[Senate Hearing 112-300]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 112-300

            ASSESSING EFFORTS TO ELIMINATE IMPROPER PAYMENTS

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


                                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

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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
                                 ------                                

 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

                                 ------                                
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

                              ----------                              


                        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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Werfel appears in the appendix on 
page 44.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Gregg appears in the appendix on 
page 51.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.]






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