[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
  A LOOK AT THE FISCAL YEAR 2010 CONSOLIDATED FINANCIAL REPORT OF THE 
                            U.S. GOVERNMENT

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

                                HEARING

                               before the

                SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,
                  EFFICIENCY AND FINANCIAL MANAGEMENT

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 9, 2011

                               __________

                            Serial No. 112-7

                               __________

Printed for the use of the Committee on Oversight and Government Reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Government Organization, Efficiency and Financial 
                               Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
CONNIE MACK, Florida, Vice Chairman  EDOLPHUS TOWNS, New York, Ranking 
JAMES LANKFORD, Oklahoma                 Minority Member
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
FRANK C. GUINTA, New Hampshire       ELEANOR HOLMES NORTON, District of 
BLAKE FARENTHOLD, Texas                  Columbia
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 9, 2011....................................     1
Statement of:
    Dodaro, Gene L., Comptroller General of the United States, 
      U.S. Government Accountability Office; Daniel I. Werfel, 
      Controller, Office of Management and Budget; and Richard L. 
      Gregg, Fiscal Assistant Secretary, U.S. Department of the 
      Treasury...................................................     4
        Dodaro, Gene L...........................................     4
        Gregg, Richard L.........................................    34
        Werfel, Daniel I.........................................    26
Letters, statements, etc., submitted for the record by:
    Dodaro, Gene L., Comptroller General of the United States, 
      U.S. Government Accountability Office, prepared statement 
      of.........................................................     6
    Gregg, Richard L., Fiscal Assistant Secretary, U.S. 
      Department of the Treasury, prepared statement of..........    36
    Werfel, Daniel I., Controller, Office of Management and 
      Budget, prepared statement of..............................    28


  A LOOK AT THE FISCAL YEAR 2010 CONSOLIDATED FINANCIAL REPORT OF THE 
                            U.S. GOVERNMENT

                              ----------                              


                        WEDNESDAY, MARCH 9, 2011

                  House of Representatives,
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2247, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Lankford, Gosar, 
Farenthold, Issa, Towns, Cooper, Connolly, and Norton.
    Staff present: Ali Ahmad, deputy press secretary; Robert 
Borden, general counsel; Sharon Casey, senior assistant clerk; 
John Cuaderes, deputy staff director; Linda Good, chief clerk; 
Frederick Hill, director of communications; Christopher Hixon, 
deputy chief counsel, oversight; Sery E. Kim, counsel; Tabetha 
C. Mueller, professional staff member; Cheyenne Steel, press 
assistant; Ronald Allen, minority staff assistant; and Beverly 
Britton Fraser, minority counsel.
    Mr. Platts. The committee will come to order.
    I apologize, one, for keeping both my colleagues and our 
witnesses waiting. I am coming from a breakfast meeting I was 
hosting for Pennsylvania National Guard and it was, while 
focused on maybe military issues, related to our discussion 
here today in that one of the takeaway points from the acting 
Adjutant General of the Pennsylvania Guard, General Craig, was 
the bargain, when we talk about trying to rein in spending and 
defense spending that the Army National Guard costs 5 percent 
of the total budget for the military, yet is 40 percent of the 
Army combat resources, and on the Air Guard 7 percent of the 
budget and about a third of the Air Force resources.
    In other words, what a good bargain the Guard is when we 
try to wrestle with spending, how to deal with the out of 
control spending that we currently have. So a different issue, 
but related to what we are going to talk about here today.
    The Subcommittee on Government Organization, Efficiency and 
Financial Management is gathered here today to talk a look at 
the fiscal year 2010 Consolidated Financial Report of the U.S. 
Government, prepared annually by the Office of Management and 
Budget and Treasury, in conjunction with each other, and 
audited by the Government Accountability Office. This hearing 
will set the stage for our oversight of executive branch 
financial management systems throughout the 112th Congress, 
examining both Government-wide accountability issues and the 
fiscal implications of program spending decisions.
    The financial statements in the accompanying audit present 
two separate but equally important issues of concern for the 
subcommittee. First is the story told by the numbers 
themselves, what the statements reveal about our fiscal future. 
Second is a process by which those numbers are derived, what 
the audit shows in terms of how well the Government keeps the 
books and demonstrates accountability.
    Unfortunately, we have another disclaimer of opinion for 
2010, which has been the case since the Government-wide audit 
was first required. When I was chairman of this subcommittee 
from 2003 to 2006, we looked at this report every year, and the 
issues seem to be almost the same 5 to 8 years later, and the 
challenges we are dealing with.
    We would like to make some progress over the next 2 years, 
particularly in the area of improving internal controls, so 
that we can address the root causes of the problems that we are 
facing on the financial front. We would also like to bring more 
attention to financial management issues.
    At our first hearing we were pleased to hear from members 
of the task force assembled by the Federal Accounting Standards 
Advisory Board to look at ways to improve the Consolidated 
Financial Report. Today we are honored to have the auditor of 
the report, as well as the authors. We have with us the 
Honorable Gene Dodaro, Comptroller General of the United 
States, with the Government Accountability Office, which is 
responsible for conducting the audit and for establishing 
governmentwide auditing standards and standards for internal 
control.
    General Dodaro, we are delighted to have you with us. 
Always great to have a fellow Pennsylvanian here with us.
    Also, we have the Honorable Daniel Werfel, Controller and 
Director of the Office of Federal Financial Management, Office 
of Management and Budget. This office oversees financial 
management practices at Federal agencies and prescribes the 
form and content of agency financial statements.
    Finally, the Honorable Richard Gregg, First Assistant 
Secretary of the Department of the Treasury. Mr. Gregg's office 
is responsible for compiling the Consolidated Financial Report.
    Certainly, thank each of you for being here today and, most 
importantly, your written testimony you provided and gave us a 
chance to look at ahead of time, and your oral testimony here 
today, as well as being willing to take questions. The insights 
that each and all of you have are so important to this 
subcommittee's work, and we are not just glad to have you here 
today, but look forward to partnering with you as we go forward 
over the next 2 years of this session and really doing our 
utmost to have the Federal Government be more accountable, more 
transparent, more efficient in how we use the resources of the 
American people. So thanks for your testimony.
    With that, I would like to recognize the distinguished 
ranking member, former chairman of this subcommittee as well as 
the full committee, Mr. Towns, for an opening statement.
    Mr. Towns. Thank you very much, Mr. Chairman.
    This hearing on the issue of the Federal Government's 
financial report for fiscal year 2010 is very timely and 
important, particularly as the body is working to finalize the 
Nation's budget. I thank you for holding it, Mr. Chairman and I 
noticed that some of the things that we are talking about and 
dealing with, we had when I was chairman, then had them when I 
was ranking, then had them when you were chairman. Now I hope 
that we can get rid of while I am ranking, because when I come 
back and I am chairman, I want these things to be gone.
    Two weeks ago we held a hearing on how best to present the 
information contained in the Consolidated Financial Report so 
that it is clear and usable by Congress and the public. Today 
we get into the details of what the financial reports actually 
say about the financial conditions of this country.
    For 14 years in a row, GAO has been unable to give an 
opinion on the audit of the Government's financial statements. 
As we have seen in the past, there are still serious financial 
management problems at the Department of Defense. There is a 
continuing problem with government agencies not reconciling 
their balance sheets for transactions they do with each other. 
And GAO is telling us that the process of preparing the 
Government's financial statement is ineffective. GAO has been 
reporting the same problems to Congress year in and year out 
for more than a decade.
    Treasury reports that government agencies have greatly 
improved accounting for the transactions they do with each 
other. Happy to hear it. Mr. Gregg's written testimony says 
that the balance sheet difference fell from $102 billion in 
fiscal year 2009 to $40 billion in fiscal year 2010. This is 
encouraging and we are looking for continued improvement.
    I am also aware that some government agencies have made 
substantial improvements in preparing their financial 
statements. It is commendable that 31 out of 35 of the largest 
government agencies have received clean audit opinions from 
GAO. Others, it seems, have stood still, didn't move. The DOD 
still needs to invest significant time and personnel resources 
in improving its financial statements. It is good to note that 
OMB and Treasury are working with DOD to resolve some of its 
more serious accounting weaknesses.
    I have been hearing constant references to the shrinking 
window of opportunity for making policy changes to meet our 
ongoing challenges in producing credible financial reports. We 
still have too much work to do. I hope that the window is not 
closed by now.
    I thank our panel of witnesses for their testimony and look 
forward to their observations of what further policy changes we 
can make and how we can improve the process of producing 
reliable financial statements.
    Thank you, Mr. Chairman. On that note, I yield back.
    Mr. Platts. Thank you, Mr. Towns.
    Would any of the other Members like to make an opening 
statement?
    [No response.]
    Mr. Platts. The record will be kept open for 7 days if 
there is anything you want to submit in writing. If not----
    Mr. Connolly. Mr. Chairman, I just have an opening 
statement to insert in the record.
    Mr. Platts. OK, without objection.
    Mr. Connolly. I thank the Chair.
    Mr. Platts. With that, General Dodaro, if you would like to 
begin.
    Actually, if we could have each of you rise for the oath.
    Raise your right hands.
    [Witnesses sworn.]
    Mr. Platts. Thank you. Sorry about that.
    General Dodaro.

STATEMENTS OF GENE L. DODARO, COMPTROLLER GENERAL OF THE UNITED 
   STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; DANIEL I. 
   WERFEL, CONTROLLER, OFFICE OF MANAGEMENT AND BUDGET; AND 
 RICHARD L. GREGG, FISCAL ASSISTANT SECRETARY, U.S. DEPARTMENT 
                        OF THE TREASURY

                  STATEMENT OF GENE L. DODARO

    Mr. Dodaro. Good morning, Mr. Chairman, Ranking Member 
Towns, Congressman Cooper, Connolly, and Gosar. It is very much 
of a privilege to be with you this morning to discuss the 
results of our audit of the 2010 financial statements of the 
U.S. Government. I commend you, Mr. Chairman, and this 
subcommittee for having this hearing. It is very important to 
make sure that there is sustained attention to look at the 
status of the outcomes of the financial audits across the 
Federal Government every year.
    Now, this past year, as was mentioned in the opening 
statements, again, at the governmentwide Consolidated Financial 
Statement level, GAO was unable to give an opinion on the 
accrual-based financial statements of the U.S. Government. 
There are three main reasons for that: serious financial 
management problems at the Department of Defense; the inability 
of Federal agencies to properly account for intragovernmental 
activity and reconcile balances between agencies; and, last, an 
ineffective process for preparing the Consolidated Financial 
Statements.
    We have made many recommendations to Treasury and OMB. They 
have implemented many; they are in the process of implementing 
others. So we are hopeful that there is continued progress in 
addressing these weaknesses.
    Also, I would note in the 2010 statements we were unable to 
give an opinion on the statement of social insurance, which in 
the prior 2 years we were able to. This was due to management 
disclosures of significant uncertainties underlying the 
assumptions in preparing those statements.
    Also, 2010 was the unveiling of a new statement of 
sustainability which shows the Federal Government's fiscal path 
over a long period of time. This is something that is a very 
good development and should aid the Congress and the citizens 
in understanding a long-term path. Now, this report and 
statement disclosed, similar to what was disclosed in GAO and 
CBO long-range simulations, that the Federal Government is on 
an unsustainable fiscal path over a long period of time.
    So we think this new statement of sustainability, along 
with the citizens guide that has been prepared now for a while, 
will be added education tools that can be used to help 
illustrate the serious financial challenges facing the Federal 
Government.
    Now, if you go down from the governmentwide to the agency 
financial statements, the picture there is a big more 
encouraging. Twenty of the 24 largest Federal departments and 
agencies in the Federal Government were able to obtain an 
unqualified opinion. That is up from six in fiscal year 1996, 
which was the first year that all departments and agencies 
across the Federal Government were actually required to prepare 
financial statements and to have them audited. They have also 
been able to produce these statements on an accelerated 
timeframe and have moved now to being able to produce them 45 
days after the close of the fiscal year, which is a good 
development as well.
    Now, in addition, our report points out a couple of 
material weaknesses across the Federal Government. One is the 
problem of improper payments. The current estimate in the 
report is $125 billion. I am very encouraged, however, to 
report that by actions by the administration and the Congress, 
and this committee's support through passage of the Improper 
Payments Elimination and Recovery Act last year, there are 
efforts under way to tackle this problem.
    But it is probably going to get worse before it gets better 
because not all agencies and programs are reporting right now 
any improper payments. But targets are being set, 
accountability is being fixed, and I think this is a very 
important endeavor, particularly given the serious challenges 
we have facing our Federal Government and from fiscal 
pressures. In addition, you have a $290 billion tax gap between 
taxes owed and taxes collected. So these areas are important 
for the Federal Government to tackle going forward.
    So, in summary, Mr. Chairman, I think that it is very 
important for sustained attention to be made by the Congress. I 
would encourage this committee to have continuing hearings on 
these subjects. We just updated our high-risk list and 
testified before the full committee. A couple areas came off 
the list, but the lesson learned is through high level 
attention by departments and agencies, with sustained 
congressional oversight, progress is possible, it is needed, 
and given the fiscal pressure facing our Nation going forward, 
I believe financial management needs to be a top priority of 
the administration and the Congress.
    I thank you for your time and attention. I would be happy 
to answer questions at the appropriate time.
    [The prepared statement of Mr. Dodaro follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Platts. Thank you, General Dodaro.
    Mr. Werfel.

                 STATEMENT OF DANIEL I. WERFEL

    Mr. Werfel. Thank you, Chairman Platts, Ranking Member 
Towns, Congressman Cooper, Congressman Connolly, and 
Congressman Gosar, and other members of the subcommittee for 
the invitation to be here today to discuss the Consolidated 
Financial Report of the United States and Federal financial 
management.
    Improvements in financial management are paramount to the 
effectiveness stewardship of taxpayer dollars. The annual 
results of agency financial statement audits are an important 
indicator of progress in carrying out our stewardship 
responsibilities effectively. For the past several years, the 
vast majority of Federal agencies have achieved an unqualified 
or clean opinion on their annual financial statements, and 
auditor-identified weaknesses across the Government have been 
steadily declining.
    As Mr. Dodaro just pointed out, fiscal year 2010 was 
somewhat of a high watermark for us in terms of 20 of the 24 
major CFO Act agencies achieving a clean opinion. Also worth 
noting that we reported 31 auditor-identified material 
weaknesses across government. When you compare that to the 61 
material weaknesses that were reported in 2000, you see that 
steady progress was made across the last decade.
    Mr. Dodaro also pointed out that all major agencies are 
meeting the 45-day deadline for producing audited financial 
statements, a timeframe that actually exceeds the official 
statutory deadline of reporting by more than 100 days.
    Of course, although we are making great progress, not all 
of our financial audit goals have been met. In particular, four 
agencies did not achieve a clean opinion in fiscal year 2010, 
which in part led to the disclaimer on the Government-wide 
financial statement. Our office is committed to working with 
those agencies to make the necessary improvements in financial 
reporting practices so that all agencies achieve acceptable 
results on their annual audits.
    While audit results signal financial management success in 
many areas, there are critical financial management objectives 
not currently evaluated or addressed through standard financial 
statement audit activities. Informed by recent discussions 
surrounding the 20-year anniversary of the CFO Act and my 
experience as the day-to-day leader of Federal financial 
management efforts across government, I believe there are three 
improvements to our financial reporting model that represent 
the greatest opportunity to drive bottom-line results for 
taxpayers: first, improving reporting on where Federal taxpayer 
dollars are spent; second, instituting stronger internal 
controls to mitigate government waste and error; and, third, 
increasing access to reliable information on the cost of agency 
operations.
    As highlighted in my written testimony, while the current 
financial audit process does not address these issues directly 
or comprehensively, the administration and the Federal 
financial management community are focused on improving results 
in these areas. In particular, through the Accountable 
Government Initiative launched by this administration, we are 
preventing and increasing the recoveries of improper payments, 
eliminating unneeded real estate, turning around 
underperforming technology modernization projects, creating 
performance benchmarks for improved financial operations, and 
providing unprecedented transparency into Federal spending.
    Important early results are being achieved. I thank Mr. 
Dodaro for recognizing the efforts that the executive branch is 
undertaking to attack the improper payments problem. In fiscal 
year 2010 we saw a decrease in the overall governmentwide 
improper payment rate, and that decrease helped prevent $3.8 
billion in improper payments that would have otherwise been 
made. Also, Federal agencies recaptured $687 million in 
improper payments made to contractors and vendors. That is a 
300 percent increase in recoveries from the prior year, fiscal 
year 2009.
    Despite this progress, more work and tools are needed to 
address improper payments. I think it is important for me to 
note that the President's 2012 budget recognizes this and 
includes in that budget a suite of program integrity proposals 
that, if enacted, would result in over $160 billion in savings 
over 10 years.
    I would like to also mention that the President's budget 
includes a bold new proposal related to civilian real estate. 
In 2010, the President directed agencies to accelerate efforts 
to realign civilian real property and save $3 billion by fiscal 
year 2010. The President's new proposal builds on the success 
so far and expands that savings opportunity to $15 billion. 
This is achieved through the creation of an independent board 
that will make recommendations for up or down vote by Congress 
on the elimination or consolidation of excess Federal civilian 
assets, including realignment and streamlining of agency field 
offices.
    In sum, we have built a foundation of strong accounting 
practices, internal controls and reporting processes that are 
leading to better audit results. This has positioned us to 
achieve better bottom line results in terms of error reduction 
and cost efficiencies. But our work is not done and I am 
confident it will continue to drive critical improvements in 
all areas of Federal financial management.
    Thank you for inviting me to testify today. I look forward 
to answering your questions.
    [The prepared statement of Mr. Werfel follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Platts. Thank you, Mr. Werfel.
    Before I go to Mr. Gregg, we are delighted and honored to 
be joined with the full committee chairman, Mr. Issa.
    Mr. Gregg.

                 STATEMENT OF RICHARD L. GREGG

    Mr. Gregg. Thank you, Chairman Platts, Ranking Member 
Towns, members of the subcommittee, for inviting me to testify 
today on the financial report for fiscal year 2010 and the 
audit. Your interest in improving financial management is 
greatly appreciated.
    The financial report is prepared from all the financial 
statements of the 35 largest Federal agencies and other 
information provided by more than 100 smaller independent 
agencies. In fiscal year 2010, 31 of the largest agencies 
earned unqualified or clean audit opinions on their financial 
statements.
    For fiscal year 2010, as Gene had mentioned, the GAO was 
again unable to express an opinion on the governmentwide 
financial statements, including the statement of social 
insurance. The disclaimer on the remainder of the statements 
stems from three longstanding material weaknesses: first, 
serious financial reporting issues at the Department of 
Defense; second, the Government's inability to adequately 
account for and reconcile intragovernmental activity and 
balances between agencies; and, third, the Government's 
deficiencies in the process for preparing the consolidated 
financial statements.
    I will cover a few key issues included in the financial 
report and, following that, I will talk about some of the 
financial management improvements we are working on with OMB 
and other agencies.
    As noted in the financial report, the Government's budget 
deficit for fiscal year September 30, 2010, decreased slightly, 
from $1.4 trillion to $1.3 trillion. On an accrual basis, the 
Government net operating costs for fiscal year 2010 increased 
from $1.3 trillion to $2.1 trillion, due primarily to 
substantial increases in estimated actuarial costs for veteran 
benefits and Government employee programs, which are not 
reflected in the budget deficit. The Government's recorded 
total assets of $2.7 trillion and total liabilities of $16 
trillion, comprised largely of $9 trillion in debt held by the 
public and $5.7 trillion in Federal employee and veteran 
liabilities.
    The financial report also discusses the long-term fiscal 
challenges of funding Social Security, Medicare, and other 
social insurance programs. The Government's financial 
statements currently project a social insurance shortfall of 
$31 trillion over 75 years. The important message conveyed in 
this year's report is consistent with previous years that the 
sooner action is taken to resolve these shortfalls, the smaller 
the revenue increases and/or spending decreases necessary to 
return the Nation to a fiscally sustainable path.
    The Department of Treasury, in cooperation with GAO and 
OMB, issues a annual citizens guide, and this 10-page document 
utilizes user-friendly graphs and charts to provide a summary 
of the financial report's key information to the public.
    I would like to now talk about a number of initiatives that 
were taken over the past year to improve this report and 
financial management in general.
    We have reduced differences in transactions between 
agencies in fiscal 2010 from $102 billion to $40 billion on an 
absolute value basis. We have reduced the number of GAO audit 
findings from over 150 to 52 in fiscal year 2009. OMB, 
Treasury, and DOD are focusing on a few key areas to resolve 
DOD accounting and processes. We will then move on and broaden 
the scope of the work of DOD.
    Another issue we are working on is creating a general fund, 
and this fund will provide dual entry accounting for some of 
the central government activities. This was not included in the 
accounting system that we have developed over the years; this 
has been a gap, in my view, of the accounting process, and we 
are in the process of filling that gap.
    Treasury is also expanding the governmentwide electronic 
invoice portal that will enable Government agencies and vendors 
to improve control, streamline purchases, and reduce costs. We 
are also working with OMB and agencies to develop a system and 
process that will resolve longstanding differences in 
transactions when one agency does business with another. Also, 
Treasury has, in the last 6 months or so, expanded the use of 
electronic transactions for payments, savings bonds, and tax 
collections. These three initiatives, when fully implemented, 
will save $600 million over the first 5 years.
    We have also taken steps to sharply increase the debt 
collection within Treasury. We are looking to expand that to at 
least $5 billion over the next 10 years. In a couple days you 
will have a hearing with Commissioner Lebryk on debt 
collection.
    Finally, Treasury is supporting OMB to reduce improper 
payments by establishing and supporting the administration's 
VerifiedPayment.gov portal to prevent ineligible recipients 
from receiving payments from the Federal Government.
    Treasury looks forward to continuing its good working 
relationship with OMB and GAO and the agencies to make further 
improvements in financial management reporting and financial 
management in general.
    That concludes my statement. Thank you very much.
    [The prepared statement of Mr. Gregg follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Platts. Thank you, Mr. Gregg. And we do look forward to 
our hearing on Friday on debt collection and working closely 
with Treasury and your recommendations of changes in law that 
may be necessary to strengthen debt collection efforts.
    We will begin a questioning round, 5 minutes each, and 
hopefully we will have time to come back around for a second 
time.
    I am going to begin with the big picture and the issue of 
sustainability and the statement of sustainability, kind of a 
new addition here to the CFR, and the very stark statement, 
General Dodaro, that you included in your written statement, 
that we cannot sustain the level of public debt that we are 
taking on driven by a number of issues, demographics and 
medical costs in particular.
    In the big picture--and I think I know the answer you are 
going to give, but I don't want to put words in your mouth--
when we look at that issue of sustainability, the direction we 
are heading and the amount of debt we have and are taking on 
without significant changes, what would be the No. 1 
recommendation that you think we as a Congress should be 
looking at to change that trend, that debt level trend to get 
us back onto a sustainable level? What category spending or 
area? What is your most important recommendation?
    Mr. Dodaro. The size of this problem is so large that the 
Government has to look at entitlement spending, revenues, and 
discretionary spending. Everything needs to be looked at in the 
Federal budget and dealt with in order to bring this problem 
under control. And I think it is being driven largely by rising 
spending and health care costs and demographic changes, as you 
point out. Those are the primary drivers, but the solution is 
something that needs to be holistically looked at across the 
spectrum of the Federal Government's activities. If that is not 
done, this will not be solved.
    Mr. Platts. Is it accurate for me to say, though, and I 
agree with everything has to be on the table and looked at to 
be more responsible in our spending, but the specific issue of 
entitlements, that given that they are now roughly two-thirds 
of our expenditures, that while we can make improvements in 
discretionary across the board, including defense, unless we 
get our hands around entitlements and specifically Medicare 
spending, that everything else will almost be for naught if we 
don't deal with that issue?
    Mr. Dodaro. That is correct. Entitlement spending has to be 
dealt with in order to deal with this problem; that is the 
primary driver behind the cost increases and needs to be an 
effective part of the solution if there is going to be a 
material change in this path.
    Mr. Platts. Given the importance of entitlements, and a 
question actually to all three of the witnesses, one of the 
other significant concerns I have with the consolidated 
financial reports is the disclaimer on the statement of social 
insurance. Given how important getting our hands around 
entitlement spending is to fiscal sanity, that we have a 
statement of social insurance that really, I think we all 
agree, is not an accurate reflection of the cost of Medicare in 
particular because of assumptions that were made regarding 
Medicare costs going down in response to the health care bill 
passed just over a year ago.
    If all three of you could address that and how you look at 
those assumptions and the accuracy of inaccuracy of the 
assumptions made in the statement of social insurance.
    Mr. Dodaro. Basically, we start with reviewing the report 
by the Social Security-Medicare trustees, and in that report 
the trustees disclosed a number of uncertainties with regard to 
the cost assumptions, particularly in the Medicare area; this 
isn't quite true in Social Security. And the uncertainties 
settled on a couple of key factors: one being whether or not 
the scheduled reductions in cutting back the payments for 
Medicare providers was going to take place as scheduled over 
the period of time, it was about a 30 percent reduction over a 
30-year period was assumed.
    And, of course, as we know, Congress, last year, deferred 
that scheduled payment reduction by the first year, during the 
first year. Second, there are assumptions in the estimates 
about productivity gains that would be enhanced by other 
providers in the system, and there is real uncertainty as to 
whether or not those productivity improvements would be 
realized at the size they are estimated and, more importantly, 
sustained over a period of time.
    So given those uncertainties, the auditors for HHS, which 
originally looked at the statement of social insurance, 
disclaimed an opinion and we agreed with that decision and 
sustained that on our statements.
    Mr. Platts. Mr. Werfel.
    Mr. Werfel. Chairman, thank you for the question. The first 
thing I want to point out in response is that I would argue 
that historically accounting and the process that we have gone 
through has looked back on the previous year or years and the 
effort is to capture the transactions, capture the value of our 
assets, the value of our liabilities.
    What we are entering into now with things like the 
statement of social insurance and the statement of fiscal 
sustainability is forward-looking accounting, where we are 
doing projections. And some of the projections here, as noted, 
are 75 years into the horizon, and that creates additional 
elements of uncertainty when you are looking to establish 
metrics and measures looking out over a 75-year horizon.
    So I think that it is to be expected that as the trustees 
or HHS or others look to assess these values, that they are 
going to have qualifying statements and concerns about some of 
those uncertainties. And when you apply the auditors' scrutiny 
to that, what typically is looking backward at whether the 
books are kept to looking forward to a 75-year projection, I 
believe there are going to be times where those uncertainties 
are going to cross a threshold and create a discomfort level 
for the auditor in order to render opinion, and there will be 
times where those uncertainties will not cross that threshold.
    I think the last 2 years the uncertainties did not cross 
that threshold, and what that tells me is that the process that 
we have, the process that HHS and Social Security and the other 
agencies undergo to develop their tables, to develop their 
numbers, to report this information is generally sound, but 
there will be moments in time where those uncertainties exceed 
a threshold by which the auditors don't feel comfortable 
rendering an opinion.
    I would urge that the values that are reported still have 
value, and they still should be looked at closely and 
considered by Congress. But I think that we have to recognize 
that when you get into the business of auditing statements that 
are projecting 75 years into the future, you are going to run 
into situations where issues of uncertainty affect the audit 
opinion.
    Mr. Platts. Mr Gregg.
    Mr. Gregg. Mr. Chairman, I think we have pointed out a 
number of times in the fiscal sustainability area that they 
were not projections, they were really mathematical 
extrapolations. I think it is important to keep that in mind. I 
think that is what they are, and they are based on the math, 
not saying this is what we think is going to happen.
    On the trustee report, I think a couple of things there 
that I would just add to what Danny said. First of all, the 
huge piece of legislation and trying to figure out what is 
going to happen 75 years out is very difficult and, second, I 
think as a result of when it was passed, it was not as much 
time as the actuaries normally have to assess that sort of 
thing. I think those were factors.
    Having said that, it does look like that the HHS actuary 
did another illustrative sample of what the costs might be and, 
looking at that, the savings are still very considerable. And 
just to reiterate what Danny said, I think the process that the 
Medicare and Social Security trustees go through in having 
accurate data has been there for several years and I think that 
we will get back, at least I hope we will get back to a clean 
opinion for that report in the years ahead.
    Mr. Platts. Thank you, Mr. Gregg.
    Before I yield to the ranking member, the one aspect of 
that, and I appreciate when you are talking 75 years in 
projections or extrapolations, but a key part of those 
assumptions were a 30 percent reduction in provider 
reimbursements, which we have never done, and every year, 
historically, the record shows, we won't do that, as we did not 
in the very first year. We didn't even make it 1 year without 
reversing that legislation.
    Given that reversal, my hope is that when the statement of 
social insurance is issued for 2012, a year from now or less 
than a year from now, that HHS is going to look at what did 
occur and that those savings were not achieved in those 
provider reimbursements and are not likely to ever be achieved, 
so that we get a more realistic understanding of where Medicare 
stands. Because unless we are realistic and honest about 
Medicare, we will never be honest about our fiscal picture and 
truly getting our hands around this challenge.
    I am way over my time. General Dodaro.
    Mr. Dodaro. I just want to add that while there are various 
alternative assessments and projections, if you will, or 
simulations, over any scenario over the long range it is not 
sustainable, and I think we shouldn't overlook that point while 
we debate the numbers and timing.
    Mr. Platts. Exactly.
    Mr. Towns.
    Mr. Towns. Mr. Chairman, I am prepared to yield to the--oh, 
he is no longer here. OK. I was getting ready to yield to the 
chairman of the full committee, but he disappeared. OK. Because 
I am sensitive to that chairmanship thing, you know. 
[Laughter.]
    Let me begin.
    First of all, I want to thank all of you for being here. 
The Federal Government made $125 billion in improper payments 
in fiscal year 2010. Some of these payments were overpayments 
and some were underpayments. Some were made without sufficient 
documentation to support them and some should not have been 
made at all.
    In recent years, Federal agencies have been given more 
tools to deal with improper payments and, of course, Congress 
passed the Improper Payment Elimination and Recovery Act in 
2010. OMB has issued guidance as well. Even though not all 
improper payments are an indication that fraud has taken place, 
the potential for fraud, waste, and abuse remains extremely 
high.
    Mr. Gregg, with the law on your side and all the guidance, 
why have the improper payments continued to increase every 
year?
    Mr. Gregg. I will give my answer and defer to OMB to some 
extent. We are making, just Treasury alone makes a billion 
payments a year on behalf of agencies, and the pressure to get 
everything done accurately and timely is tremendous on the 
agencies and Treasury.
    At the same time, I think we can and we are doing a lot 
more. Until fairly recently, under the direction of OMB, we 
really hadn't had agencies starting doing business intelligence 
assessments of going into the payment files and looking for 
potential problems before the payments reached Treasury, and I 
think that is a very important step.
    There are tools out there that we just haven't been using 
fully, and I think that we are working on that with OMB to get 
those tools in place to go work with the agencies to do pilots 
to say what are the potentials here, some of it may be fraud; 
some of it is also just errors. But being able to identify 
those through sophisticated analytic tools.
    The other thing we are doing that Dave Lebryk will talk 
about on Friday is on the debt collection side we are looking 
to do the same thing, we are looking at the debt portfolio that 
we have and trying to identify how best to find those debtors 
and go out and collect the money even though the payments have 
already been out and the debt is there.
    We are looking for ways to use better tools that we now 
have available to find people who owe the Government money, to 
determine whether or not someone is who they--we may have a 
file from an agency that says someone's name is John McDonald 
and our debt file may say Jack McDonald. We now have tools that 
will help us identify whether or not that is the same person. 
We obviously don't want to try to collect a debt that isn't 
owed by someone, but through those tools we are going to be 
able to really hone in and say, yes, that is in fact the same 
person.
    So I think there is a lot going on, and I would defer to 
Danny Werfel for more on the improper payments.
    Mr. Towns. Thank you very much.
    Mr. Werfel.
    Mr. Werfel. Thank you, Mr. Gregg and thank you, Congressman 
Towns. I would start by saying that progress is being made. The 
error rates in key programs are going down and they are going 
down at the governmentwide level. But the challenge and the 
mathematical reality is as outlays outpace those error rate 
reductions, the error total grows.
    So we are up to $125 billion, but we are up to $125 billion 
in an environment where the Medicare error rate went down, the 
Medicaid error rate went down, the key Social Security program 
error rate went down, and the list goes on. So one of the 
things to reflect is to understand, I think, that important 
mathematical nuance to understand the progress that is being 
made.
    But also it raises how important this is, because as more 
money goes out the door, it raises the stakes for how important 
it is to get these payments right, because a 1 percent error 
when $100 is going out is very different than a 1 percent error 
when $1,000 is going out. And that is the situation we have 
right now; more money is going out the door even though the 
error rates are declining, improper payment amount goes up.
    Why is this happening? We are doing, I think, a better and 
better job of understanding what makes up our errors. In some 
situations you still have agencies making basic mistakes. It is 
within their direct control and they should, in the immediate 
term, be able to take steps to better address the errors; 
whether the payments are going to clearly ineligible 
individuals, whether they have been suspended or debarred, or 
something that is very basic.
    But in many situations, Congressman, the effort to identify 
whether someone is eligible for a payment is extraordinarily 
complicated and involves a variety of different factors, and 
when you go down and audit that payment, you find that mistakes 
are made. I think a good example of that is in the earned 
income tax credit, which has the highest error rate of any 
program.
    The eligibility characteristics for someone to be eligible 
for the earned income tax credit are very challenging. For 
example, an individual has to have lived with their dependent 
child for more than 6 months. We don't have a global childhood 
residency data base to validate that, and we find a lot of 
improper payments occur when we go down an audit and find they 
didn't live with their dependent child for more than 3 months, 
or something of that kind.
    So part of the challenge is finding those third-party data 
sources and figuring out better ways to validate eligibility. 
That is really, if I could boil it down in one bullet or one 
phrase, the real challenge we have, is how can we do a better 
job than we are doing today validating eligibility when those 
eligibility assessments are very complex.
    Mr. Towns. Let me just ask this, Mr. Chairman. You can sort 
of understand, in terms of dealing with the public and private 
sector, but when government agencies deal with each other, it 
seems to me that we should be able to correct this and be able 
to move forward. Is there anything else that we need to do? I 
am talking about the Congress.
    Mr. Werfel. Well, first, if I could just jump back to 
improper payments. I mentioned in my testimony, in my oral and 
both my written, that in the President's budget we have a suite 
of proposals that relate to driving down improper payments in 
key programs, in Social Security, HHS, IRS, and Labor, that, if 
enacted, we believe would save $160 billion over 10 years. So 
the first thing would be to call your attention to those 
provisions and ask for help in getting them enacted.
    In terms of the intragovernmental transactions, I think 
that the process that we have today for accountability has 
driven us to be on the precipice of a solution; it is a chronic 
material weakness that GAO has identified as a key source of 
our disclaimed opinion. We have had fits and starts over the 
years in defining a solution, but, with Mr. Gregg's leadership, 
solutions are emerging right now for improvements on 
intragovernmental transactions.
    So what I would ask of the Congress is to continue to call 
us before you and hold us accountable. I am telling you now 
that I believe we are on the precipice of a solution that is 
going to drive significant improvements, and call me back and 
hold me to that commitment.
    Mr. Towns. Right.
    Mr. Gregg. Congressman Towns, I just would add to Mr. 
Werfel's statement that I think one of the issues on the 
intragovernmental--and I was here when we did the first audited 
financial statement a number of years ago.
    Mr. Towns. I was here too.
    Mr. Gregg. Then went away. But I think we, in Treasury, 
felt that it should be able to correct itself with the 
agencies, and I came to the realization with my staff last year 
that it is not. So I made a commitment that someone needs to 
take responsibility for this to develop a system and a process 
and a small team of accountants to work with the agencies when 
there are differences. If we can't solve this, we ought to pack 
up our bags and go home, because this is, as the saying goes, 
not rocket science. It is not easy, but it certainly is not 
rocket science, and we should get this fixed.
    Mr. Towns. I agree with you, Mr. Gregg.
    On that note, I yield back, Mr .Chairman.
    Mr. Platts. Thank you, Mr. Towns.
    Dr. Gosar.
    Mr. Gosar. Mr. Werfel, you referenced the percentage of 
mispayments and fraud. I actually question the accuracy of 
those numbers, because these are self-reported numbers and, as 
a businessman, I understand how those things can be skewed, 
particularly the statistics and accuracy of those numbers.
    So I also believe in a checks and balances system, 
especially when we are grasping accurate numbers for policy 
assumptions. Were entities like Congress, the American people, 
the CBO misled, when calculating the cost of PPACA or 
Obamacare, as we know it, by using bad accounting methods?
    Mr. Werfel. I am sorry, I am not sure what your question 
is.
    Mr. Gosar. Let me reiterate. Were entities like Congress, 
the American people, and the CBO misled when calculating the 
cost of PPACA, which is Obamacare, utilizing bad accounting 
methods?
    Mr. Werfel. No, I don't think they were misled. I think one 
of the important things that we do when we report our financial 
reports and our estimates is we report with that all the 
assumptions that were made, and those assumptions can be 
challenged. This is somewhat of a thick book and it is thick 
because there are footnotes and alternative analyses and 
alternative presentations; and I think that what we have 
empowered is a situation where academics, think tanks, Members 
of Congress and GAO can debate these numbers and have a healthy 
dialog about whether the estimates and the projections and the 
extrapolations that are being reported are valid.
    And hopefully if there is enough information to challenge 
these numbers, then that debate will come to the fore. That is 
really our job and I consider that my mission at OMB, to make 
sure that whatever we are reporting, that our assumptions, our 
underlying assumptions are clear so that experts and others can 
fairly criticize them and hold them under a light and debate 
their reliability.
    Mr. Gosar. Well, it really becomes a he said, she said 
without an authority in the middle. So, with that said, how do 
you do the accountability for the new 68 nebulous discretionary 
grants as described in HHS policy?
    Mr. Werfel. I need a clarification on the question. How do 
we do the accounting of what----
    Mr. Gosar. How do you do accounting on the new 68 
nebulously written discretionary grants as described in Health 
and Human Services policy in that bill? How do you account for 
that?
    Mr. Werfel. Well, it depends on what you are asking about 
those dollars. Are you asking about if the discretionary grants 
are----
    Mr. Gosar. Well, let's go further.
    Mr. Werfel. The appropriation should be clear in terms of 
what its amounts are. The question then becomes what 
information about those dollars are you interested in 
understanding, and then I can talk more about how they might be 
accounted for and supported.
    Mr. Gosar. Well, let me be more specific. It says can use 
such sums as necessary. How do you do accounting for that?
    Mr. Werfel. Well, the accounting statements that we are 
reporting on today, for the most part, look backward at what 
the agencies spent. So we have financial systems, automated 
systems that help us track which money from HHS goes to which 
grantee, and we can tell you almost to a daily basis exactly 
how much money has gone out the door.
    If you are asking how much would be spent in the future by 
a particular grantee, that is not something that we estimate in 
the financial statements; they are considered an appropriation 
that would be looked at in the budget, but predicting how much 
of that appropriation would be spent is not something that I am 
aware we put a report out on.
    Mr. Gosar. So you couldn't score it.
    Mr. Werfel. Well, if it is an appropriated amount, you 
could certainly understand what the limit is. You can't go 
above the appropriated amount. So you would know the ceiling, 
but you might not know where you might fall under that ceiling.
    Mr. Gosar. But by definition it says such sums necessary. I 
want to take it down to the provider level. You know, you can 
skew numbers any which way. For example, in dialysis. We are 
actually withholding payment from dialysis patients to show 
better numbers on self-reporting numbers. This is where the 
fraud is, and we can't even get a grip on this.
    What we need to be able to do is have numbers that are 
apples to apples for comparison. And if Congress can't get 
this, neither can the American people. And we can't even look 
at what agencies look at, and this is just the tip of the 
iceberg. So I question even the reality of what these numbers 
actually are.
    Do you understand my frustration here?
    Mr. Werfel. In the area of Medicare fraud and improper 
payments, I could not agree with you more; we have a 
significant problem, an estimate that exceeds $60 billion, and 
it is unacceptable. I can sit here today and tell you that the 
error rates are trending down, but I can't say that we are at 
an acceptable level. So I completely agree with your 
frustration.
    Mr. Gosar. And it is not just those mispayments; it is also 
misuse from the agency itself in not paying out providers and 
hospitals and patients. It is on the same aspects. It is not 
just mispayments; it is withholding of payments.
    Mr. Werfel. Now you are venturing into a programmatic area 
that I don't have familiarity with, so I apologize.
    Mr. Gosar. Thank you.
    Mr. Platts. Thank you, Dr. Gosar.
    Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman.
    I thank the witnesses for being here.
    At a time when record numbers of Americans are questioning 
the Federal Government's ability to manage its own affairs. It 
is kind of amazing, this hearing is in one of the smallest, 
hardest to find rooms on Capitol Hill, is not even covered by 
C-SPAN 3. This is a missed opportunity for anyone who is 
concerned about the future of the Federal Government, because 
what you gentlemen are discussing is, in my opinion, the most 
comprehensive report on how the Federal Government is doing. It 
is the only one that uses real business accounting, so-called 
accrual accounting. That is not cruel, it just tries to take 
into account what is on the Government credit card, which Lord 
knows every family, every business, every government needs to 
focus on.
    So it is amazing to me, when people are concerned not only 
about government finances, but their own personal finances, and 
people worry about the stocks that they are holding in the 
stock market and they look at the annual report they get from a 
company, and here you gentlemen have worked hard to present a 
report to the American people, even with its own handy citizens 
guide to make it extra easy for people to understand. People 
are getting their favorite companies' annual report. Somehow 
they don't even know their favorite country's annual report 
exists.
    What we are discussing here today is one of the best kept 
secrets in America. To my knowledge, there is not one 
businessman I have ever met who knows this report exists. There 
is not one business lobby that makes this a priority to focus 
on this. There is not one newspaper in America that regularly 
uses accrual accounting to describe the situation we are in.
    And this is an amazing, well, it is a missed opportunity 
for my friends in the other party, because the first plank of 
the Republican contract with America was no more congressional 
hypocrisy. We should play by the same rules we require of the 
regular citizens, and regular businesses of any size have to 
use real accounting. But not the Federal Government? So why 
aren't we holding ourselves up to the private sector standard?
    So you gentlemen know this already because you are 
accounting experts, and it is hard for you sometimes to 
translate your knowledge to average members, but in response to 
Dr. Gosar's question, I would urge him to look at the 
conclusion section of the citizens guide, handy citizens guide, 
which says two very helpful sentences here: The United States 
took a potentially significant step toward fiscal 
sustainability in 2010 by enacting the ACA, what he chooses to 
call Obamacare.
    It also says the legislative changes for Medicare and 
Medicaid and other parts of the health care system hold the 
prospect of lowering the long-term growth trend for health care 
costs and significantly reducing the long-term fiscal gap. That 
should be our primary job here on the Hill, to lower the fiscal 
gap.
    Now, accounting will never be perfect; it is just an 
approximation of what goes on. But this is the best report we 
have, and very few people know about it. So I look forward to 
the first lobbying group in Washington celebrating and 
spreading this report. I look forward to the average Rotarian 
back home being able to access and know about this report. It 
is true it is available on the Web, but nobody knows when they 
are reading the Wall Street Journal everyday, as I did this 
morning, that they are reporting cash numbers only. So they 
really don't know what is on the national credit card, and I 
think they are entitled to know that.
    There are many things we could go into into the details of 
your report. I am thankful that you gentlemen prepared this 
report, and you sometimes get grief and misunderstanding when 
you do it. Let's work on improving the mistake in payments; 
let's reduce that to the bare minimum. You gentlemen are 
working hard on that already.
    But the key thing is not to miss the big picture: that this 
is a more important look at the Federal Government than 
probably any other document, and if you were to poll Members of 
Congress, most of them have never read it, have never heard of 
it, and don't know its significance, even though they guard 
their investments pretty carefully and care about which stocks 
they invest in.
    Well, this is our only country, and we need to make sure 
that the American people are aware of this because, in simple 
terms, the deficit, if you want to call it--of course, the 
proper term here is net operating cost--is much higher than the 
cash number, and it is higher for some very specific reasons 
and reasons that aren't necessarily fun to go into, because a 
lot of that discrepancy has to do with veteran spending and 
military retiree spending and civil service spending and things 
like that, using traditional cash measures, we are keeping up 
with. We are not admitting what is on our credit card.
    So I hope we can work together to increase the prominence 
of this report, increase its accuracy, and let's make this even 
more of a gold standard than it is already today.
    I see my time has expired, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Cooper. Appreciate your 
attention to the time.
    If I could briefly respond. One is your statements, I 
think, about the importance of this report are right on point, 
and maybe jointly, in a bipartisan way, to offer to Treasury I 
think this past year the report was issued on December 21st 
with little fanfare, no press release, just issued, I believe, 
is that this subcommittee would gladly partner with Treasury 
come this December to do a joint announcement of this report to 
start the process of getting more people aware of it and aware 
of its importance, and to set the stage for that in what would 
be going forward.
    So, Mr. Gregg, if you don't mind taking that back to 
Treasury as a formal request, that as we prepare next year's 
report, that we look at partnering with this subcommittee for 
the release of it and, again, raising awareness.
    Also, Mr. Cooper, I know in the past you have introduced 
legislation regarding accrual accounting, and I share with you 
today that I would like to work with you this session on the 
possibility of reintroducing that legislation, because I think 
we need to hold ourselves to the same standards that are we 
holding State and local governments and the private sector to.
    Yield to Mr. Lankford for questions.
    Mr. Lankford. Thank you very much. I do want to just be 
able to followup with the conversation with Mr. Werfel earlier 
about a lot of focus looking forward in the next 75 years, and 
it is a challenge to be able to look back and try to do both 
simultaneous on that. I will continue to emphasize the 
importance of being able to look back for the accountability 
side of that is a very big deal, while we are busy looking 
forward to seeing what is happening next, which is important 
for all of us. Accountability, we have to know what was just 
behind us so we are able to be able to do our task as well and 
to learn the lessons that we have seen behind us.
    Your report is very good in being able to mention several 
items that are up. I don't know if we have mentioned before the 
real property comments that you made in it. Extrapolate a 
little more on what you anticipate as far as the release of 
some of these properties, the jobs that are related to those 
and how we begin to transition from a piece of property that is 
underutilized or not utilized at all to having that then gone. 
What do you see as the process?
    Mr. Werfel. Thank you for the question, Congressman 
Lankford. There are many areas of inefficiency and waste in 
government that we are looking to attack, and the real estate 
holdings of the Federal Government are one of them.
    We have 14,000 properties that agencies have identified as 
excess, but there are an additional 55,000 assets beyond that 
have been classified as underutilized by agencies but have not 
yet been placed in excess and, therefore, are not in the cue to 
be gotten rid of. And then I have concerns that beyond that 
55,000 there are additional assets that have not been scrubbed 
closely and looked at for realignment opportunities.
    The process that we have today is somewhat bureaucratic.
    Mr. Lankford. There is a surprise.
    Mr. Werfel. Yes. There are three problems with our process 
for getting rid of a property. The first is red tape. 
Unfortunately, every property, whether it is a warehouse in a 
rural location or an office building in a downtown location 
that is no longer needed, needs to go through the very same 
process, which, depending on how good the agency is at doing 
it, could take anywhere from a year to 2 years, which is 
unacceptable in terms of the more critical needs we have to not 
be maintaining these assets at a cost to taxpayers.
    The second reason is incentives and financing. It costs 
money to relocate; it costs up-front money to get an asset 
ready for sale, and often we allow these short-term costs to be 
a barrier to long-term and broader savings. So we need to think 
about how to address that.
    And the third area is politics. We have found it, in many 
case, to be difficult to remove the Federal presence from an 
asset that is underutilized because local officials or 
congressional delegations rally around keeping that Federal 
presence there, even if there is an opportunity for realignment 
and consolidation.
    We looked at different ways of addressing these three 
areas, and one area that we have had some success is in the 
Defense Department's base realignment and closure program, 
whereby vesting the process in an independent commission and 
giving them the flexibility and empowering them to make 
decisions on bundled opportunities, a lot has been done.
    Mr. Lankford. I saw that in your report as well. Who are 
the individuals that you are currently recommending and what is 
the process to try to pull that together?
    Mr. Werfel. Ever since the President's budget came out and 
we had this proposal in there, we have been getting contacted 
by commercial real estate experts and other community 
development experts around the country who would like to 
participate. We need legislation for this to occur. BRAC was 
put in place by legislation. This civilian realignment proposal 
would be the same.
    The moment we get it enacted, and I hope we get it enacted 
soon, we will begin putting together this commission. We 
propose a seven member commission or seven member board, and we 
are already starting to gather names for that. But I think it 
would be premature to get started before Congress acts.
    Mr. Lankford. Let me just reaffirm that, to continue to 
push on both us and for you to be able to think through this as 
well. It is a big issue for us to have this many properties 
that are sitting idle, underutilized or not utilized at all, 
while we are dealing with a budget deficit. That is a low 
hanging fruit piece. We should be pushing on and continue to 
move forward to get those things into the private sector.
    I would encourage you, as well, to continue to push on your 
55,000 number. I am skeptical with you that is all we have. 
Based on the fact that you can look at--I am in Oklahoma. If 
you look to the west of Oklahoma, almost all the country is 
owned or controlled by the Federal Government. When you look 
west, there are a lot of properties and pieces that are sitting 
out there that should be available to the public sector that 
are now very tightly controlled by the Federal Government, so 
whether that is a building or whether that is property, we need 
to look at that.
    And as far as your red tape, I completely concur. I am a 
freshman this year, and when I walked in my district office, 
there is an IBM Selectric typewriter that is sitting there that 
has apparently been there for a very long time that they are 
trying to work out of inventory, and it has taken forever to 
get a typewriter out. I can only imagine what it is going to 
take to get a building out. So press on and we will try to help 
where we can.
    Mr. Werfel. Thank you.
    Mr. Platts. Thank you, Mr. Lankford.
    Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman, and thank you for 
these hearings. And let me echo what my colleague, Mr. Cooper 
said. I think this actually is one of the most important 
hearings we could have if you want to get a handle on the 
fiscal situation of the Federal Government, and I want to 
express my shock at learning that C-SPAN 3 is not here. 
[Laughter.]
    But let me just pick up on the last point that our 
colleague, Mr. Lankford, was making on property, because I have 
had experience, actually, in my jurisdiction of acquiring 
excess Federal property, and one of the concerns I guess I 
would have is the valuation of that property. I think you 
mentioned, Mr. Dodaro, a figure of something like $2\1/2\ 
trillion estimated assets held by the Federal Government. 
Whatever the number is, in local government we value property 
based on highest best use.
    So it is one thing to say X property is excess, and if we 
decide that is going to go to Oklahoma City as a park, that has 
one value. If, on the other hand, we decide, no, we are going 
to actually develop it as a research park with office buildings 
and lots of workers, well, that has a very different value. And 
I guess I would be concerned about how we value property and 
when we dispose of excess property.
    Talk about politics. From the Federal Government's point of 
view, if we really mean it about the fiscal situation and 
addressing it, we want to sell it or dispose of it for the 
highest best use, not the lowest use, and that, I assure you, 
is not so easy. With the best of intentions it is not so easy. 
Would that not be correct, Mr. Werfel?
    Mr. Werfel. It is. In fact, one of the questions that I 
sometimes get when I raise this issue of why politics can 
prevent the assets is if you have an asset that is mostly 
empty, why would the local jurisdiction have concerns? And it 
is really about what happens to the property afterwards; it is 
the competing stakeholder interests that emerge, whether 
someone wants it for a park or someone wants to develop it 
commercially or sometime wants it gifted to a local university 
for education purposes. All noble objectives. The problem is 
those competing interests come into play and there isn't a 
rational process to reconcile them.
    Mr. Connolly. Right.
    Mr. Werfel. That is why this independent board, we believe, 
is the correct solution, because it would be empowered to move 
quickly to determine what the right impact is for the 
community, for the taxpayer, and reconcile those issues in a 
condensed period of time and reach a decision.
    Mr. Connolly. Thank you.
    Mr. Dodaro and/or Mr. Gregg, improper payments in terms of 
$125 billion a year, estimated, right? What is the scale or the 
ratio between military, Pentagon, improper payments and 
civilian agency improper payments?
    Mr. Dodaro. I believe most of the $125 billion are civilian 
agency payments, half of which are in Medicare and Medicaid, 
although in Medicare the Part D prescription drug program does 
not yet have an estimate, so that will have to be added in the 
future. The DOD one is relatively low.
    Mr. Connolly. Of the $125 billion?
    Mr. Dodaro. I believe so.
    Mr. Connolly. Let me ask about the 75 year projection. I 
was just thinking 75 years ago was 1936. The idea that we can 
project 75 years into the future with any accuracy and 
anticipating actions by a Congress, by a series of presidents, 
by the public, technology. I mean, think back 75 years and ask 
oneself how accurate would we have been in 1936 in predicting 
2011. So I guess I would ask you to comment on how valuable is 
a 75-year time horizon really.
    Mr. Dodaro. Well, I think it is very important, recognizing 
there are a lot of uncertainties and inherent difficulties in 
doing it, for the Government to have a longer term view of some 
of its policy decisions at the time. One of the concerns that 
we have had is if you look at just the next budget year, or 
even 5 years out, you really don't understand comprehensively 
the long-term consequences of policy decisions. So I think some 
things have to be there.
    In some of these areas we know the population is already 
here and will turn a certain age at a certain period of time, 
so there is relative certainty to some of the assumptions in 
the estimates. Now whether it is 75 years, 30 years, 20 years, 
the importance is to have a longer term perspective of it.
    Mr. Connolly. General Dodaro, I would agree with you, but I 
would suggest 75 years may be so long as to be meaningless. 
Very misleading in terms--I mean, if you look at, for example, 
demographics. If you looked at a 75-year horizon, I assure you 
demographic projections were profoundly inaccurate in terms of 
population estimates and fertility rates and human behavior and 
spacing of families, for example. So I just think that, yes, I 
agree with you we need a longer time horizon, but 75 may be not 
the tool we hope it to be.
    Thank you, Mr. Chairman. My time is up.
    Mr. Platts. Thank you, Mr. Connolly.
    Ms. Norton.
    Ms. Norton. Thank you very much, Mr. Chairman.
    I would just like to add to what my colleague said about 75 
years. I think 75 years is dangerous. When it comes to things 
like Social Security and Medicare population-based, perhaps, 
there will be people here who fasten upon such a figure as if 
it were the Bible, because that is what numbers can do to 
people. It makes you look like fortunetellers.
    And I think the reason your report has credibility is that 
it is, so far as you can humanly do, science-based. The 
configurations, even the best of you say 5 years out, even 10 
years out, are wildly off base, so I would like to also see a 
spike put in 75 years, as if that is something anyone could 
rely upon, except for population-based notions, which turn out 
to be more accurate than perhaps some others.
    I note on page 12 of the GAO report it talks about the 
notion of the Government's return on some of its investments. 
At page 12 it says in December 2007 the United States entered 
into what has turned out to be the deepest recession since the 
end of World War II. Gross domestic product fell 4.1 percent 
from the beginning of the recession through the second quarter 
2009. Then you note that GDP has grown slowly; unemployment 
remains at a high level.
    In the second paragraph you note the economic recovery that 
the Government's actions to stabilize the financial markets and 
to promote economic recovery resulted in assets of $400 
billion, which is a net of about $75 billion in valuation 
losses.
    Now, this is a very little talked about notion. We always 
hear about what, of course, is most prominent, and that is what 
the Government loses. Would you elaborate on this recovery of 
some of these assets? Break them down. Many would be surprised, 
perhaps in a short period of time than anticipated.
    Mr. Dodaro. This is in the----
    Ms. Norton. GAO report?
    Mr. Dodaro. No, it is in the management discussion analysis 
that is prepared by Treasury and OMB, it is not our report.
    Ms. Norton. Well, whoever wants to discuss it, be my guest.
    Mr. Dodaro. OK.
    Mr. Werfel. Congresswoman, I will share at a very high 
level. I think we are going to have to get back to you on some 
of the specific breakdowns of the assets. I happen to know that 
the Federal Government has purchased, according to our report, 
$225 billion in mortgage-backed securities; we have $75 billion 
back in principle and interest; we have made $378 billion in 
TARP disbursements and been repaid $204 billion.
    I think the important point here is that some of the 
investments, in particular that the Treasury made as part of 
our Economic Recovery Act, either through the HERA legislation 
or the Issa legislation, were set out with an expectation of a 
return, where money is paid back to us or investments that we 
are made provide value to us that improve the bottom line 
associated with these financial statements.
    And I would agree that it is a point that sometimes gets 
lost. When the TARP bill was passed, it was widely reported 
$700 billion were authorized, and I think there was a notion at 
that high level that $700 billion was gone.
    But, as it turns out, and as it is playing out and as is 
reported here, that $700 billion is not the cost of that 
legislation, and it is remarkably lower than that. And part of 
that is due to the fact of being repaid and part of that is due 
to the fact that investments that were made by the United 
States continue to have value and, in some cases, the 
Government and the taxpayer actually have made a profit on 
those investments.
    Mr. Gregg. We can get back to you with a more full 
description, but yesterday Treasury announced that they had a 
repayment from AIG of $6.9 billion, and right now we have 70 
percent of the amount that we have gone out in investments have 
been repaid, and the quote is that we are looking to have 
little or no money actually for those types of investments 
actually cost the taxpayers anything. So the money has been 
coming back through those investments, AIG and other entities 
that we have had under management, and it is a continuing 
process, but good progress has been made.
    Ms. Norton. Well, I must say I think it is a disservice not 
to report to the American people, who were very concerned, and 
rightly so, that the Government had to lay out so much money, 
not to report every jot and tittle of every cent we have gotten 
back, every amount we may have made over what we expected and 
in what period of time. For those who read deeply into the 
newspaper, frankly, to get back as much as we have gotten back 
in so short a period of time turns out to be a big surprise, 
and one of the best kept surprises of this recovery.
    And I thank you very much, Mr. Chairman.
    Mr. Platts. I thank the gentlelady. And if the witnesses 
would work with the gentlelady for any specifics, additional 
information that she is looking for.
    We need to wrap up in about 8 or 9 minutes. I am going to 
try to get through a couple more questions here for those who 
have. I am going to kick it off on a specific issue, and this 
goes to frustration. I hear from constituents often that when 
we have either wrongful conduct in the Federal Government or 
just mismanagement, there is never any consequences. And one of 
the three major impediments identified by GAO to a clean 
opinion was the inability of so many of our Federal agencies 
and departments to adequately account or reconcile 
intragovernment payments, between agencies.
    In General Dodaro's statement there is referenced that 
Treasury and OMB require our 35 largest agencies, our CFOs to 
quarterly do that reconciliation. But as the general's 
statement says, a significant number of these entities did not 
adequately perform those reconciliations for fiscal years 2010 
and 2009. I guess one question is, General Dodaro, I don't know 
if you have with you today, but what is a significant number? 
How many of those 35 did not adequately do it on a quarterly 
basis?
    And then specifically to our Treasury and OMB witnesses, 
what, if any, consequences occurred regarding those CFOs' 
failure to comply with your department and agency requirement? 
Was anyone disciplined, suspended, fired for not doing what 
they are required to do? Because when they don't do this, as 
GAO is telling us, this is one of the major impediments to us 
fully understanding what is going on and getting a clean 
opinion. Yet, we have a significant number of agencies not 
complying with OMB and Treasury.
    So I guess, first, General Dodaro, if you have a number.
    Mr. Dodaro. I can provide the specific number. Mr. Gregg 
might actually know the specific number. But I couldn't agree 
with you more that there ought to be consequences.
    Mr. Platts. Mr. Gregg, I don't know if you know, of the 35, 
how many agencies, departments of those 35 did not comply with 
the quarterly reconciliation.
    Mr. Gregg. Well, I don't know offhand, but the thing that 
has been missing, and I alluded to it before, is that what 
happens is that agencies do business and one agency may not 
identify when a trade comes in that actually what it is, so our 
job at Treasury, now that we have taken this on, is to build 
some kind of system where we make sure that they can easily 
identify that they are talking about the same transaction.
    And then the role that I have also agreed to take on is 
that we are going to be following up with the agencies, and if 
they don't get those reconciled quickly, we are going to be 
after them and we will elevate it as high as we need to in the 
agency to get those taken care of. We can't do this once a year 
and be successful; this has to be an ongoing process. And it is 
not just quarterly, it is an ongoing transaction process that 
we need to stay on top of, and we haven't been doing it, 
Treasury hasn't been doing it, no one has been doing it sitting 
in the seat of being responsible and holding the agencies 
responsible.
    Mr. Platts. And that is my point here, is accountability. 
That is what the American people expect of us. And if we have 
rules in place that are to seek that accountability and those 
requirements are not then followed through on, there have to be 
consequences so that we send that message.
    And if this is across all agencies and departments that 
they understand, the personnel understand that if they don't do 
their jobs, there will be consequences for their failure to do 
their jobs. It sounds like we have not had consequences in the 
past, but Treasury is trying to put in place a system to allow 
more stringent requirements and consequences to be imposed.
    Mr. Gregg. Treasury, the Financial Management Service does 
send out a report after each financial report comes in and, in 
essence, kind of grades the agencies on how they did. The CFOs 
at the agencies don't especially appreciate getting that.
    Mr. Platts. Is that report given to the head of the agency 
as well?
    Mr. Gregg. It is given to just the CFO, the highest level.
    Mr. Platts. If I could make a suggestion that report card, 
since it's the CFO that has this responsibility and you are 
giving him or her their own report card, well, as a parent, I 
want to see my child's report card to hold them accountable. 
Let's make sure the agency head sees that report card so they 
can hold their CFO accountable, because otherwise the fox is 
guarding the hen house.
    So I have great respect for our CFOs in the work, but if 
they are not doing a good job their agency head needs to know 
it. So if you can followup with me on that request that 
Treasury look at that change in how you distribute the 
information to the agency head.
    Mr. Gregg. I will do that.
    Mr. Dodaro. Mr. Chairman, I would say Treasury is in a 
difficult position because they are on a peer level. So I think 
your idea is exactly right. OMB, on behalf of the President or 
the President has to send the direction to the agency heads to 
get this solved.
    Mr. Platts. That is a very important point. If we can have 
OMB's engagement on this as well, to partner with Treasury and 
this subcommittee, that we really have consequences. Again, 
this is one of the three main criteria that is highlighted as 
why we can't get a clean opinion, so I think it has to be one 
of the issues we are most serious about going after.
    Mr. Werfel. I agree and I think alerting the agency head of 
some of these key metrics is something we are certainly 
interested in doing, and we will work with Treasury and you on 
that.
    The other thing I would just add is that I do think there 
is a positive development that has occurred over the last 5 
years of more and more a demand from OPM for quantifiable 
metrics in Federal employee performance evaluations, and in the 
CFO realm we have a treasure trove of quantifiable metrics to 
hold CFOs, not just the CFOs themselves, but their entire 
teams.
    So I can't sit here and say that all the right people are 
seeing all the right impacts on their performance evaluations 
due to some of the weaknesses that we see, but I can tell you 
that it is getting better and it is entering into the fray.
    Mr. Platts. And getting that treasure trove of information 
to that CFO's superior is I think what I am asking in this 
regard specifically, so that we can do a better job.
    I have other questions but I don't know, Mr. Towns, if you 
have anything else.
    Mr. Towns. I just have a very quick one. How does the IG 
play in this? The point is, it seems to me, that they can 
provide some technical assistance here that might help us. Do 
they have a role anyway?
    Mr. Werfel. Congressman, the IGs have a central role. 
Ultimately, the IGs are responsible for the financial statement 
audit element, the audit element. The IGs often contract with 
independent audit firms, although they don't all do that, but 
the IGs are overseeing the audits of their agencies and, 
therefore, are a central partner in helping figure out what the 
financial management weaknesses of the agency are and how to 
address them.
    So they do play a central role, it just so happens that 
they don't always write the audit report; sometimes they hire 
an independent auditor to write the audit report for them. But 
they bless it and they have to sign off on it.
    Mr. Towns. Thank you very much. Because I think that is 
very, very important.
    Thank you.
    Mr. Platts. Thank you, Mr. Towns.
    Dr. Gosar.
    Mr. Gosar. Real quickly, gentlemen. Are the Federal Reserve 
numbers accurate, to your understanding, in the terms of the 
accounting method?
    Mr. Dodaro. I believe they have an independent audit done 
and that the numbers--we don't have any basis to question the 
numbers at this point. I would add, though, that due to 
legislation and the Wall Street Reform Act, we now have at GAO 
broader responsibilities to audit the emergency lending 
facilities at Federal Reserve, and we are doing that now and 
expect a report by this summer.
    Mr. Gosar. Wonderful. Can I just followup with a real quick 
question, then? Do these accounting issues impact monetary 
policy like quantitative easing at the Federal Reserve level?
    Mr. Dodaro. Just to clarify, the Federal Reserve is really 
not included in the report.
    Mr. Gosar. I understand.
    Mr. Dodaro. So I would say we at GAO are statutorily 
prohibited from reviewing monetary policy.
    Mr. Gosar. Thanks.
    Mr. Dodaro. I would, Mr. Chairman, if I might, add just on 
the 75-year question that came up earlier, I just want to 
clarify for the record that the trustees, Social Security and 
Medicare trustees, are required by law to use the 75-year 
number.
    Mr. Platts. And I am going to close with two quick 
questions, just to make sure my understanding is correct, 
before we adjourn for the joint session.
    On Medicare Part D, when we talk about improper payments, 
Medicare and Medicaid, half of that $125 billion number, it is 
my understanding that when we look at the Medicare Part D--and, 
Mr. Werfel, you referenced that the improper payments rate is 
going down--Medicare Part D currently is not part of that 
number, that they are not being assessed for what improper 
payments are, is that correct?
    Mr. Werfel. That is correct. I was referring to Medicare 
fee for service and Medicare Part C. Both of those have 
separate error rates and both of those have declined, although 
they are still at unacceptably high levels. We are in the 
process of developing an error measurement for Part D.
    Mr. Platts. And given the size of Part D, the importance of 
that----
    Mr. Werfel. Yes. You can anticipate that given the size of 
the outlays, even if we somehow achieve a 1 percent error 
rate----
    Mr. Platts. We are talking billions still.
    Mr. Werfel [continuing]. We are still talking big numbers.
    Mr. Platts. Yes. And on the issue of Medicare Part D, we 
currently have in law a 30-day payment requirement for Medicare 
payments. Is that something that, given a billion transactions 
that Treasury is handling and the number that Medicare is 
handling, by having that 30-day payment requirement, which we 
want to pay providers as quickly as possible, but given the 
volume, is that too short to better ensure accuracy and the 
honesty of the claims we are paying?
    Mr. Werfel. It is certainly something to look at. One of 
the goals of the improper payments legislation is to understand 
the root causes of these errors and understand what kind of 
adjustments need to be made. And if there is a sense that the 
timing is too short to do the necessary due diligence, that 
should come in HHS's financial report and be reported out, and 
then we would want to talk to you about those types of 
statutory changes. But I think we need to certainly evaluate 
that as we go forward, in terms of that timing.
    Mr. Platts. Thank you. I certainly appreciate all three of 
you, your service to our Nation and your expertise in this 
area. We look forward to partnering with you as we go forward.
    Just one cautionary reminder. If we are talking next year 
about this, at least for one more year I believe I will be the 
chairman; I don't know about after that. But if we see as one 
of those major impediments being intragovernment payments, I am 
going to be asking what did we do with that CFO report card 
where there wasn't adequate compliance on at least a quarterly 
basis, and that we are going after that issue. So just to put 
you on fair notice.
    We will keep the record open for 7 days for any other 
additional information from witnesses or for Member statements, 
and our thanks to our witnesses for being here. This hearing 
stands adjourned.
    [Whereupon, at 11:04 a.m., the subcommittee was adjourned.]

                                 
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