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



 
   SOLUTIONS NEEDED: IMPROPER PAYMENTS TOTAL $115 BILLION IN FEDERAL 
                              MISSPENDING

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

                                HEARING

                               before the

                SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

                  EFFICIENCY AND FINANCIAL MANAGEMENT

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2012

                               __________

                           Serial No. 112-130

                               __________

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 Government Organization, Efficiency and Financial 
                               Management

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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 7, 2012.................................     1
Statement of:
    Carper, Hon. Thomas R., a U.S. Senator from the State of 
      Delaware...................................................     6
    Werfel, Daniel I., Controller, Office of Management and 
      Budget; Michael Wood, executive director, Recovery 
      Accountability and Transparency Board; and Beryl Davis, 
      Director, Financial Management and Assurance, Government 
      Accountability Office......................................    16
        Davis, Beryl.............................................    29
        Werfel, Daniel I.........................................    16
        Wood, Michael............................................    25
Letters, statements, etc., submitted for the record by:
    Carper, Hon. Thomas R., a U.S. Senator from the State of 
      Delaware, prepared statement of............................    11
    Davis, Beryl, Director, Financial Management and Assurance, 
      Government Accountability Office, prepared statement of....    31
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     4
    Werfel, Daniel I., Controller, Office of Management and 
      Budget, prepared statement of..............................    18
    Wood, Michael, executive director, Recovery Accountability 
      and Transparency Board, prepared statement of..............    27

   SOLUTIONS NEEDED: IMPROPER PAYMENTS TOTAL $115 BILLION IN FEDERAL 

                              MISSPENDING

                              ----------                              


                       TUESDAY, FEBRUARY 7, 2012

                  House of Representatives,
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m. in 
room 2247, Rayburn House Office Building, Hon. Todd ``Russell'' 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Farenthold, Towns, and 
Connolly.
    Staff present: Sharon Casey, senior assistant clerk; Mark 
D. Marin, director of oversight; Tegan Millspaw, research 
analyst; Laura L. Rush, deputy chief clerk; Peter Warren, 
legislative policy director; Jaron Bourke, minority director of 
administration; Beverly Britton Fraser, minority counsel; Devon 
Hill, minority staff assistant; and Paul Kincaid, minority 
press secretary.
    Mr. Platts. The committee will come to order.
    I am glad to welcome everyone here today and appreciate 
everyone's interest in this important topic.
    The hearing today will address improper payments made by 
the Federal Government and will continue this subcommittee's 
examination of Federal financial management issues.
    In fiscal year 2011, the Federal Government reported $115 
billion in improper payments. We know that this is only an 
estimate and that the total amount of improper payments is 
unknown and likely even higher.
    Improper payments occurs for a variety of reasons, but they 
are the result of poor financial management. Programs are 
particularly vulnerable to improper payments when agencies fail 
to maintain effective internal controls, adequate financial 
management systems or insufficient oversight. These programs 
are classified as high error.
    In fiscal year 2011, the Office of Management and Budget 
identified 11 high error programs. These 11 programs made up 94 
percent of all improper payments identified in 2011. At the top 
of the list are Medicare and Medicaid programs which account 
for over half of all reported improper payments. Other high 
error programs include unemployment insurance, social security 
and the earned income tax credit. Some of these high error 
programs are uniquely challenged due to their large budgetary 
obligations. However, they all share similar problems of 
ineffective, internal controls.
    In order to reduce improper payments, agencies must 
reevaluate their internal control structures and increase 
accountability in program management. There must also be more 
effort to ensure that agencies report their improper payments. 
Although not all agencies are required to report such improper 
payment estimates, some agencies that are required to do so are 
failing to do so.
    The most significant agency failing to report is the 
Department of Defense, although both the Government 
Accountability Office and the Defense Office and Inspector 
General have found that the Department is at a high risk for 
improper payments. Over the past decade, there has been 
significant work by both President Bush and his administration 
and President Obama and his administration to reduce and 
prevent improper payments.
    While some agencies have made progress in identifying and 
reducing improper payments in certain programs, many of the 
agencies still lack the necessary framework of internal 
controls that could lead to a sustainable decrease in such 
payments. It is clear that better solutions are needed to 
protect taxpayer dollars and to bring accountability to Federal 
spending.
    An increased focus on preventive controls would allow 
agencies to stop more improper payments before they are issued. 
Better detection methods would also help prevent and recover 
more payments. Most importantly, the government must do a 
better job of identifying the root causes of improper payments.
    Until we understand how and why these payments are being 
made, it will be impossible to effectively prevent them. 
Billions of taxpayer dollars are misspent every year through 
improper payments. This administration and agency leaders have 
made significant efforts to reduce these payments and the work 
is both important and commendable. However, we need more 
solutions to better protect taxpayer funding.
    We are honored to be joined here today by Senator Carper to 
discuss a bill currently being considered to help reduce 
improper payments. We will also hear from witnesses on the 
problems that lead to improper payments and what we can do to 
prevent them. We certainly are grateful for each of the 
witnesses who will share their expertise and knowledge with us 
here today and look forward to their testimony.
    I am now honored to recognize the ranking member, the 
former chairman of the full committee, Mr. Towns from New York, 
for the purpose of an opening statement.
    Mr. Towns. Thank you very much, Mr. Chairman.
    I am pleased that we are continuing to examine the progress 
we have made in reducing improper payments and also the 
challenge which remains.
    I would like to welcome Senator Carper, a dedicated, 
committed and tireless champion, of good government in the 
other Chamber. It is my hope that we can work closely together 
on our proposal to build a bridge between where we are now and 
the elimination of improper payments in the future.
    Mr. Werfel, it is good to see you again. Ms. Davis and Mr. 
Wood, welcome, and I look forward to your testimonies.
    The Obama administration has put forth very robust 
initiatives to eliminate improper payments which is one of the 
key components of the President's effort to eliminate waste in 
government. I am encouraged that we have seen some positive 
results. In fiscal year 2011, the Federal Government shrank the 
amount of improper payments by 4.7 percent or $5.3 billion 
compared to the prior year.
    While this is a significant accomplishment, the level of 
improper payments is still unacceptably high. Some of the 
initiatives responsible for the drop in improper payments 
include the Do Not Pay list which the President called for in 
June 2010 in order to prevent ineligible recipients from being 
paid repeatedly.
    The VerifyPayments.gov Web site was created to enhance this 
effort. We will hear from Senator Carper today about a 
legislative fix that would make checking the Do Not Pay list 
the law of the land. The President also asked agencies to be 
transparent about the amount of improper payments and to 
account to the American public for their actions in addressing 
the problem. I am pleased that the PaymentAccuracy.gov Web site 
has been up and running and shows the exact information which 
is also a great response.
    President Obama expanded the use of payment recapture 
audits as a way of detecting paying errors and recovering 
improper overpayments. Since 2010, agencies have recaptured 
nearly $1.9 billion in improper payments for our Treasury.
    Once again, we look forward to hearing Senator Carper's 
proposal on how to improve this initiative. A healthy financial 
future for the United States requires sustained efforts from 
more than one source. We have to watch what we spend, get rid 
of the waste, increase revenue and reduce improper payments all 
at the same time to accomplish this goal.
    Our witnesses are the professionals in our government 
dedicated to achieving all of these goals. They will explain 
our gains, our challenges and propose solutions that will keep 
us on the path to eliminating waste in our government.
    I am looking forward to working in a bipartisan way to 
reduce the cap and capturing the improper payments.
    Thank you very much, Mr. Chairman. On that note, I yield 
back and I am anxious to hear the Senator from the other side.
    [The prepared statement of Hon. Edolphus Towns follows:]
    [GRAPHIC] [TIFF OMITTED] 74028.001
    
    [GRAPHIC] [TIFF OMITTED] 74028.002
    
    Mr. Platts. I thank the gentleman and certainly echo Mr. 
Towns' comments about work on this issue in a bipartisan and 
bicameral manner because it is truly about protecting the 
taxpayers' hard-earned dollars.
    We will have the record open for 7 days for other Members 
who want to submit an opening statement or extraneous material 
for the record.
    We are honored to have the senior Senator from Delaware, 
the Honorable Thomas R. Carper, also chairman of the 
Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security of 
the Senate Homeland Security and Government Affairs Committee. 
Senator, I thought I had a committee with a long title but I 
think you have outdone me.
    Mr. Chairman, we really appreciate your efforts. You are a 
long-time leader on government reform issues and especially 
about protecting taxpayer funds. Not only do we look forward to 
working with you, but we are honored to have you here to share 
your insights about the legislation you have introduced.
    Without further ado, Mr. Chairman, the floor is yours.

  STATEMENT OF HON. THOMAS R. CARPER, A U.S. SENATOR FROM THE 
                       STATE OF DELAWARE

    Senator Carper. Thank you, Chairman Platts, and my compadre 
and friend, for many years, Ed Towns.
    I came to government, as I mentioned to you earlier, to 
Congress in 1982 when we are about to run out of money in 
Social Security, not reduce payments, but literally in 1983, 
run out of money entirely.
    We had a Republican President, Ronald Reagan; Democratic 
Speaker of the House, Tip O'Neill; and a lot of Democrats and 
Republicans here went to work and I used as a blueprint a 
commission led by Alan Greenspan and solved the problem, not 
forever, but for another 25 or 30 years and put Social Security 
on a pretty good path. It was that bipartisan spirit, the House 
and Senator working together, the legislative and executive 
branch with some really smart people who joined Alan Greenspan.
    I come to you in that same spirit that led us to that 
success in 1982 and 1983 and hopefully we can rekindle that 
here today. I thank you very much for the chance to come by and 
to revisit these old haunts and to have a chance to see both of 
you too.
    As everyone in this room knows, we have faced record budget 
Federal deficits in recent years. The national debt now stands, 
I am told, at something over just $15 trillion, well over 
double what it was just a decade ago. The last time the debt 
was this high I think was at the end of World War II. That 
level of debt was not sustainable then and it is not 
sustainable now.
    I talk a lot about cultures that we have here in Washington 
and suggest that what we ought to do is establish a different 
kind of culture when it comes to spending. A lot of people 
think we have a culture of spendthrift around here and that we 
should replace it with a culture of thrift. I agree and I am 
sure you do too.
    I think we need to look in every nook and cranny of Federal 
Government, including domestic spending, defense, entitlements, 
and tax expenditures. We need to ask the question is it 
possible to get better results for less money or is it possible 
to get better results for the same amount of money, and if it 
is, let us do that. Do what works and frankly do more of that.
    In order to be effective in the important work of 
identifying areas where we can spend taxpayers' money more 
effectively, we need to sharpen our pencils, stop making the 
kind of expensive, avoidable mistakes that lead to improper 
payments.
    Before going any further, I want to take just a moment to 
explain what it means for Federal agencies to make improper 
payments. Improper payment occurs, as you know, when an agency 
pays a vendor for something it did not receive or maybe even 
pays twice for what it did receive. It can occur when a 
recipient has died and is no longer eligible for payment or 
when a vendor owes the government money and legally should not 
be getting a payment until a debt is repaid. Of course, 
sometimes people or companies receive payments that are 
actually fraudulent.
    Federal agencies have estimated, as you noted, improper 
payments at levels of more than $100 billion annually during 
the past few years. Whenever I talk to people out on the stump, 
in my State or around the country about one of the keys to 
reducing the deficit is to address improper payments, their 
eyes kind of glaze over when I say the words improper payments 
until I tell them how much they were, until I say, did you know 
improper payments were $121 billion last year. That gets their 
attention.
    Those payments come from over 70 programs and more than 20 
agencies and include programs like Medicare, Medicaid, civilian 
and military pay at the Department of Defense, and at FEMA, to 
name just a few. Clearly this level of inaccuracy particularly 
as the Federal Government struggles with our massive debt and 
deficit is unacceptable.
    Fortunately, we can do something about it. If the truth be 
known, we already are and we are beginning to make some 
progress. I want to take a moment to say this. The folks 
sitting behind me from GAO, I just want to thank them for being 
great partners with all of us in trying to identify areas where 
we are in danger of wasting a lot of our taxpayers' money.
    I want to give OMB a lot of credit. The last administration 
under President Bush said we have a problem with improper 
payments and we should do something about it and got us started 
on this path. This administration, to their credit, has pushed 
it hard and OMB has been very, very supportive of our efforts.
    There are several additional effective tools that are able 
to curb wasteful and fraudulent payments. Today, I just want to 
outline a couple of steps that Congress can take now that will 
make an even bigger dent in improper payments and help get 
Federal spending back on track.
    According to GAO, the Federal Government made an estimated 
$121 billion in improper payments in fiscal year 2010. I was 
encouraged to learn that the early data for fiscal year 2011 
shows a slight drop in the level of improper payments to 
approximately $115 billion, even though more agencies have 
begun reporting their improper payments.
    For example, 2011 estimates include something that 2010 did 
not and that is improper payments for the Medicare Prescription 
Drug Program for the first time and even though that is 
included, we still see apparently improper payments dropped 
from 2010 to 2011 by about $6 billion, that's a lot of money. 
That is twice the budget of the State of Delaware in a single 
year.
    Having said that, error rates and the amount of money lost 
to avoidable errors still remain at unacceptably high levels. 
While agencies are beginning to make progress in implementing 
new anti-waste, fraud controls and procedures, I believe a lot 
more work needs to be done to identify, recover and prevent 
improper payments. I like to say if it isn't perfect, make it 
better. With us all working together, we can make it better.
    What disturbs me about the problem here in the Federal 
Government is that we seem to make these kinds of mistakes at a 
rate much higher than a business or the average family would 
tolerate or could afford and we keep making them over and over 
again. Having said that, we are making some progress in 
improper payments as I noted earlier.
    In 2010, you may recall Congress passed and President Obama 
signed into law, the Improper Payments Elimination and Recovery 
Act, a bipartisan bill. Dr. Coburn and I collaborated on it. We 
had a lot of bipartisan support in passing it. This new law 
aimed at making agencies and agency leadership far more 
accountable for the expensive mistakes that they make. Again, 
it represents bipartisan and bicameral progress in this 
important area.
    The 2010 law basically does four things. First, it says 
Federal agencies across the board have to report improper 
payments. Second, you have to stop making them. Third, we want 
you to go out, where it is feasible and where it is practical, 
and recover the moneys that have been improperly paid. Fourth, 
we called for agency managers to be evaluated, at least in 
part, on how well they complied with this new law.
    A wide variety of ideas have been put forth on how to 
further curb improper payments and in the progress, reduce our 
budget deficit and begin whittling down our debt as well. For 
example, recognizing that more than half of all Federal 
improper payment estimates are from the Medicare and Medicaid 
Programs, last year that same guy, Senator Tom Coburn and I 
teamed up to introduce legislation to curb waste and fraud in 
both of those programs, Medicare and Medicaid.
    The bipartisan legislation is S. 1251, the Medicare and 
Medicaid Fighting Fraud and Abuse to Save Taxpayer Dollars Act. 
We take a series of commonsense steps to identify and prevent 
fraud and waste in Medicare and Medicaid. It drills down into 
specific waste and fraud challenges within health care such as 
physician identity theft, the need for improved fraud data 
sharing between the Federal Government and State agencies, and 
quick identification of improper payments to medical providers.
    Our bipartisan legislation is now attracted 33 co-sponsors, 
a third of the Senate, bipartisan. There is now a companion 
bill in the House led by Congressman Peter Roskam and 
Congressman Carney from Delaware, my colleague and friend, John 
Carney.
    Our legislation has garnered the support of a wide of 
organizations including the National Taxpayers Union, Citizens 
Against Government Waste, and AARP, not always names you hear 
together in the same sentence. Most of the provisions of these 
bills are based on GAO's good work and the Inspector General 
recommendations.
    Let me briefly focus on an important new measure that would 
help all Federal agencies prevent, detect and recover improper 
payments. Bipartisan legislation that I co-authored with 
Senator Susan Collins, S. 1409, the Improper Payments 
Elimination and Recovery Improvement Act, is now making its way 
through the U.S. Senate. This measure builds upon the 2010 
Improper Payments law that Tom Coburn and I introduced and 
shepherded through.
    Our new bill recently passed by unanimous consent in the 
Homeland Security and Government Affairs Committee. I am 
hopeful it will soon see action on the floor of the U.S. 
Senate. I see the word action and Senate in the same sentence, 
I hope to see action on this legislation in the Senate.
    Let me talk about a couple provisions in the bill and I 
will close.
    Too often, Federal agencies make improper payments to 
individuals who could easily be identified as ineligible. Some 
of these individuals are applying for benefits using a false 
address--their address may not meet the criteria for 
eligibility. Take for example, a person with a job applying for 
unemployment benefits using the name of someone who may 
actually be dead.
    Of course those listening to this hearing may ask the 
obvious question of would a Federal agency ever pay 
unemployment insurance benefits to an individual who has died 
or someone who is trying to commit fraud? That is a good 
question. Unfortunately, the answer is that all too often 
agencies simply do not do a very good job of coordinating their 
efforts to prevent improper payments or communicating about 
best practices.
    When I meet folks who have been married a long time, 50, 60 
or 70 years, I say to them what is the secret for being married 
50, 60 or 70 years? The best answers I have ever heard are the 
same, the two C's, communicate and compromise. What we need 
here is a lot better communication.
    Many of those agencies also have antiquated data bases and 
computer systems for tracking basic payment information. All 
too often, we simply don't allow agencies to access the 
information they need to avoid giving scarce taxpayer dollars 
to the wrong people.
    To their credit, the administration, through executive 
action, is establishing a Do Not Pay Initiative. This effort 
involves screening recipients of Federal funds against a list 
of those ineligible to receive those funds before we cut a 
check, for example, or make a payment. For example, before an 
agency could award a contract to a company, the agency would 
have to cross check against the Do Not Pay data base which will 
include a central, comprehensive data base of companies and 
entities that are no longer allowed to do work with the Federal 
Government because of a fraud conviction or some other reason.
    Our improper payment legislation establishes the Do Not Pay 
Initiative in law throughout the Federal Government. We believe 
it makes several important improvements to the initiative and 
adds some tools and procedures to help agencies access data.
    The legislation also addresses what is called death fraud 
and other improper payments to deceased individuals. Too many 
agencies pay benefits to individuals who are deceased and are 
therefore no longer eligible for payments under program rules. 
For example, the Office of Personnel Management's Inspector 
General reported that $601 million in improper payments were 
made to Federal retirees who have already died during the last 
5 years.
    However, such payments to dead people were not unique to 
one program. Last year, one of my home State newspapers 
reported that 28 years after a Delaware woman had died, one of 
her relatives was still pocketing, collecting and cashing her 
social security checks. Improving the collection, verification 
and use by Federal agencies of data on individuals who have 
died will help curb hundreds of millions, if not billions, of 
dollars in improper payments.
    Our legislation requires that the Office of Management and 
Budget, in consultation with other agencies and stakeholders, 
identify specific solutions and report back to Congress in 180 
days after passage. The legislation also includes provisions to 
strengthen and make more consistent the methods used by 
agencies to estimate improper payments. This is an issue 
identified by both GAO and the Inspector General.
    Finally, the bill establishes a series of recovery audit 
contracts to assure that agencies actually recover 
overpayments. Recovery audit contracting has already proven 
very successful in the private sector, as well as in several 
Federal agencies, including within the Medicare Program. In the 
Medicare Program, we have witnessed recovery of improperly 
spent taxpayer dollars approaching $2 billion in recent years. 
We expect those recoveries to continue to growth.
    I anticipate that the Senate will look as favorably on S. 
1409 as it did on the Improper Payments Elimination and 
Recovery Act. I want to invite the members of this panel and 
the House of Representatives to join us in this new effort by 
introducing a companion bill to S. 1409, improving it where 
possible, and passing it.
    Let me conclude by noting that we are here today in large 
part because we believe we have a moral imperative to ensure 
that scarce resources we put into Federal programs are well 
spent. We must use every tool available to put our fiscal house 
back in order and to give the American people the government 
they expect and that they deserve.
    It is the right thing to do on behalf of the taxpayers of 
this country who entrust us with their hard earned money. By 
working together on this latest series of commonsense 
initiatives, I believe we can take another important step 
toward earning their trust once again.
    Thank you.
    [The prepared statement of Senator Carper follows:]
    [GRAPHIC] [TIFF OMITTED] 74028.003
    
    [GRAPHIC] [TIFF OMITTED] 74028.004
    
    [GRAPHIC] [TIFF OMITTED] 74028.005
    
    [GRAPHIC] [TIFF OMITTED] 74028.006
    
    Mr. Platts. Senator, thank you for a well stated synopsis 
of the challenges before us, the progress we have made and what 
we need to do as your legislation proposes. We certainly do 
look forward to working with you.
    I certainly appreciate a couple of the points you made. It 
is always good to be able to kind of poke fun at ourselves. 
Your reference to action in the Senate is appreciated on the 
House side. We sometimes share that sentiment.
    Senator Carper. I have sat in your seat.
    Mr. Platts. Exactly. I would say personally, of all the 
points you made, as one who will celebrate 22 years of marriage 
this summer, looking to hit 50 and 60 and beyond, compromise 
and communication both in marriage and in government are 
necessary for success. I think that is a very important message 
for all of us here in Washington to keep things simple with 
what works at home in our marriages can work here.
    I know I speak for the ranking member as well and the 
members of this committee in saying we do look forward to a 
partnership between the House and the Senate, bicameral, 
bipartisan, just to do right by the American people. We are 
grateful for your efforts here today to share your insights.
    Senator Carper. These are a couple of our ideas we wanted 
to share with you. They are not just Democratic ideas, not just 
Republican ideas, just smart ideas. You all have a lot of good 
ones over here. I note you are going to be here for one more 
year and you will be stepping down and sailing off into the 
sunrise.
    I just want to say we all have good ideas. We just need to 
do a better job of sharing those ideas with us and 
communicating better to say what do you think of this, let's 
see if we can work on this together. In the instances I talked 
about and some good stuff that you have for us to pay more 
attention to, and we would love to do that.
    Mr. Platts. We look forward to it. Thank you again.
    We will take a brief recess while we reset for the second 
panel.
    [Recess.]
    Mr. Platts. We were happy to have Senator Carper with us, 
his insights and commitment to good government issues, 
especially fiscal responsibility.
    We are also delighted and honored to have the next panel. 
We welcome all three of you and appreciate your willingness to 
share your expertise with us. The Honorable Daniel I. Werfel 
serves as the Controller for the Office of Federal Management 
at the Office of Management and Budget. Mr. Mike Wood is 
executive director of the Recovery Accountability and 
Transparency Board. Ms. Beryl Davis is Director of Financial 
Management and Assurance at the Government Accountability 
Office.
    We appreciate your testimony, not just today, but day in 
and day, the work that each of you is doing to serve our fellow 
citizens and well protect the hard earned tax dollars of all 
Americans.
    Pursuant to committee rules, now that you are seated, if I 
could ask you to stand so that we can swear you in. I ask that 
you rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Platts. Let the record reflect that all witnesses 
affirmed the oath. Please be seated.
    We have had a chance to review your written testimony and 
if you can try to keep your initial statement today about 5 
minutes. If you need to go over some, we are not going to be 
sticklers too much for that, but we do want to save time for 
questions and answers and to have a more engaged discussion 
with you as we can, time allowing.
    With that, Mr. Werfel, would you like to begin?

     STATEMENTS OF DANIEL I. WERFEL, CONTROLLER, OFFICE OF 
   MANAGEMENT AND BUDGET; MICHAEL WOOD, EXECUTIVE DIRECTOR, 
   RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD; AND BERYL 
DAVIS, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

                 STATEMENT OF DANIEL I. WERFEL

    Mr. Werfel. Thank you, Chairman Platts, Ranking Member 
Towns and distinguished members of the subcommittee for 
inviting me to discuss the Federal Government's efforts in 
preventing, reducing and recapturing improper payments.
    We can all agree that improper payments degrade the 
integrity of programs and compromise taxpayers' trust in their 
government. In fact, combating improper payments has been a 
leading priority of the administration's campaign to cut waste. 
Our intensive efforts to reduce improper payments are guided by 
the President's bold goals and by key reform ingredients such 
as transparency, accountability, collaboration and innovation.
    These efforts are producing real results. We are on track 
to meet or exceed the bold goal set by the President, having 
decreased the governmentwide error rate sharply from 5.4 
percent in 2009 to 4.7 percent in 2011 and by doing so, avoided 
making more than $20 billion in improper payments over the last 
2 years. We have also nearly met the President's goal to 
recapture $2 billion in overpayments to contractors.
    Today, I would like to quickly highlight three important 
initiatives that anchor our efforts. First, the 2009 Executive 
order on Reducing Improper Payments, we have made great strides 
in implementing this Executive order by identifying agencies 
with high error programs that account for the majority amount 
of improper payments, establishing supplemental measures to 
provide more frequent and current measurements for the majority 
of these high error programs, and selecting accountable 
officials responsible for coordinating agency efforts to reduce 
improper payments. All of this information is transparent and 
readily available to the public at PaymentAccuracy.gov.
    Second is the implementation of the Improper Payments 
Elimination and Recovery Act of 2010, IPERA. Last year, OMB 
released guidance to agencies on implementing IPERA to ensure 
that they are properly assessing risks in their programs, 
measuring and reporting improper payments and establishing 
corrective action plans and reduction targets.
    IPERA also expanded agencies' authorities and requirements 
for recapturing over payments and created sanctions for 
agencies that are found noncompliant with the law by their 
Inspector General.
    Third is the implementation of the Do Not Pay solution. In 
June 2010, the President directed the establishment of a single 
point of entry where agencies could access relevant data before 
determining eligibility for a payment or award and thereby 
avoid paying ineligible recipients. In addition to this 
memorandum, the Government Accountability and Transparency 
Board recently recommended that OMB work with agencies and the 
Recovery Accountability and Transparency Board to create a 
centralized accountability framework that all agencies can use 
to prevent waste, fraud and abuse.
    In response, the Department of Treasury has established the 
GoVerify Business Center, a single entry point that agencies 
can access to determine eligibility information prior to making 
an award or payment. The GoVerify Business Center is comprised 
of two components. One component is the GoVerify Portal, a Web-
based, single entry access portal that assists efforts to 
prevent improper payments by enabling agencies to access data 
sources at a centralized location. The other component is the 
GoVerify Data Analytics Services, a resource that provides 
advanced data analytics to identify trends, risks and patterns 
of behavior that may lead to further investigation on the part 
of the agency.
    When the President took office, improper payments were on 
the rise. Today, based on efforts underway, and the 
collaborative work of the administration and Congress, we are 
on track to meet or exceed the President's goals to cut 
improper payments by $50 billion and recapture $2 billion in 
overpayments to contractors by the end of this fiscal year.
    We have seen error rate reductions in almost every major 
program with a history of significant errors, including 
Medicare, Medicaid, SNAP, rental housing, the earned income tax 
credit, Pell grants and supplemental security income. As I 
referenced earlier, without these declines, the government 
would have made over $20 billion in additional improper 
payments in 2010 and 2011 combined.
    The administration will continue to work through the 
Campaign to Cut Waste to reinforce a sense of responsibility 
and accountability for taxpayer dollars and make clear that no 
amount of waste in our Federal programs is acceptable.
    Thank you again for inviting me to testify. I look forward 
to answering your questions.
    [The prepared statement of Mr. Werfel follows:]
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    Mr. Platts. Thank you, Mr. Werfel.
    Mr. Wood.

                   STATEMENT OF MICHAEL WOOD

    Mr. Wood. Thank you, Mr. Chairman, and distinguished 
members of the committee. Thank you for being able to appear 
before you today to talk about this important matter and 
potential solutions to reducing improper payments based on work 
done by the Recovery Board.
    The American Recovery and Reinvestment Act of 2009 created 
the Recovery Accountability and Transparency Board, tasked in 
part with preventing fraud, waste and abuse of recovery funds.
    Last summer, the President issued an Executive order 
calling for the creation of the Accountability and Transparency 
or GAT Board to make recommendations based on lessons learned 
from the Recovery Act, implementation of the Board's successes 
applying these approaches across government spending.
    At the same time, Congressman Issa and Senator Warner 
introduced legislation, the DATA Act, that among other things, 
would create a new, independent agency, the Federal 
Accountability and Spending Transparency Board, to provide 
accountability and transparency for federally funded 
activities.
    Even before the creation of the GAT Board and the DATA Act, 
the Recovery Board realized key lessons: that transparency 
drives accountability and that the tools we have built for 
these dual purposes have proved useful from both a program and 
oversight perspective. Along with Recovery.gov, the Board has 
received wide acclaim for building our Recovery Operations 
Center, ROC, which combines traditional law enforcement 
analysis with sophisticated software tools, government data 
bases, and open-source information to identify high-risk 
recipients.
    This accountability solution provides an in-depth fraud 
analysis capability to identify non-obvious relationships 
between parties, and provides a predictive-analysis model, 
useful in focusing limited government oversight resources. The 
Board is now conducting pilots on a fraud prevention tool with 
agency personnel as well as with the Offices of Inspectors 
General via the Board's new FederalAccountability.gov Web 
portal. This framework has the potential to open the ROC tools 
and approaches more fully to investigators and practitioners 
throughout the Federal Government.
    Our goals are to help agencies in performing their own risk 
evaluations before awarding Federal funds and to help 
enforcement officials to conduct reviews in order to prevent 
and detect fraud, waste and abuse in Federal spending.
    Pilots with agency procurement, grant and financial 
officials just began. With our expanded 2012 appropriations 
language, Congress provided some flexibility for us to develop 
and test new applications on non-Recovery funds and we plan on 
broadening the scope of these pilots.
    FastAlert, a new application within the 
FederalAccountability.gov framework, provides awarding 
officials with the ability to quickly access risk factors 
associated with entities that seek or have received Federal 
funds. The Board feels FastAlert can be applied to all Federal 
spending from pre-award to the payment phases.
    Our work on FederalAccountability.gov and FastAlert is in 
keeping with the GAT Board's December report to the President 
which noted the ROC ``has been instrumental in keeping 
fraudulent actors from attacking Recovery programs, using 
cutting edge forensic technology to protect taxpayer 
interests.'' This technology has applications across the 
government and that is why the GAT Board recommends that 
agencies work together to create a centralized framework that 
leverages the ROC and similar technologies, allowing us to 
share data and coordinate our efforts to detect and prevent 
fraud. It is also in keeping, I think, with the internal 
control guidance established by OMB for improper payments that 
cited our lessons learned as well and came to a sililar 
conclusion.
    Payments resulting from fraudulent activity are only a 
subset of the wider problem of improper payments. However, the 
Board's tools would assist in identifying questionable entities 
in the preventive pre-award phase, and as a review prior to 
payment. In consultation with OMB and the Department of 
Treasury, we have incorporated features like batch searches and 
program specific data bases to better meet agency needs.
    Realizing full implementation of FastAlert is complicated 
by some common problems that Congress, agencies and executive 
leaderships must solve. The computer matching provisions of the 
Privacy Act may restrain oversight activities, a problem that 
is solved by the DATA Act. True data management also requires 
that the government standardize data and provide more modern, 
open access to data bases.
    Agencies are often reluctant to share data bases due to 
fear of violating the Privacy Act, leaving inadequacies in 
payment and awarding tools. We have the technology and know-
how, and with your help, the governance, access, and data 
issues can be swiftly solved.
    That concludes my prepared remarks and I will be happy to 
answer any questions.
    [The prepared statement of Mr. Wood follows:]
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    Mr. Platts. Thank you, Mr. Wood.
    Ms. Davis.

                    STATEMENT OF BERYL DAVIS

    Ms. Davis. Chairman Platts, Ranking Member Towns and 
members of the subcommittee, thank you for the opportunity to 
be here today to discuss improper payments in Federal programs.
    My testimony will cover agencies' reported progress in 
estimating and reducing improper payments, the challenges ahead 
of us and how to move forward in improper payment reduction 
strategies. An improper payment is any payment that was made 
incorrectly, in the wrong amount and includes payments as well 
as overpayments. Also it includes payments that lack sufficient 
documentation.
    Progress is being reported by Federal agencies in both 
estimating and reducing improper payments. In fiscal year 2011, 
Federal agencies estimated improper payments of $115.3 billion, 
as noted by Chairman Platts, a decrease of $5.3 billion from 
that of the previous year. This figure is about 4.7 percent of 
the $2.5 trillion in total spending, as noted by Ranking Member 
Towns.
    The estimate was attributable to 79 programs spread across 
17 agencies. The 10 programs with the highest dollar amounts 
accounted for about $107 billion or 93 percent of the total 
improper payments. The 10 programs with the highest rates of 
improper payments had rates that ranged from 11 percent to over 
28 percent.
    Although progress has been reported, the Federal Government 
continues to face challenges in determining the full extent in 
improper payments. Some agencies have not yet reported 
estimates for their risk assessable programs. In addition, 
internal control weaknesses continue to exist that heighten the 
risk of improper payments occurring.
    Estimating methodologies need to be developed. For example, 
there are two DOD programs related to commercial payments where 
the estimating methodologies are still being developed. For 
this reason, the programs could not be included in the 
governmentwide estimate for this year.
    Given the amount of Federal dollars that are flowing into 
these risk acceptable programs, it is really critical to 
enhance our efforts to improve and reduce improper payments. 
Continuing and expanding activities are needed to move forward 
in the following three reduction areas. First is identifying 
and analyzing root cause of improper payments. Second is 
implementing effective controls that would prevent improper 
payments in the first place. Third is implementing effective 
detection controls that would identify and recover improper 
payments.
    Regarding the root causes, identifying and analyzing the 
root causes of improper payments is key to developing 
effective, preventive and corrective action plans.
    Beginning in fiscal year 2011, agencies were required by 
the Office of Management and Budget to categorize their root 
causes into three different categories. We found that only 
about half of the 79 programs with improper payment estimates 
were actually using those three root cause categories. Without 
detailed and specific information, agencies are really hampered 
in their ability to take action to prevent and to reduce 
improper payments.
    Regarding preventive controls, strong preventive controls 
serve as the front line defense against improper payments and 
many agencies are in the process of implementing those 
controls. Preventive controls involve a variety of activities 
such as up-front validation of eligibility through data sharing 
and a predictive analytic test that can identify patterns of 
potential risk for fraud.
    Addressing program design issues is another preventive 
strategy. For instance, agencies may explore whether complex 
and inconsistent program design could actually contribute to 
improper payments. Effective strategies for reducing improper 
payments may actually call for streamlining and for redesigning 
or changing those program requirements.
    Finally, regarding detective controls, agencies need 
effective detective techniques to identify quickly and to 
recover improper payments that actually result in losses to the 
government. Recovery auditing such as that used in the Medicare 
Program is an example of identifying contractor overpayments.
    Detection activities play a significant role not only in 
identifying improper payments but also in determining and 
highlighting those areas where there is a need to enhance our 
preventive controls.
    Chairman Platts and Ranking Member Towns, that concludes my 
prepared statement. I would be happy to answer any questions 
you may have.
    [The prepared statement of Ms. Davis follows:]
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    Mr. Platts. Thank you, Ms. Davis.
    We will go to questions. We are glad to be joined by the 
gentleman from Virginia, Mr. Connolly. Before we go to 
questions, did you want to make a brief statement?
    Mr. Connolly. Mr. Chairman, I thank you so much for your 
indulgence. I have two other hearings at the same time and I am 
the ranking member on one of them.
    I wanted to come because first of all, I wanted to thank 
you for your leadership and yours, Mr. Towns, on this important 
subject.
    Here we were sweating in the so-called Super Committee to 
try to identify $1.2 trillion over 10 years. Here we have 
improper payments that are $125 billion plus every year which 
would exceed actually the goal of the Super Committee if 
somehow we could get it to zero.
    We are never going to get it to zero but it seems to me 
that one of our goals in this subcommittee and in pursuing this 
subject is how do we put in place processes that push us toward 
that goal and in doing so, we make a very substantial 
contribution to debt reduction and to getting our Federal 
spending under control without having to take a meat ax to 
substantive investments that matter to the country.
    I think this is one of the most promising endeavors of the 
entire committee, Mr. Chairman, and I thank you again for your 
leadership. I thank our panelists for being here.
    Please forgive me when I have to duck out to return to my 
primary subcommittee.
    Mr. Platts. We appreciate the gentleman making an effort to 
be here and his words regarding this issue and as we conveyed 
to Senator Carper in his testimony, the bicameral, bipartisan 
effort to focus on this issue. As you well stated, if we were 
successful, we would more than exceed the $1.2 trillion that we 
were after in the Super Committee.
    I will yield myself 5 minutes now for questions.
    I certainly thank each of you for what you are doing every 
day to help prevent improper payments as well as the overall 
good fiscal management of government. I do want to acknowledge 
very much so the efforts of this administration and the number 
of initiatives. Mr. Werfel, you highlighted them well.
    I do want to caution in how we use numbers and statistics 
when we talk about $20 billion toward a $50 billion goal. That 
is a guesstimate because the percent went down that therefore, 
we avoided $20 billion. We really do not know if we did or not; 
we are just applying 5.4 percent in 2009 to today at 4.7 and 
perhaps we saved. We don't really know for certain if that is 
an accurate number.
    Because if we take that approach we would also have to 
acknowledge that we also know that improper payments that have 
not been identified went up with DOD being the biggest culprit 
here of not being able to properly identify improper payments. 
Their budget is higher today than it was in 2009, therefore 
there is more money that is not being properly identified to 
prevent improper payments.
    That is just a caution but it is a specific concern as we 
look at the numbers because they do give us guidance of are we 
having success, taking strides in the right direction and 
specifically with the Department of Health and Human Services. 
The biggest challenges are Medicare and Medicaid. As we have 
heard, about half or a little over half of all improper 
payments identified are those programs in that department.
    It is my understanding that there has been a change in the 
methodology and what they consider an improper payment within 
the Department of Health and Human Services and specifically 
that if they identify an improper payment and recover it, then 
it is not counted as improper payment because they actually got 
the money or prevented it in some way.
    Is that your understanding and your thoughts on that if 
that is the case?
    Mr. Werfel. Thank you for the question, Mr. Chairman.
    Actually, the HHS methodology fix is as follows. They 
determined there is a paperwork process they go through once 
they sample a payment to determine whether it was accurate or 
not. All that paperwork doesn't come in all at the same time; 
it takes time to investigate the accuracy of the payment. What 
happens is at the point in time at which they have to put down 
their pencils and do their error measurement, they still have 
paperwork outstanding and they haven't fully addressed whether 
the error is an error or not.
    Historically, for any area where they had to put down their 
pencils because they were out of time and it was time to do 
their annual report, they counted everything that they didn't 
get full paperwork as an error. They have been looking at this 
for a few years. In consultation with their Inspector General, 
they thought perhaps we are over stating our errors by doing 
this because they started looking at historical numbers.
    They put their pencils down on say November 15th so they 
can issue their audit report. On December 1st or December 15th, 
the paperwork comes in and they get the answer in full in terms 
of whether the error was an error or not. They determined they 
could go back and look at historical records and say based on 
historical records, there is a certain percentage of that 
paperwork over time that actually comes in and is not an error 
versus it is an error.
    They decided what was a more fair presentation of their 
error was to adjust their error rate based on historical 
numbers that dictate say we have 10 paperwork that is 
outstanding, historically three of those are errors and seven 
of those turn out to be accurate. That is true for a year so we 
are going to apply that percentage for the paperwork 
outstanding this year for the error. That is the change they 
made.
    Believe me, Mr. Chairman, we would not have been 
comfortable with the change if the Inspector General had not 
endorsed it. The Inspector General agreed that it was a fair 
presentation. That is why the change was made.
    Mr. Platts. There is nothing where even if they identify 
something up front, a question where they put their pencil 
down, but if they identify a payment that was made improperly, 
that they recovered it, that it is no longer counted as an 
improper payment, you are not aware?
    Mr. Werfel. I am not aware of that. There are certain 
isolated incidences that I am aware of where an agency makes a 
payment and can subsequently discount their error rate by a 
quick recapture of that amount. That takes place, for example, 
in social security and in many ways, we allow that within the 
methodology because under the law and regulations, they are 
compelled to make the payment even when they know it is wrong 
because the due process hasn't been complete.
    For those where they know they are about to make a payment 
they believe is an error but they are compelled to, then they 
can get the due process done and quickly pull it back, we have 
discounted those. I am not aware of this situation occurring in 
HHS.
    Mr. Platts. I am hoping that is accurate across the board 
because that would defeat our goal here which is to identify 
why we are making improper payments because ultimately that is 
how we prevent them in the future.
    A second question before I yield. I am certainly glad with 
Part D now being part of the analysis, the first year that the 
Prescription Drug Program is now being looked at, but CHIP and 
TANF are two that are not. I know there are two issues here. 
With TANF, it is State partners and more challenging and with 
CHIP, it is statutory of when they can start looking at error 
rates.
    If you or other witnesses could comment on what we should 
expect with TANF and CHIP? Is there a guesstimate of what their 
error rates are likely to be? What is that going to do to the 
numbers? May be we can't because we don't have good enough 
data, but if any of you could comment, that would be helpful.
    Mr. Werfel. There are different data points that we could 
possibly share with you. I am not sure I have them at my 
fingertips where the agency, in particular on TANF, has gone 
out and done a measurement. With TANF, there are a lot of legal 
questions that have not yet been resolved in terms of the 
ability of HHS, when the program converted from AFDC to TANF, 
there were certain alleged restrictions placed on what the 
agency could do to audit payments.
    As a result, I think it was about 5 or 6 years ago, the IG 
used its enforcement and investigative authority to go downward 
and the measurement themselves, which is unusual. Typically in 
all the situations of which I am aware, the agency does the 
measurement and the IG evaluates the sufficiency of the 
measurement and whether the necessary corrective actions are 
taking place.
    Because the IG went ahead and did that, we got some insight 
into some of the error. I think they did an error measurement 
in about three States, so yes, we found there were significant 
errors in TANF when that study was done. There were very, very 
important perspectives that were coming from the State 
government challenging the HHS IG methodology.
    There is a lot to sort through there but I agree completely 
that until we have a measurement on TANF, our overall 
measurement is incomplete. I just don't know that we, without 
Congress' help, have a path forward on that particular program.
    Mr. Platts. I think that is an important point. As you and 
the IGs work through that issue, if there is a legislative 
barrier we need to take a look at, we welcome that information 
on how to partner with you.
    Mr. Wood or Ms. Davis.
    Mr. Wood. No.
    Mr. Platts. I yield to the gentleman from New York for the 
purpose of questions.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Ms. Davis, let me ask, in your testimony you state that 
identifying and analyzing the root causes of improper payments 
is the key to developing corrective actions to reduce and 
prevent improper payments. What has GAO identified as the main 
root cause of improper payments among Federal agencies?
    Ms. Davis. That is a good question. There are many answers 
to that and it would be difficult to put everything into one 
specific category.
    As you know, there are three different categories 
established by OMB: documentation/administrative, 
authentication medical necessity and verification errors. The 
compliance is about 50 percent as far as agencies reporting 
they have identified root causes within those.
    I can give an example that I think might be helpful to you. 
For example, the Department of Labor's Unemployment Insurance 
Program has determined that most of the errors there are due to 
people who have actually gone back to work and are still 
continuing to collect benefits. As an information point, the 
Department of Labor has been working with HHS who has a Do Not 
Hire data base and they are looking at that data base to help 
and assist them in determining when people actually go back to 
work.
    There are many, many reasons. There are many administrative 
errors. The issues presented have been categorized into those 
different areas. We noted that the explanations were in all 
three areas when we received information from the different 
agencies but the first area, the documentation and 
administrative area, seemed to have the highest recurrence or 
frequency of reasons for root cause information.
    Mr. Towns. Senator Carper said something that really, 
really bothered me. He indicated that an example of a person 
who had expired and 20 some years later, they were still 
receiving his or her social security money. I know it is the 
obligation of the family to report but is there any way we can 
connect with the funeral director and require some 
responsibility there in terms of from a legislative standpoint? 
It seems to me that should be easy to fix. If a person expires, 
the funeral director would indicate this person is no longer 
with us, therefore no further payment should be made.
    Does this make sense? I am trying to get my arms around 
what we can do to cut down on the numbers because they still 
seem to be very big. Anybody?
    Mr. Werfel. I agree, Congressman. This is an area we have 
delved into after the President directed the creation of the Do 
Not Pay List because in that memorandum, the President 
specifically called out the Social Security Death Master File 
as a dataset that we need to make sure we are checking more 
robustly to prevent these payments.
    There are a couple challenges. There is imperfect 
information in the Death Master File. The Social Security 
Administration has tried a variety of different efforts to 
improve the timely and accuracy of that data base, including 
working in some cases with States on programs to get funeral 
directors to report information more frequently. There are 
other mechanisms in play that can improve that but it remains 
an imperfect data base and that can be part of the problem.
    The other challenge, and this is something I think Congress 
can help us think about very closely, the access to the Social 
Security Death Master File and all these various data bases are 
not seamless. There are I believe legitimate but challenging 
legal barriers for an agency to access information whether it 
is the Privacy Act or data security issues.
    Even if we get a fully robust and timely complete Death 
Master File, which is a challenge we are working toward and 
Social Security is working on with us, the next hurdle is 
making sure that the agencies have real time access to that 
data because the 20-year example is egregious and we need to 
stop that.
    The higher risk is the more recent death situation where we 
didn't get the data, the payment went out and I think that is 
the higher probability of where we are going to make an error 
and that is where more of the improper payments are. To close 
that particular gap, we need to make sure we are getting access 
to data. We need to figure out good solutions to some of these 
legal issues because the Privacy Act and the data security all 
these issues are legitimate. We just need to figure out if 
there is a way to get agencies access to that information 
quicker while still protecting those other important interests.
    Mr. Platts. I yield myself time again. One is a follow up 
on Mr. Towns' question and the discussion about reporting of 
root causes and the failure by the majority in dollar amount of 
the improper payments did not come along with the proper 
identification of the root causes.
    In the Improper Payments Act of 2010, sanctions were 
created for agencies that do not properly comply with the law. 
I think that goes to the issue of not properly reporting the 
root causes of improper payments. HHS, which again has the 
majority of these improper payments, their auditors said for 
the eighth year in a row now, they have failed to comply with 
the original Improvement Act of 2002.
    Mr. Werfel, I know the 2010 act is a little over a year old 
but what type of sanctions should we expect to see and what, if 
any, are being pursued because of the failure of agencies to 
fully comply?
    Mr. Werfel. The Improper Payments Elimination and Recovery 
Act, which was passed in July 2010 I believe, for the first 
time changed the landscape on improper payments and added this 
concept of sanctions and increased accountability. Those are 
really triggered, I believe, on the Inspector General's review 
and their assessment, and based on the different type of 
noncompliance, whether it is failure to report root cause or 
having an error rate that is too high, whatever the issue is, 
or not reporting a program.
    For example, we discussed TANF in the HHS realm. The IG 
will report and I think those reports are due, and with the 
enactment of IPERA, we are now kind of in that first phase of 
IG assessment, and those reports are due in mid-March. At that 
time, we will have a good sense of what the landscape of non-
compliance is and then the statute will trigger a variety of 
different repercussions such as special reports to Congress, 
requirements in terms of how discretionary funds are used to 
combat improper payments.
    This is something we hope will help reinforce the 
importance of these things that are not being complied with. It 
is something we will have to evaluate together to see if those 
sanctions are doing their job or if we need to think 
differently and raise the stakes.
    Mr. Platts. Do you see, under the President's Executive 
order, we created accountable officials? They kind of go hand 
in hand with the law of trying to ensure compliance and make 
sure there isn't a reason for sanctions. Can you comment on how 
the administration sees the accountable officials working with 
the requirements for sanctions if there is noncompliance?
    Mr. Werfel. Absolutely. Let me start by saying I have had 
the privilege and the opportunity of being at OMB across the 
entire life span of the Improper Payments Initiative starting 
with the passage of the IPIA in 2002 until today and I believe 
firmly that this administration has set a new bar in terms of 
accountability.
    The President himself has been actively engaged on the 
issue. I have been in meetings where he has talked to Deputy 
Secretaries directly about his concern over this issue. The 
establishment of the senior accountable official is a part of 
the blend of different things that the administration is doing 
on a whole variety of management improvements.
    I think we need to look at a broader picture. From the HHS 
perspective, you mentioned that half our balance sheet is HHS 
for these improper payments. There is a tremendous footprint of 
work going on at HHS right now. It is a major, major top 
priority. I mentioned the President, the Vice President is also 
interested in this. The Vice President is now holding quarterly 
Cabinet meetings on waste and improper payments is an essential 
theme of those meetings. I think in two of those meetings, 
Secretary Sebelius has presented to the Vice President on HHS 
efforts. This is at the very highest level.
    I will point out I think it is important to note that while 
there are areas HHS needs to improve upon, when you step back 
and look at the amount of improper payments that HHS makes, it 
is staggering, but at the same time, the major programs in HHS, 
all the parts of Medicare and Medicaid, those error rates are 
declining and have declined several years in a row. That is an 
important trend and demonstrates that the agency effort is 
having an impact.
    As everyone in this hearing has noted so far, there is a 
lot more work to be done but I think the trend is positive.
    Mr. Platts. If you use Part D as kind of the newest major 
program to come online, I think an error rate of a little over 
3 percent versus over 8 percent for Medicare and Medicaid, I 
hope that means since it is a new program, we are getting it 
right up front as opposed to trying to correct problems down 
the road with Medicare and Medicaid after the fact.
    Mr. Werfel. I would say that the Department is much more 
focused and has much more resources they are bringing to bear 
on improper payments at the birth of Part D than they did at 
the birth of the other programs. I think that is one of the 
reasons why you are seeing a Part D error rate that is lower 
than the other programs.
    Mr. Platts. Hopefully that continues. Before I yield to Mr. 
Towns, I think all three of you had an opportunity to hear 
Senator Carper's testimony and are familiar with his 
legislation. It may not be fair to ask without him here to 
respond, but what do you think is most important in his bill 
that we should be looking at or is there anything that concerns 
you in a broad sense.
    Mr. Werfel, maybe for you specifically, the Do Not Pay part 
of his bill, do you think it aligns with what he is proposing 
legislatively and what the administration is already seeking to 
do or is there something we should be aware of in the 
groundwork already laid that we don't undo it legislatively by 
taking a different approach?
    I will start with Mr. Wood, Ms. Davis and then Mr. Werfel, 
we will finish with you, the broad pros and cons of the bill 
and then specifically the Do Not Pay part for Mr. Werfel.
    Mr. Wood. Thank you and I will touch on the Do Not Pay as 
well because we have been doing some work in that related area 
at the Recovery Board.
    I think it is a strong bill and I think it improves the 
methodology for collecting this data. As Mr. Werfel said, the 
data is not always perfect. We seem to be moving in a direction 
to get that.
    One of my concerns, at the Board, our tools are focused 
more on prevention and oversight. That is what we have been 
doing with the Recovery Act. We have done a fairly good job on 
that. We have talked to both OMB and GAO and the Treasury 
Department is building this GoVerify system about our 
technology and their technology.
    My concern with the Do Not Pay area would be being to 
prescriptive in what do you have to look at for Do Not Pay. At 
the Board, we take sort of a broader approach. We have our 
Recovery Operations Center, we have a system where you can run 
entities or individuals through it and come up with a list of 
people who would clear and then take a closer look at people 
where you think there is a problem because there are a lot of 
false positives and so forth.
    We have talked to Treasury about our approach. Danny 
mentioned it is difficult to get access to some of these data 
bases. We are still working on getting all the data bases 
listed in the Executive order that talked about Do Not Pay.
    The one area I think I would be concerned about in looking 
at that from a technology standpoint and an oversight 
standpoint is being too prescriptive in here are the three 
things you will check. There are a lot of things you might 
check.
    For instance in the Recovery Operations Center, one of our 
successes has been able to look across government. You can look 
at things, for instance, these recovery audits which are 
recouping payments, you can look at them across government 
perhaps using non-structured data analysis to find if there are 
trends and similarities where you might not expect them.
    DOD may collect some money that is very similar to what 
Social Security Administration is collecting and for the same 
reasons that it gets to the root cause analysis. There are some 
technological approaches you could take that are interesting, 
some of advanced, cutting edge sorts of things that you really 
don't want legislation tying your hands on any of that.
    I don't think it does at this point but that is one area, 
in reviewing it, that I would mention.
    Mr. Platts. In essence, making it clear that if the 
legislation identifies certain data bases to look at.
    Mr. Wood. These, plus perhaps others, and the methodologies 
might go beyond one check.
    Mr. Platts. Ms. Davis.
    Ms. Davis. Since GAO has not formally reviewed the bill, I 
cannot specifically comment. I can say that at a very high 
level, the intent of the bill for accountability transparency 
purposes is certainly an admirable goal. I can also make a 
statement again very generally that some of the concepts in the 
bill such as looking at high priority programs and data 
matching, comparing data bases, are best practices that we 
really talked about in many of our reports. Other than that, I 
really cannot comment.
    Mr. Platts. Mr. Werfel.
    Mr. Werfel. Similar to Ms. Davis, we have not run the 
appropriate process across the administration so I can present 
an administration position, so I don't want to state anything 
that could be represented that way.
    I will say on a general matter, and reinforcing my point 
earlier, the number one barrier to success in the Do Not Pay 
environment is going to be access to data. I think one of the 
most important things Congress can do to help on improper 
payments is to help us pull back the onion layer on these 
various data bases and figure out how to navigate this 
important tension between privacy and security and the need to 
have this information to enforce program integrity outcomes.
    I think right now we haven't tackled the issue directly and 
therefore, every time we determine that access to a data base 
is going to be helpful to drive down improper payments, we go 
through a very long and laborious process to try to figure out 
how to thread the needle and get the data in and we are not 
serving the taxpayer effectively by taking it one at a time. I 
think that is one of the most important things we can do as a 
community.
    Mr. Platts. We certainly saw that in our oversight hearings 
regarding the Internal Revenue Service and taxpayer identity 
fraud and the challenge of access to information preventing 
that type of fraud from occurring.
    I understand you can't speak as far as the administration 
position. As it currently stands, are you aware of anything in 
the bill regarding the Do Not Pay aspect of it that would undo 
the efforts currently underway by the administration regarding 
Do Not Pay?
    Mr. Werfel. I am not aware of anything that I would undue. 
If I understand the bill correctly, its intent is to reinforce. 
Again, I would go back to this broader question of data access 
as the big issue that is going to help accelerate and drive 
greater success outcomes. I don't know of anything in the bill 
that undoes it.
    Mr. Platts. I yield to the gentleman from New York, Mr. 
Towns.
    Mr. Towns. Mr. Wood, can you explain what factors you use 
to predict whether a program is susceptible to fraud?
    Mr. Wood. I don't know if I have a perfect explanation of 
that but we do look at a whole series of factors. When we were 
doing the Recovery Act early on, we worked very closely with 
the various Inspectors General, and with the program officials 
and OMB to come up with a list of what we considered high risk 
programs. That was based on a whole series of analysis, 
historical information, data we might have on hand, what type 
of spending it was going to be and what seems to be more 
subject, at least historically, to risk. As Mr. Werfel keeps 
mentioning, part of our issue with the Federal Government is we 
don't have good historical data sets around some of these 
things.
    We look at a whole series of things. We are building a 
product called the fraud scorecard which is very similar to 
something you might see in FICA and the actually the people who 
developed it are building it for us. When we look at it, the 
difficulty we have is we don't have as good historical data 
sets of bad actors. That kind of information just wasn't 
collected in a manner that would help us. You take the people 
who did things incorrectly versus those we know who did it 
correctly and you build some factors where you could do that 
using technology.
    At the Board, we have combined both technology and sort of 
commonsense rules of thumb on what we see as high risk areas. 
That is what we are looking at. The Board is looking at 
identifying these high risk areas and trying to initiate 
preventive measures, better internal control, training, 
different checks on who we are giving money to, that type of 
thing.
    If I could figure out a good set of characteristics for 
fraud, I would probably be very wealthy.
    Mr. Towns. You wouldn't need this hearing.
    Mr. Wood. Yes, we could design a solution. Hopefully that 
is helpful. We sort of look at a matrix of things. At the 
Board, we are lucky we have technology that we are able to 
apply that is very powerful as well that needs to be 
interpreted by humans.
    Mr. Towns. I noticed that there have been 70 leads of 
possible fraudulent activity to various agencies. Will you be 
able to get results as to whether or not what you suspected 
really happened? I am trying to figure if there is a feedback 
mechanism?
    Mr. Wood. Yes, there is and we actually just started an 
effort at the Board to go out and work closer with the IGs to 
build that better feedback mechanism that if we send out 
information, what is happening with that, is it really 
actionable and does it turn into cases. Unfortunately, if it is 
a criminal matter, that could take a couple years, so we are 
fairly young in that regard. We have only been around for a few 
years and a couple of years before we sunset.
    We are building a feedback. We have a new chairman, Kathy 
Tighe, who has come over to replace Earl Devaney who had been 
there for the last few years. That is one of the things Kathy 
has been working on, to try and get this feedback loop in place 
so we can answer those questions very specifically.
    Mr. Towns. Thank you very much.
    Mr. Werfel, people doing wrong sometimes find different 
ways and methods to move on to continue to do wrong. What steps 
have been put in place to ensure that individuals and entities 
that are on the list do not simply create a new company or 
continue their fraudulent activities by changing their name?
    Mr. Werfel. That gets to what Mr. Wood talked about being 
the real game changer in terms of addressing error reduction. 
The Excluded Party List GSA has of those suspended and debarred 
from receiving Federal payments, if we do a one dimensional 
match and say I am about to pay 30 vendors and I run a match 
against the GSA data base, I could very well not see any of 
those 30 entities appear, assume none of them are suspended or 
barred and move forward.
    As you point out, the reality may be that one of the 
entities I am about to pay was a suspended and debarred entity 
not a few years ago but has reincorporated under a new name and 
therefore has done so in a way that eludes our ability to make 
sure we stop that payment. In order to get at that, you have to 
do two things. You have to access more detailed and robust sets 
of data. You can't just rely on the simple, uni-dimensional GSA 
list, you have to do some investigation outside of that list to 
understand the history of some of these companies and the 
relationship of some of these companies. Fortunately, where we 
are today in the information age, that type of information is 
available.
    As Mr. Wood pointed out, you need human beings that know 
how to ask the questions of data. It can't simply be the 
technology doing the match, you have to be smart enough to look 
for patterns and trends and profile some of this information to 
say this is the type of company that we have seen before that 
has been reincorporated in a new name, so we know exactly how 
to ask the data.
    It is not easy to do. I think the good news, Congressman 
Towns, is that because of the great work that is going on, the 
Recovery Board has plowed new ground in terms of showing us the 
way in terms of how to look at the data multi-dimensionally. 
When we build our GoVerify Center, I mentioned earlier it is 
not just the technology, there is an Analytic Center, it is for 
this exact reason because just the technology won't solve the 
problem, you need the analytics as well in order to stay ahead.
    I think where you would be pleased is if HHS was here 
talking about some of the work they are doing in fraud 
detection. They are asking these multi-dimensional questions 
they didn't ask previously. They are starting to look and 
understand trends and patterns of behavior they didn't once 
know about. Frankly, the Recover Board helped them raise their 
game because the Recovery Board did a pilot of their tool with 
HHS and showed them some new tricks and new ways of staying 
ahead of the fraudsters now being deployed at HHS.
    We are not where we need to be yet but there is some 
promising direction taking place. We are starting to have more 
robust approaches to fraud detection.
    Mr. Towns. My time has expired but I have one quick 
question. I know you asked about the legislation and I heard 
the response. Is there anything more we need to do on this side 
of the aisle that might help you be able to work much more 
effectively and be able to solve some of the problems you keep 
running into?
    Mr. Werfel. From my standpoint, there are a couple of key 
things. Last year's President's budget, for example, includes a 
series of program integrity proposals that we believe have a 
dramatic and important impact on improper payments that have 
been in budgets for years and not been enacted for whatever 
reason.
    In some cases, it is investing in more reviewers and 
investigators but that infrastructure you invest in has a 
return on investment, sometimes $11 for ever dollar invested. 
Those are really, really important things that we need to be 
very careful if we are not going to make those investments in 
understanding the cost we are bestowing on the taxpayer when we 
don't do that.
    There is also included in previous Presidential budgets 
legislative changes that provide tools, for example, to the 
Treasury Department or others that help us wield certain tools 
to help collect data or enforce improper payments more 
effectively. Whenever I am asked that question, I try to call 
attention to those remaining program integrity provisions that 
are not provided for.
    I reiterate, helping us crack this nut of data access, 
making sure we can balance those policy tensions and third is 
what you are doing today, these types of hearings, it is 
powerful and important for me to go back to the agencies and 
say I was just up on Capital Hill, they were demanding answers 
on improper payments, that empowers me to work with the 
community to make sure they are dedicating the necessary 
resources to address the problem.
    Mr. Towns. Thank you.
    Mr. Wood.
    Mr. Wood. I would second the item on access to data sets. 
Anything the Congress could do to alleviate some of the 
problems we run into because of the Privacy Act. There is a 
tension; you don't want to release privacy information but at 
the same time, the government needs to be able to match some of 
the data in an easier way.
    The second piece related to data is anything you could do 
in your oversight role or in other legislation to push data 
quality and standardization. We have new tools that allow us to 
reach into some of these data bases that are fairly antiquated 
and match data but that is a difficult thing to do.
    There are a lot of people maintaining these data bases and 
if they would do it in a more standard way, build them in a 
more modern way where we can get access to the data much easier 
than we do today, that would be very beneficial so we could 
share data easier. Those would be my two points.
    Mr. Towns. Thank you.
    Ms. Davis. Congressman Towns, I would echo the earlier 
comments about the value of these hearings. I think they show 
the transparency and the importance of this issue, so that 
would be my first comment.
    My second comment might be looking very deeply at some of 
these program design issues to the extent they might be 
affected by legislative barriers. Medicare is a very good 
example of how we have partnerships with the States but it is 
very difficult because there are so many complex and 
inconsistent requirements among the States. It creates 
difficulties and is certainly something that would affect 
improper payments.
    The other area is working more closely with GAO as you have 
been doing. We have a number of projects currently in process. 
We have a couple of Medicare projects related indirectly to 
improper payments; we have two projects in Medicaid that are 
looking at improper payments. One of them is specifically 
looking at CMS estimating methodology. One is in the design 
phase so it is very early. The other is expecting a report 
probably this summer, may be around June.
    We are looking at DOD looking at a number of things related 
to improper payments along with some of their estimating 
methodologies, looking at the Recovery Audit Program and 
regulations affecting improper payments.
    We continue to do that and would be happy to continue to 
work with you in any way we can and any issue related to 
improper payments.
    Mr. Towns. Thank you very much.
    Thank you, Mr. Chairman, for your generosity. I know I went 
way over my time.
    Mr. Platts. You and me both.
    A final comment, Mr. Wood, those projects with Medicare and 
Medicaid, and Mr. Werfel, with your discussions as part of your 
testimony with HHS in the broad sense of the leadership of 
Secretary Sebelius and the commitment they are making. We may 
want to look at a hearing specific to HHS programs that may 
include what GAO is looking at and allowing the Department to 
share what they are doing. Certainly it is important given the 
size of the improper payments that come under that Department, 
but also what they are doing that can be beneficial across the 
Federal Government departments and agencies.
    That is something we can look at maybe later this summer, 
to have GAO participate with those projects, it would have to 
be a bit later in the summer. I think it would be a good idea 
for us to look at that.
    I do want to again thank each of you for your testimony. As 
always, we are very blessed by the knowledge and expertise our 
witnesses bring to us. Mr. Werfel, you have been before us a 
good number of times over the years, probably both when Mr. 
Towns chaired as well as when I have chaired. To all of you, 
and especially Mr. Werfel, your leadership on these issues and 
the partnership you have had with this committee for a long 
time is appreciated.
    We are going to keep the record open for 7 days if there 
are other materials to be submitted and look forward to 
continue to work with you on the macro sense as well as the 
micro sense such as Senator Carper's legislative proposal as we 
go forward.
    This hearing stands adjourned.
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

                                 
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