[Senate Hearing 114-317]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-317

                 IMPROPER PAYMENTS IN FEDERAL PROGRAMS

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

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 1, 2015

                               __________                                     
                                     

            Printed for the use of the Committee on Finance
            
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                                WITNESS

Dodaro, Hon. Gene L., Comptroller General of the United States, 
  Government Accountability Office, Washington, DC...............     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Dodaro, Hon. Gene L.:
    Testimony....................................................     5
    Prepared statement...........................................    33
    Responses to questions from committee members................    63
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    83
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    84

                             Communications

Academy of Managed Care Pharmacy (AMCP)..........................    87
340B Health......................................................    90

                                 (iii)

 
                         IMPROPER PAYMENTS IN 
                            FEDERAL PROGRAMS

                              ----------                              


                       THURSDAY, OCTOBER 1, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Roberts, Thune, Isakson, 
Portman, Coats, Scott, Wyden, Stabenow, Menendez, Carper, 
Cardin, Brown, Bennet, and Casey.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Chris Armstrong, Deputy Chief Oversight Counsel; and 
Kimberly Brandt, Chief Healthcare Investigative Counsel. 
Democratic Staff: Joshua Sheinkman, Staff Director; David 
Berick, Chief Investigator; Adam Carasso, Senior Tax and 
Economic Advisor; Elizabeth Jurinka, Chief Health Policy 
Advisor; and Tom Klouda, Senior Domestic Policy Advisor.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. I want to 
welcome everyone to today's hearing on improper payments in 
Federal programs.
    The Federal Government spends roughly $3.5 trillion every 
year. I am going to repeat that number: $3.5 trillion a year.
    I think most reasonable people would agree that not all of 
that money is well spent. There is, of course, plenty of 
questionable spending that the government does on purpose on a 
more or less daily basis. But that is a whole other hearing. 
Today's hearing is about the spending the Federal Government 
does by accident.
    All told, according to the Government Accountability 
Office, there was about $125 billion of this kind of 
accidental--or improper--spending in the last fiscal year 
alone.
    We talk about so much money here in Congress--millions, 
billions, and even trillions of dollars. We casually cite 
dollar figures that are incomprehensible to most people. And 
too often, politicians and policymakers talk about these 
dollars as if they were Washington's, as if the funds just 
materialized out of thin air for the sole purpose of being 
spent by our wonderful government.
    But let us be clear about one thing: these funds--these 
millions, billions, and trillions of dollars that we talk about 
and sometimes spend rather haphazardly--belong to the 
taxpayers. These are dollars the Federal Government has either 
taken out of paychecks or borrowed from future taxpayers.
    So when we talk about losing billions of dollars, it is not 
Washington's dollars that have been lost. Instead, it is money 
that we have taken away from hardworking people and then 
squandered through improper oversight or plain old 
irresponsibility. I hope we keep that in mind as we talk more 
about millions and billions here today.
    Just think about what could be purchased with $125 billion. 
That amount would buy an iPad for every single American. It 
would buy every person in the country a year's worth of meals 
at Chipotle. Or to put it another way, $125 billion would be 
enough to pay for health insurance for every living person in 
Florida, our third most populous State.
    According to the Congressional Budget Office, total tax 
revenues average out to about $17,000 per American household. 
By that estimate, for over 7 million American families, who 
work hard to stay on budget, pay their bills on time--and, yes, 
pay their taxes--every single dollar they sent to Washington in 
the last fiscal year was wasted on improper payments.
    Earlier this year, GAO issued a report entitled 
``Opportunities to Reduce Fragmentation, Overlap, Duplication, 
and Improper Payments and Achieve Other Financial Benefits.'' 
That is quite a title. This report provided updates on the 
government's progress--or lack thereof--in addressing more than 
440 actions previously recommended by GAO that were designed to 
cut waste in government spending programs and implement 
efficiencies in government services across 180 areas of concern 
identified in past annual reports.
    While the GAO estimated that executive branch and 
congressional actions to reduce waste and abuse resulted in 
roughly $20 billion in ``financial benefits'' between fiscal 
years 2011 and 2014, only 29 percent of GAO's recommendations 
were classified as ``fully addressed'' as of November of last 
year. In other words, while some progress has been made to 
address these concerns, any successes we have seen have been 
overshadowed by a persistently growing mountain of waste, 
fraud, abuse, and mismanagement.
    The problem is actually much worse than you might think. 
According to GAO, in fiscal year 2014, the estimated amount of 
government-wide improper payments increased by nearly 20 
percent--that is $19 billion--over the previous year, the 
largest increase we have seen in recent years. So basically, 
this 1-year increase in improper payments essentially wiped out 
the $20 billion in financial benefits accrued over a 4-year 
period from implemented recommendations.
    While the payment errors were spread among 22 Federal 
agencies, last year's increase was primarily due to estimates 
for Medicare, Medicaid, and the Earned Income Tax Credit, which 
account for over 76 percent of all improper government 
payments. Since all three of these programs fall under our 
committee's jurisdiction, I want to take a moment to examine 
them individually.
    The Medicare program, which provides essential health 
coverage to elderly and disabled beneficiaries, paid out nearly 
$60 billion in improper payments in fiscal year 2014. That is 
nearly half of all the improper payments across the entire 
government and roughly 10 percent of all paid Medicare 
benefits.
    That is right. About 1 out of every 10 dollars paid out of 
Medicare was paid in error. That is unacceptable.
    Last year, Medicaid, our primary health safety net for poor 
and vulnerable Americans, paid out approximately $17.5 billion 
in improper payments. Now, that is Medicaid. Just to put that 
in context, the government paid more in improper Medicaid 
payments last year than it spends in a year for the entire 
Temporary Assistance for Needy Families, or TANF, program, our 
country's main cash welfare program for the poor.
    And as you all know, the Earned Income Tax Credit, or EITC, 
provides a refundable tax credit to working taxpayers that can 
be as much as $5,500 for an income-eligible family with two 
children. In fiscal year 2014, the government paid out nearly 
$18 billion in improper payments under the EITC. That is more 
than 27 percent--more than 1 out of every 4 dollars--of what we 
spent on the entire program.
    Of course, we have all known about the high rates of 
improper payments in all of these programs for years now. And 
while these numbers, by their sheer size, are staggering, none 
of them should be surprising. This is a problem that has been 
many years in the making. And if you ask me, the time for 
addressing it is long past due.
    I think we are going to have an interesting and informative 
conversation about these issues today. I want to thank the 
Comptroller General for being here today and for his agency's 
hard work in uncovering and addressing these issues. This 
committee greatly values GAO's insights, and I look forward to 
hearing more about their recommendations today.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. With that, I will turn to Senator Wyden for 
his opening remarks.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    I think, right at the outset, it is important to try to 
define the topic at hand. And in my view, there are two issues, 
which are related but distinct.
    The first is improper payments, which are payments that are 
too big, too small, or documented in the wrong way. In most 
cases, it comes down to accounting errors or taxpayers getting 
tripped up by byzantine, overly complicated tax rules.
    The second issue is out-and-out fraud, which is a criminal 
act that results in illegal payments.
    Let me begin by saying that nobody on this side of the 
aisle is ever going to back down from the challenge of fixing 
improper payments and fighting fraud. That is because every 
single taxpayer dollar that is lost to mistakes, no matter the 
cause, is a dollar that just is not available to help hard-hit 
seniors cover medical costs, put a student through college, or 
rebuild America's aging infrastructure. The Congress has to do 
everything it possibly can to eliminate both fraud and improper 
payments. I do think it is important to note that by conflating 
the two, conflating improper payments and fraud, you run the 
risk of not getting the job done when it comes to either.
    When it comes to cutting down on improper payments, there 
is bipartisan action that can be taken. And we know that 
because, in this very committee, the Finance Committee passed 
bipartisan legislation in June--the AFIRM Act--that can help 
Medicare cut down improper payments by shoring up the system of 
audits and appeals. The crushing backlog of appeals is a major 
source of frustration to both America's older people and 
providers, and the audit system in place needs very significant 
improvements from what we have today. Our bipartisan 
legislation is going to help make sure that the right payments 
are going out, and it will keep paperwork and bureaucratic red 
tape from coming between doctors and their patients.
    Now, when it comes to combating actual fraud, the 
Government Accountability Office and the National Taxpayer 
Advocate have said that one of the best ways to go after these 
tax fraudsters is by protecting American taxpayers from 
predatory and incompetent paid return preparers. When you look 
at the facts, setting standards for tax return preparers ought 
to be a no-brainer. At the Federal level, however, there are no 
standards whatsoever protecting taxpayers from incompetence and 
dishonesty among paid return preparers. Only four States have 
their own standards.
    As a result, across the country, incompetent preparers make 
mistakes that cause financial nightmares for so many families, 
particularly those of limited means. Or worse, unethical, 
fraudulent tax return preparers pose as trustworthy 
businesspeople and steal money from those who are actually 
struggling to get by.
    Now, my home State is one of four that has managed to get 
this issue right and protects innocent Americans from these tax 
ripoff artists. Now, it is not just me saying there ought to be 
nationwide protections against fraudulent tax preparers. It is 
the Government Accountability Office and the Taxpayer Advocate, 
which are trusted and nonpartisan voices on these issues. 
Colleagues, we use these nonpartisan leaders on scores of 
issues, and Chairman Hatch and I have a proposal ready to go 
that would combat fraud in a number of ways, including by 
regulating paid tax return preparers. And it is my hope that 
the committee is going to move this soon.
    Finally, as the Government Accountability Office points out 
in its testimony, setting standards for paid tax preparers has 
multiple benefits. Not only will it crack down on fraud, it is 
going to help cut down on improper Earned Income Tax Credit 
payments. That is because nearly half of the tax returns done 
by paid preparers improperly claim the Earned Income Tax 
Credit.
    I will just wrap up by stating that you really cannot get a 
full picture of how to protect taxpayer dollars without looking 
at several other issues. The first is the annual tax gap of 
$385 billion, three times the total amount of improper payments 
government-wide. And second, though it is not the exclusive 
province of this committee, the Pentagon should not get a free 
pass when it comes to improper payments just because some 
members of Congress find it easier to focus on health care and 
tax programs. Those issues ought to be a part of the debate as 
well.
    So today we look at the challenge of improper payments as 
an opportunity to make our tax system and spending programs 
work better. And we look at it as an opportunity to crack down 
on and aggressively move against tax fraud. The Government 
Accountability Office made a number of recommendations on how 
to make that happen. We are very pleased to have Mr. Dodaro's 
testimony and appreciate his professionalism and look forward 
to his comments.
    The Chairman. Thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Let me take a few minutes to introduce our 
notable witness, Mr. Gene L. Dodaro. Mr. Dodaro was confirmed 
as the eighth Comptroller General of the United States and head 
of the U.S. Government Accountability Office in December 2010, 
and he previously acted in that role starting in March 2008.
    Including these 7 years of dedicated service, Mr. Dodaro 
served the country for more than 40 years at the GAO. He served 
most recently as Chief Operating Officer, but has also headed 
GAO's Accounting and Information Management Division, where he 
conducted the first-ever audit of the comprehensive financial 
statements covering all Federal departments and agencies.
    Mr. Dodaro has also worked closely with Congress and 
several administrations on major management reform initiatives, 
including the 1994 Government Management Reform Act, the 
revised 1995 Paperwork Reduction Act, and the Clinger-Cohen Act 
of 1996. He received a bachelor's degree in accounting from 
Lycoming College in Pennsylvania and is a fellow of the 
National Academy of Public Administration and a member of the 
Association of Government Accountants.
    Mr. Dodaro has also been recognized for his service, with 
awards such as the National Public Service Award from the 
American Society for Public Administration, the Roger W. Jones 
Award from American University, and the Braden Award from the 
Department of Accountancy at Case Western Reserve University.
    Mr. Dodaro, we would like to thank you not only for 
testifying here today, but for your dedication to improving 
this country. You are living proof of what bipartisan efforts 
can achieve if we just work together. So please feel free to 
proceed with your opening statement, and then I know we will 
have some questions for you.

 STATEMENT OF HON. GENE L. DODARO, COMPTROLLER GENERAL OF THE 
UNITED STATES, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

    Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking 
Member Wyden, and members of the committee. I am very pleased 
to be here today to have this opportunity to talk about 
improper payments and the tax gap. Both of these areas involve 
huge amounts of money. I believe there is considerable 
opportunity to improve the Federal Government's fiscal position 
while not having any detrimental effect on the important 
programs that serve our citizens across the country.
    First, on improper payments, as we show in Figure 1 in my 
written testimony, since the Congress has required by law 
Federal agencies to report estimates of improper payments, 
starting in 2003, the cumulative total of improper payments 
estimated has risen close to $1 trillion over this period of 
time. The latest estimate, as pointed out in your opening 
statement, Mr. Chairman, was $124.7 billion in fiscal year 
2014, up $19 billion from the prior year. So it is very 
important to get a perspective on the cumulative number as well 
as the annual numbers that have been pointed out.
    Figure 2, as has been mentioned, shows that about 75 
percent of the improper payment estimates for 2014 involved 
Medicare, the blue part on the chart, which is about 48 
percent. Medicaid is 14 percent, and another 14 percent is for 
the Earned Income Tax Credit. So these programs are important 
to focus on, as you mentioned in your opening statements.
    But I also want to emphasize the point that this is a 
government-wide issue. The estimate here for 2014 involves 124 
programs at 22 different agencies across the Federal 
Government. So it is not confined to these programs. For 
example, Appendix II shows that there are ten programs that 
have improper payment rates over 10 percent. The law sets a 
bar. If you are over 10 percent, you are not in compliance with 
the law. And so this problem needs to be addressed on multiple 
levels.
    Now, we have made many recommendations in this area. The 
Congress has passed laws in 2002, 2010, and 2012 to address 
this issue. Senator Carper has been very involved in helping 
shape this legislation. The administration is focused on it, 
and the agencies are focused on it. But much more needs to be 
done.
    First, there are several programs, including TANF, where 
estimates are not being made at all. So this picture is not the 
complete picture of the full extent of potential improper 
payments across the Federal Government, as large as these 
numbers are.
    Secondly, there are a number of areas where better 
estimates are required. The Department of Defense is one of 
those areas where we think there needs to be better estimates. 
We also think that there needs to be a better effort to focus 
on root causes of the problems. The documentation issue is a 
symptom. It is not necessarily the root cause of the problem.
    And lastly, we think there is room for the Congress to 
enact additional legislation in this area, particularly to 
require improper payment estimates for TANF and also provide 
GAO clear access to the National Directory of New Hires 
database, which would allow us to provide a lot more analysis 
that would help particularly for those programs that require 
income eligibility.
    Now, let me quickly turn to the tax gap. The latest 
estimate of the tax gap by the IRS is $450 billion, a gross 
estimate based on their examination of 2006 data. They expect 
to collect some amount of money, so the net tax gap is $385 
billion. It does not take long for that to accumulate to 
trillions over a period of time. The tax gap largely results 
from underreporting, as Figure 3 shows: 84 percent of the tax 
gap is attributable to people not reporting or underreporting 
their income. Underpayments, where they are acknowledging the 
tax debt and not paying, is another 10 percent, and the non-
filers are 6 percent. The biggest area is in the individual 
income tax, and over half of that is business income tax for 
sole proprietors, partnerships, and S corporations as well.
    Figure 4 shows that there is a direct correlation between 
the tax gap and third-party reporting. Where you have third-
party reporting to individuals and the Government, you have 
very small amounts in the tax gap. For example, on wages and 
salaries, for those people who have the deductions taken out of 
their wages and salaries, and salaries that employers report to 
employees and the IRS, it is only 1 percent of the total amount 
of improper payments. And it goes up the scale to where you 
have business income reporting and other areas where there is 
no third-party reporting or very limited information. Over half 
of these types of income are misreported.
    We made many recommendations to the IRS to increase the use 
of third-party information, to better target their efforts. 
They have a strategy for providing online services to people to 
help those who want to voluntarily comply better and understand 
their responsibilities. And we also have made suggestions to 
the Congress to regulate paid tax preparers and to accelerate 
W-2 reporting so the IRS has information earlier in the 
process.
    I am very pleased to see this committee considering 
legislation to regulate tax preparers and accelerate W-2 
reporting. I think it is a very good move, and I support it. 
And I would be happy to answer questions about that and any 
other area, Mr. Chairman.
    Thank you very much again for the opportunity to be here 
today.
    [The prepared statement of Mr. Dodaro appears in the 
appendix.]
    The Chairman. Well, thank you, Mr. Dodaro. We appreciate 
the work that you are doing, and this is pretty astounding, I 
think, to most Americans, how really widespread this is and how 
expensive it is to all the taxpayers in America.
    For years, GAO has consistently identified the Earned 
Income Tax Credit as having the highest rate of improper 
payments across all Federal programs. Last year, the improper 
payment rate went up even more. The EITC improper payments last 
year totaled nearly $18 billion, which is more than a quarter 
of all Earned Income Tax Credits that the Federal Government 
paid.
    I understand that you have made some recommendations to 
Congress to improve the program, which the committee is 
considering, but through the years, you have also made a number 
of recommendations for the IRS to improve its administration of 
the program as well.
    With a 27-percent error rate, which is about twice as high 
as any other government program, the Earned Income Tax Credit 
appears to be about the most poorly administered Federal 
program. Would you agree with me on that?
    Mr. Dodaro. The Earned Income Tax Credit provides important 
assistance, but it is one of the most difficult, complex 
programs to administer. So I think the Congress can help in 
this area. The IRS can do more as well, as you point out. We 
are currently looking at the program again, and we hope to come 
up with some additional recommendations. But I believe 
legislative changes are needed to help address this high error 
rate.
    The Chairman. And you will be happy to recommend those 
legislative changes to us?
    Mr. Dodaro. Yes, I will.
    The Chairman. What is it about the Earned Income Tax Credit 
that makes it so difficult to administer? And let me ask you 
another question too, at the same time. How has the IRS 
responded to GAO's recommendations over the past several years?
    Mr. Dodaro. The difficulty stems from a couple of factors.
    Number one, the eligibility for this tax credit gets 
determined by the taxpayers themselves or by their tax 
preparers. It is unlike other programs where people submit an 
application and their eligibility is determined by the 
government or a third party on the government's behalf: State 
and local governments, for example. In this case, they are 
making the determination. And it has a lot of complexity 
concerning, particularly, child care arrangements and having 
qualified children.
    The second problem is that the IRS has limited ability to 
verify the income levels for people or their filing status. A 
fundamental problem is that the IRS does not receive the W-2 
information until April. That is after a lot of people have 
filed their returns and the IRS has provided refunds to them 
based on their information. This is a problem not only for the 
Earned Income Tax Credit but for identity theft as well, 
because the crooks file early, and the IRS does not have any 
ability to be able to easily verify the income through 
independent sources.
    Now, IRS has implemented our recommendations over the 
years. As I mentioned, we are working on identifying other 
recommendations for the IRS. But the legislative changes that 
we are recommending are to regulate paid tax preparers and 
accelerate the availability of W-2 information earlier in the 
process and also increase the requirements for electronic 
filing.
    The Chairman. Well, the committee is considering 
legislation that would, among other things, regulate tax 
preparers, largely because of the high rates of improper 
payments in the EITC space for tax returns prepared by 
unregulated preparers.
    Now, in your opinion, should we provide IRS with additional 
authority to regulate paid tax preparers? And if not, why not?
    Mr. Dodaro. I definitely think you should pass legislation 
to require IRS to regulate paid tax preparers. Millions of 
people in the United States rely on paid tax preparers and over 
half of the people who file their returns. In studies that we 
have done, we found that paid tax preparers have made a 
considerable number of errors. For example, we randomly 
selected 19 paid tax preparers a few years ago, went in and 
found that only two of the 19 gave us the right information to 
be filed with the IRS, and seven of those cases gave such 
inaccurate information that they would have put the paid tax 
preparer and the individual citizen at risk of serious 
penalties and fines associated with this. We analyzed the IRS 
data and determined that 60 percent of the returns filed by 
paid tax preparers had errors. So we think this is an important 
area.
    As Senator Wyden mentioned, we studied this situation in 
Oregon, and we did an analysis, and we found that in Oregon's 
situation, a paid tax preparer was much more likely, 72 percent 
more likely, to file the correct tax return than tax preparers 
throughout the rest of the country.
    So we think there is ample evidence to support this, and it 
is particularly important since I know the Congress is focused 
on the amount of resources of the IRS. They need to leverage 
paid tax preparers. You know, they already regulate some paid 
tax preparers, but they do not regulate most of them. The 
majority of tax preparers are not regulated.
    So I would very much encourage the Congress to give them 
this authority, and they need to implement it effectively and 
with due process.
    The Chairman. Well, thank you. My time is up.
    Senator Wyden?
    Senator Wyden. Thank you, and thank you, Mr. Dodaro, 
particularly for your points with respect to how regulation of 
tax preparers allows us to up the ante against fraud with the 
Earned Income Tax Credit. That is why I cited it in my opening 
statement. I largely cited it in my opening statement because 
of the good work that you all did back in 2014. You drilled 
deep into the roots of why there are so many of these improper 
payments, and, based on your analysis and our discussions with 
your folks, it kept coming back again and again and again to 
fraud by these tax preparers. So we are very hopeful that we 
will be able to move our legislation soon, and I appreciate 
your good work on that.
    I want to ask you a question with respect to the tax gap, 
because, as you correctly stated, what we are talking about 
here is essentially $450 billion. This is the gross amount of 
taxes owed but not paid annually.
    As I look at the tax structure in America, what happens is, 
if you are a working family, for example, in Indiana--Senator 
Coats is here. He and I have worked together on bipartisan tax 
reform for some years. If you are a working family in Indiana 
or in Oregon, you have your taxes taken directly out of your 
paycheck. You know; you can see it on your pay stub.
    If you are making your money mostly with respect to 
investments, then you have people preparing various kinds of 
documents. You can use all these breaks and exemptions and 
credits. And what Senator Coats and I have sought to do all 
these years, much along the lines of what President Reagan and 
Democrats did in the 1980s, is to try to clean out a lot of 
that junk--clean out a lot of that junk in order to hold the 
rates down and still have a graduated rate structure.
    But it seems to me, in addition to that, what you are 
saying is, we need to beef up tax enforcement, and 
particularly, given your testimony, we need to beef it up so 
that it targets those kinds of instances where you do not have 
the money directly taken out of a paycheck, to reduce the 
prospects of fraud.
    I am looking at page 43 of your testimony where you talk 
about the implications of reduced enforcement at the IRS, and I 
think it would be very helpful if you could talk about what 
reduced enforcement of America's tax laws really means for this 
big job of closing the tax gap. And the reason I bring it up, 
particularly with my friend and colleague Senator Coats and I 
here, is that we believe simplifying the code, as the two of us 
have sought to do, is certainly a step in the right direction. 
I also feel that your recommendation there at page 43, with 
respect to tax enforcement, is important, and I wonder if you 
could go into that as part of this agenda that we are tackling 
here. And we want to do it as we did with Medicare: on a 
bipartisan basis. So talk about tax enforcement and the tax 
gap.
    Mr. Dodaro. Yes, I would be happy to, Senator Wyden.
    First, our chart vividly illustrates the challenge to tax 
enforcement. On the left side, where you have withholding for 
people, there is very little that is contributing to the tax 
gap. The green is where you have investment income reported--
again, very little toward the tax gap. So the enforcement 
challenge really under current law, in addition to simplifying 
the tax code--and we recommended that over a number of years--
is to tackle what is in the red portion of this chart, which is 
largely business income and partnership reporting. The IRS 
really does not have good information on the compliance issues 
associated with that reporting, so we have suggested that they 
implement a strategy. They are working on a strategy. They do 
not have it implemented yet. They do not have a time frame for 
it yet. But I would encourage them to consider that.
    We also do not think they have good return-on-investment 
information; in other words, which enforcement strategy yields 
the most amount of income. For example, for examinations opened 
in 2007 and 2008, they have IRS focused, over half of them, on 
people reporting income under $200,000 versus over $200,000. 
There is much more return on their investment based on their 
data for focusing on people with incomes over $200,000 rather 
than under $200,000.
    Senator Wyden. Can I get one other question in very 
quickly, Mr. Chairman? And I really want to defer to the 
expertise of Senator Carper, who has led this committee on this 
question of rooting out health care fraud for years.
    Just very briefly, because I know my colleague is going to 
ask about these issues as well, how do you make sure that as 
you try to root out health care fraud, you strike a balance so 
as to not create a lot of new regulatory burdens and hassles 
for the overwhelming number of providers who are honest and 
scrupulous? How do you do that? How do you strike that balance? 
I will let my colleague talk about health care, so if you could 
just answer that quickly.
    Mr. Dodaro. Sure. The real strategy here is to have an 
integrated strategy where we are preventing improper payments 
from occurring in the first place. The reason you have audits 
later is to inform you on how you can better screen. You have 
to keep bad actors out of the system. There need to be real, 
stringent controls on providers and suppliers when they are 
enrolled in the first place, and we have many recommendations 
to improve that process. So, keeping bad actors out, using 
technology to do predictive analytics to detect patterns ahead 
of time and stop the improper payments from the beginning, are 
the very best ways to protect the government and the taxpayers. 
This is preferable to intrusive, after-the-fact audits on the 
provider and preparer community. And that is what CMS is not 
doing enough: learning from what is happening after the fact, 
to prevent it from occurring up front.
    Senator Wyden. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Let us see here. Senator Roberts is next.
    Senator Roberts. I am not sure I am next, but thank you 
very much.
    I am going to be a contrarian here for a moment, but first 
of all, I want to thank the chairman for really highlighting 
the severity of this problem. It is really tearing at the 
public trust, as well as a backlog of a million claims, a 13-
percent error rate, this jumping up this last year here 18 
percent. And I want to thank you and Senator Wyden for working 
on a bipartisan bill. Senator Wyden, thank you very much for 
coming up with the term ``byzantine regulatory process.'' I 
think that pretty well describes it.
    Obviously, our auditing needs improvement. You know we are 
currently using several different types of auditors with 
different processes and documentation requirements. But let me 
point out that part of that is also causing a tremendous burden 
on providers who are trying to be responsive. Not all providers 
are guilty of whatever some auditor says that they are.
    We are losing doctors; we are losing nurses. Access to 
medical care is a real problem, and that has to be considered 
with regards to what we are trying to do in agreeing upon a 
definition of improper payments.
    As an example, does a missing signature or date mean it is 
an improper payment? Or is a better term ``improper 
documentation''? Obviously, I think it is the latter. Improper 
payments calculations and the audits should focus on payments 
for goods and services that a patient did not medically need 
when paperwork is the issue.
    But what happens in the real world out there--again, we 
just talked about this, and thank you for coming up, and thank 
you, by the way, for the job that you are doing. The 2-day 
rule, the 96-hour rule, you know, people come into the 
hospital, and I told you about an example of an elderly lady 
who came in, who evidently had a stroke, but she was in the 
emergency room, and then she was just sort of discharged 
sitting out there, went back home, came back again when she had 
a stroke, and then she died. I happened to be in the hospital 
when that happened.
    And so people who do these audits are hired. They are 
independent contractors. They get gold stars for citing people. 
I understand that. And I understand that we have to have an 
honest auditing system that really works.
    So that leads me to my question. In your written testimony, 
you indicate what an agency must do in order to be compliant 
with the Improper Payments Elimination and Recovery Act, and 
you know that one of the things an agency must do is submit a 
plan to Congress describing what it will do to bring the 
program into compliance.
    Do we have a definition of improper payments?
    Mr. Dodaro. Yes, there is a definition in the statute. It 
is cited on the first page of our testimony, if you go to the 
bottom of page 1, Senator. ``Improper payments'' as defined by 
statute is any payment that should not have been made or that 
was made in an incorrect amount under statutory, contractual, 
administrative, or other legally applicable requirements. Among 
other things, it includes payment to an ineligible recipient, 
payment for an ineligible good or service, and any duplicate 
payment. And also by regulation, according to OMB's guidance, 
it instructs agencies to report as improper payment any payment 
for which insufficient or no documentation was found.
    Senator Roberts. Well, that is a pretty broad definition, 
and my problem with it is that, when you have an auditor who 
comes in on the RAC program--and I think that they actually put 
the providers on the rack--not every hospital administrator or 
doctor or nurse or provider is doing things that amount to 
fraud and abuse. And in the rural health care delivery system, 
we have some real problems.
    I have a final question. Could you tell me who the 
accountable senior IRS official is for the EITC? Does this 
person have a performance agreement? That is according, I 
think--part of the plan that we have is, the agency must 
designate a senior agency official who is responsible for 
bringing the program into compliance. Who is that?
    Mr. Dodaro. That is the Deputy Commissioner for the IRS for 
Operations Support, Jeffrey Tribiano.
    Senator Roberts. Oh, dear. Well, the distinguished chairman 
and ranking member have had him before us before. We will have 
to follow up. Thank you for your service.
    Mr. Dodaro. Thank you, Senator.
    The Chairman. Senator Thune, you are next.
    Senator Thune. Thank you, Mr. Chairman. Sir, nice to have 
you here. Thank you, and I appreciate your service.
    I think it is important that we have a continuing dialogue 
to ensure that agencies and Congress are properly safeguarding 
tax dollars. And one of our utmost responsibilities is to 
ensure that Federal programs are being run efficiently and 
effectively, and it is my hope that the administration first 
starts by looking at this improper payment area to determine 
where we can find some of those savings. We certainly ought to 
be doing that before we ask the American taxpayer to do even 
more than they are already doing.
    I want to ask about--I know you have touched on it and 
probably been asked about it a lot already. I apologize if you 
have. But the EITC continues to be a major source of fraud and 
erroneous payments. And while the EITC is, in fact, a tax 
credit, the large majority of the budget impact of this program 
comes in the form of spending. In other words, the EITC is 
really a spending program in the form of a refundable tax 
credit. The EITC has consistently had an error rate between 22 
and 27 percent, and improper payments from this program have 
totaled nearly $80 billion in the past 5 years alone. The total 
amount, I might add, of improper payments since fiscal year 
2003 is anywhere from $124 billion to $148 billion, which I 
think the chairman noted in his opening remarks. And, as you 
may know, the Obama administration proposed making permanent 
the more generous temporary EITC provisions enacted as part of 
the stimulus bill in 2009.
    So, given what GAO has reported regarding improper payments 
in the EITC program, isn't it likely that extending these more 
generous EITC provisions is likely to mean more improper 
payments than if we allow the more generous subsidies to expire 
after 2017?
    Mr. Dodaro. I think the best way to safeguard future 
improper payments would be for the Congress to enact 
legislation to regulate paid tax preparers and to accelerate 
the filing date for W-2 information so the IRS has that 
information up front to validate. If these two things are not 
done, you are going to continue to have improper payments, in 
our opinion, in EITC under the current system or any future 
system. So you have a structural problem there that is built 
into the design of the program, and the Congress needs to act 
in order to shore that up and to make sure the IRS effectively 
implements both of those two provisions. We need to regulate 
tax preparers, accelerate W-2 information, and use that 
information to make sure that ineligible people do not have 
access to the tax credit.
    Senator Thune. So if you are looking for a better screen to 
ensure that at the preparer level and at the IRS level, it is 
getting the information sooner, as you are suggesting. But one 
of the things that has generated a lot of controversy is the 
suggestion that, for this refundable portion of the tax credit, 
there be a valid Social Security Number submitted, which is 
already required for certain other tax benefits, and some have 
suggested that a Social Security Number should be required for 
each child who is claimed under the credit. And again, as you 
know, as I mentioned earlier, improper payments associated with 
the additional tax credit have increased from $62 million in 
2000 to roughly $4.2 billion in 2010, which is a staggering 
increase.
    Has GAO looked at whether requiring a valid Social Security 
Number would be likely to have the intended result of reducing 
fraud in this program? Do you have an opinion on that approach?
    Mr. Dodaro. Well, I would think most information, any 
information, that IRS can have to help it verify that it is a 
legitimate charge will be helpful, including Social Security 
Numbers.
    Currently, children claimed for the EITC are required to 
have valid Social Security Numbers. For the Additional Child 
Tax Credit, children are required to have taxpayer 
identification numbers, which may either be valid Social 
Security Numbers or Individual Taxpayer Identification Numbers 
issued by the IRS to resident and nonresident foreign nationals 
and others who have a tax reporting requirement. We are 
currently reviewing the design and administration of refundable 
tax credits including the EITC and the Additional Child Tax 
Credit at the request of this committee. We plan to report our 
findings and any recommendations in Spring 2016.
    Senator Thune. Okay. So that is something that you think 
would make sense----
    Mr. Dodaro. Yes.
    Senator Thune [continuing]. As a check in the program?
    Mr. Dodaro. Yes.
    Senator Thune. Okay. Thank you. And I was going to--Senator 
Roberts hit on my question about who is in charge at the IRS on 
this, so I will, with that, yield back, Mr. Chairman. Thank 
you.
    The Chairman. Thank you, Senator.
    We will now turn to Senator Carper.
    Senator Carper. Thanks, Mr. Chairman. I want to thank 
Senator Wyden for the kind things that he said about our 
efforts earlier, and I just want to compliment you, Mr. Dodaro, 
for the great work that you and your team do to help us spend 
taxpayer dollars more effectively. You do a great job, and it 
is a joy to work with you.
    While Senator Thune is still here, I want to say a couple 
of things to follow up on his points. Senator Thune, I just 
want to follow up on a couple of things, if I could, and thanks 
for what you raised here.
    As you know, the reason why we have the Earned Income Tax 
Credit is because we want to incentivize people to work. We 
want to make sure that when people work, they are better off 
than when they are not working. And that is why Ronald Reagan 
was such a big fan of the EITC program. And frankly, I am too. 
I think most of us are.
    And Mr. Dodaro has actually pointed out a couple things 
that we can do to reduce this problem of bad claims being 
filed, bad returns being filed, a lot of them by these paid tax 
preparers that are not regulated. It is a big problem. The 
timing in terms of filing W-2s, that is a big problem. Those 
are things that we can fix. And if we do, folks can still get 
the EITC. Folks who should not be getting it or who should not 
be getting as much would not get it. And we can make sure that 
people continue to be incentivized to work--that is what we 
want to do--and we want to make sure that we protect money that 
is in the Treasury that should not be going out to folks who 
should not be getting it.
    I hope that we will not just have a conversation about 
this. I hope we will do it. I hope we will do it. And I know 
this is something near and dear to the heart of Senator Wyden, 
and I thank him for his leadership on this as well.
    I want to go back to one of your earlier charts. You put up 
a pie chart right at the beginning. Could someone just put that 
back up again there for just a minute? The pie chart indicates 
where the improper payments are coming from, and you have the 
blue, which is Medicare, and you have the red, which is 
Medicaid. We have the yellow, which is the EITC, and then some 
others.
    I do not think anywhere on this pie chart is the Department 
of Defense. And when you think about spending in the Federal 
Government, think of a different pie chart. Half of Federal 
Government spending is entitlements. Maybe another 5 or 10 
percent is debt service. The rest is discretionary spending. 
More than half the discretionary spending is defense. Less than 
half of the remaining spending is nondefense discretionary 
spending.
    There is not one dime's worth of improper payments up here 
that is cited by the Department of Defense. It is crazy. And 
part of the problem is that they have not yet, any of them--
Army, Navy, Air Force--been able to show auditable finances. 
And you have worked with them on this. I have. Senator Coburn 
has worked with them on this for years. But a big part of our 
problem is not even recorded, and it needs to be.
    We have been working on improper payments, Tom Coburn and 
I, for, gosh, almost a dozen years. And he is gone now, but his 
legacy lives on in this regard.
    Initially, we said we wanted agencies to record improper 
payments. They did. And as time went by, that number went up, 
up, up, up, up, because more agencies started reporting, except 
for DOD. And then we said in 2010, we want you to not only 
record improper payments, but we want you to stop making them. 
And not only do we want you to stop making them, we want you to 
go out and recover money that you can. And we want you to 
reward your supervisors, in fact, to really judge their 
performance in part by how effectively they are complying with 
improper payments laws. We have done all that. That is on the 
books. And now we just have to make sure that we act on some of 
the stuff that you are suggesting, and I hope that we will.
    I am going to ask you to give us a to-do list, and some 
stuff you have already said, but we need to hear it again, and 
maybe we will get off our duffs and do it. Just repeat some of 
the stuff you said that we need to do in order to go after some 
of the improper payments that are remaining, to get after DOD 
to do their job, and to make sure that we ratchet down this tax 
gap. Please, just hit us with it again.
    Mr. Dodaro. Sure, sure. Well, I will start with DOD. There 
is a bit of DOD in the green, but it is not reliable. We have 
said that. We think they should be doing a lot more on improper 
payments. And you are quite correct. In my opinion, the 
highest-risk area in the Federal Government for financial 
mismanagement is the Department of Defense. They are the only 
major department and agency that has not been able to pass the 
test of an independent audit. They are working on it, but they 
are a long way from accomplishing that goal.
    Second, what is not in there is Temporary Assistance for 
Needy Families' improper payment estimate. They spend about $16 
billion a year. A third of that is still cash assistance. HHS 
is saying by statute they are not able to get the information 
they need, so I think Congress needs to clarify that authority 
as well.
    We have recommended that the Congress regulate paid tax 
preparers. Sixty percent of the returns filed by paid tax 
preparers had errors, according to our analysis, which was 
verified by the IRS.
    We believe the reporting date for W-2 information to the 
IRS should be sooner. Right now they do not get it until April. 
They need to have it earlier in the filing season so they can 
match it up. Last year they estimated they missed $5.8 billion 
in identity theft in addition to the Earned Income Tax Credit 
problem. So this could help in both regards, but they have to 
be able to use it and modify their systems to be able to handle 
it. So following up on that would be a good idea.
    We also think Congress should consider giving IRS 
additional math error authority more broadly so that they can 
match against records that the Federal Government has 
collectively and correct things up front. This will save 
taxpayers a lot of time and effort. If they do not agree with 
it, they can contest it with the IRS. But it will save IRS 
resources from going after things later that they know they 
could have fixed earlier in the process.
    I think that Congress also ought to have more oversight 
hearings on these individual agencies to bring them in and to 
discuss with them what their corrective action plans are and to 
make sure they are bringing down the improper payment 
estimates. We have cited in our testimony that there are five 
program areas that, for 3 straight years, have not been in 
compliance with the law. And I would start there in the 
congressional oversight process.
    The Chairman. Well, thank you. Your time is up, Senator. We 
will turn to Senator Portman.
    Senator Carper. Mr. Chairman, let me just say, that is a 
pretty good to-do list. We need to do it.
    The Chairman. I agree with you. That is a darn good list.
    Senator Portman?
    Senator Portman. Thank you, Mr. Chairman. I appreciate it. 
Thanks for your work on all kinds of issues: the tax gap we 
talked about today and, of course, improper payments.
    Mr. Dodaro, you are a watchdog, and it is discouraging to 
me when I see the fact that between 2013 and 2014, the most 
recent year for which we have data, we have actually seen 
improper payments go up, not down, after years of some 
progress. This committee and the Ways and Means Committee I 
served on previously focused a lot on these issues. The IRS 
reforms and other things made some incremental progress, but we 
are going the wrong way. And so we do need your ideas, and we 
need you to continue to be vigilant on this.
    You talked about the improper payments in the EITC. You 
talked about health care. If we look at the chart up there, you 
have talked about Pentagon spending recently. One that you have 
not talked about is the Affordable Care Act. A lot of our focus 
is on the mandatory side, and the improper payments. This is a 
whole new mandatory program, of course, a big new entitlement 
program where we do not have the verification. So one reason I 
think we are losing ground here is, we have started new 
programs over the last 5, 6 years that actually create 
additional challenges, and with the Affordable Care Act, 
specifically income verification for the exchanges.
    You testified before the committee in July on your secret 
shopper investigation. You found serious integrity problems in 
the process for verifying eligibility for the ACA subsidies. It 
was unbelievable. I think there were 10 or 12 secret shoppers, 
and I think 9 or 10 of them cheated the system. And that is 
obviously a huge concern there.
    You told us that you were looking into that, that you were 
going to work on it, but you said you were having real trouble 
getting from HHS information about the exchanges, about the 
customers, the information you needed to evaluate whether 
subsidies are going to the right people, people who are 
entitled to them.
    Can you give us an update on your investigation on that 
front and whether HHS has been cooperative in expeditiously 
getting you the documents and data that your team needs to 
analyze this?
    Mr. Dodaro. Yes, we are in much better shape now. We have 
had several meetings with them. We have gotten all the 
information that we need in order to complete our study and our 
investigation. They are listening more carefully now to our 
recommendations and suggestions. However, the HHS IG and we 
have both been looking at the accuracy of the data provided by 
CMS and the State exchanges, the marketplaces, to IRS and have 
made recommendations to IRS that they need to check some of 
that information so that they can accurately match it during 
the return process. We are looking at all aspects of the 
controls throughout that whole system.
    So we are getting better cooperation in getting the data. 
We are still doing work, and we expect to have additional 
recommendations, but we are getting cooperation from CMS.
    Senator Portman. Okay. We look forward to that report, 
sooner rather than later. And again, I appreciate the fact that 
you are going to be our watchdog on that.
    On the Digital Accountability and Transparency Act, you and 
I talked about it a little just prior to the hearing, so I 
wanted to mention it. As you know, this is legislation that was 
passed back in 2013, and the notion is to put all grants and 
contracts in a transparent way online, let people see them, 
help you in terms of your ability to be that watchdog, but also 
help us here in Congress to do our oversight responsibilities 
and allow taxpayers to see where their money is going. It 
expands the Federal Funding Accountability and Transparency 
Act. It is a big new improvement in the quality of spending 
data. And my question to you, I guess, is whether you think it 
is working well.
    Section 5 of the DATA Act requires OMB to determine whether 
it is possible to automate reporting by grantees and 
contractors, and section 5 was meant to ensure that we are 
going to get better information, in a standardized electronic 
format, to determine whether they are able to use that format 
to automate the creation of reports and reduce the compliance 
costs, among other things, to these grantees and contractors.
    To my understanding, OMB has yet to recruit any grantees or 
contractors to participate in the pilot program that was set 
up. Are you investigating whether OMB is complying with this 
part of the law?
    Mr. Dodaro. Yes, we have efforts under way to look at this. 
You know, we are not required by the law to report until 2017, 
but I have started right in the beginning. I want to make sure 
that this is done properly.
    So we are looking at that. I am concerned that they have 
not identified the proper pilot for the contract side in that 
area, and they have not finalized plans yet for the grant side, 
although they are a little further ahead in the grant than the 
contract side. But they have to start it. Under the law, they 
have to have a 12-month period of time under the pilot. So if 
they do not start soon, this summer, they are not going to be 
able to meet that requirement. So we are working on it.
    I am also concerned that they have yet to come up with a 
program inventory, which was required by the 2010 Government 
Performance and Results Modernization Act. Right now the 
government does not have a complete inventory across the 
Federal Government of all its programs. As a result, when we go 
in and try to identify overlap and duplication among Federal 
programs, it takes a lot of effort and work to be able to do 
that.
    I am also concerned that the governance structure get 
established, because there is going to be lost time during the 
change in administration.
    Senator Portman. Senator Warner and I were the authors of 
that legislation. We are concerned about the implementation, 
and, again, we have talked about this privately, but I hope you 
will continue to stay on top of it. You talk about the grantee 
portion of it. HHS has been given the lead on that, but OMB has 
not designated anyone, to my knowledge, to take the lead on the 
contractor part. And so I am concerned that they are not 
meeting their deadlines, and for you to do your job and for us 
to do our job, we have to have better financial reporting. I 
assume you agree with that.
    Mr. Dodaro. Definitely.
    Senator Portman. And at all the agencies and departments, 
not just DOD.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Coats?
    Senator Coats. Thank you, Mr. Chairman. I want to first 
make a statement and thank GAO and Mr. Dodaro for what they do. 
As some of my colleagues know, I do a waste, fraud, and abuse 
speech on the floor every week to point out some of the money 
that we could save the taxpayer or use for better, more 
essential Federal Government obligations. It is amazing the 
amount of money out there that could be put to better purpose, 
and GAO has been very helpful in terms of giving us documented 
information on a nonpartisan basis.
    So there is plenty of work to be done, but I am very 
interested here in the statement where you say that addressing 
the estimated $385 billion net tax gap will require strategies 
on multiple fronts, and one of those you say is tax code 
complexity. Senator Wyden and I have a bill in that greatly 
simplifies this. We all know the tax code is complex beyond 
anybody's comprehension. I suppose a lot of the problems that 
the taxpayers and even tax preparers face is that understanding 
this monstrosity of a code requires almost 24/7 work to keep up 
with it. I had three major tax classes in law school. I cannot 
begin to do my tax return because, if I do not spend full-time 
on what is happening and changing, it is almost impossible to 
do.
    I appreciate the chairman's statement here relative to how 
we ought to go about this, and I know he is on board also, and 
I think virtually every member in this committee is on board in 
terms of getting real meaningful tax reform that would solve a 
lot of this problem, because a lot of this, I think, just comes 
from complexity.
    Now, that is really our responsibility. I am disappointed 
we have not been able to get there, even though there is really 
an understanding of the problem and a commitment to do 
something about it. But as you know, it has been 25-some years 
since we have had that reform, and it just has to be a high 
priority, and I think it will solve an awful lot of our 
problems.
    I do want to get a couple questions in to you. According to 
your testimony, Medicare reported an estimated $60 billion in 
improper payments in 2014, with Medicaid reporting about $17.5 
billion. You outlined several recommendations that GAO provided 
to CMS to reduce these improper payments as well as their need 
to commit to do so.
    But in your report, you said, and I quote, ``While CMS has 
demonstrated efforts to reduce improper payments in the 
Medicare program, estimated improper payments have remained 
unacceptably high.'' So where do we now stand in terms of these 
recommendations, the implementation of these recommendations at 
CMS? And what has happened here in terms of your 
recommendations, their agreement to implement those, and the 
payments remaining improperly high?
    Mr. Dodaro. They have implemented some of the suggestions 
that we have had, but there are many that they have not yet 
done. First is to strengthen the verification of providers and 
suppliers. The Affordable Care Act required them--or encouraged 
them--to establish, for example, a surety bond up front for 
high-risk providers----
    Senator Coats. And that act was passed in 2010.
    Mr. Dodaro. Twenty-ten. And they still have not done that 
yet.
    Senator Coats. Well, what is their explanation?
    Mr. Dodaro. They are still considering it, is what they 
have told us. But they have not done it, so I have written to 
them. We have encouraged them to implement that.
    I am very pleased that Congress in the most recent 
legislation on payments to physicians mandated that they remove 
the Social Security Numbers from the Medicare cards and 
provided funding for that. I have been trying to get that 
changed for a number of years, but CMS has yet to implement 
that. I mean, Congress has given them the authority and the 
funding, and I want to make sure they expeditiously do that. 
That is inviting identity theft to the program and the misuse 
of those Social Security Numbers.
    Senator Coats. Well, Mr. Chairman, I would----
    Mr. Dodaro. Senator Coats, if I might.
    Senator Coats. Yes.
    Mr. Dodaro. I have sent a letter to the Secretary of HHS 
outlining the open recommendations in these areas. I would be 
happy to provide this committee a copy of that letter.
    Senator Coats. Well, I think that would be very helpful.
    Mr. Chairman, I would urge that we as a committee, you as 
chairman and the vice chairman, also send a letter or follow up 
on this $60 billion. It has been 5 years since the ACA has been 
implemented, and CMS is still considering how to follow these 
recommendations. So I think they need some leverage here, and I 
think----
    The Chairman. You raise a good point.
    Senator Coats [continuing]. The chair and vice chair and 
our committee can provide, hopefully, that leverage.
    The Chairman. I think so. That is part of what we intended 
to do anyway.
    Senator Coats. Okay. I am over time here, but thank you.
    The Chairman. Senator Menendez, you are next, except 
Senator Roberts has a quick question. Do you mind him asking 
it?
    Senator Roberts. Well, on this point, Andy Slavitt came in 
to see me, and he has come in to see all of us, I think. I 
hope. And we had a whole laundry list about what CMS is doing 
or not doing--more especially, doing. And the health care 
delivery system, I think CMS has just called it a mess. And I 
hate to say that, but that is where it is. So we have some 
pretty tough questions for him. And I note that we are all 
writing letters back and forth. Did you ever call Andy and just 
say, ``Hey, where is the problem?'' Have you ever done that?
    Mr. Dodaro. I have talked to him briefly. I know our teams 
have met with him a lot. I have not had an extended 
conversation with him, but I will do so.
    Senator Roberts. Well, I have some pretty serious questions 
for him, and I had some doubts about whether he should have 
been confirmed, but he was most responsive. Of course, that is 
what you do if you want to get confirmed. You ask the tough 
questions, and they say, ``Sure, we are going to do that.'' But 
if they are still studying this--Senator Coats has just brought 
this up. Part of the problem is us, really, with the tax code, 
and Senator Wyden knows that, and the chairman knows that. But 
I just do not understand, if we are having a really big 
problem, especially with the questions that we have brought up, 
why don't we just call him, have lunch with him? He seems like 
a reasonable guy.
    The Chairman. We will follow up.
    Mr. Dodaro. Yes. I had a meeting with Secretary Mathews 
Burwell, and she said that implementing our open 
recommendations was going to be a top priority. We have had 
regular sessions with CMS to go over our open recommendations. 
But I will follow up with Mr. Slavitt as well.
    Senator Roberts. Well, same for Mr. Koskinen. We need to 
get you all in one room.
    Senator Wyden. Mr. Chairman?
    The Chairman. Senator Wyden?
    Senator Wyden. I want to work with my good friend from 
Kansas, but I know Senator Menendez has been waiting a long 
time.
    The Chairman. Yes. Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    I fully support efforts to reduce improper payments 
government-wide and believe we need to focus our limited 
resources in areas that give us the biggest bang for the buck.
    Now, I hear a lot of my colleagues focus on improper 
payments in the EITC, and while there is no doubt that 
improvements can be made there, I think we need to get some of 
the facts straight.
    First, the EITC was signed into law by President Ford in 
1975 and expanded by President Reagan as part of the 1986 tax 
reform package. It has been recognized then and now by 
Republicans and Democrats, liberal and conservative economists, 
as one of the most effective public policy tools against 
poverty, particularly childhood poverty. It mitigates the 
regressive effect of payroll taxes and gives low-income workers 
a strong incentive to get off the sideline and into the 
workforce.
    So, first and foremost, we need to recognize just how 
important the EITC is to those struggling to get a piece of the 
American dream and ensure that efforts made to improve the 
integrity of the program do not burden deserving families and 
make it more difficult for them to claim the credit.
    So I think you need to fully understand the true extent and 
causes of high error rates. To echo some of my colleagues, the 
improper payment rate does not mean the Federal Government 
overpaid claims by this amount solely. Indeed, this figure also 
includes underpayments and payments made without full 
documentation which may very well be legitimate.
    In fact, Nina Olson, the National Taxpayer Advocate, 
testified last year that more than 40 percent of EITC claims 
that initially lacked proper documentation and subsequently 
received assistance from the Taxpayer Advocate Service were 
later found to be valid.
    Now, I am in no way trying to disregard the issue of 
improper payments, but it is important to understand the true 
scale of the problem and not some inflated exaggeration.
    We also need to understand what factors drive the 
prevalence of improper payments in order to craft effective 
countermeasures. While outright fraud certainly exists, the 
fact of the matter is, a larger portion of improper payments is 
the result of an extremely complex and confusing set of 
guidelines that are very difficult for low-income, often 
unsophisticated taxpayers to comply with.
    As it stands, the IRS rules for the EITC are nearly twice 
as long--twice as long--as the 13-page instructions to comply 
with the AMT, or alternative minimum tax, which has been 
consistently derided by both parties as overly burdensome and 
needlessly complicated. There are some who propose making these 
requirements even more onerous. Let us add to the 13 pages. Let 
us add another 4 to 5 pages of documents full of dense, 
difficult-to-understand instructions.
    Now, such a requirement, in my mind, would be 
counterproductive, causing more errors to occur, forcing more 
low-income taxpayers to use high-cost tax preparers, including 
nonregulated ones, which are responsible for the highest EITC 
error rates. Now, this may help buttress the bottom line of 
paid tax preparers, but it will only exacerbate the improper 
payment rate and leave vulnerable families worse off than they 
are today.
    So, if we are serious about addressing this issue, there 
are several concrete steps that we could take today that would 
significantly reduce the error rate while not increasing 
burdens and costs on taxpayers. The committee had a perfect 
opportunity just last week when it was scheduled to mark up a 
bipartisan, common-sense bill to combat identity theft and tax 
return fraud. Among other provisions, the bill would require 
paid tax preparers to register with the IRS and receive 
education and training. With 68 percent of EITC claimants using 
paid preparers, the majority of which are unregulated, we are 
leaving families vulnerable to unscrupulous actors, some who 
are just trying to make a quick buck. Nina Olson as much as 
said that. She said, ``Simply stated, unenrolled preparers are 
the make-and-break point for the EITC compliance strategies.''
    Now, I will point out, as proof of that, Mr. Dodaro spoke--
and I appreciate your service--about the ranking member's home 
State of Oregon and how they achieved a 72 percent higher 
accuracy rate than comparable paid preparers in other States. 
How did they accomplish this? They have been regulating paid 
preparers since the 1970s. So, if we are serious about reducing 
improper payments while not burdening low-income families, it 
seems to me we need to regulate paid preparers.
    So, Mr. Chairman, I hope we look at this issue not as a way 
to slay it, which would ultimately undermine the whole purpose 
of rewarding work and helping families get into self-
sufficiency, but to correct it. And I appreciate the chairman's 
time.
    The Chairman. Well, thank you, Senator.
    Senator Grassley?
    Senator Grassley. Before I ask my questions, thank you for 
the good work you do, and particularly something that maybe 
missed the eye of the public: you did good work on the Marine 
audit.
    I want to address your agency's recent study on the Red 
Cross and some of the challenges you faced completing it. As I 
understand it, on June 30th last year, the CEO of the Red Cross 
wrote to the original requester, Representative Thompson, and 
asked that he ``end the GAO inquiry that is currently under 
way.''
    Attempting to shut down a GAO inquiry is very unusual. When 
my staff spoke with GAO personnel about the Red Cross study, it 
was clear that the Red Cross did not provide unfettered access 
to information. As a result, your agency narrowed its review of 
the Red Cross. This week, I wrote a letter to you requesting 
more detail on challenges you faced when dealing with the Red 
Cross.
    The first question: I cannot overstate how important it is 
that the GAO be provided the necessary assets to complete a 
thorough study. If a study subject is not cooperative, GAO must 
have the tools necessary to get the information needed to 
complete the study. And GAO should not have to alter any study 
because of uncooperative subjects. What mechanisms are in place 
to ensure that the GAO acquires the information and material 
necessary to complete a study from a non-cooperative subject 
like the Red Cross, but not just limited to the Red Cross?
    Mr. Dodaro. Yes. Our statute requires access to records by 
departments and agencies. If they are uncooperative, what we do 
is, we try to work through it with them. I will sometimes have 
conversations as well. But the law requires that if an agency 
does not give us the information, we have to go to court to sue 
the agency. We have only done that one time in our history, and 
the court ruled we did not have standing in order to sue. And 
so I have been trying to get Congress to pass legislation to 
clarify our authority to enforce our provisions, but have been 
unsuccessful so far.
    Senator Grassley. Okay. In a recent report, GAO found 
spending on Medicare Part B drugs in the 340B Disproportionate 
Share Hospitals was 140 percent greater than non-340B 
hospitals. The GAO concluded that there were no other 
explanations for the increase than the financial incentives 
created by the 340B program. The GAO report was roundly 
criticized by 340B hospitals.
    Do you continue to stand by your conclusions? Or have you 
been convinced that there are other explanations for the 
differences in spending?
    Mr. Dodaro. We stand by our report and believe Congress 
should pass the law to remove those incentives.
    Senator Grassley. Okay. Thank you for that answer.
    Have you had to back off of the Red Cross investigation 
because of Representative Thompson's request? Or can you move 
forward as you wanted to?
    Mr. Dodaro. Well, we moved forward as we wanted to, but 
narrowed the scope. We were initially going to look at their 
internal evaluations as well as external evaluations. We 
decided, because of the problems we were having, to focus on 
the external evaluations and made a recommendation to Congress 
that Congress provide greater external evaluations of the Red 
Cross and their role in responding to emergencies.
    So we believe we produced a very good report with a good 
recommendation to the Congress, and I look forward to further 
opportunities to help Congress oversee the Red Cross.
    Senator Grassley. Thank you very much.
    The Chairman. Well, thank you.
    Senator Brown, you are next.
    Senator Brown. Thank you very much, Mr. Chairman.
    I guess I am not surprised today that we do hearings like 
this. I know the Earned Income Tax Credit is so important. 
Senator Carper talked about it. I know Senator Stabenow and 
Senator Wyden are such strong supporters of it. We know that 
the tax credit in 2013 lifted 9 million Americans, including 5 
million children, out of poverty. So what do we do here? We go 
after that instead of noncompliance for upper-income taxpayers. 
I mean, I know that the United States Senate sings with an 
upper-class accent every damn day of the year. And I also know 
that we spend way more time going after the least privileged 
than we do the most privileged in this institution, and it is 
just sort of shocking. Look at some of these numbers that we 
have seen.
    The improper EITC payments we are looking at make up less 
than 5 percent of our overall tax gap. Unreported business 
income on individual tax returns in 2006 reduced revenues by 
$122 billion. We are not addressing that today. I am hopeful 
that we will on this committee.
    But keep in mind too, we are talking about improper 
payments. Some of my colleagues conflate improper payments with 
fraud, with abuse, but improper payment is defined by all of 
you as incorrect payments, sometimes too much, sometimes too 
little, and rarely, much less often than more often, caused by 
some mistake, not by any fraud committed by the taxpayer. All 
the steps and the talk about improved compliance for EITC 
focuses on simplicity not complexity. The efforts to make this 
more complex are, frankly, certainly wrong-headed policy 
bordering on immorality. We obviously know that people who 
signed up for the Earned Income Tax Credit probably do not 
dress like this, probably do not have the educational 
background you do, probably do not have the sophistication of 
the staff sitting behind us. We know that. So we should aim 
toward simplicity not complexity in this. That is why this 
hearing to me is so frustrating. Error rates are rooted in 
already too complex compliance requirements. Congress knows 
that.
    So here are my three questions. I will take them together, 
and if you could, Mr. Dodaro, walk us through them. How well 
does the public understand EITC requirements? That is 
fundamental. Second, how many of the problems now already in 
the program stem from complexity? And third, what does Congress 
need to do to help improve compliance?
    Mr. Dodaro. Sure, I would be happy to address those 
questions. Just a couple clarifications on your statement.
    Number one, my statement today does cover the tax gap and 
areas that need to be addressed in the tax gap----
    Senator Brown. I was talking less about your statement than 
some of the comments of my colleagues, not just today but 
throughout the Congress and the Senate. Thank you.
    Mr. Dodaro. Yes, I wanted to be clear on that.
    Second, the definition of improper payments is by statute, 
not by something that we created.
    Now, with regard to your questions on----
    Senator Brown. But again, conflating improper payments with 
fraud and abuse is erroneous, correct?
    Mr. Dodaro. Yes. I mean, all fraud is by definition an 
improper payment, but not all improper payments are fraud, for 
sure.
    Senator Brown. Well said.
    Mr. Dodaro. Now, with regard to the EITC and your 
questions, complexity is definitely at the heart of the problem 
here with the error rates. We are not suggesting it be made 
more complex. What we are suggesting that the Congress do is 
regulate paid tax preparers. You know, millions of people use 
them. We have found in an undercover investigation we did of 19 
tax preparers, only two gave us the right answers, and seven 
had very erroneous information that put taxpayers and the 
preparers at risk of fines and penalties. Sixty percent of the 
returns, we believe--we have estimated and the IRS has agreed--
prepared by paid tax preparers have errors. So we are 
suggesting better regulation. Oregon has done this as a State. 
Their error rates are significantly lower than any other State 
in the country because they have regulated paid tax preparers. 
So that is number one.
    Number two, we believe Congress should accelerate the 
filing dates for W-2 information. Senator Brown, IRS does not 
get the W-2 information to compare with returns until April. So 
for anybody who files before April, which most people do, they 
have limited information to check.
    Third, we think if you give IRS the ability--it is called 
``math error authority''--to check against records the Federal 
Government already has in reviewing a return, they could fix a 
lot of these problems right up front.
    So those are three things Congress can do. It does not 
change any of the complexity of the program, but we believe it 
would attack the root cause of the higher error rates and any 
potential fraud.
    Senator Brown. Thank you. Could I ask one really quick 
question, Mr. Chairman?
    I have worked on legislation to allow people who at some 
time of the year had earned, say, 30, 40, 50 percent of their 
Earned Income Tax Credit, which they will not get back until 
February, March, April, to get up to a $500 advance if their 
car breaks down in January or in October. They could get a $500 
advance that would be taken out of their check when they file. 
Because what we have seen is, a number of people with EITC, 
even though they are going to get that $2,800 in April or in 
March, they cannot quite make it through the year. So they go 
to a payday lender and they borrow and they borrow, and they go 
on that downward spiral and pay huge interest rates. Is that 
something that makes sense to you?
    Mr. Dodaro. I think that is an intriguing proposal, and I 
would be happy to think about it and provide a response for the 
record.
    Senator Brown. I will put it in writing and in detail. 
Thank you.
    [The information appears in the appendix on p. 75.]
    Senator Brown. Mr. Chairman, thank you.
    The Chairman. Senator Casey?
    Senator Casey. Mr. Chairman, thanks very much. Mr. Dodaro, 
it is great to be with you, and I always appreciate your good 
work and your Pennsylvania roots. We are grateful for that.
    I wanted to ask you about the Senior Medicare Patrol, which 
I know many here have heard of and support. It empowers seniors 
to help the government fight waste, fraud, and abuse in the 
Medicare program. Over the life of the program, it saved 
something on the order of well over $100 million.
    Is there anything you can tell us about additional steps we 
could take to empower the Senior Medicare Patrol or similar 
efforts to reduce waste, fraud, and abuse?
    Mr. Dodaro. GAO has not evaluated the Senior Medicare 
Patrol. The Department of Health and Human Services Office of 
the Inspector General has collected performance data for the 
Senior Medicare Patrol since 1997. In 2014, funding for Senior 
Medicare Patrol projects totaled $15.5 million. For 2014, HHS 
OIG estimated that the projects achieved $942,159 in 
recoveries, savings, and cost avoidance. However, the OIG 
stated that the projects may not be receiving full credit for 
savings attributable to their work.
    In GAO's view, a multi-pronged approach to fraud 
reduction--which includes prevention, detection, and 
prosecution--is necessary. Engaging beneficiaries and others in 
this effort can be a valuable part of this process. As always, 
ongoing evaluation of these efforts to determine their 
effectiveness is also critical.
    Senator Casey. And just along those lines, are there ideas 
you have based upon this report? Because a lot of the 
conclusions that you have reached are very troubling for us 
because of the obligation we have to make sure that dollars are 
spent not just without any waste, fraud, and abuse, but 
efficiently and effectively so the dollar achieves the result 
the taxpayers intend. So I hope that as you propose 
recommendations, as you have already, and work with us on 
these, you can give us examples of strategies that will work, 
like Senior Medicare Patrol.
    The other issue I want to raise is the whole issue of 
resources, IRS resources in particular. I am in the camp that 
believes that Congress should actually fund the IRS at levels 
that are consistent with what the administration asked for for 
2016. I am also in the camp of believing that if you are a 
member of Congress, you cannot lecture and then not support 
essential resources. It is one thing to yell at an agency, 
criticize an agency, and another to then vote against funding 
which is essential for tools.
    I was an elected State Auditor General for my State for 8 
years, and I know that resources can often be the only way you 
can fix a problem. I was pretty tough on State agencies when 
they engaged in waste, fraud, and abuse, but I was also willing 
to support resources they need. Sometimes it was IT; sometimes 
it was just better practices.
    But I guess my question on this is: is there anything in 
your review or anything that you can tell us about the issue of 
resource constraints impacting, in this particular case, IRS's 
ability to address improper payments or the tax gap?
    Mr. Dodaro. Yes, I have two sides to this. Number one, it 
is pretty clear, if you put additional resources into 
enforcement programs, you will get additional revenue over 
time. But it is not quite clear what enforcement strategy 
yields the highest degree of yield.
    We have also said that the IRS really could better use the 
resources that they have. They do not have a good strategic 
plan to use online services, for example, to provide access to 
people 24/7 so they can research and get answers to their 
questions. We also illustrated that if they shifted a small 
amount of money in enforcement from lower-yielding exempt 
programs to higher-yielding ones, they could get $1 billion 
more.
    So I think both questions are fair. Do they have or need 
more resources? But also, are they using the resources that 
they have most effectively? And I think Congress should ask 
both questions.
    Long term, I think Congress needs to be concerned about the 
impact on voluntary compliance, with regards to the resource 
levels at the IRS. So far, voluntary compliance has been pretty 
stable over a long period of time, which has both positive and 
negative effects in terms of the tax gap. But I am concerned 
over time that, without proper resources, there could be an 
erosion of voluntary compliance, and I think if that happens, 
it will be hard to get that back. So we will keep a wary eye on 
that as well.
    Senator Casey. Thank you very much.
    The Chairman. Senator Stabenow?
    Senator Stabenow. Well, thank you very much, Mr. Chairman. 
I think this is a very important hearing. And thank you for all 
of your work, Mr. Dodaro.
    I do want to associate myself with, I think, Senator 
Brown's very important comments. When we look at the total 
estimate, whether it is overpayments or underpayments, the 
improper payments we are talking about are really dwarfed by 
the overall loss in tax revenue that is owed but not collected, 
what we call the ``tax gap,'' because of fraud or abuse or 
whatever else. And I do think it is important to just register 
that we have choices about where we focus, whether it is on the 
working poor, trying to lift themselves up to get out of 
poverty into the middle class, or whether it is businesses 
shipping jobs overseas using tax loopholes where we have lost 
middle-class jobs, which is very much where I would like to see 
us focusing our efforts.
    I do want to start, though, and just as a statement speak 
for a moment about Medicare. I know that my friend Senator 
Roberts raised the importance of looking at the fact that, when 
we look at Medicare, it is both underpayments as well as 
overpayments, as we have talked about. And, as it relates to 
health care, we need to support those providers who are doing 
the right thing while we are addressing the fraud and abuse. 
And with the 50-year anniversary of Medicare, this is the time 
to really celebrate for seniors, providers, and communities 
what has been happening.
    But I think the good news is that we have taken steps, both 
Congress and the administration, since 2009 to crack down on 
those who prey on seniors, and I know our ranking member has 
been very focused on that. And so I hope that we are going to 
fully fund and implement the anti-fraud, waste, and abuse 
provisions in the Affordable Care Act that are there. I mean, 
we need to keep going. We have seen things happen in Michigan 
that are outrageous, and so we need to build on those programs, 
fund the programs that crack down on fraudsters and make sure 
Medicare remains secure. So I look forward to working with our 
leadership to do that.
    Let me go back to the EITC, the Earned Income Tax Credit, 
which seems to have gotten a lot of focus here today, and just 
ask one other thing. Mr. Dodaro, you laid out three ways, 
without adding more complexity, to address issues around the 
payment situation. Could you describe how regulating paid tax 
preparers would help reduce the error rate and what that looks 
like from your standpoint?
    Mr. Dodaro. Yes. Well, first of all, IRS already regulates 
a number of paid tax preparers, so the model already exists in 
IRS; for example, they regulate CPA firms and tax attorneys. So 
they already have a model. There are State models like Oregon, 
and there are basically education requirements, positive 
certifications, and tests, just like any other profession that 
has regulatory structures. So that is what we would envision it 
would look like. Right now IRS does not have the authority, 
though, to regulate most of the paid tax preparers.
    Now, millions of people, over half the population, use paid 
tax preparers. We have found in a limited study that we did of 
19 tax preparers randomly selected, only 2 of the 19 gave us 
the correct answers; 7 were highly erroneous. We have looked at 
IRS data. About 60 percent of the returns prepared by tax 
preparers had errors.
    So we think there is a strong case for this type of effort, 
and the IRS should go through a due process in establishing the 
regulatory structure for this and have public notice and 
comment, so that it is a reasonable plan. But we think this is 
a very prudent approach to help safeguard the individuals who 
are going to the tax preparers, as well as the government.
    Senator Stabenow. Well, thank you. And I do want, in my 
last remaining moment, to actually give a compliment, a shout-
out, to the good news in this report, Mr. Chairman, because I 
see, with my Agriculture hat on, USDA and the food assistance 
programs have about a 2.6-percent overpayment--and certainly we 
would like that to be zero, but they have done a tremendous job 
in terms of effectively working with the food programs. And 
because we have done hearings before the committee about Social 
Security Disability Insurance and we have heard from members at 
hearings that this is rife with fraud, I do think it is 
important to recognize that the improper payment rate, 
including up or down, is 0.4 percent, so less than half of 1 
percent is the improper payment rate, Mr. Dodaro, that you have 
shown, which is consistent with what the Social Security 
Administration has said.
    And so, just for the record, in the interest of giving some 
good news to folks who are working hard and doing a good job, 
is it correct that the improper payment rates for our Social 
Security system are actually the lowest of the programs you 
have looked at for purposes of this report?
    Mr. Dodaro. I will answer that for the record. I do believe 
they are low. I do not know if they are the lowest offhand, but 
I will go back and check and provide an answer for the record.
    Senator Stabenow. Terrific.
    [The response to the question appears below.]

    In its fiscal year 2014 agency financial report, the Social 
Security Administration (SSA) reported a combined improper 
payment estimate for the Old Age and Survivors Insurance (OASI) 
and Disability Insurance (DI) programs. Together, the estimate 
of improper payments in these programs was $3 billion, or 0.35 
percent of program outlays, for fiscal year 2014.

    SSA also reported separate information for these two 
programs, which is summarized in the table below.


 Summary of Fiscal Year 2014 Reported Improper Payment Estimates for Old
          Age and Survivors Insurance and Disability Insurance
------------------------------------------------------------------------
                                      Improper payment  Estimated  error
                     Program outlays      estimate            rate
      Program          (dollars in       (dollars in     (percentage of
                        millions)         millions)     program outlays)
------------------------------------------------------------------------
Old Age and                 $692,700            $1,782             0.26%
 Survivors
 Insurance (OASI)
Disability                   131,500             1,161             0.89%
 Insurance (DI)
Combined OASI and            824,200             3,000             0.35%
 DI
------------------------------------------------------------------------
Source. Social Security Administration's fiscal year 2014 agency
  financial report.
 
Note: OASDI totals may not equal the sum of OASI and DI amounts because
  of rounding.


    The fiscal year 2014 estimated error rates for OASI and 
DI--both separately and when combined--are low compared to 
other programs across the government and lower than the 
government-wide error rate of 4.5 percent. Nonetheless, because 
of the size of these programs, the estimated dollar amount of 
improper payments is significant--over $1 billion for each 
program.

    Senator Stabenow. Well, the Social Security Disability 
Insurance program is the one that we have been debating here, 
and it is very impressive to say half a percent, half of 1 
percent.
    So, Mr. Chairman, I would suggest that it is not rife with 
fraud, so that is good news. Thank you.
    The Chairman. What would half of 1 percent be in money, in 
dollars?
    Mr. Dodaro. Offhand, I do not know, Senator. I will give an 
answer for the record. But it would be significant. I mean, 
some of these programs are so large----
    The Chairman. I do not think we just blow it off, you know.
    We are going to go to Senator Scott, but I will ask you 
this question later. Senator Scott?
    Senator Scott. Thank you, Mr. Chairman. And certainly, when 
you think about the comments of Senator Brown, his desire to 
figure out how to get someone $500 for a pre-tax, whatever you 
would call it--what did he say? He wanted a pre-tax refund when 
you could just increase your exemptions to get more money back 
during the year as opposed to having to figure out a new 
system, to create a new program in a place where we are already 
talking about improper payments that total in a 12-year period 
of time $1 trillion. We are talking about how to provide more 
regulation for tax preparers when we should probably talk about 
the fact that we are already spending 6 billion hours in 
preparing our taxes, plus $168 billion. Perhaps the approach 
that we should take is to simplify our tax code so that we have 
fewer folks needing to hire preparers at a price tag of $168 
billion. When you look at the form for the Earned Income Tax 
Credit, for someone who can least afford a tax preparer, the 
complexity of the form, and the process itself, does not lend 
itself to fewer errors. Frankly, simplification of our tax code 
probably leads in the direction that we would want to go in. 
And if you have a problem with the amount of money that you are 
going to get back at the end of the year, and you want to use 
that money during the year, you just increase your exemptions.
    The fact of the matter is, when we are talking about 
improper payments at $1 trillion in 12 years, it is amazing to 
me that we are having a conversation about creating more 
complexity in a system that needs less complexity. And when you 
think about what you could do with $1 trillion, you could 
literally pay off \1/18\ of our debt with $1 trillion. Think 
about the fact that we have men and women in uniform not using 
the latest, greatest gadgets that could provide for greater 
safety. One trillion dollars could provide a lot of resources, 
a lot of equipment to make sure that our men and women who go 
to defend this country come home safely. One trillion dollars 
could truly eliminate our annual deficit. The fact of the 
matter is, $1 trillion does so much good in so many ways, and 
think about the DC Opportunities scholarship right here. We 
spend about $6 million. We could fund that for a millennium.
    The facts are clear that $1 trillion of improper payments 
is a number that is so big that it is hard to digest. And so 
one of the things that we ought to do--we talk about making the 
system work better--is perhaps to talk about simplification of 
the system. But I have not heard that conversation nearly at 
all.
    I also think about the fact that I have a piece of 
legislation that would provide body cameras for law enforcement 
officers in the 18,000 jurisdictions looking for, hunting for, 
$100 million each and every year so that we can improve the 
behavior of folks who are on camera when they are being stopped 
by a law enforcement officer, so that hopefully more of these 
officers can go home safely.
    I think just yesterday in Columbia, SC, an officer lost his 
life. If more equipment was available because we could afford 
it--but we are talking about $1 trillion of improper payments 
and adding more complexity to that system. It just does not 
make sense to me.
    I would ask you, Mr. Dodaro, if you were to name one 
reform--one reform with the biggest bang for the buck to reduce 
that $1 trillion so that maybe we could provide a better 
education through the DC Opportunity scholarship, maybe we 
could provide better equipment for our men and women in 
uniform, maybe we could provide for more resources for our law 
enforcement officers who put their lives on the line every day, 
what would that reform be?
    Mr. Dodaro. Well--and we have recommended this in our 
study--I think the reform of the tax system would be a huge 
improvement on that side. And on the improper payment side, I 
think that the biggest reform I would like to see is for the 
Congress to hold the agencies accountable for complying with 
the law and to reduce the improper payments below 10 percent 
and to get them as low as possible over a period of time. I 
think both of those reforms on the tax side and also on the 
improper payment side could go a long way to improving the 
fiscal condition of our national government without 
detrimentally affecting the programs that serve our people.
    Senator Scott. Thank you.
    The Chairman. Thank you, Senator Scott.
    The Senator from Delaware has one more question----
    Senator Wyden. Mr. Chairman, just very briefly?
    Senator Carper. I am happy to wait.
    Senator Wyden. And I will be very brief. Before my 
colleague from South Carolina leaves, he should know that both 
the chairman and I are very, very interested in working with 
our colleague and Senators from both sides of the aisle on this 
simplicity question. There is no question that this tax code is 
an insanely complicated, byzantine mess. Senator Coats and I 
have had one approach, a 31-line 1040 form. People at Money 
magazine said you could fill out a typical return in something 
like 45 minutes. But there are a variety of other approaches, 
so the Senator is spot-on in terms of this.
    Senator Scott. I thank you, Senator Wyden, for that, and I 
think the comments of Senator Stabenow went in the same 
direction. What could we do on job creation or job retention 
if, in fact, we had the $1 trillion to apply to our corporate 
tax rate, take it from 35 percent down to 25 percent? We could 
stop corporate inversions perhaps overnight.
    Thank you.
    Senator Wyden. Senator Coats and I put that in our bill 
too.
    The Chairman. I thought you made your case very, very well, 
Senator.
    Senator Wyden. Mr. Chairman, I will be very brief. One 
point that I just wanted to make is, we have had many Senators 
present this morning, Mr. Chairman, on both sides of the aisle, 
and there was not a single Senator present who voiced an 
objection to our proposal to regulate tax preparers, as the GAO 
and the Taxpayer Advocate have called for, to deal with 
problems such as those we have talked about here this morning. 
So I very much look forward to working with you.
    I was also very appreciative of what Mr. Dodaro said with 
respect to the tax gap. I really feel there is a double 
standard with respect to enforcement in America. You have the 
working-class person--the money comes right out of their 
paycheck. People who can do investments can figure out how to 
maneuver the tax code around to pay little or nothing in many 
instances. And that is a big part of the tax gap as well. And 
each of these matters, working closely with Chairman Hatch and 
all the members on both sides of the aisle, we can deal with in 
a bipartisan way. And I thank you, Mr. Chairman. It has been 
very useful.
    The Chairman. Thank you, Senator.
    Senator Carper has one question he would like to ask.
    Senator Carper. Thanks. Mr. Chairman, when I was a 
Congressman, I used to hold a lot of town hall meetings. I will 
never forget one town hall meeting that I held where we were 
talking about revenues and the revenues that were needed to 
fund our government, to reduce our deficit. And this one lady 
raised her hand, and I recognized her to speak, and she said, 
``You know, nobody likes to pay taxes.'' She said, ``I do not 
like to pay taxes. I am not interested in paying more taxes. 
But this I will tell you for sure''--this was like 30 years 
ago. She said, ``I just do not want you to waste my money. I 
just do not want you to waste my money.''
    And here we have just a treasure trove of ideas before us 
today. GAO works on them all the time, ways that we can stop 
wasting people's money and give us some revenues to pay for 
things that we actually want to do and need to do.
    Mr. Chairman, thank you so much for holding this hearing. 
And thank you for giving me a chance to say a couple of extra 
words and ask one question. But I think you noted--or maybe it 
was the Comptroller who noted it in his testimony--that the 
administration established a new initiative in 2014 which I 
think is going to help a lot, and starting this year, the 
estimated level of improper payments by each agency will have 
to include the category of root causes. I am a big root cause 
guy. I think we all are. Do not just look at the symptoms or 
problems, but look at what are the root problems and causes.
    When it comes to some of these problems with improper 
payments--we will go to the tax gap side here--we are part of 
the problem. We change the tax code. We make it more complex. 
We do it late, and we turn it over to the IRS, and after the 
fact, they do not get the W-2s until too late, and we say, 
well, we expect you to do a good job. I hear all the time--and 
I am sure you do too--from our staffs back in our home States, 
our constituent services staff. They do not get very good 
service from the IRS, and one of the reasons why is, we do not 
give them enough money to do their jobs.
    Here is my question. Can you just give us a minute in terms 
of money that we would invest for enforcement in the IRS? Does 
it pay for itself? Does it more than pay for itself? I would 
welcome your comments, please.
    Mr. Dodaro. Yes. What we have said over the years is, the 
IRS really does not collect enough information to be able to 
determine which enforcement efforts yield a better, higher rate 
of return on that investment, and that they need better data to 
be able to do that. And that is one of the things that we have 
identified, you know, over time. And so, it is hard to give you 
an answer.
    We know that if you put more money into enforcement, you 
are going to get more revenue, but exactly what strategies 
yield the best result is the question. We have illustrated one 
area where you could shift a small amount of money from less 
productive exams to more productive areas that get a higher 
yield, about $1 billion more in revenue. So we have made a lot 
of suggestions to the IRS over time to get better return on 
investment information. So you really need to start there. I 
mean, it is hard to tell. I wish I could give you a better 
answer, but the data are not readily available.
    Senator Carper. All right. Mr. Chairman, in our committee 
and the Homeland Security Committee, which has broad oversight 
over a lot of the Federal agencies and so forth, very broad, we 
have had testimony from witnesses who said the payback for 
every dollar we invest in enforcement is six or seven times 
that amount. And not only could we get better enforcement, we 
can also get better service. And we need better enforcement to 
make sure we are collecting the money that is owed. When you 
have a tax gap of--how much?--$350 billion or something, 
clearly, we are not doing enough on enforcement, and obviously, 
we are not doing enough on service.
    So I would close with this: thank you so much for this 
hearing. And, Gene, thank you so much.
    The Chairman. Thank you, Senator.
    Mr. Dodaro, you have been really patient. You have answered 
all the questions and, frankly, you have done a great job.
    Back to the EITC, I happen to think that is a very 
important program. People work, and this is the way we help 
them. But there is no justification whatsoever for fraud.
    Mr. Dodaro. Right.
    The Chairman. I am thinking of Senator Brown and his 
feelings there. He feels very deeply about all these things, as 
do I. But do you see any justification for fraud even though 
that program is a very important program for the poor?
    Mr. Dodaro. Absolutely not. We need to be effective 
stewards of the taxpayers' money. And as it relates to 
questions, too, about documentation, for example, we have to 
have a consistent standard. You know, for income tax purposes, 
people have to make their documentation available for the IRS. 
If we can give out taxpayer money, or money we borrow on their 
behalf, without adequate documentation, that is not right 
either. So we really need to have consistent standards. There 
is no excuse for fraud, and we need better techniques in order 
to identify it, to deal with it, and to prevent it from 
happening in the first place.
    The Chairman. No matter how good the program may be.
    Mr. Dodaro. That is exactly right.
    The Chairman. No justification at all.
    Mr. Dodaro. No. And all these programs have opportunities 
for improvement, no matter what level of improper payment rate 
they have.
    The Chairman. Well, I want to thank you for appearing here 
today, as well as all of our colleagues who have participated 
in this hearing. It is my hope that we can all work together to 
find solutions to these gaping holes in our payment system. 
This committee has done some really yeoman work this year, but 
we are just starting. I mean, we have so much that we have to 
do, but we are not sitting back and not doing it.
    Now, we owe it to the dedicated taxpayers and citizens of 
this country to run a good ship, and I intend to see that we 
get there. And I would ask that any written questions for the 
record be submitted by Thursday, October 8th.
    And let me just say thank you again for being here. Thank 
you for your candid remarks. Thank you for the presentation 
that you made and the time that you have spent in preparing for 
this. It means a lot to me, and if we had more Federal 
employees like you, I think we would all be better off.
    Mr. Dodaro. Thank you very much.
    The Chairman. So God bless you and thank you for being 
here. With that, we are adjourned.
    [Whereupon, at 11:53 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


 Prepared Statement of Hon. Gene L. Dodaro, Comptroller General of the 
            United States, Government Accountability Office
                             gao highlights

Highlights of GAO-16-92T, a testimony before the Committee on Finance, 
                              U.S. Senate

Why GAO Did This Study
    The Federal Government continues to face an unsustainable long-term 
fiscal path. Changing this path will require difficult fiscal policy 
decisions to alter both long-term Federal spending and revenue. In the 
near term, executive branch agencies and Congress can take action to 
improve the government's fiscal position by addressing two long-
standing issues--improper payments and the tax gap. Over time, these 
issues involve amounts near or exceeding $1 trillion.

    Over the past decade, GAO has highlighted the issue of improper 
payments--defined by statute as payments that should not have been made 
or that were made in an incorrect amount (including overpayments and 
underpayments). GAO has reported for several years that the Federal 
Government is unable to determine the full extent to which improper 
payments occur and reasonably assure that actions are taken to reduce 
them.

    The tax gap is the difference between taxes owed and those paid on 
time, as a result of taxpayers underreporting their tax liability, 
underpaying taxes, or not filing tax returns. Reducing the tax gap 
could provide additional revenue.

    This statement discusses (1) actions needed to address improper 
payments 
government-wide and (2) strategies to reduce the tax gap. It is based 
on GAO's recent work on improper payments, agency financial reports and 
inspectors general reports, and prior reports on the tax gap, including 
those with open recommendations or matters for congressional 
consideration that could potentially help reduce the tax gap.

View GAO-16-92T. For more information, contact Beryl H. Davis at (202) 
512-2623 or [email protected]; James R. McTigue, Jr. at (202) 512-9110 or 
     [email protected]; or Jessica Lucas-Judy at (202) 512-9110 or 
                          [email protected].

  fiscal outlook--addressing improper payments and the tax gap would 
                improve the government's fiscal position
What GAO Found
    A number of strategies, including implementing preventive controls 
and addressing GAO's prior recommendations, can help agencies reduce 
improper payments, which have been a persistent, government-wide issue. 
The improper payment estimate, attributable to 124 programs across 22 
agencies in fiscal year 2014, was $124.7 billion, up from $105.8 
billion in fiscal year 2013. The almost $19 billion increase was 
primarily due to the Medicare, Medicaid, and Earned Income Tax Credit 
programs, which account for over 75 percent of the government-wide 
improper payment estimate. Federal spending in Medicare and Medicaid is 
expected to significantly increase, so it is critical that actions are 
taken to reduce improper payments in these programs. Moreover, for 
fiscal year 2014, Federal entities reported estimated error rates for 
10 risk-susceptible programs that exceeded 10 percent. Recent laws and 
guidance have focused attention on improper payments, but incomplete or 
understated estimates and noncompliance with criteria listed in Federal 
law hinder the government's ability to assess the full extent of 
improper payments and implement strategies to reduce them. For example, 
for fiscal year 2014, 2 Federal agencies did not report improper 
payment estimates for 4 risk-susceptible programs, and 5 programs with 
improper payment estimates greater than $1 billion were noncompliant 
with Federal requirements for 3 consecutive years. Identifying root 
causes of improper payments can help agencies target corrective 
actions, and GAO has made numerous recommendations that could help 
reduce improper payments. For example, strengthening verification of 
Medicare providers and suppliers could help reduce improper payments. 
GAO has stated that continued agency attention is needed to (1) 
identify susceptible programs, (2) develop reliable estimation 
methodologies, (3) report as required, and (4) implement effective 
corrective actions based on root cause analysis. Absent such continued 
efforts, the Federal Government cannot be assured that taxpayer funds 
are adequately safeguarded.

    Addressing the estimated $385 billion net tax gap will require 
strategies on multiple fronts. Key factors that contribute to the tax 
gap include limited third-party reporting, resource trade-offs, and tax 
code complexity. For example, the extent to which individual taxpayers 
accurately report their income is correlated to the extent to which the 
income is reported to them and the Internal Revenue Service (IRS) by 
third parties. Where there is little or no information reporting, such 
as with business income, taxpayers tend to significantly misreport 
their income. GAO has many open recommendations to reduce the tax gap. 
For example, GAO recommended in 2012 that IRS use return on investment 
data to reallocate its enforcement resources and potentially increase 
revenues. Since 2011, GAO also recommended improvements to telephone 
and online services to help IRS deliver high-quality services to 
taxpayers who wish to comply with tax laws but do not understand their 
obligations. Other strategies GAO has suggested would require 
legislative actions, such as accelerating W-2 filing deadlines. 
Additionally, requiring partnerships and corporations to electronically 
file tax returns could help IRS reduce return processing costs and 
focus its examinations more on noncompliant taxpayers. Further, a 
broader opportunity to address the tax gap involves simplifying the 
Internal Revenue Code, as complexity can cause taxpayer confusion and 
provide opportunities to hide willful noncompliance.

_______________________________________________________________________

    Chairman Hatch, Ranking Member Wyden, and members of the committee:

    Many difficult, major fiscal policy decisions are required to both 
determine the government's short-term financing and address fundamental 
structural issues that are currently putting our Nation on a long-term, 
unsustainable fiscal path. In the near term, however, there are 
significant ongoing management challenges that if successfully 
addressed, can contribute to improving the government's fiscal 
position. They involve reducing billions of dollars in improper 
payments and tackling a multibillion-dollar tax gap--the difference 
between taxes owed and taxes paid on time, as a result of taxpayers 
underreporting their tax liability, underpaying taxes, or not filing 
tax returns.

    Over time, each of these areas involves amounts near or exceeding 
$1 trillion. Last year alone, improper payments government-wide were 
estimated to be more than $124 billion, and the latest estimate for the 
annual net tax gap is $385 billion. My statement today delineates the 
nature and scope of these management challenges, as well as the related 
recommendations we have made over the past several years to improve the 
government's performance in these areas--both recommendations to the 
relevant agencies and matters for congressional consideration.

    An improper payment is defined by statute as any payment that 
should not have been made or that was made in an incorrect amount 
(including overpayments and underpayments) under statutory, 
contractual, administrative, or other legally applicable requirements. 
Among other things, it includes payment to an ineligible recipient, 
payment for an ineligible good or service, and any duplicate 
payment.\1\ Reducing improper payments is critical to safeguarding 
Federal funds and could help achieve cost savings and improve the 
government's fiscal position. However, as we have reported for several 
years in our annual audit of the Financial Report of the United States 
Government, the Federal Government is unable to determine the full 
extent to which improper payments occur and reasonably assure that 
appropriate actions are taken to reduce them. Likewise, reducing the 
tax gap would raise revenue that could be put toward a host of 
purposes, but there are no easy fixes to this problem. Rather, the tax 
gap must be attacked on multiple fronts and with multiple strategies 
over a sustained period. In the face of large and growing structural 
deficits, it will be especially important to understand the causes of 
tax noncompliance today and continue to develop new approaches to 
minimize it.
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    \1\ An improper payment also includes any payment for a good or 
service not received (except for such payments where authorized by law) 
and any payment that does not account for credit for applicable 
discounts. In addition, the Office of Management and Budget's guidance 
instructs agencies to report as improper payments any payments for 
which insufficient or no documentation was found.

    My testimony today describes (1) actions needed to address 
government-wide improper payments and (2) strategies to reduce the tax 
gap. My comments are primarily based on our recent work on improper 
payments and analysis of agency financial reports and inspectors 
general (OIG) reports, as well as our prior reports on the tax gap and 
several other reports with open recommendations or matters for 
congressional consideration that could help reduce the tax gap.\2\ The 
products cited throughout this statement include detailed explanations 
of the methods used to conduct our work. We conducted the work on which 
this statement is based in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient and appropriate evidence to 
provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions.
---------------------------------------------------------------------------
    \2\ See Related GAO Products at the end of this statement.

              actions needed to address improper payments
    Improper payments have consistently been a government-wide issue 
despite efforts to reduce them and identify root causes, including 
fraud.\3\ Incomplete, unreliable, or understated estimates; risk 
assessments that may not accurately assess the risk of improper 
payment; and noncompliance with criteria listed in Federal law hinder 
the government's ability to understand the scope of the issue. We have 
reported on a number of strategies, including implementing preventive 
and detective controls and addressing open recommendations, that can 
help agencies reduce improper payments.
---------------------------------------------------------------------------
    \3\ It is important to note that while all fraud involving a 
Federal payment is considered an improper payment, not all improper 
payments are fraud. Improper payment estimates are not intended to 
measure fraud in a particular program.
---------------------------------------------------------------------------
improper payments remain a significant, pervasive government-wide issue
    Improper payments remain a significant and pervasive government-
wide issue. Since fiscal year 2003--when certain agencies began 
reporting improper payments as required by the Improper Payments 
Information Act of 2002 (IPIA)--cumulative improper payment estimates 
have totaled almost $1 trillion, as shown in figure 1.\4\
---------------------------------------------------------------------------
    \4\ IPIA--as amended by the Improper Payments Elimination and 
Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and 
Recovery Improvement Act of 2012 (IPERIA)--requires executive branch 
agencies to (1) review all programs and activities, (2) identify those 
that may be susceptible to significant improper payments, (3) estimate 
the annual amount of improper payments for those programs and 
activities, (4) implement actions to reduce improper payments and set 
reduction targets, and (5) report on the results of addressing the 
foregoing requirements. IPIA, Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 
26, 2002), as amended by IPERA, Pub. L. No. 111-204, 124 Stat. 2224 
(July 22, 2010), and IPERIA, Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 
10, 2013), and codified as amended at 31 U.S.C. Sec. 3321 note. For 
fiscal year 2014 and beyond, IPIA, as amended, defines ``significant 
improper payments'' as gross annual improper payments in a program 
exceeding (1) both 1.5 percent of program outlays and $10 million of 
all program or activity payments during the fiscal year reported or (2) 
$100 million (regardless of the improper payment error rate).

[GRAPHIC] [TIFF OMITTED] T00115.001


    In fiscal year 2014, agencies reported improper payment estimates 
totaling $124.7 billion, a significant increase--almost $19 billion--
from the prior year's estimate of $105.8 billion. For fiscal year 2014, 
overpayments accounted for approximately 90 percent of the improper 
payment estimate, according to www.paymentaccuracy.gov, with 
underpayments accounting for the remaining 10 percent.\5\ The estimated 
improper payments for fiscal year 2014 were attributable to 124 
programs spread among 22 agencies. Agencies reported improper payment 
estimates exceeding $1 billion for each of 12 different programs, which 
cumulatively accounted for $115.6 billion, or approximately 93 percent 
of the fiscal year 2014 government-wide estimate (see app. I).
---------------------------------------------------------------------------
    \5\ The Office of Management and Budget (OMB) established https://
paymentaccuracy.gov/ to enhance transparency and accountability of 
improper payments. The website includes information regarding 
government-wide improper payments as well as more detailed 
information--such as reduction targets and accountable officials--for 
high-error programs. OMB guidance directs agencies to classify payments 
with insufficient supporting documentation as overpayments.

    The estimated government-wide error rate increased from fiscal year 
2013 to fiscal year 2014 (from 4.0 percent of program outlays to 4.5 
percent).\6\ Programs with the highest reported error rates for fiscal 
year 2014 included the Earned Income Tax Credit (27.2 percent), School 
Breakfast (25.6 percent), and Farm Security and Rural Investment Act 
Programs (23.1 percent).\7\
---------------------------------------------------------------------------
    \6\ This estimate excludes the Department of Defense's Defense 
Finance and Accounting Service (DFAS) Commercial Pay program. When 
including the DFAS Commercial Pay program, the estimated government-
wide improper payment error rate was 4.0 percent of program outlays in 
fiscal year 2014, an increase from 3.5 percent in fiscal year 2013. 
Because of long-standing financial management weaknesses, discussed 
later in this statement, the fiscal year 2014 improper payment estimate 
for the DFAS Commercial Pay program may not be reliable.
    \7\ For fiscal year 2014, Federal entities reported improper 
payment error rates for 10 risk-
susceptible programs that exceeded 10 percent, collectively accounting 
for more than 50 percent of the government-wide improper payment 
estimate. These 10 programs are listed in app. II. In addition, some 
agencies report high error rates for components of programs. For 
example, the Department of Health and Human Services reported error 
rates for certain components of its Medicare Fee-for-Service program--
such as durable medical equipment and home health claims--that exceeded 
50 percent for fiscal year 2014.

additional efforts are needed to reduce medicare, medicaid, and earned 
                  income tax credit improper payments
    Improper payment estimates for the Medicare, Medicaid, and Earned 
Income Tax Credit (EITC) programs accounted for more than 75 percent of 
the fiscal year 2014 improper payment estimate, as shown in figure 2.

[GRAPHIC] [TIFF OMITTED] T00115.002


    The increase in the 2014 government-wide improper payment estimate 
is attributed primarily to increases in estimated error rates in three 
major programs: Medicare Fee-for-Service, Medicaid, and EITC. Based on 
HHS's fiscal year 2014 agency financial report, Federal spending in 
Medicare and Medicaid is expected to significantly increase--on 
average, by 8.6 percent per year over the next 3 years. Consequently, 
it is critical that actions are taken to reduce improper payments in 
these programs. Over the past several years, we made numerous 
recommendations that if effectively implemented, could improve program 
management, help reduce improper payments in these programs, and help 
improve the government's fiscal position.
Medicare
    In fiscal year 2014, Medicare financed health services for 
approximately 54 million elderly and disabled beneficiaries at a cost 
of $603 billion and reported an estimated $60 billion in improper 
payments.\8\ Medicare spending generally has grown faster than the 
economy, and in the coming years, continued growth in the number of 
Medicare beneficiaries and in program spending will create increased 
challenges for the Federal Government. The Centers for Medicare and 
Medicaid Services (CMS), which administers Medicare, has demonstrated a 
strong commitment to reducing improper payments, particularly through 
its dedicated Center for Program Integrity. For example, CMS 
centralized the development and implementation of automated edits for 
national coverage policies--prepayment controls used to deny Medicare 
claims that should not be paid--to help ensure greater consistency in 
paying only those claims that align with national policies. In response 
to our recommendations, CMS has also taken steps to reduce differences 
among postpayment review contractor requirements when possible and has 
improved automated edits that assess all services provided to the same 
beneficiary by the same provider on the same day, so providers cannot 
avoid claim denials by billing for services on multiple claim lines or 
multiple claims. Additionally, in March 2014, CMS awarded a contract to 
a Federal Bureau of Investigation-approved contractor that will enable 
the agency to conduct fingerprint-based criminal history checks of 
high-risk providers and suppliers.
---------------------------------------------------------------------------
    \8\ Medicare payments are made primarily to providers and 
suppliers.

    Nevertheless, in our February 2015 update to our high-risk series, 
we reported that while CMS has demonstrated efforts to reduce improper 
payments in the Medicare program, estimated improper payment rates have 
remained unacceptably high.\9\ For fiscal year 2014, the Department of 
Health and Human Services (HHS) reported an estimated error rate of 
12.7 percent for Medicare Fee-for-Service. Some components of this 
estimate--such as durable medical equipment and home health claims--
have estimated error rates in excess of 50 percent, meaning that most 
payments for these items and services were estimated to be improper. 
Fully exercising its authority related to strengthening its provider 
and supplier enrollment provisions and addressing our other open 
recommendations related to prepayment and postpayment claims review 
activities would help CMS achieve reductions in Medicare improper 
payments. The following are examples of actions that could help reduce 
Medicare improper payments.
---------------------------------------------------------------------------
    \9\ GAO, High-Risk Series: An Update, GAO-15-290 (Washington, DC: 
Feb. 11, 2015).

      Improving use of automated edits. To help ensure that payments 
are made properly, CMS uses controls called edits that are programmed 
into claims processing systems to compare claims data with Medicare 
requirements in order to approve or deny claims or flag them for 
further review. In November 2012, we reported that use of prepayment 
edits saved Medicare at least $1.76 billion in fiscal year 2010, but 
savings could have been greater if prepayment edits had been more 
widely used.\10\ To promote greater use of effective prepayment edits 
and better ensure that payments are made properly, we recommended that 
CMS (1) improve the data collected about local prepayment edits to 
enable CMS to identify the most effective edits and the local coverage 
policies on which they are based and (2) require Medicare 
administrative contractors to share information about the underlying 
policies and savings related to their most effective edits. CMS 
concurred with both recommendations and has begun to take steps to 
implement them.
---------------------------------------------------------------------------
    \10\ GAO, Medicare Program Integrity: Greater Prepayment Control 
Efforts Could Increase Savings and Better Ensure Proper Payment, GAO-
13-102 (Washington, DC: Nov. 13, 2012).

      Monitoring postpayment claims reviews. CMS uses four types of 
contractors to conduct postpayment claims reviews to identify improper 
payments. In July 2013, we found that although postpayment claims 
reviews involved the same general process regardless of which type of 
contractor conducted them, CMS had different requirements for many 
aspects of the process across the four contractor types.\11\ Some of 
these differences might impede efficiency and effectiveness of claims 
reviews by increasing administrative burden for providers. Furthermore, 
in July 2014, we reported that CMS did not have reliable data or 
provide sufficient oversight and guidance to measure and fully prevent 
inappropriate duplication of reviews.\12\ We recommended that CMS 
monitor the database used to track recovery audit activities to ensure 
that all data were submitted, accurate, and complete. CMS concurred 
with the recommendation and said it would seek contract modifications 
to add quality assurance performance metrics related to the 
completeness and timeliness of data.
---------------------------------------------------------------------------
    \11\ GAO, Medicare Program Integrity: Increasing Consistency of 
Contractor Requirements May Improve Administrative Efficiency, GAO-13-
522 (Washington, DC: July 23, 2013). For example, contractors 
developing the improper payment estimate for Medicare Fee-for-Service 
must give a provider 75 days to respond to a request for documentation, 
whereas a contractor investigating potential fraud is only required to 
give the provider 30 days.
    \12\ GAO, Medicare Program Integrity: Increased Oversight and 
Guidance Could Improve Effectiveness and Efficiency of Postpayment 
Claims Reviews, GAO-14-474 (Washington, DC: July 18, 2014).

      Removing Social Security numbers from Medicare cards. The 
identification number on Medicare beneficiaries' cards includes as one 
component the Social Security number of the beneficiary (or other 
eligible person's, such as a spouse). This introduces risks that 
beneficiaries' personal information could be obtained and used to 
commit identity theft.\13\ In September 2013, we reported that CMS had 
not taken steps to select and implement a technical solution for 
removing Social Security numbers from Medicare cards.\14\ To better 
position the agency to efficiently and cost-effectively identify, 
design, develop, and implement a solution to address this issue, we 
recommended that CMS direct the initiation of an information technology 
project for identifying, developing, and implementing changes that 
would have to be made to CMS's affected systems.
---------------------------------------------------------------------------
    \13\ GAO, Medicare: CMS Needs an Approach and a Reliable Cost 
Estimate for Removing Social Security Numbers from Medicare Cards, GAO-
12-831 (Washington, DC: Aug. 1, 2012).
    \14\ GAO, Medicare Information Technology: Centers for Medicare and 
Medicaid Services Needs to Pursue a Solution for Removing Social 
Security Numbers from Cards, GAO-13-761 (Washington, DC: Sept. 10, 
2013).

       Consistent with our recommendation, when the Medicare Access and 
CHIP Reauthorization Act of 2015 was enacted into law in April 2015, it 
included a provision requiring and providing funding for the Secretary 
of Health and Human Services, in consultation with the Commissioner of 
Social Security, to establish cost-effective procedures to ensure that 
a Social Security account number (or derivative thereof) is not 
displayed, coded, or embedded on Medicare beneficiary cards and that 
any identifier displayed on such cards is not identifiable as a Social 
Security account number (or derivative thereof).\15\ As of July 2015, 
CMS had started the Social Security Number Removal Initiative in 
response to the law and was in the process of establishing a program 
management organization to continue the planning and execution of the 
initiative.
---------------------------------------------------------------------------
    \15\ Pub. L. No. 114-10, Sec. 501, 129 Stat. 87, 163 (Apr. 16, 
2015).

      Implementing actions authorized by the Patient Protection and 
Affordable Care Act (PPACA).\16\ In addition to provisions to expand 
health insurance coverage, PPACA provides CMS with certain authorities 
to combat fraud, waste, and abuse in Medicare. We reported in our 
February 2015 update to our high-risk series that CMS should fully 
exercise its PPACA authority related to strengthening its provider and 
supplier enrollment provisions.\17\ For example, CMS should require 
surety bonds--a three-party agreement in which a company, known as a 
surety, agrees to compensate the bondholder if the bond purchaser fails 
to keep a specified promise--for certain at-risk providers and 
suppliers.
---------------------------------------------------------------------------
    \16\ Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the 
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-
152, 124 Stat. 1029 (2010). In this statement, references to PPACA 
include amendments made by the Health Care and Education Reconciliation 
Act of 2010.
    \17\ GAO-15-290.

      Strengthening verification of providers and suppliers. As we 
reported in June 2015, we estimated that about 22 percent of Medicare 
providers' and suppliers' practice location addresses were potentially 
ineligible.\18\ For example, we identified 46 instances out of a 
generalizable sample of 496 addresses in which practice location 
addresses were inside a mailing store similar to a UPS Store. We also 
identified other locations that were potentially ineligible, including 
vacant addresses and unrelated establishments. In addition, we found 
147 out of about 1.3 million physicians listed as eligible to bill 
Medicare who, as of March 2013, had received a final adverse action 
from a State medical board for crimes against persons, financial 
crimes, and other types of felonies but were either not revoked from 
the Medicare program until months after the adverse action or never 
removed. We recommended that CMS modify the software integrated into 
the provider enrollment database to include specific flags to help 
identify potentially questionable practice location addresses, revise 
guidance for verifying practice locations, and collect additional 
license information. CMS agreed with our recommendations to modify its 
software and collect license information but did not agree to revise 
its guidance for verifying practice location addresses.
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    \18\ GAO, Medicare Program: Additional Actions Needed to Improve 
Eligibility Verification of Providers and Suppliers, GAO-15-448 
(Washington, DC: June 25, 2015).

Medicaid
    In fiscal year 2014, the Federal share of estimated Medicaid 
outlays was $304 billion, and HHS reported approximately $17.5 billion 
in estimated Medicaid improper payments. The size and diversity of the 
Medicaid program make it particularly vulnerable to improper payments, 
including payments made for people not eligible for Medicaid or for 
services not actually provided. CMS has an important role in overseeing 
and supporting State efforts to reduce and recover improper payments 
and has demonstrated some leadership commitment in this area.\19\ For 
example, CMS issued guidance to improve corrective actions taken by 
States. CMS also established the Medicaid Integrity Institute, which 
provides training and technical assistance to States on approaches to 
prevent improper payments and guidance on program integrity issues.
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    \19\ Medicaid is designed as a Federal-State partnership. The 
program is financed jointly by the Federal Government and States, 
administered at the State level, and overseen at the Federal level by 
CMS.

    In our February 2015 high-risk update, we reported that while CMS 
had taken these positive steps in recent years, in several areas, CMS 
had still to address issues and recommendations that had not been fully 
implemented.\20\ These issues include implementing effective program 
integrity processes for managed care, ensuring clear reporting of 
overpayment recoveries, and refocusing program integrity efforts on 
approaches that are cost-effective. The following are actions that we 
recommended CMS take to help reduce Medicaid improper payments and 
improve program integrity.
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    \20\ GAO-15-290.

      Improving third-party liability efforts. Congress generally 
established Medicaid as the health care payer of last resort, meaning 
that if enrollees have another source of health care coverage--such as 
private insurance--that source should pay, to the extent of its 
liability, before Medicaid does. This is referred to as third-party 
liability. However, there are known challenges to ensuring that 
Medicaid is the payer of last resort. For example, States have reported 
challenges obtaining out-of-state coverage data from private insurers. 
Without such data, it is difficult for States to reliably identify or 
recover payments from liable private insurers not licensed in the 
State. While CMS has issued guidance to States, in January 2015 we 
recommended additional actions that could help to improve cost-saving 
efforts in this area, such as (1) monitoring and sharing information on 
third-party liability efforts and challenges across all States and (2) 
providing guidance to States on oversight of third-party liability 
efforts related to Medicaid managed care plans.\21\ HHS agreed with our 
recommendations and in May 2015 reported that CMS has begun developing 
a work plan to implement the recommendations.
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    \21\ GAO, Medicaid: Additional Federal Action Needed to Further 
Improve Third-Party Liability Efforts, GAO-15-208 (Washington, DC: Jan. 
28, 2015).

      Increasing oversight of managed care. Most Medicaid 
beneficiaries receive services through a managed care system, and 
Medicaid managed care expenditures have been growing at a faster rate 
than fee-for-service expenditures.\22\ In May 2014, we reported that 
most State and Federal program integrity officials we interviewed told 
us that they did not closely examine managed care payments, focusing on 
fee-for-service claims instead.\23\ HHS agreed with our recommendation 
to update Medicaid managed care guidance on program integrity practices 
and effective handling of managed care organization recoveries. On June 
1, 2015, the agency issued a proposed rule to revise program integrity 
policies, including policy measures that we have recommended.\24\ Among 
other measures, the rule, if finalized, would require States to conduct 
audits of managed care organizations' service utilization and financial 
data every 3 years and standardize the treatment of recovered 
overpayments by plans.
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    \22\ Under a Medicaid managed care system, States contract with 
managed care organizations to provide or arrange for medical services 
and prospectively pay the organizations a per person, or capitated, 
payment. Under a fee-for-service system, health care providers claim 
reimbursement from State Medicaid programs for services rendered to 
Medicaid beneficiaries.
    \23\ GAO, Medicaid Program Integrity: Increased Oversight Needed to 
Ensure Integrity of Growing Managed Care Expenditures, GAO-14-341 
(Washington, DC: May 19, 2014).
    \24\ 80 Fed. Reg. 31098 (June 1, 2015).

      Strengthening program integrity. In November 2012, we reported 
that CMS could do more to eliminate duplication and improve efficiency 
of its Medicaid integrity efforts.\25\ Since then, CMS has taken 
positive steps to oversee program integrity efforts in Medicaid, 
including reconfiguring its approach in 2013 to reduce duplicate 
reviewing and auditing of States' claims and improve efficiencies in 
its audits, redesigning its comprehensive reviews of States' program 
integrity activities toward a more targeted risk assessment approach, 
and increasing its efforts to hold States accountable for reliably 
reporting program integrity recoveries. However, CMS has not 
strengthened its efforts to calculate return on investment (ROI) for 
its program integrity efforts, as we recommended in November 2012. In 
January 2015, CMS officials confirmed that the agency is developing a 
methodology for measuring and calculating a single ROI that reflects 
the Center for Program Integrity's initiatives for both Medicare and 
Medicaid, and they expect to have their methodology finalized later 
this year. We will assess the finalized ROI methodology when it is 
available.
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    \25\ GAO, Medicaid Integrity Program: CMS Should Take Steps to 
Eliminate Duplication and Improve Efficiency, GAO-13-50 (Washington, 
DC: Nov. 13, 2012).

Earned Income Tax Credit
    In fiscal year 2014, the Internal Revenue Service (IRS) reported 
program payments of $65.2 billion for EITC.\26\ IRS estimated that 27.2 
percent, or $17.7 billion, of these program payments were improper.\27\ 
The estimated improper payment rate for EITC has remained relatively 
unchanged since fiscal year 2003 (the first year IRS had to report 
estimates of these payments to Congress), but the amount of improper 
EITC payments increased from an estimated $10.5 billion in fiscal year 
2003 to nearly $18 billion in fiscal year 2014 because of growth in the 
EITC program overall.
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    \26\ Congress established EITC in 1975. It is used to (1) offset 
the impact of Social Security taxes on low-income families and (2) 
encourage low-income families to seek employment rather than public 
assistance. Taxpayers who are eligible individuals may take a 
refundable credit for a portion of their earned income. Generally, 
credit amounts depend on the number of qualifying children who meet 
age, relationship, and residency tests. The credit gradually increases 
with income (the phase-in range), plateaus at a maximum amount (the 
plateau range), and then gradually decreases until it reaches zero (the 
phaseout range). For EITC, program payments include tax expenditures (a 
tax credit that offsets income taxes) and outlays (a refund if the 
credit exceeds the amount of taxes owed).
    \27\ EITC overpayments are the difference between the EITC amount 
claimed by the taxpayer on his or her return and the amount the 
taxpayer should have claimed (both tax expenditures and outlays, if 
applicable). EITC underpayments are defined as the amount of EITC 
disallowed by IRS in processing that should have been allowed.

    The persistent problems with improper EITC payments--which we have 
highlighted for years--are one reason we continue to designate IRS 
enforcement of tax laws as a high-risk area.\28\ As we have reported, a 
root cause of EITC noncompliance is that eligibility is determined by 
taxpayers themselves or their tax return preparers and that IRS's 
ability to verify eligibility before issuing refunds is limited.
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    \28\ GAO-15-290. See also GAO, Government Efficiency and 
Effectiveness: Opportunities to Reduce Fragmentation, Overlap, 
Duplication, and Improper Payments and Achieve Other Financial 
Benefits, GAO-15-440T (Washington, DC: Mar. 4, 2015); High-Risk Series: 
An Update, GAO-05-207 (Washington, DC: Jan. 2005); and Financial 
Management: Billions in Improper Payments Continue to Require 
Attention, GAO-01-44 (Washington, DC: Oct. 27, 2000).

    The Department of the Treasury (Treasury) divides EITC improper 
payments into two categories: authentication and verification.\29\ 
Authentication errors include errors associated with IRS's inability to 
validate qualifying child requirements, taxpayers' filing status, and 
EITC claims associated with complex or nontraditional living 
situations. Verification errors relate to IRS's inability to identify 
individuals improperly reporting income to claim EITC amounts to which 
they are not entitled. Verification errors include underreporting and 
overreporting of income by wage earners as well as taxpayers who report 
that they are self-employed. Although the EITC program has been 
modified a number of times since its enactment in 1975 to reduce 
complexity and help improve the program's administration, complexity 
has remained a key factor contributing to improper payments in the 
program.
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    \29\ Treasury Inspector General for Tax Administration, Existing 
Compliance Processes Will Not Reduce the Billions of Dollars in 
Improper Earned Income Tax Credit and Additional Child Tax Credit 
Payments, Reference Number 2014-40-093 (Washington, DC: Sept. 29, 
2014).

    IRS has undertaken a number of compliance and enforcement 
activities to reduce EITC improper payments, and Treasury reported in 
its fiscal year 2014 agency financial report that it protected an 
estimated $3.5 billion in Federal revenue in fiscal year 2014.\30\ 
Among other things, IRS uses audits to help identify EITC improper 
payments, and in June 2014, we reported that about 45 percent of 
correspondence audits (audits done by mail) that closed in fiscal year 
2013 focused on EITC issues.\31\ IRS has reported that tax returns with 
EITC claims were twice as likely to be audited as other tax returns. 
However, we found that the effectiveness of these audits may be limited 
because since 2011 there have been regular backlogs in the audits, 
which have resulted in delays in responding to taxpayer responses and 
inquiries. We also found that unclear correspondence generated 
additional work for IRS, such as telephone calls to IRS examiners. 
These issues have imposed burdens on taxpayers and costs for IRS. IRS 
acknowledged these concerns and has initiated several programs to 
address EITC improper payments, such as increasing outreach and 
education to taxpayers and tax return preparers.
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    \30\ Protected revenue refers to the total value of erroneous 
payments prevented or recovered through compliance activities.
    \31\ GAO, IRS Correspondence Audits: Better Management Could 
Improve Tax Compliance and Reduce Taxpayer Burden, GAO-14-479 
(Washington, DC: June 5, 2014).

    Legislative action and significant changes in IRS compliance 
processes likely would be necessary to make any meaningful reduction in 
improper payments. We have previously recommended matters for 
congressional consideration or executive actions that if effectively 
implemented, could help reduce EITC improper payments as well as the 
tax gap, as discussed later in this statement.
 recent legislation and guidance have focused attention on estimating 
 and reducing improper payments and identifying root causes, including 
                                 fraud
Recent Legislation and Guidance Related to Improper Payments
    The Improper Payments Elimination and Recovery Improvement Act of 
2012 (IPERIA) is the latest in a series of laws Congress has passed to 
address improper payments.\32\ IPERIA directs the Office of Management 
and Budget (OMB) to annually identify a list of high-priority programs 
for greater levels of oversight and review, including establishing 
annual targets and semiannual or quarterly actions for reducing 
improper payments. Previously, the Improper Payments Elimination and 
Recovery Act of 2010 (IPERA) established a requirement for agency OIGs 
to report annually on agencies' compliance with specific criteria 
contained in IPERA, including publishing estimates and corrective 
action plans for programs deemed to be susceptible to significant 
improper payments and reporting gross improper payment rates of less 
than 10 percent.\33\
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    \32\ Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 10, 2013).
    \33\ IPERA contains six criteria for compliance. The six criteria 
are that the entity has (1) published an annual financial statement and 
accompanying materials in the form and content required by OMB for the 
most recent fiscal year and posted that report on the entity website; 
(2) conducted a risk assessment for each specific program or activity 
that conforms with IPIA, as amended; (3) published estimates of 
improper payments for all programs and activities identified as 
susceptible to significant improper payments under the entity's risk 
assessment; (4) published corrective action plans for programs and 
activities assessed to be at risk for significant improper payments; 
(5) published and met annual improper payment reduction targets for all 
programs and activities assessed to be at risk for significant improper 
payments; and (6) reported a gross improper payment rate of less than 
10 percent for each program and activity for which an improper payment 
estimate was obtained and published. Fiscal year 2014 was the 4th year 
for which OIGs were required to issue annual reports on agencies' 
compliance with the six criteria listed in IPERA. Under OMB 
implementing guidance, the reports should be completed within 180 days 
of the publication of the Federal agencies' annual performance and 
accountability reports or agency financial reports.

    IPERIA also enacted into law a Do Not Pay initiative, which is a 
web-based, centralized data-matching service that allows agencies to 
review multiple databases to help determine a recipient's award or 
payment eligibility prior to making payments. Similarly, the Digital 
Accountability and Transparency Act of 2014 (DATA Act) calls on 
Treasury to establish a data analysis center, or to expand an existing 
service, to provide data, analytic tools, and data management 
techniques for preventing or reducing improper payments.\34\ As we have 
previously stated, effective implementation of the DATA Act and the use 
of data analytic tools could help agencies to prevent, detect, and 
reduce improper payments.\35\
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    \34\ Pub. L. No. 113-101, 128 Stat. 1146 (May 9, 2014), codified at 
31 U.S.C. Sec. 6101 note. The DATA Act amended the Federal Funding 
Accountability and Transparency Act of 2006.
    \35\ For more information on the DATA Act, see GAO, Federal 
Spending Accountability: Preserving Capabilities of Recovery Operations 
Center Could Help Sustain Oversight of Federal Expenditures, GAO-15-814 
(Washington, DC: Sept. 14, 2015), and DATA Act: Progress Made in 
Initial Implementation but Challenges Must be Addressed as Efforts 
Proceed, GAO-15-752T (Washington, DC: July 29, 2015).

    In addition to these legislative initiatives, OMB has continued to 
play a key role in the oversight of government-wide improper payments. 
OMB has established guidance for Federal agencies on reporting, 
reducing, and recovering improper payments as required by IPIA, as 
amended, and on protecting privacy while reducing improper payments 
with the Do Not Pay initiative.\36\
---------------------------------------------------------------------------
    \36\ Office of Management and Budget, Appendix C to Circular No. A-
123, Requirements for Effective Estimation and Remediation of Improper 
Payments, OMB Memorandum M-15-02 (Washington, DC: Oct. 20, 2014); 
Revised, Financial Reporting Requirements, OMB Circular No. A-136 
(Washington, DC: Sept. 18, 2014); and Protecting Privacy while Reducing 
Improper Payments with the Do Not Pay Initiative, OMB Memorandum M-13-
20 (Washington, DC: Aug. 16, 2013).
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Root Causes of Improper Payments
    According to OMB's guidance in effect for fiscal year 2014, 
agencies were required to classify the root causes of estimated 
improper payments into three general categories for reporting purposes. 
As we previously reported, detailed analysis of the root causes of 
improper payments can help agencies to identify and implement targeted 
corrective actions.\37\ The categories are (1) administrative and 
documentation errors, including errors caused by absence of supporting 
documentation necessary to verify the accuracy of a payment or by 
incorrect processing of payments by an agency; (2) authentication and 
medical necessity errors, including those caused by inability to 
authenticate eligibility criteria or providing a service that was not 
medically necessary; and (3) verification errors, including those 
caused by failure or inability to verify recipient information, such as 
income or work status, or beneficiaries failing to report correct 
information to an agency. Examples of root causes of improper payments 
that agencies identified for fiscal year 2014 include the following:
---------------------------------------------------------------------------
    \37\ GAO, Improper Payments: Government-Wide Estimates and 
Reduction Strategies, GAO-14-737T (Washington, DC: July 9, 2014).

      Administrative and documentation errors. The Small Business 
Administration identified loan processing and disbursement staff that 
did not consistently follow guidance in standard operating procedures 
and policy memos for determining loan eligibility as a root cause of 
---------------------------------------------------------------------------
improper payments in its Disaster Loan program.

      Authentication and medical necessity errors. HHS reported a root 
cause of Medicare Fee-for-Service improper payments as inpatient 
hospital claims for short stays that were determined not to be 
medically necessary in an inpatient setting and should have been billed 
as outpatient.

      Verification errors. For EITC, Treasury identified misreporting 
of income by wage earners as one of the root causes of improper 
payments. Likewise, the Social Security Administration reported that 
unreported financial accounts and wages were a source of Supplemental 
Security Income improper payments.

    The three categories for reporting root causes of errors were very 
general, and in July 2014 we reported that a more detailed analysis 
could help agencies to identify and implement more effective preventive 
and detective controls and corrective actions in the various 
programs.\38\ OMB's guidance in effect for fiscal year 2015 directs 
agencies to report on the causes of improper payments using more 
detailed categories than those previously required, such as program 
design issues or administrative errors at the Federal, State, or local 
agency level. OMB requested that the four agencies with the largest 
high-priority programs implement the revised guidance early--by April 
30, 2015--using fiscal year 2014 information.\39\ This included 
developing comprehensive corrective action plans for each program that 
describe root causes and establish critical path milestones to meet 
improper payment reductions; identifying improper payments using the 
new, more detailed categories outlined in the guidance; and developing 
plans to provide reasonable assurance that internal controls over 
improper payments are in place and are working effectively. Each of the 
four agencies submitted a letter to OMB describing its efforts to 
implement the guidance early. While the revised guidance--and efforts 
to implement it early--may help agencies to reduce improper payments, 
it is too soon to determine its impact.
---------------------------------------------------------------------------
    \38\ GAO-14-737T.
    \39\ The four agencies were the Departments of Health and Human 
Services, Labor, and the Treasury and the Social Security 
Administration.

Fraud
    Fraud is one specific type of improper payment and is particularly 
difficult to identify and estimate. Fraud involves obtaining something 
of value through willful misrepresentation.\40\ Whether an act is 
fraudulent is determined through the judicial or other adjudicative 
system. According to OMB guidance, agencies should refer matters 
involving possible fraudulent activities to the appropriate parties, 
such as the relevant Office of the Inspector General (OIG) or the 
Department of Justice (DOJ).
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    \40\ GAO, Government Auditing Standards: 2011 Revision, GAO-12-331G 
(Washington, DC: Dec. 2011).

    There are known cases in which improper payments are directly 
attributable to fraud. Further, a lack of sufficient supporting 
documentation may mask the true causes of improper payments--including 
fraud. When payments lack the appropriate supporting documentation, 
their validity cannot be determined. It is possible that these payments 
were for valid purposes, but it is also possible that the lack of 
documentation could conceal fraudulent activities. For fiscal year 
2014, HHS cited documentation errors as a major contributor to improper 
payments in certain components of its Medicare Fee-for-Service program, 
such as durable medical equipment and home health claims.\41\
---------------------------------------------------------------------------
    \41\ When estimating Medicare Fee-for-Service improper payments, 
HHS contractors request documentation from providers multiple times 
before determining that payments lack sufficient supporting 
documentation.

    We have found these areas to be vulnerable to fraud in our past 
work, and recent cases continue to raise concern in these areas.\42\ 
For example, in June 2015, DOJ announced charges against 243 
individuals for approximately $712 million in false Medicare billing 
related to various health care fraud-related crimes nationwide. 
According to DOJ, the individuals charged included 46 doctors, nurses, 
and other licensed medical professionals, and in many cases, the 
alleged fraud included various medical treatments and services--such as 
home health care, psychotherapy, physical and occupational therapy, 
durable medical equipment, and prescription drug treatments--that were 
medically unnecessary or never performed. Likewise, in 2012, 7 
individuals were arrested and indicted on charges related to their 
alleged participation in a scheme that involved fraudulent claims of 
nearly $375 million for home health services that were either not 
provided or not medically necessary.
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    \42\ GAO, Health Care Fraud: Types of Providers Involved in 
Medicare, Medicaid, and the Children's Health Insurance Program Cases, 
GAO-12-820 (Washington, DC: Sept. 7, 2012).

    For fiscal year 2014, HHS and DOJ reported that the Federal 
Government won or negotiated over $2.3 billion in health care fraud 
judgments and settlements through the Health Care Fraud and Abuse 
Control (HCFAC) program.\43\ In fiscal year 2014, DOJ opened 924 new 
criminal health care fraud investigations, and HHS OIG investigations 
resulted in 867 criminal actions and 529 civil actions.\44\ Table 1 
lists other examples of fraud in various programs.
---------------------------------------------------------------------------
    \43\ The Health Insurance Portability and Accountability Act of 
1996 (HIPAA) established the HCFAC program to help combat fraud and 
abuse in health care programs, such as Medicare and Medicaid. HCFAC 
program goals include coordinating Federal, State, and local law 
enforcement efforts to control fraud and abuse associated with health 
plans; conducting investigations and audits related to health care; and 
facilitating the enforcement of civil, criminal, and administrative 
statutes applicable to health care. HHS and DOJ jointly administer the 
program, and HIPAA requires them to issue a joint report annually to 
Congress.
    \44\ Department of Health and Human Services and Department of 
Justice, Annual Report of the Departments of Health and Human Services 
and Justice: Health Care Fraud and Abuse Control Program FY 2014 
(Washington, DC: Mar. 16, 2015).


    Table 1: Recent Examples of Reported Fraud in Government Programs
------------------------------------------------------------------------
         Program                   Description of reported fraud
------------------------------------------------------------------------
Medicare                  Two people were recently sentenced to prison
                           for providing unnecessary psychiatric
                           services, falsifying records for
                           psychotherapy treatment that had not been
                           provided, and intercepting patient billing
                           statements to prevent them from identifying
                           treatments that were not provided.
------------------------------------------------------------------------
Medicaid                  A recent Medicaid fraud scheme involved a
                           business that provided personal aide care to
                           the elderly and disabled. The business owners
                           falsified documentation to support face-to-
                           face visits with patients that never
                           occurred.
------------------------------------------------------------------------
Unemployment Insurance    A woman was convicted of submitting falsified
                           claims that listed individuals and businesses
                           for which she was not employed--including one
                           claim for when she was incarcerated. She also
                           submitted a claim for benefits using the
                           identity of another individual.
                         -----------------------------------------------
                          A man was sentenced to 6 years in prison for
                           creating several fictitious companies and
                           using names and Social Security numbers of
                           unsuspecting individuals registered as
                           employees of these fictitious companies to
                           obtain fraudulent unemployment benefits.
------------------------------------------------------------------------
Earned Income Tax Credit  A man was sentenced to prison for selling to
                           clients the names and Social Security numbers
                           of individuals used to improperly claim
                           dependents and related tax credits, such as
                           the Earned Income Tax Credit.
------------------------------------------------------------------------
Source: GAO summary of Department of Justice press releases. | GAO-16-
  92T


    Additionally, we have recently reported on cases of potential fraud 
in various programs.\45\
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    \45\ Where appropriate, we referred cases of potential fraud to the 
appropriate officials for further review.

      As we reported in August 2014, we identified 28 cases of 
potential fraud related to Supplemental Nutrition Assistance Program 
benefits (food stamps).\46\ Over 30 days, we detected 28 postings from 
one popular e-commerce website that advertised the potential sale of 
food stamp benefits in exchange for cash, services, and goods--
including places to live, vehicles, cooking and cleaning services, 
phones, and beer. We recommended that the Department of Agriculture 
take steps to improve antifraud efforts, such as reassessing Federal 
financial incentives for cost-effective State activities and issuing 
guidance to enhance the consistency of State reporting on these 
efforts.
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    \46\ GAO, Supplemental Nutrition Assistance Program: Enhanced 
Detection Tools and Reporting Could Improve Efforts to Combat Recipient 
Fraud, GAO-14-641 (Washington, DC: Aug. 21, 2014).

      In December 2014, we reported approximately $39 million of 
Hurricane Sandy assistance as at risk for potential fraud or improper 
payments.\47\ Among other issues, these cases included instances in 
which Social Security numbers were not valid or were used by multiple 
recipients, rental assistance was received while the recipient was 
incarcerated, and duplicate payments were not flagged by the Federal 
Emergency Management Agency (FEMA). We recommended that FEMA assess the 
cost and feasibility of obtaining additional data--such as the Social 
Security Administration's full death file or data necessary to verify 
self-reported information on private homeowner's insurance--to help 
identify potentially fraudulent or improper applications for 
assistance.
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    \47\ GAO, Hurricane Sandy: FEMA Has Improved Disaster Aid 
Verification but Could Act to Further Limit Improper Assistance, GAO-
15-15 (Washington, DC: Dec. 12, 2014).

      As we reported in May 2015, we found thousands of Medicaid 
beneficiaries and hundreds of providers involved in potential improper 
or fraudulent payments in four selected States (Arizona, Florida, 
Michigan, and New Jersey) during fiscal year 2011, which at the time of 
our study was the most recent year for which reliable data were 
available.\48\ For example, people using the identities of about 200 
deceased beneficiaries received about $9.6 million in Medicaid benefits 
subsequent to the beneficiaries' deaths, and about 90 providers had 
suspended or revoked licenses in the State where they performed 
Medicaid services yet received a combined total of at least $2.8 
million from those States. We recommended that CMS issue guidance for 
screening beneficiaries who are deceased and supply more-complete data 
for screening Medicaid providers. HHS concurred with both of the 
recommendations and stated it would provide State-specific guidance to 
address them.
---------------------------------------------------------------------------
    \48\ GAO, Medicaid: Additional Actions Needed to Help Improve 
Provider and Beneficiary Fraud Controls, GAO-15-313 (Washington, DC: 
May 14, 2015).

    While fraud can be more difficult to address than other types of 
improper payments, implementing strategies to reduce improper payments 
in general may also help to reduce opportunities for fraud. In July 
2015, we issued A Framework for Managing Fraud Risks in Federal 
Programs (Framework).\49\ The Framework identifies a comprehensive set 
of leading practices that serve as a guide for program managers to use 
when developing or enhancing efforts to combat fraud in a strategic, 
risk-based manner. Minimizing fraud risks in Federal agency programs 
can help reduce improper payments and enhance program integrity. The 
leading practices described in the Framework include control activities 
to prevent, detect, and respond to fraud, with an emphasis on 
prevention, as well as structures and environmental factors that 
influence or help managers achieve their objective to mitigate fraud 
risks. In addition, the Framework calls for management to conduct 
monitoring and incorporate feedback on an ongoing basis. As the steward 
of taxpayer dollars, Federal managers have the ultimate responsibility 
in overseeing how hundreds of billions of dollars are spent annually. 
Thus, they are well positioned to use these practices, while 
considering the related fraud risks as well as the associated costs and 
benefits of implementing the practices, to help ensure that taxpayer 
resources are spent efficiently and effectively.
---------------------------------------------------------------------------
    \49\ GAO, A Framework for Managing Fraud Risks in Federal Programs, 
GAO-15-593SP (Washington, DC: July 2015).
---------------------------------------------------------------------------
    unreliable estimates and agency noncompliance hinder efforts to 
               understand causes and extent of the issue
    While there are positive steps being taken toward estimating and 
reducing improper payments, agencies continue to face challenges in 
these areas. In our report on the Fiscal Year 2014 Financial Report of 
the United States Government, we continued to report a material 
weakness in internal control related to improper payments because the 
Federal Government is unable to determine the full extent to which 
improper payments occur and reasonably assure that appropriate actions 
are taken to reduce them.\50\ Challenges include risk assessments that 
may not accurately assess the risk of improper payment, risk-
susceptible programs that did not report improper payment estimates, 
estimation methodologies that may not produce reliable estimates, and 
noncompliance with legislative requirements.
---------------------------------------------------------------------------
    \50\ GAO, Financial Audit: U.S. Government's Fiscal Years 2014 and 
2013 Consolidated Financial Statements, GAO-15-341R (Washington, DC: 
Feb. 26, 2015).
---------------------------------------------------------------------------
Potentially Inaccurate Risk Assessments
    Agencies are required to conduct their own risk assessments to 
determine which of their programs are susceptible to significant 
improper payments and then estimate improper payments for these 
susceptible programs. However, issues related to certain agencies' risk 
assessments have been identified, which calls into question whether 
these agencies are actually identifying all programs that are 
susceptible to significant improper payments.

      We reported in December 2014 that the Department of Energy's 
(DOE) improper payment risk assessments did not always include a clear 
basis for risk determinations and did not fully evaluate other relevant 
risk factors, such as deficiencies in key controls for preventing and 
detecting improper payments.\51\ For example, some assessments we 
reviewed did not contain enough information for us to determine how the 
entities responsible for making payments on behalf of the department 
arrived at their risk determinations, raising questions about who at 
the agency was responsible for reviewing and approving risk assessments 
for consistency. In another example, agency officials told us that 
contract audits were not always performed in a timely manner, which 
introduces a risk that improper payments will also not be identified in 
a timely manner.\52\ DOE's risk assessment guidance did not require 
that programs consider risk factors related to internal control 
deficiencies, such as untimely contract audits. DOE concurred with our 
recommendations to improve its risk assessments, including revising 
guidance on how programs are to address risk factors and directing 
programs to consider other risk factors likely to contribute to 
improper payments.
---------------------------------------------------------------------------
    \51\ GAO, Improper Payments: DOE's Risk Assessments Should Be 
Strengthened, GAO-15-36 (Washington, DC: Dec. 23, 2014).
    \52\ Contract auditing assists in achieving prudent contracting by 
providing those responsible for government procurement with financial 
information and advice relating to contractual matters and the 
effectiveness, efficiency, and economy of contractors' operations. 
Depending on the contract type, various contract audit activities can 
occur in the preaward, award, and administration and management phases 
of a contract.

      In April 2015, the Treasury Inspector General for Tax 
Administration (TIGTA) continued to report that IRS's risk assessment 
process did not provide a valid assessment of improper payments in 
certain IRS programs and did not adequately address specific risks 
commonly associated with verifying refundable credit claims.\53\ For 
example, while IRS designated the Additional Child Tax Credit program 
as low risk, TIGTA estimated that fiscal year 2013 improper payments in 
this program were from 25.2 percent to 30.5 percent, or $5.9 billion to 
$7.1 billion.
---------------------------------------------------------------------------
    \53\ TIGTA, Assessment of Internal Revenue Service Compliance With 
the Improper Payment Reporting Requirements in Fiscal Year 2014, 
Reference Number 2015-40-044 (Washington, DC: Apr. 27, 2015).
---------------------------------------------------------------------------
Programs That Do Not Report Improper Payment Estimates
    We found that not all agencies had developed improper payment 
estimates for all of the programs and activities they identified as 
susceptible to significant improper payments. Specifically, two Federal 
agencies did not report estimated improper payment amounts for four 
risk-susceptible programs. For example, HHS did not report an improper 
payment estimate in fiscal year 2014 for its Temporary Assistance for 
Needy Families (TANF) program, which had program outlays of about $16.3 
billion and, according to HHS's fiscal year 2014 agency financial 
report, is considered susceptible to significant improper payments by 
OMB.\54\ HHS cited statutory limitations for its State-administered 
TANF program as prohibiting it from requiring States to participate in 
developing an improper payment estimate for the program.\55\ In its 
March 2012 report on the department's compliance with improper payment 
reporting, HHS's OIG recommended that the department develop an 
improper payment estimate for the TANF program and, if necessary, seek 
statutory authority to require State participation in such a 
measurement.\56\
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    \54\ The three remaining risk-susceptible programs that did not 
report an improper payment estimate for fiscal year 2014 were in the 
Department of Homeland Security (DHS)--the Customs and Border 
Protection Administratively Uncontrollable Overtime, Port Security 
Grant, and Federal Emergency Management Agency Vendor Pay (non-Disaster 
Relief Fund) programs. According to its fiscal year 2014 agency 
financial report, DHS plans to report improper payment estimates for 
these programs in fiscal year 2015.
    \55\ The term State-administered refers to Federal programs that 
are managed on a day-to-day basis at the State level to carry out 
program objectives. In our June 2004 report, we recommended that HHS 
gather information on a recurring basis from all States on their 
internal control systems and noted that HHS may determine that it needs 
legislative action to direct States to provide the information. GAO, 
TANF and Child Care Programs: HHS Lacks Adequate Information to Assess 
Risk and Assist States in Managing Improper Payments, GAO-04-723 
(Washington, DC: June 18, 2004). While HHS took some steps to collect 
more information on States' internal controls, this does not constitute 
an improper payment estimate for TANF.
    \56\ HHS's OIG stated in subsequent reports that it has continued 
to emphasize this recommendation, but the recommendation remains 
unimplemented.

Potentially Unreliable or Understated Estimates
    While some programs did not report estimates, improper payment 
estimates for certain programs may be unreliable. For example, because 
of long-standing financial management weaknesses, the Department of 
Defense (DOD) reported in its fiscal year 2014 agency financial report 
that it could not demonstrate that all payments subject to improper 
payment estimation requirements were included in the populations of 
payments for review. Therefore, its improper payment estimates, 
including the estimate for its Defense Finance and Accounting Service 
(DFAS) Commercial Pay program, may not be reliable. We previously 
reported that the foundation of reliable statistical sampling estimates 
is a complete, accurate, and valid population from which to sample.\57\ 
While DFAS Commercial Pay's improper payment estimate is low, its 
program outlays are significant--approximately $305 billion for fiscal 
year 2014. Consequently, a small change in the program's estimated 
error rate could result in a significant change in the dollar value of 
its improper payment estimate.
---------------------------------------------------------------------------
    \57\ GAO-15-341R and GAO, DOD Financial Management: Significant 
Improvements Needed in Efforts to Address Improper Payment 
Requirements, GAO-13-227 (Washington, DC: May 13, 2013).

    Further, flexibility in how agencies are permitted to implement 
improper payment estimation requirements can contribute to inconsistent 
or understated estimates. For example, in February 2015, we reported 
that DOD uses a methodology for estimating TRICARE improper payments 
that is less comprehensive than the methodology CMS used for 
Medicare.\58\ Though the programs are similar in that they pay 
providers on a fee-for-service basis and depend on contractors to 
process and pay claims, TRICARE's methodology does not examine the 
underlying medical record documentation to discern whether each sampled 
payment was supported or whether the services provided were medically 
necessary. On the other hand, Medicare's methodology more completely 
identifies improper payments beyond those resulting from claim 
processing errors, such as those related to provider noncompliance with 
coding, billing, and payment rules. As a result, the estimated improper 
payment error rates for TRICARE and Medicare are not comparable, and 
TRICARE's error rate is likely understated.\59\ In addition, corrective 
actions for TRICARE improper payments do not address issues related to 
medical necessity errors--a significant contributor to Medicare 
improper payments. We recommended that DOD implement a more 
comprehensive TRICARE improper payment methodology and develop more 
robust corrective action plans that address the underlying causes of 
improper payments. DOD concurred with our recommendations and 
identified steps needed to implement them.
---------------------------------------------------------------------------
    \58\ GAO, Improper Payments: TRICARE Measurement and Reduction 
Efforts Could Benefit from Adopting Medical Record Reviews, GAO-15-269 
(Washington, DC: Feb. 18, 2015). TRICARE is a health care program for 
military service members, retirees, and their families.
    \59\ For fiscal year 2014, estimated error rates were 0.9 percent 
for TRICARE and 12.7 percent for Medicare Fee-for-Service.

Noncompliance With Criteria in IPERA
    In August 2015, we analyzed agency financial reports and OIG 
reports for fiscal years 2012 through 2014 and identified five programs 
with improper payment estimates greater than $1 billion that have been 
noncompliant with at least one of the six criteria listed in IPERA for 
3 consecutive years, as shown in table 2.\60\ These five programs 
account for $75.9 billion, or 61 percent of the fiscal year 2014 
government-wide reported improper payment estimate.
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    \60\ In December 2014, we reported on agency compliance with the 
criteria contained in IPERA for fiscal year 2013, as reported by OIGs. 
See GAO, Improper Payments: Inspector General Reporting of Agency 
Compliance under the Improper Payments Elimination and Recovery Act, 
GAO-15-87R (Washington, DC: Dec. 9, 2014).


 Table 2: Major Programs Noncompliant With Improper Payment Requirements
                         for 3 Consecutive Years
------------------------------------------------------------------------
                                               Reported noncompliance
       Program               Agency                    issues
------------------------------------------------------------------------
Medicare Fee-for-     Department of Health   Improper payment error
 Service               and Human Services    rate equal to or greater
                                             than 10 percent
                                             Reduction target not met
------------------------------------------------------------------------
Earned Income Tax     Department of the      Improper payment error
 Credit                Treasury              rate equal to or greater
                                             than 10 percent
                                             Reduction target not
                                             published a
------------------------------------------------------------------------
Unemployment          Department of Labor    Improper payment error
 Insurance                                   rate equal to or greater
                                             than 10 percent
                                             Reduction target not
                                             published b
------------------------------------------------------------------------
Supplemental          Social Security        Reduction target not met
 Security Income       Administration
------------------------------------------------------------------------
School Lunch          Department of          Improper payment error
                       Agriculture           rate equal to or greater
                                             than 10 percent
                                             Reduction target not met
------------------------------------------------------------------------
Source: GAO summary of agency financial reports and inspector general
  reports. | GAO-16-92T.
 
 a The Department of the Treasury did not publish improper payment
  reduction targets for the Earned Income Tax Credit for fiscal years
  2012 and 2013.
 b The Department of Labor did not publish a reduction target for fiscal
  year 2014 for the Unemployment Insurance program in its fiscal year
  2013 agency financial report. However, according to https://
  paymentaccuracy.gov/--the Federal Government's website for improper
  payment information--the fiscal year 2014 reduction target for the
  Unemployment Insurance program was 10 percent, which the department
  did not meet.


    According to IPERA, if a program is found to be noncompliant:

      in a fiscal year, the agency must submit a plan to Congress 
describing the actions that the agency will take to bring the program 
into compliance;

      for 2 consecutive fiscal years, and if OMB determines that 
additional funding would help the agency improve, the agency and OMB 
may take steps to transfer or request additional funding for 
intensified compliance efforts; and

      for 3 consecutive years, the agency must submit to Congress a 
reauthorization proposal for each noncompliant program or activity or 
any proposed statutory changes the agency deems necessary to bring the 
program or activity into compliance.

    Congressional oversight is important to help ensure that agencies 
and OMB effectively implement these requirements.
   strategies for reducing improper payments include preventive and 
   detective controls and commitment to implementing required actions
    We have previously reported a number of strategies that can help 
agencies in reducing improper payments. After identifying and analyzing 
the root causes of improper payments, implementing effective preventive 
and detective controls that address those root causes could help 
advance the Federal Government's efforts to reduce improper payments. 
In addition, the level of importance Federal agencies and the 
administration place on the efforts to implement the requirements 
established by IPERA and other laws and related guidance will be a key 
factor in determining their overall effectiveness in reducing improper 
payments and ensuring that Federal funds are used efficiently and for 
their intended purposes.

    Implementing strong preventive controls can serve as the frontline 
defense against improper payments. Proactively preventing improper 
payments increases public confidence in the administration of benefit 
programs and avoids the difficulties associated with the ``pay and 
chase'' aspects of recovering overpayments.\61\ The following are 
examples of preventive strategies, some of which are currently under 
way.
---------------------------------------------------------------------------
    \61\ ``Pay and chase'' refers to the labor-intensive and time-
consuming practice of trying to recover overpayments once they have 
already been made rather than preventing improper payments in the first 
place. See GAO, Highlights of a Forum: Data Analytics For Oversight and 
Law Enforcement, GAO-13-680SP (Washington, DC: July 2013).

      Up-front eligibility validation through data sharing. Data 
sharing allows entities that make payments--to contractors, vendors, 
participants in benefit programs, and others--to compare information 
from different sources to help ensure that payments are appropriate. 
One example of data sharing is agencies' use of Social Security death 
data to guard against improper payments to deceased individuals or 
those who use deceased individuals' identities.\62\
---------------------------------------------------------------------------
    \62\ GAO, Improper Payments: Government-Wide Estimates and Use of 
Death Data to Prevent Payments to Deceased Individuals, GAO-15-482T 
(Washington, DC: Mar. 16, 2015).

      Predictive analytic technologies. The Small Business Jobs Act of 
2010 requires CMS to use predictive modeling and other analytic 
techniques--known as predictive analytic technologies--both to identify 
and to prevent improper payments under the Medicare Fee-for-Service 
program.\63\ Through analysis of provider networks, billing patterns, 
and beneficiary utilization patterns, unusual or suspicious patterns or 
abnormalities can be identified and used to prioritize investigation of 
suspicious transactions.
---------------------------------------------------------------------------
    \63\ Pub. L. No. 111-240, Sec. 4241 (Sept. 27, 2010).

      Program design review and refinement. Improper payments may be 
caused by specific aspects of a given program, providing agencies with 
opportunities to address improper payments through improved program 
design. For example, to the extent that provider enrollment and 
eligibility verification problems are identified as a significant root 
cause in a specific program, agencies may look to establish enhanced 
controls in this area. Further, exploring whether certain complex or 
inconsistent program requirements--such as eligibility criteria and 
requirements for provider enrollment--contribute to improper payments 
may lend insight to developing effective strategies for enhancing 
compliance and may identify opportunities for streamlining or changing 
---------------------------------------------------------------------------
eligibility or other program requirements.

    Although strong preventive controls remain the frontline defense 
against improper payments, effective detection techniques can help to 
quickly identify and recover those overpayments that do occur. 
Detection activities play a significant role not only in identifying 
improper payments but also in providing data on why these payments were 
made and, in turn, highlighting areas that need strengthened preventive 
controls. Further, strong detective controls can act as a deterrent to 
those intentionally trying to obtain overpayments. The following are 
examples of key detection techniques.

      Data mining. Data mining is a computer-based control activity 
that analyzes diverse data for relationships that have not previously 
been discovered. Data mining allows an organization to efficiently 
query a financial system to identify potential improper payments, such 
as multiple payments for the same invoice to the same recipient on the 
same date, or to the same address. In another example, in May 2015, we 
reported that the Department of Transportation's Federal transit 
benefit program established procedures for conducting debit card 
transaction data mining, including reviews of debit card transactions 
to identify potential misuse or irregular activity, such as the 
purchase of nontransit items.\64\ Similarly, we have found that if GAO 
had direct access to the National Directory of New Hires, which 
includes wage and employment information, from HHS, this would 
facilitate the identification of possible improper payments in a 
variety of Federal programs across the Federal Government.
---------------------------------------------------------------------------
    \64\ GAO, Federal Transit Benefit Program: DOT's Debit-Card 
Internal Controls Are Designed to Be Consistent with Federal Standards, 
GAO-15-497 (Washington, DC: May 29, 2015).

      Recovery auditing. Recovery auditing is used to identify and 
recover overpayments. IPERA requires agencies to conduct recovery 
audits, if cost-effective, for each program or activity that expends $1 
million or more annually.\65\ In its fiscal year 2014 agency financial 
report, HHS reported that the Medicare Fee-for-Service recovery audit 
program identified approximately $1.9 billion and recovered $2.4 
billion in overpayments by the end of the fiscal year. The amount 
collected is higher than the amount identified because it includes 
overpayments collected in fiscal year 2014 that were identified in 
previous years.
---------------------------------------------------------------------------
    \65\ Some agencies have reported statutory or regulatory barriers 
that affect their ability to pursue recovery auditing. For example, the 
Department of Agriculture has stated that a section of the Department 
of Agriculture Reorganization Act of 1994 affects the Farm Service 
Agency's ability to recover improper payments.

    To determine the full extent of improper payments government-wide 
and to more effectively recover and reduce them, as we reported in 
March 2015, continued agency attention is needed to (1) identify 
programs susceptible to improper payments, (2) develop reliable 
improper payment estimation methodologies, (3) report on improper 
payments as required, and (4) implement effective corrective actions 
based on root cause analysis.\66\ For example, as previously stated, 
agencies with programs that have been noncompliant with criteria in 
IPERA must take certain actions to bring the programs into compliance. 
These actions could improve transparency and accountability for agency 
management of improper payments and provide an opportunity for 
congressional oversight. We have also reported that agency top 
management needs to provide greater attention to ensure compliance with 
the provisions of Federal improper payment laws and related guidance, 
especially the issues identified in the OIG reports, to help reduce 
improper payments and ensure that Federal funds are used efficiently 
and for their intended purposes. Absent such continued efforts, the 
Federal Government cannot be assured that taxpayer funds are adequately 
safeguarded. Likewise, implementing recommendations we have previously 
made to address sources of improper payments in the three programs with 
the largest estimates--Medicare, Medicaid, and EITC--could 
significantly contribute to reducing improper payments overall.
---------------------------------------------------------------------------
    \66\ GAO, General Government: Governmentwide Improper Payments, 
accessed July 20, 2015, http://gao.gov/duplication/action_tracker/
Governmentwide_Improper_Payments.

                 need to address a significant tax gap
    The tax gap has been a persistent problem for decades. In January 
2012, IRS estimated that the gross tax gap was $450 billion in tax year 
2006 (the most current estimate available).\67\ From 2001 to 2006, IRS 
estimated that the gross tax gap increased by $105 billion. However, 
according to IRS during this period the percentage of taxes owed and 
paid on time remained relatively constant--just over 83 percent. IRS 
estimated that it would eventually recover about $65 billion of the 
gross tax gap through late payments and enforcement actions, leaving an 
annual estimated net tax gap of about $385 billion.\68\
---------------------------------------------------------------------------
    \67\ According to IRS officials, IRS plans to release an updated 
tax gap estimate in December 2015, at the earliest, which will be based 
on data from tax years 2008, 2009, and 2010.
    \68\ The tax gap does not include taxes due from illegally derived 
income or various forms of fraud. For example, in general, refund fraud 
related to identity theft would not be included in the tax gap estimate 
because it does not involve evading a tax liability. For filing season 
2013, IRS estimated that attempted identity theft refund fraud totaled 
about $30 billion, of which $5.8 billion was paid out.

    In the face of large and growing structural deficits, it is 
especially important to understand the causes of tax noncompliance and 
continue to develop new approaches to minimize noncompliance. The sheer 
size of the net tax gap--equivalent to roughly one-third of total 
Federal discretionary spending--is reason enough to renew efforts to 
address its root causes. In addition to its effects on the deficit, tax 
noncompliance--intentional or not--could discourage compliant taxpayers 
and undermines the integrity of the tax system and the public's 
confidence in it. This confidence is critical because the U.S. tax 
system relies heavily on voluntary compliance. If confidence declines, 
voluntary compliance is likely to decline as well. As we have 
previously testified, there are no easy fixes to reducing the tax 
gap.\69\ Rather, the tax gap must be attacked on multiple fronts and 
with multiple strategies over a sustained period.
---------------------------------------------------------------------------
    \69\ GAO, Tax Gap: Sources of Noncompliance and Strategies to 
Reduce It, GAO-12-651T (Washington, DC: Apr. 19, 2012), and Tax Gap: 
Complexity and Taxpayer Compliance, GAO-11-747T (Washington, DC: June 
28, 2011).
---------------------------------------------------------------------------
          underreporting is the biggest source of the tax gap
    The tax gap is spread across different types of taxpayer 
noncompliance and five types of taxes that IRS administers: individual 
income, corporate income, employment, estate, and excise taxes. The tax 
gap arises when taxpayers do not report their full tax liability on 
filed tax returns (underreporting), do not pay the full amount of taxes 
reported on filed returns (underpayment), or do not file a required tax 
return (nonfiling). As shown in figure 3, underreporting accounts for 
the largest portion of the tax gap--$376 billion of the $450 billion 
tax gap for tax year 2006. Underreporting of tax liabilities can occur 
when taxpayers report earning less income than they actually earned or 
report greater tax deductions, credits, or other tax benefits than they 
were entitled to claim.\70\ Individual income tax underreporting 
accounted for most--about $235 billion--of the underreporting tax gap 
estimate for tax year 2006. Of that amount, IRS reported that over 
half--$122 billion--comes from individuals' business income, including 
income from (1) sole proprietorships (persons who own unincorporated 
businesses by themselves), (2) partnerships (a group of two or more 
individuals or entities, such as corporations or other partnerships, 
that carry on a business), and (3) S-corporations (corporations meeting 
certain requirements that elect to be taxed under subchapter S of the 
Internal Revenue Code).
---------------------------------------------------------------------------
    \70\ Other tax benefits available to taxpayers are exemptions and 
exclusions from income and preferential tax rates, such as those for 
capital gains.

[GRAPHIC] [TIFF OMITTED] T00115.003


    reducing the tax gap would help improve the government's fiscal 
                position and promote taxpayer confidence
    As we have previously reported, completely closing the tax gap is 
not feasible as it would entail more intrusive enforcement and more 
burdensome recordkeeping or reporting than the public is willing to 
accept, and more resources than IRS is able to commit.\71\ However, 
given the size of the gross tax gap, which is larger than the interest 
the United States paid on its debt in fiscal year 2014 ($430 billion), 
even modest reductions would yield significant financial benefits and 
help improve the government's fiscal position. For example, just a 1 
percent reduction in the 2006 net tax gap would recover about $3.8 
billion more in revenue legally owed for just that one year. For 
illustrative purposes,\72\ this amount of revenue could fund:
---------------------------------------------------------------------------
    \71\ GAO-12-651T.
    \72\ Examples are based on fiscal year 2015 appropriations.

---------------------------------------------------------------------------
      nearly 90 percent of the legislative branch; or

      over half the judicial branch; or

      the entire National Park Service; or

      the combined operations of the U.S. Census Bureau ($1.1 
billion), the Small Business Administration ($0.9 billion), the 
Smithsonian ($0.8 billion), the Library of Congress ($0.6 billion) and 
the National Archives ($0.4 billion).

    Even when unintentional, tax noncompliance could discourage 
compliant taxpayers and undermines the integrity of the tax system and 
the public's confidence in it. For example, consider two taxpayers with 
similar tax situations--one who pays the full amount of tax due and the 
other who does not. The one who does not pay taxes is not meeting his 
or her obligation to fund government services and, in effect, shifts 
the fiscal burden to those who do pay. Also, IRS devotes resources to 
attempt to collect taxes due from the noncompliant taxpayer, resources 
that could be used for other purposes.

    Likewise, noncompliance can create an unfair competitive advantage 
between businesses, as those that do not pay tax debts are avoiding 
costs that tax-compliant businesses are incurring. For instance, our 
past investigations identified instances in which Federal contractors 
with tax debts won awards based on price differentials over tax 
compliant contractors. We made several recommendations to address the 
issue of Federal contractors that do not pay their tax debts, most of 
which were implemented.\73\
---------------------------------------------------------------------------
    \73\ We made recommendations to DOD, IRS, the Financial Management 
Service, and OMB to address issues with delinquent Federal contractors. 
See GAO, Financial Management: Thousands of Civilian Agency Contractors 
Abuse the Federal Tax System with Little Consequence, GAO-05-637 
(Washington, DC: June 16, 2005), and Financial Management: Some DOD 
Contractors Abuse the Federal Tax System with Little Consequence, GAO-
04-95 (Washington, DC: Feb. 12, 2004).

  key factors contributing to the tax gap include limited third-party 
information reporting, resource trade-offs, and complexities in the tax 
                                  code
    Our past work has found that three important factors contributing 
to the tax gap are the extent to which income is reported to IRS by 
third parties, IRS's resource trade-offs, and tax code complexity.

      Limited third-party information reporting. The extent to which 
individual taxpayers accurately report their income is correlated to 
the extent to which their income is reported to them and IRS (or taxes 
on that income are withheld) by third parties. For example, according 
to 2006 IRS data, for types of income for which there is little or no 
third-party information reporting, such as business income, over half 
of these types of income were misreported (see fig. 4). In contrast, 
employers report most wages and salaries to employees and IRS through 
Forms W-2 (Wage and Tax Statement). As shown below, nearly 99 percent 
of these types of income were accurately reported on individual tax 
returns. Similarly, banks and other financial institutions provide 
information returns (Forms 1099) to account holders and IRS showing 
taxpayers' annual income from some types of investments, and over 90 
percent of these types of income were accurately reported.

[GRAPHIC] [TIFF OMITTED] T00115.004


      Resource trade-offs. Since fiscal year 2010, IRS's annual 
appropriations have declined by $1.2 billion, and since fiscal year 
2009, staffing has fallen by about 11,000 full-time equivalent 
employees.\74\ At the same time, the agency's workload has increased 
because of a surge in identity-related refund fraud and the 
implementation of key provisions of PPACA, among other reasons. As a 
result of this imbalance, for example, IRS decreased its individual 
examination (or audit) coverage rate by 20 percent from fiscal years 
2013 to 2015. Reducing examinations can reduce revenues collected 
through such enforcement action and may indirectly reduce voluntary 
compliance.
---------------------------------------------------------------------------
    \74\ GAO, Internal Revenue Service: Observations on IRS's 
Operations, Planning, and Resources, GAO-15-420R (Washington, DC: Feb. 
27, 2015).

      Tax code complexity. The Federal tax system contains complex 
rules that may be necessary to appropriately target tax policy goals, 
such as providing benefits to specific groups of taxpayers. However, 
this complexity imposes a wide range of recordkeeping, planning, 
computing, and filing requirements upon taxpayers. For example, 
taxpayers who receive income from rents, self-
employment, and other sources may be required to make complicated 
calculations and keep detailed records. This complexity can engender 
errors and underpaid taxes. Complexity, and the lack of transparency 
that it can create, can also exacerbate doubts about the tax system's 
---------------------------------------------------------------------------
integrity.

    Tax expenditures--tax credits, deductions, exclusions, exemptions, 
deferrals, and preferential tax rates estimated by Treasury to reduce 
tax revenue by about $1.2 trillion in fiscal year 2014--can add to tax 
code complexity in part because they require taxpayers to learn about, 
determine their eligibility for, and choose between tax expenditures 
that may have similar purposes. For example, as we reported in 2012, 
about 14 percent of filers in 2009 (1.5 million of almost 11 million 
eligible returns) failed to claim an education credit or deduction for 
which they appear eligible.\75\ This complexity may be acceptable if 
tax expenditures achieve their intended purposes.\76\ However, in many 
cases, their effectiveness is questionable or unknown. We have 
recommended greater scrutiny of tax expenditures since 1994, as 
periodic reviews could help determine how well specific tax 
expenditures achieve their goals and how their benefits and costs 
(including complexity) compare to those of other programs with similar 
goals.\77\
---------------------------------------------------------------------------
    \75\ GAO, Higher Education: Improved Tax Information Could Help 
Families Pay for College, GAO-12-560 (Washington, DC: May 18, 2012).
    \76\ GAO, Tax Expenditures: IRS Data Available for Evaluations Are 
Limited, GAO-13-479 (Washington, DC: Apr. 30, 2013).
    \77\ GAO, Government Performance and Accountability: Tax 
Expenditures Represent a Substantial Federal Commitment and Need to Be 
Reexamined, GAO-05-690 (Washington, DC: Sept. 23, 2005) and Tax Policy: 
Tax Expenditures Deserve More Scrutiny, GAO/GGD/AIMD-94-122 
(Washington, DC: June 3, 1994). See also GAO, Tax Expenditures: 
Background and Evaluation Criteria and Questions, GAO-13-167SP 
(Washington, DC: Nov. 29, 2012).

    By tracking changes in tax laws, paid tax return preparers and tax 
software developers may help taxpayers navigate the complexities of the 
tax code. However, some paid preparers may introduce their own 
mistakes. For example, in a limited study in 2014, we found that 7 of 
19 preparers who completed returns for our undercover investigators 
made errors with substantial tax consequences.\78\ Likewise, using IRS 
data, we estimated that 60 percent of returns prepared by preparers 
contained errors.
---------------------------------------------------------------------------
    \78\ GAO, Paid Tax Return Preparers: In a Limited Study, Preparers 
Made Significant Errors, GAO-14-467T (Washington, DC: Apr. 8, 2014).
---------------------------------------------------------------------------
          multiple strategies are needed to reduce the tax gap
    IRS's overall approach to reducing the tax gap consists of 
improving services to taxpayers and enhancing enforcement of the tax 
laws. In spite of these efforts, the percentage at which taxpayers pay 
their taxes voluntarily and on time has remained constant over the past 
three decades. Our past work has demonstrated that no single approach 
will fully and cost-effectively address noncompliance since the problem 
has multiple causes and spans different types of taxes and taxpayers. 
In light of these challenges, the following strategies could help 
reduce the tax gap and are generally reflected in recommendations we 
have made to IRS that have not yet been implemented (see table 3) and 
matters for congressional consideration. A summary of these 
recommendations and matters for congressional consideration follows.


   Table 3: Strategies to Reduce the Tax Gap by Key Factors Contributing
                             to the Tax Gap
------------------------------------------------------------------------
   Limited third-party                           Complexities in the tax
  information reporting    Resource trade-offs            code
------------------------------------------------------------------------
Enhancing information     Developing a long-    Ensuring high-quality
 reporting by third        term strategy to      services to taxpayers
 parties                   enhance budget        Telephone service
                           planning
 Education payment        Return on            Online services
 information               investment data
 Automated matching       Strategic planning
 Accelerating W-2         Reassessing the
 filing deadlines          level of resources
                           devoted to
                           enforcement
                           Modernizing
                           Information
                           technology
                         -----------------------------------------------
                          Collecting more data  Leveraging stakeholders
                           on noncompliance      Paid tax preparers
                           Correspondence       Foreign governments
                           examinations          Whistleblowers
                           Partnerships and S-
                           corporations
                           Compliance
                           assurance process
                           Tax gap estimates
------------------------------------------------------------------------
Source: GAO. | GAO-16-92T

            enhancing information reporting by third parties
    Information reporting is a powerful tool that reduces tax evasion, 
helps taxpayers comply voluntarily, and increases IRS's enforcement 
capabilities. Generally, new requirements on third parties to submit 
information returns would require statutory changes. We have also 
identified the following improvements that IRS could make to existing 
forms and better ways to use them.

      Education payment information. We previously recommended that 
IRS revise Form 1098-T (Tuition Statement) on which educational 
institutions are required to report to IRS information on qualified 
tuition and related expenses for higher education. Taxpayers can also 
use this information to determine the amount of educational tax 
benefits they can claim on their tax return.\79\ IRS allows 
institutions to report either the amount paid or the amount billed for 
qualified expenses. IRS officials stated that most institutions report 
the amount billed and do not report the actual amount paid. The amount 
billed may be different than from the amount that can be claimed as a 
credit. For example, the amount billed may not account for all 
scholarships or grants the student received. In such cases, the Form 
1098-T may overstate the amount that can be claimed as a credit, 
confusing taxpayers. Conversely, if institutions are not providing 
information on other eligible items, such as books or equipment, 
taxpayers might be understating their claims. In order to reduce 
taxpayer confusion and enhance compliance with the requirements, we 
recommended that IRS revise the form. The administration has sought 
legislative authority to require reporting of amounts paid. Legislation 
enacted in June 2015 only allows a taxpayer to claim a credit or 
deduction for education expenses if he or she received a Form 1098-T 
from an educational institution.\80\ The Joint Committee on Taxation 
estimates that this requirement will raise approximately $576 million 
through 2025 by reducing erroneous claims by taxpayers without valid 
Forms 1098-T. However, without a requirement for institutions to report 
amounts paid, taxpayers may remain confused by the information reported 
to them, and IRS may miss an opportunity to make use of a low-cost, 
less intrusive tool that could help ensure compliance.
---------------------------------------------------------------------------
    \79\ GAO, 2009 Tax Filing Season: IRS Met Many 2009 Goals, but 
Telephone Access Remained Low, and Taxpayer Service and Enforcement 
Could Be Improved, GAO-10-225 (Washington, DC: Dec. 10, 2009).
    \80\ Trade Preferences Extension Act of 2015, Pub. L. No. 114-27, 
Sec. 804, 129 Stat 362, 415 (June 29, 2015).

      Automated matching. Taking greater advantage of automated 
processes could enhance some IRS enforcement programs. For example, IRS 
does not routinely match the K-1 information return--on which 
partnerships and S corporations report income distributed to partners 
or shareholders--to income information on tax returns for partners and 
shareholders that are themselves partnerships and S corporations. 
Matching such information could provide another tool for detecting 
noncompliance by these types of entities. In 2014, we recommended that 
IRS test the feasibility of such matching.\81\ IRS reported that it 
understands the objective of this recommendation and, at such time that 
resources are available to enhance capabilities, it would consider the 
proposed methodology of advanced testing. These resource limitations 
are precisely why we believe that IRS needs to take action to develop 
better information for making decisions on how to allocate existing 
resources.
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    \81\ GAO, Partnerships and S Corporations: IRS Needs to Improve 
Information to Address Tax Noncompliance, GAO-14-453 (Washington, DC: 
May 14, 2014).

      Accelerating W-2 filing deadlines. Accelerating W-2 filing 
deadlines could help IRS reduce improper EITC payments and help close 
the tax gap. Specifically, IRS has reported that a common EITC error is 
misreporting income; however, the timing of deadlines for filing Forms 
W-2 poses a challenge for enforcement. Rather than holding refunds 
until all compliance checks can be completed, IRS issues most refunds 
months before receiving and matching information returns, such as the 
W-2 to tax returns. As a result, IRS's ``pay and chase'' compliance 
model tries to recover bad refunds and unpaid taxes after matching 
information and pursuing discrepancies. If IRS had access to W-2 data 
earlier, it could match such information to taxpayer returns to 
identify discrepancies with EITC claims and potentially collect 
additional taxes. Moreover, earlier matching could help IRS prevent 
issuing billions of dollars of potentially fraudulent refunds because 
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of identity theft.

       Treasury recently proposed to Congress that the due date for 
filing information returns with IRS, including the Form W-2, be moved 
to January 31st to facilitate the use of earnings information in the 
detection of noncompliance.\82\ Because any change to filing deadlines 
could impose burdens on employers and taxpayers as well as create 
additional costs to IRS for systems and process changes, Congress and 
other stakeholders would need information on this impact to fully 
assess any potential changes. For example, the deadline change could 
involve upgrades to IRS's information technology systems; logistical 
challenges coordinating with other agencies, such as the Social 
Security Administration; and regulatory and policy changes, such as 
delaying refunds and the start of the filing season.
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    \82\ By law, employers have until February 28 to file Forms W-2 
with the Social Security Administration on paper and until March 31st 
to file W-2 information electronically, except when those deadlines 
fall on a weekend or Federal holiday. In that case, the deadline is the 
next Federal business day.

       In August 2014, we recommended that IRS estimate the costs and 
benefits of accelerating W-2 deadlines and options to implement pre-
refund matching using W-2 data as a method to combat the billions of 
dollars lost to identity refund fraud, allowing the agency more 
opportunity to match employers' and taxpayers' information.\83\ In 
November 2014, IRS reported that it had convened a working group of 
internal stakeholders and subject matter experts to identify the costs 
and benefits of accelerating Form W-2 deadlines. As of July 2015, the 
working group had drafted a document that is currently under review by 
other agencies, including Treasury and the Social Security 
Administration. In September 2015, the Senate Committee on Finance 
scheduled a committee markup of a bill to prevent identity theft and 
tax refund fraud, including a provision to modify due dates for filing 
Forms W-2. The Joint Committee on Taxation estimated that the provision 
would raise $151 million in revenue through fiscal year 2025.\84\
---------------------------------------------------------------------------
    \83\ GAO, Identity Theft: Additional Actions Could Help IRS Combat 
the Large, Evolving Threat of Refund Fraud, GAO-14-633 (Washington, DC: 
Aug. 20, 2014).
    \84\ In 2015, the administration also submitted a legislative 
proposal for FY 2016 to accelerate the filing dates of certain 
information returns, including the W-2, with an estimated revenue 
effect of $1.6 billion for fiscal years 2016 through 2025. However, 
compared to the provision on which JCT based its estimate, the 
administration's proposal included additional types of returns and an 
earlier filing date.

       developing a long-term strategy to enhance budget planning
    A long-term strategy that includes a fundamental reexamination of 
IRS's operations, programs, and organizational structure could help it 
operate more effectively and efficiently in an environment of budget 
uncertainty. IRS has taken some interim steps, but they are not 
sufficient to stem performance declines.

      Return on investment data. IRS could use return on investment 
data to allocate its enforcement resources and potentially increase 
revenues. In 2012, we found that IRS was spending most of its 
enforcement resources on examinations of taxpayers with less than 
$200,000 in positive income, even though direct revenue return on 
investment was highest for examinations of taxpayers with $200,000 or 
more in positive income.\85\ Therefore, we recommended that IRS conduct 
a cost-benefit analysis across different enforcement programs and cases 
within programs to determine whether to reallocate its enforcement 
resources each year. We demonstrated how a relatively small 
hypothetical shift in resources could potentially increase direct 
revenue by $1 billion annually (as long as the average ratio of direct 
revenue to cost for each category of returns did not change), without 
significant negative effects on voluntary compliance. Resource 
reallocation can also affect tax collections indirectly by influencing 
the voluntary compliance of nonexamined taxpayers.
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    \85\ GAO, Tax Gap: IRS Could Significantly Increase Revenues by 
Better Targeting Enforcement Resources, GAO-13-151 (Washington, DC: 
Dec. 5, 2012).

       Similarly, in a 2009 report, we found that IRS was able to 
examine only about 1 percent of estimated noncompliant sole proprietors 
in 2008 even though it had invested nearly a quarter of all revenue 
agent time toward this purpose.\86\ We found that not only are these 
examinations burdensome for businesses, they are also costly for IRS 
and yield less revenue than examinations of other categories of 
taxpayers, in part because most sole proprietorships have low receipt 
amounts.
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    \86\ GAO, Tax Gap: Limiting Sole Proprietor Loss Deductions Could 
Improve Compliance but Would Also Limit Some Legitimate Losses, GAO-09-
815 (Washington, DC: Sept. 10, 2009). IRS revenue agents examine 
taxpayers' tax returns to determine Federal tax liability and 
compliance with tax law.

       IRS officials reported they have developed a methodology for 
estimating marginal direct revenue and costs for selected workload 
categories within their correspondence examination program. They are 
working to apply this methodology to other categories within that 
program and to other forms of examinations; however, they expect that 
effort will be much more complex and time-consuming. As of July 2015, 
---------------------------------------------------------------------------
officials do not yet have a timeline for full implementation.

      Strategic planning. In June 2014, we reported that IRS's 
strategic plan did not address budget uncertainty, although there are 
reasons to believe that funding will be constrained for the foreseeable 
future.\87\ We recommended that IRS reexamine programs, related 
processes, and organizational structures to determine whether they are 
effectively and efficiently achieving the IRS mission, and streamline 
or consolidate management or operational processes and functions to 
make them more cost-effective. IRS agreed with our recommendation and 
is taking steps to implement it; for example, according to IRS 
officials, a new process was developed for building the fiscal year 
2017 budget request, which included determining IRS-wide priorities.
---------------------------------------------------------------------------
    \87\ GAO, IRS 2015 Budget: Long-Term Strategy and Return on 
Investment Data Needed to Better Manage Budget Uncertainty and Set 
Priorities, GAO-14-605 (Washington, DC: June 12, 2014).

      Reassessing the level of resources devoted to enforcement. 
Additional resources for enforcement would enable IRS to contact 
millions of potentially noncompliant taxpayers it identifies but cannot 
contact because of budget constraints. Since fiscal year 2010, IRS's 
enforcement resources have declined by more than 10 percent, from $5.5 
billion to $4.9 billion in fiscal year 2015. To determine the 
appropriate level of enforcement resources, we have previously reported 
that policymakers would need to consider how to balance taxpayer 
service and enforcement activities and how effectively and efficiently 
IRS currently uses its resources.\88\
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    \88\ GAO-12-651T.

      Modernizing information technology. IRS relies on information 
systems in many aspects of its operations from taxpayer service to 
compliance and enforcement. Therefore, investing resources to modernize 
IRS's information systems is an important step toward improving 
taxpayer compliance. For example, in fiscal year 2009, IRS began 
funding the Information Reporting and Document Matching (IRDM) program 
in part to implement two new information reporting requirements focused 
on merchant card payments and securities basis reporting. IRDM also 
established a new matching program to identify underreported business 
income and expanded IRS's ability to use information returns to improve 
voluntary compliance and accurate reporting of income. Under IRDM, IRS 
built or enhanced several information systems to sort, match, identify, 
and manage returns that are likely sources of revenue that IRS could 
not have easily identified using its existing matching system.\89\ IRS 
has other modernization efforts underway, such as its Customer Account 
Data Engine 2 investment, which enables daily tax processing and is 
intended to provide faster refunds to taxpayers, more timely account 
updates, and faster issuance of taxpayer notices. We have ongoing work 
to determine the progress of such modernization efforts, and plan to 
issue a report associated with this work in the spring of 2016.
---------------------------------------------------------------------------
    \89\ GAO, Information Technology: IRS Needs to Improve the 
Reliability and Transparency of Reported Investment Information, GAO-
14-298 (Washington, DC: Apr. 2, 2014); IRS Management: Cost Estimate 
for New Information Reporting System Needs to be Made More Reliable, 
GAO-12-59 (Washington, DC: Jan. 31, 2012); and Information Reporting: 
IRS Could Improve Cost Basis and Transaction Settlement Reporting 
Implementation, GAO-11-557 (Washington, DC: May 19, 2011).
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Collecting More Data on Noncompliance
    A critical step toward reducing the tax gap is to understand the 
sources and nature of taxpayer noncompliance. We have long encouraged 
regularly measuring tax noncompliance as well as estimating the tax 
gap, in part because analyzing the data used to determine the estimate 
can help identify ways to improve IRS's efforts and increase 
compliance. IRS continues to measure the extent of taxpayer 
noncompliance. However, our work has found that IRS does not adequately 
measure the effect of some specific components of its compliance 
programs, such as the following:

      Correspondence examinations. IRS does not have information to 
determine how its program of examining individual tax returns via 
correspondence affects the agency's broader strategic goals for 
compliance, taxpayer burden, and cost. Thus, it is not possible to tell 
whether the program is performing better or worse from one year to the 
next. In 2014, we made several recommendations related to monitoring 
program performance.\90\ IRS officials said they will review current 
documentation and ensure that they establish correspondence audit 
program objectives and measures and clearly link them to the overall 
IRS goals and objectives. Officials also said they will update official 
guidance as warranted and plan to implement this recommendation by 
March 2016.
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    \90\ GAO, IRS Correspondence Audits: Better Management Could 
Improve Tax Compliance and Reduce Taxpayer Burden, GAO-14-479 
(Washington, DC: June 5, 2014).

      Partnerships and S-corporations. In 2014, we found that the full 
extent of partnership and S-corporation income misreporting is unknown, 
and that IRS examinations and automated document matching have not been 
effective at finding most of the estimated misreported income.\91\ 
Further, IRS does not know how income misreporting by partnerships 
affects taxes paid by partners. We recommended, among other things, 
that IRS (1) develop a strategy to improve its information on the 
extent and nature of partnership misreporting and (2) use the 
information to potentially improve how it selects partnership returns 
to examine. IRS has developed a strategy, which would involve a multi-
year examination effort to collect audit data from a representative, 
statistical sample of partnerships. In September 2015, IRS officials 
stated that they were beginning a discussion about implementing the 
proposed strategy, and therefore do not yet have a timeline for 
implementation. Without this information, IRS is unable to make fully 
informed, data-based decisions on examination selection.
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    \91\ GAO-14-453.

      Compliance Assurance Process (CAP). IRS does not fully assess 
the savings it achieves from its CAP--through which large corporate 
taxpayers and IRS agree on how to report tax issues before tax returns 
are filed. In 2013, we recommended that IRS track savings from CAP and 
develop a plan for reinvesting any savings to help ensure the program 
is meeting its goals.\92\ In response to our recommendation, IRS has 
taken steps to track savings by analyzing and comparing the workload 
inventory of account coordinators who handle CAP cases against team 
coordinators who handle non-CAP cases. However, as of September 2015, 
IRS has not shown how such a workload comparison demonstrated savings 
from CAP or developed a plan for reinvesting any savings. Without a 
plan for tracking savings and using the savings to increase examination 
coverage, IRS cannot be assured that the savings are effectively 
invested in either CAP or non-CAP taxpayers with high compliance risk.
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    \92\ GAO, Corporate Tax Compliance: IRS Should Determine Whether 
Its Streamlined Corporate Audit Process Is Meeting Its Goals, GAO-13-
662 (Washington, DC: Aug. 22, 2013).

      Tax gap estimates. IRS issued its last detailed study of the tax 
gap in January 2012, which used tax year 2006 data. According to IRS 
officials, the next tax gap update is scheduled to be released in 
December 2015, at the earliest. Without more compliance information, 
IRS does not have reliable data about its compliance results to fully 
inform decisions about allocating examination resources across 
different types of businesses.
Ensuring High-Quality Services to Taxpayers
    IRS provides taxpayers an array of services by telephone, by 
correspondence, and online. Ensuring high-quality services is a 
necessary foundation for voluntary compliance, as it can help taxpayers 
who wish to comply with tax laws but do not understand their 
obligations. However, in recent years IRS has struggled to maintain or 
improve services in the following areas.

      Telephone services. In fiscal year 2014, taxpayers had to wait 
an average of about 20 minutes to speak with someone at IRS, more than 
twice as long as they did in fiscal year 2009, when the average wait 
time was about 9 minutes. Wait times have increased in part because IRS 
devoted fewer full-time equivalent employees to answering telephones 
and because the average time assisting taxpayers with their questions 
has increased. In December 2014, we recommended that IRS benchmark its 
telephone service measures to the best in the business.\93\ IRS 
disagreed with this recommendation, noting in February 2015 that it is 
difficult to identify comparable organizations with a size or scope 
similar to that of IRS. We disagree that IRS's telephone operations 
cannot be compared to others. IRS previously benchmarked its telephone 
level of service measure to both private and public sector 
organizations, which allowed it to identify options for modifying that 
measure. IRS uses more than one measure (i.e., level of service) to 
fully evaluate its telephone performance, and benchmarking all of these 
measures alongside each other to the best in the business could help 
inform Congress about resources needed to improve the level of service 
provided to taxpayers in a budget constrained environment. Accordingly, 
we believe this recommendation remains valid and should be implemented.
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    \93\ GAO, Tax Filing Season: 2014 Performance Highlights the Need 
to Better Manage Taxpayer Service and Future Risks, GAO-15-163 
(Washington, DC: Dec. 16, 2014).

      Online services. Taxpayers benefit from online services because 
they can research large amounts of tax guidance, the services are 
available 24 hours a day, and there is no waiting to speak to a 
telephone representative. While IRS's website provides some basic tools 
to request personalized information, such as the status of refunds, the 
website does not give taxpayers interactive personal account access. 
The National Taxpayer Advocate, the Electronic Tax Administration 
Advisory Committee, and others have all recommended that IRS provide 
taxpayers with online access to their accounts, including ways to 
resolve compliance problems. In December 2011 and April 2013, we 
recommended that IRS develop a long-term strategy to improve web 
services.\94\
---------------------------------------------------------------------------
    \94\ GAO, IRS Website: Long-Term Strategy Needed to Improve 
Interactive Services, GAO-13-435 (Washington, DC: Apr. 16, 2013), and 
2011 Tax Filing: Processing Gains, but Taxpayer Assistance Could Be 
Enhanced by More Self-Service Tools, GAO-12-176 (Washington, DC: Dec. 
15, 2011).

       As of July 2015, IRS reported that it is integrating online 
services as a key component of its new Service on Demand (SOD) 
strategy, which aims to deliver service improvements across different 
taxpayer interactions, such as individual account assistance, refunds, 
identity theft, and billings and payments. However, the SOD strategy 
does not include specific goals, performance metrics, or implementation 
time frames. A comprehensive long-term strategy for online services 
that includes these characteristics--whether or not it is incorporated 
into a broader strategy such as SOD--would help ensure that IRS is 
maximizing the benefit to taxpayers from this investment and reduce 
costs in other areas, such as IRS's telephone operations. Further, it 
could address procedures to better protect online accessible data, 
which are especially important after the data breach discovered in May 
2015 in which individuals used IRS's online services to gain access to 
information from over 330,000 taxpayers. Thus, we believe this 
recommendation remains valid and should be implemented.
Leveraging Stakeholders
    Another way IRS may be able to reduce the tax gap is by leveraging 
stakeholders. Given the complexities in the tax code, taxpayers and IRS 
can benefit from the expertise of tax return preparers and information 
shared by foreign governments and whistleblowers.

      Paid tax return preparers. Over half of all taxpayers rely on 
the expertise of a paid preparer to provide advice and help them meet 
their tax obligations. IRS regards paid preparers as a critical link 
between taxpayers and the government. Consequently, paid preparers are 
in a position to have a significant impact on the Federal Government's 
ability to collect revenue and minimize the tax gap. We have previously 
reported that for IRS to improve its enforcement of tax laws, it must 
continue to seek ways to leverage paid preparers to improve tax 
compliance.\95\
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    \95\ GAO, High-Risk Series: An Update, GAO-13-283 (Washington, DC: 
Feb. 2013). As discussed later in this statement, however, additional 
regulation of paid preparers could improve the accuracy of returns they 
prepare.

      Foreign governments. Information from foreign governments is 
also important to help improve tax compliance. Increasingly, tax 
authorities around the world are exchanging information with other 
countries to administer and enforce the tax laws of their respective 
countries. Under the Foreign Account Tax Compliance Act,\96\ for 
example, U.S. financial institutions and other entities are required to 
withhold a portion of certain payments made to foreign financial 
institutions, if those institutions have not entered into an agreement 
with IRS to report U.S. account holders' details to IRS. We have 
previously reported that it is particularly important that the United 
States continues to develop and maintain cooperative relationships with 
other countries to help ensure that U.S. taxpayers comply with U.S. tax 
laws.\97\
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    \96\ Pub. L. No. 111-147, Title V, 124 Stat. 71, 97-117 (Mar. 18, 
2010).
    \97\ GAO, Tax Administration: IRS's Information Exchanges with 
Other Countries Could Be Improved through Better Performance 
Information, GAO-11-730 (Washington, DC: Sept. 9, 2011).

      Whistleblowers. Whistleblowers provide IRS information on 
suspected noncompliance. They have the potential to help IRS collect 
billions in tax revenue that may otherwise go uncollected. Since IRS 
expanded its whistleblower program in 2007, it has collected over $1 
billion because of whistleblower claims.\98\ We have ongoing work for 
this committee that focuses on improving IRS's communication with 
whistleblowers and the timeliness of claims processing, among other 
things, which could help IRS recover more unpaid tax revenues.\99\
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    \98\ The Tax Relief and Health Care Act of 2006 expanded the IRS 
whistleblower program, making award payments to whistleblowers 
mandatory in certain circumstances and directing IRS to create its 
Whistleblower Office.
    \99\ We expect to report on our results later this year.
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Considering Legislative Action
    Given that the tax gap has been a persistent issue, we have 
previously reported that reducing it will require targeted legislative 
actions, including the following:

      Additional third-party information reporting. As noted earlier, 
taxpayers are much more likely to report their income accurately when 
the income is also reported to IRS by a third party. In 2008 and 2009, 
we suggested Congress consider expanding third-party information 
reporting to include payments for services to rental real estate owners 
and payments for services provided by corporations, respectively.\100\ 
In 2010, the Joint Committee on Taxation estimated potential revenue 
increases for a 10-year period to be $2.5 billion for third-party 
information reporting of rental real estate service payments and $3.4 
billion for third-party information reporting of service payments to 
corporations. Congress enacted a more expansive regime in 2010, 
covering reporting of payments for goods as well as services, and 
subsequently repealed these provisions. A more narrow extension of 
reporting requirements of payments for services provided by 
corporations and for services provided to rental real estate owners 
remains an important option for improving compliance.
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    \100\ GAO, Tax Gap: IRS Could Do More to Promote Compliance by 
Third Parties with Miscellaneous Income Reporting Requirements, GAO-09-
238 (Washington, DC: Jan. 28, 2009), and Tax Gap: Actions That Could 
Improve Rental Real Estate Reporting Compliance, GAO-08-956 
(Washington, DC: Aug. 28, 2008).

      Enhanced electronic filing. Requiring additional taxpayers to 
electronically file tax and information returns could help IRS improve 
compliance in a resource-efficient way. For example, partnerships with 
more than 100 partners and corporations with assets of $10 million or 
more that file at least 250 returns during the calendar year must 
electronically file their returns. In 2014, we suggested that Congress 
consider expanding the mandate for partnerships and corporations to 
electronically file their tax returns, as this could help IRS reduce 
return processing costs, select the most productive tax returns to 
examine, and examine fewer compliant taxpayers.\101\
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    \101\ GAO-14-453. IRS is generally prohibited from requiring those 
filing fewer than 250 returns annually to electronically file their 
returns. However, partnerships with more than 100 partners must 
electronically file regardless of the number of returns they file 
annually. 26 U.S.C. Sec. 6011(e)(2).

      Math error authority. IRS has the authority to correct 
calculation errors and check for other obvious noncompliance such as 
claims above income and credit limits. Treasury has proposed expanding 
IRS's ``math error'' authority to ``correctible error'' authority to 
permit it to correct errors in cases where information provided by the 
taxpayer does not match information in government databases, among 
other things. Expanding such authority--which we have suggested 
Congress consider with appropriate safeguards--could help IRS correct 
additional errors and avoid burdensome audits and taxpayer 
penalties.\102\ In March 2015, the Joint Committee on Taxation 
estimated that more flexible correctible error authority could raise 
$133 million through 2025.
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    \102\ GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, 
but Reporting and Enforcement Improvements Are Needed, GAO-10-349 
(Washington, DC: Feb. 10, 2010). GAO recently recommended that IRS 
assess whether data received from the health insurance marketplaces are 
sufficiently complete and accurate to be used to correct claims for the 
premium tax credit on returns, and if the assessment determines that 
such corrections would be effective, seek legislative ``correctible 
error'' authority for this specific purpose. GAO, Patient Protection 
and Affordable Care Act: IRS Needs to Strengthen Oversight of Tax 
Provisions for Individuals, GAO-15-540 (Washington, DC: July 29, 2015).

      Paid preparer regulation. Establishing requirements for paid tax 
return preparers could improve the accuracy of the tax returns they 
prepare. Oregon began regulating preparers in the 1970s and requires 
testing among other requirements. In August 2008, we found that the 
odds that a return filed by an Oregon paid preparer was accurate were 
72 percent higher than the odds for a comparable return filed by a paid 
preparer in the rest of the country.\103\ In August 2014, IRS reported 
that 68 percent of all tax returns claiming the EITC in tax years 2006 
and 2007 were prepared by paid tax preparers--most of whom were not 
subject to any IRS regulation--and that from 43 to 50 percent of the 
returns overclaimed the credit.\104\ Similarly, in our undercover 
visits in 2014 to randomly selected tax preparers, a sample that cannot 
be generalized, we found errors in EITC claims and non-Form W-2 income 
reporting (for example, cash tips) resulting in significant 
overstatement of refunds.\105\ Establishing requirements for paid tax 
return preparers could improve the accuracy of the tax returns they 
prepare, not just returns claiming EITC. In 2014, we suggested Congress 
consider granting IRS the authority to regulate paid tax preparers, if 
it agrees that significant paid preparer errors exist.\106\ In 
September 2015, the Senate Committee on Finance scheduled a committee 
markup of a bill to introduce legislation that would regulate all paid 
tax return preparers, which the Joint Committee on Taxation estimated 
would raise $135 million in revenue through fiscal year 2025.
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    \103\ GAO, Tax Preparers: Oregon's Regulatory Regime May Lead to 
Improved Federal Tax Return Accuracy and Provides a Possible Model for 
National Regulation, GAO-08-781 (Washington, DC: Aug. 15, 2008).
    \104\ Internal Revenue Service, Compliance Estimates for the Earned 
Income Tax Credit Claimed on 2006-2008 Returns, Publication 5162 (8-
2014) (Washington, DC: Aug. 2014).
    \105\ GAO, Paid Tax Return Preparers: In a Limited Study, Preparers 
Made Significant Errors, GAO-14-467T (Washington, DC: Apr. 8, 2014). A 
previous study found similar results: see Paid Tax Return Preparers: In 
a Limited Study, Chain Preparers Made Serious Errors, GAO-06-563T 
(Washington, DC: Apr. 4, 2006).
    \106\ GAO-14-467T. Treasury and IRS issued regulations in 2010 and 
2011 to require registration, competency testing, and continuing 
education for paid tax return preparers and to subject these new 
registrants to standards of conduct in their practice. However, the 
district court ruled, and the court of appeals affirmed, that IRS did 
not have the statutory authority to regulate these preparers. Loving v. 
IRS, 917 F. Supp. 2d67 (D.D.C. 2013), aff'd 742 F.3d 1013 (D.C. Cir. 
2014).

      Tax reform and simplification. A broader opportunity to address 
the tax gap involves simplifying the Internal Revenue Code, as 
complexity can cause taxpayer confusion and provide opportunities to 
hide willful noncompliance. Fundamental tax reform could result in a 
smaller tax gap if the new system has fewer tax preferences or complex 
tax code provisions; such reform could reduce IRS's enforcement 
challenges and increase public confidence in the tax system. Short of 
fundamental reform, targeted simplification opportunities also exist. 
Amending the tax code to make definitions more consistent across tax 
provisions could help taxpayers more easily understand and comply with 
their obligations and get the maximum tax benefit for their situations. 
For example, there are several provisions in the tax code benefiting 
taxpayers' educational expenses, but the definition of what qualifies 
as a higher-education expense varies between these tax 
expenditures.\107\
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    \107\ GAO, Student Aid and Postsecondary Tax Preferences: Limited 
Research Exists on Effectiveness of Tools to Assist Students and 
Families through Title IV Student Aid and Tax Preferences, GAO-05-684 
(Washington, DC: July 29, 2005).

    There are no easy solutions to addressing the tax gap. Reducing the 
tax gap will require multiple strategies and long-term changes in IRS's 
operations and systems. Such changes are as important as ever given the 
Nation's fiscal challenges and require the combined efforts of Congress 
and IRS. Implementing our recommendations and legislative options could 
increase revenues and promote savings, leading to greater fiscal 
---------------------------------------------------------------------------
stability.

    With outlays for major programs, such as Medicare and Medicaid, 
expected to increase over the next few years, it is critical that 
actions are taken to reduce improper payments and minimize the tax gap. 
There is considerable opportunity to improve the government's fiscal 
position without detrimentally affecting the valuable programs that 
serve our citizens. For this reason, we will continue to assist 
Congress by focusing attention on issues related to improper payments 
and the tax gap.

    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
this completes my prepared statement. I would be pleased to answer 
questions that you may have at this time.


    Appendix I: Programs With Improper Payment Estimates Exceeding $1
                      Billion in  Fiscal Year 2014
------------------------------------------------------------------------
                                             Fiscal year 2014 reported
                                            improper payment estimates
                                         -------------------------------
      Program               Agency                           Estimated
                                             Estimated      error rate
                                           dollars  (in   (percentage of
                                             millions)       outlays)
------------------------------------------------------------------------
Medicare             Department of               $59,914              --
                      Health and Human
                      Services (HHS)
------------------------------------------------------------------------
Medicare Fee-for-    HHS                          45,754           12.7%
 Service (Parts A
 and B)
------------------------------------------------------------------------
Medicare Advantage   HHS                          12,229            9.0%
 (Part C)
------------------------------------------------------------------------
Medicare             HHS                           1,931            3.3%
 Prescription Drug
 (Part D)
------------------------------------------------------------------------
Earned Income Tax    Department of the            17,700           27.2%
 Credit               Treasury
------------------------------------------------------------------------
Medicaid             HHS                          17,492            6.7%
------------------------------------------------------------------------
Unemployment         Department of Labor           5,604           11.6%
 Insurance
------------------------------------------------------------------------
Supplemental         Social Security               5,107            9.2%
 Security Income      Administration
                      (SSA)
------------------------------------------------------------------------
Old Age, Survivors,  SSA                           3,000            0.4%
 and Disability
 Insurance
------------------------------------------------------------------------
Supplemental         Department of                 2,437            3.2%
 Nutrition            Agriculture (USDA)
 Assistance Program
------------------------------------------------------------------------
School Lunch         USDA                          1,748           15.3%
------------------------------------------------------------------------
Direct Loan          Department of                 1,532            1.5%
                      Education
------------------------------------------------------------------------
Public Housing/      Department of                 1,029            3.2%
 Rental Assistance    Housing and Urban
                      Development
------------------------------------------------------------------------
Source: GAO summary of agencies' data. | GAO-16-92T


    Appendix II: Programs With Estimated Improper Payment Error Rates
                Exceeding 10 Percent in Fiscal Year 2014
------------------------------------------------------------------------
                                             Fiscal year 2014 reported
                                            improper payment estimates
                                         -------------------------------
      Program               Agency                           Estimated
                                             Estimated      error rate
                                           dollars  (in   (percentage of
                                             millions)       outlays)
------------------------------------------------------------------------
Estimated error rates above 20 percent
------------------------------------------------------------------------
Earned Income Tax    Department of the           $17,700           27.2%
 Credit               Treasury
------------------------------------------------------------------------
School Breakfast     Department of                   923           25.6%
                      Agriculture (USDA)
------------------------------------------------------------------------
Farm Security and    USDA                            508           23.1%
 Rural Investment
 Act Programs
------------------------------------------------------------------------
Estimated error rates from 15 to 20 percent
------------------------------------------------------------------------
Loan Deficiency      USDA                            0 a           18.8%
 Payments
------------------------------------------------------------------------
School Lunch         USDA                          1,748           15.3%
------------------------------------------------------------------------
Estimated error rates from 10 to 15 percent
------------------------------------------------------------------------
Disaster Relief--    Department of                     9           13.5%
 Administration for   Health and Human
 Children and         Services (HHS)
 Families Social
 Services Block
 Grant
------------------------------------------------------------------------
Medicare Fee-for-    HHS                          45,754           12.7%
 Service (Parts A
 and B)
------------------------------------------------------------------------
Disaster Relief      HHS                             0 a           12.7%
 (Substance Abuse
 and Mental Health
 Services
 Administration)
------------------------------------------------------------------------
Disaster Assistance  Small Business                   70           12.0%
 Loans                Administration
------------------------------------------------------------------------
Unemployment         Department of Labor           5,604           11.6%
 Insurance
------------------------------------------------------------------------
Source: GAO summary of agencies' data. | GAO-16-92T
 
a Improper payment estimates for these programs are displayed as zero
  because of rounding.


                                 ______
                                 
       Questions Submitted for the Record to Hon. Gene L. Dodaro
               Questions Submitted by Hon. Orrin G. Hatch
    Question. I am very concerned about the $19 billion increase in 
improper payments from 2013 to 2014. Do you have a sense of whether any 
of that increase was due to changes in our payment systems or in the 
methodology for estimating improper payments, or whether it represents 
a true increase in improper payments?

    Answer. Although error rates for multiple programs increased in 
fiscal year 2014, the $19 billion government-wide increase in improper 
payments was primarily due to increased error rates in 3 programs: 
Medicare Fee-for-Service, Medicaid, and the Earned Income Tax Credit 
(EITC).

    According to the Centers for Medicare and Medicaid Services (CMS), 
the increase in the Medicare improper payment rate from 2013 to 2014 
was in part a result of an increase in the improper payment rate for 
home health care due to a change in coverage requirements. The improper 
payment rate for home health claims increased from 17.3 percent in the 
fiscal year 2013 agency financial report to 51.4 percent in the fiscal 
year 2014 report. CMS implemented documentation requirements for 
physicians ordering home health care as part of the Patient Protection 
and Affordable Care Act (PPACA) requirement that physicians have a 
face-to-face meeting with beneficiaries for whom they are ordering home 
health care. CMS has reported that the provider community had problems 
meeting the documentation requirement. Effective January 1, 2015, CMS 
has modified the documentation requirement for physicians ordering home 
health care and the agency hopes doing so will result in a lower 
improper payment rate. Another reason cited for the increase in the 
improper payment error rate was medical necessity errors for inpatient 
hospital claims, particularly short stays that were determined to not 
be medically necessary in an inpatient setting and should have been 
billed as outpatient. The methodology used to calculate the Medicare 
improper payment rate remained the same for the fiscal year 2013 and 
2014 error rates.

    According to the Department of Health and Human Services (HHS) 2014 
agency financial report, 80 percent of the fiscal year 2014 improper 
payments for Medicaid (by dollar amount) were due to verification 
errors. HHS stated that the verification errors were mostly caused by 
errors related to State claims processing systems not being fully 
compliant with new requirements, which indicates that the increase in 
improper payments was likely due to changes in payment and claims 
processing systems. These new requirements included that all referring 
or ordering providers must be enrolled in Medicaid, States must screen 
providers under a risk-based screening process prior to enrollment, and 
attending providers must include their National Provider Identifier on 
all electronically filed institutional claims. Thus, it is not clear 
whether these errors represent a true increase in improper payments or 
not. While these requirements will ultimately strengthen Medicaid's 
integrity, they require systems changes that many States have not fully 
implemented. HHS stated that it is working with all States to develop 
corrective action plans and these plans will include implementing new 
claims processing edits, converting to more sophisticated claims 
processing systems and implementing a new provider enrollment process, 
among other actions. Moving forward, GAO has started an examination of 
CMS' efforts to prevent and reduce Medicaid improper payments with an 
expected issuance in fall 2016. This work will include an examination 
of: CMS's oversight of States; State Medicaid program integrity efforts 
and the impact of Federal involvement on States' efforts; and the 
Medicaid Integrity Institute. We will provide a copy of this report to 
the committee when it is available.

    According to the Department of the Treasury's (Treasury) fiscal 
year 2014 agency financial report, the EITC error rate rose from 24.0 
percent in fiscal year 2013 to 27.2 percent in fiscal year 2014. The 
EITC improper payment rate is estimated using a statistically valid 
sample of returns audited through the IRS's National Research Program 
(NRP). The NRP conducts annual compliance studies of Form 1040 
taxpayers. Treasury indicated that the 2014 estimated EITC improper 
payment rate of 27.2 percent is consistent in magnitude with the 5-year 
average of 25 percent and reported no significant changes to its 
estimation methodology. Treasury reported that 70 percent of fiscal 
year 2014 EITC improper payments related to authentication errors, 
including the inability to authenticate qualifying child eligibility 
requirements, filing status, and eligibility in complex living 
situations. The remaining 30 percent of EITC improper payments related 
to verification errors, which include improper income reporting.

    Question. You have mentioned that some improper payments are 
associated with poor documentation. In fact, poor documentation appears 
to be a significant factor in the high amount of Medicare improper 
payments. This Committee has heard from numerous providers about issues 
they have experienced because of unclear, inconsistent or contradictory 
guidance from the Centers for Medicare and Medicaid Services about how 
to appropriately document certain types of services covered by 
Medicare. This has resulted in numerous appeals of Medicare coverage 
decisions and a backlog of nearly 1 million claims in the appeals 
system.

    Why is it important to have good documentation to support 
government payments?

    Answer. A lack of sufficient supporting documentation may mask the 
true causes of improper payments--including fraud. When payments lack 
the appropriate supporting documentation, their validity cannot be 
determined. It is possible that these payments were for valid purposes, 
but it is also possible that the lack of documentation could conceal 
fraudulent activities.

    The Medicare program represents a significant expenditure by the 
government on behalf of U.S. taxpayers. We have previously reported 
that there is a problem with fraud and abuse in the Medicare program 
and the health system broadly. Therefore, the government has a 
responsibility to ensure that the payments it makes are for medically 
necessary services actually provided to Medicare beneficiaries. 
Appropriate medical documentation helps to ensure that services were in 
fact provided, and that they were medically necessary to treat the 
beneficiary's condition. Medicare does not request medical 
documentation to support the vast majority of services provided to 
Medicare beneficiaries. In fact, CMS reports that less than 1 percent 
of Medicare claims undergo medical reviews that require this 
documentation be submitted.

    Question. What can be done to address the issues that have led to 
this huge backlog of claims resulting from disputes over what 
constitutes adequate documentation?

    Answer. There is a large backlog of claims in the Medicare appeals 
process, but there is currently no data on what percent of those 
appeals relate to medical record documentation issues. However, the 
Medicare appeals process is an opportunity for providers to submit 
additional documentation to support their claims or present a rationale 
for the medical treatment. GAO currently has ongoing work examining the 
backlog of appeals and HHS's efforts to reduce the number of appeals in 
the backlog and get appeals resolved earlier. We plan to issue our 
report on this review in spring 2016 and will provide a copy to the 
committee at that time.

    Question. While improper payments are important indicators of 
program efficiency and effectiveness in the Medicare and Medicaid 
programs, including payments that do not have adequate supporting 
documentation in the improper payment estimate may not provide the best 
indicator of financial risk or liability, as a significant proportion 
of those payments might actually be accurate payment amounts.

    Do you have a sense of the percentage of improper payments that are 
classified as improper because of documentation issues? And of these do 
you know the percentage that are determined to have been accurate 
payment amounts after the documentation issues are resolved?

    Answer. According to CMS, about 60 percent--or nearly $27.5 
billion--of the improper payments in Medicare can be attributed to 
insufficient medical record documentation. Based on CMS's reporting, it 
is not possible to identify the percentage that are determined to have 
been accurate if and when the documentation issues are resolved. CMS's 
contractors request documentation from providers multiple times before 
determining that payments lack sufficient supporting documentation, 
though providers with claims that are identified as improper during the 
improper payment estimation process are provided the opportunity to 
appeal that determination.

    According to the fiscal year 2014 HHS agency financial report, 10 
percent of the Medicaid improper payment rate can be attributed to 
administrative and documentation errors, which HHS characterizes as 
largely insufficient documentation. Similar to Medicare, based on HHS's 
reporting, it is not possible to identify what percentage of Medicaid 
payments are determined to be accurate if and when documentation issues 
are resolved.

    Question. In your opinion, do we need additional metrics to get a 
better handle on the financial implications of improper payments in our 
Medicare and Medicaid programs?

    Answer. For Medicaid, better metrics are needed to screen providers 
because verification errors (related to providers) comprised 80 percent 
of the program's improper payment estimate. For Medicare, we do not 
believe that additional metrics are needed at this time given CMS's 
current efforts. CMS publishes an annual detailed report on the results 
of the Comprehensive Error Rate Testing (CERT) program, CMS's program 
to estimate the improper payment error rate. The report includes error 
rates according to provider types, error types, and service types. For 
instance, one table lists the top 20 services with insufficient 
documentation errors and another table lists the 20 durable medical 
equipment items with the highest error rate. CMS also conducts an 
annual risk adjustment data validation audit to estimate the improper 
payment rate in Medicare Advantage, which is Medicare's private health 
plan program. The results of that audit are reported in the HHS agency 
financial report.

    Question. We understand that GAO has encountered opposition from 
the Social Security Administration when seeking access to the National 
Directory of New Hires, and that access to this database could advance 
GAO's work in the improper payments area by allowing enhanced data-
matching among other things.

    Answer. Although the National Directory of New Hires (NDNH) is 
physically stored at SSA's Data Center, HHS maintains and provides some 
Federal agencies with access to the NDNH for certain purposes. While 
HHS has acknowledged that the NDNH contains information that GAO could 
benefit from in conducting its reviews for Congress, HHS has denied GAO 
direct access to the NDNH based on its interpretation of language in 
the Social Security Act that specifically authorizes several other uses 
of the database and prohibits uses or disclosures not expressly 
provided for in the act. Notwithstanding HHS's views, GAO has a broad 
statutory right of access to Federal agency records to facilitate its 
work across the government. We do not believe that the Congress 
intended to place the NDNH outside the scope of our access authority--
implicitly repealing that authority with respect to the NDNH--when it 
enacted this provision. We believe that if Congress had intended to 
limit GAO's broad and longstanding access authority in this context, it 
would have done so explicitly.

    Question. What specific benefits might be gained from such access, 
especially in helping identify improper payments and their causes?

    Answer. NDNH is a national compilation of State databases of 
persons newly hired by employers within each State, as well as 
recipients of earned income, and unemployment insurance information on 
individuals who have received or applied for unemployment benefits. 
Direct access to the NDNH could be used to enhance work on a variety of 
audits, including those related to improper payments and fraud work in 
programs where eligibility is means-tested. Specifically, by comparing 
data from the NDNH to data from these types of programs across 
government, GAO could identify potential improper payments and systemic 
weaknesses in controls over these programs, and make recommendations 
for improvements. As noted in my testimony, Federal agencies reported 
$125 billion in improper payments for fiscal year 2014; thus, we view 
the NDNH as an important tool that could be used to help address a 
significant Federal financial issue.

    Question. What support can Congress provide to overcome barriers to 
GAO's access, including statutory changes?

    Answer. Congress could confirm GAO's right of access to the NDNH. 
Legislation [H.R. 1162] confirming GAO's right of such access, among 
other things, passed the House and was favorably reported in the Senate 
in 2013. While this legislation was not enacted, we would look forward 
to continuing to work with Congress to confirm GAO's authority and 
facilitate important work.

    Question. In a recent report, GAO noted that while the IRS is 
auditing more tax returns that claim the Earned Income Tax Credit, 
``the effectiveness of these audits may be limited'' because of 
``regular backlogs'' and ``unclear correspondence.'' GAO found that 
these problems ``imposed unnecessary burdens on taxpayers and costs for 
the IRS.'' Has the IRS's response to GAO's recommendations convinced 
you that these audits no longer impose an ``unnecessary burden'' on 
taxpayers?

    Answer. IRS has begun taking actions to address our June 2014 
recommendations but has not fully implemented them and IRS data show 
the backlogs have continued. The agency says it expects to implement 
the nine recommendations by June 2016.

    In response to GAO's findings, IRS analyzed data and took some 
steps to implement our recommendations to address continued backlogs. 
For example, IRS officials analyzed correspondence response timeliness 
data through the end of fiscal year 2014 and found that delays were 
continuing and more improvements were needed, including further 
revisions to notices and a revised automated recorded telephone message 
for taxpayers calling about the status of an audit.

    In January 2015, IRS revised its automated telephone message that 
taxpayers hear when they call. The new message provides taxpayers 
information on the correspondence audit workload and timeframes and 
asks that they allow a certain number of days before calling to check 
on the status of their audit. IRS's use of such automation can divert 
calls away from tax examiners, give taxpayers better service and more 
realistic response time frame expectations, and result in more timely 
IRS responses and more efficient use of resources.

    In addition, IRS officials said that they plan to revise notices to 
allow individual correspondence audit offices to enter a customized 
response date based on their respective inventory levels at the time 
notices are sent. To the extent that IRS can be more realistic about 
audit time frames, IRS tax examiners are less likely to receive 
taxpayer calls about the status of the audit, leaving them more time to 
actually conduct audits. Until these revised notices are implemented as 
expected in January 2016 after necessary programming updates, IRS risks 
wasting time answering unnecessary calls about audit timeframes, which 
further delays audit work.

    Question. What areas of additional legislation would be helpful to 
address prevention and detection of improper payments?

    Answer. Specifically regarding EITC, we have reported that certain 
legislative actions, such as accelerating W-2 filing deadlines, 
expanding math error authority, and granting IRS authority to regulate 
paid preparers, could help reduce EITC improper payments.\1\ 
Specifically, accelerating W-2 filing deadlines could help facilitate 
the use of earnings information in the detection of EITC noncompliance, 
while expanding math error authority could allow IRS to correct certain 
errors during processing of tax returns, including those with EITC 
claims. Regulating paid tax preparers could help improve the accuracy 
of tax returns that they prepare, including those with EITC claims.
---------------------------------------------------------------------------
    \1\ GAO, Government Efficiency and Effectiveness: Opportunities to 
Reduce Fragmentation, Overlap, Duplication, and Improper Payments and 
Achieve Other Financial Benefits, GAO-15-440T (Washington, DC: Mar. 4, 
2015).

    Regarding HHS's Temporary Assistance for Needy Families (TANF) 
program, HHS reported in its fiscal year 2015 agency financial report 
that statutory limitations prevent the agency from requiring States to 
estimate TANF improper payments. HHS has said it will identify 
potential solutions to these limitations when working with Congress to 
---------------------------------------------------------------------------
reauthorize the program. We support these efforts.

    Congress has taken action on the issue of improper payments by 
passing a series of laws including the Improper Payments Information 
Act of 2002 (IPIA), the Improper Payments Elimination and Recovery Act 
of 2010 (IPERA), and the Improper Payments Elimination and Recovery 
Improvement Act of 2012 (IPERIA). Congressional oversight is necessary 
and important to help ensure that agencies and the Office of Management 
and Budget effectively implement all of the requirements in these laws. 
Congress should monitor the level of noncompliance reported by 
inspectors general, as well as the Office of Management and Budget's 
(OMB) efforts to address improper payment issues and ensure 
requirements in existing laws are being implemented and are achieving 
their intended results.

    Question. What areas of additional legislation would be helpful to 
reduce the tax gap? What oversight strategies can congressional 
committees pursue to reduce the tax gap?

    Answer. The tax gap has been a persistent problem for decades. We 
have long said that there is no single approach that will fully or 
cost-effectively reduce the tax gap since the problem has multiple 
causes and spans different types of taxes and taxpayers. We have 
numerous open recommendations to IRS that could help improve its 
efforts to reduce the tax gap. These recommendations could serve as the 
basis for Congressional oversight of IRS's efforts to reduce the tax 
gap. In addition, Congress could consider legislative changes that 
would be helpful to reduce the tax gap, including (Joint Committee on 
Taxation estimates shown below in parentheses where available):

      Additional third-party information reporting. In 2008 and 2009, 
we suggested Congress consider expanding third-party information 
reporting to include payments for services to rental real estate owners 
($2.5 billion) and payments for services provided by corporations ($3.4 
billion), respectively.

      Math error authority. Expanding math error authority--which we 
have suggested Congress consider with appropriate safeguards in 2010--
could help IRS correct additional errors and avoid burdensome audits 
and taxpayer penalties ($133 million).

      Paid preparer regulation. In 2014, we suggested Congress 
consider granting IRS the authority to regulate paid tax preparers 
($135 million), if it agrees that significant paid preparer errors 
exist.

      Tax reform and simplification. Fundamental tax reform could 
result in a smaller tax gap if the new system has fewer tax preferences 
or complex tax code provisions; such reform could reduce IRS's 
enforcement challenges and increase public confidence in the tax 
system. Short of fundamental reform, targeted simplification 
opportunities also exist. Amending the tax code to make definitions 
more consistent across tax provisions could help taxpayers more easily 
understand and comply with their obligations and get the maximum tax 
benefit for their situations. For example, there are several provisions 
in the tax code benefiting taxpayers' educational expenses, but the 
definition of what qualifies as a higher-education expense varies 
between these tax expenditures.

      Enhanced electronic filing. In 2014, we suggested that Congress 
consider expanding the mandate for partnerships and corporations to 
electronically file their tax returns, as this could help IRS reduce 
return processing costs, select the most productive tax returns to 
examine, and examine fewer compliant taxpayers.

    Question. Medicaid claims are paid by States, and there are some 
differences in the internal controls that States have in place. Does 
CMS compute a State-specific improper payment rate, and if so, what is 
the range in Medicaid improper payment rates across the States, and can 
you provide Congress with a table showing the improper payment rate for 
each State?

    Answer. Yes, CMS estimates State-specific error rates. For 2011, 
the most recent reporting year for which we obtained this information 
from CMS, we reported that the estimated State error rates ranged from 
less than 1 percent to a high of over 50 percent.\2\ See the table 
below for the State-specific error rates for reporting year 2011 that 
we included in our report. Reporting year 2011 error rates are based on 
estimates from fiscal years 2008, 2009 and 2010; due to age and other 
factors these rates likely are no longer reflective of current State 
error rate estimates.
---------------------------------------------------------------------------
    \2\ See GAO, Medicaid: Enhancements Needed for Improper Payments 
Reporting and Related Corrective Action Monitoring, GAO-1-229 
(Washington, DC: Mar. 29, 2013).


 State Error Rates Used to Determine HHS's Fiscal Year 2011 Reporting of
                   National Medicaid Improper Payments
------------------------------------------------------------------------
                                                     Combined b
 Measurement cycle a          State       ------------------------------
                                            Error rate   Margin of error
------------------------------------------------------------------------
Fiscal year 2008       Alaska                     0.6%              0.5%
                      --------------------------------------------------
                       Arizona                    2.6%              1.9%
                      --------------------------------------------------
                       District of               20.1%             16.0%
                        Columbia
                      --------------------------------------------------
                       Florida                   14.6%             13.0%
                      --------------------------------------------------
                       Hawaii                    16.8%              5.8%
                      --------------------------------------------------
                       Indiana                   17.2%             10.5%
                      --------------------------------------------------
                       Iowa                       4.9%              4.6%
                      --------------------------------------------------
                       Louisiana                  4.0%              3.1%
                      --------------------------------------------------
                       Maine                      5.7%              2.4%
                      --------------------------------------------------
                       Mississippi                3.5%              3.2%
                      --------------------------------------------------
                       Montana                    4.4%              6.5%
                      --------------------------------------------------
                       Nevada                     7.3%              2.6%
                      --------------------------------------------------
                       New York                   7.8%              4.4%
                      --------------------------------------------------
                       Oregon                    20.8%             12.0%
                      --------------------------------------------------
                       South Dakota               0.9%              0.7%
                      --------------------------------------------------
                       Texas                      5.1%              3.4%
                      --------------------------------------------------
                       Washington                 6.4%              4.8%
------------------------------------------------------------------------
Fiscal year 2009       Arkansas                   4.2%              2.0%
                      --------------------------------------------------
                       Connecticut                3.3%              1.3%
                      --------------------------------------------------
                       Delaware                   5.0%              2.1%
                      --------------------------------------------------
                       Idaho                      1.6%              1.1%
                      --------------------------------------------------
                       Illinois                   3.8%              2.1%
                      --------------------------------------------------
                       Kansas                    10.4%              8.0%
                      --------------------------------------------------
                       Michigan                  69.9%             20.1%
                      --------------------------------------------------
                       Minnesota                  2.0%              1.5%
                      --------------------------------------------------
                       Missouri                   2.6%              1.2%
                      --------------------------------------------------
                       New Mexico                 1.9%              1.1%
                      --------------------------------------------------
                       North Dakota               3.2%              2.4%
                      --------------------------------------------------
                       Ohio                       9.8%             11.5%
                      --------------------------------------------------
                       Oklahoma                   1.2%              0.9%
                      --------------------------------------------------
                       Pennsylvania               4.1%              3.6%
                      --------------------------------------------------
                       Virginia                  17.4%             11.8%
                      --------------------------------------------------
                       Wisconsin                  5.7%              7.7%
                      --------------------------------------------------
                       Wyoming                    8.3%              5.4%
------------------------------------------------------------------------
Fiscal year 2010       Alabama                    2.4%              1.1%
                      --------------------------------------------------
                       California                 1.6%              0.9%
                      --------------------------------------------------
                       Colorado                   6.9%              2.5%
                      --------------------------------------------------
                       Georgia                    4.7%              2.7%
                      --------------------------------------------------
                       Kentucky                   2.0%              1.0%
                      --------------------------------------------------
                       Maryland                   3.2%              1.9%
                      --------------------------------------------------
                       Massachusetts             13.4%              2.2%
                      --------------------------------------------------
                       Nebraska                   2.1%              1.1%
                      --------------------------------------------------
                       New Hampshire              1.5%              1.1%
                      --------------------------------------------------
                       New Jersey                 2.6%              1.6%
                      --------------------------------------------------
                       North Carolina            11.9%             15.3%
                      --------------------------------------------------
                       Rhode Island              15.6%              5.8%
                      --------------------------------------------------
                       South Carolina            18.8%             15.8%
                      --------------------------------------------------
                       Tennessee                  3.6%              4.6%
                      --------------------------------------------------
                       Utah                       8.2%              4.9%
                      --------------------------------------------------
                       Vermont                    8.0%              2.7%
                      --------------------------------------------------
                       West Virginia             32.7%             32.2%
------------------------------------------------------------------------
Source: CMS data on State improper payment error rates for the Medicaid
  program (unaudited).
 
Note: These rates reflect the States' official error rates used to
  calculate the national error rate and do not reflect any State error
  rates that were recalculated, upon a State's request, for
  informational purposes and to determine sample sizes for the next
  measurement cycle.
 
a HHS reported the results of the fiscal years 2008 through 2010
  measurement cycles in its fiscal year 2011 agency financial report.
b The combined rate is a weighted average of fee-for-service and managed
  care, with the addition of eligibility. A small correction factor
  ensures that Medicaid eligibility errors do not get ``double counted''
  if the sampled item was also tested in either the fee-for-service or
  managed care components.


    Question. There have been multiple news reports regarding the trend 
of hospitals purchasing the practices of community oncologists. A 
beneficiary can still see the same doctor, in essentially the same 
doctor's office, and receive the same drug, yet still see his or her 
cost sharing requirement increase. And the amount Medicare pays 
increases too. Can you explain the how the mechanics of the different 
payment systems work as to produce this result?

    Answer. When hospitals purchase physician practices, they can 
convert them to provider-based departments if certain criteria are met. 
Services performed at provider-based departments can be billed at 
hospital outpatient department rates, and, therefore, Medicare's total 
payment rates for certain services are higher after a practice has been 
converted to a provider-based department, despite the fact that the 
practice's location, the physicians who practice there, and the 
beneficiaries served could be the same as before the conversion 
occurred.

    For example, when a beneficiary receives a mid-level office visit 
in a physician office, Medicare makes a single payment to the physician 
at Medicare's physician fee schedule non-facility rate, which is 
approximately $73 in 2015. When the same service is provided in a 
hospital outpatient department, Medicare makes two payments--one 
payment at the physician fee schedule facility rate ($51) and another 
payment to the hospital, typically at the hospital outpatient 
prospective payment system rate ($96). Therefore, Medicare's total 
payment rate for a mid-level office visit is roughly double ($73 vs. 
$147) when performed in a hospital outpatient department verses a 
physician office in 2015. Because beneficiaries are responsible for a 
portion of the total payment rate, higher payment rates also increase 
costs for beneficiaries.

    Many other services, such as imaging and surgical services, are 
also reimbursed at a higher rate by Medicare when performed in hospital 
outpatient departments versus other settings, such as physician offices 
and ambulatory surgical centers.

    The Bipartisan Budget Act of 2015 partially addresses this issue. 
Specifically, services furnished by off-campus hospital outpatient 
departments--that is, outpatient departments that are not located on a 
hospital campus--are excluded from the hospital outpatient prospective 
payment system, effective January 1, 2017, and thus the total payment 
rate for such services will be the same as if the services had been 
performed in a physician office. However, this new provision does not 
apply to providers billing as hospital outpatient departments prior to 
enactment of the legislation or to services provided on a hospital 
campus.

    Question. Is payment differential a driving factor for hospitals 
acquiring physician practices?

    Answer. GAO currently has work underway that examines trends in 
hospital-
physician consolidation and the extent to which higher levels of such 
consolidation were associated with more evaluation and management 
office visits being performed in hospital outpatient departments 
(HOPDs) instead of physician offices from 2007-2013. We anticipate 
issuing the report, which addresses this issue, in winter 2016 and will 
provide a copy to the committee at that time.

    Question. Does CMS have authority to implement site neutral 
payments between the hospital outpatient department and the physician 
office settings without Congress enacting such legislation?

    Answer. We anticipate issuing a report addressing this issue in 
winter 2016 and will provide a copy to you as soon as it is available.

    Question. It has been reported that there has been an 82% increase 
in closures of community cancer practices since 2008. Despite the 
likelihood that these oncologists are now hospital-based, such a trend 
has an impact on cost of cancer care for the Medicare program and 
beneficiaries and may have an impact on access to cancer services. Has 
GAO examined the cost and access issues?

    Answer. Although GAO has not directly examined cost and access 
issues related to increased closures of community cancer practices, as 
part of our recent report on the 340B Drug Pricing Program,\3\ we 
examined changes in the provision of outpatient cancer care at 
approximately 2,300 hospitals. The 340B Program requires drug 
manufacturers to sell most outpatient drugs at deeply discounted prices 
to certain healthcare entities, including certain hospitals. These 
entities benefit from lower outpatient drugs prices and may also 
benefit from the revenue generated when they are reimbursed by Medicare 
and other payers at rates that exceed the discounted prices the 
entities pay for the outpatient drugs. Because the 340B statute does 
not specify how entities, such as hospitals, should use the savings or 
any resulting revenue associated with the discounts, certain 
stakeholders have questioned whether hospitals' participation in the 
program might contribute to hospital acquisition of oncology practices. 
Some of these stakeholders--including groups representing independent 
oncology practices--contend that 340B hospitals are acquiring 
independent oncology practices, in part, to expand their outpatient 
base for 340B oncology drugs and thus generate higher revenue for these 
drugs.
---------------------------------------------------------------------------
    \3\ GAO, Medicare Part B Drugs: Action Needed to Reduce Financial 
Incentives to Prescribe 340B Drugs at Participating Hospitals, GAO-15-
442 (Washington, DC: June 5, 2015).

    In general, we found that the provision of hospital outpatient 
cancer care increased from 2008 to 2012 among the hospitals we studied. 
Specifically, our analysis focused on disproportionate share hospitals 
(DSH) because DSH hospitals account for the majority of drug purchases 
under the 340B Program. We compared these hospitals with non-340B DSH 
hospitals (hospitals that received DSH payments but did not participate 
in the 340B Program) and all other non-340B hospitals and examined 
changes over time between 2008 and 2012 in terms of: (1) the percentage 
of hospitals treating Medicare outpatient oncology beneficiaries and 
(2) the average number of Medicare outpatient oncology beneficiaries 
served. We found that the percentage of hospitals treating outpatient 
oncology beneficiaries increased among all three hospital groups 
between 2008 and 2012, but increased the most at 340B DSH hospitals (5 
percent compared with 1 percent at non-340B DSH hospitals and 2 percent 
at other non-340B hospitals). Similarly, the average number of 
outpatient oncology beneficiaries served increased among all three 
hospital groups between 2008 and 2012, but increased the most at 340B 
DSH hospitals (45 percent compared with 34 percent at non-340B DSH 
---------------------------------------------------------------------------
hospitals and 28 percent at other non-340B hospitals).

    Question. Improper payments are swelling, and according to the GAO, 
Medicare is a big contributor to that increase. A new bill, the 
Medicare Common Access Card Act S. 1871, introduced by Senator Mark 
Kirk, would pilot deployment of a modernized Medicare card with a 
secure smart chip, like the new financial services cards being rolled 
out today. The card would provide a way to verify Medicare 
beneficiaries are eligible for services, equipment or prescriptions. 
The secure card would subsequently support a secure electronic billing 
transaction from legitimate providers only to Medicare. In addition, 
the smart card would create an audit trail so that claims and payments 
can be electronically documented with ease. How could this type of 
electronic authentication and documentation add accountability to 
Medicare payments processes?

    Answer. Medicare has a secure electronic billing system that 
provides documentation of the claims submission and payment process. 
Some health care providers have been submitting claims electronically 
since 1981, and by law Medicare has been prohibited from paying claims 
not submitted electronically since October 16, 2003, with limited 
exceptions. Additionally, Medicare has an electronic system in place 
for providers to inquire about the eligibility of a beneficiary and 
their benefits.

    A Medicare card with a microprocessing chip could enhance the 
authentication of beneficiaries' and providers' presence at the point 
of care, which Medicare's current electronic billing system does not 
do. As we reported in March 2015, using electronically readable cards, 
such as smart cards, to authenticate beneficiary and provider presence 
at the point of care could curtail certain types of Medicare fraud, 
such as instances where a provider misuses a beneficiary's Medicare 
number to bill on their behalf without having ever seen or rendered 
care to the beneficiary.\4\ Similarly, authenticating providers at the 
point of care could potentially limit fraud schemes in which 
individuals or companies misuse an unknowing provider's Medicare 
enrollment information to submit claims and divert stolen 
reimbursements. However, we also reported that using beneficiary cards 
for authentication at the point of care would have limited effect since 
CMS has stated that it would continue to pay claims regardless of 
whether a card was used in order to maintain access to Medicare 
benefits. This is discussed in the following answer.
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    \4\ GAO, Medicare: Potential Uses of Electronically Readable Cards 
for Beneficiaries and Providers, GAO-15-319 (Washington, DC: Mar. 25, 
2015).

    Question. Today there are technology solutions, like smart cards, 
that are well understood and used around the world to create 
accountability in payment systems. Every financial institution in the 
United States has now adopted secure smart card technology for its 
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credit cards to enable high payments security.

    The data demonstrate that whenever smart card programs have been 
implemented, fraud has decreased and efficiencies have dramatically 
increased. According to a recent GAO report published in March of this 
year, Potential Uses of Electronically Readable Cards for Beneficiaries 
and Providers, GAO-15-319, CMS told GAO that ``Despite the potential to 
curtail certain types of Medicare fraud, using beneficiary cards for 
authentication at the point of care would have limited effect'' since 
CMS has stated that ``it would continue to pay claims regardless of 
whether a card was used.'' So even though tools are available to 
prevent fraud and improper payments, it appears that CMS is not 
inclined to use them. What policy changes do you think would need to be 
made in order to add accountability to the Medicare payment system and 
incorporate beneficiary and provider authentication using secure smart 
cards? Would it make more sense to deploy secure Medicare smart cards 
to prevent improper payments? What would be the cost in deploying smart 
card technology?

    Answer. If smart cards were used to authenticate beneficiaries and 
providers at the point of care, a number of policy and management 
changes would be needed. For instance, CMS would need to update its 
claims processing systems to verify that the cards were swiped at the 
point of care. CMS would also need to change its policy regarding the 
use of the beneficiary card. Currently, Medicare does not require 
beneficiaries to have their Medicare card in order to obtain Medicare-
covered services. CMS told us that they would not want to limit 
beneficiaries' access to care by instituting a policy where 
beneficiaries had to have their card at the point of care because there 
may be legitimate reasons why a card may not be present at the point of 
care, such as when providers or beneficiaries forget their card or 
during a medical emergency. In addition, CMS would need to change its 
card management processes, for instance to begin producing a Medicare 
card for providers, which it does not currently do. Also, CMS would 
likely have to create a process to re-issue cards when security 
features on a card expire.

    Other than potentially reducing some improper payments associated 
with certain types of fraud, Medicare smart cards would not prevent the 
most common reasons for improper payments. The largest portion of 
Medicare's improper payments, about 60 percent in 2014 according to 
CMS, is due to lack of sufficient documentation to support the services 
or supplies provided, which would not necessarily be affected by 
implementation of a smart card. The second most common reason for 
improper payments in Medicare, according to CMS, is lack of medical 
necessity for a service or supply. This would also not necessarily be 
affected by implementation of a smart card.

    We did not estimate the cost of deploying smart card technology in 
our report. However, our report does note that the initial 
implementation of any new card system in Medicare could be a lengthy 
process because CMS would need time to implement a public key 
infrastructure system and update its claims processing system, and 
providers could face challenges updating their information technology 
systems to use the cards.

                                 ______
                                 
               Questions Submitted by Hon. Johnny Isakson
    Question. Currently, commercial third-party income verification 
services are contractually provided to CMS, assisting in its 
determination of consumer eligibility for Medicaid, advanced premium 
tax credits (APTCs) and other cost-sharing reductions to support the 
purchase of qualified health plans. However, due to inflexible data 
requirements by CMS, this existing and valuable tool is not being fully 
utilized at the Federal level. It is also not being promoted by CMS for 
use at the State-level. Both instances lead me to believe that there 
are opportunities within Medicaid and the broader FFM to reduce 
improper payments through the utilization of the most up-to-date and 
available employer-reported information at both the Federal and State-
levels.

    Why do you think CMS is not taking full advantage of currently 
available income verification tools as provided by third-parties to 
CMS?

    Answer. We have not assessed CMS's use of commercial third-party 
income verification services. Accordingly, we are not aware of the 
extent to which CMS is taking advantage of such services and its 
rationale for doing so. In terms of consumer income information, in 
general, it would be optimal to use the most up-to-date income 
information available when verifying what consumers have provided in 
their applications for health coverage through Medicaid or qualified 
health plans.

    When we assessed CMS's initiatives to ensure that Medicaid 
appropriately pays only after other liable third-party insurers have 
done so, we noted that CMS had taken steps to support States and 
publicize effective State practices, such as conducting data matches 
with outside sources of wage information.\5\ However, as new strategies 
emerge over time, a robust ongoing effort to collect and share 
information about State initiatives would ensure that States--
particularly any States that may not conduct data matches with private 
insurers--are aware of available data matching strategies and solutions 
to challenges States or Medicaid managed care plans may face in 
conducting third-party liability activities.
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    \5\ See GAO, Medicaid: Additional Federal Action Needed to Further 
Improve Third-Party Liability Efforts, GAO-15-208 (Washington, DC: Jan. 
28, 2015).

    Question. Do you agree that CMS should verify consumer income for 
Medicaid and other benefit eligibility based on the most up-to-date 
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income information?

    Answer. Yes. Timely information is needed to appropriately 
determine Medicaid eligibility. Although States have the flexibility to 
use different sources of information and processes to verify 
eligibility factors, CMS guidelines call upon States to maximize 
automation and real-time adjudication of Medicaid applications through 
the use of electronic verification policies. The Patient Protection and 
Affordable Care Act (PPACA) required States to use third party sources 
of data to verify eligibility to the extent practicable. Consequently, 
States have had to make changes to their eligibility systems, including 
implementing electronic systems for eligibility determination and 
coordinating systems to share information.

    The selected States we reviewed in our December 2014 report were 
largely able to verify applicant eligibility based on electronic data 
sources, such as the Federal data services hub.\6\ Three States we 
reviewed used existing State sources to verify applicant eligibility 
instead of relying on the Federal data services hub. Officials from two 
States noted that their States rely primarily on the Federal data 
services hub for eligibility verification; however, they use State data 
sources for income verification instead because they believe these data 
are timelier. In one State, officials indicated that the State received 
approval for an alternative to the hub, and chose to rely on its 
existing link to SSA, as well as other sources for verification.
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    \6\ See GAO, Medicaid: Federal Funds Aid Eligibility IT System 
Changes, but Implementation Challenges Persist. GAO-15-169 (Washington, 
DC: Dec. 12, 2014).

    Question. In FY 2012 the Medicare Fee-For-Service improper payment 
rate was 8.5%. In FY 2013; it rose to 10.7%. In FY 2014, it rose again 
to 12.7%--which equates to a loss of $46 billion that year alone--the 
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highest level in history. This upward trend is concerning.

    How can we do a better job of reclaiming the billions in taxpayer 
dollars wasted within the program each year?

    Answer. According to OMB, agencies recovered over $20 billion 
dollars through recapture audits and other methods for fiscal year 
2014. HHS reported the highest amount of recovered funds, almost $11 
billion.

    The Medicare Fee-for-Service program has a number of activities 
targeted to identifying and recouping improper payments. The Medicare 
Comprehensive Error Rate Testing (CERT) program conducts claims reviews 
on a random sample of FFS claims to determine the error rate in the 
program. If a specific claim is identified as having an error through 
CERT, CMS attempts to recoup any money paid to the Medicare provider in 
error. In addition to the CERT program, CMS has a number of contractors 
who conduct claim reviews for the purpose of identifying and recouping 
improper payments. The Medicare Recovery Audit program uses contractors 
to review claims on a postpayment basis to identify if claims were paid 
in error. CMS pays the recovery auditors a contingency fee based on the 
improper payments the recovery auditor helps collect. The Medicare 
Administrative Contractors, who generally process and pay Medicare 
claims, also conduct claims reviews, largely on a prepayment basis, to 
deny payment for potential improper payments. CMS also has a 
supplemental medical claims review contractor that reviews specific 
types of claims, at the direction of CMS, to identify improper 
payments.

                                 ______
                                 
                Question Submitted by Hon. Daniel Coats
    Question. How has the Affordable Care Act affected GAO in terms of 
staffing? Have you had to hire additional staff to conduct oversight of 
this program, and if so, how many?

    Answer. GAO has not hired specifically for conducting work related 
to the Affordable Care Act, but instead drew on the expertise of our 
existing staff regarding health care programs, information technology, 
tax policy, contracting, and actuarial science, among others. We have 
allocated significant resources to reports evaluating the Act's 
programs since its passage in 2010, recognizing the size, complexity, 
and risk associated with its implementation, and the high level of 
interest that Congress has in overseeing these programs. For example, 
GAO issued 13 products in fiscal year 2014 assessing the implementation 
of the health insurance exchanges and the effects of the Affordable 
Care Act on health insurance availability and costs; GAO issued an 
additional 8 products on these topics in fiscal year 2015. While many 
of the reports were done at the request of congressional committees, 
the law also contained 10 separate reporting requirements for GAO.

    While we used existing staff and expertise to produce these 
Affordable Care Act reports, we have experienced resource challenges 
over this time period that led us to decrease the number of our 
employees. This has required us to work closely with Congress to assure 
that our work aligns with the committees' highest priorities, and in 
some cases to delay work. Due to declining appropriations, from fiscal 
year 2010 through fiscal year 2013, our staff decreased by 14 percent--
to the lowest level of staffing for GAO since 1935. With increased 
appropriations in fiscal years 2014 and 2015, we were able to hire and 
grow our staff to mitigate a portion of the losses. Our budget proposal 
for fiscal year 2016 suggested a 6 percent increase to our 
appropriation which would bring us to 3,055 full-time equivalent 
employees--exceeding our fiscal year 2012 level for the first time 
since fiscal year 2012.

                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
    Question. In the past, your agency has specifically mentioned 
complexity as a challenge for Earned Income Tax Credit compliance. Can 
you walk members of this committee through the challenges a low-income 
filer would face in trying to claim this credit? Can you also outline 
proposals Congress should consider to simplify the requirements and 
ensure better compliance?

    Answer. The major challenge facing low-income filers for the EITC 
is dealing with the complex rules for determining eligibility for the 
credit. For example, in order to qualify for the credit, a filer's 
child must meet certain age, residency, and relationship requirements. 
However, these relationships are not always clear when filers share 
responsibility for the child with parents, former spouses, and other 
relatives or caretakers.

    We have work underway that will describe the impact of complexity 
on taxpayer burden and IRS's ability to administer the credit. As part 
of this engagement, we are reviewing the impact of selected changes to 
elements of the EITC on simplicity, efficiency and equity. We expect to 
complete this work in the spring of 2016 and will provide it to you as 
soon as it is available.

    Additionally, to ensure better compliance, we have identified 
matters for congressional consideration or recommendations for 
executive action--such as accelerating W-2 deadlines, expanding math 
error authority and establishing requirements for paid tax return 
preparers. If effectively implemented, these measures could help reduce 
EITC improper payments as well as the tax gap.

    Question. Each year, a large portion of low-income families turn to 
paid preparers or use tax preparation software for help filing their 
income taxes. For families claiming the Earned Income Tax Credit, this 
decision reduces their benefits as they end up paying a fee out of 
their tax return to cover the cost of paid assistance. Has GAO studied 
or is GAO aware of any studies that have determined what percentage of 
EITC credits are spent on paid preparers or tax preparation software 
each year? What steps can Congress take to ensure tax filers don't feel 
overly burdened by the tax filing process and don't feel obligated to 
seek outside help?

    Answer. In August 2014, IRS reported that 68 percent of all tax 
returns claiming EITC in tax years 2006 and 2007 were prepared by tax 
preparers.

    In the spring of 2014, we conducted a limited, undercover, 
nongeneralizable study of 19 paid tax preparers who completed returns, 
including 10 returns for a scenario filer who had several common tax 
issues, one of which was eligibility to claim EITC.\7\ In 7 of the 10 
cases, serious errors were made including 3 related to the EITC. Tax 
preparation fees for these 10 returns ranged from $160 to $408.
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    \7\ GAO, Paid Tax Return Preparers: In a Limited Study, Preparers 
Made Significant Errors, GAO-14-467T (Washington, DC: Apr. 8, 2014).

    The requirements for claiming the EITC are complex; for example, 
each taxpayer's child must meet certain age, residency and relationship 
requirements. The Congress could take legislative action to redesign 
the program, including simplifying the Internal Revenue Code, to help 
reduce taxpayer burden and decrease their need to use tax preparers. As 
noted in our response to the question above, our ongoing work is 
examining the impact of selected changes to elements of the EITC on 
simplicity, efficiency, and equity. We expect to complete that review 
in the spring of 2016 and will provide a copy of the report to the 
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committee when it is available.

    Question. I am sure you are aware of the problems posed by payday 
loans. The Pew Charitable Trusts estimates that 12 million Americans 
use payday loans each year, spending an average of $520 in interest to 
repeatedly borrow an average of $375 in credit. The Consumer Financial 
Protection Bureau (CFPB) reports that consumers pay about $7 billion in 
payday loan fees annually. Borrowers pay exorbitant fees despite the 
fact that the amounts borrowed are small and the durations of the loans 
are brief.

    I have developed a proposal to use the EITC as an alternative to 
payday lending. I would like you and your staff to offer feedback to 
assist me in crafting this legislation. My proposal would work in a 
manner similar to Advanced EITC, workers sign up with their employers 
for the Early Refund EITC option and then request an advance payment 
from their employers. That advance would arrive in their paychecks. The 
employer's payment would be reimbursed as a credit when filing its tax 
returns. In the past, advanced EITC was plagued with problems--most 
importantly low uptake and a high error rate. The low uptake was driven 
by workers' concerns that they would owe money at the end of the year. 
This concern is addressed by limiting the size of the Early Refund EITC 
to $500--well above the size of the typical payday loan. At the same 
time credits erroneously claimed can be recouped at the time of tax 
filing. Please provide me with feedback on how to design this proposal 
so it is administrable and effective.

    Answer. Prior to its repeal in 2010, the Advance Earned Income Tax 
Credit (AEITC) allowed eligible taxpayers who elected an advance 
payment to receive a portion of the Earned Income Tax Credit (EITC) 
from their employer throughout the year with their regular pay, instead 
of receiving a lump sum refund or tax credit when filing their yearend 
Federal income tax return. However, as you noted in your question, the 
AEITC had problems, including a very high error rate.

    Any new proposal would need to address issues we previously 
identified with the advance option to guard against fraud and improper 
payments.\8\ For example, neither IRS nor the employer was required to 
confirm the eligibility of those who elected the AEITC before they 
received it. In our 2007 report we found that almost 40 percent (about 
200,000 recipients) did not file the required tax returns so that IRS 
could reconcile the advance payments. In addition, of the remaining 60 
percent who did file, two-thirds misrepresented the amount of AEITC 
they received--the majority not reporting any AEITC. Moreover, we found 
that use of the advance option was low--only about 3 percent of the 
EITC recipients potentially eligible for the advance received it in tax 
years 2002 through 2004. And of those that did use the advance option, 
about 75 percent of the recipients received $500 or less per year.
---------------------------------------------------------------------------
    \8\ GAO, Advance Earned Income Tax Credit: Low Use and Small 
Dollars Paid Impede IRS's Efforts to Reduce High Noncompliance, GAO-07-
1110 (Washington, DC: Aug. 10, 2007).

    The premium tax credit (PTC) under PPACA also has an advance option 
and has some requirements that could address compliance concerns 
previously associated with the AEITC. Specifically, eligibility is 
determined by the Marketplace prior to payment and individuals must 
file a tax return in order to receive the advance credit in future 
years. IRS developed a system to verify PTC claims using Marketplace 
data but experienced various challenges related to the availability of 
complete and accurate third party data in its first year--the 2015 
filing season.\9\ Therefore, it is uncertain to what extent IRS will be 
able to ensure compliance with this new advance credit.
---------------------------------------------------------------------------
    \9\ GAO, Patient Protection and Affordable Care Act: IRS Needs to 
Strengthen Oversight of Tax Provisions for Individuals, GAO-15-540 
(Washington, DC: July 29, 2015).

    We would be happy to review and provide comments on your proposal 
to use the EITC as an alternative to payday lending, as well as brief 
---------------------------------------------------------------------------
you on our prior EITC and PTC work.

               Questions Submitted by Hon. Mark R. Warner
    Question. GAO's testimony indicated that full implementation of the 
Digital Accountability and Transparency Act of 2014 (DATA Act) would 
assist agencies in detecting and preventing improper payments. With 
regard to this aim, how does GAO recommend integrating the 57 new 
government-wide data reporting standards into existing spending-related 
reporting requirements?

    Answer. As Treasury and OMB move forward with implementing the 
standardized definitions for the 57 government-wide data reporting 
standards, they should look for opportunities to link them to 
established financial accounting and reporting processes. Doing this 
will help ensure the consistency and comparability of the information 
reported and may also provide a means for determining data quality 
between financial information reported under the DATA Act and 
information contained in audited agency financial statements. For 
example, certain data elements used by agencies in reporting financial 
data in their audited Statement of Budgetary Resources may also be used 
to report agency budget data under the DATA Act. In addition, the DATA 
Act requires Treasury to include certain financial information similar 
to the information reported in the Schedule of Spending, which is 
included in agency annual financial reports, as required by OMB 
Circular No. A-136 (Financial Reporting Requirements). Leveraging 
established data standards used by agencies in preparing this unaudited 
schedule could be used to report certain information under the DATA 
Act.

    Question. Beyond GAO's existing statutory requirements under the 
DATA Act, what type of feedback and oversight will GAO be able to 
provide during these critical early moments of DATA Act implementation?

    Answer. The DATA Act requires GAO to issue reports in 2017, 2019, 
and 2021 assessing and comparing the quality of data submitted under 
the DATA Act as well as agency implementation and use of data 
standards. GAO is committed to assisting congressional oversight by 
being a continuing presence to monitor and assess OMB, Treasury, and 
Federal agencies' actions as data standards are developed and 
implemented, and to work with inspectors general to ensure an efficient 
and effective audit process is in place to help ensure data quality. 
Toward that end, I have testified on DATA Act implementation twice 
within the last year. We have made several recommendations for concrete 
steps OMB and Treasury can take to improve implementation of the 
act.\10\ Specifically, OMB and Treasury can more effectively link 
financial spending data to programs, establish a clear data governance 
structure, and adopt policies and procedures to foster ongoing and 
effective dialogue with stakeholders. In responding to a draft of my 
statement, OMB staff and Treasury officials neither agreed nor 
disagreed with our recommendations. However, testifying before two 
subcommittees of the House Oversight and Government Reform Committee on 
July 29, 2015, OMB's Acting Deputy Director for Management and 
Controller stated that the agency planned to address the issue of 
identifying ``programs'' for the purposes of linking them to DATA Act 
reporting but that such efforts would likely not start until sometime 
in fiscal year 2016 and would not be completed until after May of 2017. 
Regarding our recommendation that they establish a clear data 
governance structure, in a whitepaper published on its DATA Act 
collaboration website in August 2015, OMB and Treasury stated their 
intent to establish in fiscal year 2016 a formal, long-term governance 
process and structure for future data standards maintenance.
---------------------------------------------------------------------------
    \10\ See GAO, Federal Data Transparency: Effective Implementation 
of the DATA Act Would Help Address Government-wide Management 
Challenges and Improve Oversight, GAO-15-241T (Washington, DC: Dec. 3, 
2014) and GAO, DATA Act: Progress Made in Initial Implementation but 
Challenges Must be Addressed as Efforts Proceed, GAO-15-752T 
(Washington, DC: July 29, 2015).

    We also have both recently issued and forthcoming reports examining 
different components of implementation of the act.\11\ We plan to issue 
these forthcoming reports in winter and spring 2016 and will provide 
copies to the committee when they are available. In our September 2015 
report on steps taken by Treasury to preserve capabilities of the 
Recovery Operations Center, we recommended that Treasury capitalize on 
the opportunity created by the DATA Act and reconsider whether certain 
assets could be worth transferring to its Do Not Pay program to assist 
in its mission to reduce improper payments and that they document this 
decision and what factors were considered in reaching it. In response 
to a draft of that report, Treasury officials agreed to consider 
additional knowledge transfers from the Recovery Operations Center to 
assist its efforts to reduce improper payments.
---------------------------------------------------------------------------
    \11\ See GAO, Federal Spending Accountability: Preserving 
Capabilities of Recovery Operations Center Could Help Sustain Oversight 
of Federal Expenditures, GAO-15-814 (Washington, DC: Sept. 14, 2015). 
GAO work currently underway includes a review of OMB's and Treasury's 
development and implementation of government-wide financial data 
standards and the design and implementation of the pilot to reduce 
recipient reporting burden required under the act.

    In addition to public reporting, as part of our strategy to 
constructively engage with the administration on DATA Act 
implementation, we have reviewed draft versions of data definitions as 
well as the technical schema that Treasury officials developed to 
standardize the way financial assistance, contract, and loan award data 
will be collected and reported under the DATA Act. We shared several 
concerns with OMB and Treasury officials, and they addressed some of 
these in subsequent versions of the data definitions and technical 
schema. We will continue to provide congressional and executive branch 
decision makers with information and recommendations, as appropriate, 
---------------------------------------------------------------------------
throughout the DATA Act implementation process.

    Question. As Congress seeks to ensure that the Department of the 
Treasury and the Office of Management and Budget (OMB) fully implement 
the DATA Act, what additional areas of Congressional oversight would be 
most important? (Please indicate three.) What current barriers exist to 
full implementation?

    Answer. Given the complexity and government-wide scale of the 
activities required by the DATA Act, full implementation will not occur 
without sustained commitment by the executive branch and continued 
oversight by Congress. As implementation of the DATA Act moves forward, 
there are several areas where the administration faces challenges and 
potential barriers. Four areas where additional Congressional oversight 
could be particularly important are (1) operationalization of data 
element definitions (i.e., the specific changes to agency processes, 
policies and technology that will be required to effectively implement 
the definitions), (2) timely implementation of a clear data governance 
structure for developing and maintaining data standards that are 
consistent with leading practices, (3) defining what qualifies as a 
``program'' for purposes of reporting Federal spending data under the 
DATA Act, and (4) adopting policies and procedures to foster ongoing 
and effective two-way dialogue with stakeholders.

      Operationalization of data element definitions: OMB and Treasury 
have yet to operationalize key data definitions and this may affect 
full and effective implementation of the DATA Act. On August 31, 2015, 
OMB and Treasury finalized data definitions for 57 data elements for 
reporting under the act. This was an important step in implementing the 
data standards provision of the act. However, much remains to be done 
to carry out the specific changes to agency processes, policies and 
technology that will be required to effectively implement these data 
definitions across government. GAO has an evaluation currently underway 
examining this and related issues.

      Timely implementation of a clear data governance structure: In 
July 2015, I testified that although OMB and Treasury have taken steps 
to establish an initial governance process for developing data 
standards, more effort was needed to build a data governance structure 
that not only addresses the initial development of the data standards 
but also provides a framework for adjudicating revisions, enforcing the 
standards, and maintaining the integrity of standards over time.\12\ 
GAO recommended that OMB and Treasury establish a set of clear policies 
and processes for developing and maintaining data standards that are 
consistent with leading practices for data governance. In an August 31, 
2015 white paper, OMB and Treasury stated their intent to address this 
recommendation by working in fiscal year 2016 to establish a formal, 
long-term governance process and structure for future data standards 
maintenance.
---------------------------------------------------------------------------
    \12\ GAO, Data Act: Progress Made in Initial Implementation but 
Challenges Must be Addressed as Efforts Proceed, GAO-15-752T 
(Washington, DC: July 29, 2015).

      Definition of ``program'' for reporting Federal spending data: 
In the same July 2015 testimony, the Comptroller General discussed a 
number of challenges related to executive branch efforts to identify 
and define Federal programs. Effective implementation of the DATA Act 
as well as the Government Performance and Results Act Modernization 
Act's (GPRAMA) program inventory provisions--especially the ability to 
crosswalk spending data to individual programs--could provide vital 
information to assist Federal decision makers. In addition, a 
comprehensive list of Federal programs along with related funding and 
performance information is critical for identifying potential 
fragmentation, overlap, or duplication among Federal programs or 
activities. Accordingly, we recommended that OMB accelerate efforts to 
determine how best to merge DATA Act purposes and requirements with the 
---------------------------------------------------------------------------
GPRAMA requirement to produce a Federal program inventory.

      Fostering ongoing and effective two-way dialogue with 
stakeholders: To ensure that interested parties' concerns are addressed 
as implementation efforts continue, OMB and Treasury need to build on 
existing efforts and put in place policies and procedures to foster 
ongoing and effective two-way dialogue with stakeholders including 
timely and substantive responses to feedback received on the Federal 
Spending Transparency website.

    Question. A government-wide, anti-fraud data analytics platform 
could assist inspectors general in detecting waste and fraud. The DATA 
Act gave the Department of the Treasury the option of absorbing the 
existing Recovery Accountability and Transparency Board platform, and 
GAO examined Treasury's decision not to do so in its report 
``Preserving Capabilities of Recovery Operations Center Could Help 
Sustain Oversight of Federal Expenditures'' (September 2015). In this 
report, GAO suggested that the Council of the Inspectors General for 
Integrity and Efficiency (CIGIE) could reconstitute some of these 
capabilities. How could Congress effectively facilitate the 
establishment of such an antifraud data analytics platform within 
CIGIE? How might such a platform differ from the existing and limited 
``Do Not Pay'' initiative within the Treasury Department?

    Answer. Congress may wish to consider directing CIGIE to develop a 
proposal to reconstitute the Recovery Operations Center's (ROC) 
analytic capabilities to help ensure Federal spending accountability. A 
legislative proposal that explicitly articulates the relative costs and 
benefits of developing an analytics center with a mission and 
capabilities similar to the ROC could help Congress decide whether to 
authorize and fund such an entity.

    Given its close connection to the oversight community, and the 
research it has already undertaken pertaining to the ROC, CIGIE is the 
logical entity to develop that proposal. If it were to do so, CIGIE 
could identify and recommend the resources needed--particularly in 
terms of employees and technology--to establish a ROC-like entity under 
its auspices. A proposal might also outline the data-analytic services 
that the center could offer the inspector general community and the 
potential results those services might provide.

    In addition, such a proposal could outline any additional 
authorities needed, such as the ability to handle law-enforcement-
sensitive data, which Treasury noted was a barrier for Do Not Pay (DNP) 
to provide similar services to the ROC. That element of the proposal 
would help ensure such a new entity would effectively support the 
oversight community in matters related to law enforcement. By creating 
a legislative proposal, CIGIE could thus present Congress with the 
detailed information Congress would need to make an informed decision 
about the merits of creating a CIGIE-led data-analytics center.

    Regarding differences between a capability similar to the ROC and 
Treasury's DNP initiative, as part of its mission DNP scrutinizes 
various data sources at the pre-award, prepayment, payment, and post-
payment stages and analyzes them for indications of potential improper 
payments and fraud. DNP's primary tools for doing this include batch 
matching payment information to various excluded parties and other 
``bad-actor'' lists, and conducting analysis on payment files to 
examine irregularities, such as duplicates or the same unique 
identifier associated with different names.

    The ROC also used data-matching techniques to identify risk, but it 
generally applied this technique to issues other than payment data, 
such as assisting law-
enforcement investigations to identify instances when several entities 
were collaborating to commit fraud. Treasury officials have noted that 
the DATA Act did not grant Treasury the same authorities that the 
Recovery Board had to support law-enforcement efforts.

    Question. GAO's testimony highlighted the GPRA Modernization Act as 
one of the tools that will help reduce improper payments. However, 
GAO's report ``Implementation of GPRA Modernization Act Has Yielded 
Mixed Progress in Addressing Pressing Governance Challenges'' 
(September 30, 2015) showed that implementation of the Government 
Performance and Results Modernization Act of 2010 (GPRAMA) continues to 
be uneven. Since GPRAMA was enacted, GAO has made 69 recommendations to 
improve implementation; this report shows that 41 (85%) have not been 
implemented. How does GAO recommend Congress enhance oversight of 
GPRAMA, in particular with regard to these GAO recommendations? Is 
legislative action necessary in any area?

    Answer. As part of our work examining aspects of GPRAMA 
implementation and its effects, we have identified a number of areas in 
which improvements are needed. Since GPRAMA's enactment in January 
2011, we have made a total of 69 recommendations to OMB and agencies 
aimed at improving its implementation. Of these, 55 (about 80 percent) 
have not yet been implemented. Most of our recommendations were 
directed to OMB, reflecting the agency's central role in implementing 
the act. OMB has implemented just over one-third (14) of the 38 
recommendations we made specifically to it. Agencies have yet to 
implement any of the 31 recommendations we have made to them, though we 
made most (23) of these recommendations in reports we have issued since 
July 2015.\13\ As described in more detail below, there are several 
actions Congress could take that could draw attention to the issues 
raised in our findings and recommendations, enhance oversight of 
GPRAMA, and encourage a more results-oriented culture in the Federal 
Government.
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    \13\ These recommendations and information on their statuses are 
described in more detail in GAO, Managing for Results: Implementation 
of GPRA Modernization Act Has Yielded Mixed Progress in Addressing 
Pressing Governance Challenges, GAO-15-819 (Washington, DC: Sept. 30, 
2015).

    Congress should focus on four areas that we highlighted in our 
September 2015 report on the implementation of GPRAMA: (1) using GPRAMA 
to address crosscutting program and policy issues; (2) ensuring that 
performance information is useful and used by managers for decision-
making; (3) linking individual and agency performance to results; and 
(4) clearly communicating reliable and complete financial and 
performance information and improving transparency.\14\ We found that 
although some progress has been made in areas where GAO has made prior 
recommendations, OMB and agencies continue to face a range of long-
standing challenges. For example, we reported that while OMB has 
increased its emphasis on governance of cross-agency priority goals, 
the executive branch needs to take additional actions to address 
crosscutting issues. These crosscutting issues are fundamental to 
addressing many of the areas that we have identified as high risk, or 
where fragmentation, overlap, and duplication exist.
---------------------------------------------------------------------------
    \14\ GAO-15-819.

    GPRAMA also enhances requirements for agencies to consult with 
Congress. For example, agencies are to involve Congress when 
establishing or adjusting strategic plans, which include relevant 
government-wide and agency priority goals. Agencies recently 
established agency priority goals for fiscal years 2016 and 2017. 
Agencies' consultations with Congress about these goals, and how 
progress will be determined, provide an opportunity to discuss goal 
status and emphasize the importance of GPRAMA implementation at 
---------------------------------------------------------------------------
individual agencies.

    Finally, Congress could draw attention to the issues raised in our 
work through its oversight activities, such as setting oversight 
agendas, holding hearings, and meeting with agency officials. By doing 
this, Congress could send a message to agencies that it considers 
efforts to improve the Federal Government's performance a priority.

    Question. GAO has indicated that the Federal Government, and the 
Centers for Medicare and Medicaid Services (CMS) in particular, is 
unable to determine the full extent to which improper payments occur, 
and to prevent them. What additional information does CMS require, and 
what behavioral, regulatory, statutory,or other barriers prevent CMS 
from gathering this information? Does Congress need to grant CMS 
additional authority in this regard?
Medicare
    Answer. CMS has a robust methodology to measure improper payments 
in the Medicare Fee-for-Service (FFS) program. Under the Comprehensive 
Error Rate Testing (CERT) program, a random sample of processed claims 
are selected and reviewed for errors. Any errors identified are 
categorized into five high-level reasons: medical necessity, 
insufficient documentation, no documentation, incorrect coding, and 
other. While the CERT program has measured the improper error rate in 
Medicare FFS for a number of years, the error rate continues to be 
high. The largest portion of Medicare's improper payments, about 60 
percent in 2014, is due to lack of sufficient documentation to support 
the services or supplies provided. For instance, CMS attributes a large 
increase in this error category to the PPACA face-to-face visit 
requirement for home health that was implemented in April 2011. As a 
result, CMS is modifying its face-to-face requirement's documentation 
requirements. In regards to medical necessity, the CERT program 
identified many improper payments due to inpatient hospital incorrect 
status errors (i.e., patient status errors). Patient status errors 
occur when the physician admits a Medicare beneficiary as inpatient 
when the medical record supports the provision of care in an outpatient 
or other non-hospital based setting. To address this issue, CMS has 
clarified and modified the policy regarding when an inpatient admission 
is generally appropriate for payment under Medicare Part A and how 
Medicare review contractors will assess inpatient hospital claims for 
payment purposes.

    Over the years we have made a number of recommendations to CMS to 
lower improper payments. For example, we have recommended that CMS 
should review, and potentially update, its medically unnecessary edits 
(MUE). MUEs are automated controls in the payment system that compare 
the number of certain services billed against limits for the amount of 
services likely to be provided under normal medical practice to a 
beneficiary by the same provider on the same day--for example, no more 
than one of the same operation on each eye. To the extent that these 
are not evaluated more systematically, CMS may be missing an 
opportunity to achieve savings by revising some MUEs to correspond with 
more restrictive limits. CMS has reported to us that the agency 
continually monitors the MUEs, that each quarter it implements new 
MUEs, and that the Center for Program Integrity will be continually 
monitoring these edits. As of November 2015, we are awaiting 
documentation of these actions. Additionally, we have a forthcoming 
report on improper payments in the Medicare Advantage program, which is 
Medicare's private health plan program. We plan to issue this report in 
winter 2016 and will provide a copy to the committee at that time.
Medicaid
    CMS has taken many important steps in recent years to help improve 
program integrity--including some in response to our recommendations--
and we believe even more can be done in this area.
Coordination To Minimize Duplication and Ensure Coverage
    In 2014, we found that the Federal Government and the States were 
not well positioned to identify improper payments made to--or by--
managed care organizations.\15\ While CMS has taken steps to improve 
oversight of Medicaid managed care, the lack of a comprehensive program 
integrity strategy for managed care leaves a growing portion of 
Medicaid funds at risk. In our view, CMS actions to require States to 
conduct audits of payments to and by managed care organizations, and to 
update guidance on Medicaid managed care program integrity practices 
and recoveries, are crucial to improving program integrity. In June 
2015, the agency issued a proposed rule to revise program integrity 
policies, including policy measures that we have recommended.\16\ We 
will continue to follow CMS's actions in this area.
---------------------------------------------------------------------------
    \15\ See GAO, Medicaid Program Integrity: Increased Oversight 
Needed to Ensure Integrity of Growing Managed Care Expenditures, GAO-
14-341 (Washington, DC: May 19, 2014).
    \16\ Medicaid and Children's Health Insurance Program (CHIP) 
Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, 
Medicaid and CHIP Comprehensive Quality Strategies, and Revisions 
Related to Third Party Liability; Proposed Rules, 80 Fed. Reg. 31,098 
(proposed June 1, 2015).
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Identifying Cost-Effective Efforts
    Our work has highlighted the importance of focusing State and 
Federal resources on cost-effective efforts to identify improper 
payments. States' information systems are a key component of program 
integrity activities. Our work has shown that the effectiveness of 
States' information systems used for program integrity purposes is 
uncertain. We recommended that HHS require States to measure and report 
quantifiable benefits of program integrity systems when requesting 
Federal funds and to reflect their approach for doing so. HHS concurred 
with these recommendations and said it had taken recent steps to help 
ensure that States provide post-implementation data on quantifiable 
benefits. We will continue to monitor HHS's progress in this area.
Ensuring Medicaid Remains a Payer of Last Resort
    CMS and the States must ensure that if Medicaid enrollees have 
another source of health care coverage, that source should pay, to the 
extent of its liability, before Medicaid does. In January 2015, we 
recommended that CMS play a more active leadership role in monitoring, 
supporting, and promoting State third-party liability efforts.\17\ 
Specifically, we recommended that CMS:
---------------------------------------------------------------------------
    \17\ See GAO, Medicaid: Additional Federal Action Needed to Further 
Improve Third-Party Liability Efforts, GAO-15-208 (Washington, DC: Jan. 
28, 2015).

    1.  Routinely monitor and share across all States information 
---------------------------------------------------------------------------
regarding key third-party liability efforts and challenges; and

    2.  Provide guidance to States on their oversight of third-party 
liability efforts conducted by Medicaid managed care plans.

    In June 2015, CMS indicated it plans to issue guidance, which would 
require managed care plans to include information on third-party 
liability amounts in the encounter data submitted to States. We will 
continue to follow CMS's actions in this area.
Efforts to Ensure Only Eligible Individuals and Providers Participate 
        in Medicaid Can Be Improved
    Using 2011 data, we reported on indications of potentially 
fraudulent or improper payments related to certain Medicaid enrollees 
and paid to some providers, as shown in our review of approximately 9 
million enrollees in four States.\18\ While these cases indicate only 
potentially improper payments, they raise questions about the 
effectiveness of beneficiary and provider enrollment screening 
controls. In February 2011, CMS and HHS's Office of Inspector General 
issued regulations establishing a new risk-based screening process for 
providers with enhanced verification measures, such as unscheduled or 
unannounced site visits and fingerprint-based criminal background 
checks. If properly implemented by CMS, the Federal data services hub 
and the additional provider screening measures could help mitigate some 
of the potential improper payment issues that we identified. However, 
we identified gaps in State practices for identifying deceased 
enrollees, as well as State challenges in screening providers 
effectively and efficiently, and recommended that CMS provide guidance 
to States to better:
---------------------------------------------------------------------------
    \18\ See GAO, Medicaid: Additional Actions Needed to Help Improve 
Provider and Beneficiary Fraud Controls, GAO-15-313 (Washington, DC: 
May 14, 2015).

---------------------------------------------------------------------------
    1.  Identify enrollees who are deceased, and

    2.  Screen providers by using automated information available 
through Medicare's enrollment database.

    HHS concurred with our recommendations and stated it would work 
with States to determine additional approaches to better identify 
deceased enrollees, and that it would continue to educate States about 
the availability of provider information and how to use that 
information to help screen Medicaid providers more effectively and 
efficiently. We will continue to monitor HHS's efforts in this area.

    Question. GAO's testimony highlights the challenges of both filing 
for and administering the EITC, a credit that lawmakers on both sides 
of the aisle agree is a critical part of our tax code. EITC claims are 
twice as likely to be audited as other tax returns, but most EITC 
recipients cannot afford to hire someone to help them navigate an IRS 
audit. These are the same taxpayers who are likely to use an 
unregulated commercial tax return preparer when presented with the 
complexities of filing an EITC claim--and your testimony makes clear 
that these preparers are responsible for a large share of improper EITC 
payments. You also note in your testimony that the IRS has initiated 
several programs to address EITC improper payments, including outreach 
and education to taxpayers. Has theGAO looked into the effectiveness of 
these programs since inception, and will these programs be able to 
continue at these same levels under current IRS budget restrictions?

    Answer. GAO has looked into the effectiveness of elements of the 
overall compliance effort. IRS has undertaken a number of compliance 
and enforcement activities to reduce EITC improper payments, and 
Treasury reported in its fiscal year 2014 agency financial report that 
it prevented an estimated $3.5 billion in improper EITC payments in 
fiscal year 2014. However, Treasury also reported that estimated EITC 
improper payments were $14.5 billion in 2013, $17.7 billion in 2014, 
and $15.6 billion in 2015.

    Among other things, IRS uses audits to help identify EITC improper 
payments, and in June 2014, we reported that about 45 percent of 
correspondence audits (audits done by mail) that closed in fiscal year 
2013 focused on EITC issues. IRS has reported that tax returns with 
EITC claims were twice as likely to beHowever, we found that the 
effectiveness of these audits may be limited because since 2011 there 
have been regular backlogs in the audits, which have resulted in delays 
in responding to taxpayer responses and inquiries.

    We also found that unclear correspondence generated additional work 
for IRS, such as telephone calls to IRS examiners. These issues have 
imposed burdens on taxpayers and costs for IRS. IRS acknowledged these 
concerns and has initiated several programs to address EITC improper 
payments, such as increasing outreach and education to taxpayers and 
tax return preparers. We also noted that IRS has had to scale back its 
audit of individual tax returns by about 20 percent in recent 
years.\19\ In addition to fewer audits, our most recent review of IRS's 
budget highlighted service reductions across several IRS offices and 
divisions.\20\ We are reviewing how IRS monitors and assesses the 
effectiveness of EITC compliance efforts--which include a range of 
education, outreach and enforcement initiatives. As part of our review, 
we will determine whether the measures and methods IRS uses to assess 
the effectiveness of its compliance strategies are appropriate for that 
purpose. We plan to issue our report on this review in spring 2016 and 
will provide it you as soon as it is available. We would also be happy 
to brief you on this work.
---------------------------------------------------------------------------
    \19\ GAO, IRS 2015 Budget: Long-Term Strategy and Return on 
Investment Data Needed to Better Manage Budget Uncertainty and Set 
Priorities, GAO-14-605 (Washington, DC: June 12, 2014).
    \20\ GAO, IRS 2016 Budget: IRS Is Scaling Back Activities and Using 
Budget Flexibilities to Absorb Budget Cuts, GAO-15-624 (Washington, DC: 
Jun. 24 2015).

    Question. For the past year, I have been examining the development 
and growth of contingent work and the on-demand economy, engaging with 
workers, CEOs of new peer-to-peer platforms and marketplaces, 
academics, and other experts. Some of these contingent workers, many of 
whom receive a Form 1099 for this compensation, are engaging with the 
tax system in new ways--paying self-employment tax, tracking their 
expenses, making quarterly tax payments, etc. Has GAO made 
recommendations on how to reduce tax complexity for these workers and 
---------------------------------------------------------------------------
at the same time decrease the level of improper payments?

    Answer. Yes, we have made recommendations on tax compliance issues 
related to contingent workers or independent contractors--those who 
provide services to various types of employers in lieu of hiring 
employees.\21\ When employers improperly classify workers as 
independent contractors instead of as employees, those workers do not 
receive protections and benefits to which they are entitled, and the 
employers may fail to pay some taxes they would otherwise be required 
to pay. Such misclassification can affect Federal and State programs, 
businesses, and those misclassified. It can reduce revenue that 
supports Social Security, Medicare, unemployment insurance, and 
workers' compensation. Further, businesses who misclassify workers to 
reduce their costs by not paying payroll taxes or providing benefits to 
workers can gain a competitive advantage over businesses that do not 
misclassify workers. IRS enforces worker classification compliance 
primarily through examinations of employers but also offers settlements 
through which eligible employers under examination can reduce taxes 
they might owe if they maintain proper classification of their workers 
in the future.
---------------------------------------------------------------------------
    \21\ GAO, Tax Gap: IRS Could Do More to Promote Compliance by Third 
Parties with Miscellaneous Income Reporting Requirements, GAO-09-238 
(Washington, DC: Jan. 28, 2009); Tax Gap: A Strategy for Reducing the 
Gap Should Include Options for Addressing Sole Proprietor 
Noncompliance, GAO-07-1014 (Washington, DC: July 13, 2007); Tax 
Administration: Issues in Classifying Workers as Employees or 
Independent Contractors, GAO/T-GGD-96-130 (Washington, DC: June 20, 
1996); Tax Administration: Estimates of the Tax Gap for Service 
Providers, GAO/GGD-95-59 (Washington, DC: Dec. 28, 1994); Tax 
Administration: Approaches for Improving Independent Contractor 
Compliance, GAO/GGD-92-108 (Washington, DC: July 23, 1992); Tax 
Administration: Information Returns Can Be Used to Identify Employers 
Who Misclassify Workers, GAO/GGD-89-107 (Washington, DC: Sept. 25, 
1989).

    In our August 2009 report, we identified options to address 
misclassification.\22\ Stakeholders we surveyed, including labor and 
employer groups, did not unanimously support or oppose any options. 
However, some options received more support, including enhancing 
coordination between Federal and State agencies, expanding outreach to 
workers on classification, and allowing employers who misclassify to 
enter an IRS program that induces them to correctly classify workers. 
IRS implemented our recommendations, including establishing a joint 
interagency effort with Federal and State agencies to address 
misclassification; offering education and outreach to workers on 
classification rules, implications and tax obligations; and creating a 
forum for regularly collaborating with States on data sharing issues.
---------------------------------------------------------------------------
    \22\ GAO, Employee Misclassification: Improved Coordination, 
Outreach, and Targeting Could Better Ensure Detection and Prevention, 
GAO-09-717 (Washington, DC: Aug. 10, 2009).

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a Committee hearing 
examining how improper payments, including overpayments and 
underpayments, plague the Federal bureaucracy and divert scarce 
resources away from vital programs.

    The Federal Government spends roughly $3.5 trillion every year. I'm 
going to repeat that number: $3.5 trillion.

    I think most reasonable people would agree that not all of that 
money is well spent. There is, of course, plenty of questionable 
spending that the government does on purpose on a more or less daily 
basis--but that's a whole other hearing. Today's hearing is about the 
spending the Federal Government does by accident.

    All told, according to the Government Accountability Office, there 
were about $125 billion of this kind of accidental--or improper--
spending in the last fiscal year alone.

    We talk about so much money here in Congress--millions, billions, 
and trillions of dollars. We casually cite dollar figures that are 
incomprehensible to most people. And, too often, politicians and 
policymakers talk about these dollars as if they are Washington's, as 
if the funds just materialized out of thin air for the sole purpose of 
being spent by the government.

    But let's be clear about one thing: These funds--these millions, 
billions, and trillions of dollars that we talk about and sometimes 
spend rather haphazardly, belong to the taxpayers. These are dollars 
the Federal Government has either taken out of paychecks or borrowed 
from future taxpayers.

    So, when we talk about losing billions of dollars, it's not 
Washington's dollars that has been lost. Instead, it is money that 
we've taken away from hardworking people and then squandered through 
improper oversight or plain old irresponsibility.

    I hope we keep that in mind as we talk more about millions and 
billions here today.

    Just think about what could be purchased with $125 billion.

    That amount would buy an iPad for every single American.

    It would buy every person in the country a year's worth of meals at 
Chipotle.

    Or, to put it another way, $125 billion would be enough to pay for 
health insurance for every living person in Florida, our third most 
populous State.

    According to the Congressional Budget Office, total tax revenues 
average out to about $17,000 per American household. By that estimate, 
for over 7 million American families, who work hard to stay on budget, 
pay their bills on time--and, yes, pay their taxes--every single dollar 
they sent to Washington in the last fiscal year was wasted on improper 
payments.

    Earlier this year, GAO issued a report entitled ``Opportunities to 
Reduce Fragmentation, Overlap, Duplication, and Improper Payments and 
Achieve Other Financial Benefits.'' This report provided updates on the 
government's progress--or lack thereof--in addressing more than 440 
actions previously recommended by GAO that were designed to cut waste 
in government spending programs and implement efficiencies in 
government services across 180 areas of concern identified in past 
annual reports.

    While the GAO estimated that executive branch and congressional 
actions to reduce waste and abuse resulted in roughly $20 billion in 
``financial benefits'' between fiscal years 2011 and 2014, only 29 
percent of GAO's recommendations were classified as ``fully addressed'' 
as of November of last year.

    In other words, while some progress has been made to address these 
concerns, any successes we've seen have been overshadowed by a 
persistently growing mountain of waste, fraud, abuse, and 
mismanagement.

    The problem is actually much worse than you might think.

    According to GAO, in FY 2014, the estimated amount of government-
wide improper payments increased by nearly 20 percent--that's $19 
billion--over the previous year, the largest increase we've seen in 
recent years. So, basically, this 1-year increase in improper payments 
essentially wiped out the $20 billion in financial benefits accrued 
over a 4 year period from implemented recommendations.

    While the payment errors were spread among 22 Federal agencies, 
last year's increase was primarily due to estimates for Medicare, 
Medicaid, and the Earned Income Tax Credit, which account for over 76 
percent of all improper government payments.

    Since all three of these programs fall under our committee's 
jurisdiction, I want to take a moment to examine them individually.

    The Medicare program, which provides essential health coverage to 
elderly and disable beneficiaries, paid out nearly $60 billion in 
improper payments in FY 2014. That's nearly half of all the improper 
payments across the entire government and roughly 10 percent of all 
paid Medicare benefits.

    That's right, about one out of every ten dollars paid out of 
Medicare was paid in error. That is unacceptable.

    Last year, Medicaid, our primary health safety net for poor and 
vulnerable Americans, paid out approximately $17.5 billion in improper 
payments. Just to put that into context--the government paid more in 
improper Medicaid payments last year than it spends in a year for the 
ENTIRE Temporary Assistance for Needy Families (TANF) program, our 
country's main cash welfare program for the poor.

    And, as you all know, the Earned Income Tax Credit, or EITC, 
provides a refundable tax credit to working taxpayers that can be as 
much as $5,500 for an income-eligible family with two children. In FY 
2014, the government paid out nearly $18 billion in improper payments 
under the EITC. That's more than 27 percent--more than $1 out of every 
$4--of what we spent on the entire program.

    Of course, we've known about the high rates of improper payments in 
all of these programs for years now. While these numbers--by their 
sheer size--are staggering, none of them should be surprising. This is 
a problem that has been many years in the making. And, if you ask me, 
the time for addressing it is long past due.

    I think we're going to have an interesting and informative 
conversation about these issues today.

    I want to thank the Comptroller General for being here today and 
for his agency's hard work in uncovering and addressing these issues. 
This committee greatly values GAO's insights and I look forward to 
hearing more about their recommendations today.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    It's important at the outset of this hearing to make sure that 
everyone is on the same page with respect to the topic at hand. In my 
view, there are two issues, which are related but distinct. The first 
is improper payments, which are payments that are too big, too small, 
or documented the wrong way. In most cases, it comes down to accounting 
errors or taxpayers getting tripped up by our complicated tax rules. 
The second issue is fraud, which is a criminal act that results in 
illegal payments.

    Let me begin by saying that nobody on this side of the aisle backs 
down from the challenge of fixing improper payments and fighting fraud. 
That's because every taxpayer dollar lost to mistakes--no matter the 
cause--is a dollar that's not available to help seniors cover medical 
costs, put a student through college, or rebuild our aging 
infrastructure. Congress ought to do everything it can to eliminate 
fraud and improper payments. But by conflating the two, you run the 
risk of doing a bad job fighting both.

    When it comes to cutting down on improper payments, there is action 
that can be taken. For example, the Finance Committee passed bipartisan 
legislation in June--the AFIRM Act--that can help Medicare cut down 
improper payments by shoring up the system of audits and appeals. The 
crushing backlog of appeals is a major source of frustration for 
seniors and providers, and the audit system in place today needs big 
improvements. Our legislation will help make sure that the right 
payments are going out, and it will keep paperwork and bureaucratic red 
tape from coming between doctors and their patients.

    When it comes to combating fraud, the Government Accountability 
Office and the National Taxpayer Advocate have said that one of the 
best ways to go after tax fraudsters is by protecting taxpayers from 
predatory and incompetent paid return preparers. When you look at the 
facts, setting standards for tax return preparers is the definition of 
a no-brainer. But at the Federal level, there are no standards 
whatsoever protecting taxpayers from incompetence and dishonesty among 
paid return preparers. Only four States have set their own standards.

    As a result, across the country, incompetent preparers make 
mistakes that cause financial nightmares for a lot of families, 
particularly people of limited means. Or worse, unethical, fraudulent 
return preparers pose as trustworthy businessmen and steal money from 
people who already struggle to get by.

    My home State of Oregon is one of four that gets this issue right 
and protects innocent people from these scofflaws. And it's not just me 
saying there should be nationwide protections--it's the GAO and the 
Taxpayer Advocate, which are the trusted nonpartisan voices on these 
issues. Senator Hatch and I have a proposal ready to go that would 
combat fraud in a number of ways, including by regulating paid tax 
return preparers, and I'm hopeful that the committee will move it 
forward soon.

    As GAO points out in its testimony, setting standards for paid 
preparers will have a double benefit. Not only will it crack down on 
fraud, it will also help cut down on improper Earned Income Tax Credit 
payments. That's because nearly half of the tax returns done by paid 
preparers improperly claim the EITC.

    Finally, you cannot get a full picture of how to protect taxpayer 
dollars without looking at a few other major issues. The first is the 
annual tax gap of $385 billion, which is more than three times the 
total amount of improper payments government-wide. And second is 
defense spending. The Pentagon cannot get a free pass when it comes to 
improper payments just because some members of Congress find it easier 
to focus on health care and tax programs. Those issues have to be a 
part of the debate.

    In closing, it's my view that the committee ought to look at this 
challenge of improper payments as an opportunity to make our tax system 
and spending programs work better. GAO has made a number of 
recommendations on how to make that happen. I look forward to hearing 
Mr. Dodaro's testimony.

                                 ______
                                 

                             Communications

                              ----------                              


                Academy of Managed Care Pharmacy (AMCP)

                   100 North Pitt Street | Suite 400

                          Alexandria, VA 22314

                      800-827-2627 | 703-683-8416

                            Fax 703-683-8417

                              www.amcp.org

October 7, 2015

The Honorable Orrin G. Hatch        The Honorable Ron Wyden
Chairman                            Ranking Member
Committee on Finance                Committee on Finance
U.S. Senate                         U.S. Senate
219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
Washington, DC 20510                Washington, DC 20510

RE: Improper Payments in Federal Programs

Dear Chairman Hatch and Ranking Member Wyden:

The Academy of Managed Care Pharmacy (AMCP) hereby submits comments for 
the record on the hearing entitled: ``Improper Payments in Federal 
Programs,'' held on October 1, 2015. AMCP believes that PDP sponsors 
can and should play an important role in fighting fraud, waste and 
abuse under the Medicare Part D program. Greater involvement by 
Prescription Drug Plan (PDP) sponsors will reduce the incidence of 
fraud under the Medicare program and result in substantial savings for 
Medicare beneficiaries and taxpayers.

AMCP is a national professional association of pharmacists and other 
health care practitioners who serve society by the application of sound 
medication management principles and strategies to improve health care 
for all. The Academy's more than 7,000 members develop and provide a 
diversified range of clinical, educational and business management 
services and strategies on behalf of the more than 200 million 
Americans covered by a managed care pharmacy benefit.

In 2014, according to a Government Accountability Office report, the 
federal government spent $58 billion on Medicare Part D; an estimated 
$1.9 billion of that total were attributed to improper prescription 
payments.\1\ Federal and private-sector estimates of Medicare fraud 
range from 3 percent to as high as 10 percent of total expenditures, 
amounting to between $68 billion and $226 billion annually. The 
substantial size of the dollars lost annually in fraud, waste and abuse 
in the entire Medicare Program has made Medicare fraud a top priority.
---------------------------------------------------------------------------
    \1\  Medicare Part D: Changes Needed to Improve CMS's Recovery 
Audit Program Operations and Contractor Oversight. Report to the 
Chairman, Subcommittee on Health, Committee on Ways and Means, House of 
Representatives, August 2015.
    http://www.gao.gov/assets/680/671997.pdf. Accessed September 15, 
2015.

As you know, if not remedied, fraud will continue to pose a significant 
threat to the integrity of the overall benefit. AMCP has developed 
draft legislation that we believe offers a solution to reduce improper 
payments in Medicare Part D. Our draft legislation, the ``Medicare 
Prescription Drug Anti-Fraud Act,'' would authorize the Health and 
Human Services (HHS) Secretary to decrease improper prescription 
payments by approving the suspension of payments to a pharmacy or other 
supplier when the Secretary has determined that there is a credible 
allegation of fraud. This is the same authority currently used by the 
HHS Secretary under Section 6402 in the Patient Protection and 
Affordable Care Act (ACA) in Medicare Parts A and B. State Medicaid 
programs are authorized to suspend payments pending an investigation of 
---------------------------------------------------------------------------
a credible allegation of fraud.

Currently, Prescription Drug Plan (PDP) sponsors may not suspend 
payments, in Medicare Part D, because of the prompt payment and any 
willing pharmacy contracting provisions. Instead PDP sponsors must 
``pay and then chase'' claims that they have reason to believe are 
fraudulent. The Medicare Prescription Drug Anti-Fraud Act would amend 
Medicare Part D to add a new provision in section 1860D-12 of the 
Social Security Act which would include the following:

      PDP sponsors can report to the Secretary any credible allegation 
of fraud relating to pharmacy providers and suppliers furnishing items 
and services under the PDP.
      The Secretary shall consult with the Inspector General of HHS in 
determining whether there is a credible allegation of fraud.
      The process used to determine whether there is a credible 
allegation of fraud shall be similar to the process already established 
for purposes of administering Section 1862(o) of the Social Security 
Act.
      Allows the Secretary to authorize a PDP sponsor to suspend 
payments once the Secretary determines that a credible allegation of 
fraud is present pending an investigation, unless the Secretary 
determines there is a good cause not to suspend such payments.
      Allows the Secretary to suspend the prompt payment and any 
willing pharmacy provisions during the period of suspension.

In a time of diminishing budget resources, it is more important than 
ever that the Medicare program is effectively able to combat fraud. The 
Academy recognizes the seriousness of this problem and is supportive of 
efforts that would limit fraudulent activity. On behalf of AMCP and the 
profession of managed care pharmacy, we will continue to work with you 
and your staff on this pressing issue. For your reference, a copy of 
the proposed legislation is attached.

If you have any comments or questions, please do not hesitate to 
contact me, or AMCP's Vice President of Government and Pharmacy 
Affairs, Mary Jo Carden, at 703-683-2603, or by email at 
[email protected].

Sincerely,

Edith A. Rosato, R.Ph., IOM
Chief Executive Officer

                                 ______
                                 

         ``Medicare Prescription Drug Anti-Fraud Act of 2015''

                           [Discussion Draft]

114th CONGRESS

1st Session

                                S.______

To amend title XVIII of the Social Security Act to permit prescription 
drug plan sponsors to withhold payments to pharmacies based on credible 
allegations of fraud, and for other purposes.

              ___________________________________________

                   IN THE SENATE OF THE UNITED STATES

__________________ introduced the following bill; which was read twice 
and referred to the Committee on: 
___________________________________________________________

                                 A BILL

To amend title XVIII of the Social Security Act to permit prescription 
    drug plan sponsors to withhold payments to pharmacies based on 
    credible allegations of fraud, and for other purposes.

        Be it enacted by the Senate and House of Representatives of the 
        United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

        This Act may be cited as the ``Medicare Prescription Drug Anti-
        Fraud Act of 2015''.

SEC. 2. FINDINGS AND PURPOSES.

        (a) Findings.--Congress finds the following:

        (1) The Secretary of Health and Human Services may suspend 
        payments to any Medicare fee-for-service provider pending an 
        investigation of a credible allegation of fraud under section 
        1862(o) of the Social Security Act.

        (2) States may suspend payments to any Medicaid provider 
        pending an investigation of a credible allegation of fraud 
        under section 1903(i)(2)(C) of the Social Security Act.

        (3) Medicare prescription drug plan sponsors may not suspend 
        payments to any pharmacy pending a credible allegation of fraud 
        because of prompt payment and any willing pharmacy contracting 
        requirements.

        (4) Medicare prescription drug plan sponsors can and should 
        play an important role in fighting fraud, waste and abuse under 
        the Medicare prescription drug program under part D of title 
        XVIII of the Social Security Act.

        (5) Greater involvement of prescription drug plan sponsors will 
        reduce the incidence of fraud under the Medicare program and 
        result in savings for Medicare beneficiaries and taxpayers.

    (b) Purposes.--The purpose of this Act is to reduce payments for 
    fraudulent claims submitted under part D of the Medicare program 
    under title XVIII of the Social Security Act by establishing 
    procedures under which prescription drug plan sponsors may withhold 
    payments to pharmacies based on credible allegations of fraud.

SEC. 3. AUTHORIZATION OF MEDICARE PRESCRIPTION DRUG PLANS TO SUSPEND 
        PAYMENTS BASED ON CREDIBLE ALLEGATIONS OF FRAUD.

    (a) In General.--Section 1860D-12(b)(4) of the Social Security Act 
        (42 U.S.C. 1395w-112(b)(4)) is amended by adding at the end the 
        following new subsection:

                  ``(H) Authorization of PDP Sponsors to Suspend 
                Payments Based on Allegations of Fraud.--

                          ``(i) In general.--The Secretary shall 
                        establish procedures under which a PDP sponsor 
                        may report to the Secretary a credible 
                        allegation of fraud relating to a pharmacy or 
                        other supplier furnishing items and services 
                        under the PDP.

                          ``(ii) Consultation.--The procedures under 
                        clause (i) shall provide that the Secretary 
                        shall consult with the Inspector General of the 
                        Department of Health and Human Services in 
                        determining whether there is a credible 
                        allegation of fraud against a pharmacy or other 
                        supplier.

                          ``(iii) Authorization to suspend payments.--
                        If the Secretary determines there is a credible 
                        allegation of fraud, the Secretary may 
                        authorize the PDP sponsor to suspend payments 
                        to the pharmacy or other supplier pending an 
                        investigation of such allegation, unless the 
                        Secretary determines there is good cause not to 
                        suspend such payments.

                          ``(iv) Relation to other payment suspension 
                        authorities.-- In establishing procedures under 
                        this section, the Secretary shall consider the 
                        procedures established under sections 1862(o) 
                        and 1903(i)(2)(C).

                          ``(v) Rule of construction.--Nothing in this 
                        paragraph shall be construed as limiting the 
                        authority of a PDP sponsor to conduct post-
                        claim payment review.''

      (b) Conforming Amendments.--

        (1) Prompt payment requirements.--Section 1860D-12(b)(4)(A)(i) 
        of the Social Security Act (42 U.S.C. 1395w-112(b)(4)(A)(i)) is 
        amended by striking ``Each contract'' and inserting ``Subject 
        to subparagraph (H), each contract''.

        (2) Any willing pharmacy requirements.--Section 1860D-
        4(b)(1)(A) of the Social Security Act (42 U.S.C. 1395w-
        104(b)(1)(A)) is amended by striking ``A prescription drug 
        plan'' and inserting ``Subject to section 1860D-12(b)(4)(H), a 
        prescription drug plan''.

    (c) Effective Date.--The amendments made by this section shall 
    apply to plan years beginning on or after January 1, 2017.

                                 ______
                                 
                              340B Health

          The affordable prescription for healthy communities

               United States Senate Committee on Finance

            Hearing on Improper Payments in Federal Programs

                            October 1, 2015

On behalf of over 1,000 member hospitals and health systems that 
participate in the 340B drug discount program, 340B Health appreciates 
the opportunity to submit this statement to the United States Committee 
on Finance. Specifically, we would like to address comments made about 
a recent Government Accountability Office (GAO) report during the 
hearing on Improper Payments in Federal Programs.

340B Health commends the GAO for acknowledging 340B hospitals play a 
critical role in treating low-income and vulnerable patients in their 
2015 report, Medicare Part B Drugs: Action Needed to Reduce Financial 
Incentives to Prescribe 340B Drugs at Participating Hospitals. The 
GAO's finding, which states 340B hospitals, ``provide more 
uncompensated and charity care than non-340B hospitals,'' is consistent 
with a recent Dobson Davanzo study that found 340B hospitals accounted 
for one-third of hospitals but provided 60 percent of uncompensated 
care.

Our organization remains concerned with the GAO's conclusion regarding 
Medicare Part B spending. The GAO found that per beneficiary Medicare 
Part B drug spending was more than twice as high at 340B DSH hospitals 
than at non-340B hospitals. When questioned about this conclusion, 
Comptroller Gene Dodaro stated the GAO stands by its report and called 
upon Congress to take legislative action.

340B Health strongly believes there is insufficient data in the report 
to justify this conclusion. The Department of Health and Human Services 
(HHS) expressed similar concerns in comments submitted to the GAO, 
stating that the report's conclusion on Part B drug spending ``is not 
supported by the study methodology.'' HHS also noted that GAO ``did not 
examine any patient differences in terms of outcomes or quality.'' We 
agree that the report did not sufficiently evaluate the causes behind 
the increased spending, such as treatment of more complicated cancer 
patients, nor did it evaluate whether higher spending has an impact on 
patient outcomes. 340B hospitals tend to treat sicker, more complex 
cancer patients with socioeconomic challenges and the report under-
predicts the cost of the sickest beneficiaries.

These findings deserve additional exploration. It would be premature 
for Congress to legislate at this time absent additional research 
looking at what is causing the reportedly higher spending and how 
health outcomes are affected. We encourage policymakers to work with 
340B stakeholders on this issue to better understand the underlying 
basis for these results and ensure that changes are not made that would 
undermine this vital program.

Below is 340B Health's detailed analysis of the report's key findings 
on Medicare Part B spending.

Analysis of Medicare Part B Spending

(1)  The 340B hospital group in GAO's analysis is not comparable to the 
    non-340B hospital group, suggesting that differences in spending on 
    Part B drugs could be explained by different hospital 
    characteristics among the two groups.

       Our review of hospital data found that the 340B hospital group 
used in the GAO analysis excluded a significant number of smaller, non-
teaching 340B hospitals because they were not in the program in 2008 or 
because they were in the program in 2008 and not in 2012. Excluding 
these hospitals from the analysis caused the 340B hospital group to 
include more large, teaching hospitals than were included in the non-
340B hospital group. Although the GAO attempted to control for size of 
hospital and teaching hospital status, its analysis did not evaluate 
whether the larger teaching hospitals provide different types of 
services than other hospitals that could explain higher spending. This 
difference in hospital characteristics between the two groups could 
have had a meaningful impact on the spending averages calculated for 
each hospital category.

       The 340B hospital group also included many more hospitals that 
are likely to focus on treating patients with cancer, compared to the 
non-340B hospital group. 340B hospitals may be more likely to 
specialize in cancer care compared to non-340B hospitals considering 
that 70 percent of National Cancer Institute (NCI)-designated cancer 
care centers are affiliated with 340B DSH hospitals, the vast majority 
of which were in the program in 2008 and 2012. Although the GAO 
attempted to control for treatment of cancer patients, its analysis did 
not evaluate the severity and complexity of cancer patients treated by 
340B hospitals. Inclusion in the analysis of such a large number of 
hospitals with special accreditation for cancer care could, therefore, 
also skew the findings and result in higher average spending for 340B 
hospitals.

(2)  The differences in spending may be due to patient health status, 
    because the model GAO used understates the severity of the health 
    status of 340B DSH hospital patients, especially cancer patients.

       We are not aware of any research that suggests that the CMS-HCC 
predicts spending on Part B drugs or on oncology drugs. In fact, the 
measure has been specifically criticized for not accurately capturing 
cancer patients' health status and researchers have informed CMS of the 
need to refine the HCC model in order to improve the predictive 
accuracy for high-cost beneficiaries for whom the model under-predicts 
expenditures. This fact undermines the GAO's conclusion that the HCC 
model is an appropriate measure for the health status of a population 
with high rates of cancer In light of these criticisms, the CMS-HCC 
model seems particularly likely to understate the true severity of the 
health status seen by the 340B DSH hospitals in the GAO analysis, 
since, as discussed above, they are larger than the hospitals in non-
340B hospital groups and more likely to treat cancer patients. These 
limitations, combined with the fact that the GAO's analysis showed that 
the risk score for outpatient oncology patients at 340B DSH hospitals 
was 8.5 percent higher than for non-340B DSH hospitals may, in fact, 
account for the differences in spending that GAO found.

(3)  Additional data calls into question whether the 340B program's 
    financial benefit causes increased spending.

       Despite concluding that 340B DSH hospitals had higher per 
beneficiary spending on Part B drugs, the GAO found that 340B DSH 
hospitals had lower outpatient Medicare margins than non-340B 
hospitals. Different margins may suggest that 340B hospitals provide a 
different mix of services compared to non-340B hospitals, which could 
explain why Medicare spending might differ at 340B hospitals. Moreover, 
the amount that 340B hospitals save by administering 340B drugs to 
Medicare Part B patients represents a fraction of total Medicare 
revenue (1.1 percent) and a fraction of the other types of Medicare 
payments that the GAO cites to in its report (e.g., IME and DSH 
payments), also calling into question whether the 340B program's 
financial benefit causes increased spending.

(4)  Even if there is higher per beneficiary Medicare spending at 340B 
    DSH hospitals, the GAO analysis does not review patient outcomes or 
    otherwise evaluate the actual impact on quality of care and cost, 
    which could be significant.

       Research suggests that 340B DSH hospitals may be improving 
health outcomes for Part B oncology beneficiaries in ways that justify 
the cost. Seventy percent of NCI-designated cancer centers are 
affiliated with DSH hospitals and a patient's receipt of care in an NCI 
designated comprehensive cancer center is correlated with a 37 percent 
decrease in the likelihood that the patient will die within 30 days of 
admission. Further, there is evidence that patients in NCI cancer 
centers are more likely to be treated with chemotherapy at higher dose 
intensities compared to patients at non-NCI centers.

Given the limitations of GAO's analysis, more study is needed before 
concluding that the 340B drug pricing program provides an incentive to 
prescribe more drugs or more expensive drugs than are necessary. In the 
20 years that this organization has worked with 340B DSH hospitals, we 
have never had any indication that hospitals make patient care 
decisions to maximize 340B savings. Indeed, hospitals do not prescribe 
any medication, as all prescribing decisions are made by licensed 
health professionals according to standards set by their professions. 
The well-being of hospital patients is the number one goal of 340B 
Health member hospitals. Nevertheless, we remain concerned about the 
GAO's findings and intend to further analyze these issues in more 
depth.

_______________________________________________________________________

1101 15TH STREET NW, SUITE 910, WASHINGTON, DC 20005   PHONE: 202-552-
                                 5850 
                 FAX: 202-552-5868  www.340bhealth.org

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