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




 
    IMPROVING OVERSIGHT AND ACCOUNTABILITY IN FEDERAL GRANT PROGRAMS

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TECHNOLOGY, INFORMATION
                POLICY, INTERGOVERNMENTAL RELATIONS AND
                           PROCUREMENT REFORM

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 23, 2011

                               __________

                           Serial No. 112-70

                               __________

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


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/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 Technology, Information Policy, Intergovernmental 
                    Relations and Procurement Reform

                   JAMES LANKFORD, Oklahoma, Chairman
MIKE KELLY, Pennsylvania, Vice       GERALD E. CONNOLLY, Virginia, 
    Chairman                             Ranking Minority Member
JASON CHAFFETZ, Utah                 CHRISTOPHER S. MURPHY, Connecticut
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts
RAUL R. LABRADOR, Idaho              JACKIE SPEIER, California
PATRICK MEEHAN, Pennsylvania
BLAKE FARENTHOLD, Texas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 23, 2011....................................     1
Statement of:
    Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma..    65
    Franzel, Jeanette, Managing Director, Financial Management 
      Assurance Team, Government Accountability Office; Natalie 
      Keegan, Analyst, American Federalism and Emergency 
      Management Policy, Congressional Research Service; Cynthia 
      Schnedar, Acting Inspector General, Department of Justice; 
      and Danny Werfel, Controller, Office of Federal Financial 
      Management, Office of Management and Budget................     6
        Franzel, Jeanette........................................     6
        Keegan, Natalie..........................................    29
        Schnedar, Cynthia........................................    37
        Werfel, Danny............................................    46
Letters, statements, etc., submitted for the record by:
    Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma, 
      prepared statement of......................................    69
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............     5
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    79
    Franzel, Jeanette, Managing Director, Financial Management 
      Assurance Team, Government Accountability Office, prepared 
      statement of...............................................     9
    Keegan, Natalie, Analyst, American Federalism and Emergency 
      Management Policy, Congressional Research Service, prepared 
      statement of...............................................    31
    Schnedar, Cynthia, Acting Inspector General, Department of 
      Justice, prepared statement of.............................    39
    Werfel, Danny, Controller, Office of Federal Financial 
      Management, Office of Management and Budget, prepared 
      statement of...............................................    48


    IMPROVING OVERSIGHT AND ACCOUNTABILITY IN FEDERAL GRANT PROGRAMS

                              ----------                              


                        THURSDAY, JUNE 23, 2011

                  House of Representatives,
   Subcommittee on Technology, Information Policy, 
Intergovernmental Relations and Procurement Reform,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:32 a.m., in 
room 2154, Rayburn House Office Building, Hon. James Lankford 
(chairman of the subcommittee) presiding.
    Present: Representatives Lankford, Kelly, Meehan, Connolly, 
Murphy, and Lynch.
    Also present: Representative Cummings.
    Staff present: Richard A. Beutel, senior counsel; Molly 
Boyl, parliamentarian; John Cuaderes, deputy staff director; 
Gwen D'Luzansky, assistant clerk; Linda Good, chief clerk; 
Hudson T. Hollister, counsel; Mark D. Marin, senior 
professional staff member; Peter Warren, legislative policy 
director; Michael Whatley and Sang H. Yi, professional staff 
members; Ronald Allen, minority staff assistant; Jaron Bourke, 
minority director of administration; Adam Miles, minority 
professional staff member; Mark Stephenson, minority senior 
policy advisor/legislative director.
    Mr. Lankford. The committee will come to order. This is a 
hearing on Improving Oversight and Accountability in Federal 
Grant Programs from the Oversight and Government Reform 
subcommittee.
    We exist to secure two fundamental principles: First, 
Americans have the right to know that the money Washington 
takes from them is well spent. Second, Americans deserve an 
efficient, effective government that works for them. Our duty 
on the Oversight and Government Reform Committee is to protect 
these rights. Our solemn responsibility is to hold Government 
accountable to taxpayers because taxpayers have a right to know 
what they get from their Government. We will work tirelessly in 
partnership with citizen watchdogs to deliver the facts to the 
American people and bring genuine reform to the Federal 
bureaucracy. This the mission of the Oversight and Government 
Reform Committee.
    In a time of growing Federal debt, it is essential that 
every area of Government spending is fully transparent and 
beneficial to the Nation. Executive branch agencies are 
estimated to spend more than $50 billion annually on 
discretionary grants.
    As overall grant spending has continued to increase, 
Federal agencies have worked to find ways to minimize 
opportunities for waste, fraud, and abuse in the discretionary 
grant programs. They are commended for that.
    This hearing will initiate a series of hearings related to 
transparency and the effectiveness of the grant process.
    The subcommittee recognizes that grants are distributed 
based upon authorizing legislation to advance a public purpose, 
not to directly benefit the agency that is awarding the grant. 
Thus an open contract model may not be appropriate. But the 
grantee selection process must be transparent and consistent in 
the pre-award and post-award phases.
    According to OMB, from fiscal years 1990 to 2010, Federal 
outlays for grants to state and local governments increased 
from $135 billion to $608 billion, almost one fifth of the 
Federal budget and a 350 percent increase since fiscal year 
1990.
    In fiscal year 2010, OMB identified 23 Federal grantmaking 
departments in agencies that offered over 1,670 Federal grant 
programs. The top three agencies in terms of grant dollars 
outlaid during fiscal year 2010 were the Departments of Health 
and Human Services, Transportation, and Education. But it 
appears that there is a void of consistent grant guidelines 
across all agencies beyond OMB circulars.
    Currently agencies do not typically disclose to grant 
applicants the criteria or factors they will use in deciding 
how to distribute grant funding. When agencies do disclose the 
criteria, they may not disclose the weighting of the various 
criteria.
    Because of the discretionary grant process, it is 
impenetrably opaque. It is difficult, if not impossible, for 
the public or oversight bodies to determine whether a Federal 
grant award was based on merit, the discretion of the 
department or agency, past or future employment, or political 
or financial interest. Any of those areas we can't determine.
    GAO and IG audits have examined discretionary grant awards 
decisions. Typically they reveal that in financial selection 
the decision was not documented and one cannot ascertain why 
some grant applications were funded while others were not.
    During this hearing we plan to ask many questions. After 
the funds have been distributed to grantees, do agencies have 
effective oversight and monitoring tools? Are there 
vulnerabilities in the system and ways to ensure that the 
Government's limited discretionary grant resources are used 
effectively? If public funds are used to pay for research, is 
the research deliverable publically available?
    Should grants release the funds as the work is completed in 
multiple stages, pay at the start, or pay at the end of a 
project? Are there ways to protect against fraud, waste, and 
abuse like inappropriate pay scales, ghost employees, work that 
was never complete, etc.? How do we ensure that grant funding 
is released to entities with the greatest need and ability 
rather than simply the best grant writing skills?
    Is there a way to see the successful and not successful 
grant requests so future grant writers can see what was 
contained in a successful grant application? Can we improve 
communication throughout the grant process between the agencies 
and the grant requesters?
    Are grants being written in instances when it would be more 
appropriate to use a contract? Is there a need to increase 
recipient reporting requirements to allow more transparency?
    This hearing will focus on asking the questions to 
determine if there are new ideas that exist to help all 
entities involved in the grant process accomplish their goals. 
I look forward to discovering with all parties the ideas that 
will help us in the future manage our Federal tax dollars the 
best way possible. With that, I now recognize the distinguished 
ranking member, Mr. Connolly, for his opening statement.
    Mr. Connolly. Thank you, Mr. Chairman. Thank you for 
holding this hearing which might at first glance appear 
relatively mundane but actually raises some important questions 
about the disbursement of Federal funding.
    First, what is the relationship between transparency of 
grant disbursement, auditing of grant recipients, and the 
efficient allocation of resources to grantees who can make the 
most of the funding? There may be a point at which additional 
and especially duplicative reporting requirements constrain 
grantees' ability to fulfil their own mission. There may be a 
point at which additional reporting requirements frankly 
discourage participation by smaller entities.
    Finally, if we are disbursing discretionary grants to many 
very small entities which require labor-intensive audits then 
perhaps it is more efficient to spend the money directly 
through the Federal agency itself. We should not leave 
unexamined the assumption that grants necessarily represent the 
best way to fund a particular program.
    Second, what is the Federal Government doing to ensure 
equitable distribution of grant moneys? I represent two 
counties in Virginia, for example, of which one has a very 
sophisticated grant application staff and one that is less so. 
Both of these counties deserve fair, merit-based consideration 
of their grant applications but one starts out with a distinct 
advantage. Lest grant moneys flow disproportionately to wealthy 
urban counties, agencies must go out of their way to ensure 
that less sophisticated but equally deserving jurisdictions 
receive fair consideration of their applications.
    This kind of equitable process requires proactive outreach 
just as selective colleges proactively reach out to 
underrepresented communities which certainly contain talent but 
do not always possess the familiarity or expertise with college 
application processes.
    I am interested in hearing more about the administration's 
efforts to strengthen www.grants.gov and whether these efforts 
include reforms that will make the platform more accessible to 
all grant seekers.
    Third, what is the Federal Government doing to avoid the 
imposition of unfunded mandates and to reduce the reporting 
burden on states, localities, and universities? I indicated 
yesterday that I do have some queasiness about the legislation 
this committee marked up with respect to that subject.
    According to the American Association of Universities, for 
example, fulfilling ARRA reporting requirements alone costs 
$7,900 per grant award. That would translate to hundreds of 
millions of dollars, potentially, in cost if ARRA-type 
reporting requirements were established across the board for 
all Federal spending.
    At a time when states, localities, and universities are 
facing dire fiscal challenges, we need to be cognizant to 
ensure that any additional reporting requirements--for good 
reasons, for transparency--avoid the imposition, however, of an 
unfunded mandate and protect those entities' abilities to 
deliver the services that our constituents need.
    The efficiency and transparency of grant delivery is a 
complex topic. I hope that as we develop legislation on this 
topic we have additional hearings to consider the questions I 
have raised. In a cost constrained environment, it is 
imperative that we consider the efficient delivery of services, 
which must be balanced against the need for transparency, and 
include consideration of all of the tools beyond grants to 
accomplish a given objective.
    We say we are concerned about the burden of unfunded 
mandates. We have had a number of hearings in this subcommittee 
about them. We must make sure we do not even unwittingly add to 
them.
    I look forward to hearing the testimony this morning, Mr. 
Chairman. Again, thank you for holding this hearing.
    [The prepared statement of Hon. Gerald E. Connolly 
follows:]

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    Mr. Lankford. I agree with what you were saying on the 
additional unfunded mandates. I completely agree on that.
    Members have 7 days to submit opening statements and 
extraneous material for the record. I will now welcome our 
first panel.
    Ms. Jeanette Franzel is the Managing Director of the 
Financial Management and Assurance Team at GAO. Ms. Natalie 
Keegan an Analyst at the Congressional Research Service 
specializing in American Federalism and Emergency Management 
Policy. Ms. Cynthia Schnedar is the Acting Inspector General at 
the Department of Justice. The Honorable Danny Werfel is the 
Controller at OMB's Office of Federal Financial Management.
    I thank you all for being here. Pursuant to committee 
rules, all witnesses are sworn in for the Oversight and 
Government Reform Committee so I would ask you all to stand and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Lankford. Let the record reflect all witnesses answered 
in the affirmative.
    Thank you. You may be seated.
    In order to allow time for discussion, I would ask that 
each of you limit your testimony to 5 minutes. Your entire 
written statement will of course be made part of the record. We 
would like to recognize you for 5 minutes.
    I know all of you have been around the hearings before at 
different times and that you are familiar with your red, 
yellow, and green lights there in front of you.
    We would be very honored to receive your testimony.
    Ms. Franzel.

 STATEMENTS OF JEANETTE FRANZEL, MANAGING DIRECTOR, FINANCIAL 
 MANAGEMENT ASSURANCE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE; 
  NATALIE KEEGAN, ANALYST, AMERICAN FEDERALISM AND EMERGENCY 
  MANAGEMENT POLICY, CONGRESSIONAL RESEARCH SERVICE; CYNTHIA 
SCHNEDAR, ACTING INSPECTOR GENERAL, DEPARTMENT OF JUSTICE; AND 
     DANNY WERFEL, CONTROLLER, OFFICE OF FEDERAL FINANCIAL 
          MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

                 STATEMENT OF JEANETTE FRANZEL

    Ms. Franzel. Thank you. Good morning, Chairman Lankford, 
Ranking Member Connolly, and members of the subcommittee. Thank 
you for the opportunity to be here to discuss issues related to 
improving Federal grants processes.
    Today I will highlight the results from a range of reports 
that we have issued regarding weaknesses in Federal grants 
management and accountability, including the single audit 
process. The administration also recognizes concerns with these 
processes and has included improving grants management as part 
of its initiative to eliminate waste. It has various related 
efforts underway.
    Today I will discuss the significance of Federal grant 
funding, the related risks and vulnerabilities, and 
improvements needed to make the single audit process an 
effective accountability mechanism.
    The Federal Government's use of grants to achieve national 
objectives and to respond to emerging trends in demographics 
and threats to homeland security has grown significantly in the 
last two decades. In fiscal year 2010, Federal grant awards to 
states and local governments totaled over $600 billion 
according to historical data from the President's budget. Also 
in fiscal year 2010, over 1,670 grant programs were offered by 
at least 23 Federal grantmaking departments and agencies. As 
you mentioned, Mr. Chairman, the top three agencies in terms of 
grant dollars are the Departments of Health and Human Services, 
Transportation, and Education.
    Our work over a number of years has pointed out risks and 
vulnerabilities that exist in the Federal grants process. We 
found weaknesses in the control systems of Federal awarding 
agencies at all points in the grant life cycle.
    Specifically, in the pre-award and award processes, our 
audits found that agencies awarded grants without adequately 
documenting the selection process. In some instances, we found 
agencies did not perform pre-award reviews until after the 
grants had been awarded. In other cases, the documentation was 
not sufficient to show key decisions that were made in the 
competitive award process, including decisions about evaluation 
criteria and selection.
    In the implementation phase, we found weaknesses in agency 
monitoring of recipients' use of funds, including identifying 
and managing grantee risks and properly overseeing grantee 
financial practices and program management. We have also 
reported the need for agencies to assist recipients in 
improving sub-recipient monitoring when Federal funds are 
passed through one entity to another.
    Grant closeout procedures have also been a longstanding 
problem. These procedures are used for detecting problems that 
have occurred in recipient financial management and program 
operations. Closeout procedures are intended to ensure that 
recipients have met all financial requirements, provided 
financial reports, and returned any unused funds to the Federal 
Government.
    We have also reported on Government-wide issues related to 
grants, including undisbursed Federal funding in expired grant 
accounts and improper payments in Federal grant programs.
    Finally, I will discuss the audit mechanism for grants, 
which is the single audit. Over the past several years we have 
reported significant concerns with the single audit process and 
have called for improvements to make single audits a more 
effective accountability mechanism over Federal grant funding 
while possibly simplifying and streamlining the process.
    Single audit reports are on the financial statements and 
internal controls over compliance with laws and grant 
provisions for grantees that spend more than $500,000 of 
Federal funding in a given year. The largest grantees subject 
to these requirements are state and local governments.
    Through our work we found that the Federal oversight 
structure is not adequate to monitor the single audit process 
and results and that the timeframes do not facilitate timely 
correction of audit findings by grantees. In addition, single 
audit stakeholders, including the states, have raised concerns 
about the complexity and relative costs and benefits of the 
single audit requirements as currently designed.
    We also found that Federal agencies do not systematically 
use audit findings to identify risks related to grant programs 
and individual grantees.
    We also identified concerns regarding the need for OMB to 
issue its single audit guidance in a more timely manner in 
order to help facilitate audit planning for the many states and 
local governments that have fiscal year ends of June 30th.
    It is important to note that complexities and weaknesses in 
the Federal grant management and single audit processes have a 
serious impact on state and local governments in addition to 
presenting risks over the effective and efficient use of 
Federal funding. Enhancing accountability and oversight at all 
levels is important. Improvement and modernization efforts 
should also be mindful of the scarce resources at all levels of 
government and the shared intergovernmental responsibilities 
that we have.
    Mr. Chairman, this concludes my statement. I will be happy 
to answer any questions that you or the subcommittee members 
may have.
    [The prepared statement of Ms. Franzel follows:]

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    Mr. Lankford. Thank you very much.
    Ms. Keegan.

                  STATEMENT OF NATALIE KEEGAN

    Ms. Keegan. Good morning, Chairman Lankford, Ranking Member 
Connolly, and members of the committee.
    My name is Natalie Keegan and I am an analyst in American 
Federalism and Emergency Management Policy at the Congressional 
Research Service. Thank you for the opportunity to testify this 
morning on improving oversight and accountability in Federal 
grant programs. I have submitted my full statement for the 
record.
    I have three observations about how agency discretion 
influences transparency at the pre-award phase of Federal 
grants. Federal grantor agencies have the discretion to 
disclose information about the grants administration process 
yet for most Federal agencies and most grants there isn't a 
clear picture of how grants are selected, the specific details 
of grants applications are not disclosed, and it is unclear 
exactly what is contained in grant formulas used to distribute 
funds.
    For grant applications and grant applicants, lack of 
transparency may result in the inability to direct resources in 
the most efficient manner when seeking Federal grants. For 
Congress, lack of transparency makes it difficult to measure 
grant program efficiency, effectiveness, and economy.
    Let me expand on these observations. Pre-award oversight 
activities include congressional grant program authorizations 
and appropriations, determinations of eligibility and eligible 
activities, review of announcements of funding availability, 
and reviewing of panel scorings of eligible applications. While 
recent congressional debate has involved post-award activities, 
particularly recipient and agency reporting requirements, 
consideration of agency discretion for the pre-award activities 
may provide insight into improving oversight and accountability 
in Federal grants.
    My first observation is that there isn't a clear picture of 
how grants are selected. Federal agencies generally have the 
authority to establish the criteria for evaluating 
discretionary grant applications. There appears to be no 
consistency in the criteria within and across agencies. 
Agencies are required to provide criteria when they publish the 
notice of funds availability in the Federal Register, however 
the information provided generally does not include a concise 
list of evaluation factors and specifically how those factors 
will be weighted during the scoring of the application.
    In some cases, grant applications are reviewed by a panel 
and scored on a scale of zero to 100. The scores are then used 
to prioritize applications for funding. The agencies, however, 
are not bound by the review panel's scores and the scores 
generally are not disclosed to either the grant applicants or 
the public.
    My second observation is that the specific details of grant 
applications are not disclosed. Almost always, grantor agencies 
consider some of the information in the grant applications to 
be proprietary information. As a result, generally agencies 
will not disclose details in the grant applications without the 
permission of the applicant. This applies to both funded and 
unfunded applications.
    My final observation is that it is unclear exactly what is 
included in the grant formulas used to distribute funds. There 
is currently no single source providing information on grant 
formulas used to distribute funds, including information about 
the formula factors and how they are weighted. This was not 
always the case.
    The General Services Administration is responsible for 
maintaining and providing access to information on Federal 
grants through a computerized information system. This access 
is through www.cfda.gov.
    At one time, the GSA Administrator was also required to 
provide to Congress specific information on each grant 
distribution formula in a report titled Formula Report to the 
Congress. This report is no longer available. The report was 
discontinued under the Federal Reports Elimination and Sunset 
Act of 1995. There is no other comparable Federal report that 
provides this level of detail on Federal grant formulas.
    In conclusion, a closer examination of agency pre-award 
grant activities and the amount of agency discretion in these 
activities may assist in the determination of whether increased 
agency discretion warrants increased transparency.
    I thank you for the opportunity to testify and would be 
happy to answer any questions the committee may have.
    [The prepared statement of Ms. Keegan follows:]

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    Mr. Lankford. Thank you.
    Ms. Schnedar.

                 STATEMENT OF CYNTHIA SCHNEDAR

    Ms. Schnedar. Mr. Chairman, Congressman Connolly, and 
members of the subcommittee, thank you for inviting me to 
testify today about improving oversight and accountability in 
Federal grant programs. I will focus my remarks on the 
Department of Justice but the findings we have made concerning 
the Department of Justice are typical of those that are 
described by the other panel members that are found across the 
Government.
    Grants management has long been a challenge for the 
Department of Justice and the Department has faced heightened 
challenges since 2009 because of the increase in grant funding 
that it received under the Recovery Act. Given the large volume 
of grant funding traditionally awarded by the Department, the 
Department of Justice Office of the Inspector General has long 
focused on providing oversight of the Department's activities 
in this area.
    Our audits have found that the Department has made a 
concerted effort in the past 3 years to improve its regular 
grant management practices. The Department has responded 
positively to recommendations we have made in our audits and in 
a best practices guide that we provided them called Improving 
the Grants Management Process.
    In particular, the Department made significant improvements 
in its monitoring and oversight of grants particularly due to 
its staffing of its Office of Audit, Assessment, and 
Management. While OAAM was created by statute in 2005 to 
improve the Department's oversight of its grants programs, we 
reported in 2008 that the Department had not devoted sufficient 
effort to staffing this Office so that it could perform its 
mission. However, we found in an audit issued in March of this 
year that they have made significant progress since 2008. That 
Office is now fully staffed and it has implemented a reasonable 
process for monitoring the high volume of grants that it is 
responsible for monitoring.
    While we believe that the Department has taken positive 
steps toward improving its grants management practices, these 
changes will take time to fully implement and to incorporate 
into the Department's regular practices.
    Our work has continued to identify areas where the 
Department could further improve its management of grants, 
particularly in terms of its process for awarding grants and 
its oversight. For example, in recent audit reports we found 
instances where the Department either used incorrect scoring 
formulas or made scoring errors while reviewing grant 
applications. We also found instances where the Department 
treated applicants inconsistently, allowing some grant 
applications to be given further consideration for awards even 
though they were missing key documentation while denying other 
applicants further consideration for the same deficiencies.
    Our recent audits also found that some Department agencies 
do not consistently document the rationale for discretionary 
awards despite recommendations that they should do so and, in 
some instances, do not explain why applications ranked lower by 
peer reviewers received grants over those that were ranked 
higher. We found that the Department should be taking 
additional steps to ensure adequate screening for conflicts of 
interest on the part of peer reviewers who are assessing the 
grant applications.
    The Department has agreed with the recommendations we made 
and is working to implement procedures to help ensure these 
issues do not reoccur.
    In addition, our audits of individual grant recipients have 
found deficiencies such as failing to segregate payroll duties 
and failure to employ sufficient staff with the training and 
experience to properly manage the grants. We have recommended 
that the Department provide additional training and oversight 
of these grant recipients.
    We also believe that the Department should take further 
action to address outstanding recommendations to resolve 
questioned costs from our audits of grantees. While the 
Department frequently is able to implement our audit 
recommendations within a year or two, some of our audit 
recommendations have lingered for years without being resolved, 
despite our frequent reminders for the Department to do so.
    While the Department works to improve its grant management 
processes, we will continue with our important mission of 
providing oversight of the Department's efforts in this area. 
We also will continue with our leadership of the Grant Fraud 
Committee, which is part of the Financial Fraud Enforcement 
Taskforce.
    Through the Grant Fraud Committee, we have issued a best 
practices guide for all Federal grants managers. We also have 
developed and are continuing to develop additional training 
courses for agents, auditors, grant managers, and grantees.
    In conclusion, we will continue to work with the Department 
and external agencies to help reduce risks associated with 
Federal grants. We believe the Department is demonstrating a 
commitment to improving its grants management process and we 
have seen significant signs of improvement in this area. 
However, further improvements are needed and considerable work 
remains to be done before managing the billions of dollars that 
the Department awards annually in grants is no longer a top 
challenge for the Department.
    This concludes my prepared statement and I would be pleased 
to answer any questions.
    [The prepared statement of Ms. Schnedar follows:]

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    Mr. Lankford. Thank you.
    Mr. Werfel.

                   STATEMENT OF DANNY WERFEL

    Mr. Werfel. Thank you, Chairman Lankford, Ranking Member 
Connolly, and members of the subcommittee for the invitation to 
discuss with you today the Federal grant management process and 
how the Federal Government can improve its oversight and 
accountability in Federal grant programs.
    The Federal Government annually awards grants totaling 
roughly $600 billion, which is one sixth of the total Federal 
budget. The Federal Government therefore has a fundamental 
responsibility to be effective stewards of these dollars.
    The Office of Management and Budget, working with Federal 
grantmaking agencies and non-Federal stakeholders, establishes 
policies and initiates reforms to ensure that relevant program 
requirements are being met; that strong internal controls for 
reducing waste, fraud, and error are in place; and that 
grantees are meeting their responsibilities for performance and 
accountability for grant awards.
    My written testimony provides background on relevant 
policies such as cost allocation, single audit, improper 
payment review, and Transparency Act reporting, all of which 
are intended to drive accountability, integrity, and 
transparency in the use of Federal grant dollars.
    For example, when single audits are conducted effectively, 
the audit results, which are available on a public Web site, 
are instrumental in identifying and correcting noncompliance 
with laws and regulations, including improper payments and 
other financial management deficiencies. A good example of this 
is in the Medicaid program where more than a billion dollars in 
disallowed costs have been identified for recovery over the 
past several years as a result of single audit activities.
    In each of the areas I have identified, we have initiatives 
in place to improve the overall impact of these policies. I 
would like to highlight a few of these areas where, in some 
cases, recent successes provided a critical foundation for 
sustained progress moving forward.
    First, in the area of improper payments prevention and 
recapture, the Federal Government's error rate declined in 
fiscal year 2010, helping agencies avoid roughly $4 billion in 
improper payments. An important factor in this reduction was 
improvement in the Medicaid error rate, the Government's 
largest grant program.
    Since the President took Office, eliminating improper 
payments has been a major focus of his administration. In 
November 2009, the President issued an executive order that 
initiated a comprehensive approach to improving results in this 
area, including transparency through a new Web site, 
www.paymentaccuracy.gov, and the appointment of senior 
accountable officials responsible for coordinating improper 
payment efforts at their agencies.
    A subsequent Presidential directive called for an increase 
in improper payment recoveries from contractors. Federal 
agencies responded by recovering $687 million in improper 
payments, more than three times the amount from the previous 
year.
    In 2010, the recently enacted Improper Payments Elimination 
and Recovery Act further strengthened accountability on all 
aspects of improper payments and provided new authorities, in 
particular providing Federal agencies new authorities to 
recover improper grant payments. We are now working with 
agencies to make sure they leverage these new authorities to 
recover payments that have been improperly paid to grantees.
    Second, though related to improper payments, OMB is working 
with the Recovery Board and Federal agencies to utilize cutting 
edge fraud detection capabilities to enhance accountability and 
eliminate fraud in Federal award spending. As you know, the 
Recovery Board has initiated very successful and effective 
solutions for tracking fraud and error. We have initiated 
pilots of these tools with other agencies.
    I would like to highlight that the President recently 
signed an executive order called Delivering an Efficient, 
Effective, and Accountable Government which establishes a new 
oversight and accountability board, the Government 
Accountability and Transparency Board. This Board will help us 
make sure that the tools and lessons learned from the Recovery 
Board in areas such as fraud detection and transparency are 
effectively carried forward to the rest of Government.
    Last, in an area of transparency bolstered by the 
successful transparency initiatives in the Recovery Act, OMB 
has initiated requirements for the reporting of sub-award 
information on all Federal spending. Www.usaspending.gov 
provides the public with increased visibility into Federal 
spending beyond the prime recipient level.
    As I noted earlier, this is just a highlight of some of our 
work to improve results in Federal grants. We look forward to 
working closely with this committee to ensure the effective 
implementation of current and future transparency and 
accountability efforts to ensure that Federal grant programs 
are accountable for taxpayer dollars.
    Thank you again for the opportunity to testify today. I 
look forward to answering your questions.
    [The prepared statement of Mr. Werfel follows:]

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    Mr. Lankford. Thank you to all of you.
    I recognize myself for 5 minutes for question time.
    Ms. Franzel, thank you for what you are bringing to us. Let 
me just mention a couple of things. You mentioned the tracking 
of the unused funds when a grant is complete and the closeout 
procedures on that. Do we have any idea how often we have funds 
returned to us? Say we requested $100,000 and we only used 
$80,000; here is your $20,000 back?
    Ms. Franzel. Actually, our work in that area was to look at 
funds that had not been drawn down by the grantees. It had been 
obligated by the Federal agencies for draw down and the grant 
period had passed but for whatever reason the grant amount was 
not closed out or drawn down. We don't know if the grantee 
didn't finish the program or if there was some kind of a 
problem, etc.
    What this indicates, and we found this in 325 different 
Federal programs, is it indicates a grant closeout problem. And 
so part of getting unused Federal funds returned to the Federal 
Government would also be part of the closeout process.
    So no, I can't answer questions about how much maybe should 
have been returned and wasn't. But I think we are fairly 
confident in saying that there are some issues with the 
closeout process. That is what would be included in the 
closeout process.
    Mr. Lankford. Thank you.
    Ms. Keegan, you had mentioned a couple of things. You made 
a comment about how there is no clear picture of how the grants 
are selected in that process and how we go through that, that 
review panel scores aren't necessarily used, and that type of 
thing. Then you mentioned a formula report coming back to 
Congress that was sunsetted in 1995. Obviously grants have 
dramatically increased in that time period. Is it your 
recommendation that you are making to this group that we do 
have some kind of formula report coming back to Congress again?
    Ms. Keegan. I think when considering the issue of 
transparency in Federal grants, certainly an investigation into 
what information is available and what information would be 
useful is something for Congress to evaluate. The report did 
provide a great deal of information about the specific 
calculations in the formulas. There isn't anything available 
now. It is really up to Congress to decide whether they need 
that information or not.
    Mr. Lankford. Mr. Werfel, there are a lot of circulars out 
there and executive orders that give instructions to the 
agencies. Do you see a need to be able to gather those 
different circulars together and for consistency's sake, 
administration to administration, codify some of those? Say 
these have been either through several administrations or 
through trial and error in our own administration determined to 
be good ideas to get some baseline standards for grant writing?
    Mr. Werfel. Let me start by saying, Mr. Chairman, that 
generally I think the overall concept of cleaning up a variety 
of different requirements that are out there--whether issued 
through memorandum or circular, some of which are pushed into 
the Code of Federal Regulations and some of which aren't--I 
think is an important suggestion that we should consider. It is 
a complex array of requirements that exists today and I think 
there would be some benefit in reconciling some of that.
    Mr. Lankford. Is there the possibility of being able to 
gather together some of those things so you would say this is a 
series of maybe 50 different ideas or whatever it may be, that 
these should be looked at and examined as our top areas that we 
suggest that we could get to this committee?
    Mr. Werfel. Well, there is some of it that is legislative 
and therefore I think we could tee it up for this committee as 
being impactful. I mean there are a couple of dimensions, I 
think, to this question.
    On the one hand, we are trying to improve these policies 
and make them more impactful. So, for example, in the area of 
single audit, we have ongoing working groups that extend across 
Federal agencies and into state governments into both 
programmatic and audit communities within the state 
governments. Asking the fundamental questions that GAO raised 
in their testimony in terms of how can we make sure that these 
single audits are getting to the right issues and the results 
are being used.
    There are other questions in terms of making sure that we 
are presenting clear policies so we have the right policies.
    Mr. Lankford. Right, but some of it is just a consistency 
basis so that if you are agency to agency you know the standard 
and criteria. I am not talking about creating a whole FARs 
system for grants but some sort of consistent system so that we 
know if you are going after a Federal grant, this is a given. 
All of these factors have to go into the background on it.
    Let me ask you a quick question. Has OMB done any kind of 
studies or documents to be able to study the grant process that 
you have in draft form or in a final form that this committee 
could get to be able to see some of the work that you are doing 
to be able to research grants and how grants are done?
    Mr. Werfel. I don't think we have anything specifically off 
the shelf but we have a lot of work. I don't think it would be 
a big lift for us to put together something for you.
    Mr. Lankford. If we could get that, even if it is in draft 
form at this point, we could get a chance to take a look at it 
and see some of the ideas that you are building as well with 
your own research. I am sure OMB is tracking this as well. We 
would be able to look at it and see what is being done and how 
it is being handled currently.
    Mr. Werfel. There are certainly particular areas right now 
that we are very invested in trying to improve, including 
single audit, www.grants.gov, and other areas.
    Mr. Lankford. Great, we will follow up with you on 
requesting those specific documents, may it be drafts or final 
reports on that.
    With that, I yield to Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    Before my 5 minutes begin, if I might be given a point of 
personal privilege? I know Mr. Kelly will join me in this, we 
want to congratulate you on your recent win. Your dog, Liberty, 
won the People's Choice at the Humane Society. My dog, Abigail, 
is still in recovery from her loss to Liberty but she sends her 
best wishes and congratulations.
    Mr. Lankford. Well, I will pass that on to my dog Liberty.
    Mr. Connolly. Ms. Keegan, your testimony is pretty 
compelling about the fact that there seems to be no rhyme or 
reason within the Federal Government for grant-giving. I mean, 
each agency may have a reason, may have its own formula, and 
may have its own process but we have no standardized 
transparency system. We have no standardized set of criteria. 
We have no standardized policy with respect to whether someone 
can, in fact, look at whether they won or lost and why. You 
frankly have more transparency in the contracting system than 
you do in what you described in the grant-giving system.
    We sort of are juggling, it seems to me, in this hearing 
and this committee with two sets of responsibilities. One is on 
the receiving end--are they accountable, are they using the 
money for the purposes intended, and is it efficacious. But we 
also need to focus on the grant-giving side, it seems to me.
    You know, listening to you I am persuaded, gosh, we have to 
be able to do better than that. That is not very professional. 
But on the other hand, what I worry about is that in our desire 
to be more transparent and to try to make sure that this is a 
process that is accountable, as it should be, Government tends 
to want one size fits all because that is easier. So we are 
going to treat the grant to the lab bench scientist the same as 
a grant to, you know, a local government to build a highway. 
They aren't the same thing and we have to recognize the 
distinction.
    What is your reaction?
    Ms. Keegan. I think that the interesting thing about your 
point is that there are a great deal of variations across grant 
programs.
    I will give you a specific example. I cover the Department 
of Homeland Security grants at CRS. One of the elements that I 
mention in my testimony is regarding disclosure of information 
in the grant applications themselves. Beyond the issue of 
proprietary information, for the Department of Homeland 
Security grants it could be argued that some of that 
information may not ideally be disclosed in the interest of 
national security.
    It is really up to Congress to weigh that and decide which 
programs, or all programs, or just certain selection of 
categories of programs need that kind of uniformity and 
transparency. It is up to Congress whether you need to balance, 
you know, the particular intent of the programs and the 
information that might be available with the overall goal of 
transparency. I do agree that there is definitely a need to 
create that balance.
    You know, when you look at uniformity there are some things 
that you can do where there might not be as many issues to 
address as there are in others for uniformity. For instance, 
there is reporting the scores or other things where there is 
not so much detail that there is a risk to a national goal or 
national security.
    Mr. Connolly. Mr. Werfel, welcome back to this committee. I 
almost think you are a member of our staff since you come with 
such frequency. Thank you for being so responsive.
    How will the Government address the issue of data integrity 
in Federal spending related to acquisition management, grant 
management, and the like?
    Mr. Werfel. It is a huge issue because the value of the 
information that is up on public Web sites such as 
www.usaspending.gov and www.recovery.gov is so dramatically 
diminished if we don't have confidence in the quality and the 
reliability of the information.
    I think in this regard the Recovery Act really positioned 
us well to do a better job more globally. We had an information 
collection system that had built-in controls over time. It got 
better and better over time to make sure that information 
reported in by recipients was more valid. A good example of 
that is in the early part of the Recovery Act when the system 
would accept any version of congressional district. Mistakes 
were made. We got smarter and now if you type in the wrong 
congressional district, it won't let you type that in.
    I tell that story to say that the systems that capture the 
information can be made better. The Recovery Act was a lessons 
learned there.
    We also had a very dedicated process during the Recovery 
Act where Federal agencies over a short period of time really 
focused on data anomalies and mistakes in the data to make sure 
that the information going on www.recovery.gov was accurate. Of 
course the public was very important in pointing out errors.
    The key is can we do the same thing more broadly on 
www.usaspending.gov and learn those lessons. We have already 
started to do that.
    One of the challenges is that you need to invest in systems 
in order to make those improvements but we have to do 
investments within our current resource constraints.
    But in particular we are working with agencies to kind of 
carry forward things that have worked well in the Recovery Act 
in terms of data reliability and having them do a better job 
reviewing their www.usaspending.gov spending information.
    Mr. Connolly. Thank you.
    Mr. Lankford. I am going to recognize Mr. Meehan for 5 
minutes.
    Mr. Meehan. Thank you, Mr. Chairman.
    Thank you, each of you, for your tremendous work in this 
area, which is something that Congress is just not paying 
enough attention to. As we are dealing with the requirement to 
be faithful stewards of Government moneys, I thank you for 
taking the time to point out many of the places where some 
opportunities arise.
    I think I am stunned by the observation, Ms. Franzel, in 
your report of close to $125 billion in improper payments that 
are made. How do we begin to put our arms around that kind of a 
number and look for ways in which we can capture that before 
those dollars go out the door?
    Ms. Franzel. The estimate that you cite covers various 
Federal programs. Not all of them are grant programs but in the 
top 10, 5 of them are in fact grant programs. So grant programs 
are certainly included in the estimate of improper payments 
Government-wide.
    We and OMB have been certainly working closely on this 
matter. We are really at a point where we need to get to the 
next step on improper payments. Over the past several years the 
Government has made a lot of progress in terms of monitoring 
and measuring the amount of improper payments out there. At 
this point, we really need to get at the causes of those 
improper payments so that those causes could then be remedied 
in order to prevent improper payments from happening.
    Mr. Meehan. Could you give me an example of something you 
would point to that people would understand is a cause that we 
aren't following up on?
    Ms. Franzel. Certainly. There are many different types of 
improper payments. In fact, sometimes something is categorized 
as an improper payment because there is no documentation 
available to verify that the payment should have been made. In 
that case, we are really not sure if the payment should have 
been made or not. So in those cases it is important to figure 
out why. Why is there not documentation?
    In other cases, a program might be giving payments to 
ineligible recipients. Then it is important to ask why and how 
that is happening. In some cases it may be weak controls at the 
agency or organization that is really signing up recipients for 
a program. In other cases it could be that the program design 
is so difficult to implement that, in fact, sometimes it is not 
always clear if somebody is eligible.
    So there can be a wide range of causes. I think across 
agencies and programs the Federal Government needs to get a 
handle on these causes so that the problems can be fixed and so 
that improper payments can be prevented.
    Mr. Meehan. We were talking just the other night, 
Congressman Lankford and myself, about this opportunity. These 
are the kinds of things that we need to work with you on so 
that we can have some sort of measure of accountability as we 
go along.
    We do an awful lot of pay and chase. I used to do work as a 
corporate attorney. In a lot of the contract field there would 
be requirements that would have to be met before we would pay 
the next installment. Do we do enough of that in Government 
contracting now or in other kinds of grant programs where there 
has to be an accountability that is almost contemporaneous with 
the release of the next line of funding?
    Ms. Franzel. It really is a delicate balance. For instance, 
in Medicaid the payments do need to get out so that medical 
services can continue to be provided. So there needs to be a 
good balance of controls up front along with getting payments 
out.
    In fact, we at GAO are starting some work in the near 
future on looking at the Medicaid program. We are also 
currently working on foster care to really drill down and take 
a look at what are some of the causes of improper payments and 
then matching that up with some of the initiatives that are 
ongoing. There are many initiatives ongoing in Government but 
we really need to match all of this up.
    Mr. Meehan. You hear oftentimes from physicians and others 
that there are late payments for them. They perform the service 
and then they carry for a long period of time.
    Let me ask one last question of anybody on the panel. When 
I was a prosecutor in the U.S. Attorneys' Office, we used to 
make a lot of use of the Qui Tam laws in which people were 
awarded a percentage of a recovery that they brought to the 
attention of the Government. This goes all the way back, of 
course, as you well know to the Civil War era. Do we make use 
of that in the kind of programs that we have, not the big-
ticket Government programs where we have found our benefit?
    How do we use that capacity to be able to have others be 
eyes and ears to help us identify some of the remarkable $125 
billion in wrongful payments? That is to any panelist.
    Mr. Werfel. Thank you, Congressman, for the question and 
the opportunity to respond.
    Dating back to 2002, Congress created a provision that 
enabled Federal agencies to basically hire contingency-based 
contractors to go and help them find their improper payments 
and recover them. It was limited to improper payments to 
vendors. The way it would work is let us say an agency made $10 
million in payments to contractors in a given year. They would 
hire a specialized audit firm to come in. They wouldn't have to 
pay that audit firm, only pay them out of the percentage of 
improper payments that they identify were made to the 
contractor.
    That has been a very successful program. It was so 
successful that the Medicare program initiated it. So now we 
are moving beyond contractors. Medicare can hire these 
specialized auditors to go into hospitals and pull out these 
improper payments and get paid out of a portion of that. Now 
that has been expanded to Medicaid and with the recent 
enactment of new improper payments legislation we have it for 
all activities.
    So we are right at this cusp moment where we are trying to 
build on the successes we have had preliminarily with 
contractor improper payments and transition it to grant 
improper payments and elsewhere.
    Mr. Meehan. Mr. Chairman, I know I am over my time but may 
I just ask one more question on that point?
    Mr. Lankford. Yes, you may.
    Mr. Meehan. Are we able to utilize current technology to 
see outliers on what our patterns of payments are? I use again 
a Medicare or Medicaid situation in which you would see 
somebody who is doing an inordinate amount of billing for a 
particular issue in a geographic or demographic area that is 
suspect just by its very number?
    Mr. Werfel. Absolutely, Congressman. There is good news and 
bad news there.
    The very good news is that we, for the first time, have had 
a significant breakthrough. The Recovery Board took technology 
that was generally used in law enforcement and intelligence and 
also used by credit card companies to look for payment 
anomalies and they deployed it for the first time that I am 
aware of in a very systemic way over all Recovery Act dollars. 
They have been able to do things that in my 14 years of Federal 
service I had never seen and a lot of agencies had never seen. 
So we are piloting that solution.
    The bad news is that we are in the embryonic phase of this 
across Government and that agencies are going to have to ramp 
up. We are low on the learning curve right now in terms of 
deploying these types of technologies.
    But the Recovery Board's deployment was a significant 
breakthrough and I think it is going to give us some momentum 
for programs like Medicare and Medicaid.
    Mr. Meehan. Thank you.
    Thank you for your courtesy, Mr. Chairman. I yield back.
    Mr. Lankford. Thank you.
    I recognize Mr. Kelly for 5 minutes.
    Mr. Kelly. Thank you, Mr. Chairman.
    I would like to thank the panel for appearing.
    Mr. Werfel, you describe www.usaspending.gov as a way of 
increasing public visibility on the grants spending. Describe 
that a little bit. How does that work? How does that increase 
the visibility for folks?
    Mr. Werfel. It is, in my experience, one of the more 
critical ways in which the citizenry can have an understanding 
of what is going on with taxpayer dollars.
    They way it works is that all payments, essentially, 
greater than $25,000 are submitted into this warehouse and 
pulled onto this Web site so that they are searchable. So you 
can type in Yale University or ABC Co. or the State of Arizona 
and see all the payments that these various entities have 
received. You can look at them in different categories and have 
an understanding with a description of how that money is being 
used.
    It enables people to understand within their local 
communities where the Federal dollars are going and how they 
are being used. And www.recovery.gov just took that to the next 
level. It provided way more granularity and detail than we had 
seen before.
    Mr. Kelly. So on the Web site you can see where the grant 
was made but does it track the progress that is being made?
    Mr. Werfel. It does not. It is more of a capture of who got 
the money and what was the intended use of the money. It 
doesn't necessarily tell you progress, whereas www.recovery.gov 
goes a little bit deeper into progress points, in particular 
job impacts in terms of job creation.
    Mr. Kelly. Okay, so it would be helpful, I think, if we 
could also track the spending and get more of a universal 
recipient tracking.
    You mentioned earlier about the President's executive order 
on the Government Accountability and Transparency Board. But 
under that, their only responsibility really is to write a 
report and release it 6 months from now. The DATA Act is going 
to shed more light on it and be a much better tracking vehicle. 
Help me with that a little bit, if you would, with the Board 
itself and what its function is.
    Mr. Werfel. I think there are a couple of fundamental 
purposes of the new Board that the EO created.
    One is that we have right now a Recovery Board in place 
that has a lot of lessons learned and a lot of infrastructure 
technology skills that they have developed. We have to figure 
out how to marshal that through to the future. Currently the 
Recovery Board is set to expire September 30, 2013. So as good 
stewards of the taxpayer dollar and good public policy 
personnel, we want to make sure that we have a plan for how we 
are going to transition past September 30, 2013 to make sure 
that these practices don't go to waste and are carried forward. 
This Board is going to help us marshal the types of steps that 
we need to take to conduct that transition.
    The other, I think, primary purpose of this group is to 
help us provide more integrated, strategic leadership on 
transparency and accountability by bringing together the best 
and brightest of the CFO, management, and Inspectors General 
communities for a dedicated, Presidentially directed purpose 
around how we can enhance transparency and accountability. It 
is going to help give us that strategic roadmap. We may need 
Congress' help in developing legislation that helps us execute 
on that strategic roadmap, but I think it is important that we 
get started on planning and figuring out what the right next 
steps are.
    Mr. Kelly. And I think the DATA Act adds an awful lot of 
credibility to that whole process.
    I just wanted to go back to Ms. Franzel and Ms. Keegan. The 
pre-award process concerns me greatly because I am not exactly 
sure how these agencies determine whether a contract or grant 
is the appropriate vehicle. What are the implications of this 
decision? The pre-award phase seems to be critical.
    Ms. Franzel. I will start and I will let Ms. Keegan finish.
    First of all, not all grants are competitive so there are 
some grant programs out there that are not competed. For those 
that are competitive, it is important to determine whether the 
grantee has the financial management capabilities to track the 
use of the Federal funds as well as the programmatic 
capabilities to actually successfully carry out the program. 
Then each grant program also has its own specific requirements.
    It is really the up front determination that a particular 
candidate would be successful in carrying out a Federal program 
with Federal funds.
    Ms. Keegan. Congressman, I also think that it is important 
to point out that the purposes of grants and contracts are a 
little bit different. Grants are generally to support a public 
purpose or a national goal through the authorization of funds 
to a particular grant program. Contracting, has a little bit of 
a different purpose. So I think because the intent of the 
different vehicles is different, the approach to what should be 
funded with the different vehicles is different.
    Mr. Kelly. I noticed in my private life that when we put 
together and we structure these RFPs, as it were, it is 
critical that we have exact language in there that really leads 
people to be able to either get a grant or a contract.
    I worry sometimes as we talk about all of this that there 
is such an inconsistency in the way we do all of this. It 
really doesn't make sense to a lot of us as to how we actually 
get to these ends.
    Ms. Keegan. Congressman, at one point in my career I was a 
grants writer as well for local governments. It is a challenge 
when you are trying to direct the resources as best you can as 
a small entity, whether a public entity or a non-profit, and to 
be able to best identify what the criteria are that are going 
to be considered, what was funded in the past, and what the 
real goal of the grant program is in very specific detail. All 
of that information is helpful for grant writers in order to 
best use their resources.
    Mr. Kelly. Thank you.
    Mr. Lankford. I would like to take a couple of moments just 
for a few followup questions and then we are going to 
transition to our second panel. I do appreciate you all coming 
and getting a chance to hear you.
    Mr. Werfel, I wanted to be able to follow up on something 
Mr. Kelly mentioned about contracts versus grants. How 
comfortable are you that the agencies are not using a grant 
when they should use a contract because the grant process is 
easier than the contracting process? But we are receiving a 
deliverable, whether that be a research report or something 
else. When we really should be doing a contract rather than a 
grant on that. Are you comfortable on that?
    Mr. Werfel. First of all, I think that there is sufficient 
guidance that I have used and helped advise coming out of OMB. 
And I think there are some Comptroller General positions that 
are in the literature that help an agency determine whether 
this situation is appropriately awarded as a grant versus a 
contract. I think Congress can often be helpful there in terms 
of signaling its congressional intent for how the money can be 
spent.
    Mr. Lankford. We just had a dramatic increase in the number 
of grants. I am just trying to probe and see if you are 
comfortable at this point that we are not just seeing people 
that should be writing contracts writing grants instead.
    Mr. Werfel. I am not aware of any systemic issue in that 
area.
    Mr. Lankford. On the www.grants.gov site, obviously that is 
building up and adding in some of the www.recovery.gov elements 
into it, the self reporting and, again, what Mr. Kelly was 
talking about before about trying to get into the details of 
how it is going.
    Also, if there is a deliverable at the end of it, we need 
to not only know that it was awarded and how much was awarded 
but if there was some report or if there was some response back 
to it. Is it possible to have that at the end as well so that 
Americans, whoever they may be, could look over the shoulder in 
the years to come and say we awarded to this for this amount 
and this was the deliverable at the end?
    Mr. Werfel. Absolutely. I think an important step that 
Congress recently took was the passage of the GPRA 
Modernization Act which updated requirements that we have to 
report on performance goals. The last time that law was 
enacted, I think, was first enacted in the early 1990's. We 
obviously live in a very different world in terms of technology 
and how information can be provided in more real time.
    Our challenge right now as the Federal Government is to 
synthesize all of these various efforts and technologies. We 
have more information on where the dollars are going and who is 
getting them than we have had before. The technologies we have 
to report that information and make it searchable and usable 
are good. We need to improve the quality and, as you said, we 
need to figure out how to find the right synergy so that when 
you are reading this information you are not just learning that 
XMY University got a grant, you are learning what the impact 
has been. That is really taking, I think, spending transparency 
to the next level and we need to move in that direction.
    Mr. Lankford. Right, and that is what we have talked about 
before, just a single portal for this, a single portal where 
people can go to be able to do their research on it.
    I have two quick things and then we are going to switch to 
the next panel.
    But with the payment time period, a couple of you have 
brought up how we make payments, whether it is as we go along 
or whether it is at the beginning or at the end. I have spoken 
to people that are in very small communities and are maybe 
getting a grant for, let us say, water treatment to do some of 
the certification. That grant payment comes at the end.
    So a very small community in a very poor area has to come 
up with $250,000 on the promise that the Federal Government 
will pay at the end. But they are having to go get bank loans 
and literally go put their city park on collateral for 
something that will be paid at the end when the process is 
complete. That kind of ordering is something I would think 
needs to be examined in the grant process as well.
    Then, Mr. Werfel, you brought up the issue of trying to 
deal with fraud after the fact by what could affectionately be 
called fraud bounty hunters. They can go out there after 
different companies and be able to find areas where there is 
fraud. Then they are paid a percentage of what they find. The 
benefit of it is obviously that they are going to go find 
fraud. The challenge of it is that they are in an adversarial 
role from the moment they walk through the door.
    Immediately when they walk through the door, for whatever 
entity they are evaluating, they are going to be paid if they 
find something wrong. So they are going to stay until they find 
something wrong. That puts every single grant recipient in a 
very difficult position because you will have human error at 
some point and they will stay until they find it.
    Now you have an adversarial role. Instead of the Federal 
Government being your ally, now suddenly the Federal Government 
is your enemy walking through your doors. Instead of serving 
that company, we are at odds with them based on the bounty 
hunter that we said is going to go find something.
    So we have to be able to resolve that process. I have 
numerous people back in my district that are very frustrated 
with those companies that step in, that they know are paid to 
find the issues and that will stay until they do, no matter how 
small. They will find them to the maximum that they can 
possibly do it. So that is just an issue we are going to need 
to work through in the days to come.
    With that, do you have further comments?
    Mr. Connolly. If I could just add, Mr. Chairman, that I 
want to reemphasize that just as we are looking at the 
transparency and accountability on the receiving end of grants, 
I think Ms. Keegan's testimony really underscores that we have 
to look at the possibility of waste at the front end. Some more 
accountability if not standardization within the Federal family 
may very well help us reduce improper payments at the front end 
rather than having to collect them at the receiving end.
    Thank you.
    Mr. Lankford. With that, I thank this panel very much for 
not only the time that you spent in preparing your written 
statements but for coming here for the oral statements and 
questions as well.
    We will now take a short recess so we can transition to our 
second panel.
    [Recess.]
    Mr. Lankford. I now welcome our second panel.
    Dr. Tom Coburn is a U.S. Senator from the State of 
Oklahoma.
    Dr. Coburn, we really appreciate you taking so much time 
out of your busy schedule as well to be able to appear before 
the subcommittee today. Your entire written statement will 
obviously be made a part of the record.
    You have done extensive work in grant research. We are very 
grateful for your testimony today would be very honored to be 
able to receive that now.

STATEMENT OF HON. TOM COBURN, A U.S. SENATOR FROM THE STATE OF 
                            OKLAHOMA

    Senator Coburn. Thank you. It is a pleasure to be before 
you. I was just observing the members in here. Not one of you 
were in the House with me, which was not all that long ago. I 
left in 2000. So it is a privilege and a pleasure to come 
before you.
    I want to say something at the outset about your last 
panel. I worked with Danny Werfel for 7 years and he is 
phenomenal. I am glad he is where he is now. When you talk 
about IGs, they are key to us knowing what is going on. The 
Government Accountability Office is key. I could not work in 
the Senate without the Congressional Research Service. They are 
excellent.
    So we have the tools to solve the problems in front of us. 
The problem is that not enough people know what the problem is.
    I would say that if you are looking for a model agency on 
how they handle grants, go look at the Institute of Museum and 
Library Services. First of all, there is not a grant that they 
put out that they don't follow up. There is not a grant that 
they don't check to see if they are meeting the requirements of 
the grant that was submitted. They have 100 percent follow up.
    Consequently, the expectation has changed in terms of 
Museums and Libraries that if you get a grant from the Federal 
Government, you had better perform. In other words, they have 
created the expectation. We don't even hardly look at them 
anymore because they really do a great job. So they are a great 
model.
    If you wanted to follow up on this, bring them up and ask 
what they are doing. I can guarantee you it is not being done 
in the rest of the Government the way they do it.
    Mr. Werfel talked about www.usaspending.gov. Myself and 
President Obama were the authors of that. They are basically in 
violation of that bill because they were supposed to have sub-
grants and sub-contractors on that at this time and they have 
chosen not to put the resources in to get there. But if we had 
sub-grantees and sub-contractors on it, you could actually find 
them.
    You can search that site by anything. It is like a Google 
site. You put in the name fish and you will see every penny we 
spend on fish. In other words, it is a good site. It just 
hasn't been fully blended out. The granularity in there is 
because we don't put the sub-contracts and sub-grants in there.
    And it is important to know throughout the grant process 
who is getting the money and for what. It is not just to look 
at the money, but to look at what is being done with it to see 
if it is really a purpose that we intend.
    As you noted, my statement will be made part of the record 
so I will be very brief.
    We have done several reports on grants and agencies through 
my Office. I could not do that without GAO, CRS, and the IGs as 
well. They make it easy for us to put together the information.
    But let me talk about the National Science Foundation. I am 
a big supporter of NSF. They do key, legitimate Government work 
with a priority to keep us ahead of the curve. But even the 
agencies that I love are wasteful. What we did was a report, 
and you can't really reflect that on the present management 
because the present Director has only been there 6 months so 
this report that we put forward actually reflects what happened 
before he got there. But we had some pretty significant 
findings.
    When grants aren't utilized, you are supposed to give the 
money back. We found $1.7 billion in money that should be ours 
that wasn't pulled back. That is 25 percent of their annual 
budget. So we found that money that they should have been 
pulling back that was growing every year. All of that is 
management, paying attention when something expires and getting 
rid of it.
    We also found a significant amount of low priority 
projects, which means they weren't paying attention. There was 
an $80,000 study on why the same teams dominate March Madness. 
Well, the same teams don't dominate it so the premise of the 
study in the first place fails. And I am not sure what that 
lends to us as a country in terms of creating leading science 
technology. The point is if we have great oversight, and I am 
on the Oversight Committee on the other side of the Hill, the 
purpose ought to be to call attention to where we are missing 
the mark in terms of what our goals are.
    So what are some other things? There was $1 million for an 
analysis of how quickly parents respond to trendy baby names. 
As a scientist, I have trouble finding out how that, as a 
country and especially in a constricted budget environment, is 
going to help us. What is the positive thing that is going to 
come out of that research? Maybe there is something, but is it 
a priority? Does a cost-benefit analysis say for what we are 
going to get we could have spent the money somewhere else to 
get much better leading edge technologies?
    There was $315,000 to study whether FarmVille on Facebook 
helps adult relationships and $581,000 to study whether online 
dating users are racist in their dating habits. Maybe there is 
value in those but the point is that it is all about 
priorities. The reason that in a lot of grants you are not 
seeing priorities is because we are not looking at it. We are 
not holding the agencies accountable. Here is a mission 
statement, here is what we are supposed to be doing, and then 
they kind of get off track.
    The reason they can get off track is because they are not 
before the Congress every year with somebody going over their 
grants with them. Aggressive oversight is one of the most 
important things we can do. It doesn't mean we are right about 
our assessment of what they are doing. But knowing that they 
have to come before us and explain their grants will limit a 
lot of questionable grants that go out there for things that 
don't have great cost-benefit analyses to them.
    We found significant fraud and inappropriate expenditures 
at the National Science Foundation. We also found significantly 
poor contracting practices.
    Let me comment on something the other panel said. There 
shouldn't be, other than in rare instances, any grant that 
isn't competitive. There should not be any contract that isn't 
competitive. We know we have problems in our Government. For 
example, we have $64 billion a year in IT and $32 billion of 
that is at risk. In other words, it is never going to get 
accomplished. We will have blown 50 percent of our IT budget 
and we do it every year. We blow it because of the way we 
contract and the way we oversee it.
    There is a lot of money that we can spend more wisely and 
also get greater value for the American public if we make sure, 
one, that we competitively bid all of these things, and two, 
that we know what we want before we contract.
    That is a big problem in the Defense Department. It is a 
big problem in the large agencies. They don't know what they 
want and they write a contract anyway. What they should be 
doing is waiting until they figure it out or create a research 
only contract to say what is it that we want. It is a giant 
problem that has $100 billion a year worth of waste in the 
Federal Government.
    Let me just talk for a second about the poor contracting 
practices and then I will stop.
    We found that NSF in 2010 spent $422 million for contracts, 
$283 million of which were not competitively bid. They were 
cost-plus. They were paid whether the work was completed or 
not. Seventy percent, or $204 million, went to contracts 
permitting advanced payments to just three groups.
    None of these contractors had an approved disclosure 
statement. So what happened was the agency couldn't identify or 
document the actual costs, which is a problem with the contract 
at the beginning. In other words, they didn't do it right at 
the beginning. Then, when they found that they couldn't get 
what they wanted, they didn't have the tools to find out 
whether or not they got good value because they couldn't get 
the information.
    One of the things we have to do as a Congress with all of 
the grants is to deal with the tremendous amount of 
duplication. I will give you an example in NSF. NSF is one of 
15 programs, 72 sub-agencies, and 12 independent agencies 
engaged in research and development. In other words, we don't 
just have NIH, Department of Defense research, and NSF. We have 
72 sub-agencies, 15 Federal departments, and 12 independent 
agencies.
    We are all interested in education. We are interested in 
getting more scientists, more technologists, more engineers, 
and more math. Well, we now have in the Federal Government some 
105 science, technology, engineering, and math programs. 
Twenty-eight of them are coming through the National Science 
Foundation at a cost of $1.2 billion. None of them are cross 
referenced to see if they are duplicating anything else that 
the rest of the Federal Government is doing. Not one of them 
has a metric on it as to whether or not it is accomplishing the 
purpose.
    So the whole idea is when you begin to look at grants then 
you start looking at a bigger area. We need to focus down and 
put somebody in charge of science, technology, and math but not 
12 different agencies that are spending over $2.5 billion a 
year with no measurements in terms of what their results are.
    There is methodology in how the agencies utilize grants but 
we are responsible for allowing all of the duplication that has 
come because we have passed the legislation and appropriations 
bills that have actually caused it.
    With that, I will take any questions you might have.
    [Note.--The Report of the National Science Foundation: 
Under the Microscope, may be found in committee files.]
    [The prepared statement of Hon. Tom Coburn follows:]

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    Mr. Lankford. Thank you, Dr. Coburn, very much for being 
able to come.
    I am just going to bounce a couple of things off you just 
for additional information. Let me start with the last 
statement you were making about duplication. A lot of the 
stories we have heard and we have seen some of the reports that 
are coming out on it.
    How do you get there? How do you actually start combining 
those? I understand that legislatively we ultimately have the 
responsibility but we are talking about killing one program and 
moving that money, or whatever percentage it may be, to another 
and combining multiple agencies. Realistically, how do we get 
there?
    Senator Coburn. I think you have to have leadership where 
you have cross jurisdiction among committees to come together. 
Let us say science, technology, engineering, and math. You take 
the committees in the House and the Senate that are responsible 
for those; have some experts; and ask what is it we really want 
to accomplish in that, what are the 105 programs we have today 
that are doing that, where are they directed, and what is it 
that we really need. Then split that up and come to a consensus 
that we are going to have a combined committee that is going to 
address that and agree to it.
    None of these are partisan issues. It is just a matter of 
silliness and the right hand not knowing what the left hand is 
doing. So it is a great question. First of all you have to know 
there is a problem there to address it, and then you have to 
build a consensus within each body to say let's get together 
and form a joint committee to address science, technology, 
engineering, and math. Let us have one set of bureaucracy 
running this rather than 20.
    What we did with the last debt limit was we went to GAO and 
CRS and we asked them this question: We would like a list of 
all the programs in the Federal Government. They both told us 
to take a hike, there is no way you can do it. Both of them 
did. I understand that. It is a massive project. There is only 
one agency that lists all of their programs. That is the 
Department of Education. You can go to any head of any agency 
and they can't tell you all of their programs. They don't even 
have them written down.
    So what we have over the next 2 years is the rest of the 
Federal Government coming though GAO to where we are going to 
be see every program at every agency. In the Senate, I am 
trying to attach to every bill that goes through there a 
mandate that each agency has to list each year their programs 
just so they know what they are and so we can know what they 
are.
    The problem is so big and so massive that you have to start 
by knowing what the programs are. Last year, two times in one 
other committee, and I won't name which committee, we had 
members of the Senate offer amendments to do well-intentioned 
things without knowing that we already had a program and a 
department doing exactly what they were writing, already and 
exactly. Of course, the amendment was withdrawn when they were 
made aware of that but the fact is that most of us as Members 
of Congress aren't aware. So you have to aggressively pursue 
it.
    Mr. Lankford. We had been working on that on this committee 
as well, looking for areas just to get disclosure out there in 
the public, even to have a Web site that lists not only the 
agency but all the programs that are within that agency. Then 
anyone can get a chance to look and see where their dollars are 
spent, what programs are available, and how much goes into that 
program as well as how many staff are dedicated to that. It 
gives people a basic look.
    Let me ask you a question about some of these grant 
programs that you mentioned before that are coming up like 
developing a relationship through FarmVille. I don't remember a 
bill that was related to that. How do grants like that come 
into existence?
    Senator Coburn. Well, it is because we are lazy 
legislators. What we decide is we will pass a bill and grant 
maximum flexibility to the bureaucracy. In fact, we are 
transferring our own authority as Congress to the bureaucracy.
    I just came from a hearing in the Senate on regulations. 
Regulations are killing our country. That is not partisan. It 
was happening under the Bush administration; it is happening a 
little more now. It is more important now because we are in the 
midst of a slow economic time and we need the regulations to go 
down so business can grow.
    But when we give up our responsibility to actually direct 
the agency specifically in terms of what we intend, that is how 
you get that. We do that because, one, we are not thorough, and 
two, a lot of times we don't know what we want when we write a 
piece of legislation. That should be a caution to us.
    If you don't know what you want, you are not any different 
than the agency that is passing a grant out there. You need to 
know what you want before you write it, what you intend and 
what you expect. Then you need to follow up.
    When was the last time every agency in the Federal 
Government was overseen? With 535 Members of Congress, we could 
do that every 2 years if we would do it. You know what? We 
would see a marked change in the bureaucracy.
    Mr. Lankford. On the transparency side, not only coming 
back to Congress to be able to denote that, but also we need to 
be able to get it out just to the general public. Then any 
individual could get a chance to look in and see the grants, 
how they are spent, and what they are spent on so that anyone 
could look over their shoulder.
    You would have the possibility of a newspaper out there 
going through all the details of each and every grant. So it is 
not only a congressional committee but it is also that media 
source that is out there asking the same questions.
    Senator Coburn. You can do that on www.usaspending.gov 
right now.
    Mr. Lankford. Yes, if it was populated with all of the 
information.
    Senator Coburn. Well, for example, in Museum and Library 
Sciences I think you could go there and you could see every 
grant. They are very compliant. Now they are small but they 
have also been extremely aggressive to make sure they are great 
stewards with that money.
    Mr. Lankford. That is terrific.
    I would like to recognize Mr. Connolly for 5 minutes.
    Mr. Connolly. Thank you so much, Mr. Chairman, and welcome 
Senator Coburn.
    Senator Coburn. Thank you.
    Mr. Connolly. Thank you for your vigilance in protecting 
the U.S. tax dollar and shedding some light on research and 
grant funding. Let me just share with you concerns, though, I 
have maybe on the other side.
    I heard you say that you thought all of these grants 
ideally ought to be competitively bid. Respectfully, I guess I 
would want to see the ability of the Federal Government in 
awarding research and development grants preserved. I would 
remind us of the fact that, for example, the successful crash 
effort to make sure the United States had the atom bomb before 
the Nazis was not competitively bid.
    I spent 20 years of my life in the private sector for 
organizations that did Federal research and I saw firsthand 
where there was value in preserving flexibility for the Federal 
agency to look at expertise and say, I don't want to reinvent 
the wheel since you have that expertise. We want to fund that 
because that can develop something that is going to help our 
economy or help medicine or whatever it may be.
    So this is just a word of caution. I think you are right 
and I am not unsympathetic with the idea that by and large we 
ought to have a really good reason why something isn't 
competitively bid. But to go to a rigid formula where 
everything is competitively bid, especially in the research 
field, I think could be risky, frankly, and could choke 
innovation unwittingly.
    Senator Coburn. Let me respond to that. If you only have 
one company or one institution that is capable of doing what 
you are wanting to do, I think that is true.
    But I would put out to you that the reason we have seven 
major weapons programs in the Department of Defense today that 
are vastly over budget and are at risk is because we had cost-
plus contracting on the research and development and no capital 
risk exposure by those companies that were involved in it. 
Human nature is to say whatever you want, since it is cost-
plus, we will do it for you.
    We have three problems in the Federal Government in terms 
of that contracting. One is that we are losing our contracting 
experts. We have a real problem with contract managers. We are 
short on them and we are short on experienced contract 
managers. There is great wisdom in them because they have the 
experience and they have known these businesses. They know who 
can actually do what. So I tell you that is the first thing.
    The second thing is that in a lot of agencies, including 
the Pentagon, we don't have an adult in the room as far as 
requirement creep.
    The third problem we have across agencies when we do cost-
plus contracting is it is low-balled on purpose. They know it 
is going to cost a whole lot more but they want to get it 
started because they know once they get it started and once we 
get a lot of money invested in it we will be more reticent to 
pull the plug on it.
    I think you could address all of those three. I agree with 
you if we have a unique level of expertise. But I would tell 
you if there are two of them that have that level of expertise, 
we ought to have them compete. If there is nobody that has that 
level of expertise, then I am fine with that.
    Mr. Connolly. I agree and I am glad you brought up 
acquisition expertise in the Federal Government.
    By the way, I commend to you Susan Collins' bill. I 
introduced it here in the House. Susan Collins has a companion 
bill on the Federal Acquisition Institute trying to upgrade 
those capabilities.
    But we have to hire more people to manage contracts. And 
you are right, we need continuity. Requirement creep often 
occurs because you have multiple project managers over the life 
of a contract, many of them.
    One more point I would like to make if I can. And you did 
not do this; I don't mean to imply you did. But one of the 
things that sometimes concerns me is that in the political 
arena we make fun of research. I can remember in my campaign 
last year my opponent went on and on and on about funding 
research on monkeys. Well, it happened to be HIV research and 
monkeys were the best analog to humans.
    Senator Coburn. Yes, they are primates.
    Mr. Connolly. It was frankly to me a despicable thing but 
it became the political arena.
    There is one that came up recently, Mr. Chairman, in the 
Science and Technology Committee. The Golden Fleece award, 
which was issued by a Democrat from Wisconsin at the time, was 
given to an odd sounding study called The Sexual Behavior of 
the Screw-Worm Fly. Why would we waste $250,000 on that? Yet 
that research, which cost $250,000, saved millions of 
livestock. It is estimated that it saved and enhanced the 
cattle industry profits by $20 billion and lowered the cost of 
beef at the supermarket by 5 percent. Other than that, yes, it 
was a frivolous piece of Federal research.
    So it is easy to demagogue research sometimes, especially 
with the public not spending time on research directly. I would 
hope that all of us in the political arena would show a little 
bit more respect for what we are trying to do, as you say.
    Senator Coburn. No, I agree. We don't know the depths and 
the intents. But that is the other thing that ought to be put 
in the grant. What are we trying to accomplish here? When you 
read a grant proposal and you don't see the endpoint in it and 
you don't see what they are actually going for, then we ought 
to be asking a question about every one of those.
    It is the same thing with the pine beetle out West right 
now. If we would have had good research on hurting its 
reproductive capability, we wouldn't have half the forests in 
Colorado and Wyoming turning brown right now.
    Look, I am a two time cancer survivor. I believe in 
science. It is why I am still alive. But the point is that even 
our good agencies like NSF need to be overseen so that when 
they are not paying attention, they will pay attention. That is 
my whole point.
    Mr. Connolly. Thank you.
    Mr. Lankford. I have enjoyed multiple rounds of 
conversation with this but you have a vote coming up very 
shortly on the Senate side. We appreciate your time and very 
much value your input on this. We look forward to getting a 
chance for our committees to be able to work together in the 
future.
    Senator Coburn. Thank you very much.
    Mr. Lankford. With that, this committee hearing is 
adjourned.
    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Elijah E. Cummings and 
additional information submitted for the hearing record 
follow:]

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