[Senate Hearing 112-557]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-557

    ASSESSING EFFORTS TO COMBAT WASTE AND FRAUD IN FEDERAL PROGRAMS

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


                                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

                             SECOND SESSION

                               __________

                             MARCH 28, 2012

                               __________

         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 Coburn...............................................     4
    Senator Brown................................................     5
Prepared statements:
    Senator Carper...............................................    41
    Senator Brown................................................    45

                               WITNESSES
                        WEDNESDAY MARCH 28, 2012

Hon. Daniel I. Werfel, Controller, Office of Federal Financial 
  Management, Office of Management and Budget....................     8
Sheila O. Conley, Deputy Assistant Secretary for Finance and 
  Deputy Chief Financial Officer, U.S. Department of Health and 
  Human Services.................................................    10
Beryl H. Davis, Director, Financial Management and Assurance, 
  U.S. Government Accountability Office..........................    12
Hon. Todd Russell Platts, a Representative in Congress from the 
  State of Pennsylvania..........................................    14
Hon. Edolphus Towns, a Representative in Congress from the State 
  of New York....................................................    17

                     Alphabetical List of Witnesses

Conley, Sheila O.:
    Testimony....................................................    10
    Prepared statement...........................................    54
Davis, Beryl H.:
    Testimony....................................................    12
    Prepared statement...........................................    61
Platts, Hon. Todd Russell:
    Testimony....................................................    14
    Prepared statement...........................................    93
Towns, Hon. Edolphus:
    Testimony....................................................    17
    Prepared statement...........................................    95
Werfel, Hon. Daniel I.:
    Testimony....................................................     8
    Prepared statement...........................................    47

                                APPENDIX

Questions and responses for the Record from:
    Mr. Werfel...................................................    97
    Ms. Conley...................................................   107
    Ms. Davis....................................................   108
Chart referenced by Senator Carper...............................   111
Chart referenced by Senator Brown................................   112
Chart referenced by Senator Carper...............................   113

 
    ASSESSING EFFORTS TO COMBAT WASTE AND FRAUD IN FEDERAL PROGRAMS

                              ----------                              


                       WEDNESDAY, MARCH 28, 2012

                                 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 2:35 p.m., in 
Room 342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, Brown and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The hearing will come to order.
    I understand that there are votes going on in the House, 
and they are about to wrap those up and Representatives Platts 
and Towns will be joining us shortly. I suggest Senator Coburn 
will go ahead and make some opening statements, and then we 
will yield to our witnesses once they have arrived.
    Today's hearing will focus on the very high levels of 
improper payments that are made by Federal agencies as well on 
our efforts to curb these wasteful and sometimes fraudulent 
payments.
    As everyone in the room knows, we have faced record budget 
deficits in recent years. Our national debt today stands at 
about $15.4 trillion, well over double what it was just 10 
years ago. I do not think we have had a debt situation like 
this since World War II. It was not sustainable then, and we 
know it is not sustainable now.
    In order to address the burden that this debt places on our 
country, I think we need a new kind of culture here in 
Washington, DC, Senator Coburn, God knows, he is for it, and I 
have tried to be a reasonably good partner with him, in trying 
to replace a culture of thrift with a culture of spendthrift. 
And we have a lot of folks, including some people in this room, 
that have been great partners with us in this.
    We need to look in every nook and cranny in the Federal 
Government, find out what works, do more of that; find out what 
does not work and do less of that. One of the things that work 
in terms of reining in inappropriate spending is to do a better 
job with improper payments. We are pleased that we are making 
some progress, and we have a lot more to do.
    Before I go any further, I think it is important to maybe 
explain what it means for a Federal agency to make improper 
payments. An improper payment, for those who are not familiar 
with it, occurs when an agency pays a vendor for something they 
did not receive or maybe even pays a vendor twice for something 
they do receive. It can occur when a recipient has died and is 
no longer eligible for payment or when a vendor owes the 
government money and should not be getting a payment until that 
is repaid. And of course, sometimes people or companies receive 
payments that are actually fraudulent.
    According to the Government Accountability Office (GAO), 
the Federal Government made an estimated $121 billion in 
improper payments in fiscal year (FY) 2010. That was a record 
high. I was encouraged to learn recently that the early data 
for fiscal year 2011 shows a drop in the level of improper 
payments to about $115 billion. That is down from $121 billion, 
to about $115 billion, even though more agencies are now 
reporting their improper payments. For example, the 2011 
estimate includes improper payments for the Medicare 
prescription drug program for the first time.
    And this drop is welcome news and suggests that the years 
of collective efforts, bipartisan efforts here in the 
Legislative Branch and works of a couple of Administrations--
the Bush Administration, the Obama Administration--and a bunch 
of other folks are beginning to bear some fruit.
    I think we probably have a chart\1\ right here. $115 
billion--who would have ever thought that would be good news, 
but it is better than $125 or $130 or $135.
---------------------------------------------------------------------------
    \1\ The chart referenced by Senator Carper appears in the appendix 
on page 111.
---------------------------------------------------------------------------
    So we are heading in the right direction. We just have to 
keep going that way and try to get going that way even faster.
    Despite some progress that has been made, error rates and 
the amount of money lost to avoidable errors still clearly 
remains at unacceptably high levels. What disturbs me most 
about this problem is that we seem to make these kinds of 
mistakes at a rate much higher than a business or the average 
family would tolerate, or could afford, and we keep making some 
of them over and over again.
    As you recall in 2010, Congress passed, and President Obama 
signed into law, the Improper Payments Elimination and Recovery 
Act which Senator Coburn, Senator Lieberman and I and others 
had worked on. And this new law aims to make agencies and 
agency leadership far more accountable for the expensive 
mistakes that they sometimes make, and it represents a 
bipartisan and bicameral success in trying to prevent waste and 
fraud.
    The 2010 law does essentially four things: First, it 
compels Federal agencies to make a more honest accounting of 
the errors that they do make. Second, it requires agencies to 
take steps to stop making errors. And, it requires agencies to 
try and recover improper payments when they are made. And 
finally, it directs that top managers be evaluated in part by 
how well their agencies comply with the new law.
    I like to say there are four things that the law does. One, 
it says, we want you to not only report improper payments; we 
want you to stop making them. We want you to go out and recover 
the monies that have been improperly paid, and we want to make 
sure that the folks that are running those agencies, that 
somehow their evaluations, their performance is measured by 
their compliance with that legislation.
    Today, I want us to focus on an important new measure that 
would help all Federal agencies prevent, detect and recover 
improper payments--bipartisan legislation that Senator Collins, 
Brown, Lieberman and I co-authored, S. 1409, the Improper 
Payments Elimination and Recovery Improvement Act, and it is 
now making its way through the Senate. This measure builds upon 
the 2010 improper payments law.
    Our new bill recently passed by Unanimous Consent in the 
Homeland Security and Government Affairs Committee (HSGAC). 
Last month, the bill was introduced in the House, led by our 
first panel's witnesses who are going to arrive shortly--
Representatives Todd Platts and Edolphus Towns. And let me just 
take a moment and talk about some of the provisions of our 
bill.
    Too often, Federal agencies make improper payments to 
individuals who could easily be identified as ineligible. Some 
of these individuals are applying for benefits using a false 
address. Others may not meet the criteria for eligibility.
    And to their credit, the Obama Administration represented 
here today, through executive action, is establishing a Do Not 
Pay Initiative, and this effort involves screening recipients 
of Federal funds against a list of those ineligible to receive 
those funds before we cut the check. For example, before an 
agency could award a contract to a company, the agency would 
have to cross-check against the Do Not Pay database which will 
include a central, comprehensive database of companies and 
entities that are no longer allowed to do work with the Federal 
Government because of a fraud conviction or for some other 
reason.
    And S. 1409 would establish the Do Not Pay Initiative in 
the law throughout the Federal Government and make several 
important improvements to the initiative and add tools and 
procedures to help agencies access data.
    Finally, the bill would establish a series of recovery 
audit contracts to ensure that agencies actually recover 
overpayments. Recovery Audit Contracting has proven very 
successful in the private sector as well as in several Federal 
agencies. It worked in the State of Delaware where we used it 
in concert with our State Division of Revenue to collect 
revenues that we were finding difficult to collect.
    So it has worked in the private sector. It has worked in 
States, in the local governments and a number of Federal 
agencies, including with the Medicare program. There, we have 
witnessed recovery of improperly spent Federal taxpayer dollars 
approaching, I think, $2 billion in recent years, and we expect 
those recoveries to continue to grow. They need to.
    There are additional initiatives that agencies are 
undertaking that the witnesses will describe. I am especially 
interested in initiatives that we will hear about today that 
address improper payments by Federal programs that are run by 
State agencies such as Medicaid and Unemployment Insurance.
    Let me conclude by noting that we are here today in large 
part because we believe that we have a moral imperative to 
ensure that the scarce resources we put into Federal programs 
are well spent. We must use every tool available to put our 
fiscal house back in order and give the American people the 
government that they expect and that they deserve. It is the 
right thing to do on behalf of the taxpayers of this country, 
who entrust us with their hard-earned money. And by working 
together on this latest in a series of common sense 
initiatives, we can take another important step forward in 
earning their trust once again.
    And with that having been said, let me turn to Senator 
Coburn with my special thanks for all that he has done and 
continues to do on these funds.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Well, thank you, Mr. Chairman. I appreciate 
your being here, and I am looking forward to our witnesses' 
testimony.
    I note out of the $115 billion up there the vast majority 
of that is Medicare and Medicaid fraud, but it is still a 
significant amount of money.
    We put out a report in October 2010 on the billion dollars 
that we pay to dead people from the Federal Government in the 
10 years before that, and that is an underestimate.
    The thing that frustrates me and should frustrate every 
American that pays taxes is it is not hard to compare to the 
Death Master File of the Social Security Administration (SSA). 
I mean, that is a computer program that says before we pay 
anything we are checking these Social Security numbers. It 
still does not happen. That is inexcusable that it is not 
happening.
    And maybe it is $100 million a year. Maybe it is $500 
million a year. But that is one of the easy things we could do 
to eliminate improper payments--is just mandate starting 
tomorrow that against the Death Master File every payment will 
be made.
    The other thing is looking at the IRS, people who owe 
taxes. We are not doing anything.
    We have a report coming out that is going to outline the 
number of contracts that have been paid and made to people who 
are in arrears, not under judgment, not under question but 
under arrears to payments that are duly owed the Federal 
Government. We continue to contract with them. We continue to 
pay money to people who have not fulfilled their obligations to 
pay their taxes.
    So there are a lot of things we can do. I know that 
everybody is working on it. I know it is hard. But the point is 
we do not have $115 billion to make in improper payments.
    And to be fair, all improper payments are not overpayments. 
They are underpayments, a portion of them. But the vast 
majority is overpayments.
    So I am thankful that we are having the hearing. I 
appreciate your leadership, Senator Carper.
    Nobody in America can figure out why we continue to pay 
dead people money--LIHEAP payments, Medicaid payments. We have 
dead doctors writing prescriptions that we are paying for. We 
have medical supplies going to people who are dead, and it goes 
on and on again.
    The last thing I would say, there is an act--bipartisan--I 
think 37 Senators now co-sponsoring, bipartisan, on the FAST 
Act which helps Centers for Medicare and Medicaid Services 
(CMS) eliminate this vast majority of improper payments and 
fraud, and yet, we cannot get it to the Senate floor. There is 
something wrong when 37 percent of the Senate would like to 
have a discussion about an issue and the Majority Leader will 
not bring it to the floor, and it is something that will 
actually save us billions and billions of dollars every year.
    With that, I yield back.
    Senator Carper. Thanks, Senator Coburn.
    And Scott Brown has joined us.
    We welcome you and you are recognized.

               OPENING STATEMENT OF SENATOR BROWN

    Senator Brown. Well, thank you, Mr. Chairman. Good to be 
back in the hearing status. I am actually at another hearing, 
then going to another one and then this one. So I will be 
bouncing back and forth, so please no disrespect to you or any 
of the panel members or any of our folks watching.
    Senator Coburn sounded a little exasperated, and rightly 
so, with the fact that we are dealing with improper payments of 
approximately $115 billion.
    When I got here, $11.95 trillion national debt. It is over 
15, what, 3 and rising, no end in sight. It continues to grow 
at unsustainable levels never seen before, and as the 
government becomes bigger and bigger players in our lives.
    Now I have concerns about if we are having all this fraud, 
waste and abuse now, what happens if the President's health 
care plan stays in effect and you have all these new people 
coming onto the program. What does that say to that effort in 
terms of the fraud that potentially could be perpetuated 
against the government in a lot of the plans and services that 
are available? So that deeply concerns me.
    The government's role has increased, so has its inability 
to handle the basic functions such as making proper payments, 
as we have referenced--$104 billion.
    And as I have many times before, I am concerned about, as I 
said, the health care bill and how that is going to exacerbate 
the problem.
    And Washington is not paying its current bills, let alone 
paying future bills. I have to say that it is depressing 
sometimes that Washington is not getting on a fiscal path that 
would make sense for the average household or average business 
even though these improper payments are about $1.3 billion.
    Well, in getting back--I am sorry. We are only getting back 
$1.3 billion out of the $104 billion recoverable. It does not 
make any sense to me.
    And while the government's improper payment problem is 
depressing, I continue to be encouraged, quite frankly, and I 
speak often. You probably hear about it because you have so 
many tentacles throughout the country about how I commend you 
for your efforts.
    And me being on this Subcommittee has been enjoyable, that 
we have identified a lot of that fraud, waste and abuse and 
really brought some good panels in here to discuss those 
challenges. And I know for a fact that they have actually 
gotten their act together more, which has resulted in great 
savings to the people of this country.
    And I am willing to continue to work with you not only as a 
friend but as a Senator, to try to get these things done. So I 
look forward to the panels getting here and moving on. Thank 
you.
    Senator Carper. Thanks for your kind words and for being 
part of, I think, a bipartisan team on these important issues.
    While we are waiting for Congressman Platts and Congressman 
Towns to arrive, I do not know if there is anybody here from 
their staffs. Is there?
    If someone could give us an idea what their estimated time 
of arrival (ETA) might be, that would be helpful, and while you 
are doing that I will tell a quick story.
    I get up in the morning pretty early, work out at the Young 
Men's Christian Association (YMCA) in Wilmington, Delaware and 
head on to the train station where I catch the early train to 
come on down here and go to work. And a couple of months ago I 
was listening to the National Public Radio (NPR), and listening 
to the news. I catch the news right at 7 on my way to the train 
station.
    One day back in the fall they were reporting on a news 
story, and it involved an international study that had been 
conducted. And the international study was focused on what is 
it about people's work or their jobs that they like, what is it 
that makes people say oh, I like this about my job or I like 
that about my job.
    Some people said the thing they liked about their job was 
getting paid. They like the paycheck. Some people said, oh, 
they like vacation or they like having health care; they like 
having a pension. Some people said they like the people they 
work with or maybe the conditions and the environment in which 
they worked.
    But you know what most people said? Most people said that 
the thing they like most about their job was the fact that the 
work that they were doing was important and they felt that they 
were making progress. That is what most people said.
    As Senator Brown suggests, we do a whole series of 
hearings. We think they are important. And they all focus, for 
the most part, on how to get better results for less money.
    In a day and age when our deficits are as large--even 
though they are coming down, they are still frightening large--
we need to get, in almost everything we do, better results for 
less money.
    So I think what we are doing is important. And even though 
$115 billion is a lot in improper payments, it is better than 
$121 billion, and it is especially better than $121 billion 
when you consider that we have added a number of new programs 
for parts of our Federal Government that are being reported on, 
including the Medicare Prescription Part D Program.
    So a lot of betting people would have said that when we 
were at $121 billion a year or so ago, that maybe this year 
instead of seeing the number drop it would have actually gone 
up even higher, but it did not go up higher. It came down. So 
for that we are grateful, and for the efforts of everybody who 
is helping to make that possible, we are especially grateful.
    So with that having been said, my inclination is to, rather 
than go to the second panel, is to ask Peter Tyler who is 
sitting over my left shoulder to let me know what is the ETA 
for Congressman Platts and Congressman Towns, and then we will 
decide. If we do not have a good answer here, or the right 
answer here, like right now, then we are going to recess. What 
do you think, Peter?
    Peter suggested that we just adjourn and go the Dubliner. 
[Laughter.]
    It is a nice afternoon. He says we are making progress 
here. Why do we need to have another hearing?
    Senator Brown says, let's have some crabs.
    No, I think, why do we not just go ahead and invite the 
second panel up?
    What will happen when our members of the House are able to 
join us, we might just stop what we are doing and call on them 
to make whatever statements they want and then we will go back 
to our second panel. But we will just ask, Deirdre, if we 
could, just bring the second panel to the floor.
    And we thank you all for rolling with the punches here. 
Thank you very much.
    And I would just say to staff of either of the Congressmen, 
if you have a sighting or you have an update on an ETA, if you 
could give that to Peter, that would be just great.
    All right, let me give a brief introduction if I can, of 
Panel 2.
    Daniel Werfel, Controller, Office of Management and Budget 
(OMB), and he probably has testified before us more times than 
he wants to remember.
    We are just delighted that you could be here today, and we 
welcome you. I am going to truncate the introductions--but we 
are grateful for you and for your service. From the Department 
of Health and Human Services (HHS), Sheila Conley.
    Sheila, nice to see you. One of my favorite names, I may 
have told you this before--my sister, Sheila; a former 
legislative director, Sheila; a former cat named Sheila. It is 
a big name in our family, so we welcome the Sheilas.
    Now serving as Deputy Assistant Secretary for Finance and 
Deputy Chief Financial Officer--that is a big job over there.
    And finally, Beryl Davis of the GAO. Beryl, thank you. 
Director of Financial Management and Assurance, GAO. We love 
working with GAO and thank you all and your colleagues for the 
great work that you do for our country.
    All right, Mr. Werfel, you are the lead-off hitter. Please 
proceed. Thank you for coming and for your efforts.

 TESTIMONY OF HON. DANIEL I. WERFEL,\1\ CONTROLLER, OFFICE OF 
 FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Werfel. Thank you, Chairman Carper, Ranking Member 
Brown and distinguished Members of the Subcommittee, for 
inviting me to discuss the Federal Government's efforts in 
preventing, reducing and recapturing improper payments. I 
appreciate the opportunity to speak before the Subcommittee 
again about this important topic.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Werfel appears in the appendix on 
page 47.
---------------------------------------------------------------------------
    In 2011, the government made $115 billion in improper 
payments. We can all agree that improper payments degrade the 
integrity of programs and compromise taxpayers' trust in their 
government. That is why combating improper payments has been a 
leading priority of the Administration's Campaign to Cut Waste. 
Our intensive efforts to reduce improper payments are guided by 
the President's bold goals and by key ingredients such as 
transparency, accountability, collaboration, and innovation.
    These efforts are producing real results. We are on track 
to meet or exceed the bold goals set by the President, having 
decreased the governmentwide error rate sharply, from 5.4 
percent in 2009 to 4.7 percent in 2011.
    Senator Carper. When I read your testimony, the question of 
5.4 percent of 4.7, that was of what? I think I know, but just 
go ahead and tell us.
    Mr. Werfel. So 5.4 percent of all the dollars out there. If 
there were $100, then a 5.4 percent error rate would mean that 
we have made $5.40.
    Senator Carper. No, it is not all the dollars out there.
    Mr. Werfel. It is not all the dollars out there. It is all 
the dollars that are under the law, under the Improper Payments 
Elimination and Recovery Act, have been identified as being a 
significant enough risk for error that the law requires that we 
measure them, so that there is a whole class of programs that 
we do not measure because under the framework in the law we 
have designated them as low risk. So our denominator in this 
case are the programs that we are actually measuring.
    Senator Carper. All right. Thanks.
    Mr. Werfel. So as I was mentioning, the error rate fell 
from 5.4 percent in 2009 to 4.7 percent in 2011. I used a base 
of $100, but when you use a base of what we are talking about 
in Federal outlays, that is a significant amount of money that 
makes up that reduction.
    In fact, if we did not take the bold steps necessary to 
drive this decrease, if the error rate had remained at 5.4 
percent, the government would have made tens of billions of 
dollars in additional payment errors that we did not make.
    We have also nearly met the President's goal to recapture 
$2 billion in overpayments to contractors, and that is over a 
year ahead of time from our original plan.
    Today, I would like to highlight three important 
initiatives that are driving our progress in this area.
    First, the 2009 Executive Order (EO) on Reducing Improper 
Payments, which we believe represents a fresh approach to 
addressing this issue. We have made great strides in 
implementing the Executive Order by identifying agencies with 
high error programs that account for the majority of improper 
payments, establishing supplemental measures to provide more 
frequent and current measurement for high error programs, and 
selecting accountable officials responsible for reducing 
erroneous payments. And all of this information is readily 
available to the public at PaymentAccuracy.gov, another 
required element of the Executive Order.
    The second key initiative is the enactment and 
implementation of the Improper Payments Elimination and 
Recovery Act (IPERA) of 2010. Last year, OMB released guidance 
to agencies on implementing IPERA to ensure that they, the 
agencies, are properly assessing risk in their programs, 
measuring and reporting on improper payments, and establishing 
corrective action plans and reduction targets. IPERA also 
expands agencies' authorities and requirements for recapturing 
overpayments and creating sanctions for agencies that are found 
noncompliant with the law by their Inspector General (IG).
    The third key initiative is our implementation of the 
President's Do Not Pay solution. In June 2010, the President 
issued a Memorandum on Enhancing Payment Accuracy through a 
``Do Not Pay List,'' directing the establishment of a single 
point of entry where agencies could access relevant data before 
determining the eligibility for a payment or an award, thereby 
avoiding paying ineligible recipients.
    The Treasury Department is currently in the process of 
implementing the Do Not Pay solution for the rest of 
government, which will provide a robust tool that agencies can 
access to determine eligibility information prior to making an 
award or payment. I want to emphasize that recent congressional 
support of the Administration's proposal to fund this effort at 
Treasury is a significant contribution to our ability to 
prevent improper payments, and I want to thank this 
Subcommittee in particular for your leadership in this area.
    Finally, I would like to highlight the important steps 
outlined in the President's Fiscal Year 2013 budget that will 
help reduce improper payments. The budget includes a suite of 
proposals that will increase program integrity across a number 
of agencies. If enacted, these policies would result in $102 
billion in savings between 2012 and 2022.
    When the President took office, improper payments were on 
the rise. But through decisive action by both the 
Administration and Congress, working together, we have 
successfully reversed this trend. This year, we saw error rate 
reductions in almost every major program with a history of 
significant errors, including Medicare, Medicaid, the 
Supplemental Nutrition Assistance Program (SNAP), rental 
housing, the Earned Income Tax Credit (EITC), Pell Grants and 
supplemental security income at SSA.
    Yet, despite our successes, we still have a lot of work to 
do. We have to work diligently to reinforce our collective 
commitment to responsibility and accountability for all 
taxpayer dollars and make clear that no amount of waste in our 
Federal programs is acceptable.
    Thank you again for inviting me to testify. I look forward 
to answering your questions.
    Senator Carper. Thank you so much, Mr. Werfel.
    And Sheila Conley is next and please proceed.
    Your whole statement will be made part of the record. 
Please summarize as you see fit. If you run much over 5 
minutes, I may rein you in, but if it is not a lot we will just 
let you go.

 TESTIMONY OF SHEILA O. CONLEY,\1\ DEPUTY ASSISTANT SECRETARY 
FOR FINANCE AND DEPUTY CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT 
                  OF HEALTH AND HUMAN SERVICES

    Ms. Conley. Good afternoon, Chairman Carper and Ranking 
Member Brown. Thank you for the opportunity to testify about 
the U.S. Department of Health and Human Services's continuing 
efforts to reduce improper payments, a responsibility we take 
very seriously and are committed to fulfilling.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Conley appears in the appendix on 
page 54.
---------------------------------------------------------------------------
    I would like to begin my remarks by thanking the 
Subcommittee for its sustained leadership in this area. I 
understand the Subcommittee has had many hearings on improper 
payments, helping to shine a light on this very important 
financial accountability issue.
    As the largest department in the Federal Government, with 
outlays approaching $900 billion, strengthening program 
integrity is a top priority for Secretary Sebelius, which 
extends to every member of HHS senior leadership and throughout 
all of our offices and programs. Given the size, complexity and 
diversity of the programs we operate, we must remain committed 
to the highest standards of program integrity and financial 
accountability to fulfill our mission. While we have made 
significant progress over time, we recognize that this is a 
continuous effort and more work remains to further prevent and 
reduce errors in our programs.
    Today, I would like to provide information from a 
departmentwide perspective about how we are fostering 
communication, and collaboration across our programs, and 
identifying solutions and best practices, to prevent and 
recover improper payments.
    What are improper payments? Simply stated, improper 
payments can be payments made to the wrong person, in the wrong 
amount, or for the wrong benefit or purpose. They also include 
payments that lack documentation.
    Improper payments provide a measure for assessing the 
adequacy of our internal controls and estimating the extent of 
improper payments in our program. They are not measures of 
fraud although the term is often used interchangeably.
    As far as our progress and results, HHS has been focusing 
on improper payments since 1996 when our Office of Inspector 
General (OIG) established the first error rate for the Medicare 
Fee-for-Service Program. Since then, we have developed error 
rate measurements for our other programs and continue to 
strengthen those programs by identifying root causes, 
implementing corrective actions and reducing improper payments.
    For fiscal year 2011, the error rate declined for 5 of our 
6 programs that reported rates in fiscal year 2010, including 2 
of the government's largest programs--Medicare and Medicaid. 
While we have made substantial improvements since we first 
started measuring errors, we know that our efforts to prevent 
and reduce improper payments require continuous, ongoing 
vigilance.
    As we implement program-specific corrective actions, HHS 
also continues to identify and share best practices in several 
promising areas that could have a significant positive impact 
on our programs.
    First, we are leveraging technology. HHS, with the support 
of this Subcommittee and others in Congress, has been a leader 
in using technology to prevent, detect and reduce errors. For 
example, HHS leads the Public Assistance Reporting Information 
System (PARIS), a Federal-State partnership that provides data 
matching capabilities to all 50 States, Washington, DC, and 
Puerto Rico, to assist them in detecting errors in State-
administered programs such as Medicaid, the Temporary 
Assistance for Needy Families (TANF) and child care.
    The second focus is breaking down barriers between agencies 
and strengthening partnerships. One partnership in particular 
is an ongoing relationship with Federal and State agencies. 
Each year, we work with State officials to strengthen the 
relationship with them and the programs that they administer on 
our behalf.
    The third area is exploring innovative ways to further 
improve our integrity efforts. Last fall, HHS announced three 
new demonstration projects in the Medicare Fee-for-Service 
Program that aim to reduce improper payments by focusing on 
error-prone areas.
    What are our efforts to recover improper payments?
    Well, our priority is to make payments correctly. HHS is 
also aggressively recovering improper payments when they do 
occur.
    The Medicare Fee-for-Service Recovery Audit Program has 
been very successful to date. In fiscal year 2011, the program 
recovered close to $800 million in overpayments to providers 
and suppliers, with another $400 million recovered in the first 
quarter of fiscal year 2012.
    Moreover, the Affordable Care Act expanded the Recovery 
Audit program to include Medicare Part C, D and Medicaid. When 
fully implemented, HHS Recovery Audit programs will cover more 
than 85 percent of the department's annual outlays.
    As to our future efforts, HHS has demonstrated a 
longstanding commitment to measuring, reducing and preventing 
improper payments, and I want to assure you that this area is, 
and will continue to be, a priority for the department. We look 
forward to working with this Subcommittee, and our Federal and 
State partners, to ensure that we continue to be responsible 
stewards of taxpayer funds.
    Thank you for the opportunity to testify today. I would be 
happy to answer any questions.
    Senator Carper. Great. Thanks so much for your testimony. 
Beryl Davis, please proceed.

TESTIMONY OF BERYL H. DAVIS,\1\ DIRECTOR, FINANCIAL MANAGEMENT 
      AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Davis. Chairman Carper, Ranking Member Brown and Dr. 
Coburn, thank you for the opportunity to be here today to 
discuss the issue of improper payments in Federal programs. My 
testimony will address progress reported by agencies in 
estimating and reducing improper payments, challenges in 
meeting current requirements to estimate and evaluate improper 
payments, including the results from our review of the 
Department of Health and Human Services Foster Care Program, 
and possible strategies needed to enhance the government's 
efforts to reduce improper payments.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Davis appears in the appendix on 
page 61.
---------------------------------------------------------------------------
    Progress is being reported by Federal agencies in 
estimating and reducing improper payments. In fiscal year 2011, 
Federal agencies reported estimated improper payments of $115.3 
billion, a decrease of $5.3 billion from the previous year. 
This figure is about 4.7 percent of the total $2.5 trillion on 
related program outlays.
    The estimate was attributable to 79 programs spread among 
17 agencies. The 10 programs with the highest dollar amounts of 
improper payments counted for about $107 billion, or 93 
percent, of the total outlays. The 10 programs with the highest 
improper payment rates had rates that ranged from 11 percent to 
28 percent.
    While progress is being reported, the Federal Government 
continues to face challenges in determining the full extent of 
improper payments. Some agencies have not yet reported 
estimates for all risk-susceptible programs. In addition, some 
estimating methodologies may need to be developed or further 
refined.
    For example, GAO's recently completed study of Foster Care 
improper payments shows that the Administration for Children 
and Families had established a process to calculate a national 
improper payment estimate for the Foster Care Program which 
totaled about $73 million in fiscal year 2010, the year that 
was covered by GAO's review. We found, however, deficiencies in 
all three phases of the program's estimating methodology--
planning, selection and evaluation.
    In planning, the methodology was exclusively limited to 
maintenance payments. However, such payments represent only 
one-third of the total Federal share of Foster Care 
expenditures.
    Regarding selection, a high percentage of replacement cases 
were used in the sample of cases selected due to inaccurate 
information in the population data.
    And in evaluating results, procedures were lacking on how 
to identify payment errors related to underpayments and 
duplicate, or excessive, payments.
    GAO determined that the improper payments estimate was not 
based on a statistically valid methodology and, consequently, 
did not provide a reasonably accurate estimate of the extent of 
Foster Care improper payments. Further, GAO found that the 
program could not reliably assess the extent to which 
corrective actions reduced Foster Care improper payments.
    Given the amount of Federal dollars flowing into risk-
susceptible programs, continuing activities are needed to move 
forward in the following three improper payments reduction 
strategies: First, identifying and analyzing root causes of 
improper payments; second, implementing effective prevention 
controls to avoid improper payments in the first place; and 
third, implementing effective detective controls to identify 
and recover overpayments.
    Regarding root causes, identifying and analyzing the root 
causes of improper payments is key to developing effective 
preventive and corrective action plans.
    We found that only about half of the 79 programs with 
improper payment estimates in 2011 reported this information 
using the three root causes categories established by the 
Office of Management and Budget. Without detailed and specific 
information on root causes, agencies are hampered in their 
ability to take actions needed to prevent and reduce improper 
payments.
    Regarding preventive controls, strong preventive controls 
serve as the front-line defense against improper payments, and 
many agencies are in the process of implementing such controls. 
Preventive controls involve a variety of activities such as up-
front validation of eligibility through data sharing among 
agencies and predictive analytic tests to identify patterns of 
high risk for fraud.
    Addressing program design issues is another preventive 
strategy. For instance, improper payments may actually be 
reduced by streamlining or changing complex and inconsistent 
program eligibility requirements.
    Finally, regarding detective controls, agencies need 
effective detection activities to quickly identify and recover 
those improper payments that represent losses to the 
government. Recovery auditing, such as that used in the 
Medicare program, is a means of identifying contractor 
overpayments. Detection activities can also provide information 
as to why improper payments were made, thus highlighting areas 
that need better preventive controls.
    Chairman Carper, Ranking Member Brown and Dr. Coburn, this 
completes my prepared statement. I would be happy to answer any 
questions you may have.
    Senator Carper. Well, that is perfect timing because as you 
were wrapping up, our two representatives just walked in. I am 
going to ask if you all just will retain your seats, and I am 
going to ask Chairman Platts to come up and Ranking Member 
Towns to come up and just to sit.
    You all just stay in your seats.
    And, Deirdre, if you will just put their name tags on.
    And Congressman Todd, you could sit on the first seat here, 
right there, and I would ask Congressman Towns to come up and 
sit over here next to Beryl Davis from GAO, please.
    I understand you guys have been voting, and we were told 
that you took up and passed the Senate's Transportation Bill by 
unanimous consent. Well, that is great news, and we applaud you 
for that. I am just kidding.
    Mr. Platts. Mr. Chairman, I thought I made all the votes, 
but apparently, I missed that one.
    Senator Carper. Well, we are delighted that----
    Mr. Platts. I wish you were accurate.
    Senator Carper. So do I.
    I am not going to spend a whole lot of time on 
introduction. We have two good guys here, one of whom I have 
served with back starting in 1983 in the House of 
Representatives--Congressman Towns. My neighbor over in 
Pennsylvania is Todd Platts, and he is the kind of guy who 
likes to work across the aisle and just is very common sense, 
good ideas, just a very solid legislator, a good human being.
    And I am going to ask you just to make whatever comments 
you want.
    And thank you very much for letting me come over and 
testify before your committee about the works that Senator 
Coburn and I and others have done on improper payments, and if 
you are willing, you and Congressman Towns, to co-sponsor our 
updated version of improper payments legislation. We are on the 
right track. We are making some progress. We are going to make 
a lot more with your help.
    So, please proceed. Thank you.

 TESTIMONY OF HON. TODD RUSSELL PLATTS,\1\ A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF PENNSYLVANIA

    Mr. Platts. Thank you, Mr. Chairman, Ranking Member Brown, 
Senator Coburn. Certainly an honor to be here with each of you 
and to be joined by my Ranking Member, Mr. Towns. I appreciate 
your holding this hearing on the very important issue of waste 
and fraud in Federal programs and especially allowing Edolphus 
and I to have the opportunity to come over. And apologize for 
our delay with the floor votes.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Platts appears in the appendix on 
page 93.
---------------------------------------------------------------------------
    Senator Carper. That worked out just fine. Thank you.
    Mr. Platts. Thank you.
    As Chairman, along with Ed as Ranking Member, of the House 
Committee on Oversight and the Subcommittee on Government 
Organization, Efficiency and Financial Management, we certainly 
share your commitment to improving financial management 
throughout the Federal Government and to reducing improper 
payments by all departments and agencies. Improper payments are 
the most observable result of poor financial management, and 
the costs associated with these improper payments are very 
clear and translatable to the American taxpayer.
    In fiscal year 2011, as each of you I know well appreciate 
and understand this number, $115 billion in improper payments. 
As we struggle with fiscal sanity here in Washington, that 
number is staggering.
    While this estimate gives us a general idea about the 
amount of improper payments made each year, it certainly does 
not take into account all those that go undetected. In fact, 
many departments and agencies, and especially the Department of 
Defense (DOD), are not able to accurately determine what their 
improper payments are.
    The Department of Defense cannot pass an audit, and we 
certainly are hopeful that by 2017 they will be able to, and 
the interim goal of 2014 with the budget, their budgetary 
resources audit that Secretary Panetta is pushing. Both the 
Government Accountability Office and the DOD's Inspector 
General have said that the Department of Defense is at a high 
risk of making significant improper payments.
    Thus far, in the 112th Congress, Ranking Member Towns and I 
have had several subcommittee hearings focused on improving 
financial management at the Department of Defense, and we are 
focusing especially on the DOD's statutory mandate to be audit-
ready by 2017.
    Our subcommittee is also focused on improper payments 
within Medicare and Medicaid programs. And this year, most 
recent year--2011--these two programs accounted for almost $65 
billion in improper payments, over 56 percent of all identified 
improper payments in the Federal Government. While the Centers 
for Medicare and Medicaid Services have made steps to prevent 
and recover improper payments, there remains to be much 
additional work for us to do right by the American taxpayers, 
to ensure that their money is properly spent and these 
important social programs are implemented more efficiently and 
cost effectively.
    During the 111th session of Congress, I was pleased to 
support your legislation, the Improper Payments Elimination and 
Recovery Act of 2010, Senate Bill 1508. This Act certainly is 
an important step in the right direction to strengthening 
agency financial management and incorporating more stringent 
risk and performance management tools. It also focused on 
recovering improper payments through business analytics and 
recovery audit contractors.
    I am encouraged that as we now are in the 112th session and 
more than halfway through, that again, House and Senate 
members, Republicans and Democrats alike, are working together 
to enact legislation to further strengthen financial management 
and prevent improper payments.
    The Improper Payments Elimination and Recovery Improvement 
Act of 2011, which you and Ranking Member Brown, along with my 
home State Senator, Senator Casey, have introduced, is another 
important step forward for improved financial management. I am 
pleased to be the Republican lead sponsor of the companion 
legislation in the House which, as you referenced, Ranking 
Member Towns introduced earlier this year.
    This legislation seeks to focus on high priority programs 
and high dollar overpayments. Additionally, for the first time, 
agencies would have to identify the recipients of improper 
payments. Hopefully, these provisions will be even more 
effective in helping government to recover improper payments.
    Maybe most importantly, in this new legislation, is that it 
proposes a Do Not Pay Initiative. And I know that is something, 
Mr. Chairman, that you have championed as a key part of our 
efforts if we are going to be successful here.
    Under the proposed legislation, agencies will be 
responsible for checking Federal databases such as the Social 
Security Administration Death Master File, the General Service 
Administration's Excluded Parties List Systems and the 
Department of Health and Human Services' Office of Inspector 
General's List of Excluded Individuals and Entities prior to 
making any payments. This Do Not Pay Initiative would make it 
easier for agencies to identify fraudulent recipients and 
prevent payments to deceased individuals, thereby stopping 
improper payments before they occur.
    Prevention of improper payments is far more effective than 
a pay-and-chase approach which has been the approach up to now, 
and certainly, this will put much greater accountability in all 
Federal Government spending.
    The American people deserve a government that is 
responsible and accountable. However, our Nation's citizens all 
too often see a trend of waste and mismanagement.
    Over the past decade, the Bush Administration and the Obama 
Administration have made reducing improper payments a 
governmentwide priority. And as evidenced by today's hearing, 
this is a priority shared by Republicans and Democrats, 
Senators and Representatives alike, here in Congress.
    Mr. Chairman, Ranking Member Brown and Senator Coburn, I 
certainly look forward to continuing to work with you and your 
Subcommittee, along with my Ranking Member as one year before 
us.
    As I referenced today, I am the Chairman; Ed is the Ranking 
Member. In the past, he has been the Chairman; I have been the 
Ranking Member. I know I will not be the Chairman next year as 
I retire at the end of this year from Congress, and Mr. Towns, 
I am sure, would claim the chairmanship again when given the 
opportunity.
    But we look forward to continued work with you and to have 
this bicameral, bipartisan approach to doing right by the 
American people.
    One of the most important fiduciary responsibilities we 
have is how we handle the hard-earned tax dollars of every 
American citizen. We do that well in some departments and 
agencies. We do it poorly in others. And because of your 
efforts and legislation you sponsored in the past and again 
this session, working together, we can do better and we can 
make sure that every dollar that is sent to Washington is used 
in an efficient, effective manner and a responsible manner.
    Certainly, honored to be here today and appreciate the 
opportunity to share my sentiments with you.
    Senator Carper. Thank you very much for testifying, for 
your kind words about really collective efforts. This is a team 
here, and we work that way as you know. And, so do you.
    And it is just great to see my friend, Ed Towns and to 
welcome him back. Whether he is the Chairman or the Ranking 
Member, we are just delighted to see him.
    Looking over his background and bio, I noted he and his 
wife have now been married over 50 years. That is, as Joe Biden 
likes to say in situations like this, for her, no purgatory, 
straight to heaven. And he says the same thing about my wife as 
well. But that is extraordinary in this day and age. We are 
delighted that you are still at it.
    He and I started together in 1983 in the House of 
Representatives, Class of 1982. He was, I think, about 18 at 
the time, and now he is all grown up and just continues to do a 
great job.
    It is great to see you, Ed. Please proceed.

   TESTIMONY OF HON. EDOLPHUS TOWNS,\1\ A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Towns. Thank you very much, Mr. Chairman. If I had 
known you were going to say all those nice things, I would have 
brought my wife along. [Laughter.]
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    \1\ The prepared statement of Mr. Towns appears in the appendix on 
page 95.
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    Chairman Carper and Ranking Member Brown and Dr. Coburn, 
this is a subject that is critical to all of us charged with 
the oversight of Federal financial management, especially in 
this time of economic uncertainty.
    The Federal Government has been in a long struggle to cut 
out the wasteful spending that can occur when improper payments 
are made. In fiscal year 2009, the improper level stood at $125 
billion. By fiscal year 2011, Federal agencies have reduced the 
improper payment level to $115 billion, and the trend appears 
to continue downward. Reversing the trend is a very significant 
achievement. Still, the level of improper payments remains 
unacceptably high.
    On November 20, 2009, the President signed an Executive 
Order on Reducing Improper Payments. The Order resulted in the 
establishment of PaymentAccuracy.gov, a Web site which keeps 
the American public up to date on how government agencies are 
reporting on and addressing improper payments. The Order also 
resulted in the identification of those government programs 
with a high dollar value of improper payments as high priority 
programs, so we could focus on broad-based solutions to the 
issues.
    In 2010, President Obama issued a Memorandum on Enhancing 
Payment  Accuracy   through a ``Do Not Pay List,'' and  Finding 
and Recapturing Improper Payments. As a result, the 
VerifyPayment.gov Web site was created to prevent ineligible 
recipients from being paid repeatedly.
    Additionally, using payment recapture audits, the agencies 
have recovered nearly $1.9 billion in improper payments for the 
Treasury as called for in the President's memorandum. This puts 
the government well on track to achieve $2 billion recovered 
improper payments by the end of the fiscal year.
    In July 2010, President Obama signed one of the most 
important recent pieces of legislation into law, the Improper 
Payments Elimination and Recovery Act of 2010 authored by you, 
Senator Carper. And, I want to salute you for that.
    Senator Carper. Just for the record, authored by the two 
T.C.'s over here--Senator Coburn and myself.
    Mr. Towns. Oh, fantastic.
    Senator Carper. It is a very good partnership.
    Mr. Towns. Fantastic. And that is why I have joined you, 
Senator Carper and Senator Coburn, and sponsored in the House 
chamber the Improper Payments Elimination and Recovery 
Improvement Act of 2012.
    The legislation gives agencies tools to identify and report 
improper payments accurately.
    It also makes agencies more accountable to the public by 
including the requirement that high dollar improper payments be 
reported to the agency Inspector General as well as on the 
PaymentAccuracy.gov Web site.
    Another critical element of the legislation would be to 
require Federal agencies to verify payee eligibility before 
making payments and screen potential vendors before awarding 
government contracts by mandatorily checking off the Do Not Pay 
List, checking it.
    Finally, the legislation would increase the number of 
payment recapture audit programs to more than 10 so that the 
government could maximize the recovery of improperly made 
overpayments.
    The financial future of the United States requires 
sustained attention from more than one source. I firmly believe 
that the President's focus on the elimination of improper 
payments, coupled with the tools that have been included in the 
proposed legislation, will go a long way in reaching the goal 
of efficient financial management and a strong financial future 
for our country.
    And I want to thank you again, Mr. Chairman. Working 
together, I really think that we can curtail this problem.
    I regret that my colleague and partner over the years, that 
we have sort of ping-ponged back and forth in terms of being 
Chair and Ranking, he is not going to be with us in the next 
Congress, but I want to assure him that we will continue to 
work on this and that the work he has done in the past that is 
going to set us on the right path also will not be forgotten.
    So I look forward to working with you and the Members of 
your Subcommittee to make certain that we put an end to this. I 
think that we can do a whole lot better, but it requires 
working as a team to be able to do it.
    Senator Carper. Great. Our thanks to both of you, not just 
for being here and testifying but for the sense of partnership 
that you bring to these issues.
    Senator Coburn and I were talking earlier this week about 
whether or not we might want to package together some 
legislation like this, the Improper Payments Improvement Act 
(IPIA), our FAST Act that deals with trying to really go after 
a lot of the problems we have with waste in Medicaid and 
Medicare, and maybe package that together with some of the 
stuff that several of us worked on--Senator Brown as well, 
Senator Coburn--on surplus properties, what to do about surplus 
properties. And maybe about three or four bills like that, put 
them all together and try to move them as a package.
    And we have problems with scoring from CBO, but we think we 
have a way maybe to deal with that and could maybe move 
something that would be offset and save in the long term, we 
are convinced, lots and lots of money, which is what we are 
interested in doing. And if we are able to move that, we will 
certainly want to work with you toward that end.
    In the meantime, we are just delighted that you have taken 
this bull by the horn and are working it from your angle. Thank 
you.
    Any questions for our witnesses.
    Mr. Brown. No. Thank them for coming over. Thank you.
    Senator Carper. OK. Again, so much for all you are doing 
over there and thank you so much for coming.
    Mr. Platts. Mr. Chairman, if I may.
    Senator Carper. Please.
    Mr. Platts. I certainly appreciate, as I said earlier, the 
bicameral and bipartisan approach here. In the American public 
today, there is certainly a lack of confidence in the ability 
of Republicans and Democrats to work together in Washington. 
And I think this is an important message that probably from a 
fiscal standpoint, no more better example of a bipartisan, 
bicameral approach because it is about protecting their money, 
that we are willing and excited to work together across the 
aisle, across the Capitol Building, and get the job done on 
their behalf.
    And again, honored to be with you today.
    Senator Carper. You bet. Thank you both so much.
    Mr. Towns. Same here. I also want to thank these other 
witnesses who have been so valuable over the years in terms of 
giving us information and working with us. I want to thank them 
also for their testimony as well.
    Senator Carper. I second that.
    All right, thank you, gentlemen. We look forward to seeing 
you soon. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Thank you, Congressmen--collectively, men. We are all 
focused on the witnesses here today.
    First of all, thank you, Mr. Werfel. I appreciate your 
coming, obviously, other witnesses as well.
    I just want to refer to the chart\1\ here, if I could for a 
minute. You have $104 billion of improper payments, and yet, we 
are only recovering 1 percent. I would rather have it be the 
other way around, but we are recovering this and we are wasting 
this.
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    \1\ The chart referenced by Senator Brown appears in the appendix 
on page 112.
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    The problem is when we are talking about bold goals of 
recapturing 1 percent I have to tell you it does not quite make 
sense to me. It does not add up. And you even referenced--and 
let me just backtrack.
    Whenever I am out speaking about this issue, which I do 
regularly at home, I think of you and your efforts. This is no 
reflection on you at all. So let's just start with that. I am 
very complimentary of you personally when I am out there 
talking about it.
    But you did reference just now $2 billion in contractor 
recovery. You referenced that in your opening statement. Is 
that right?
    Mr. Werfel. That is the goal, $2 billion, and we are at 
about $1.9 billion.
    Senator Brown. OK that is over 3 years though.
    Mr. Werfel. That is correct.
    Senator Brown. And that is out of how much over that 3-year 
period that you would be collecting?
    And if you are collecting, hopefully, $2 billion over 3 
years, how much are we actually losing in 3 years?
    Mr. Werfel. That is the key question. If you would allow 
me, Senator, I would like to provide a little bit of an 
explanation of that metric and why we picked that goal.
    Senator Brown. Well, let me just start with a basic 
question so the people listening--so on 1 year of overpayments 
on contractors, how much is that per year, approximately, give 
or take a billion?
    Mr. Werfel. I am not exactly sure that we have the exact 
number. The way it works is we take all of the payments that go 
out to contractors, which is roughly half a trillion dollars a 
year.
    Senator Brown. Well, this is $104 billion per year just in 
improper payments and inadequate recovery.
    Senator Carper. Over.
    Senator Brown. Yes, and overpayments.
    Mr. Werfel. Right.
    Senator Brown. Just in overpayments.
    I was a little confused when you said we are getting $2 
billion in contractor; we are hoping to get $2 billion. You did 
not reference that is over 3 years, first of all, because the 
average listener would have said, well, in a year, they are 
collecting $2 billion.
    But is it $2 billion out of $4 billion? Is it $2 billion 
over 3 years out of $300 billion?
    I think it is important to know because, first of all, I do 
not understand why we are paying out all this money. I 
understand the checks and balances and you say, we have a check 
list and we have to do this. It makes absolutely no sense to 
me.
    It is like one of the things when I have people say to me 
we have to raise taxes. We have to take the money. We have the 
Buffett Rule coming up. We have all these things that we are 
working on. Yet, the first thing that I think we should do, 
quite frankly, is fix this stuff.
    So I wanted to just see what actions are actually being 
taken to achieve real significant results, not just 1 percent 
of the $104 billion.
    Mr. Werfel. Absolutely. Senator Brown, I think it is 
important first for me to just make one statement about the way 
in which improper payments are measured and where that $104 
billion comes from because there is a really important nuance 
here that dictates why we cannot recover the full $104 billion, 
and that is the statute that we are operating under does not 
have us taking a universe of every payment and assessing 
whether it is an error. We work on a statistical sample.
    So let's say we take 100 payments and we audit them and 
figure out whether they were right or wrong, and then based on 
what we find out of that 100 payments we extrapolate that 
conclusion to the total.
    So if I knock on John Smith's door and say, I am auditing 
your payment, I found an error, that tells me in the sample 
about a broader error rate. And I can go to John Smith, and I 
can pull that money back and recover it.
    But I cannot go down the block, in many cases, to Jane 
Smith who was not part of the audit and say, because John Smith 
had an error and because I am expanding that to a universe, I 
am going to now think that your payment or a part of your 
payment is in error.
    So we have limits.
    Senator Brown. Right.
    Mr. Werfel [continuing]. In the amount of recovery we can 
set because the estimate that the $104 billion is representing 
is the statistical amount.
    Senator Brown. Well, that may be. That is great. But 
certainly, it is billions.
    Let's just say, OK, for what your argument, it is not $104 
billion. Let's cut it in half and have it be $50 billion.
    You look at, for example, the Earned Income Tax Credit, has 
the highest error rate, an estimate error rate of almost 25 
percent, 1 in 4 payments being improper, and yet, the Treasury 
Department Inspector General's report pursuant to IPERA states 
that the Treasury has no targets to reduce these improper 
payments until 2014, and during that time, the Internal Revenue 
Service (IRS) estimates the government will make another $43 
billion in improper payments for the EITC.
    I just do not understand when we are giving away money, 
hard-earned taxpayer money, when we are cutting military by a 
half a trillion dollars potentially, we are cutting LIHEAP and 
other types of programs that people need, and yet, we are 
giving away money just through laziness sometimes. It just does 
not make sense.
    Am I wrong, or what? Just tell me if I am right or wrong 
because it is just not computing.
    Mr. Werfel. There is a lot in your statement that you are 
right about. These are staggering problems and issues that we 
have not solved.
    Senator Brown. Then how do you solve it? I tell you when I 
miss my cable bill I get like bill after bill after bill. 
Pretty soon, they are chasing--
    Senator Coburn. Causes you to do bad things.
    Senator Brown. Yes. First of all, just for the record 
because it will be on the front page, I am not behind on my 
cable bill. [Laughter.]
    OK. I am not behind in any bills. I pay them the day I get 
them.
    But that being said, I think you know what I am trying to 
say. With the average bill, we get them over and over and over 
and over. Yet, we are talking about billions, and we cannot 
seem to get our handle on it. I do not get it.
    Mr. Werfel. Well, these are tough questions. Let me start, 
and if I can have a minute, attack some of them from the 
perspective----
    Senator Brown. I am not trying to mess you up because I 
know you are working hard.
    Mr. Werfel. Oh, no.
    Senator Brown. I have enjoyed--what I would like you to say 
to me sometime is these are tough questions and this is what we 
have done.
    We have recognized that, for example, in the EITC program. 
In 1975, it was started, and right from the beginning it had a 
problem. We passed 1994 legislation making it more difficult 
for prisoners to save EITC funds.
    In 2005, they said that prisoners are getting $300 million 
in these funds, and in 2010, the OIG reported that $78.5 
million of that money is still going. And we voted for enhanced 
penalties for tax preparers who do not exercise due diligence.
    But I mean, how do we stop something as simple as that? You 
have a prisoner getting these funds--once again, simple things 
like that.
    It would be great if someone could come before--and we have 
had a couple of these hearings. People could come and say well, 
we stopped that prisoner problem. They are getting zero. That 
is what I want to hear.
    Mr. Werfel. So let me make a few comments. First of all, as 
a general matter, most of our key indicators under improper 
payments are trending in the right direction.
    Senator Brown. Agree.
    Mr. Werfel. In major programs, the error rates are going 
down----
    Senator Brown. Agree.
    Mr. Werfel [continuing]. And our recoveries are increasing.
    Can they increase more? Yes.
    Can we identify a larger universe of improper payments to 
recover? We can, and that is really what IPERA was driving at.
    If you go back just to fiscal year 2011, just on contracts, 
and there is about a half a trillion dollars out there in 
contracts. Agencies, as required by the law, reviewed every one 
of their contract dollars and came up with $408 million in 
improper payments--that is million, not billion--$408 million 
in 2011 and recovered $377 million of it. And we ran over the 
past 10 years about an 80 percent recovery rate for where we 
have identified.
    I look at those numbers, and I think two things.
    I think, one, is that $408 million the full amount of 
improper payments within the universe of a half a trillion? 
Probably not, and so the expansion of our efforts to detect 
errors within our contracting base has to be a focal point, and 
it is.
    Then I look at the 80 percent recovery rate. I say, that is 
good. It is about a--B. But it is not good enough. And so how 
do we close the gap between 80 percent and 100 percent?
    And the answer to both questions, in my opinion, really 
revolves around leveraging technology, cutting-edge 
technologies that are starting to come into the forefront.
    If you look at agencies' corrective action plans on their 
errors over the last 10 years, what you will see is a very 
important, stable and foundational set of corrective actions--
training, clarifying policies, starting to build some modest 
data matching.
    What you do not see enough of, and this is where our 
emphasis point is on, is doing the types of things your cable 
company is doing--or your credit card company. So as soon as 
there is some type of anomaly in the data, as soon as something 
looks out of whack from their perspective, they have a broad 
network of information that triggers that error and feeds into 
a robust and cost effective risk management program that 
enables them to deploy resources smartly and effectively to go 
after the error and not deploy resources where this is not 
worth it from a business perspective.
    Those are the types of things we are focusing on, but sure, 
within the numbers, you will absolutely be able to point out--
and within these programs--areas where we have massive 
disconnects and issues to close.
    And then, you will also be able to find areas where we are 
hitting home runs and really connecting. Just within EITC 
alone, I could recount for you, successes that would make you 
feel patriotic in terms of what we are doing to crack down on 
fraud, sir, and in the next breath I could talk to you about 
things that would get you very upset.
    And so, it is about closing the gap on the things that are 
making us upset.
    Senator Brown. It is about consistency.
    And I want to thank you for your efforts, and I want to 
thank you for your progress. These are just things that I do 
not have the answers for. It is just killing me, but thank you.
    And I have to head to another hearing, Mr. Chairman.
    Senator Carper. All right. Thank you so much. Dr. Coburn.
    Senator Coburn. Well, I want to try to answer Senator 
Brown's question.
    Senator Brown. I will be listening.
    Senator Coburn. It is not a priority everywhere, and that 
is a matter of leadership.
    I applaud what the GAO has done in terms of raising some of 
the questions, and Danny, I think you have done a wonderful 
job. I am hard on you at every one of these hearings.
    But the real question is when is it going to become a 
priority for everybody in a leadership position in the 
Executive Branch at every agency, at every level, that we are 
not going to send money out.
    We are going to be releasing a report here pretty soon that 
is going to show about 40 percent of the SDI payments are 
fraudulent. Now that is about $40 billion a year.
    No, it is not. It is about $30 billion a year. And that is 
not even on your all's radar screen, nowhere close. GAO has 
seen it, but it is not even on your radar screen.
    So the first question I would have to you is when we get an 
estimate, and that is what it is--it is a statistical 
estimate--it is really a far undershoot of what is really going 
on. Would you agree with that?
    You do not have Defense Department significantly in there. 
You do not have Social Security Administration in there, 
significantly. Their numbers are way undershot. I can prove 
that their numbers are way undershot. So we are really probably 
closer to $200 billion, if you were just guessing, in terms of 
improper payments.
    The question I would have to you is, in your opinion, how 
far under are we since nobody knows in the Defense Department 
because they do not even know what is going on. How far under 
are we?
    Mr. Werfel. I think your premise is correct, that we are 
under.
    The first time you introduced legislation was back in 
2002--Improper Payments Information Act--and we had no 
inventory. And at that time and probably from 2002 to 2010, we 
were chasing a lot of programs that GAO had pointed out you 
still do not have a measurement for. And we had a very long 
list, 20 plus programs that we were trying to push the agencies 
as hard as we could to get those measurements in place so we 
would know what that number is.
    We are down to a few, and I think Ms. Davis, in her 
testimony, highlighted a few of them. So that list has shrunk 
immensely.
    I have been a big advocate of making sure that we are duly 
tracking in terms of making sure we are measuring every 
program, but not just focus on measurement, that we have enough 
that we need to attack the problem at its core as well.
    There are additional programs out there that we have not 
measured. DOD is an interesting one.
    Prior to IPERA, the way the legislation was structured in 
our understanding was that you did not need a statistical 
estimate for contract payments. You just needed to go out and 
surgically and forensically find the errors and where you found 
them, recover them.
    IPERA comes into play, and now it says you have to do more 
than that. I want to know the systemwide amount of error within 
DOD programs. And they have started down this process of 
measuring, but like the programs before them, it is taking them 
a year or two to get their sea legs under them and get that 
measurement.
    But to give you a more direct answer, I do not know the 
total. I would only be guessing, and I do not want to do that. 
But you are right, the number is an underreporting. Within the 
frame of programs that we do know about and we have measured, 
the numbers are trending in the right direction, in particular, 
Medicare and Medicaid, which is where I would be really 
concerned.
    As you mentioned in your opening, most of the dollars of 
that $115 billion, or half the balance sheet, are tied up in 
Medicare and Medicaid. And I am very thankful, and it is not 
just from praying--it is from a lot of hard work--that HHS has 
turned the tide on those numbers and every single major program 
in Medicare and Medicaid is trending downward.
    Senator Coburn. But they still do not have the tools, all 
the tools, that they need.
    Mr. Werfel. Absolutely. There is still a corpus of improper 
payments there, that when you look at it, you have to be 
concerned. And we are, but there is progress.
    Senator Coburn. Is there any directive from the OMB to 
force the agencies to compare to the IRS Master Death File?
    Mr. Werfel. I am glad you asked that question. There are a 
couple of issues there.
    And again, when I explain the complexities, I never mean 
them as an excuse. It is just a question of making sure we 
understand the raw materials that we are given and figuring out 
how to drive solutions to them.
    So there are two things with the Social Security Death 
Master File. There is a public file, and then there is a 
nonpublic file. And right now, we have seamless access to the 
public file, but it is incomplete because there is a timing 
issue and we do not always get the information from the States 
or whoever is required to report on the death information into 
our database.
    Senator Coburn. Where is that problem? Is that at Social 
Security turning the information around and giving it to you?
    Mr. Werfel. It is. There are two elements to it.
    We have about 30 or so States that have signed on to do 
automated death reporting; 20 have not. We need to get to a 
point where everyone is doing automated death reporting. And 
even where the States are on, they have to be held accountable 
to get us that information so our database is complete.
    The other thing is that Social Security, because of legal 
issues surrounding the Privacy Act and other requirements, 
cannot give us the nonpublic file seamlessly. There is a lot of 
paperwork that needs to be done.
    So we need to get a complete file and get it to the 
agencies.
    Senator Coburn. Well, let me ask you; first of all, you do 
not have to have that. You can send numbers to Social Security, 
and they can say yea or nay without them ever exposing that 
list to you.
    So there are ways technically to get around that bump if 
you want to get around the bump. The problem is you do not have 
cooperation from the agency. That is the problem.
    Mr. Werfel. I think that would be an operational solution 
that we have thought about it. I do not think we have 
considered it. We want to get all the information into the 
central Do Not Pay List and do it that way, but I think we are 
open to different suggestions.
    But you are right; when we first issued the Do Not Pay 
Memorandum in 2010, our conclusion based on IG reports, GAO 
reports and discussions with the agencies is there were a lot 
of lapsed controls in place in terms of are you checking these 
basic databases, whether they be the Death Master File, whether 
they be the Excluded Parties List before you are going out and 
making these awards and payments.
    And as a result of that, we issued the Do Not Pay 
Memorandum and two things happened. One, we called attention to 
every agency. We wanted to do know baseline, what are you 
doing. And if we heard back that they were not currently having 
robust matching, even with these disparate databases, we pushed 
them to move in that direction. The second piece is let's bring 
all the data together and make it even less of an excuse 
because it would be much easier to access this information.
    Based on these steps and putting the Presidential signature 
to the policy, we do the very thing that you are calling for, 
which is creating an incented priority at senior levels because 
people care about this. If the President cares about it, the 
agencies will care about it. And there has been more attention 
to this type of data matching than before that memo came out, 
and we are making progress.
    We are not where we need to be. You are going to still see 
payments to dead people, but less payments to dead people than 
you did before.
    Senator Coburn. One final question if I may, is there any 
directive coming out of OMB for us to not be paying people who 
in arrears on their taxes?
    Mr. Werfel. Yes, there is actually legislation that was 
enacted, I think in the 2011 Appropriations Bill, which 
requires us to essentially trigger and accelerate suspension 
and debarment proceedings for those entities that are in 
arrears.
    The big challenge we have here--again, I do not mean to 
push it back on Congress. The big challenge here we have is we 
do not have the ability to share the IRS data in terms of who 
is delinquent with the agencies so they know. We rely, believe 
it or not, on the contractors to tell us if they are tax-
delinquent.
    Senator Coburn. I know. Anybody in here think that is 
stupid?
    Yes, it is crazy.
    So you do not have the ability, but you do have the ability 
to send a taxpayer identification number to the IRS and say, is 
this taxpayer identification number in arrears? You do have 
that ability. There is nothing in the law that precludes you 
from doing that.
    And if it is in arrears, why in the world would we be 
sending somebody a check that owes us money?
    So the question--these are all just punching a button on a 
computer. I know it takes time to get that set up, but the IRS 
can handle that. I mean, that is just one punch over to the IRS 
and say, here is a taxpayer identification we need clearance to 
pay.
    And if there is a problem, then it should go to a 
specialist within the agency and say, call the contractor and 
say, hey, by the way, you are past due on your taxes or you 
have a problem that is not in dispute.
    I am not talking about stuff that is in dispute. I am 
talking about people who have had adjudication, that owe the 
money. We are not going to pay you until you pay that.
    And I will guarantee you, you would increase our payments 
to the IRS really fast when we are spending $500 billion a year 
on contractors and we have billions owed to the IRS, in 
arrears, for the very people we are doing business with.
    So is something like that possible to come out of OMB to 
direct that?
    Mr. Werfel. I think we would have to look into it. I am not 
exactly sure, Senator, actually, whether the fact of a 
delinquency might be protected under Section 6103 of the Tax 
Code. It might not just be the amount of the delinquency. It 
might be the identity.
    So if we say here is ABC Corp. and they come back and they 
say they are delinquent, the very fact of them reporting to 
that I think may be protected by 6103.
    Senator Coburn. Well, if it is, will you get back to us 
because that is something Tom Carper and I can write a piece of 
legislation on that surely would fly through Congress, even in 
spite of our dysfunction right now, because nobody would agree 
we should be paying people who are not paying their fair share 
of taxes in this country, when they owe money and then we are 
paying it and they are pocketing it and not making the 
payments.
    Mr. Werfel. I will do that.
    I just want to add one more point, which is where there are 
legal gaps in our ability to do things we are trying to go to 
the places where there are not. So there is a database that is 
maintained by Treasury called Debt Check, and it has a lot for 
the nontax debt. So when people owe us money through fees or 
loans or whatever and it is in arrears, we do have access to 
that and it is a big part of the Do Not Pay solution.
    This principle that people who owe money to the government 
should not be paid or not be paid their full amount or offset 
that payment in the amount they owe is central to our efforts. 
And where we can do it legally today, we are pushing as hard as 
we can. And when we cannot do it legally today, we have to 
partner, as you are saying, to surface that and get it out 
there so people know exactly what is going on with the law that 
is preventing these things from happening.
    Senator Coburn. Thank you, Mr. Chairman.
    Senator Carper. We are going to followup in writing to go 
down the same path that Dr. Coburn is going, to find out what 
we need to do, not just the two of us but the House and Senate, 
what we need to do to enable us to go after the money that is 
owed and stop sending money to folks that owe us money or owe 
the taxpayers money.
    You said a couple of times in your response to him, we do 
not have the ability to do X or Y; we do not have the ability. 
Can we go back to that for just a moment and let's drill down 
on that?
    In the legislation, the IPERA Improvement Act that we have 
introduced and reported out of Committee, do we address some of 
those ``we do not have the abilities'' ? And if there are some 
that we still need to do, you need to let us know. Go ahead.
    Mr. Werfel. Yes, not as robustly the way it is--I think you 
have hit the right umbrella issue which is in order to do a 
better job in having agencies have real-time information on 
death, on delinquency, on all these issues, prisoner status, we 
need a better solution both legally and administratively.
    And what I mean by that is in some cases there are just 
barriers to the data coming over, with legitimate reason. It is 
not like those barriers are set up and people are scratching 
their head as to why. It is almost always a privacy and a data 
security issue that prevent us from getting that information.
    Our position is that you can balance that. You can find 
ways to protect privacy, protect data security, narrow the 
purpose for which the information is shared, and we think there 
is a high purpose in preventing error that should win the day 
in terms of that balance.
    What I have said about administratively is there are places 
today where we can legally access the data, but it is a 
tremendous amount of paperwork and all types of Federal 
Register notices that have to be published. And it can take 
months, unfortunately, to establish these very intricate 
agreements that are required under the Privacy Act or other 
laws.
    And again, we want to protect privacy. We want to protect 
data security. The question is, Is there a better way of 
functionally doing that so you do not have these months of 
delays as we work out all the paperwork?
    So in those two areas, I think the legislation can be a 
huge help if we can find that right language that achieves that 
balance and has everyone nodding their head in the same 
direction. This is good. It opens up the data for this very 
specific purpose of program integrity but, in doing so, 
protects privacy, protects data security and does so in a way 
that limits the amount of paperwork involved.
    I think that is the sweet spot. If we can get there, it 
will have a major impact.
    Senator Carper. Yes. If our IPERA Improvement Act does not 
scratch all these itches, before we bring it up for a vote on 
the floor, maybe as part of this package that we are talking 
about doing we just need to make sure we have got to as many of 
those itches as we can, and we need your help to do that.
    Let me just ask Ms. Davis. You have heard this back and 
forth between Dr. Coburn and Mr. Werfel and myself. I would 
just welcome your thoughts, your advice, your counsel as our 
spokesperson from GAO on these issues.
    Ms. Davis. Thank you.
    Well, we do recognize that much progress is being reported 
by the agencies, and that is included in the testimony, and OMB 
has been a very key part of that process to enhance reduction 
in improper payments.
    There is no silver bullet. There is no easy solution to 
this. And, it is really multiple solutions or multiple 
strategies that are needed to really be effective, as talked 
about in the testimony. We need preventive controls. We need 
detective controls. Recovery auditing is an excellent vehicle 
and can help us in many situations, in many programs, to 
identify and recover improper payments.
    But we also need to look at preventive controls to prevent 
them from happening in the first place, and we need to look at 
the root causes of improper payments. Unless we know what the 
root causes are, we are going to continue to make those 
improper payments. So if we identify the root causes, we will 
be able to help in that regard.
    One of the examples that we gave in our testimony has to do 
with the number of programs that are reporting root causes 
within those three categories that have been established by the 
Office of Management and Budget, and only about half of the 79 
programs are actually using those categories to identify root 
causes.
    But even those root causes may not be detailed enough or we 
need to drill down actually into some more specifics, again, to 
identify what the causes are in order to establish some 
preventive plans, internal controls and then also corrective 
action plans.
    And so, one other point I would like to make too in our 
testimony is the difficulties that agencies are having in 
actually estimating improper payments. As Mr. Werfel said, it 
is a statistical sample and hopefully, in most cases, a valid 
statistical sample.
    When we looked at the Foster Care Program, we found some 
issues there that were very challenging and needed to be 
corrected. For example, administrative costs, which are 
approximately 44 percent of the Foster Care Program, are not 
even included in the estimate of improper payments.
    So we have made a lot of progress, but we also have a long 
way to go.
    And a point too, of course, when you are working with 
programs that are a partnership with the Federal and the State 
governments your challenges become even more so. So Foster Care 
is an example; Medicaid is another example, of that.
    But progress is being made, and it is going to be--it is 
going to take many different strategies and a lot of hard work 
on the part of many agencies and individuals within those 
agencies in order to actually come up with a good solution.
    Senator Carper. I will ask you this for the record too, but 
in terms of further changes that we should make in the 
legislation we are focusing on here today, we really need your 
input before we bring the bill to the floor, if we need to 
perfect it. I like to say if it is not perfect, make it better. 
If there are some ways that we can make this better and go 
after more of the money that is being lost to the Treasury, we 
need your help to do that, and we appreciate what you have done 
so far. OK? Thank you.
    If I could, another followup question to you, Ms. Davis. 
Again, we appreciate your being here this afternoon and the 
work that you and your folks--is there anybody there behind you 
that works on this? Who is here with you today?
    Ms. Davis. It is number of staff members. Carla Lewis is 
the Assistant Director, and she is right behind me.
    Senator Carper. Carla, would you raise your hand?
    All right. Anybody else?
    Ms. Davis. We have Gabbi Fagan. We have a number of people. 
Do you want me to have them all stand?
    Senator Carper. Just raise your hands if you are a part of 
this team. OK. Good work. Thanks.
    Your testimony, obviously, makes some key points, a number 
of key points, about improper payments. I think we agree that 
with the improper payments, we--we still have a big problem.
    And one of the big problems--Dr. Coburn has referenced it--
is the Department of Defense. Just help us figure this out.
    Leon Panetta, the new Secretary over there, he said, to his 
credit, that they are going to get their financials in shape. 
They are going to be auditable not just by 2017; he wants to 
beat that date.
    And when you have a guy who used to be Budget Committee 
Chairman in the House and OMB Director, Chief of Staff for the 
President--put somebody like that in as Secretary of Defense, 
and they care about these issues. And we have already seen a 
change of heart and attitude at the Department of Defense on 
other financial and auditing issues.
    Help us drill down a little bit on the Department of 
Defense. What do we need to do to get them to report more 
completely and to be part of this game?
    Ms. Davis. There were two very large programs, or one very 
large, but two programs under the commercial pay area in the 
Department of Defense that were not included in the 
governmentwide estimate this past year of the $115.3 billion, 
and one of them in particular is very significant.
    The estimating methodology, again going back to that key 
area of making sure you have a good methodology for identifying 
a good estimate of improper payments, is really key.
    One of the things that they are looking at is trying to 
develop a statistically valid methodology. To be specific, they 
have done prepayment reviews, they have done postpayment 
reviews, but they have not actually done a statistical sample 
that could be considered valid. And Mr. Werfel may be able to 
talk more specifically to that.
    They do, as you mentioned, have issues with their financial 
management systems. Obviously, there are a combination of 
issues. In order to identify, though, the amount of improper 
payments in their risk-susceptible programs, they are going to 
need to better define and better refine their estimating 
methodologies.
    Senator Carper. What do we need to do--this would be for 
Mr. Werfel or for you, Ms. Davis. What do we need to be doing 
in the legislation that is out of Committee, that will come 
before the full Senate and, hopefully, the House later this 
year? What do we need to do to address the problems with the 
Department of Defense in underreporting improper payments?
    Is there something that we can do in this legislation so we 
do not kick the can down the road or we do not just bemoan the 
fact that they are not fully reporting? What can we do?
    And I am going to ask you to respond on the record as well, 
but if you have any initial thoughts, please share those with 
us.
    Mr. Werfel. I think, Senator, it is a similar question when 
I have sat before you and you have asked me this about their 
efforts to close their books and get us an audit opinion.
    I think the issue is about setting interim accountable 
milestones for DOD that are helping driving us, driving them to 
success.
    And it may be--and I think we need to sit down and look at 
this--that the original IPERA legislation did not get detailed 
enough with respect to that agency because, and to their 
credit, IPERA required each IG to evaluate compliance, as part 
of this framework of accountability. I think that is going to 
be a huge--and I can already see it being a huge--success in 
terms of making sure people are paying attention because now 
you have every IG evaluating agency compliance.
    Well, for DOD, the first time those reports were due were 
March 15th. So they are hot off the presses, so March 15, 2012.
    And DOD's IG came in with compliance. They found the 
Department of Defense to be compliant with the Improper 
Payments Elimination and Recovery Act, which is good. It 
demonstrates that DOD is taking these seriously. It 
demonstrates that they are taking on a more comprehensive 
approach.
    We have talked about the fact that they do not have yet a 
bona fide, statistically significant estimate for their 
contract payments, but I think the IG basically found that they 
are on a path and they made a first attempt this year, which is 
the typical way in which agencies do this.
    But the question then becomes--because I know this keeps 
coming up--there are pockets of areas within the Defense 
Department, and Senator Coburn was mentioning it, that there is 
a sense that they are not doing enough robust measurement, that 
they are not surfacing enough of these issues and studying them 
because the Congress believes that there is return on 
investment there, that there is efficiencies to be gained in 
doing so.
    We have to figure that out, but right now, the footprint of 
requirements that are in place under IPERA--right now, the 
Defense Department, according to their IG, is on track.
    And again, just like I mentioned to Senator Brown, there 
are examples within the Defense Department in which they are 
recovering improper payments and doing a good job that would 
make you feel good about where things are, and then there are 
issues and incidences and where there are frustrating areas of 
waste. We have to figure out where those frustrating areas are, 
highlight them and build a statutory framework that raises the 
profile of that as well.
    Senator Carper. OK, Ms. Davis, do you want to respond any 
further on this subject?
    Ms. Davis. Just one point too, that we know that there have 
been a number of hearings on the DOD's financial management 
issues, and we would encourage those hearings continue. We 
think that is a good opportunity to get out on the table, some 
of these issues and how best to solve them.
    Senator Carper. Good. We plan to do that. Thank you.
    Mr. Werfel no, I will tell you, Ms. Conley, if I could--let 
me just ask a general question about some Federal programs that 
are managed by State governments, a lot of which you, I think, 
have a whole lot of involvement in.
    State agencies run many large and important programs. I 
know, as a recovering Governor--Medicaid, Unemployment 
Insurance (UI) Fund, Temporary Assistance for Needy Families. 
My staff added together the improper payments for these State-
run programs, and then prepared a chart.\1\ I do not know if we 
have it here today. I think the total was $40 billion, and this 
is out of a Federal-wide figure of 115, or so, billion dollars.
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    \1\ The chart referenced by Senator Carper appears in the appendix 
on page 113.
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    Just looking at the year, fiscal year just concluded, but 
together, that total of $40 billion in improper payments, we 
have $22 billion for Medicaid, about $14 billion for 
Unemployment Insurance, a couple billion from School Lunch and 
a couple billion from the Supplemental Nutrition Assistance 
Program.
    I like saying that word. I do not know who came up with 
that. That is a good one.
    But if you would, talk with us about how we are doing in 
each of these four categories. First of all, just take them one 
at a time, from Medicaid to Unemployment Insurance, School 
Lunch, Supplemental Nutrition Assistance Program. Are they 
going up? Are they coming down? How are we doing?
    Ms. Conley. Senator, I would be happy to talk about 
Medicaid. We, at HHS, have many State-administered programs. 
Medicaid is among them.
    Senator Carper. Yes.
    Senator Coburn. Also, there is the Children's Health 
Insurance Program (CHIP), TANF, Temporary Assistance for Needy 
Families, Foster Care and Child Care. And perhaps, Mr. Werfel 
might want to speak about the other agencies' programs.
    But with regard to the State-administered programs, what is 
really coming to light--and I think is a very important 
recognition that your Subcommittee has helped to reinforce with 
both the IPIA in 2002 and IPERA in 2010--is that we have a 
shared responsibility for improper payments and that it is not 
just one organization that is responsible for them.
    I think early on there was a sense that IPEA was a Federal 
law and Federal agencies were responsible for compliance. As we 
know, with the multitude of hundreds of programs that we 
administer at HHS, the real critical aspect about financial 
integrity, it may start at the Federal level, but the States 
are key partners as are many in the grantee community--
nonprofit organizations, local governments, and the commercial 
sector. Many people, and many organizations from different 
perspectives are involved in carrying out these programs to the 
final point at which that Federal dollar is provided to the 
beneficiary it was intended to serve or provides a service that 
was intended.
    So I think this notion of shared responsibility is a key 
one that has been recognized over the course of the last 
decade.
    I think the whole notion about interdependencies that we 
have is very critical because what we do at the Federal level 
affects what is going on at the State level and, again, all the 
way down through the entire apparatus that we deliver our 
services through.
    We have seen a lot of progress in the States. We are 
working with them closely. They are partners of ours.
    With regard to the many programs that we have, we see a 
common theme as we have gone into the error measurement process 
whereby once the rates are developed, and methodologies, we 
work with the States. They are a good indicator about how well 
the program is being carried out in that particular State. It 
is typically the 50 States, Washington, DC, and Puerto Rico.
    And then, through education and outreach and conferences, 
better understanding about the payment processes, what is 
allowable under the programs, funding to assist with different 
eligibility determinations--that seems to be a key area for 
means-tested programs like Medicaid and Child Care, and you 
have SNAP up there.
    So it is very important that we are looking at things like 
integrated eligibility that will assist in terms of looking at 
the applicants' eligibility. And typically, if they are 
eligible for one program, it is not too much different than the 
eligibility for one of the other State-administered programs 
that we have.
    Senator Carper. Mr. Werfel, did you want to jump in here?
    Mr. Werfel. Yes.
    Senator Carper. But before we move too far, I want to come 
back to Ms. Conley and ask you to describe, if you will, some 
of the challenges and the opportunities for helping State 
agencies to check with each for finding duplicate enrollees in 
some of these Federal programs. I want to especially hear about 
the so-called PARIS program. I do not know if this would be a 
good time to ask you that, and then we will move over to Mr. 
Werfel, or not.
    But if we could, Mr. Werfel, let me just ask Ms. Conley to 
just give us some information about the PARIS program.
    I understand it is a good tool. It is designed for this 
purpose and not yet fully utilized by the States. If you could 
take a few minutes on that, that would be great.
    Ms. Conley. Sure. Yes, you referred to PARIS, and PARIS 
stands for the Public Assistance Reporting Information System, 
and that is run by one of HHS's operating divisions which is 
the Administration for Children and Families (ACF).
    It is a data match system whereby information from five 
different programs are sent to--actually the Defense 
Department, serves as a provider of computer services for this 
purpose of running this data match, but it is overseen by ACF.
    It assists with providing interstate data matches so that 
States can see. It is sorted by Social Security number of folks 
receiving benefits in five programs. Those are TANF, Medicaid, 
Child Care, Worker's Comp, and SNAP I believe is the fifth one.
    And so, the States can then see--if they are paying 
benefits to individuals in their State, they can see if those 
same individuals are receiving benefits under the same programs 
in different States, thereby being able to make a determination 
about where is the appropriate State that should cover those 
costs. So it has been very promising there.
    In addition, PARIS also matches up information that they 
receive from the Office of Personnel Management and the Defense 
Department about Federal employees and retirees and also folks 
in the military as well as files from the Veterans 
Administration (VA).
    And so, this information, bumped against those same Social 
Security numbers, has proven to be very helpful to States to 
assist with figuring out that the beneficiaries are indeed 
receiving the right kind of benefits that they are entitled to. 
For instance, many folks in States, low income veterans, may be 
receiving Medicaid in States whereas they had served honorably 
and are entitled to health care benefits from the VA. So 
through this process, individuals have been discovered who 
should actually be receiving benefits through another provider 
and, in this case, the benefits that would be appropriate for a 
veteran.
    So it is a tremendously useful tool to States. It is free. 
There is no charge. There is no charge for the data matches. 
However, the cost in terms of resources is that the States 
would then need to research the various matches. And if there 
are problems with data integrity, then that can increase the 
amount of workload on the States to try to run down and see if 
those hits were indeed indicators of someone that was being 
paid on their rolls inappropriately.
    Senator Carper. I hear from my Governor in Delaware and I 
hear from other Governors around the country that their budgets 
are being squeezed by the growth of Medicaid costs and they 
expect that to continue as the Affordable Care Act and some 
other provisions of the Affordable Care Act are implemented. It 
would seem to me if I were Governor I would be looking for 
every tool I can find to help me save money in the Medicaid 
program.
    Just think out loud, any of you--Mr. Werfel, Ms. Davis--
just think out loud about how we could--light a fire is the 
wrong word to say under some of the States, but to make sure 
they are fully aware of the opportunity here that is really 
been foregone. What would be your counsel, any of you?
    Come and take advantage of this.
    Mr. Werfel. Yes, just going to this chart, just a quick 
reflection, all of these programs except for UI are trending 
downward in the data, but most State-administered, if you look 
at what is the governmentwide error rate? It is 4.69 percent. 
OK. So let's use that as the average.
    Every State-administered program on that list except for 
SNAP is above the governmentwide average, and in some cases, 
significantly above. School Lunch, for example, 16 percent 
error rate which is obviously significant. I think Medicaid is 
at 8 percent, and Unemployment Insurance is above 10 percent.
    So this is not just a blip. There is a trend, and the trend 
has to do with the fact that is very difficult to manage State-
administered programs because you have 50 different approaches.
    And just to use one example because Senator Coburn is not 
here anymore, but I think this is a pretty good example of how 
complex the issue with the Death Master File can be. Let's 
say--in some cases this is the case--that as part of 
determining eligibility it is household size. How many people 
are in your home or in your household dictates how much money 
you get from the government for this benefit.
    Well, if someone in the household has died and that has 
impacted the size of the household, if we do not have that 
information and the applicant reports that same household size 
as they did the year before and we audit it, we are going to 
find an improper payment because the household size is actually 
smaller.
    So the issue becomes why is the Federal agency not looking 
at that death information, why are they not linking up with the 
Social Security Death Master File, to validate that household 
size.
    It is really the States' responsibility. They are 
administering the program. Many of these programs are not set 
up such that the Federal Government is doing these eligibility 
checks. It is the State.
    So now you are working with 50 different States to figure 
out their game plan and their road map, to get more access into 
information.
    I mention this because I think that is a good example of 
the challenge that is involved from the Federal level, of 
managing State-administered programs toward this issue.
    How do we light a fire? I think that there are a bunch of 
different things we can do.
    When I testified before Chairman Platts and Congressman 
Towns a month ago, I mentioned that one thing that could be 
done is that you could have another panel here of State 
representatives, State controllers, State finance directors and 
State auditors to talk about, from their perspective, what is 
it about these opportunities that we can leverage that can make 
it the right business decision for them to invest more 
resources and invest more attention.
    There has never been a more important time to make sure 
that these dollars are going out smartly, given the tight 
budgets that we are in, and I think that we are trying to 
partner as much as possible.
    The last point I will make is that in the Do Not Pay we 
have had interest from States in joining the Do Not Pay effort, 
and we have a couple of different State agencies that we are 
working with, California being one, D.C. being another, that 
are looking to leverage the Do Not Pay solution this fiscal 
year. And so, we are starting not just with getting Federal 
agencies on this thing; we are open to States too. And that is 
going to be part of a global framework where the Federal 
Government and the State governments are working together to 
use this information, to reduce error.
    Senator Carper. Good. Thank you.
    Maybe one more and this one would be for you, Mr. Werfel, 
if I could. One of the key provisions of the 2010 improper 
payments legislation was the establishment of recovery audit 
contractors. Companies are hired by agencies to scour the 
financial books and payments, looking for errors. This is a 
tool that has proven very effective in the private sector. We 
have used this some, as I said earlier, in State government, in 
Delaware and also, apparently, with some real success in the 
Medicare Fee-for-Service programs.
    Could you just comment for us on how agencies are doing as 
far as implementing recovery audit contracts?
    And of course, Medicare and Medicaid have established their 
own programs. But how about other agencies and programs, 
please?
    Mr. Werfel. It has been a challenge. We are, I think, where 
we need to be. We have our sea legs under us and know how to do 
well in the contracting realm.
    The reason that recovery auditing or payment recapture 
auditing works well there are a couple different reasons. First 
of all, we have privity; we have a relationship, direct 
relationship with these contractors. And, we have an 
established rhythm with our contractors in terms of showing up 
at their door, wanting to review their books. There is less of 
a push-back generally from contractors than from grantees in 
terms of having greater Federal presence to oversee and review 
transactions, which is really what these recovery auditors do.
    And so, on that, I mean, there is more work to be done. We 
can do smarter recovery auditing. We can look at the dollars 
differently, and there are more efficiencies to be gained. But 
we are on a good path.
    As we talk about expanding to grants--and IPERA for the 
first time did that--it has been much more challenging for a 
variety of different reasons. One, the agencies are still 
struggling to figure out exactly how to operationalize 
deploying recovery auditors into the field to grantees--the 
States, the local governments, the universities. Exactly how to 
look at the data and deploy these resources effectively is not 
something that we have a lot of experience with. So there is a 
learning curve there.
    In addition, in the grantee community, this is not part of 
a deal that they have bargained for in terms of having this 
additional audit layer. That does not mean we cannot get it 
done and work in partnership to achieve these types of 
connections and have these reviews done, but it is something 
that is requiring some legwork and some calibration to figure 
out exactly how to do it.
    I will say the good news here is that we have a lead 
blocker, so to speak, which is HHS and Medicaid. Because this 
provision--and I think you had something to do with this--was 
in the Affordable Care Act, expanding recovery auditing to----
    Senator Carper. I did have something to do with it.
    Mr. Werfel. Yes, I know. That gave us a head start because 
the Affordable Care Act was enacted prior to IPERA.
    And so, HHS--and I am sure Sheila could talk more to this--
has gone out and done some of that relationship building, that 
legwork and that logistics planning through regulation, notice 
of proposed rulemaking, working with the Medicaid community 
which obviously is State and more on the grantee side, figuring 
out how to expand recovery auditing in this way.
    And we are going to be looking to the Medicaid program, 
which just started after all that outreach and all that 
regulatory work, just started in January of this year. They are 
just now doing recovery audits in that sphere, for us to figure 
out how they are doing, what their road map is.
    And the good news, Senator, is that if you are going to 
start somewhere, start at Medicaid because that is where the 
big dollars are.
    So if I were coming up and saying we are starting and we 
are starting small, in these tiny grant programs, and going to 
figure out and expand, that is good news but not really good 
news because you are not going to get those efficiencies early 
on. Here, we are saying our big starting point, our big opening 
is in Medicaid, and there are a lot of dollars there.
    And so, the rest, I am hoping comes more fluidly. In 
particular, while we are getting early work done, we are doing 
something in the end of the spectrum where there is a lot of 
potential for return.
    Senator Carper. Thank you.
    Sometimes, I like to conclude a hearing by offering the 
witnesses who have given an opening statement, who responded to 
our questions, just give you a minute or so to make a closing 
statement and to reflect back on what you heard, what you have 
been asked, the answers and the responses and the testimony of 
the other witnesses. And I would just ask if you would just 
take maybe a minute apiece and give us a closing statement, 
maybe with a good takeaway.
    And Ms. Davis, if you would like to go first, please do.
    Ms. Davis. Thank you, Senator Carper.
    I would like to just state that we need to look at this in 
a very comprehensive manner, reducing improper payments. There 
are many opportunities and many different types of solutions 
that we need to consider.
    And as mentioned in the testimony, we need to examine our 
root causes. We need to look at the preventive controls such as 
data matching, such as predictive analytic tests. We need to 
look at detective controls such as data mining, recovery 
auditing. And of course, the benefits of those detective 
controls can enable us to also determine where we have problems 
and why the problems exist and then go ahead and institute some 
preventive controls.
    But we need to look at this from a multifaceted viewpoint 
in seeing how best to resolve the issues of improper payments, 
and remembering too that our estimating methodologies are very 
key to ensuring that the estimates that we produce and the 
public sees are really an accurate statement of what improper 
payments really exist.
    Senator Carper. All right. Thanks for those comments. Ms. 
Conley.
    Ms. Conley. Thank you, Chairman.
    I would just like to conclude by making just some very 
broad comments.
    I think the work in this whole arena has been very helpful 
to underpin the need for accountability of public funds, and it 
has gone a long way in an era of declining resources and 
increased expectations for accountability. Measuring the extent 
of improper payments, identifying root causes and then focusing 
on corrective actions that make sense are critical.
    There are many different stakeholders, many different folks 
involved in these areas, and so, the interdependency. 
Oftentimes, we will need legislative authorities to move out on 
things. But working thoughtfully and smartly moving forward I 
think we can continue to see the kind of progress that we have 
seen certainly at HHS with our programs.
    The rates are going down. We have been at this for a long 
time. We have a long way to go still, and it is just going to 
be a continuous need but critically important because now, as 
we are learning, and I think everybody appreciates, this kind 
of accountability is not an afterthought or something 
accountants do or auditors do or statisticians do. This kind of 
work is really integral to how we carry out our programs.
    And so, as we move forward, we appreciate the efforts of 
the Executive Branch, GAO, and this Subcommittee, to recognize 
that there is no one silver bullet. This does not get fixed 
overnight. But I think together we can continue to make the 
kinds of improvements that will improve all of our programs in 
the Executive Branch. Thank you.
    Senator Carper. I like to say no silver bullet but a lot of 
silver BBs, and some of them are pretty big.
    Mr. Werfel, a closing thought.
    Mr. Werfel. Thank you. Let me just do something 
administrative first.
    When I was speaking in response to Senator Brown, I looked 
down at my notes and I accidentally cited the DOD numbers for 
contracts reviewed and contract errors recovered when I meant 
to cite the governmentwide numbers, and you can see how I could 
make that mistake because DOD is such a big portion of the 
total. What I would like to do is just say for the record that 
I will get both information to you so we can have those numbers 
clarified.
    Senator Carper. Thank you.
    Mr. Werfel. My reflection--I have a few reflections to 
close with.
    First of all, I think it is important to recognize what a 
priority this is for the Administration. The President has 
issued three separate directives, signed legislation, 
appointed, all around improper payments. He asked the Vice 
President to lead a campaign to cut waste, which has enabled 
remarkable things to happen for me in my lifelong battle on 
improper payments, such as calling together Cabinet meetings 
where improper payments are discussed.
    I have been able to talk with Secretary Sebelius directly, 
Secretary Solis directly, on these issues. In fact, when the 
Unemployment Insurance numbers came out and they were an uptick 
they were one of the few programs that were higher--we were 
able to meet directly with Secretary Solis on the issue and get 
her directly involved.
    There is definitely senior level attention to this issue in 
ways that I have not seen in my career, and I think that is 
correlational with some of the results we are seeing across the 
board.
    I know I often talk about the Federal CFO community burning 
the midnight oil, there the late hours, trying to solve and 
tackle our problems. Ms. Conley is the classic example of that. 
I think we have the exact right team at HHS--Sheila, Ellen 
Murray, her boss, the CFO and the entire leadership at HHS.
    When you call over there and it is almost time for the 
improper payment numbers to be reported, there is an enormous 
amount of stress and activity and excitement. Believe me, these 
numbers come out, and they do not just kind of wash over. There 
is an enormous amount of attention to them, and people really 
do care passionately about what is happening with these 
programs and what is happening with the dollars. And I think 
that is a really good sign.
    I would say that I will reflect that Sheila and I used to 
work together at OMB and were both in OMB when the Improper 
Payments Information Act was first enacted. I think there is a 
possibility that someone could get dulled to all of these big 
numbers, or desensitized, but we are not.
    I think we continue together--Sheila looking at the 
Medicare and Medicaid numbers, me and my team at OMB looking at 
the governmentwide numbers. And we never are desensitized to 
the enormity of this challenge and how important it is, and we 
are not in any way desensitized to the notion of how it gains 
importance as our budget climate becomes more challenging and 
as the economic climate becomes more challenging. And so, I do 
not think there is any risk that we are going to stop fighting 
on this issue.
    And I actually think because of the President's leadership 
on this, because the Vice President cares about this and is 
bringing senior Cabinet officials together to talk about this 
and drive accountability toward it and because technology is at 
a place right now where we can do some game-changing things and 
change the way government does business, I think we stand and 
are very well positioned to continue these trends in improper 
payments.
    Senator Carper. OK. I began this hearing by sharing with 
folks in the room the results report on NPR several months ago 
about this international study about what made people like 
their job. As it turned out, most people, what they liked about 
their job was they felt like they were doing something 
important and they felt that they were making progress.
    Well, I am encouraged. I think everybody in the room and 
everybody who has followed these issues at all knows this is 
important. A country that is running deficits of over a 
trillion dollars can ill afford improper payments or fraud 
losses that are this large.
    But having said that, we are making progress, and we are 
making progress by virtue of the efforts of a lot of people--
people at this table, folks who are seated behind you and a lot 
of people who are not in this room.
    And I applaud the efforts of the President and the Vice 
President on this, giving it the kind of attention that it 
deserves. And frankly, the previous administration.
    It is a little bit like in the Navy. We used to say when we 
were trying to do something really hard, it is like turning an 
aircraft carrier, kind of like trying to change the culture of 
our government to an extent. And it does not happen overnight.
    Having said that, we have to be just dogged in our pursuit 
of effecting the kind of changes that are needed. And for as 
long as I have the privilege of sitting here--and I think the 
same is true for the two fellows who are sitting to my right 
and other colleagues as well--we are on these issues and we are 
going to continue to be on these issues, not just to criticize 
or, as we like to say in Delaware, to carp, but to try to be 
constructive in our carping and to be constructive in making 
sure we are bringing the resources in a positive way to this 
battle.
    It is an important battle. It is one we need to win, and I 
think we are making some progress. I know you feel that way as 
well.
    With that being said, we look forward to providing some 
questions in writing, and we will appreciate very much your 
responding to those in a timely way.
    You have 2 weeks to submit questions. If you could respond 
promptly, we would appreciate it.
    Again, thank you all.
    And with that, this hearing is adjourned. Thanks so much.
    [Whereupon, at 4:32 p.m., the Subcommittee was adjourned.]

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