[Senate Hearing 112-300]
[From the U.S. Government Publishing Office]
S. Hrg. 112-300
ASSESSING EFFORTS TO ELIMINATE IMPROPER PAYMENTS
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MAY 25, 2011
__________
Available via the World Wide Web: http://www.fdsys.gov
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
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SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION,
FEDERAL SERVICES, AND INTERNATIONAL SECURITY
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan SCOTT P. BROWN, Massachusetts
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
CLAIRE McCASKILL, Missouri RON JOHNSON, Wisconsin
MARK BEGICH, Alaska ROB PORTMAN, Ohio
John Kilvington, Staff Director
William Wright, Minority Staff Director
Deirdre G. Armstrong, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Carper............................................... 1
Senator Brown................................................ 5
Senator Pryor................................................ 5
Prepared statements:
Senator Carper............................................... 39
Senator Brown................................................ 42
WITNESSES
WEDNESDAY, MAY 25, 2011
Daniel I. Werfel, Acting Controller, Office of Management and
Budget......................................................... 7
Hon. Richard Gregg, Fiscal Assistant Secretary, U.S. Department
of the Treasury................................................ 9
Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and
Chief Financial Officer, U.S. Department of Defense............ 10
Hon. Calvin Scovel, III, Vice Chairman, Recovery Accountability
and Transparency Board......................................... 13
Kelly Croft, Deputy Commissioner for Systems, U.S. Social
Security Administration........................................ 15
Alphabetical List of Witnesses
Croft, Kelly:
Testimony.................................................... 15
Prepared statement........................................... 74
Gregg, Hon. Richard:
Testimony.................................................... 9
Prepared statement........................................... 51
Hale, Hon. Robert F.:
Testimony.................................................... 10
Prepared statement........................................... 55
Scovel, Hon. Calvin L., III:
Testimony.................................................... 13
Prepared statement........................................... 65
Werfel, Daniel I.:
Testimony.................................................... 7
Prepared statement........................................... 44
APPENDIX
Questions and responses for the Record from:
Mr. Werfel................................................... 78
Mr. Hale..................................................... 87
ASSESSING THE EFFORTS TO ELIMINATE IMPROPER PAYMENTS
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WEDNESDAY, MAY 25, 2011
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room 342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, Pryor and Brown.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. The hearing will come to order.
Welcome, one and all, to our witnesses, to our guests. Glad
you could join us today.
I want to thank our staffs, both Democrat and Republican,
for their work in preparing for this hearing, not our first
hearing on trying to reduce or eliminate improper payments, but
an important hearing. And while the amount of improper payments
actually is growing, I think because we are requiring or having
more agencies that are complying with the law and we have
amended the law to make the net a little bigger. Overall, I am
encouraged that we are starting to make some progress.
Today's hearing will focus on the very high levels of
improper payments that are being reported now by Federal
Agencies as well as our efforts to try to curb these wasteful,
and sometimes fraudulent, payments.
As we hold this hearing today, our Nation faces
considerable economic challenges although I am encouraged. I
have just been on the phone today with some folks from the
financial services industry, talking in one instance about what
is going on in terms of meeting mortgage payments and
delinquencies on mortgage payments. Actually, it has been
encouraging news. It was reported to me as sort of the canary
in the coal mine but in a positive way, in terms of early
indicators. So we are encouraged that things are getting
better, too slowly, but we are making some progress.
But partly as a result of the challenges that we continue
to face, we have record budget deficits as we know, and our
national debt stands at about $14.3 trillion dollars, well over
double what it was just 10 years ago.
And as you are all undoubtedly aware, just a few days ago
we reached the Federal debt ceiling. The legal limit for
borrowing money by our Federal Government has been met. The
last time the debt was this high, at least as a percentage of
Gross Domestic Product (GDP), I think was at the end of World
War II. That level of debt was not sustainable then, and I
think most of us would agree it is not sustainable today.
A wide variety of ideas have been put forward on how to
reduce our budget deficit and begin whittling down our debt.
Last fall, a majority of the bipartisan deficit commission
appointed by President Obama provided us with a roadmap to
reduce the cumulative Federal deficits over the next decade or
so by about $4 trillion--about two-thirds on the spending side,
one-third on the revenue side. A number of the steps that were
in their suggestion we would have to take would be painful if
we are to meet that goal.
While most Americans want us to reduce the deficit,
determining the best path forward will not be easy. I was at a
gathering where we were having a pollster present some polling
data on the deficit:
Do people being polled across the country think the deficit
is a problem? Yes, they do.
Do they think it is something we should do something about?
Yes, they do.
Should we do it on the spending side or the revenue side?
More spending, some revenue, but some of each.
And then the pollster went literally through a whole litany
of spending programs, whether it is domestic discretionary
spending, defense spending, entitlement program spending, where
we should making the cuts.
And one by one by one, people said no, do not cut there, do
not cut there, do not cut there, and do not raise taxes.
And the pollster finished his presentation, and he said to
a group of my colleagues and others, he said any questions or
any comments?
And one of the people in the room said we need a new
public. [Laughter.]
I do not know if we do or not, but it is a pretty good
line.
Many Americans believe that those of us here in Washington
are not capable of doing the hard work that we were hired to
do, and that is to effectively manage the tax dollars that we
are entrusted with. They look at the spending decisions we have
made in recent years, and they question whether the culture
here is really broken. They question whether or not we are
capable of making the kind of tough decisions that most
families make with their own budgets. And you cannot blame them
for being somewhat skeptical.
I think we need to really change the culture here and to
move away from what I describe as a culture of spendthrift and
to move us toward a culture of thrift, and that is what we
endeavor to do in this Subcommittee. We try to do it by
partnering with the Administration, by partnering with the
Office of Management and Budget (OMB), by partnering with the
Government Accountability Office (GAO), by partnering with
Inspectors General (IGs) all across the Federal Government and
all the different departments, and we partner with a bunch of
nonprofit groups that are interested in waste and eliminating
waste. It is a good way to increase our leverage and at the end
of the day to get some things done.
And actually we are making a little bit of progress. I am
encouraged by that.
I have said here many times we need to look in every nook
and cranny of the Federal Government, all of our spending,
whether it is domestic or defense or entitlements, tax
expenditures, and basically ask this question: Is it possible
to get a better result for less money, or maybe a better result
for the same amount of money?
But even before we start on that important work, we need to
sharpen our pencils and stop making the kind of expensive
avoidable mistakes that lead to improper payments.
Every year for a number of years, our friends at GAO have
been looking at improper payments, and Senator Coburn and I
wrote a change to the law that was adopted and signed by
President Obama last year. We know that as of last year, a
number that is pretty hard to miss, there was $125 billion in
improper payment. I would like to say that is all. They are not
reporting all improper payments. We have some missing returns,
if you will, from the Department of Defense (DOD). I do not
think that includes the Medicare Part D prescription drug
program, and there are some other outliers that are not in yet.
But it is a whole lot of money.
Even in a big State like Massachusetts, that is a lot. That
is real money.
These improper payments come from over 70 programs at 20
different agencies. They include programs like Medicare and
Medicaid, civilian and military pay at the Department of
Defense and Federal Emergency Management Agency (FEMA), just to
name a few.
And improper payments--sometimes people say to me: Well,
what is counted as an improper payment, or maybe what is not?
But an improper payment occurs, as most of you probably
know, when an agency pays a vendor for something it didn't
receive or, maybe even pays them twice. It can occur when a
recipient has died and is no longer eligible for receiving a
payment, or when a vendor owes the government money and legally
should not be getting a payment until that obligation to the
government has been met.
These are the kinds of mistakes that occur every day across
government. If the truth were known, it probably also occurs
every day at big companies. And we need to work on those with
the kind of vigor and commitment that those big companies work
on them.
What disturbs me about the problem here in the Federal
Government is that we seem to make these kinds of mistakes at a
rate that is much higher than businesses and higher than the
average family would tolerate or could afford.
We throw big numbers around Washington all the time. So I
want to take a moment just to put things in perspective, as I
have in the past at hearings of this nature.
The $125 billion figure is more than the gross domestic
product of each of 120 other countries around the world. In
fact, for a comparison even closer to home, $125 billion would
fund the entire State of Delaware's operating budget for about
40 years. But I should point out that--and Arkansas's budget
for probably about 3 years. I should point out to our Ranking
Member that it would not only fund the State of Massachusetts
for well, not 40, but 4 years, but yours is a big State.
So it is easy to see how urgent it is that we step up the
pace of our efforts to prevent improper payments and eliminate,
to the best of our abilities, the management problems that lead
to waste and ultimately to fraud. Success in doing so will go a
long way toward helping us to reduce our deficit.
The good news is that we are seeing some renewed commitment
to reducing improper payments and we have made some progress. A
number of agencies have reduced their mistakes, and saved money
since we first began to shine a spotlight on improper payments
during the Bush Administration.
Today, we have been joined by several witnesses who are
each key players in helping the government successfully
identify, decrease and even eliminate improper payments in the
Federal Government.
A new law that I mentioned earlier, that I co-authored with
Senator Coburn and a number of our colleagues on this panel, is
moving us even further along. The Improper Payments Elimination
and Recovery Act, signed into law by President Obama last
summer, requires more transparency from agencies with regard to
waste and fraud within their programs. It also forces managers
to take additional steps to end practices that lead to improper
payments and, where appropriate, recover the funds that they
spend. And we also say we introduce into the equation here new
criteria on which managers are evaluated, and that includes the
rigor with which they enforce the new law.
In addition, our witnesses today will talk about some
specific ideas, well, at least one specific idea called the
``Do Not Pay'' List. The idea of the Do Not Pay List is
straightforward and logical. It would require that Federal
agencies first check against a centralized Federal database,
the Do Not Pay List, to better ensure that we are not paying
recipients who are ineligible for payments.
Of course those watching this hearing may ask the obvious
question: Why would a Federal agency ever pay an individual who
has died or is a debarred Federal contractor, for example?
And 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. Many also have antiquated databases and
computer systems for tracking basic payment information. The Do
Not Pay initiative is a major attempt to fix this frustrating
problem.
And we are here today in large part because I believe that
we have a moral imperative to ensure that scarce resources that
we do put into our Federal programs are well spent. I think my
colleagues agree with that. It is the right thing to do on
behalf of the taxpayers who entrusted us with their hard-earned
money. We must use every tool available to bring our fiscal
house back to order and give the American people the government
that they deserve and, frankly, can afford.
Now I want to turn to Senator Brown and then to Senator
Pryor for any comments that they would like to make.
Gentlemen, welcome. Thanks so much for being here and for
your active involvement.
OPENING STATEMENT OF SENATOR BROWN
Senator Brown. Thank you, Mr. Chairman. Sorry I was a
little late. I am having one of those days.
But I want to thank you for holding this hearing. And it is
funny, listening to you talk. I appreciate your personalization
of that and pointing out how much we could be doing with the
money that we are inappropriately paying.
I mean how many people listening or in the audience have
actually got a bill or a credit card or something and you look
at that charge and its like, oh my, that is not accurate? And
then you spend like 4 or 5 hours, even if it is just a finance
charge you have received and it is for $7, but you will spend 3
hours getting that done because you have won a battle and it is
a you over the machine type of thing.
And yet, here we are in the Federal Government, $125
billion, and it is like oh, yes, now we will get to it. It is
getting larger.
I do want to say that through your efforts, sir, and
Senator Coburn's and others, we have had some success.
And I know that I do appreciate the efforts of Mr. Werfel
and the Office of Management and Budget to take this effort
very seriously. I am encouraged by that, by the new initiatives
that you have just referenced, the Do Not Pay List, for
example.
And Mr. Robert Hale's part, for your quick response to our
letters, shows me that the DOD is also putting more attention
to this problem. That is why I was glad to co-sign a letter,
along with you, Mr. Chairman and others, asking DOD to provide
that inquiry as to what the status is and how it is going to
fix the problem.
And quite frankly, Mr. Chairman, I think we should do this
with every department and ask them what are their plans because
I have said it before. Here we were a couple weeks ago,
wrestling about $61 billion. We are going to shut down the
government. Remember that?
And yet, here we are. We are giving away $125 billion
through whatever means, whether it is fraud, waste and abuse,
just improper payments, just a mistake, however you want to
phrase it. It just makes no sense to me. So I appreciate the
effort.
I have a more detailed opening which I will make part of
the record, but I want to just hear the witnesses and move on.
Thank you.
Senator Carper. That is great. And your entire statement
will be made part of the record.
Mark, welcome. Thank you both. Any statement you would like
to offer, please?
OPENING STATEMENT OF SENATOR PRYOR
Senator Pryor. I do not. I just want to thank you, and
thank both of you, for your leadership on this, and I look
forward to hearing what the panel has to say today.
I think it is very important that we keep our eye on the
ball. As Senator Brown said, it is not always easy to do around
here for some reason, but anyway, thank you for this hearing
and thank you for holding our feet to the fire on this.
Senator Carper. You bet. Thanks for being part of this
team.
I am just going to introduce our witnesses from our left to
our right, from your right to your left.
And our first witness today will be probably someone we
have seen before here, Danny Werfel, and we are delighted to
see again our Controller at the White House Office of
Management and Budget. You are nice to come.
He is responsible for coordinating the OMB's efforts to
initiate governmentwide improvement in all areas of financial
management including financial reporting, improper payments and
real property management--all those issues that we are deeply
involved in here as we get to work with him a lot. Those are
important issues. I think they are important to the
Subcommittee. They are important to the Committee. They are
important to all of us, whether you serve here or not.
Mr. Werfel is a frequent witness here before this
Subcommittee and someone we very much enjoy working with, so
thanks so much.
Next, I would like to introduce from the Department of the
Treasury, Richard Gregg, and Mr. Gregg is the Fiscal Assistant
Secretary. Fiscal Assistant Secretary. How long have you been
Fiscal Assistant Secretary?
Mr. Gregg. Just 2 years. I retired after a long career in
Treasury and came back 2 years ago.
Senator Carper. So you failed at retirement, is that it?
Mr. Gregg. Yes. [Laughter.]
Senator Carper. Mr. Gregg is responsible for developing
policy on payments, on collections, on debt financing
operations, on electronic commerce, on governmentwide
accounting and government investment fund management at
Treasury. That is a lot.
And he is a busy fellow these days, and we appreciate very
much your being with us, sir.
Robert Hale, no stranger here, Under Secretary of Defense
and Comptroller, as well as the Chief Financial Officer (CFO),
at the Department of Defense. That is a big job, responsible
for the Department's financial policies, for financial
management systems and business modernization efforts. He has
come before our panel, again as I said before, to discuss the
Department's financial management.
Mr. Hale was an officer in the Navy--go Navy--and he has a
long history of working with the Department of Defense on
financial management improvements. He also worked at the
Congressional Budget Office (CBO).
We thank you for your service and thank you for joining us
today.
Next, Mr. Calvin L. Scovel, III. We have a new intern in
our office. He is also the Third, and I said what should I call
you?
He said you may call me Trip.
And I said would that be with one P or two?
And he said just one.
So we have a Trip. And he is. [Laughter.]
But he is a good man. He is a very good man.
Calvin Scovel is the Vice Chairman of the Recovery
Accountability and Transparency Board (RATB) and Inspector
General of U.S. Department of Transportation (DOT). These
positions are his second career. He has a distinguished
military history serving as a Marine judge advocate and
retiring as a brigadier general in the Marine Corps. Is that
right?
That is great. He has us outranked, Scott.
Well, you were a general, were you not? Attorney general.
[Laughter.]
That tradition of service continues today in his family.
One of your two sons serves as a police officer, yes, and
another is an officer in the Marine Corps who graduated from
the Naval Academy. So that is good for your family.
Where is your son serving now?
Mr. Scovel. He is in the Infantry Officer Corps, sir, down
in Quantico, ready to go to 5th Marines at Camp Pendleton and
next year to Afghanistan.
Senator Carper. All right. We were just over there. Scott
and I have been before, and I know Senator Pryor has been
there. Very impressed a couple weeks ago when I was there. With
our men and women who are serving, very impressed.
Mr. Scovel, again, we thank you for your time and for your
service to our country.
And finally, Mr. Kelly Croft, Social Security
Administration (SSA). We welcome you, Mr. Croft. I believe you
are the Deputy Commissioner for Systems at the Social Security
Administration, and you have worked at the Social Security
Administration for, it says here, 30 years. Is that right?
Mr. Croft. Yes.
Senator Carper. Did you start as like right out of school?
Mr. Croft. Pretty much.
Senator Carper. OK. Middle school? [Laughter.]
And you led many important initiatives including electronic
disability folders and Medicare modernization. We are happy
that you are here.
Your entire statements will be made part of the record.
Feel free to summarize. If you are much over 5 or 6 minutes, we
might try to rein you in, but up to that you are in good shape.
We are going to start with votes at about, I am told, 5. So
we should have a chance to get all this in and make our goals
as well.
So thanks. Please begin.
STATEMENT OF DANIEL I. WERFEL,\1\ ACTING CONTROLLER, OFFICE OF
MANAGEMENT AND BUDGET
Mr. Werfel. Chairman Carper, Ranking Member Brown, Senator
Pryor and another distinguished Members of the Subcommittee,
thank you for inviting me to testify today.
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\1\ The prepared statement of Mr. Werfel appears in the appendix on
page 44.
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This Subcommittee has been at the forefront of moving us
forward in addressing improper payments, and I look forward to
continuing to work together with you on this problem. Last
August, I spoke before you about our efforts to prevent and
recapture improper payments, and I appreciate the opportunity
to testify before you again.
As you have mentioned, Senator, one of the biggest sources
of waste and inefficiency within the Federal Government is the
amount we pay out each year in improper payments. In Fiscal
Year (FY) 2010, Federal agencies estimated that approximately
$125 billion in improper payments were made to individuals,
organizations and contractors. Although not all errors are
fraud, all payment errors degrade the integrity of government
programs and compromise citizens' trust in government.
As part of the Administration's Accountable Government
Initiative, we have set aggressive goals to prevent $50 billion
in improper payments and recapture at least $2 billion in
improper payments between FY 2010 through FY 2012. These goals
represent a significant acceleration in increase of recoveries
from the previous several years.
In addition to the enactment of the Improper Payments
Elimination and Recovery Act of 2010 (IPERA), as well as
putting forward administrative, legislative and funding request
in the Fiscal Year 2012 President's Budget, the Administration
is already taking several steps to prevent, reduce and
recapture improper payments, which I would like to briefly
highlight.
For example, in November 2009, the President issued an
Executive Order (EO) on Reducing Improper Payments. The
Executive Order aims to reduce and prevent improper payments by
enhancing transparency, increasing agency accountability and
exploring incentives for State and local governments to reduce
their error. The order represents a fresh approach to
addressing improper payments and emphasizes the importance of
detecting fraud, averting improper payments and improving
payment accuracy without making government programs harder to
navigate.
In addition, this Administration has made leveraging
technology a major focus for addressing improper payments.
Technology was a central theme of the Executive Order which
required OMB to work with agencies to identify new forensic
tools and technologies.
Last June, the President issued a memorandum to agencies to
enhance payment accuracy. As a result, we have created an
initial portal called VerifyPayment.gov, which will serve as a
single source through which all agencies can check the status
of potential contractor, grantee or individual beneficiaries by
linking the agency to relevant eligibility databases such as
the Social Security Administration's Death Master File or the
General Service Administration's (GSA) Excluded Party List.
While the initial portal has been built, the Treasury
Department's Bureau of Public Debt (BPD) is responsible for
enhancing the portal and developing the operations center that
will utilize forensic technology. In fact, the implementation
of this initiative will have several components to be executed
in phases. The next step for expanding VerifyPayment.gov is to
connect all needed data sources and create an operations center
that will leverage forensic technology to assist agencies in
identifying, preventing, reducing and recapturing error.
In addition, other phases will include conducting pilot
tests of the portal by Federal agencies, addressing
implementation issues and developing capabilities for
automating the checks by agencies' systems. The automation
phase would incorporate cutting-edge fraud technology, like
those utilized by the Recovery Board, to further reduce the
number of improper payments.
I want to also highlight that last month OMB released its
guidance on implementing IPERA. The guidance ensures that
agencies are properly assessing risk in their programs,
measuring and reporting improper payments for required programs
and establishing corrective action plans and reduction targets
to drive agency performance. We have already been answering
many questions from agencies and have been meeting with them to
discuss the new requirements.
I want to thank you again for inviting me to testify here
today, and I look forward to answering any questions that you
may have.
Senator Carper. All right. Thanks for your testimony, and
we will look forward to the Q and A's.
Mr. Gregg, please proceed.
STATEMENT OF HON. RICHARD GREGG,\1\ FISCAL ASSISTANT SECRETARY,
U.S. DEPARTMENT OF THE TREASURY
Mr. Gregg. Good afternoon, Chairman Carper, Ranking Member
Brown, Senator Pryor. It is a great opportunity to testify
today on Treasury's work to help ensure the validity of
government payments.
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\1\ The prepared statement of Mr. Gregg appears in the appendix on
page 51.
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The Administration set a very high priority on the
importance of reducing improper payments. In the June 2010
memorandum, President Obama reinforced his commitment to
eliminate waste, fraud and abuse in Federal programs, including
reducing and capturing erroneous payments. There are many
causes of improper payments, but whatever the cause we can all
agree on one thing, that the amount of those payments remains
unacceptable and immediate steps need to be taken to reduce
them.
In 2010, Treasury supported an OMB initiative to examine
improper payments. The Treasury-led work group identified key
pieces of information that could help solve this problem. If
agencies have access to accurate and timely data on death,
employment status, income levels, incarceration and residents
of dependent children as well as information on whether or not
applicants are already receiving benefits and whether
applicants are suspended or disbarred from doing business with
the Federal Government, the number of improper or erroneous
payments could be drastically reduced.
Rather than trying to reduce improper payments using only
an expensive, and in many cases unsuccessful, pay-and-chase
fund recovery model, we will work with agencies to help
validate payment data before the payments are made. Our goal is
to get accurate data in the hand of agencies early in the
decisionmaking process for payment and also prior to making
contract awards.
OMB has requested Treasury to begin developing a single
point of entry or verification portal where agencies can verify
information about potential recipients of Federal payments.
Treasury will also provide a risk modeling capability and
provide access to the centralized analytic center.
To the extent permitted by law, the center will provide
Federal and State agencies a one-stop shop for information and
fraud detection tools to help reduce erroneous or improper
payments. We envision a business solution where key data from
many sources of information can be accessed through various
databases or through queries against portals that are already
commercially available. A call center will be established to
assist users, support in-depth analysis or proactively
investigate patterns of behavior.
Our plan is for Treasury to work with agencies to expand
their participation, both as data users and as data providers.
The new business solution can accomplish some of these goals
within existing law, but it is likely that new legislation will
be required to enable Treasury and other agencies to share data
and through a more streamlined process. Treasury is working
with OMB to draft legislation right now, and we of course, look
forward to working with Congress on that legislation.
Treasury's overall goal for this initiative is two-fold--to
help agencies achieve the Administration's goal of reducing
improper payments by $50 billion and to do this while
safeguarding the privacy of individuals. Managing this data is
an enormous responsibility and requires good management, strong
controls and a deep commitment to the importance of
safeguarding sensitive information. Nevertheless, we feel that
information sharing is a very important element, and perhaps
the most element, to help us reduce improper payments.
Treasury is designing the portal so the decision to make a
payment or to contract or enroll a program applicant resides in
the hands of those who best know and are responsible for the
program--the individual agency. Treasury's role is to assist
OMB and the agencies in making payments to only those who
should receive them.
Thank you for the opportunity testify. I would be happy to
answer any questions.
Senator Carper. You are welcome and thank you very much for
testifying.
Mr. Hale, please proceed.
STATEMENT OF HON. ROBERT F. HALE,\1\ UNDER SECRETARY OF DEFENSE
(COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF
DEFENSE
Mr. Hale. Well, thank you Mr. Chairman, Ranking Member
Brown, Senator Pryor. I appreciate the chance to discuss the
actions we are taking to eliminate and control improper
payments across the Department.
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\1\ The prepared statement of Mr. Hale appears in the appendix on
page 55.
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Improving financial management in DOD represents one of my
highest priorities as the Chief Financial Officer of the
Department. I regard improper payments as a cornerstone of this
broad effort, so I am pleased today to report that I believe
DOD currently has a strong program to identify, report,
eliminate and recover improper payments.
Based on our current reporting methods, we estimate that 1
to 2 percent of our payments are classified as improper and
most of those are recovered, I would say probably 85 to 90
percent of them are recovered often quite quickly. Now of
course, the only appropriate goal for improper payments is
zero, and as I will indicate in my remarks today, we are taking
steps to further improve our program.
To provide perspective, I note that our improper payment
percentage is low in comparison to overall Federal levels. I
believe our colleagues at the Office of Management and Budget
generally agree that DOD has a strong program. And, it is
important to note that DOD's improper payments are not on OMB's
list of high-error programs. Indeed, OMB has identified some of
the techniques we use--and I will describe one of them in a
moment--to control improper payments as best practices.
Our success with improper payments is particularly
noteworthy because of the size and complexity of the
Department's payments. The Defense Finance and Accounting
Service (DFAS), which disburses about 90 percent of our total
payments, disbursed a total of $578 billion last year, roughly
$3 billion every working day. We not only disburse very large
sums; we also make payments that are among the most complex in
government.
I would like to take just a few moments to highlight some
of the key areas and strengths in our program and also areas
where we plan further improvements including full
implementation of the IPERA legislation. Let me turn first to
commercial payments to contractors. That is about two-thirds of
our total payments.
For commercial payments we make heavy use of prepayment
screening. We are trying to stop these before they happen
rather than chase them afterward. One especially important tool
is the Business Activity Monitoring (BAM), software program
that DOD introduced in August 2008. BAM is an automated
prepayment mechanism that uses business rules to flag, for
human review, payments that may be improper.
So if BAM saw two payments that were the same size in a
similar timeframe it would flag them for human review. It does
not mean they are improper, but they ought to be looked at.
When coupled with diligent work by the Defense Finance and
Accounting Service technicians, BAM has prevented more than $3
billion in improper payments in little more than 2\1/2\ years.
For those systems that are covered, and about 90 percent of our
commercial payments are covered by BAM, we think it has
essentially eliminated duplicate commercial payments based on
internal reviews. And that is, for us, a major achievement.
But we are not resting on our laurels. We continue to
refine the logic to catch still more improper payments and to
expand BAM to all, to handle all commercial payments.
Because we have BAM and what we believe are effective
prepayment measures, we have historically not used post-payment
statistical sampling for commercial payments. This summer
though, we plan to begin using post-payment sampling as part of
our efforts. We hope to have it in place by the fourth quarter
of this fiscal year for the largest commercial pay systems so
that we fully implement the IPERA legislation that you enacted.
On civilian and military pay, we do use post-payment
sampling, so we are compliant already with that portion of
IPERA.
I think when the public hears the words ``improper
payment,'' it probably thinks of over-payments that maybe are
never recovered. In fact, for military pay, two-thirds are
underpayments, often the results of a miscalculation of leave
where service member returns to Reserve/Guard from active duty.
It is usually our pay systems, personnel systems did not get,
say, a promotion in time, so we do not pay it that time. It is
probably no surprise to you we hear quickly from the
individuals involved, and we usually fix those within a pay
period or two.
DOD travel payments are also subject to monthly statistical
sampling, so we are consistent with IPERA there.
And we have begun using automated file matching, between
travel systems to prevent duplicate reimbursements again to try
to catch these before they happen, so we are not chasing them
afterward.
Another category of payments is retiree and annuitant pay
where our focus is on recapturing payments when we do not get
timely notice that the individual is deceased.
And there are a lot of smaller categories, but they are
large in absolute terms--Army Corps of Engineers (ACE), our
TRICARE health system--where we think in most cases, not all,
we have good controls in place to prevent improper payments.
Despite what we at DOD consider a strong program, two
recent audits have cast doubt on that program. My time is
running out. I am not going to go through them, but let me just
say--and I will answer your questions if you would like--the
Department of Defense IG audit and the GAO audit we feel were
overstated and, in some ways, misleading.
More generally, DOD has in place an aggressive program to
improve financial information and move toward meeting
government audit standards, which are indeed based in many
cases based on commercial standards. We call this the Financial
Improvement and Audit Readiness Program. It is a major effort
to move us toward auditability. A cornerstone of that program,
or an important part of it, will be continued efforts to
improve our control over improper payments and to fully
implement the IPERA legislation.
So after my other colleagues complete their statements, I
would welcome your questions.
Senator Carper. All right. We will welcome the opportunity
to ask them. Thank you for that testimony.
Mr. Scovel, please proceed.
STATEMENT OF HON. CALVIN L. SCOVEL, III,\1\ VICE CHAIRMAN,
RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD
Mr. Scovel. Mr. Chairman, Ranking Member Brown, Members of
the Subcommittee, thank you for this opportunity to appear
before you in my role as Vice Chairman of the Recovery
Accountability and Transparency Board.
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\1\ The prepared statement of Mr. Scovel appears in the appendix on
page 65.
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A key responsibility of the Board is to coordinate
oversight of recovery funds, to prevent fraud, waste and abuse,
and provide for accountability. My testimony today will focus
on our efforts to combine law enforcement and technology to
track the quick disbursement of billions of recovery dollars.
Early on, the Board recognized that the traditional pay-
and-chase paradigm for pursuing misspent funds forfeited
multiple opportunities to thwart fraud before payments were
made to ineligible parties. To stop fraud in its tracks, we
built the Recovery Operations Center (ROC) which combines
traditional law enforcement analysis with sophisticated
software tools, government databases and open-source
information.
Through the Operations Center, the Board's analysts look
for criminal convictions, lawsuits, tax liens, bankruptcies,
risky financial deals, suspension and debarment proceedings,
and other early warning signs of trouble. The risk-relevant
global information on entities receiving recovery funds has
allowed investigators to expose suspicious relationships
between parties that may not have been transparent at the time
of contract or grant award. It has also allowed them to target
limited government oversight resources where they are most
needed.
Since the Board's inception about 2 years ago, more than
200 hotline complaints from the public have been referred to
appropriate law enforcement entities for further inquiry, and
nearly 400 analyses have been conducted in response to agency
requests for assistance, along with many hundreds of analyses
generated by Board staff.
In one case, a U.S. Attorney requested an analysis of a
real estate development company. A Board analyst discovered
that the company discovered that the company had a $9.5 million
grant pending from the Department of Housing and Urban
Development (HUD) through the State of Indiana. The analysis
revealed that the company was a joint venture with a firm owned
by several individuals who had been convicted of fraud and
embezzlement in 2006, and the U.S. Attorney was unaware of
their relationship with the company and its owner.
In another case, an Assistant U.S. Attorney requested an
analysis of six people indicted for fraud-related crimes
involving Medicare. A Board analyst tied those individuals to
120 medical businesses, about a quarter of which had been
unknown to the prosecuting attorney. This new information can
now be used to strengthen a criminal sentence.
Another 260 leads have been generated by the Board through
its review of recovery awards, some of which ultimately
resulted in rescinded recovery contracts.
For example, a construction company had much of its $9
million in recovery contracts rescinded after a Board
investigator found that the firm had been suspended from doing
business with the Federal Government.
In another case, an agency rescinded a recovery contract
after a Board investigator determined that a $1 million set-
aside contract was awarded to a company that no longer
qualified as a small business because the company's ownership
had changed.
Last year, Board Chairman Earl Devaney testified before
this Subcommittee that the Operations Center's tools were being
pilot-tested at the Centers for Medicare and Medicaid Services
(CMS). In the pilot, the Centers partnered with the Board to
investigate a group of high-risk providers that had been
accepted into the Medicare program. At the time of Chairman
Devaney's testimony, the pilot had not been completed. I can
now tell you that Operations Center data confirm that several
providers were banned from doing business with the government
at the time they were enrolled in the program.
Our analysis also identified a pattern of Medicare
fraudsters using legitimate doctors' medical identification
numbers in States far removed from where those doctors had
their true practices.
The Board is also working with the Veterans Affairs Office
(VA) of Inspector General to oversee the more than $1 billion
in sole-source and set-aside recovery contracts that have been
awarded to service-disabled, veteran-owned small businesses. To
date, Board investigators have identified more than 150
potential shell companies that were set up to defraud the
government, approximately half of which were awarded more than
$1 million each in recovery funds.
Earlier this year, the Board began a pilot program to test
the concept of granting remote access to the Operations
Center's tools to investigators in several Offices of
Inspectors General (OIG), and perhaps ultimately to agency
procurement and grant officials as well. Trained personnel at
the four pilot Offices of Inspectors General, all of which have
recovery fund oversight responsibilities, can now use a secure
portal to scan and analyze Operations Center data.
While the Board is pleased with these noteworthy successes,
we believe the Operations Center could be even more robust if
the Board, the Inspectors General and the Council of Inspectors
General on Integrity and Efficiency were exempted from the
computer matching provisions of the Privacy Act. Such an
exemption, which was introduced last year by the House
Committee on Oversight and Government Reform, would allow us to
compare data from different systems of records to detect
improper payments and fraud in Federal benefits programs. It
could also give us the ability to proactively identify recovery
dollars, as well as non-recovery dollars, that are vulnerable
to fraud, waste and abuse.
Mr. Chairman, this concludes my prepared statement. I would
be happy to answer any questions you or Members of the
Subcommittee might have.
Senator Carper. Mr. Scovel, thanks. Thanks very much for
that.
Mr. Croft, please proceed.
STATEMENT OF KELLY CROFT,\1\ DEPUTY COMMISSIONER FOR SYSTEMS,
U.S. SOCIAL SECURITY ADMINISTRATION
Mr. Croft. Thank you, Chairman Carper, Ranking Member Brown
and Senator Pryor, thank you for inviting me here today. And as
requested, I will focus my comments on our collection and
distribution of death information.
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\1\ The prepared statement of Ms. Croft appears in the appendix on
page 74.
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Within SSA, I am responsible for delivering information
technology services across the Agency. Each year, we receive
approximately 2.5 million death reports from multiple sources
including States, family members and funeral home directors. We
use that information to stop payments for a beneficiary who has
died and also to establish benefits for any eligible survivors.
We also retain a record in our files, and we currently have
over 92 million death records.
Recognizing the broader value of death information to
support accurate benefit payments by other government programs,
we have been sharing data for many years. We currently share
death information with the Veterans Administration, the
Retirement Railroad Board, the Office of Personnel Management
(OPM) and the Department of Defense. We also provide a more
limited copy of our death information to the Internal Revenue
Service (IRS), the Centers for Medicare and Medicaid Services
and the Department of Commerce. Commerce then resells the
information to other organizations and the public, and I
believe some of those customers make additional commercial use
of the data.
We update the death information we share with these
organizations on both weekly and monthly schedules. To provide
a sense of the scale for these exchanges, we currently post
approximately 48,000 new death reports a week. And I know the
Administration plans to use this information to enhance the
President's initiative for agencies to check key eligibility
databases prior to making a government payment.
That said, every large data set, at least every one that I
have been associated with, has flaws, and it is extremely
important that anyone reusing this data do so in a responsible
manner. For example, we make it well known that the information
we share is not a complete record of deaths in the United
States and not all records are verified by Social Security. In
addition, unfortunately a very small amount of death data we
post to our records proves to be wrong. We fix errors as soon
as we learn of them, but then we must rely on all the
downstream users of death information to correct their records
as well.
I want to mention that an ongoing effort between the
Federal Government and States called Electronic Death
Registration (EDR), is helping to improve death reporting and
the quality of the data. Thirty States, the District of
Columbia and the city of New York now have an EDR process in
place, and records that come to us via this automated process
are almost error-free. The effort to promote the use of EDR in
States is ongoing.
In conclusion, technology clearly enables the exchange of
data. Once agreements are reached, files can be shared
relatively quickly and safely, and query tools can provide end
users with easy access to information. We believe careful and
responsible reuse of the death information in our records
supports the governmentwide effort to maintain the integrity of
Federal programs and protect taxpayer funds.
We will continue to share death information from our
records to the extent the law allows, and we look forward to
participating in any new initiative that will help prevent
improper payments.
Thanks again for having me today, and I will do my best to
answer your questions.
Senator Carper. Thank you so much, Mr. Croft.
I have asked Senator Brown if he would like to go first and
Senator Pryor second, and I will go last. We will start off
with like 7-minute rounds. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
First of all, thank you all once again for coming, and Mr.
Chairman, thank you for holding this.
So Mr. Werfel, I just might as well start with you.
Considering there is an estimated $125 billion in improper
payments just within this last fiscal year, the goal of
preventing $50 billion in improper payments by Fiscal Year
2012, as stated in your testimony, seems certainly aggressive,
a big goal. Considering the fact we are in mid-Fiscal Year 2011
and that total improper payment estimates are still growing
year over year and the decline in the reported governmentwide
improper payment rate has been relatively modest, do you still
see that goal as being achievable? And if so, why, or if not,
why?
Mr. Werfel. I would certainly agree, Senator, that it is an
enormously aggressive goal, driven in large part by a specific
goal to cut the Medicare fee-for-service error rate in half by
Fiscal Year 2012, and Medicare fee-for-service errors represent
the largest portion of errors.
I continue to believe that it is achievable although it is
aggressive. The fact that the error rate went down between
Fiscal Year 2009 and 2010 is certainly a positive trend. It did
not go down as much as we were hoping in terms of staying on
track for the $50 billion. It just means that we have to make
up some of that ground in the coming year and then in the
following year make up even more ground.
I think the key here is that how aggressively Federal
agencies are taking their responsibilities to drive their error
rates down, and right now I have not seen in my experience--and
I have been involved in improper payments since the Improper
Payments Act was first passed in 2002. I have not seen this
much concerted activity and this much proactive steps being
taken by agencies to address their errors. So I am optimistic
that the error rate will continue to trend down.
And whether we hit the $50 billion or not, I think
obviously it is an aggressive goal. So it is an open question,
but I am confident that the error rate is going to trend
downward.
Senator Brown. Because I know OMB testimony stated that the
improper payment error rate declined from 5.65 percent in 2009
to 5.49 percent in Fiscal Year 2010, representing $4 billion in
potential improper payments that were actually averted. So to
get to that $50 billion number ultimately, that is going to----
Mr. Werfel. You have to get down to somewhere in the low 4
percent, high 3 percent range depending on what the outlays
are.
Senator Brown. Yes.
Mr. Werfel. But, yes. I mean again I agree, Senator. There
is a lot of work to be done. And our hope is that a lot of the
work that has been being done, which does not happen overnight,
is really going to kick into gear.
Senator Brown. Well, listen; I do appreciate your effort. I
will say that publicly and wish you well. And I think the
reason you are seeing a lot of activity is because we are out
of money and we need to find it and we need to use it better.
So whatever the Chairman and I can do to push any buttons
by holding hearings or sending letters or making phone calls,
we are on board certainly.
Which programs do you see a majority of the $50 billion in
prevented improper payments coming from?
Mr. Werfel. Well, right now, I think the most--both the
Medicare and Medicaid error rates went down between Fiscal Year
2009 and Fiscal Year 2010, which is important because those are
the two largest programs.
The Food Stamp, or the Supplemental Nutrition Assistance
Program (SNAP), error rate has continued to trend downward, and
that is another one of our big program areas.
In fact, if you look at the approximate 11 of our largest
programs that make up approximately 90 percent of the error,
most of them went down: Medicare, Medicaid, Social Security,
one of the Social Security programs, SNAP and School Lunch and
HUD programs. All of those trended downward.
Where we are trending upward and where we have to do a
better job is on the Department of Labor's Unemployment
Insurance Program is one of the big concerns that we have.
Senator Brown. So why do you think these programs will have
the most impact? Just obviously because of the size of the
money, the total moneys that they are dealing with, there is
more leeway on either side?
Mr. Werfel. Yes. I think obviously when we are attacking
this problem, we want to use good approaches of risk
management. And very early in our improper payments effort it
started to materialize in the numbers that about a dozen or so
programs were making up 90 percent of the errors. So not
surprisingly, we focused a lot of our efforts around that, and
Medicare and Medicaid make up a substantial portion of the
error if you just isolate those two programs.
And again, there are enormously detailed and comprehensive
correction plans underway at each agency, to attack this
problem. And again, we are seeing positive trends. But as you
point out, those declines in the error rate are going to have
to steepen over time if we are going to meet our goals.
Senator Brown. Thank you.
And Mr. Hale, if I could just zero in on you a little bit,
a couple of questions. So the DOD financial management has been
on the GAO's high-risk list since 1995, and improper payments
are obviously a significant problem for the rest of the
government. Yet, in your testimony, you said that DOD is ahead
of the curve on eliminating improper payments.
But I am looking at reports from various years since 1995,
and the recommendations and the problems still seem to be here.
So I think there is some skepticism in the statements, and I am
wondering about it.
They include GAO and the DOD Inspectors General indicating
that, and I just want to see if I get this right. In your
testimony and in response to the letter that I, along with the
Chairman and others sent you recently, you concluded that both
the reports were, ``overstated and, in some cases,
misleading.''
So what areas were in fact overstated and misleading? While
I want to give the benefit of the doubt, I just want to make
sure I understand.
Mr. Hale. Sure. Glad to answer. In the case of the DOD IG
report, they argue that we had failed to review $167 billion of
payments for improper payments. Of that, more than two-thirds
were internal fully supported transactions essentially between
government computers paying for transfers to retirement accrual
funds. Both DOD and OMB agree it makes no sense to review for
these payments, as they are essentially accounting
transactions.
In the case of GAO, they noted that we had not done post-
payment statistical sampling for $300 billion of commercial
payments, which was true. At the time the audit was issued,
because we had a strong prepayment program that I described in
my testimony, we were following OMB's guidance not to do post-
payment statistical sampling but reporting under the Recovery
Auditing Act to allow fuller recoveries. That was pre-IPERA,
which now requires it by law.
And as I said in my statement, we are moving to post-
payment statistical sampling for all of our commercial payments
to start with quarter 1, Fiscal Year 2012. But we will continue
the prepayment effort because it is just much better to catch
these before they happen than to chase them after they happen.
Senator Brown. Yes.
Mr. Hale. So I want to see--I want to do everything we can
to stop them from getting out the door rather than sampling
afterwards to find out whether we have failed.
Senator Brown. It seems that we need to get every----
Mr. Hale. Does that answer your question?
Senator Brown. Yes, somewhat. I mean I am going to come
back to it because my time is up.
But it seems like we need to kind of get one-stop shopping
with all this stuff. It seems like there are so many agencies
and so many departments dealing with payments, and it seems
like there should be like a master list like that person is
dead; we should not be paying him anymore. Or, that company is
bankrupt----
Mr. Hale. Well, we file match with the Social Security
Administration Master Death File. As you heard the Social
Security witness say, we use that for retirement payments. In
that case, that is the one relevant to us. It is not perfect,
as he indicated. But we use it regularly, and actually our
error rates are fairly low, and we do post-payment statistical
sampling on those.
Senator Brown. I will followup. Thank you, Mr. Chairman.
Senator Carper. Thanks.
First, just briefly respond to my first question, all of
you if you would. What should Senator Brown and Senator Pryor
and others on this panel and our Subcommittee, what should we
be doing to try to make sure that this new law is fully
implemented, faithfully implemented? What should we be doing?
Mr. Werfel, just briefly.
Mr. Werfel. I think, very briefly, hearings are like this
are important, making sure that you are shining a light on the
issue because it creates accountability and incentivizes
Federal agencies to take their efforts seriously, and it
strengthens our ability to lead.
Also, I think we really do need to roll up our sleeves and
look at what additional legislative solutions can be had. I do
not think--I mean IPERA is an important milestone, but I still
believe there is more work to be done from a legislative
standpoint.
The President's budget includes legislative proposals that,
if enacted, would save $160 billion over 10 years in the area
of program integrity. We need to look very seriously at those
provisions. And there are other types of enhancements we can
make to the agencies' ability to share information and track
information that we need legislative help on. So in those
areas, we want to work with you.
Senator Carper. Good. Thanks.
Mr. Gregg, what more should we be doing to make sure that
this new law is faithfully and fervently implemented?
Mr. Gregg. Senator Brown made the comment that it is kind
of things are all over the map, and I think that is true. When
we looked at this last year, we were looking at various
databases. And agencies, in some cases, could not get access to
databases that would have helped them. In other cases, where
they did have authority, it takes 18 months to 2 years to go
through the computer security matching agreements and the
Memorandum of Understanding (MOU) to get from here to there. I
know that from firsthand experience.
So I think having an organization within Treasury that we
are working on, to pull information together and allow agencies
to come in one place. At least in some cases, we need
amendments to the Privacy Act and the Computer Security Act to
enable us to provide information. I think that would be a very
big step to allow us to move forward.
Senator Carper. Senator Brown asks if you can give us some
specific ideas here, and we will probably ask you to do that in
writing.
Mr. Gregg. I would be happy to do that. There is a long
list.
Senator Carper. Good. That is good.
Mr. Hale, just briefly, what more can we do to make sure
this new law is faithfully implemented?
Mr. Hale. Well, Mr. Chairman, I think at DOD our main issue
is continued implementation. Again, I think we have a strong
program, but it can be better. We need to implement IPERA.
I rarely ask for hearings, but I concur with Mr. Werfel,
that they are a good way. I know more about improper payments
now in DOD than I did 2 weeks ago, and so shining a spotlight
on this is good idea.
Senator Carper. All right. Thanks. Mr. Scovel.
Mr. Scovel. Mr. Chairman, thanks for the opportunity. We
appreciate the support provided by this Subcommittee and
especially by Mr. Werfel in OMB for the activities of the
Recovery Board.
Sir, the vision that you have outlined and that Mr. Werfel
mentioned in his testimony already exists at the Recovery
Board. That is one-stop shopping in the Recovery Operations
Center.
And it is the Board's position that our capability could be
enlarged and exploited for the common good--in this case, to
help eliminate and recover improper payments. We have
brainstormed over at the Board how we might do that. We
anticipate that within the next 6 months to 1 year we might be
able to embed the capabilities that you and OMB might need in
our own recovery center.
Our next steps would be to gain access to several more
needed databases. We already use the Excluded Parties List
system, the Department of Health and Human Services (HHS) OIG's
List of Excluded Individuals and Entities, and we also use the
Death Master File of course. We would need access to the
Treasury's DebtCheck and HUD's Credit Alert Interactive Voice
Response System.
We would want to standardize and normalize that data
because those files were all built on different systems. We
would invite agencies to come and consult with us, and find out
exactly what they would want to search for. Again, this is in
the prevention of improper payment arena.
And we want to ensure that sufficient security is built
into that system. We would ask the Congress, as I mentioned in
my opening statement, for exemption from the computer matching
provisions of the Privacy Act.
Senator Carper. OK. Thank you. Mr. Croft.
Mr. Croft. Thank you. A couple things. Positive
reinforcement and patient follow-through would be my initial
thoughts, and also recognition that there is lots of underlying
complexity to these issues and it is going to be an incremental
improvement. It is not going to happen in a big bang.
Senator Carper. OK. Thanks.
Mr. Hale, a couple of questions, if I could, of you and
then maybe further for the other panel members. Our colleagues
have examined the many challenges and opportunities, not all
the challenges and opportunities that you face in the
Department of Defense, but some that you have done in order to
improve your financial operations. And you play a key role,
obviously, in those efforts. Improving financial operations, as
I said earlier, will mean that the Department of Defense can
reduce its level of improper payments, which you are
endeavoring to do.
May I discuss with you some important steps that the
Department, at least to me, appears that you need to take to
implement the Improper Payments and Elimination Recovery Act?
If I heard your testimony correctly, I think you said you
plan on expanding--I think was the word that you used--on your
improper payments efforts, which is good. Do you plan on
expanding the improper payments effort so that all parts of the
Defense budget are examined for improper payments?
I think you mentioned earlier the Department has not
examined commercial payments in order to estimate improper
payments. So I think maybe close to half of the DOD budget has
not been examined. Could you just respond to that?
Mr. Hale. Well, it depends what you mean by ``examined,''
Mr. Chairman. I think we have a good program to identify and
stop, before they happen, improper payments in the commercial
pay which is close to two----
Senator Carper. Talk to us about that.
Mr. Hale. Say again.
Senator Carper. Talk to us about that. That is not always
the impression that one gets.
Mr. Hale. OK. Well, let me try to do that.
The key item--there are a number of ways we do this. The
key is the one that I mentioned in my statement, that we have
software logic that searches all the payments. I say all; about
90 percent of the payments we make are subject to this BAM
logic. It is a series of business rules that essentially
identify high-risk areas, risky payments, and then they are
scrutinized by a technician at the Defense Finance and
Accounting Service, and they make a decision.
So if BAM saw two payments of a similar amount that were
made in the same timeframe, it would flag them, and a
technician would look to see if indeed they are two different
companies or whether we paid the same company twice.
We think, based on internal reviews, that for the 90
percent of payments that are covered by BAM we have essentially
eliminated duplicate payments through this and many other
rules. I am simplifying it. It is a complicated set that I do
not fully understand, of business rules.
So we think we have good prepayment control mechanisms for
commercial payments. But we understand the law, and as I said,
we will fully implement post-payment statistical sampling, so
we will get another read on whether or not we are properly,
whether we are capturing all of the improper payments in
commercial pay.
In military pay, in civilian pay, in travel, in military
retirement, we already do post-payment sampling. And most of
them--frankly, many of them are under-payments, especially in
military pay. And we get them back very quickly, as I
mentioned.
Soldiers and sailors and airmen and the Coast Guard are
quick to tell us if we do not pay them the correct amount, as
they should, and we fix it. And similarly, we are able to
recover most of those usually within a pay period or two.
So we still have a ways to go. We will keep trying.
Senator Brown asked me if we are still on the high-risk
list for GAO. Yes, we are. But I do not think it is because of
improper payments. We have other problems, lack of auditability
being one of them, that causes GAO to say this, but I would
note again we are not on OMB's high error list in terms of
improper payments.
Have I answered your question?
Senator Carper. That is a good start.
My time is expired. Let me yield to Senator Pryor.
Thank you again so much for coming.
Senator Pryor. Thank you, Mr. Chairman, for having this.
I would like to take us in a little different direction. I
am 100 percent in favor of going after improper payments. I
think that is important. I would say when it comes to budget
matters that we can do better and should do better. So I
appreciate everything you guys are saying today and what you
are working on.
But let me start with you, Mr. Werfel. There is a human
element in this as well where there are people who maybe in the
Social Security Administration or maybe somewhere else, that
there are just some hardship cases. And for humanitarian
reasons you would think that the government, in some narrow
circumstances, should just not press too hard to try to recover
from these people.
I have had an experience recently with FEMA. FEMA feels the
pressure to try to recover as much as they possibly can. They
are talking about putting some people that are on Social
Security, that wrongly received a payment, that FEMA assured
them all the way through the process that they were entitled
to, and then FEMA reviews it 3 years later and says: Oops, our
mistake. You owe the $27,000.
So I guess for you, Mr. Werfel. How do you define that
balance? What is that balance where certainly the taxpayer and
the government have a compelling interest in trying to get
money that has been wrongly paid, but on the other hand, you
would need to--and I hope we would--take into consideration
this human element?
Mr. Werfel. Well, Senator, it is a great question. I have
studied improper payments very closely over the last 8 years,
and I keep on being struck by the fact that there are very,
very difficult public policy tensions in our efforts to address
improper payments. It is at both ends of the spectrum. You
referenced the collection spectrum.
Let me just spend a second on the improper payment itself--
--
Senator Pryor. Right.
Mr. Werfel [continuing]. And then I will address your
question about collection.
There are certainly areas of egregious error, where the
government is being defrauded, and in that case it makes all
the sense in the world to be in the most aggressive posture.
Then there are examples where there are just basic mistakes
we made. We have mentioned some of them--payments to the
deceased, payments to excluded parties. And certainly, we need
to be in an enormously aggressive posture on there.
But a great majority of our $125 billion are much tougher
calls. There are eligibility requirements that are sometimes
difficult to navigate, and let me give you a great example of
one in Medicare.
Under the Medicare process, we audit a payment to see if it
was correct or not. And what we find is that a patient was
admitted that is eligible for Medicare, and that patient and
the doctor made a decision to admit that patient for an
overnight stay.
But when you go back and you review the basic facts of the
situation, the auditor makes a judgment that the types of
issues that were presented did not warrant Medicare
reimbursement for an overnight stay. It warranted only for an
outpatient procedure.
These are very tough to mitigate and to address. And in
particular, in the moment when an individual is being brought
into the hospital and a doctor is making a subjective decision,
and the HHS regs are not always black and white in terms of how
to interpret, you get very much into that human element. And
the more we try to drive those types of error payments down,
the tougher situations we could potentially present to
ourselves in terms of difficult decisions that are being made
in delivering Medicare, medical assistance to those covered by
Medicare.
I want to offer that as an example, and we see that time
and time again.
Senator Pryor. Let me interrupt right there if I can, and
that would be in that scenario that you just gave, which is
obviously a good example, would your recourse be against the
individual who received the benefit of the payment, or would
your recourse be against the doctor or the hospital? How do you
parse that out?
Mr. Werfel. In Medicare, it is the doctor and the hospital
that who--if we are going to recover those funds through an
audit or some other mechanism, so it is that.
Just another quick example, on the Earned Income Tax Credit
(EITC), which has the highest error rate of any program--so
Medicare is the highest dollar amount. EITC has the highest
error rate.
Often, a lot of those errors are people that are marginally
poor. They have an adjusted gross income that is narrowly above
the threshold. It is still technically an error, and there are
some difficult decisions that go into preventing those payments
to those individuals that are just marginally poor versus not
fully within the realm of the statute.
With respect to collection, to get at your question, I
think you see a similar thing. I think there is a basic rule of
debt collection which enables, across government, agencies to
forgive or compromise or write down a debt if they believe the
collection of that debt would be too expensive to justify the
benefits of recovering the actual funds. And very often, the
economic situation of a given individual can factor into this
question of whether the costs and benefits line up. So in that
regard, there is some degree of flexibility, although it is not
perfect flexibility, for agencies to allow for the human
element in some of their collection activities.
There are other programs--that is the general, common rule.
I happen to know that there are programs throughout government
where there is even more flexibility that enables agencies, for
example, to take into account fairness, equity, good
conscience. And those are where Congress, in its wisdom,
decided for this particular program to enact that type of
additional flexibility for the agency.
So there is precedent for this type of recognition. It is
just something that has to be balanced against the enormous
amount of overpayments we have and the tremendous economic
benefit we get from recovering them. I think it is a
challenging public policy balance that needs to be looked at.
Senator Pryor. And you referred to this earlier, but what
percentage of your--in your estimate, how would you lay out
those percentages in terms of the recovery that is very clear-
cut, where there is fraud or clearly some wrongdoing, versus
these other grayer areas?
I mean I understand you might get a double-dipping
situation. Like in my case it is FEMA, and some people may have
homeowners insurance or some other insurance that covers some
of this false property, and they get the FEMA money. Then they
get the insurance money, and they are supposed to pay FEMA
back.
I do not know if I would even call that a mistake, but that
is just a double-dipping situation where they probably ought to
pay that money back.
Do you have a breakdown of how many of these are truly
clear-cut versus the harder to----
Mr. Werfel. I do not have that. I can go back to the team
and the Treasury Department. Actually, Mr. Gregg oversees a
large portfolio of debt collection that Treasury does for the
government as a whole, and maybe we can look at that question.
It is a very difficult one to assess because it involves
subjective judgments about fault and timing.
Senator Pryor. Yes.
Mr. Werfel. So we can try, but I am not sure we will have
that data.
Senator Pryor. Let me just run through this one scenario,
if the Chairman will give me just another couple of minutes
here, to talk about the situation in my State. And the truth is
we will see this in other States.
There were some floods in Arkansas about 3 years ago. A
couple had their home flooded out. When they bought the home or
built the home, they had flood insurance.
Then after a period of years, the flood insurance company
canceled on them and said we are getting out of that line of
work. So they could not find anywhere, but they went to Lloyd's
of London and got flood insurance, made sure they were covered.
Of course, all this time they never had a flood, but
nonetheless they carried the insurance.
Then the Lloyd's of London folks said we are not going to
do this anymore. So they tried to go to the National Flood
Insurance Program. They could not get it because the county had
not passed a FEMA-approved ordinance. In order to be in the
flood insurance program, the county has to do this.
So nonetheless, the flood happens. A few days later, FEMA
shows up. They come to the house. They take photos. They give
them the forms. They walk them through the process. They assure
them that: You are covered. Everything is going to be good.
Just fill out these forms.
Turns out it went through the process. There was even some
sort of appeal or higher review on it. It is neither here nor
there, but nonetheless, ended up giving $27,000.
Now these folks are on Social Security. They are in their
seventies. So pretty much all they have is Social Security, as
far as I know.
So they get the $27,000 and do exactly what they are
supposed to do with it: They put it in their home.
And now 3 years later, FEMA comes back and says: Our
mistake. Because your county did not do this ordinance, we
should never have given you this in the first place. Therefore,
we want our money back.
Well, the problem is--and from my standpoint--the
government has really harmed them because they would not have
taken this money. They could have made personal decisions 3
years ago when the flood happened, but now they are in a
situation where they took some money. They put it all back in
here. They did not restore the house to what it was before, but
it is livable and they have been living there.
And now FEMA is coming back and saying: Look, you have 30
days. We can maybe put you on a payment plan, figure out your
disposable income. Maybe it is $100 a month. We do not like to
collect for more than about 5 years. So that would be $6,000.
You owe us $27,000. So we are going to squeeze you for 5
years and get $6,000 out of the $27,000.
It just troubles me, given that scenario where the mistake
is completely on the government side. The people did not do
anything wrong other than what their government told them to
do. They said: Fill out these forms. You are entitled to this.
Back to the human element that you and I have talked about.
It seems that there ought to be some clear ability for FEMA to
waive that without forcing them to go through this appeal
process.
Right now, they have an appeal process where it can take
months or even longer to go through this process. They have to
fill out paperwork. The burden is on them to show FEMA has made
the mistake, and who knows what FEMA will do. It is totally
within FEMA's discretion.
FEMA, apparently, if you look at their track record, they
do not have great statistics on that. But if you look at this,
they are very reluctant to give this kind of relief to people.
And they may technically have the authority. I think there is a
dispute about that.
But what I would say is we ought to write something in the
statute, kind of like what Social Security has, that takes into
consideration the human element.
Mr. Croft. We do have a waiver provision where we would
assess the person being without fault, but also we would look
at their ability to repay. You have to meet both of those
qualifications. And that includes installment plans and things.
But yes, we do have waiver provisions.
Senator Pryor. Do you have a sense of how often you guys
utilize the total waiver?
Mr. Croft. We would have that data. I do not know off the
top of my head, but we certainly could provide that.
information for the record
In FY 2010, we handled about 197,000 requests for waiver of
an OASDI program overpayment. Of those, we approved about
161,500, or about 82 percent.
During the same period, we handled about 263,400 requests
for waiver of an SSI program overpayment, and approved about
210,000, or about 80 percent.
Senator Pryor. Do you have any comment on that, Mr. Werfel.
Mr. Werfel. My reaction is that it is a complex terrain,
and there are different types of government errors where there
is one end of the spectrum where you would really want the
government to aggressively recover the money even though it was
the government's fault. Just as a hypothetical, if John Smith
wakes up one morning and the IRS accidentally sent him a
$10,000 check, he should have knowledge that this was a
clerical error of some kind and be compelled to return the
money.
Senator Pryor. Right.
Mr. Werfel. There are many errors in which we need citizen
participation and citizen responsibility to help us understand
where these errors are occurring and return them to us. And
then there is the example that you gave, which is arguably on
the other end of the spectrum.
As I mentioned, right now, I think there are general
authorities that FEMA and other agencies have to take into
account economic situation of the individual involved. But
programs like Social Security have a layer deep of flexibility
and authority around these issues of good conscience, and
certainly they should be evaluated to see if there is a better
approach.
But OMB, from my perspective, we want to look at that
closely to make sure that we are not entering into a situation
that potentially could inhibit other types of recoveries that
fall at a certain end of the spectrum where you really want to
be as aggressive as possible.
Senator Pryor. Mr. Chairman, thank you.
Senator Carper. Your time has just about expired.
Senator Pryor. I know I was way over. Thank you.
Senator Carper. Senator Brown.
Senator Brown. Just a little bit. It is OK though as I am
aware of your story from the Subcommittee the other day. I
understood that FEMA does have the ability to mitigate, and
they just have to do their job and mitigate. There is a
provision in there to do just that.
Then when you are talking about the human element, I mean
the example you gave is a perfect example. There is an
obligation, an affirmative obligation, by an individual. When
they receive a payment improperly, they have an affirmative
obligation to say: You know what? This is a mistake. Here is
the money back.
Not go out and spend it and then just say oh, I do not have
the money, and then have us compromise the improper payment to
our detriment. I mean it may seem harsh, but you have an
unintended benefit that you are not entitled to.
That story is a little bit different, and I would encourage
FEMA to mitigate if it is appropriate.
And if we could stay with you, Mr. Werfel, the IPERA
legislation and recent OMB guidance has improved agency
accountability. But beyond putting their names on a Web site,
where is the individual, as kind of an extension of what we
were talking about, individual accountability built into the
current guidance and the legislative provisions?
Mr. Werfel. Well, there are a couple of pieces. I think
Senator Carper mentioned in his opening remarks that we now
have this requirement to incorporate improper payment efforts
into employee performance appraisals, which is clearly kind of
getting right to the bottom line of accountability. I think
when you couple that with an expansion of the transparency
requirements around improper payments. The President, in his
Executive Order, had agencies designate senior accountable
officials for improper payments that I meet with and are
ultimately responsible to their secretaries and the President
for these efforts.
When you take these things on whole, I think they do have
an impact of having people take more seriously and be more
proactive on their improper payment efforts. We are always open
to other suggestions to increase those accountability points.
Right now, that is what we are working with, and I think there
is a lot of promise there.
Senator Brown. Can you imagine if a large company gave away
through an inadvertence, mistake, improper payments of $125
billion, what would happen to that individual or individuals
that were responsible?
Is there anything? Can we fire people under IPERA? Can we
reprimand them?
Is there any type of individual accountability to say: Hey,
you made a mistake, and you have not improved, and you have to
do your job or you are out?
I mean where is all that?
Mr. Werfel. Certainly, at the most egregious end of the
spectrum----
Senator Brown. One hundred and twenty-five billion is
pretty egregious. I am sorry.
Mr. Werfel. No, it is. The whole $125 billion is, but as I
mentioned, there are certain payments of $125 billion that have
a fraud or criminal element to them----
Senator Brown. Right.
Mr. Werfel [continuing]. That certainly the types of steps
we can take, in particular if an employee is involved to
dismiss and prosecute.
But along the way, I mean just to look at it from a
realistic perspective of what makes up that $125 billion a
great proportion of them are these more challenging eligibility
determinations that need to be made. And in many cases the
employees are doing their best with the information and the
material that they have, and they need to be held accountable
to be as forward leaning as possible.
Senator Brown. So can I just interrupt?
Mr. Werfel. Yes.
Senator Brown. So now you are saying that because these
cases are so close, we are going forward. In the hospital
example you used, for example, somebody comes in and has a
determination and then after an audit or a review that is when
that determination of an improper payment is made?
Mr. Werfel. That is correct.
Senator Brown. What is the number associated with that and
how many cases approximately, percentage-wise?
Mr. Werfel. Well, I will tell you the Medicare error amount
is approximately--Medicare fee-for-service is approximately $34
billion.
Senator Brown. Now in taking that, how many of those cases
are ultimately adjudicated in fact, yes, I agree with you,
Doctor, and percentage-wise?
Mr. Werfel. How much are they outpatient versus inpatient?
Senator Brown. Well, no. For example, on those cases where
you have actually gone and done that review and they say oh, it
is an improper payment?
Then is there an appeal process for the doctor or hospital
to go and say yes, but this case is different, i.e., and they
spell it out, and then in fact it turns into not being an
improper payment ultimately down the road?
Mr. Werfel. Yes. What happens is we will carry the total in
our improper payment amount.
Senator Brown. Until it is resolved?
Mr. Werfel. Well, no. It is in. It is in our improper
payment amount.
And then what happens is HHS will deploy recovery auditors
to go in strategically and in an optimal way to make sure we
are maximizing the return on investment, to go and recover
those errors.
And if they go to that hospital and they say this procedure
on December 1, you kept the patient overnight, that
reimbursement was inappropriate given the way HHS regulations
read, they will ask for the money back. And at that point, the
hospital can appeal or challenge the determination.
Senator Brown. And I know that GAO has pointed out in its
recent reports that challenges continue to limit our ability to
determine the full extent of the improper payments. A Fiscal
Year 2010 estimate is from a review of 70 programs. With only
70 programs being reviewed, I mean what programs are being left
out, and are there any major programs that we should be
focusing on still?
Mr. Werfel. What happens under the law is agencies are
asked to kind of place all their payments and activities into
two buckets--high risk and low risk. And we do not measure the
low risk. We measure the high risk.
And the law sets out criteria, and OMB helps regulate what
those criteria are. They are things like that we believe there
is a 2.5 percent or higher error rate, or we believe there is
$10 million or more in error in a given program.
Once you look at that bucket of high risk--and certainly
GAO and others have raised questions to make sure that we are
putting all the appropriate activities in the high-risk bucket,
and I think we are getting better and better at that--there are
programs still within the high-risk bucket that have not yet
been measured. But we have identified all of them, and all of
those agencies are on a path to measurement.
The biggest and the most publicized one is the Part D
Prescription Drug Program. HHS is reporting that they are on
target to measure that program and report an error next fiscal
year. So when their next financial report comes out the end of
this fiscal year, it should have a Medicare Part D error
measurement within it.
Senator Brown. Mr. Scovel, I want to make sure you--I do
not want to leave everybody else out.
Much has been made of the Recovery Board's tools and
technology for forensic analysis to identify the fraud, and I
am presuming they are helpful. How is the Board addressing the
simpler issues such as simply eligibility verification before
disbursement, No. 1?
And No. 2, does the Recovery Board Operations Center focus
their efforts more on the front end or the back end of the
disbursements at this point?
Mr. Scovel. Thank you, Senator. Early on, we focused our
efforts on the back end; that is on the investigation side and
the prosecution and recovery side. We are turning our attention
now to explore our capabilities as to the front side, how we
might help program officials prevent--to turn to the attention
of the Committee--prevent improper payments.
If I could refer to our experience in a pilot program that
we executed with the Center for Medicare and Medicaid Services
last summer, it was to test our capabilities to work with their
data and with the resources available through the Recovery
Operations Center--first, to identify risk with a subset of
Medicare providers who had been referred by the Medicare
hotline to us and also then to prevent fraud before it occurs,
and that was an analysis of enrollment applications. It was
quite successful in our estimation and in HHS's estimation.
And it is partly on the basis of that pilot program, as
well as a couple of others that we have underway right now,
that we would offer the services and capabilities of the
Recovery Operations Center to the Committee and to OMB for this
important initiative to rein in improper payments.
Senator Brown. Thank you, Mr. Chairman. I have to meet----
Senator Carper. So you are going to go meet with Leon
Panetta who has been nominated to be Secretary of Defense.
And I say to Senator Brown, be sure to mention improper
payments to him. [Laughter.]
Mr. Hale. Tell him we have a strong program, Senator.
Senator Carper. But also remind him one of my core values:
If it is not perfect, make it better. While we are doing
better, we are still not perfect.
I just want to come back to an issue just for a moment, if
I could, Mr. Hale.
I say it with respect to Leon Panetta. He was the Chairman
of the House Budget Committee when I served with him in the
House, and he has been the OMB Director. He is a guy who gets
numbers and the importance of strong financial management. So
my hope is that Senator Brown will have a receptive audience
when they are meeting.
But I would come back, if I could, Mr. Hale. I was
interested in the IG's point that when the Department examined
civilian and uniform personnel pay to determine the level of
improper payments the examination did not check documentation
for pay grade and for locality. For pay grade and for locality.
And I would ask you just to share with me how can the
Department examine its books if basic information such as a
soldier's, or sailor's, or Marine's pay grade and their
locality are not double-checked?
Mr. Hale. Well, there are a variety of checks that are
made, Mr. Chairman, and some of them certainly involve that.
The ones you are speaking of that we define as improper
payments by the Defense Finance and Accounting Service do not
go all the way back there to a source document. But there are a
variety of checks, and I can get you more information for the
record. I do not know all of them off the top of my head that
are made with regard to the accuracy of the personnel
information.
information for the record
Is it perfect? No. We deal with people that are in war
zones, and the wounded and injured that are moving around, and
a lot of people--at one point, 4 million people were on active
duty. So I can assure you that there are problems.
It would be good if we had fully integrated pay and
personnel systems, and that is another area where we have tried
but so far not succeeded. That would certainly both speed up
the process and probably reduce improper payments.
But there are checks. Let me provide for the record more
information about how they are made. But the Defense Finance
and Accounting Service does not check all of that information
back to the source documents.
Senator Carper. OK. Well, I appreciate your follow-up
there.
I would just say--and I say this probably about once a
day--everything I do I know I can do better. The same is true
for all of us.
Mr. Hale. I agree with you.
Senator Carper. And we just need to look at everything that
we do and say how can we do this better.
We talked earlier, and when I spoke I talked to you about
part of what we are trying to do in this Subcommittee is to
really change, help change, the culture in the Federal
Government from what we describe as a culture of spendthrift to
something closer to a culture of thrift.
We want to make sure that we are actually keeping score. If
we do not keep score we are just practicing, as Vince Lombardi
used to say.
People and some others have said you only manage what you
measure.
So we are just trying to do a better job on all those
fronts. We are trying to put a spotlight on behavior that is
good, that we want others to emulate, and we want to put a
spotlight on those that are not so good and try to make sure
that we are providing the encouragement and the resources to do
better.
I think the next question may be back to Mr. Werfel. I
think in your testimony you pointed out that in the last fiscal
year, Federal agencies recovered about, I think, just under
$700 million through recoveries after the improper payments
were made. And I realize that amount--I think it was $687
million dollars. I think that is three times the amount for the
previous year. If you do that again next year and the next
year, we are talking about real money.
However, having said that, the progress also has to be
measured against that big number right over there, $125
billion, in improper payments. And I believe that if we do the
math the Federal Government only recovered about 0.6 percent,
and that, as we know, is not a lot.
And if we triple that again for next year, we are still
only about 1.8 percent. While that is an improvement, that
still would not be a whole lot.
I know that part of this recovery figure is from the
Medicare Recovery Audit Contractor, a program that uses private
companies to comb through reimbursements to look for over-
payments. But what efforts are underway by agencies to improve
recovery and will expanded use of Recovery Audit Contractor
play a role?
Mr. Werfel. Absolutely. Well, first, just as a
qualification--and I have mentioned this to you before,
Senator, and it is not meant as an excuse in any way. It is
just something that I want to put out there as a basis for
thinking about recovery--is that a lot of that $125 billion is
generated on a statistical sample.
And so what happens is we will pull a sample of payments,
and we will get an error measurement associated with that
sample, and then we will extrapolate it to the universe. So the
amount available for recovery in many of our programs is the
only amount that we identify in the sample because if we pull a
sample from John Smith down the street and say your payment was
an error, we can go out and get that, but we cannot knock on
his neighbor's door and say because he had an error we assume
there is an error in your payment of some percent and we will
pull it back as well.
So in some cases, not all, we are constrained to the
universe of the sampling that we take for the recoveries.
That said, I agree that there is an expanded universe, an
expanded denominator if you will, of recoveries out there.
IPERA opens the door to a greater set of recoveries because it
expands our recovery audit programs beyond vendor payments to
grant payments and other activities.
Right now, agencies, under OMB guidance, have reported in
their plans to us for how they are going to leverage the new
IPERA authority to expand their recoveries. And as you would
expect, we are seeing a spectrum with respect to the plans. In
some cases, the agencies are coming at it aggressively and have
already started up, and in some cases they are needing a little
bit of prodding from OMB to take the authority even more
proactively and expand.
So I predict that as the financial reports come in at the
end of the year, you will start to see the needle move as a
result of the IPERA legislation, in terms of recoveries. But
over the next few years, if we are successful, that needle will
move much more significantly.
Senator Carper. Good. Thanks for those efforts and that
reassurance.
A question, if I could, for Mr. Gregg, and this focuses on
the Do Not Pay Initiative. I understand many of the basic
operations of the Do Not Pay Initiative will likely be housed
within Treasury. Is that correct?
Mr. Gregg. Yes. In the Fiscal Year 2012 budget, there is a
request that Department of Treasury and the bureau under me,
Bureau of Public Debt, take on this role, and we are moving
very quickly to get the portal up by January of next year.
Senator Carper. Good. Has a price tag for the new system
been estimated? Have you heard any price?
Mr. Gregg. Well, we have not got any money yet, but the
request was for $10 million. We think that is doable for the
work that we have underway, and we plan to--well, hopefully, we
can get that to accomplish what we have been asked to
accomplish.
Senator Carper. Good. Ten million dollars for most of us as
individuals or families, that is a lot of money. But I would
certainly observe that while it is a lot of money, compared to
$125 billion, it is a relatively modest sum.
Mr. Gregg. I would mention, Senator Carper, that the public
debt is also in the midst of merging its IT operations with the
other bureau that works with me, and that is well on its way.
It is one of the initiatives that OMB has identified, and we
are merging those two operations and closing three data
centers. So we are doing this work in the midst of that, but we
are still very optimistic that January of next year we will be
up and running with the portal.
Senator Carper. Vivek Kundra was before us today, sitting
right where Mr. Croft is sitting, early this morning in another
hearing, and we talked about data centers. I think we have
about 2,000 of them in the Federal Government, and the effort
is to try to reduce that to about 800 and to save I think he
said $3 billion. I think it is $3 billion over 5 years, which
that is real money.
Going back to the $10 million that you said that you
thought the Do Not Pay Initiative might cost, around $10
million, at least that is what you had asked for, do you have
any estimate or just an educated guess of how much that might
save?
Mr. Gregg. I really do not. I think that when we did a
study last year and looked at the various databases, and it so
happened that it was done out of my office, but no one owned
kind of the whole picture in terms of bringing all these
databases together.
I think the impact it can have on reducing improper
payments can be enormous because you have, as Danny Werfel
said, you have agencies who are really at the point where they
want to do something. And at the same time you have many of
them that cannot get access to information that they would need
on employment or whether or not their individuals are residing
where they say they are residing. Or, if they do that get
information, it is extremely difficult.
So if we can pull this information together to provide the
agencies, to make it easy for them to do that while still
controlling the information appropriately, I think the savings
will be enormous.
Senator Carper. OK. I like that word ``enormous.''
In the weather forecast, I like the word when they are
giving the weather forecast and they say ``bountiful
sunshine.'' I like bountiful sunshine.
When we are talking about deficit reduction, ``enormous''
is a very good adjective.
Mr. Werfel, did you want to say something there? If not, I
have a question for you and for Mr. Gregg, and we are going to
close it down.
Mr. Werfel. I was just going to point out that our review
of all the relevant data that we had at our disposal showed
approximately $240 million in improper payments identified as a
result of payments to dead people, and incarcerated. I think
the Do Not Pay solution will help us cut deeply into that
amount but also have repercussions beyond that. Particularly
the Recovery Board, with their fraud detection tool, is
uncovering and helping prevent fraud in ways that go way beyond
just stopping payments to the deceased and the incarcerated,
and we would like our tool to be used in a similar way.
The only other point I want to add to the question about
how much will it cost--because I have been getting this
question a lot by your colleagues in the House, so I figure I
will go on the record here--is that we are very interested in
partnering with the Recovery Board to see if we can leverage
the infrastructure of their solution to help mitigate the cost
of the Treasury's deployment. I know Mr. Devaney is open to
that.
Senator Carper. How about Mr. Scovel? [Laughter.]
Mr. Scovel. Yes, sir.
Senator Carper. Oh, good.
Mr. Werfel. So we are hopeful. We asked for $10 million
because we cannot assume that the Recovery Board, an
independent entity, is going to hand us the keys to their
system. At the same time, we are extremely open to mitigating
that $10 million by a partnership with them.
Senator Carper. That would be good.
This will be my last question. Again, this is for Mr.
Werfel and Mr. Gregg, and we will stay on the same subject.
Could you tell us just a little bit more about the Treasury's
plan to launch the Do Not Pay List over the next several
months?
Will you be obtaining contractor support?
What is the timing to bring all the agencies on board using
the Do Not Pay List, please?
Mr. Werfel. I will start for Mr. Gregg and say that after
the President's memo was issued to create a Do Not Pay List we
quickly launched VerifyPayment.gov, which brings together data
sets on various data sources such as Excluded Parties, the
Death Master File and incarcerated.
And what we have done is started to pilot that with
agencies such as the VA. We are working with the Small Business
Administration (SBA) and Education and other agencies to say
what do you see in this tool that is going to be more helpful,
the way the data is structured, the way you are getting batch
uploads versus individual records, the way it interfaces with
your system. We are just learning about how to deploy the
functionality more effectively, targeting a January date where
we can be up and running, and then a larger suite of agencies
can start incorporating this into their daily operations.
So rather than face a suite of different data and different
agencies and navigating more bureaucracy, they are just
navigating with Treasury, and Treasury is providing that
portal.
So the pilot process and phase have been enormously
successful to date. We are learning a lot, and we are also
learning, I think as mentioned throughout this testimony, that
we have some challenges to make sure that we are getting access
to more data than we have today and that we are figuring out
how to streamline some of the bureaucracy associated with
obtaining that data.
My final thought is--and I was thinking this when the
question was raised earlier, and I think it is important to get
out there--just like we were talking about the public policy
tensions between recovering information and fault and good
conscience and equity, they are similar with respect to the
sharing of data and the privacy impacts. It is going to be
really important for me and for OMB as we knock down barriers
to data integration across agencies, as we figure out better
approaches for sharing data, we have to do it in a way that
continues to protect data security and data privacy.
I firmly believe there is a win-win here, where you can
knock down those barriers, yet still be in a place where the
privacy and the security of the data have not been compromised.
But it is something that has to be part of your process, moving
forward, and we are certainly committed to that.
Senator Carper. Mr. Gregg.
Mr. Gregg. All the things that Danny mentioned we are
certainly working on.
And I think the culture that you have mentioned a couple
times; in fact if it has not changed, it is changing. It is
easy----
Senator Carper. It is encouraging to hear you say that. I
think it is. I think it is. It is like changing the course of
an aircraft carrier, something that is not easy to do, but you
stay at.
Mr. Gregg. And it is easy for--and I certainly understand
from agencies' perspective, having run a couple of bureaus and
know the importance of getting your program. But I think they
are looking at the issue more broadly and saying, like Social
Security, how can we share this? When we are at that point, I
think that the opportunities here are enormous.
I am not sure how much contractor support we will need. We
certainly will, to the extent we can, take advantage and learn
from the Recovery Board. At the same time, we know that there
is software out there that will help us do business analytics,
to help us do things that we have not been doing before.
For example, one of the Financial Management Services
(FMS), another bureau that works for me, has software that now
is helping them identify whether or not the individual with a
slight variation of the name is actually the person who owes a
debt or not, and that is something we have not been doing in
the past. So that kind of software to say actually Richard
Gregg and Dick Gregg living in Springfield, Virginia are the
same people, and go ahead and collect that debt.
So we are looking at different kinds of software that
agencies can use to help them do some analytics before the
payment goes out.
So I think it is--I am excited about actually the
opportunity that I see to really go after that big number up
there.
Senator Carper. Not everybody gets excited about this
stuff. And I know sometimes my colleagues look at me, roll
their eyes and say why do you spend so much time focusing on
it, or why do you get so juiced up about this?
This is money we do not have. This is money that we end up
just going around the world and borrowing. And some of the
folks that we borrow this money from, it gives them an
advantage on policy issues that is an advantage we do not want
to give them.
We can just continue to give them that advantage and put
ourselves at a disadvantage, or we can try to do something
about it, and no one solution, no silver bullets. But as I like
to say, a lot of silver BBs, and in the end they add up to a
lot of silver, a lot of money.
I am not the smartest guy around. I am pretty good at
surrounding myself with really good people. I like to say
people smarter than me. My wife says it is not hard to find
them. [Laughter.]
But I think we are on to something. I think we have good
partners in the Administration, a bunch of good partners on
this Subcommittee and Committee, and in the Senate and House,
both parties.
We have just got to stick with this. Our attention span is
we easily get distracted on things. We got distracted with
Afghanistan. We got distracted with Iraq, kind of left a vacuum
in Afghanistan. Now we get to go back to Afghanistan and clean
that place up and help them leave behind a country where people
can feed themselves, protect themselves, govern themselves.
But it is hard to stay focused in this business, but we are
going to endeavor to do that. And I am pretty good at that.
I want to say to our witnesses today I will give each of
you maybe 30 seconds if you want to give us a quick closing
comment, just a thought you would like for us to take home with
us at the end of the day, as we approach Memorial Day weekend.
Mr. Croft.
Mr. Croft. Well, thank you. Thanks very much for having us
today.
I really do not have any deep thoughts other than to----
Senator Carper. Any shallow thoughts?
Mr. Croft. We do share data an awful lot.
Senator Carper. You do. I am impressed by that.
Mr. Croft. Yes.
Senator Carper. Do you think that is a good example for
maybe the rest of us?
Mr. Croft. I do although I would comment there is a lot of
work behind the scenes in sharing, as was observed by some of
our colleagues. Legal issues are paramount, and so are fiscal
issues. We share on a reimbursement basis, unless it is trust
fund mission, or required by statute.
So there are a lot of activities that go with sharing, but
right now Social Security would have over 1,500 different data
exchanges going on. There is a lot of data sharing and it is a
lot to keep track of.
Senator Carper. OK. Thanks. Mr. Scovel.
Mr. Scovel. Thank you, Mr. Chairman. We appreciate your
confidence in the Recovery Board's experience and capabilities.
And we would offer for the Committee's consideration simply
a reiteration of my earlier statement, and that is should the
Board--should the Committee wish to entrust the Board with a
function such as executing the Do Not Pay List, the Board would
welcome that opportunity.
Senator Carper. All right. Good. Thanks for putting an
exclamation point behind that.
Mr. Hale.
Mr. Hale. Mr. Chairman, we at DOD know we need to keep
working to do better. I believe we have a strong program, but
it can get better.
We will cooperate fully with the Do Not Pay List and make
use of it. Even though Treasury does not disburse overpayments,
we will tap into the information.
We will fully implement IPERA, and we will continue to
strive to help get that number down.
Senator Carper. Good. We appreciate that.
Mr. Gregg, a closing thought?
Mr. Gregg. Mr. Werfel and I were very happy we were able to
convince Nancy Fleetwood, sitting right behind me, who
retired----
Senator Carper. Nancy Fleetwood, will you raise your hand?
All right.
Mr. Gregg. Who retired a year ago and has brought great
energy and collaboration skills to moving this forward. So we
are very appreciative.
Senator Carper. You say she retired a year ago? Did you
bring her back out of retirement?
Mr. Gregg. Yes.
Senator Carper. No kidding. OK.
Mr. Gregg. There is a team here. She has done tremendous
work.
Senator Carper. Good. I noticed when you testified I could
see her lips move. [Laughter.]
She is pretty good at that. You are too.
Thanks. Welcome back.
And Mr. Werfel, and a closing comment, do you want to
mention anybody in your staff who is getting married any time
soon that you want to just give a shout-out to?
Mr. Werfel. I would like to mention a Delawarean who works
for me because I surround myself with smart people from good
States as well, and Joe Pika who is sitting behind me, who is
our lead analyst on improper payments, is just that individual.
I know you had the pleasure of working with him.
Senator Carper. I worked for Joe----
Mr. Werfel. You did.
Senator Carper [continuing]. when I was a junior Senator.
Mr. Werfel. He is off right after this hearing. This is the
last assignment I could give him as a single man, and he is off
to get married and go on his honeymoon to Italy, and I just
wish him the best.
We are fighting the good fight on improper payments. People
like Joe are pouring their heart and soul into this effort, and
I think it is a cause for optimism that you have smart people
working on this effort.
Senator Carper. OK. I would say a fight worth fighting. It
is a fight worth fighting.
All right. I think some of my colleagues who are not here
will have some questions for you.
And what do they have, Peter? Two weeks?
Two weeks. Two weeks, about the time that Joe Pika is
wrapping up his honeymoon. [Laughter.]
We will hopefully give you all the questions that we have,
and we would ask you to just respond promptly.
With that having been said, this hearing is over. Thanks so
much.
[Whereupon, at 4:15 p.m, the hearing was adjourned.]
A P P E N D I X
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