.
    Senator Carper. Good. That would be good. Thank you. Mr. 
Johnson.
    Mr. Johnson. I am quite interested in your new legislation 
and you made a statement.
    Senator Carper. You want to be a co-sponsor?
    Mr. Johnson. Well, for parts of it. You made a statement, 
if doing so is cost effective. And I like that statement 
because----
    Senator Carper. I said it twice.
    Mr. Johnson. Yes, you did, and I wrote it down because it 
is an important statement, and as you consider new legislation, 
it is important that we make sure that we do have this risk 
based approach, which we should have, but that we also then 
make sure that we are not spreading resources too thin
    And one of the things that happens to us is we spend 
administrative money, but the recoveries generally go directly 
to the Treasury or to a Trust Fund.
    So we keep no part of those recoveries to expand the 
program itself.
    Senator Carper. So what incentive do you have other than 
doing what you are supposed to do?
    Mr. Johnson. Yes, we are doing what we are supposed to do, 
and we have to account for you. And that is my big incentive is 
to----
    Senator Carper. Well.
    Mr. Johnson. Knowing that I am going to be----
    Senator Carper. Can there be some other incentive for the 
agency?
    Mr. Johnson. Well, yes, I think there could be if there 
were some allowance that we could use part of those recoveries 
to help the program or to use in the program. That would be a 
great assist.
    Senator Carper. Yes, we are working on a similar approach--
John Kilvington, our staff director, and our friends on the 
Republican side, our minority staff, are working on surplus 
property recovery----
    Mr. Johnson. Yes.
    Senator Carper [continuing]. To ensure that if an agency 
simply finally moves on, sells, unloads surplus property that 
they get to keep part of the proceeds to provide an incentive 
for them. Otherwise, there is not much of an incentive for them 
to move those properties.
    Mr. Johnson. And that does worry me, because if we are 
going to expand now the number of risk programs, and even when 
we talk about some of these legislative changes that are no 
cost, there are internal costs. I mean, you just do not carry 
things out without internal costs. So if we can get a nexus 
between recoveries and some assist on program integrity, that 
would be wonderful.
    Senator Carper. OK. Well, I hope you will participate in a 
roundtable, and I hope you will make that point again and 
again. That is a good point.
    Mr. Johnson. Thank you.
    Senator Carper. Mr. Dale, any takeaways for us?
    Mr. Dale. I just think from our perspective it would be 
acting on the Inspector General's request for resources that we 
can maintain an effective oversight of the program. I know we 
are very appreciative of the $21.48 million we received this 
year, and we are going to be looking to ask for additional 
resources to keep this strong oversight going.
    Senator Carper. How much, $21 million?
    Mr. Dale. We received $21.48 million for----
    Senator Carper. For 2008?
    Mr. Dale [continuing]. For Fiscal Year 2008; yes, sir.
    Senator Carper. Do you recall what you asked for?
    Mr. Dale. That was what we asked for. And we are putting 
our request in next week for additional resources as well.
    Senator Carper. All right. Thank you. Mr. Christopherson, 
takeaway for us, please?
    Mr. Christopherson. Yes, a couple of things. I would go 
ahead and echo the same thing with the group and add one more, 
echoing, of course, that as we do the President's budget we do 
it with a very sharp pencil, and we are very exact how we do it 
in order to be very conservative in those, and as we go through 
and as discretionary funds and stuff are cut out of them, it 
makes this difficult often to continue to operate in these 
programs and things like that as we start looking at 
priorities.
    And I say that very respectfully because I know that you 
guys also have priorities in the Senate and the House.
    But I would also like to point out that we do risk 
assessments on all of our programs at USDA, and I know in many 
other departments as well they do the same thing as they do a 
preliminary risk assessment, and we are very pointed in those. 
And it has taken us a couple of years to actually get those to 
more of an exact level, so as management looks in, they say 
this does not make sense. This looks like medium risk. 
Therefore, we need to fine tune our risk assessment inside the 
agency, and we finally feel like we have gotten there are USDA 
and I know that other departments are actually going through 
that same process.
    So this is becoming a very fine tuned initiative as we go 
forward.
    And the third point is that one of the things that we found 
at USDA and realized that we have a myriad of programs versus 
just a single mission, we have a myriad of programs and very 
different missions, so between Forest Service and Food and 
Nutrition and the Farm Service Agency. But the point that I 
would like to make on this is that there is not one solution to 
correcting this issue.
    We found as we sit down and we go through the creativity 
with each one of the agencies what is good for Food and 
Nutrition to fix this issue is very different for the Farm 
Service Agency to fix a problem there that we dealt with last 
year, and we very quickly found a resolution and they very 
quickly moved a correction process forward.
    So that is the other point that I would make is that there 
is just not a broad brush that would fix this problem. It is 
very detailed, and you really have to go in and look at that 
detailed analysis and analyze that out.
    Senator Carper. All right. Thank you.
    Mr. Rust. Mr. Chairman, may I make just one other comment 
real quick?
    Senator Carper. Sure.
    Mr. Rust. When you asked about things that Congress could 
help us with----
    Senator Carper. Yes, sir.
    Mr. Rust [continuing]. We had a budget request for Fiscal 
Year 2008 of $213 million above the cap--solely for integrity 
programs. That disappeared in the final appropriations process.
    So while our base budget reached the President's request, 
we lost that couple hundred million dollars above the cap that 
we would have been able to use for integrity programs. I do not 
know why, but that is something that Congress could keep an eye 
on for us.
    Senator Carper. Remind us of that at a roundtable, please.
    Well, I know some people do not think this improper 
payments stuff is all that interesting. There is the press 
table over there, it is not overflowing with representatives 
from the press. But it is important stuff, and, as we saw from 
our charts over here earlier, the amount of money here that is 
involved in improper payments I guess last year was about the 
size of the GDP for the country of Vietnam, a country I know a 
little bit about as a Vietnam war veteran. And they did not 
have much of a GDP to brag about, but they do now. They are a 
bustling country.
    So that is a fair amount of money that is in question here 
for us, and one of the things I am encouraged about as we look 
to prepare to leave is that the programs that we have been 
actually focusing on since 2004, it sounds like our agencies 
generally are driving down improper payments. That is good. I 
am pleased to hear that we continue to expand the number of 
programs that are being examined and that we are scrutinizing 
each year. That is encouraging.
    I am pleased, on the one hand, to hear some ways that we 
have actually funded the President's budget request in some 
regards to give you the ability to work on these program 
integrity activities.
    But it sounds like a couple of areas we did not, and we 
want to make sure that we are doing a better job there.
    The other area, recovery. Mr. Johnson talks to us about 
some things that are going on in Health and Human Services on 
program recovery that are very encouraging, and I think the 
potential for doing that nationally is extraordinary. And we 
want to encourage that.
    We want to find a way, if we can, to incentivizeagencies to 
go out to do this work, not just as you explain it as the law. 
You have to do it. But to say not only do you have to do it, 
but if you do, you will have the ability to keep some of these 
resources to run your programs better and to better do your 
job.
    This our sixth hearing on this subject in 3 years, which is 
a lot of hearings. But I think we are understanding things 
better; got our arms around it better than we did when we 
started. It sounds like you all do, too, and we will keep doing 
our share and you do your share, and maybe some day, by the 
time I leave here, we will have a improper payments estimate 
that is the size of one of those little bitty countries that we 
had gathered here under the rubric of 44 countries whose 
collective GDP was about $55 billion.
    We will leave the hearing record open for a while for my 
colleagues to ask questions. I know others have questions. I 
have a few more I want to submit for the record. We just ask 
that you respond to those in a timely way. We appreciate your 
being here today, the good work that is reflected, and for 
those that you know and are working with and are not doing 
their best, tell them to be more diligent because we are not 
going away on this issue.
    My hope is that by us not going away, it will sort of give 
the Executive Branch the better ability to reach out to the 
agencies within the Executive Branch and say look; these 
Senators, Coburn, Carper, and Levin, they are breathing down 
our necks. They are not going to let us go until we do this 
right, so we will do our jobs and be diligent and we know that 
you will, too.
    With that having been said, this hearing is adjourned. 
Thank you, all.
    [Whereupon, at 4:46 p.m., the Subcommittee was adjourned.]






















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