[House Prints 108-2]
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                           [COMMITTEE PRINT]
 
                         ADDRESSING GOVERNMENT
                        WASTE, FRAUD, AND ABUSE

                     SUBMISSION BY HOUSE COMMITTEES

                                and the

                     U.S. GENERAL ACCOUNTING OFFICE

               pursuant to section 301 of h. con. res. 95

                               __________

                        COMMITTEE ON THE BUDGET

                     U.S. HOUSE OF REPRESENTATIVES

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                             SEPTEMBER 2003

                            Serial No. CP-2

                               __________

 THIS REPORT HAS NOT BEEN OFFICIALLY APPROVED BY THE COMMITTEE ON THE 
                                 BUDGET

           Printed for the use of the Committee on the Budget


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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa Chairman
CHRISTOPHER SHAYS, Connecticut       JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
GIL GUTKNECHT, Minnesota               Ranking Minority Member
MAC THORNBERRY, Texas                JAMES P. MORAN, Virginia
JIM RYUN, Kansas                     DARLENE HOOLEY, Oregon
PAT TOOMEY, Pennsylvania             TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    JOHN LEWIS, Georgia
EDWARD SCHROCK, Virginia             RICHARD E. NEAL, Massachusetts
HENRY E. BROWN, Jr., South Carolina  ROSA DeLAURO, Connecticut
ANDER CRENSHAW, Florida              CHET EDWARDS, Texas
ADAM PUTNAM, Florida                 ROBERT C. SCOTT, Virginia
ROGER WICKER, Mississippi            HAROLD FORD, Tennessee
KENNY HULSHOF, Mississippi           LOIS CAPPS, California
THOMAS G. TANCREDO, Colorado         MIKE THOMPSON, California
DAVID VITTER, Louisiana              BRIAN BAIRD, Washington
JO BONNER, Alabama                   JIM COOPER, Tennessee
TRENT FRANKS, Arizona                RAHM EMANUEL, Illinois
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   DENIS MAJETTE, Georgia
THADDEUS McCOTTER, Michigan          RON KIND, Wisconsin
MARIO DIAZ-BALART, Florida
JEB HENSARLING, Texas
GINNY BROWN-WAITE, Florida

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel


                             C O N T E N T S

                              ----------                              
                                                                   Page
Chairman's Introduction..........................................     1
Submission by the U.S. General Accounting Office.................     3
    Submissions by House Committees:
    Agriculture..................................................   305
    Education and the Workforce..................................   309
    Energy and Commerce..........................................   319
    Financial Services...........................................   323
    Government Reform............................................   331
    House Administration.........................................   339
    International Relations......................................   343
    Judiciary....................................................   387
    Small Business...............................................   393
    Transportation and Infrastructure............................   397
    Veterans' Affairs............................................   403
    Ways and Means...............................................   419


                        CHAIRMAN'S INTRODUCTION

                              ----------                              

    The problems of waste, fraud, and abuse in government 
programs have never been easy to resolve. Government lacks the 
built-in incentives that drive commercial enterprises, 
constantly, to reduce waste and improve efficiency. Over the 
years, therefore, Congress has created watchdogs, such as the 
General Accounting Office [GAO] and the Inspectors General, to 
track down systemic failures in government management. It has 
written laws, such as the Chief Financial Officers Act of 1990, 
and the Government Performance and Results Act of 1993, calling 
for regular measurements of government activities and 
expenditures. From time to time, various appropriating and 
authorizing committees have performed oversight of programs in 
their jurisdictions. Three years ago, the Budget Committee 
itself conducted its own examination of the continuing problems 
of waste, fraud, and abuse.
    But the need is especially acute today, with America facing 
the uncompromising requirements of winning the war against 
international terrorism, protecting Americans at home, and 
promoting sustained economic growth and job creation. Given 
these obligations, along with the myriad other demands on 
government resources, Congress and the President must do 
everything possible to assure that government funds are managed 
responsibly.
    This year the House of Representatives has advanced this 
ongoing effort to another stage. The conference report on the 
budget resolution for fiscal year 2004 (H. Con. Res. 95) 
formally required House authorizing committees to investigate 
programs in their respective jurisdictions, identify instances 
of waste, fraud, and abuse, and recommend ways of reducing or 
eliminating it. The resolution also called for a report on the 
subject from GAO.
    This committee print contains the findings of the House 
committees and GAO as submitted to the Budget Committee.
    As implied above, this report is neither the beginning nor 
the end of anything. It is continuation of efforts that have 
been going on for years and that must continue for years in the 
future. Government waste cannot be eliminated by a single 
agency, or a single legislative vehicle, or a single report. It 
will be reduced only by the constant and ongoing work of those 
who maintain a simple, fundamental belief: that Congress has a 
moral obligation to manage the public's money responsibly.

                                                Jim Nussle,
                                                          Chairman.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

                          House of Representatives,
                                  Committee on Agriculture,
                                Washington, DC, September 10, 2003.
The Hon. Jim Nussle,
Chairman, House Committee on the Budget,
Cannon House Office Building, Washington, DC.
    Dear Mr. Chairman: Pursuant to section 301 of the 
Concurrent Resolution on the Budget--Fiscal Year 2004, we are 
including below the findings of the Committee on Agriculture 
with respect to programs within the Committee's jurisdiction.
    We commend the Budget Committee's efforts to identify 
waste, fraud, and abuse in government programs. Doing so is 
important to the nation's hard-working taxpayers who deserve 
value and efficiency in the government programs they pay for.
    The Committee on Agriculture has long viewed eliminating 
waste, fraud, and abuse in government programs as a critical 
aspect of our oversight responsibilities. That is why when 
problems have been identified, we have moved quickly to address 
them through legislation, when needed, or by working with 
Administration officials to make changes in rules and 
regulations. Our long term commitment to correcting problems is 
confirmed by our record. Here are a few examples:
    We addressed fraud in the Federal crop insurance program by 
limiting double insurance on the same acres in the same season, 
requiring that social security or tax identification numbers be 
used to track producers who previously would switch agents or 
companies for fraudulent activities, and encouraging the use of 
data mining techniques to identify schemes and devices used by 
agents, adjusters, and producers.
    We addressed fraud in both the commodity programs and crop 
insurance by requiring that producer information be reconciled 
between the Farm Service Agency's commodity programs and the 
Risk Management Agency's crop insurance programs.
    We addressed fraud in the food stamp program by requiring 
the use of EBT (electronic benefit transfer) cards to reduce 
trafficking in food stamp benefits and by tightening food stamp 
administration to ensure that certain classes of ineligible 
persons (such as prisoners) do not receive food stamps.
    Following the instructions of your May 20 letter, we have 
made every effort to identify changes in legislation that would 
allow us to save $5.25 billion of projected mandatory program 
costs (1% of the total) over 10 years due to waste, fraud, and 
abuse.
    Unfortunately, this is a very difficult legislative task. 
The steps needed to eliminate much--if not most--of the fraud 
and abuse uncovered by the Inspector Generals (OIG), the 
General Accounting Office (GAO), and others require 
management--not legislative--changes. They require increased 
vigilance and enhanced enforcement efforts under existing legal 
authority--not new legal authority.
    Certainly it would be possible to write into law general 
instructions to USDA to do a better job in minimizing waste, 
fraud, and abuse. Unfortunately, the Congressional Budget 
Office will not score any budget savings for such general 
language.
    We must constantly work to find the proper balance for 
enforcement activities. Our programs--whether food stamps or 
farm income support--are critically important to the well-being 
of recipients. Our society does not gain if, by writing the 
rules so tightly that no one receives benefits who shouldn't, 
we deny benefits to those who should receive (and need) 
benefits.
    We recognize that there is substantial policy disagreement 
for many areas-not just for agriculture-as to what constitutes 
``waste.''
    So with the above concerns as background, this is what we 
have done.
    We first reviewed reports from the U.S. General Accounting 
Office and the Office of the Inspector General of the U. S. 
Department of Agriculture. We also reviewed budget reduction 
options from the Congressional Budget Office (CBO) and ideas 
from think tanks. We had discussions with GAO and OIG staff. We 
held hearings on food stamps and crop insurance to better 
understand how program administrators are dealing with fraud 
problems.
    Based on this extensive review, we have identified a number 
of options for reducing the costs of federal programs. This 
list includes options to reduce possible waste, fraud, and 
abuse but also includes options to improve the economy, 
efficiency, and effectiveness of programs, as well as options 
affecting worthy programs that it may turn out we simply cannot 
afford to fund as generously as we would like. The options 
include:
     Mandating increased use of advanced statistical 
techniques to guide fraud investigations in the crop insurance 
and commodity programs.
     Tightening compliance measures for commodity 
programs.
     Consolidating commodity program payment statements 
to producers.
     Phasing-in a moratorium on land purchases by the 
Forest Service.
     Improving the delivery of rural development 
programs.
     Modifying nutrition programs.
     Reorganizing USDA to eliminate duplicative 
organization structures.
    Based on CBO estimates (supplemented, when necessary, by 
Committee staff estimates), we believe that this list of 
possible options represents a ten-year savings pool of more 
than $10 billion--well beyond the $5.25 billion specified in 
this year's budget resolution.
    We need to be clear that it would be a major legislative 
undertaking to achieve $5.25 billion in ten-year savings in our 
programs. Rest assured that we will do what needs to be done to 
find the savings required by any new budget reconciliation. But 
doing so will require a great deal of effort if we are to 
preserve the essential elements of efficient programs that 
provide important benefits to many people.
    If next year we are given reconciliation instructions to 
find program savings, we will look at these options as well as 
others. We appreciate very much the Budget Committee's 
leadership in keeping issues of waste, fraud, and abuse on the 
front burner. Finding solutions to these problems requires 
constant vigilance and we are glad to have your support as we 
continue our efforts. Mr. Chairman, we look forward to 
continuing the excellent relationship that we have with you and 
that exists between our committees.
            Sincerely,
                                   Bob Goodlatte
                                           Chairman.
                                   Charles W. Stenholm,
                                           Ranking Minority Member.
         Committee on Education, and the Workforce,
                                  House of Representatives,
                                 Washington, DC, September 2, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget,
Cannon House Office Building, Washington, DC.
    Dear Chairman Nussle: In reponse to your July 1, 2003 
letter, and as required in the FY 2004 Budget Resolution 
Conference Report (House Report 108-71), enclosed please find 
the submission for the Committee on Education and the 
Workforce. Also enclosed is a submission from Representative 
George Miller regarding the Minority Views.
    If you have any questions, please feel free to contact me 
at your convenience.
            Sincerely,
                                           John A. Boehner,
                                                          Chairman.

   COMMITTEE ON EDUCATION AND THE WORKFORCE FISCAL YEAR 2004 BUDGET 
                               RESOLUTION

    The Committee on Education and the Workforce applauds the 
efforts of the Committee on the Budget to focus Congressional 
attention on waste, fraud, and abuse in federal programs.
    In response to the FY 2004 Budget Resolution Conference 
Report (108-71), the Committee on Education and the Workforce 
finds that in the area of death and disability student loan 
claims, professional judgment, and fraudulent activities at the 
Department of Education, significant corrective action has 
already been taken. However, the Committee identifies the 
following potential means of reducing waste, fraud, and abuse 
in both discretionary and mandatory spending programs under its 
jurisdiction:
           Request that the Committee on Ways and Means 
        examine an IRS data match legislative proposal designed 
        to reduce the Pell Grant shortfall;
           Reform or repeal the Davis-Bacon Act to 
        reduce artificially-inflated federal construction costs 
        by as much as 38 percent; and
           Reform or repeal the Service Contract Act to 
        permit employers in affected industries to pay 
        employees a market-based wage.

                 Significant Corrective Action Findings

Death and Disability Student Loan Claims
    According to Section 301(a)(1) of the FY 04 Budget 
Resolution Conference Report, ``the Inspector General of the 
Department of Education has found that nearly 23 percent of 
recipients whose loans where discharged due to disability 
claims were gainfully employed.''
    However, the Department of Education has already 
investigated this allegation and the Chief Operating Officer of 
the Department's Performance Based Organization found that 
there were far fewer improper claims paid than first reported 
by the Inspector General's (IG) Office. In its FY 2001 
Performance Plan, the Department's Office of Student Financial 
Assistance (SFA) stated ``we continue to work to determine the 
true scope of fraud in death and disability claims'' and 
``these efforts have helped us determine that false death and 
disability claims aren't nearly as widespread as originally 
thought.''
    Further, in the summer of 2000, a negotiated rulemaking 
session took place with the higher education community to amend 
the regulations governing death and disability discharges. 
These new regulations are far more onerous on the borrower, 
provide for a ``conditional'' discharge of the loan debt for up 
to three years, necessitate more information and certification 
of the borrower's condition, and require the loan to be 
assigned to the Secretary.
    Due to the complexity of this change in policy, the new 
regulations did not take effect until July 1, 2002. At this 
time, it is too early to determine the effect they have had on 
reducing fraudulent death and disability claims. However, the 
concern expressed by the IG in its report has been addressed.

Professional Judgment

    The Committee on the Budget has also indicated publicly 
that money can be saved in higher education programs by 
regulating what is known as ``professional judgment.'' 
Professional judgment is authority given to financial aid 
professionals which allows them to address special 
circumstances of students on a case-by-case basis. There are no 
regulations pertaining to this authority for obvious reasons, 
however, there are specific parameters within which the 
financial aid professional must work. For instance, in most 
cases there needs to be third party written documentation 
supporting the student's special circumstance or a specific 
student statement with evidence of the circumstance, and a 
written statement by the financial aid professional as to his 
determination.
    Examples of special or unusual circumstances include recent 
unemployment of a parent, high medical expenses not covered by 
insurance, domestic violence whereby the student no longer 
resides at home, or cases where a parent cannot be located. 
Most financial aid professionals use this authority sparingly. 
In fact, during the 107th Congress, a specific reference to 
professional judgment was included in the HEROES bill (P.L. 
107-122) to encourage financial aid officers to utilize the 
authority in specific circumstances. The Committee on Education 
and the Workforce believes that regulating something that is 
designed to deal with extraordinary exceptions would be 
counterproductive.

Fraudulent Activities at the Department of Education

    Over the past five years, the Committee on Education and 
the Workforce has held a series of eight hearings examining the 
financial management practices and fraudulent activities at the 
Department of Education:
           The Financial Management Practices of the 
        Department of Education (12/6/99);
           Financial Management at the Department of 
        Education (3/1/00);
           Financial Management Issues at the 
        Department of Education (9/19/00);
           Waste, Fraud & Program Implementation at the 
        U.S. Department of Education (10/25/00);
           Department of Education Financial Management 
        (4/3/01);
           Status of Financial Management at the U.S. 
        Department of Education (7/24/01);
           Status of Financial Management at the U.S. 
        Department of Education (4/10/02); and
           The Recent Improvements of Financial 
        Management Practices at the U.S. Department of 
        Education (3/10/03).
    As a result of this intense Congressional oversight and 
Secretary Paige's Management Improvement Team, the Department 
of Education--for only the second time in its 23-year history--
received a ``clean financial audit'' from an independent 
accounting firm earlier this year.
    In addition, the Department of Education's Office of 
Inspector General and the Department of Justice have made 
significant strides to recover some of the taxpayer funds that 
were lost due to prior waste, fraud, and abuse under the 
previous Administration. For example:
     Four people have been arrested and indicted on 
federal charges for stealing $1.9 million in Impact Aid funds 
that should have gone to schools in South Dakota and instead 
were spent on real estate and luxury cars.
     Nineteen people have either pled guilty to federal 
charges or were convicted after a federal trial for their 
involvement in a massive theft ring at the department. On 
February 6, 2003, Verizon Federal Systems (successor to Bell 
Atlantic) entered into a $2 million civil settlement with the 
Department of Education and the Department of Justice to settle 
federal claims of false overtime charges and improper 
electronic equipment purchases by their employees in conspiracy 
with Department of Education employees.
     Two Department employees and three employees of 
vendors for the Department have pled guilty to charges stemming 
from the ongoing investigation of fraudulent purchase card use. 
These individuals admitted to conspiring to use government 
credit cards to purchase household furniture for the Department 
employees' personal use.
      The Committee on Education and the Workforce commends the 
Bush Administration and Secretary Paige for changing the 
internal culture at the Department of Education and for 
bringing those individuals who abused taxpayer dollars to 
justice.

               Identification of Waste, Fraud, and Abuse


Examine an IRS Data Match Legislative Proposal Designed To Reduce the 
        Pell Grant Shortfall

    The Committee on Education and the Workforce is committed 
to protecting student aid from abuse by improving management 
controls for programs under its jurisdiction. The federal Pell 
Grant Program, which provides undergraduate students from low-
income families with up to $4,050 this year to help pay for 
college and other post-secondary education, is an example of 
one such program.
      Recently, the Department of Education's Inspector General 
testified before the House Committee on the Budget that $300 to 
$400 million in Pell Grant aid was erroneously awarded because 
some applicants misreported their income levels on their 
federal student aid applications. The Wall Street Journal 
pointed out in their July 22nd ``Waste Not, Deficit Not'' 
editorial that according to Inspector General John Higgins this 
estimate was ``conservative.''
    The Bush Administration has proposed an Internal Revenue 
Service data match of information submitted by Pell applicants 
and believes that this will reduce over awards and under awards 
of Pell Grant funds. If enacted, the proposed match between the 
Department of Education and the IRS has the potential to free 
up as much as $340 million to reduce the currentPell Grant 
shortfall and strengthen the Pell Grant program for needy students 
striving for a college education.
    While the Higher Education Act currently provides 
authorization for such a data match to take place, additional 
legislative action on the part of the Committee on Ways and 
Means is necessary to implement a less burdensome and more 
streamlined process. The Committee on Education on the 
Workforce has asked the Committee on Ways and Means to examine 
this proposal to determine its potential effectiveness--
recognizing that any savings realized from the data match will 
be used to reduce the current Pell Grant shortfall.

Repeal or Reform the Davis-Bacon Act

    As a means of reducing waste, fraud, and abuse in federal 
programs, the Committee on Education and the Workforce suggests 
consideration of the repeal or reform of the costly and 
outdated Davis-Bacon Act. Repeal or reform of Davis-Bacon would 
improve the efficiency and cost-effectiveness of federal 
contracting, and address systemic flaws contained in the 
statute that have led to documented fraud and abuse.
    In general, the Davis-Bacon Act requires that employers on 
federally funded construction projects valued in excess of 
$2,000 pay their workers no less than the ``prevailing wage 
rate'' as determined by the Department of Labor (DOL). Enacted 
in 1931, the law was drafted to apply to contracts for 
construction to which the federal government was a contracting 
party. In the 70+ years since its enactment, however, the 
application of Davis-Bacon has been interpreted and 
legislatively expanded to encompass a far wider range of 
federal programs than the original ``federal construction'' 
model for which it was intended. For example, in recent years, 
it has been legislatively applied to programs using 
increasingly indirect and/or attenuated federal financing.
    The application of Davis-Bacon has been demonstrated to 
inflate construction costs on average from five to fifteen 
percent, and in some instances up to almost 40 percent (38 
percent in rural areas, according to some studies). Moreover, 
the determination of ``prevailing wages'' by the Department of 
Labor has been documented to be rife with abuse. A January 1999 
General Accounting Office report found errors in 70 percent of 
the wage forms used by DOL to calculate prevailing wages, and 
DOL's own Inspector General concluded in 1997 that two-thirds 
of the wage surveys provided to the Department for use in 
calculating prevailing wage rates were inaccurate.
    Worse, some believe the Davis-Bacon Act encourages 
discrimination against some of America's most vulnerable 
workers. ``The effect of the Davis-Bacon Act is that of 
discriminating against contractor employment of non-union and 
lower skilled workers,'' wrote Dr. Walter E. Williams, a noted 
columnist and professor at George Mason University, earlier 
this year. ``Thus, it has a racially discriminatory effect, 
since most blacks are in the non-union sector of the 
construction industry. Even black contractors wanting to hire a 
lower skilled black worker can't do so.'' (Walter E. Williams, 
``Congress'' Insidious Discrimination,'' Augusta Chronicle, 
March 14, 2003)
    An increase in the $2,000 threshold for Davis-Bacon 
projects (last revised in 1935) would also result in 
significant cost savings to the federal government. In the 
Congressional Budget Office's Budget Options 2003, it is noted 
that simply raising the threshold for Davis-Bacon covered 
contracts from $2,000 to $1 million could save the government 
$50 million in FY 2004. Over a four year period (2004-2008) CBO 
estimates a savings of $750 million.
    At a minimum, the Committee on Education and the Workforce 
endorses limiting the Davis-Bacon Act to the historic and 
traditional model for which it was enacted and intended, and 
opposes any expansion of these outdated requirements for new 
federal programs or non-traditional means of federal financing.

Repeal or Limit the Service Contract Act to Ensure Payment of Market-
        Based Wages

    As a further means of reducing waste, fraud, and abuse in 
federal programs, the Committee on Education and the Workforce 
also endorses the repeal or limitation of the costly and 
outdated Service Contract Act, originally enacted in 1965 to 
compliment Davis-Bacon. Repeal or limitation of the Service 
Contract Act would improve the efficiency and cost-
effectiveness of federal contracting and permit employers to 
pay employees a market-based wage, rather than a wage 
determined artificially by the federal government using data 
that is frequently outdated and/or of questionable value.
    The Service Contract Act has been problematic and 
unnecessarily costly for virtually everyone involved with it--
private sector workers, private sector employers, American 
consumers, and the federal government itself. Take 
environmental enthusiasts, for example. The National Forest 
Recreation Association (NFRA) in 1999 tried to persuade 
Congress to change the Service Contract Act because it was 
applied--to the surprise of many--to wages paid to employees 
working on privately operated campgrounds in the nation's 
national forests, resulting in fees nearly doubling for 
Americans visiting those popular environmental attractions. 
According to the Modesto Bee, NFRA argued the Service Contract 
Act was meant to apply to ``carpenters and electricians 
providing services to the government, not campground hosts 
serving the public,'' (Ron DeLacy, ``Wage Ruling Assailed; 
Angry Campers Protest Changes,'' Modesto Bee, February 8, 
1999). According to an Associated Press account, ``Forest 
Service officials had assumed the campground workers were 
exempt from the McNamara-O'Hara Act. They viewed their 
contracts with concessionaires as leases, which don't come 
under the act's jurisdiction. When told otherwise, Forest 
Service officials tried to get an exemption last year. The 
Labor Department already exempts concession contracts for 
lodging at national parks, they said, arguing that campgrounds 
should be considered lodging, too.'' (John Hughes, ``Wage 
Increase for Campground Workers Could Boost Fees in Federal 
Forests,'' Associated Press, January 18, 1999)
    At a March 10,1999 hearing of the House Armed Services 
Committee, the U.S. Navy cited the Service Contract Act not 
only as an unnecessary cost-driver, but also as an obstacle to 
its efforts to provide quality childcare for military families. 
Rear Admiral James B. Hinkle, U.S. Navy Assistant Commander, 
Navy Personnel Command, Personal Readiness & Community Support, 
testified on the topic before the House Armed Service 
Committee's Special Oversight Panel on Morale, Welfare, and 
Recreation. He discussed the Navy's experience with a 
demonstration project designed to explore the possibilities of 
contracting with commercial child care centers to provide care 
for the children of military personnel, rather than relying 
exclusively on military-operated centers, which is the most 
expensive option. The project was successful in some places but 
not in others, Admiral Hinkle noted, in part because of 
unnecessary cost increases resulting from the Service Contract 
Act. ``The Service Contract Act increases the cost to the 
government, which often makes the cost of the program 
uneconomical as compared to other alternatives.'' (Federal News 
Service Transcripts, March 10, 1999)
    Like Davis-Bacon, the Service Contract Act has been 
identified by previous Congresses as a source of waste that is 
ripe for reform or repeal. For example, the chairman's mark for 
the FY 2000 Budget Resolution proposed in March 1999 by Senate 
Budget Committee Chairman Pete Domenici (R-NM) proposed 
repealing both Davis-Bacon and the Service Contract Act for a 
net $1 billion in savings. (National Journal's CongressDaily, 
``Domenici Plan Includes Reserve Fund, 10-Yr. Tax Cut,'' March 
17, 1999)
    The Congressional Budget Office's Budget Options 2001 
estimated that $9.8 billion could be saved in Fiscal Years 
2002-2011 by repealing the Service Contract Act. The document 
concludes that, ``Federal procurement costs would fall because 
repealing the Service Contract Act would promote greater 
competition among bidders, although the precise magnitude of 
the savings is difficult to estimate.'' At a minimum, a review 
of the Davis-Bacon and Service Contract Act impact on federal 
procurement demonstrates the need for significant reform if not 
outright repeal.

                             Minority Views


Majority's Recommendation to Slash Worker Benefits to Support Tax Cuts 
        for the Wealthy

    We strongly disagree with the recommendation of our 
Republican colleagues that the Congress should repeal or 
otherwise weaken the Davis-Bacon Act and the Service Contract 
Act. The Republicans are proposing is to slash the wages and 
living conditions of working Americans in order to pay for 
their irresponsible tax cuts for the wealthy.
    The Republican proposal would undercut the financial 
security of millions of middle income families in order to 
address the largest in history, one they have created through 
irresponsible tax policy. In 2001, the Congressional Budget 
Office (CBO) estimated that the Federal Government would have a 
unified surplus of $359 billion in 2003. Instead, after two-
and-a-half years of the Bush Administration, CBO forecasts that 
the Federal Government will have a deficit of $401 billion for 
2003, and even higher for 2004. Under the policies of the Bush 
Administration, the federal budget has deteriorated by $760 
billion dollars in 2003 alone. The long-term picture is even 
worse. The cumulative budget over 2002-2011, which was a 
surplus of $5.6 trillion when President Bush took office, has 
deteriorated to a $3.3 trillion deficit--a swing of $9 trillion 
to the worse.
    While President Bush's budget policies have sent the 
deficit soaring out of control, they have yet to produce any 
benefit, trickle down or otherwise, for most Americans. Since 
President Bush took office, we have lost 3.2 million private 
sector jobs, by far the worst jobs record of any Administration 
since the Great Depression. Long-term unemployment has tripled. 
Real GDP growth has been the lowest for any Administration 
since World War II. Real business investment has fallen by 10.4 
percent under the Bush Administration, and the trade deficit 
has increased by almost $100 billion. Further undermining the 
wages and living conditions of American citizens as the 
Republican majority recommends, by repealing prevailing wage 
protections, compounds these job and income problems.
    Prevailing wage laws such as the Davis-Bacon Act and the 
Service Contract Act ensure that the government procurement 
process does not undermine the wages and living conditions of 
taxpayers. Generally, the government purchases on a low-bid 
basis--if contractor A agrees to perform the work for less than 
anyone else, then contractor A is awarded to the contract to do 
the work. Particularly in the construction industry and many 
segments of the service sector, where labor costs are often the 
single largest cost that can be manipulated in the absence of a 
prevailing wage statute, the low bidder will ultimately be 
determined on the basis of who pays the lowest wage. For 
example, prior the enactment of the Service Contract Act in 
1965, star carriers, private truckers and trucking companies 
who contract to carry mail for the U.S. Postal Service, were 
typically paying their truck drivers less than the minimum 
wage. Further, employees had no means of bettering their 
condition because any increase in wages typically resulted in 
the loss of the contract to a different contractor able and 
willing to pay the former lower wage. In other words, without 
prevailing wage protection, the government procurement process 
acts to undermine wages and living conditions by encouraging 
contractors to compete for government contracts on the basis of 
who will pay their employees the least.
    By recommending the repeal of the Davis-Bacon Act and the 
Service Contract Act, Republicans are recommending that the 
government undermine the wages of its citizens. They claim that 
undermining wages will save the government money. It will not. 
By establishing a wage floor at locally prevailing wages rates, 
the Davis-Bacon Act and the Service Contract Act ensure that 
government contracts are competed for on the basis of who can 
most efficiently fulfill the contract rather than who can pay 
the least. Prevailing wage laws ensure that the government has 
access to reputable contractors who employ skilled and trained 
workers. They ensure that the government receives quality for 
its dollars. Repealing the Davis-Bacon Act and the Service 
Contract Act will cost the government money by undermining the 
quality of the work performed for the government. It will also 
cost the government money by undermining the wages and living 
conditions of its citizens, trapping workers in dead end jobs 
and increasing reliance upon public resources while 
simultaneously undermining the ability to pay for those 
resources.
    We note that the Republican leadership has refused to bring 
vital public works bills to floor because the bills have 
included prevailing wage requirements and the Republicans have 
lacked the votes to remove or eliminate those requirements. The 
Republican leadership has prohibited House consideration of the 
Water Quality Financing Act, the Railroad Track Modernization 
Act, and the Rail Infrastructure Development and Expansion Act 
for the 21st Century because Davis-Bacon Act requirements would 
apply to the projects. It is estimated that the highway and 
water project construction jobs that have been put on hold by 
the Republican leadership would create as many as three million 
jobs. Instead, we are failing to meet vital public needs and 
exacerbating unemployment in a faltering economy.

Administration's Failure to Address Growing Pension Crisis: PBGC 
        Deficit of $3.7 Billion Puts Taxpayers at Risk

    Despite repeated requests by the Minority for the Bush 
Administration to address a $300 billion shortfall in private 
pension plans, and a $3.7 billion PBGC deficit, no action has 
been taken to address this urgent problem. In fact, the 
Administration is unable to demonstrate how its proposal to 
scrap the 30-year Treasury Bond Rate will improve pension plan 
security. The failure of the Administration and the Republican 
Congress to act poses a significant risk to taxpayers, who may 
be required to paybillions of dollars to bail out the PBGC 
which currently has its largest deficit in its 29-year history. Over 
the past two years, the PBGC has paid out 18 times the amounts in 
benefits that it paid in the period 1993 to 2000. The GAO recently put 
the PBGC on its watch list because of its precarious financial 
position. The Administration must stop its dithering on pension 
security, and provide Congress with information necessary to make 
urgently needed pension reforms.

Death and Disability Student Loan Claims

    Any efforts to eliminate fraud and abuse in death and 
disability student loan claims must not impede students with 
legitimate claims from receiving fair and timely consideration. 
In addition, the definition of `disability' used by the 
Department of Education should be updated to provide a uniform 
federal definition and threshold, to better coordinate and 
expedite legitimate discharge of student loans.

Pell Grant Shortfall

    The Committee on Education must fully investigate the 
Department of Education's inability to resolve the chronic Pell 
Grant shortfall. The Department has repeatedly failed to make 
accurate assumptions as to how many eligible students will 
apply for Pell Grants when writing its annual budget. The 
Department's failure to make accurate assumptions has 
undermined efforts to fully fund the Pell Grant program and to 
ensure that all low and middle-income students have access to a 
college education. The Administration has also intentionally 
failed to budget sufficient funds to address the shortfall, 
thus undermining appropriations necessary for even modest Pell 
increases. The Department must revise its outdated methods to 
ensure accurate assumptions regarding participation levels in 
the Pell Grant program.

Student Loan Subsidies

    As instructed by the Committee on Budget, in its FY 2004 
Budget Resolution Conference Report, the Committee on Education 
and the Workforce finds that two of the most promising areas to 
reduce wasteful spending are to eliminate lender windfall 
profits and to promote competition within the student loan 
programs.
    Under current law, student lenders are not required to 
rebate excess federal subsidies to the government when they 
earn more than a fair market return on student loans. According 
to the Congressional Budget Office (CBO) eliminating these 
lender windfall profits would save an estimated $4.5 billion 
between 2004-2008.
    In addition, the Department of Education must pursue 
opportunities to increase competition among the loan programs, 
such as eliminating the Single Lender Rule, as a means to 
eliminate wasteful spending. One such area of competition where 
the Department has failed to make progress is on the issue of 
how to appropriately set lender yields, or competitive 
mechanisms, on federal student loans. The Department must move 
forward on competitive market mechanisms in order to ensure 
both private sector participation and government savings.

                                             George Miller,
                                          Senior Democratic Member.
                          House of Representatives,
                          Committee on Energy and Commerce,
                                 Washington, DC, September 2, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget, House of Representatives, Cannon 
        House Office Building, Washington, DC.
    Dear Chairman Nussle: Pursuant to section 301(b) of the FY 
2004 Budget Resolution, this letter details findings that 
identify changes in law within the Committee on Energy and 
Commerce's jurisdiction that would achieve the level of savings 
through the elimination of waste, fraud, and abuse that you 
specified in the Congressional Record on May 21, 2003. As is 
the custom in our Committee, our minority may choose to submit 
their own findings under separate cover.
    Congress should strongly consider acting on some of these 
ideas within the next year. With entitlement spending growing 
at a rapid rate, it is critical to identify new ways to limit 
spending. At the same time, we must continue to strengthen and 
preserve the core mission of our safety net programs. These 
recommendations reflect this delicate balance and will 
contribute to our joint efforts to balance the Federal budget 
in future years.

                           MEDICAID FINANCING

    Medicaid pays for the costs of providing health care 
coverage to 44 million low-income Americans. States and the 
Federal government fund the program jointly, with the Federal 
share determined by the use of the FMAP (Federal Medical 
Assistance Percentage) formula, which is based upon state per 
capita income. The Federal liability for Medicaid program 
expenditures is presently open-ended, because the Federal 
government is obligated to pay a set percentage of all state 
Medicaid expenditures covered under each state's Medicaid plan. 
As states' costs rise, the Federal government's costs increased 
as well.
    Unfortunately, the current mechanism for funding Medicaid 
encourages states to aggressively define their Medicaid 
spending as creatively as possible in order to qualify for 
Federal matching funds. In addition, the current system has 
inappropriately led many states to adopt various schemes to 
obtain additional federal funds. These strategies--known 
generally as ``Medicaid maximization''--have led to the well-
documented abuses associated with Upper Payment Limits, Inter-
Governmental Transfers, and Disproportionate Share Hospital 
payments.\1\
---------------------------------------------------------------------------
    \1\ HHS, Office of Inspector General, A-03-00216, September, 2001 
(Upper Payment Limits); HHS Office of Inspector General, A-06-01-00069, 
December 2001 (Disproportionate Share Hospital payments); U.S. General 
Accounting Office, Medicaid: State Financing Schemes Again Drive Up 
Federal Payments. GAO/T-HEHS-00-193. September 6, 2000.
---------------------------------------------------------------------------
    Each of the financing schemes involves states responding to 
the perverse incentives currently reflected in how the Federal 
government finances Medicaid. So long as the Federal government 
continues to provide an open-ended commitment to match all 
state expenditures, states will have strong financial 
incentives to maximize the amount of Federal dollars that can 
be drawn-down as matching payments. In addition, states 
engaging in these practices will always be able to provide 
persuasive arguments for why the additional Federal dollars are 
necessary to support a wide variety of popular expenditures to 
provide health care for particularly vulnerable Medicaid 
beneficiaries. These justifications have historically made it 
very difficult for Congress to reduce or eliminate abusive 
financing schemes, despite the large potential savings that 
could result from such changes.\2\ Ironically, many of these 
financing schemes have not even resulted in our precious 
Federal health care dollars being utilized for patient care.
---------------------------------------------------------------------------
    \2\ For example, the CBO has estimated that requiring all states to 
be in full compliance with the January 2001 UPL regulations by 2004 
(rather than the extended deadlines provided under the Benefits 
Improvement and Protection Act of 2000) would reduce federal outlays by 
almost $2.8 billion in 2004 and $7.3 billion over five years.
---------------------------------------------------------------------------
    Recommendation No. 1: The current Medicaid reimbursement 
methodology should be altered to eliminate the current perverse 
incentives that encourage states to engage in Medicaid 
maximization schemes. Adopting capped, state-specific 
allotments for optional populations and services, as recently 
discussed by a National Governor's Association task force, 
would significantly reduce the incentives for states to 
maintain or prospectively implement such financing schemes. 
Such an approach would also give states incentives to manage 
their Medicaid programs more cost-effectively.

                     MEDICAID ADMINISTRATIVE COSTS

    Before 1996, common costs for administering food stamps, 
Medicaid, and welfare were often charged to the AFDC program--
the predecessor of the Temporary Assistance for Needy Families 
(``TANF'') grants. These common costs were subsequently 
included in the calculation of each state's TANF grant when 
Congress passed welfare reform in 1996. Unfortunately, states 
that had previously charged their Medicaid program's share of 
common administrative costs to AFDC now receive Federal 
Medicaid reimbursements for these same expenses. This double 
payment should be eliminated.
    Recommendation No. 2: Reduce federal reimbursement for 
Medicaid administrative costs to reflect the portion of these 
costs that are already included in the TANF block grant that a 
state receives.

                      MEDICAID DRUG REIMBURSEMENTS

    Many states currently reimburse Medicaid providers for the 
costs of covered outpatient drugs based upon manufacturer 
reported prices. These prices, known as either Average 
Wholesale Price (``AWP'') or Wholesale Acquisition Cost 
(``WAC'') have been reported to far exceed the acquisition 
prices paid by many providers.\3\
---------------------------------------------------------------------------
    \3\ HHS Office of Inspector General, Medicaid Pharmacy: Actual 
Acquisition Cost of Brand Name Prescription Drug Products, A-06-00-
00023, August 2001.
---------------------------------------------------------------------------
    The Energy and Commerce Committee has already conducted an 
extensive investigation into how the manipulation of AWPs 
currently costs the Medicare program hundreds of millions of 
dollars annually due to inflated reimbursements. This 
investigation also revealed that certain drug manufacturers 
have deliberately inflated their AWPs above their sale prices, 
in order to create an inducement for providers to use their 
products. Similar incentives exist in the Medicaid program for 
certain types of drugs, and the Committee is currently 
conducting an extensive investigation to assess the extent to 
which the inflation of AWPs unnecessarily increases Medicaid 
drug reimbursements. Reports prepared by the Department of 
Health and Human Services' Office of Inspector General (OIG) 
have estimated that the inflation of AWPs for brand-name drugs 
resulted in Medicaid overpayments in excess of $1 billion per 
year and $470 million per year for generic drugs.\4\
---------------------------------------------------------------------------
    \4\ Id.
---------------------------------------------------------------------------
    Recommendation No. 3: Require that states reimburse 
providers for Medicaid-covered outpatient drugs at prices that 
better reflect their acquisition costs.
    State Medicaid programs are currently required to collect 
and submit information regarding the utilization of covered 
outpatient drugs. This data is then used to calculate the 
amounts that drug manufacturers must pay in the form of 
Medicaid rebates. A recent letter from the Centers for Medicare 
and Medicaid Services' (``CMS'') Director of the Center for 
Medicaid and State Operations highlighted that many states do 
not currently collect the data necessary to obtain rebates on 
drugs administered in physician office settings. The letter 
encouraged states to collect and submit this data, and pointed 
out that their failure to do so has in the past led to millions 
of dollars in potential rebates going uncollected. Congress 
should step in to fix this problem.
    Recommendation No. 4: Require that states collect and 
submit the necessary information that will enable the Medicaid 
program to collect the correct rebates for these drugs.

                         MEDICARE OVERPAYMENTS

    The Energy and Commerce Committee included several 
provisions that will reduce excessive payments to Medicare 
providers in H.R. 1, the Medicare Prescription Drug and 
Modernization Act of 2003. As the House-Senate conference on 
H.R. 1 proceeds, it is critical that we continue to modernize 
the Medicare Program and make it more efficient. Currently, 
Medicare comprises approximately 12% of all Federal spending--a 
number expected to more than double in the next twenty-five 
years. Absent changes to Medicare, the financial burdens on 
future taxpayers and beneficiaries will be overwhelming. That 
is why sections 302 and 303 of H.R. 1 are essential in clamping 
down on some of the unwarranted spending in two areas of the 
traditional fee-for-service program: (1) payments for drugs 
administered within physician office settings and (2) 
reimbursements for certain types of durable medical equipment.
    Working in collaboration with the Ways and Means Committee, 
our Committee developed policies earlier this year designed to 
reduce the level of inappropriate payments in the 
aforementioned areas and to create a more competitive market-
oriented structure that efficiently expends health care 
resources. Enactment of sections 301 and 302 alone will, 
according to the Congressional Budget Office, save the Medicare 
Program over $22 billion over the next ten years. Additionally, 
the reduction in these payments will significantly reduce 
beneficiaries' overpayments for coinsurance. For drugs 
administered in the physician office setting, the Inspector 
General has estimated that Medicare beneficiaries are 
overpaying over $175 million in coinsurance annually. The AWP 
policy in H.R. 1 will reduce those overpayments and create a 
more rational payment policy for beneficiaries, providers, and 
taxpayers.
    With respect to durable medical equipment, beneficiaries 
and taxpayers will also save billions of dollars if Congress 
moves toward a competitive acquisition system. The results of 
two recent competitive bidding demonstration projects in Polk 
County, Florida and San Antonio, Texas show how promising this 
new policy could be if implemented in many parts of the 
country. Preliminary reports indicate that savings of between 
17-20% could be realized for certain products. Moreover, 
because our policy provides the Secretary with the flexibility 
to exempt products for which competitive bidding may be 
inappropriate or not cost-effective, this policy will be 
precisely targeted to the products for which we are currently 
overpaying. Rather than randomly freezing a fee schedule to 
reduce rates, reimbursement prices will be dictated by market 
conditions within a geographic area--not by a governmental 
price fixer.
    Recommendation No. 5: Enact sections 302 and 303 of H.R. 1 
in order to begin immediately reducing the overpayments for 
drugs administered within physician office settings and 
lowering the excessive prices paid for durable medical 
equipment.
    I share your strong interest in reducing waste, fraud, and 
abuse government-wide. The previously referenced 
recommendations are by no means an exhaustive list of all of 
the areas within the Energy and Commerce Committee's 
jurisdiction that we will continue to examine, nor are they 
exhaustive of matters within just the Medicaid and Medicare 
programs. We look forward to working with you in coming budget 
resolutions to addressing these issues.
    Please contact me or have your staff contact Patrick 
Morrisey or Chuck Clapton if you would like to discuss the 
matters contained in this letter in more detail.
            Sincerely,
                                      W.J. ``Bill'' Tauzin,
                                                          Chairman.
                          House of Representatives,
                           Committee on Financial Services,
                                     Washington, DC, July 31, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget,
Cannon House Office Building, Washington, DC.
    Dear Jim: Pursuant to section 301 of the Conference Report 
to Accompany the Concurrent Resolution on the Budget for Fiscal 
Year 2004, and by direction of the Committee on Financial 
Services, I transmit herewith a committee print entitled 
``Changes in Law to Eliminate Waste, Fraud, and Abuse'' 
together with Dissenting Views. The committee print was 
approved by the Committee on July 24, 2003 by a voice vote, a 
quorum being present. An electronic copy is also included.
    Should you have any questions, please do not hesitate to 
contact me.
            Sincerely,
                                          Michael G. Oxley,
                                                          Chairman.
    Enclosures.

          CHANGES IN LAW TO ELIMINATE WASTE, FRAUD, AND ABUSE

    Pursuant to section 301 of the Conference Report to 
Accompany the Concurrent Resolution on the Budget for Fiscal 
Year 2004 (H. Con. Res. 95; H. Rept. 108-71), the Committee on 
Financial Services is transmitting herewith its findings on 
means of eliminating waste, fraud, and abuse in spending 
programs under the Committee's jurisdiction.
    Section 301 of the resolution requires committees to 
``submit findings that identify changes in law within their 
jurisdictions that would achieve the specified level of savings 
through the elimination of waste, fraud, and abuse'' in 
mandatory programs. Along with all Committee chairmen, the 
Chairman of the full Committee announced his intention to meet 
the goals of section 301 with respect to all programs under the 
Committee's jurisdiction, not just mandatory programs.

              Unliquidated Obligations in Housing Programs

    On June 25, 2003, the Subcommittee on Oversight and 
Investigations held a hearing entitled, ``Saving Taxpayer Money 
Through Sound Financial Management.'' The focus of his hearing 
was to identify current and quantifiable savings in 
appropriated funds under the Committee's jurisdiction which 
could be easily recaptured to meet the goals of the budget 
resolution. Upon a review ofthe pertinent agencies, the 
Committee concluded that savings can be most readily identified in 
funds labeled as ``unliquidated obligations.'' Unliquidated obligations 
are funds that are appropriated and obligated for a function but, for a 
variety of reasons, never actually disbursed. By their nature, grant 
and subsidy programs and long-term contracts maintain a high level of 
unliquidated obligations at any given time. Through vigilant oversight 
of the status of individual grants, subsidies, and contracts, senior 
agency managers can recapture unliquidated obligations and either apply 
them for other purposes and reduce future appropriations, or deobligate 
them. The funds can be recaptured without any changes to program 
eligibility or any cuts to program functions or personnel.
    Based on these criteria, the programs under the Committee's 
jurisdiction which are most likely to have high levels of 
unliquidated obligaitons are the Section 8 and Section 236 
rental assistance programs at HUD and the rural rental 
assistance program at the Rural Housing Service (RHS) of the 
Department of Agriculture. Committee staff, senior HUD and RHSD 
officials, the Inspectors General of HUD and the Agriculture 
Department, and the GAO are collaborating to determine the 
amount of unliquidated obligations that could meet the goals in 
the budget resolution without changes to the programs.

Department of Housing and Urban Development

    At the hearing, the Chief Financial Officer of the 
Department of Housing and Urban Development (HUD) testified on 
the level of unliquidated obligations at HUD. The Chief 
Financial Officer announced that for FY 2004 alone, over $1.7 
billion in previously appropriated and obligated funds most 
likely will not be used for the purposes appropriated. It has 
proposed to use these funds to lower (offset) what would have 
been the total cost of the HUD appropriations request in FY 
2004 by this amount.
    As of the end of May this year, HUD held $108 billion 
dollars in unexpended appropriated funds, more than 3 times its 
requested appropriation for FY 2004. Of these balances, $34 
billion has yet to be awarded and obligated by HUD, primarily 
because Congress enacted the FY 2003 Appropriations Act in 
February of 2003.
    The Chief Financial Officer also discussed the detailed 
measures that her office has undertaken to reduce unliquidated 
obligations and outstanding balances in other areas. For 
instance, since December 2001, total funds not committed to 
specific public housing authority modernization projects have 
fallen from $3.4 billion to $700 million as of March 31, 2003, 
meaning that the funds have been committed and spent more 
quickly.
    With respect to the long-term outlook (FY 2004-2013), HUD 
currently has an additional $30 billion in funds that are owed 
(mainly to landlords and multi-family project owners) that 
provide subsidized housing to millions of families across the 
country. It is not clear to what extent some of these funds 
will not be needed in the future. Originally, Congress 
appropriated the full cost of these rental subsidy programs 
based on a certain set of economic assumptions, such as 
inflation and wages of tenants. These may or may not bear out 
over the many years left on the contracts HUD has with the 
owners. Hence decisions on the amount of excess that will be 
available have to be made on a year-by-year basis and can not 
be presumed ahead of time.
    The Committee also requested and received a statement for 
the record from the Inspector General of HUD on his office's 
initiatives to detect and prevent wasted, fraud, and abuse. The 
Inspector General stated that HUD is not recapturing 
unliquidated obligations and undisbursed contract authority in 
a timely manner.
    Additionally, the Inspector General noted that HUD 
identified significant errors in the billings and payments 
processes, which also results in excess rental subsidy 
payments. The GAO now lists rentals subsidy overpayments as one 
of the Department's high risk areas. While the amount 
attributable to fraud is unknown, the Department estimates 
losses linked to improper housing assistance payments to exceed 
one billion dollars annually. The OIG announced a new effort to 
detect and prevent fraud in housing assistance programs.

Department of Agriculture

    The Under Secretary for Rural Development at the Department 
of Agriculture, a program also under the Committee's 
jurisdiction, also testified at the hearing on the level of 
unliquidated obligations in the Section 521 Rental Assistance 
Program. The Section 521 Program currently helps 264,000 
households to maintain their rental residence by providing a 
subsidy to pay the difference between the basic rent for the 
apartment and up to 30 percent of an eligible tenant's income. 
The General Accounting Office is reviewing the Section 521 
Program and has raised concerns about the unliquidated balances 
on the 20-year contracts and 5-year contracts on which rental 
assistance payments continue to be paid on units beyond the 
original terms.
    The Office of Rural Development determined that there is 
$737,000,000 outstanding on active contract that were obligated 
between 1978 and 1988. These funds are only available for the 
current contracts or may be transferred to other units on 
existing contracts. At the hearing, the Chairwoman of the 
Oversight and Investigations Subcommittee announced that the 
Committee has asked the GAO to review the contracts in question 
and determined how much of the $737 million outstanding can be 
deobligated through legal action or, if needed, legislation.

                               Conclusion

    In its review of its programs, the Committee found that in 
one of its largest categories of spending--housing assistance 
programs--the agencies have significant unliquidated 
obligations which, if deobligated or otherwise recaptured, 
could result in significant savings without meaningful 
reductions in program services. This ensures that both the 
Department of Hous8ing and Urban Development and the Department 
of Agriculture can continue to serve their customers while 
assisting in efforts to reduce the deficit.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
July 23, 2003 and considered a committee print entitled 
``Changes in Law to Eliminate Waste, Fraud, and Abuse''. On 
July 24, 2003, the Committee agreed to a motion by Mr. Oxley to 
approve the Committee print and forward it to the Committee on 
the Budget by a voice vote.

                            Committee Votes

    A motion by Mr. Oxley to report the bill to the House with 
a favorable recommendation was agreed to by a voice vote. The 
following amendment was considered by a record vote. The names 
of Members voting for and against follow:

          An amendment by Mr. Meeks, no. 1, recommending 
        elimination of the public housing community service 
        requirement, was not agreed to by a record vote of 29 
        yeas and 30 nays.

                                              RECORD VOTE NO. FC-10
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley......................  ........        X   .........  Mr. Frank (MA)...        X   ........  .........
Mr. Leach......................  ........  ........  .........  Mr. Kanjorski....        X   ........  .........
Mr. Bereuter...................  ........  ........  .........  Ms. Waters.......        X   ........  .........
Mr. Baker......................  ........        X   .........  Mr. Sanders \1\..        X   ........  .........
Mr. Bachus.....................  ........        X   .........  Mrs. Maloney.....        X   ........  .........
Mr. Castle.....................  ........        X   .........  Mr. Gutierrez....        X   ........  .........
Mr. King.......................  ........  ........  .........  Ms. Velazquez....        X   ........  .........
Mr. Royce......................  ........        X   .........  Mr. Watt.........        X   ........  .........
Mr. Lucas (OK).................  ........        X   .........  Mr. Ackerman.....        X   ........  .........
Mr. Ney........................  ........        X   .........  Ms. Hooley (OR)..        X   ........  .........
Mrs. Kelly.....................  ........        X   .........  Ms. Carson (IN)..        X   ........  .........
Mr. Paul.......................  ........  ........  .........  Mr. Sherman......        X   ........  .........
Mr. GIllmor....................  ........        X   .........  Mr. Meeks (NY)...        X   ........  .........
Mr. Ryun (KS)..................  ........        X   .........  Ms. Lee..........        X   ........  .........
Mr. LaTourette.................  ........        X   .........  Mr. Inslee.......        X   ........  .........
Mr. Manzullo...................  ........        X   .........  Mr. Moore........        X   ........  .........
Mr. Jones (NC).................  ........        X   .........  Mr. Gonzalez.....        X   ........  .........
Mr. Ose........................  ........        X   .........  Mr. Capuano......        X   ........  .........
Mrs. Biggert...................  ........  ........  .........  Mr. Ford.........  ........  ........  .........
Mr. Green (WI).................  ........        X   .........  Mr. Hinojosa.....        X   ........  .........
Mr. Toomey.....................  ........        X   .........  Mr. Lucas (KY)...  ........  ........  .........
Mr. Shays......................  ........        X   .........  Mr. Crowley......        X   ........  .........
Mr. Shadegg....................  ........        X   .........  Mr. Clay.........  ........  ........  .........
Mr. Fossella...................  ........  ........  .........  Mr. Israel.......        X   ........  .........
Mr. Gary G. Miller (CA)........  ........        X   .........  Mr. Ross.........        X   ........  .........
Ms. Hart.......................  ........  ........  .........  Mrs. McCarthy            X   ........  .........
                                                                 (NY).
Mrs. Capito....................  ........        X   .........  Mr. Baca.........        X   ........  .........
Mr. Tiberi.....................  ........        X   .........  Mr. Matheson.....        X   ........  .........
Mr. Kennedy (MN)...............  ........        X   .........  Mr. Lynch........  ........  ........  .........
Mr. Feeney.....................  ........        X   .........  Mr. Miller (NC)..        X   ........  .........
Mr. Hensarling.................  ........        X   .........  Mr. Emanuel......        X   ........  .........
Mr. Garrett (NJ)...............  ........        X   .........  Mr. Scott (GA)...        X   ........  .........
Mr. Murphy.....................  ........        X   .........  Mr. Davis (AL)...        X   ........  .........
Ms. Ginny Brown-Waite (FL).....  ........        X   .........
Mr. Barrett (SC)...............  ........        X   .........
Ms. Harris.....................  ........        X   .........
Mr. Renzi......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------
\1\ Mr. Sanders is an independent, but caucuses with the Democratic Caucus.

                            Dissenting Views

    Section 301 of the FY 2004 Budget Resolution requires 
committees to ``submit findings that identify changes in law 
within their jurisdictions that would achieve the specified 
level of savings through the elimination of waste, fraud and 
abuse'' in ``mandatory programs.'' Report language indicates 
that such submissions must ``reduce outlays by an amount to be 
specified by the chairmen of the Budget Committees.''
    The findings contained in this report fail in every respect 
to meet the requirements of Section 301 of the Budget 
Resolution. The ``unliquidated obligations'' that are the sole 
focus of these findings do not represent ``waste, fraud, and 
abuse.'' These obligations do not arise from ``mandatory 
programs.'' The admonition contained in the findings that 
agency managers recapture unliquidated obligations not needed 
for programs or services would not, by definition, reduce 
``outlays'' by even a single penny. And, the findings do not 
identify any ``changes in law.''

                        WASTE, FRAUD, AND ABUSE

    Section 301 of the Budget Resolution requires submissions 
providing for the elimination of ``waste, fraud, and abuse.'' 
The findings in this report conclude that ``savings can be most 
readily identified in funds labeled as unliquidated 
obligations.'' The report cites in particular the HUD Section 8 
and 236 programs, and the Rural Housing Service (RHS) Section 
521 program.
    However, nowhere in either the written statement or oral 
testimony of either HUD's Chief Financial Officer (CFO) or the 
RHS Undersecretary for Rural Development is there any showing 
that these unliquidated obligations in any way result from or 
lead to ``waste, fraud, and abuse.''
    Both of these Bush Administration witnesses explained that 
balances predominantly reflect funds that will be needed at a 
future date to meet expected obligations. If appropriated funds 
exceed expected obligations, they are routinely recaptured and 
used to offset the cost of other programs or used for purposes 
specified by Congress. The written statement of HUD's CFO 
addresses the level of unexpended balances in HUD programs and 
concludes that ``In the vast majority of cases, these 
unexpended funds are either fully committed to long-term 
projects and will be spending out normally for many years to 
come, or are obligations from relatively recent appropriations 
and could not reasonably be expected to have been expended at 
this time.
    On the issue of Section 8 balances, in response to the 
question ``Would you describe that as fraud or abuse or 
waste?'', the HUD CFO responded ``Absolutely not.''

                           MANDATORY PROGRAMS

    The title of Section 301 of the Budget Resolution 
specifically refers to waste, fraud, and abuse in 11 mandatory 
programs.'' However, none of the programs cited in the hearing 
by either HUD or RHS are mandatory programs. Section 8, Section 
236, Section 521, and the other programs discussed in the 
hearing are all discretionary programs. On this point, the 
``findings'' are clearly non-responsive to the Budget 
Resolution directive.

                             OUTLAY SAVINGS

    As noted, Section 301 report language clearly specifies 
that the findings must identify programmatic instances of 
waste, fraud, and abuse which reduce ``outlays.'' Yet, the 
recapture of unobligated balances which are not needed for 
future obligations, as recommended by the findings, would not 
achieve any outlay savings. This is because if the funds are 
not expected to be spent, under OMB and CBO rules there are no 
outlay savings from their rescission or recapture. The only 
scoreable reduction would be in budget authority.

                             CHANGES IN LAW

    Section 301 requires committees to submit findings that 
identify ``changes in law'' to achieve the required savings. 
The findings being submitted herein identify no changes in law, 
only general admonitions to HUD and RHS to do a better job of 
tracking unobligated balances, in anticipation of their 
recapture. We are surprised that the majority thinks that the 
Bush Administration needs to be reminded of this, but telling 
HUD and the Agriculture Department to obey the law does not 
qualify as a change in the law.

                   FUNDING CUTS FOR HOUSING PROGRAMS

    This is the most serious defect in the majority report. The 
findings in this report conclude that deobligation or recapture 
of unliquidated balances ``could result in significant savings 
without meaningful reductions in program services.'' We would 
be pleased if that were the case. But, the reality is that the 
substantial recapture of such balances in recent years has 
contributed to the substantial funding cuts to housing 
programs, which have marked the Republican record.
    The FY 2004 VA-HUD appropriations bill recently adopted 
includes recapture of over a billion dollars in unobligated 
Section 8 budget authority. Yet, these funds did not shield HUD 
programs from program cuts. We believe there are insufficient 
funds in the FY '04 bill to fully fund Section 8 renewals, 
which would adversely affect both recipients and 
administrators. That bill also includes a devastating $524 
million cut in the public housing HOPE VI revitalization 
program.
    Repeatedly, under Republican control, Congress has 
rescinded unobligated Section 8 funds in supplemental spending 
bills and diverted such funds for non-housing programs. 
According to preliminary data provided by CBO, Congress 
rescinded $6.85 billion in Section 8 budget authority in 
supplemental spending bills from FY 1997 through FY 2002. The 
overwhelming majority of these rescissions were used to fund 
non-housing expenditures. These rescissions took place at a 
time when the majority party argued there were not enough funds 
in the budget for housing programs, and pushed through deep 
cuts in affordable housing programs.
    Therefore, we are concerned that the findings in this 
report create the false impression that budget savings can be 
easily effected in housing programs through a better job of 
rooting out waste, fraud, and abuse, and without any effect on 
the families that rely on these programs. Cuts to programs such 
as public housing, Section 8, and rural rental housing have 
real consequences, denying critically needed rental assistance 
to low-income families, seniors, and the disabled, and 
permitting the unnecessary deterioration of our affordable 
housing stock.

                                   Barney Frank.
                                   Paul E. Kanjorski.
                                   Carolyn B. Maloney.
                                   Luis V. Gutierrez.
                                   Melvin L. Watt.
                                   Julia Carson.
                                   Brad Sherman.
                                   Jay Inslee.
                                   Charles A. Gonzalez.
                                   Michael E. Capuano.
                                   Harold E. Ford, Jr.
                                   Ruben Hinojosa.
                                   Joseph Crowley.
                                   Wm. Lacy Clay.
                                   Steven Israel.
                                   Joe Baca.
                                   Stephen F. Lynch.
                                   Brad Miller.
                                   Rahm Emanuel.
                                   Artur Davis.
                          House of Representatives,
                            Committee on Government Reform,
                                Washington, DC, September 23, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget,
House of Representatives, Washington, DC.
    Dear Chairman Nussle: Pursuant to H. Con. Res. 95, the 
Concurrent Resolution on the Budget for Fiscal Year 2004, I 
respectfully submit the following findings that identify 
changes in law within the jurisdiction of the Committee on 
Government Reform that would achieve at least the level of 
savings specified by Chairman Nussle under the Resolution 
through the elimination of waste, fraud, and mismanagement.
            Sincerely,
                                                 Tom Davis,
                                                          Chairman.

FINDINGS ON WASTE, FRAUD, AND MISMANAGEMENT PURSUANT TO SECTION 301 OF 
                     HOUSE CONCURRENT RESOLUTION 95

    The Concurrent Resolution on the Budget for Fiscal Year 
2004, H. Con. Res. 95, (the Budget) requires House and Senate 
authorizing committees to identify waste, fraud, and 
mismanagement within their jurisdictions. The authorizing 
committees are required to submit to their respective Budget 
Committees findings as to the changes in law needed to 
eliminate waste, fraud, and mismanagement.
    The Budget provides that the Committees on the Budget 
specify the dollar level of savings to be achieved through the 
elimination of waste, fraud, and mismanagement by the 
authorizing committees. Pursuant to that provision, the House 
Committee on the Budget has directed the Committee on 
Government Reform to find savings of $827 million in fiscal 
year 2004, $4.496 billion over the 2004-08 period, and $9.998 
billion over the 2004-13 period through the elimination of 
waste, fraud, and mismanagement within its jurisdiction 
(Congressional Record, May 21, 2003, H4512).
    Under the Rules of the House, the Committee on Government 
Reform's diverse jurisdiction includes the federal civil 
service, the District of Columbia, and the Postal Service as 
well as the overall, economy, efficiency, and management of 
government operations, federal paperwork reduction, and the 
relationship of the federal government to the states and 
municipalities (Rule X, clause 1 of the Rules of the House of 
Representatives). Consequently, government-wide cross-agency 
reforms such as procurement, property management, information 
sharing, performance assessment, and the federal grant-making 
process are within the Committee's jurisdiction. During 
consideration of the Budget in the House of Representatives, 
Chairman Davis and Chairman Nussle engaged in a colloquy where 
the Chairmen clarified that government-wide cross-agency 
reforms within the Committee's jurisdiction were appropriate 
targets for savings from waste, fraud, and mismanagement 
(Congressional Record, March 20, 2003, H2196).
    Of potential significance within the Committee's 
jurisdiction, the Office of Personnel Management (OPM) 
administers the retirement, health, and life insurance programs 
for the federal civil service, which taken together, account 
for more than $900 billion in projected mandatory spending 
(spending not subject to annual appropriations) over the next 
ten years according to the Congressional Budget Office. 
Although these programs do not appear to experience high rates 
of waste, fraud, and mismanagement, small percentage 
improvements insuch large programs can result in significant 
savings.\1\ Consequently, the Committee's first finding addresses these 
programs by proposing an increase in the operating budget for the 
Inspector General of the Office of Personnel Management.
---------------------------------------------------------------------------
    \1\ According to the testimony of the OPM Inspector General, the 
erroneous payment rate in OPM's retirement programs was less than one-
half of one percent and the improper payment rate in OPM's health 
insurance programs was less than one percent (Full Committee Hearing on 
``Cutting Out Waste, Fraud, Mismanagement, Overlap and Duplication: 
Exploring Ideas for Improving Federal Reorganization, Management and 
Spending,'' July 16, 2003). The General Accounting Office has not 
identified any of these OPM programs as being at high-risk for waste, 
fraud, or mismanagement (Performance and Accountability Series, Major 
Management Challenges and Program Risks: Office of Personnel 
Management, January 2003, GAO-03-115).
---------------------------------------------------------------------------
    The Committee also proposes three additional reforms under 
the Committee's broad jurisdiction over the management of 
Government operations. These reforms would achieve billions of 
dollars in savings to the federal government without reducing 
the levels of benefits or services provided. The Committee is 
proposing reforms to the management of federal real property, 
increasing data sharing for the purpose of reducing improper 
payments in benefit programs, and increasing competition and 
accountability for federal grants.

Office of Personnel Management Programs

    OPM administers three programs within the sole jurisdiction 
of the Committee on Government Reform that have a significant 
dollar level of spending commitments. The Committee held a 
hearing on July 16, 2003 on ways to eliminate waste and 
mismanagement in these programs. During fiscal year 2002, the 
Federal Employees Health Benefits Program (FEHBP) had outlays 
of $24 billion, the Retirement Programs had $48 billion, and 
the Federal Employees Group Life Insurance Program had $2 
billion. Fraudulent claims in FEHBP arise from improper 
payments to carriers by health care providers and suppliers, 
submitting false claims for services not rendered, billing for 
unnecessary procedures, falsifying billing codes to obtain 
higher rates of reimbursement, ordering illegal procedures for 
patients, and defective pricing payments. Fraudulent payments 
in the Retirement Programs include erroneous benefits paid 
after the annuitant's death and computation errors. The OPM 
Inspector General testified that the work his office is doing 
to recover fraudulent payments in these programs results in 
approximately $12 recovered for each dollar spent by his 
office. In fiscal year 2002, the OPM IG recovered approximately 
$116 million. The Committee proposes the doubling of the IG 
budget from $12 million to $24 million, which should result in 
an increased savings of $116 million annually.
    The OPM IG has also initiated a program to utilize computer 
technology to develop effective data warehouse and data mining 
techniques to more effectively recover funds lost to waste, 
fraud, and mismanagement by carriers in FEHBP. Implementation 
of these applications should lead to a more comprehensive 
claims auditing process, which should, in turn, result in 
increased recovery of fraudulent overpayments from audits.

Federal Real Property Reform

    Underutilized and excess property and deteriorating 
facilities cost the federal government billions of dollars each 
year. According to the General Services Administration, the 
upkeep of unused real property costs an estimated $4 billion 
annually. The Committee held a hearing on the savings that 
could result from reform of the limitations on government 
agencies' authority to revitalize or dispose of federal 
property (``Wasted Space, Wasted Dollars: Reforming Federal 
Real Property to Meet 21st Century Needs,'' June 5, 2003).
    On July 17, 2003, the Committee approved H.R. 2548, the 
Federal Property Asset Management Reform Act of 2003, which 
gives federal agencies the authority to exchange or sell 
unwanted property for better-suited property, sublease or 
outlease underutilized property, and partner with the private 
sector to redevelop or improve property. The legislation also 
provides agencies incentives, such as allowing retention of 
proceeds from dispositions and application to the agency's 
capital asset needs, and offsetting direct and indirect costs 
associated with property disposal.
    The bill contains a variety of property management tools 
that would improve property management and the condition of the 
federal workplace. The legislation was developed in 
consultation with the Administration and contains many of the 
property management reforms included in the President's Freedom 
to Manage Initiative. Specifically, the bill would:
           Direct the Administrator of General Services 
        to develop asset management principles to guide federal 
        agencies and establish performance measures to 
        determine the effectiveness of federal property 
        management;
           Require each agency to appoint a real 
        property officer to ensure that assets meet strategic 
        objectives, ensure the observance of asset management 
        principles, prepare asset management plans and 
        generally coordinate agency real property functions and 
        processes;
           Authorize federal agencies to exchange or 
        transfer property with other federal agencies;
           Authorize GSA, acting on behalf of 
        landholding agencies, to enter into agreements with 
        non-federal entities to exchange or sell property as a 
        means of acquiring replacement property or services 
        better suited for mission purposes;
           Authorize GSA, acting on behalf of 
        landholding agencies, to sublease unexpired portions of 
        Government-leased property;
           Authorize GSA, acting on behalf of 
        landholding agencies, to lease assets that must remain 
        in federal ownership, and partner with private sector 
        entities for the redevelopment or improvement of 
        selected federal holdings;
           Require GSA to report to Congress on their 
        use of public-private partnerships valued at greater 
        than $700,000;
           Authorize agencies to retain the proceeds 
        from the sale of surplus personal property, subject to 
        appropriations, to offset direct and indirect costs 
        incurred in the disposal of such property;
           Authorize agencies to retain the proceeds 
        from real property transactions, subject to 
        appropriations, and allow such funds to be used for 
        meeting an agency's capital asset needs; and
           Reduce the administrative burdens associated 
        with making real property available for homeless 
        assistance under Title V of the McKinney Act.
    The bill also contains provisions intended to reduce its 
budgetary impact, such as subjecting spending associated with 
public-private partnerships and receipts collected by agencies' 
property management authorities to Congressional 
appropriations. Nevertheless, the Congressional Budget Office 
(CBO) score of this legislation is again expected to be 
unreasonably high because it likely will not take into account 
the cost savings associated with public-private partnerships 
and outleases. Although CBO has yet to score this legislation, 
the Office of Management and Budget and the Committee believe 
that full implementation of this legislation would save the 
federal government a significant percentage of the $4 billion 
annual upkeep of unused real property.

Sharing Information To Reduce Improper Payments

    Improper payments to recipients of federal benefit and loan 
programs in the amount of $20 billion has been identified in 
agency financial statements for both fiscal years 2001 and 
2002.\2\ Significant reduction of improper payments could be 
achieved by more aggressive sharing of information collected by 
one government agency and analyzed by the paying agency if the 
pertinent information is utilized to verify program eligibility 
and provide improved controls over payments. For instance, 
savings have resulted from the use of taxpayer information for 
locating Department of Education loan default recipients and 
loan repayment amounts and from the use of criminal records to 
identify fugitive felons ineligible for food stamp and 
Temporary Assistance for Needy Families payments.
---------------------------------------------------------------------------
    \2\ Full Committee Hearing on ``Cutting Out Waste, Fraud, 
Mismanagement, Overlap and Duplication: Exploring Ideas for Improving 
Federal Reorganization, Management and Spending,'' July 16, 2003, 
testimony of Paul Posner, Managing Director for Federal Budget and 
Intergovernmental Relations Issues, Strategic Issues, General 
Accounting Office.
---------------------------------------------------------------------------
    Significant savings could also be achieved in the awarding 
of Department of Education Pell Grants, where approximately 
$602 million in excess payments were made during fiscal years 
2001 and 2002 because of underreported income by recipients. 
Internal Revenue Service data could serve as a check on income 
levels of recipients. Other grant and loan programs 
administered by the Department of Education where cost-savings 
could be achieved by data sharing include the Supplemental 
Educational Opportunity Grants, Stafford and Parent Loans for 
Undergraduate Students, Perkins loans, and work-study programs.
    Reported problems with federal rent subsidy programs 
administered by the Department of Housing and Urban Development 
(HUD) also suggest possible savings through better information 
sharing. HUD financial statements for fiscal year 2001 report 
that the federal government overpaid rent subsidies by almost 
$1 billion due to the underreporting of income by tenant 
beneficiaries. Similar savings could be targeted in Medicare 
and Social Security payments by relying on state and local 
death data, in Housing and Urban Development mortgage insurance 
programs by relying on IRS data, and in Food Stamp payments by 
comparing data on IRS income levels.
    The Committee proposes that government-wide cross-agency 
statutory provisions should be enacted that would allow 
administrators of federal benefit programs limited access to 
certain federal and state administrative data, such as federal 
tax returns and the National Directory of New Hires, for the 
purpose of verifying beneficiaries' eligibility. Limited access 
would be provided only in accordance with appropriate security 
and control policies to protect against unauthorized or 
inappropriate disclosure of information.

Enact Office of Management and Budget Recommendations for Expanding 
        Competition and Accountability of Federal Grant Awards

    In fiscal year 2001, the federal government awarded $325 
billion in federal grants (U.S. Chief Financial Officers 
Council, Federal Financial Assistance Management Improvement 
Act of 1999, p.2). Unlike federal procurement law, there are no 
uniform procedures for competing out federal grants, nor is it 
possible to establish how many grants and how much money are 
awarded by the federal government by non-competitive means. 
Because of Congressional earmarks, preferences for past grant 
recipients, and a lack of uniform certification and assurance 
requirements, many grants are not competitively awarded and 
lack accountability. The Committee believes that significant 
savings may be achieved by competitively awarding federal 
grants and requiring greater accountability.
    In the 106th Congress, the Committee on Government Reform 
worked to enact the Federal Financial Assistance Management 
Improvement Act of 1999 (P.L. 106-107). The act requires 
federal agencies to simplify the procedures by which state and 
local governments and nonprofit organizations apply for federal 
grant and assistance programs. Within three years of enactment, 
agencies were required to develop plans to implement the 
legislation's seven objectives, and report the plans to 
Congress. The seven objectives are:
          1. Streamline and simplify the application, 
        administrative, and reporting procedures for federal 
        financial assistance programs;
          2. Demonstrate active participation in interagency 
        coordination;
          3. Demonstrate appropriate agency use, or plans for 
        use, of the common application and reporting systems;
          4. Designate a lead agency official for carrying out 
        the responsibilities of the agency under the act;
          5. Allow applicants to electronically apply for, and 
        report on the use of, funds from the federal financial 
        assistance program administered by the agency;
          6. Ensure recipients of federal financial assistance 
        provide timely, complete, and high quality information 
        in response to federal reporting requirements; and
          7. Establish specific annual goals and objectives, in 
        cooperation with recipients of federal financial 
        assistance, and measure annual performance.
    The Act also requires OMB to report to the Congress on the 
agencies' plans and the General Accounting Office to evaluate 
and report to OMB and the Congress on the bill's effectiveness. 
On May 31, 2002, OMB submitted to the Congress its first set of 
recommendations to identify statutory impediments to 
competitively awarding federal grants. The recommendations 
included the following:
          1. Rationalize the certifications and assurances 
        required of grantees;
          2. Determine the proper use of ``certifications'' and 
        ``assurances;''
          3. Modify program statutes to set aside a specific 
        percentage of grant or program funding to pay for third 
        party evaluation;
          4. Shorten area-wide agency review to a reasonable 
        period;
          5. Establish simplified procedures for smaller 
        organizations to receive section 501(c)(3) tax status;
          6. Establish uniform requirements for financial 
        assistance programs across all thirteen appropriations 
        acts;
          7. Identify common requirements across program areas, 
        consolidate reporting requirements, and establish 
        uniform definitions;
          8. Require the use of a single identifier for all 
        grantees and require its use in the administrations E-
        Grants initiative; and
          9. Raise the threshold that requires grantees to be 
        audited from $300,000 to $500,000 in annual federal 
        assistance.;
    Pursuant to these recommendations, the Committee proposes 
to amend Federal Financial Assistance Management Improvement 
Act of 1999 and enact these recommendations. The Committee 
believes that the enactment of these recommendations would 
enable and encourage more organizations to compete for the 
award of federal grants and financial assistance and also 
ensure greater accountability. Greater competition and 
accountability for federal grants will promote greater 
efficiencies in the delivery of the intended benefits of the 
grant programs and allow the federal government to deliver the 
same benefits at a lower level of spending.

                             Additional Views

    I support ridding the government of waste, fraud, and 
abuse. I do not support, however, the numerical targets for 
waste, fraud, and abuse reduction that were handed out by 
Budget Committee Chairman Nussle. Eliminating waste, fraud, and 
abuse is inherently a bottom-up endeavor. Congress needs to 
scrutinize every program carefully to find areas of waste, 
fraud, and abuse--not cook the books to meet arbitrary targets 
from the Budget Committee.
    The Budget Committee instructed our Committee to identify 
ways to reduce waste, fraud, and abuse equal to 1% of the total 
mandatory spending subject to our Committee's jurisdiction, 
which the Budget Committee said was $9.9 billion over 10 years. 
This number is wrong because it double counted the civil 
service retirement and disability trust fund and the 
supplemental DC pension trust fund. In fact, 1% of the 
mandatory spending in Committee on Government Reform's 
jurisdiction is only $7.3 billion over 10 years. Moreover, even 
this $7.3 figure is unachievable. As the majority's findings 
explain, the amount of funds that can be saved in the mandatory 
spending programs within the jurisdiction of the Committee on 
Government Reform is relatively small.
    The majority makes several recommendations for reducing 
waste, fraud, and abuse in discretionary spending. I agree with 
some of these recommendations, such as increasing the operating 
budget for the Inspector General (IG) of the Office of 
Personnel Management. In addition, I support passage of H.R. 
2548, the Federal Property Asset Management Reform Act of 2003, 
although there is dispute among experts about the amount of 
savings this legislation would produce.
    In other instances, I support the goals articulated by the 
majority, but have some unanswered questions about the means. 
For example, the majority recommends reducing improper payments 
by increasing data sharing. Reducing improper payments is an 
important goal, but there are unanswered questions about data 
sharing. For example, it is important to know what information 
should be shared and with whom while still protecting privacy, 
confidentiality, and program integrity. The majority also makes 
recommendations regarding the grants process in the name of 
increasing competition and accountability. I support more 
competition and more accountability, but it is unclear whether 
the specific proposals in the majority's findings would achieve 
those worthy goals.
    One major concern I have abllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll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llllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll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llllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllding 
        facility in Frankfurt, Germany-slated to open in mid-
        2005-for use as a regional hub to conduct and support 
        diplomatic operations;
           Has relocated more than 100 positions from 
        the Paris embassy to the regional Financial Services 
        Center in Charleston, South Carolina; and
           Is working with OMB on a cost-sharing 
        mechanism, as previously mentioned, that will give all 
        U.S. agencies an incentive to weigh the high costs to 
        taxpayers associated with assigning staff overseas.
    In addition to these rightsizing actions, there are other 
areas where the adoption of industry best practices could lead 
to cost reductions and streamlined services. For example, in 
1997, we reported that State could significantly streamline its 
employee transfer and housing relocation processes. We also 
reported in 1998 that State's overseas posts could potentially 
save millions of dollars by implementing best practices such as 
competitive sourcing.
    In light of competing priorities as new needs emerge, 
particularly in Iraq and Afghanistan, State must be prepared to 
make difficult strategic decisions on which posts and positions 
it will fill and which positions it could remove, relocate, or 
regionalize. State will need to marshal and manage its human 
capital to facilitate the most efficient, effective allocation 
of these significant resources.

Information Technology

    Up-to-date information technology, along with adequate and 
modern office facilities, is an important part of diplomatic 
readiness. We have reported that State has long been plagued by 
poor information technology at its overseas posts, as well as 
weaknesses in its ability to manage information technology 
modernization programs. State's information technology 
capabilities provide the foundation of support for U.S. 
government operations around the world, yet many overseas posts 
have been equipped with obsolete information technology systems 
that prevented effective interagency information sharing.
    The Secretary of State has made a major commitment to 
modernizing the department's information technology. In March 
2003, we testified that the department invested $236 million in 
fiscal year 2002 on key modernization initiatives for overseas 
posts and plans to spend $262 million over fiscal years 2003 
and 2004. State reports that its information technology is now 
in the best shape it has ever been, including improved Internet 
access and upgraded computer equipment. The department is now 
working to replace its antiquated cable system with a new 
integrated messaging and retrieval system, which it 
acknowledges is an ambitious effort.
    State's OIG and GAO have raised a number of concerns 
regarding the department's management of information technology 
programs. For example, in 2001, we reported that State was not 
following proven system acquisition and investment practices in 
attempting to deploy a common overseas knowledge management 
system. This system was intended to provide functionality 
ranging from basic Internet access and e-mail to mission-
critical policy formulation and crisis management support. We 
recommended that State limit its investment in this system 
until it had secured stakeholder involvement and buy-in. State 
has since discontinued the project due to a lack of interagency 
buy-in and commitment, thereby avoiding additional costs of 
more than $200 million.
    Recognizing that interagency information sharing and 
collaboration can pay off in terms of greater efficiency and 
effectiveness of overseas operations, State's OIG reported that 
the department recently decided to merge some of the objectives 
associated with the interagency knowledge management system 
into its new messaging system. We believe that the department 
should try to eliminate the barriers that prevented 
implementation of this system. As State continues to modernize 
information technology at overseas posts, it is important that 
the department employ rigorous and disciplined management 
processes on each of its projects to minimize the risks that 
the department will spend large sums of money on systems that 
do notproduce commensurate value.

Strategic Planning

    Linking performance and financial information is a key 
feature of sound management-reinforcing the connection between 
resources consumed and results achieved-and an important 
element in giving the public a useful and informative 
perspective on federal spending. A well-defined mission and 
clear, well understood strategic goals are essential in helping 
agencies make intelligent trade-offs among short- and long-term 
priorities and ensure that program and resource commitments are 
sustainable. In recent years, State has made improvements to 
its strategic planning process both at headquarters and 
overseas that are intended to link staffing and budgetary 
requirements with policy priorities. For instance, State has 
developed a new strategic plan for fiscal years 2004 through 
2009, which, unlike previous strategic plans, was developed in 
conjunction with USAID and aligns diplomatic and development 
efforts. At the field level, State revised the MPP process so 
that posts are now required to identify key goals for a given 
fiscal year, and link staffing and budgetary requirements to 
fulfilling these priorities.
    State's compliance with the Government Performance and 
Results Act of 1993 (GPRA), which requires federal agencies to 
prepare annual performance plans covering the program 
activities set out in their budgets, has been mixed. While 
State's performance plans fell short of GPRA requirements from 
1998 through 2000, the department has recently made strides in 
its planning and reporting processes. For example, in its 
performance plan for 2002, State took a major step toward 
implementing GPRA requirements, and it has continued to make 
improvements in its subsequent plans.
    As we have previously reported, although connections 
between specific performance and funding levels can be 
difficult to make, efforts to infuse performance information 
into budget deliberations have the potential to change the 
terms of debate from simple outputs to outcomes. Continued 
improvements to strategic and performance planning will ensure 
that State is setting clear objectives, tying resources to 
these objectives, and monitoring its progress in achieving 
them-all of which are essential to efficient operations.

               U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT

    Now I would like to discuss some of the challenges USAID 
faces in managing its human capital, evaluating its programs 
and measuring their performance, and managing its information 
technology and financial systems. I will also outline GAO's 
findings from our reviews of USAID's democracy and rule of law 
programs in Latin America and the former Soviet Union.

Human Capital Management

    Since the early 1990s, we have reported that USAID has made 
limited progress in addressing its human capital management 
issues and managing the changes in its overseas workforce. A 
major concern is that USAID has not established a comprehensive 
workforce plan that is integrated with the agency's strategic 
objectives and ensures that the agency has skills and 
competencies necessary to meet its emerging foreign assistance 
challenges. Developing such a plan is critical due to a 
reduction in the agency's workforce during the 1990s and 
continuing attrition-more than half of the agency's foreign 
service officers are eligible to retire by 2007. According to 
USAID's OIG, the steady decline in the number of foreign 
service and civil service employees with specialized technical 
expertise has resulted in insufficient staff with needed skills 
and experience and less experienced personnel managing 
increasingly complex programs. Meanwhile, USAID's program 
budget has increased from $7.3 billion in 2001 to about $12 
billion in fiscal year 2003, due primarily to significant 
increases in HIV/AIDS funding and supplemental funding for 
emerging programs in Iraq and Afghanistan. The combination of 
continued attrition of experienced foreign service officers, 
increased program funding, and emerging foreign policy 
priorities raises concerns regarding USAID's ability to 
maintain effective oversight of its foreign assistance 
programs.
    USAID's lack of progress in institutionalizing a workforce 
planning system has led to certain vulnerabilities. For 
example, as we reported in July 2002, USAID lacks a ``surge 
capacity'' that enables it to quickly hire the staff needed to 
respond to emerging demands and post-conflict or post-emergency 
reconstruction situations. We also reported that insufficient 
numbers of contract officers affected the agency's ability to 
deliver hurricane reconstruction assistance in Latin America in 
the program's early phases.
    USAID is aware of its human capital management and 
workforce planning shortcomings and is now beginning to address 
some of them with targeted hiring and other actions.

Program Evaluation and Performance Measurement

    USAID continues to face difficulties in identifying and 
collecting the data it needs to develop reliable performance 
measures and accurately report the results of its programs. Our 
work and that of USAID's OIG have identified a number of 
problems with the annual results data that USAID's operating 
units have been reporting. USAID has acknowledged these 
concerns and has undertaken several initiatives to correct 
them. Although the agency has made a serious effort to develop 
improved performance measures, it continues to report numerical 
outputs that do not gauge the impact of its programs.
    Without accurate and reliable performance data, USAID has 
little assurance that its programs achieve their objectives and 
related targets. In July 1999, we commented on USAID's fiscal 
year 2000 performance plan and noted that because the agency 
depends on international organizations and thousands of partner 
institutions for data, it does not have full control over how 
data are collected, reported, or verified. In April 2002, we 
reported that USAID had evaluated few of its experiences in 
using various funding mechanisms and different types of 
organizations to achieve its objectives. We concluded that with 
better data on these aspects of the agency's operations, USAID 
managers and congressional overseers would be better equipped 
to analyze whether the agency's mix of approaches takes full 
advantage of nongovernmental organizations to achieve the 
agency's purposes.

Information Technology and Financial Management

    USAID's information systems do not provide managers with 
the accurate information they need to make sound and cost-
effective decisions. USAID's OIG has reported that the agency's 
processes for procuring information technology have not 
followed established guidelines, which require executive 
agencies to implement a process that maximizes the value and 
assesses the risks of information technology investments. In 
addition, USAID's computer systems are vulnerable and need 
better security controls. USAID management has acknowledged 
these weaknesses andthe agency is making efforts to correct 
them.
    Effective financial systems and controls are necessary to 
ensure that USAID management has timely and reliable 
information to make effective, informed decisions and that 
assets are safeguarded. USAID has made progress in correcting 
some of its systems and internal control deficiencies and is in 
the process of revising its plan to remedy financial management 
weaknesses as required by the Federal Financial Management 
Improvement Act of 1996. To obtain its goal, however, USAID 
needs to continue efforts to resolve its internal control 
weaknesses and ensure that planned upgrades to its financial 
systems are in compliance with federal financial system 
requirements.

Democracy and Rule of Law Programs

    Our reviews of democracy and rule of law programs in Latin 
America and the former Soviet Union demonstrate that these 
programs have had limited results and suggest areas for 
improving the efficiency and impact of these efforts.
    In Latin America, we found that U.S. assistance has helped 
bring about important criminal justice reforms in five 
countries. This assistance has also help improve transparency 
and accountability of some government functions, increase 
attention to human rights, and support elections that 
observation groups have considered free and fair. In several 
countries of the former Soviet Union, U.S. agencies have helped 
support a variety of legal system reforms and introduced some 
innovative legal concepts and practices in the areas of 
legislative and judicial reform, legal education, law 
enforcement, and civil society. In both regions, however, 
sustainability of these programs is questionable. Establishing 
democracy and rule of law in these countries is a complex 
undertaking that requires long-term host government commitment 
and consensus to succeed. However, host governments have not 
always provided the political support and financial and human 
capital needed to sustain these reforms. In other cases, U.S.-
supported programs were limited, and countries did not adopt 
the reforms and programs on a national scale.
    In both of our reviews, we found that several management 
issues shared by USAID and the other agencies have affected 
implementation of these programs. Poor coordination among the 
key U.S. agencies has been a long-standing management problem, 
and cooperation with other foreign donors has been limited. 
U.S. agencies' strategic plans do not outline how these 
agencies will overcome coordination problems and cooperate with 
other foreign donors on program planning and implementation to 
maximize scarce resources. Also, U.S. agencies, including 
USAID, have not consistently evaluated program results and have 
tended to stress output measures, such as the numbers of people 
trained, over indicators that measure program outcomes and 
results, such as reforming law enforcement practices. Further, 
U.S. agencies have not consistently shared lessons learned from 
completed projects, thus missing opportunities to enhance the 
outcomes of their programs.
    Mr. Chairman, this completes my prepared statement. I would 
be happy to respond to any questions you or other members of 
the committee may have at this time.

                      CONTACTS AND ACKNOWLEDGMENTS

    For future contacts regarding this testimony, please call 
Jess Ford or John Brummet at (202) 512-4128. Individuals making 
key contributions to this testimony include Heather Barker, 
David Bernet, Janey Cohen, Diana Glod, Kathryn Hartsburg, 
Edward Kennedy, Joy Labez, Jessica Lundberg, and Audrey Solis.

             Appendix I: GAO Reports on Resource Management


                          DEPARTMENT OF STATE

Overseas Security, Presence, and Facilities

    Overseas Presence: Conditions of Overseas Diplomatic 
Facilities. GAO-03-557T. Washington, D.C.: March 20, 2003.
    Overseas Presence: Rightsizing Framework Can Be Applied at 
U.S. Diplomatic Posts in Developing Countries. GAO-03-396. 
Washington, D.C.: April 7, 2003.
    Embassy Construction: Process for Determining Staffing 
Requirements Needs Improvement. GAO-03-411. Washington, D.C.: 
April 7, 2003.
    Overseas Presence: Framework for Assessing Embassy Staff 
Levels Can Support Rightsizing Initiatives. GAO-02-780. 
Washington, D.C.: July 26, 2002.
    State Department: Sale of Unneeded Property Has Increased, 
but Further Improvements Are Necessary. GAO-02-590. Washington, 
D.C.: June 11, 2002.
    Embassy Construction: Long-Term Planning Will Enhance 
Program Decision-making. GAO-01-11. Washington, D.C.: January 
22, 2001.
    State Department: Decision to Retain Embassy Parking Lot in 
Paris, France, Should Be Revisited. GAO-01-477. Washington, 
D.C.: April 13, 2001.

Staffing and Workforce Planning

    State Department: Staffing Shortfalls and Ineffective 
Assignment System Compromise Diplomatic Readiness at Hardship 
Posts. GAO-02-626. Washington, D.C.: June 18, 2002.
    Foreign Languages: Human Capital Approach Needed to Correct 
Staffing and Proficiency Shortfalls. GAO-02-375. Washington, 
D.C.: January 31, 2002.

Information Management

    Information Technology: State Department-Led Overseas 
Modernization Program Faces Management Challenges. GAO-02-41. 
Washington, D.C.: November 16, 2001.
    Foreign Affairs: Effort to Upgrade Information Technology 
Overseas Faces Formidable Challenges. GAO-T-AIMD/NSIAD-00-214. 
Washington, D.C.: June 22, 2000.
    Electronic Signature: Sanction of the Department of State's 
System. GAO/AIMD-00-227R. Washington, D.C.: July 10, 2000.

Strategic and Performance Planning and Foreign Affairs Management

    Major Management Challenges and Program Risks: Department 
of State. GAO-03-107. Washington, D.C.: January 2003.
    Department of State: Status of Achieving Key Outcomes and 
Addressing Major Management Challenges. GAO-02-42. Washington, 
D.C.: December 7, 2001.
    Observations on the Department of State's Fiscal Year 1999 
Performance Report and Fiscal Year 2001 Performance Plan. GAO/
NSIAD-00-189R. Washington, D.C.: June 30, 2000.
    Major Management Challenges and Program Risks: Department 
of State. GAO-01-252. Washington, D.C.: January 2001.
    U.S. Agency for International Development: Status of 
Achieving Key Outcomes and Addressing Major Management 
Challenges. GAO-01-721. Washington, D.C.: August 17, 2001.
    Observations on the Department of State's Fiscal Year 2000 
Performance Plan. GAO/NSIAD-99-183R. Washington, D.C.: July 20, 
1999.
    Major Management Challenges and Program Risks: 
Implementation Status of Open Recommendations. GAO/OCG-99-28. 
Washington, D.C.: July 30, 1999.
    The Results Act: Observations on the Department of State's 
Fiscal Year 1999 Annual Performance Plan. GAO/NSIAD-98-210R. 
Washington, D.C.: June 17, 1998.

U.S. Agency for International Development

    Major Management Challenges and Program Risks: U.S. Agency 
for International Development. GAO-03-111. Washington, D.C.: 
January 2003.
    Foreign Assistance: Disaster Recovery Program Addressed 
Intended Purposes, but USAID Needs Greater Flexibility to 
Improve Its Response Capability. GAO-02-787. Washington, D.C.: 
July 24, 2002.
    Foreign Assistance: USAID Relies Heavily on Nongovernmental 
Organizations, but Better Data Needed to Evaluate Approaches. 
GAO-02-471. Washington, D.C.: April 25, 2002.
    Major Management Challenges and Program Risks: U.S. Agency 
for International Development. GAO-01-256. Washington, D.C.: 
January 2001.
[GRAPHIC] [TIFF OMITTED] T9421A.001

                          House of Representatives,
                                Committee on the Judiciary,
                                Washington, DC, September 10, 2003.
Hon. Jim Nussle,
Chairman, House Budget Committee,
309 Cannon House Office Building, Washington, DC.
    Dear Chairman Nussle: Pursuant to section 301(b) and (c) of 
the conference report accompanying H. Con. Res 95, I am pleased 
to submit the following recommendations to reduce waste, fraud, 
and abuse for the 2004 fiscal year.
Misuse of Non-Federal Training Facilities at the Department of Justice
    The Justice Department should reduce employee training and 
meeting costs by using federal facilities instead of more 
expensive non-governmental facilities for such purposes. For 
example, the Justice Department maintains the National Advocacy 
Center, an extensive training facility for Department employees 
located in Columbia, South Carolina to train federal, state, 
and local prosecutors and litigators in advocacy skills and 
management of legal operations. On occasion, however, the 
Justice Department has conducted training and meeting functions 
for its employees at non-governmental facilities located in 
exotic or far-flung venues such as the Florida Keys and Santa 
Monica.
    Accordingly, the Justice Department should be required to 
use the most cost-effective training and meeting facilities for 
its employees. For any predominantly internal training or 
conference meeting, the Justice Department should be required 
to use only a facility that does not require a payment to a 
private entity for the use of such facility, unless 
specifically authorized in writing by the Attorney General. In 
addition, the Attorney General should be required to prepare an 
annual report to the Chairmen and ranking members of the House 
and Senate Judiciary Committees that details each training or 
conference meeting requiring authorization. The report should 
explain why the facility was chosen and provide a breakdown of 
any expenditures incurred in excess of the cost of conducting 
the training or meeting at a governmental facility. While 
savings resulting from this recommendation are difficult to 
ascertain with quantifiable certainty, this requirement would 
save at least $2 million during FY 2004.
COPS Grants Misuse
    Waste, fraud and abuse in Community Oriented Policing 
Services (COPS) Grants can be reduced by replacing on-site 
reviews by program officers with on-site audits and requiring a 
immediate stop to fund disbursements ``in process'' when grant 
conditions are not met by the grantee.
    Office of Inspector General reports issued in 1999 found 
that many grantees did not submit the required program 
monitoring and financial reports, and that COPS on-site reviews 
did not seek to cover whether grant conditions were being met. 
Subsequent audits confirmed that COPS had not corrected its 
grant management approach to require compliance, based on 
testimony from Glenn Fine on March 14, 2002, before the 
Subcommittee on Crime. In his testimony, he provided numerous 
instances of fraud by COPS grantees, and stated that between 
1992 and 1999, there were $52 million in questioned costs and 
$71 million in funds that could be better used, comprising 24% 
of the total COPS funds during the period. He testified that of 
the subsequent 185 audits for the period from 1999 through the 
close of 2001, auditors identified more than $63 million in 
questioned costs and $32 million in funds to better use.
    The Committee is considering legislation to establish 
through its Department of Justice Reauthorization legislation 
an Office of Audit and Assessment that will conduct on-site 
audits and have the authority to cease active funding of COPS 
grants where grant conditions are not met, or there 
circumstances that suggest fraud or abuse. The authorizing 
legislation will require OJP to conduct these audits on at 
least 10% of the amount of the total grants, and requires the 
entire grant disbursement to be suspended if more than 1% of 
the grant is misused. This solution will reduce the total 
questioned costs (possible fraud and abuse) and poorly used 
funds (waste).
    Because the FY 2004 Commerce Justice State Appropriations 
bill has not been enacted into law, potential costs savings and 
more effective use of funds estimates will be based on the FY 
2003 enacted budget for COPS of $923 million. Extrapolating 
from the Inspector General's conclusion that 24% of the funds 
received by grantees prior to 1999 were either questioned costs 
or could be better used, roughly $222 million of FY2003 funds 
may be questionably used. If the Office of Audit and Assessment 
is able to audit 10% of the total (or $92 million), as required 
in the authorizing statute, and it identifies 20% of the grants 
so audited as questionably deployed or exceeding 1% in misused 
funds, the cost savings per year to the federal government 
would be as much as $18 million. If the Office is eventually 
able to audit as much as 50% of the total ($461 million), the 
savings per year could reach $90 million.

OJP Grant Funds Abuse

    Waste, fraud and abuse in the OJP Local Law Enforcement 
Block Grant Program (LLEBG) and the Byrne Formula Grant 
programs can be reduced by consolidating the programs and by 
applying the same on-site audits to these grants as to the COPS 
grants, together with immediate fund cessation when grant 
conditions are discovered to be unmet by the grantee.
    The Committee has prepared draft legislation to authorize 
the establishment of a Community Capacity Development Office, 
headed by a Director appointed by the Attorney General to 
provide training to actual and prospective participants under 
grant programs to assist such participants in understanding the 
substantive and procedural requirements for participating in 
such programs. We believe that much of the waste and abuse 
derives from ignorance both of the program requirements and of 
a lack of awareness of the consequences of misuse of grant 
proceeds.
    The draft Department of Justice Reauthorization bill 
requires the new Office of Audit and Assessment to conduct on-
site audits and exercise its authority to cease active funding 
where grant conditions are not met, or there circumstances that 
suggest fraud or abuse. The authorizing legislation will 
require OJP to conduct these audits on at least 10% of the 
amount of the total grants, and requires the entire grant 
disbursement to be suspended if more than one percent of the 
grant is misused.
    Based on the FY 2003 enacted budget for LLEBG ($380 
million) and Byrne Formula ($497 million) and Discretionary 
Grants ($150 million), the funds subject to audit will total 
$927 million. Using the same formula applied above to COPS 
grants, it can be assumed that 24 percent of the funds, or $223 
million of FY2003 funds may be questionably used. If the Office 
of Audit and Assessment is able to audit 10% of the total (or 
$92 million), as required in the authorizing statute, and it 
identifies 20% of the grants so audited as questionably 
deployed or exceeding 1% in misused funds, the cost savings per 
year to the federal government would be as much as $18 million. 
If the Office is eventually able to audit as much as 50% of the 
total ($463 million), the savings per year could reach $90 
million.

State Criminal Alien Assistance Program (SCAAP)

    The State Criminal Alien Assistance Program (SCAAP) 
provides payments to state and local jurisdictions that have 
had criminal aliens in their custody during the previous year. 
SCAAP pays each jurisdiction based on its share of the overall 
estimated expenditures for housing such aliens for all 
applicants combined. It does not fully reimburse jurisdictions 
for such expenditures. To ensure equity in comparisons and to 
simplify the application process, expenditure comparisons are 
done using the cost of correctional officers for a facility, 
rather than total costs, which can vary widely in their methods 
of calculation.
    Applicants for the SCAAP program provide information on 
those inmates assumed to be criminal aliens including--A-number 
(INS identifier) if available, last name, first name, middle 
name, date of birth, inmate number, country of birth, date 
taken into custody, date released from custody, and FBI number, 
if any. BJA then forwards this information to the Immigration 
and Naturalization Service, where it is checked against 
databases of known aliens.
    This most recent year, BJA received 284,325 inmate records. 
Of those 93,489 (33%) were actual illegal aliens and could be 
verified by INS. Of the remaining, 121,618 (43%) were 
unverifiable, 51,680 (18%) were aliens with a legal status, and 
17,538 (6%) were verifiable American citizens. When determining 
the amount to pay a jurisdiction, BJA ``discounts'' the amount 
paid for unverifiable aliens. This discount differs based on 
the type of facility and of the amount a jurisdiction would 
receive for a verifiable illegal alien, BJA pays 60% of that 
amount to city facilities, 80% to county jails, and 65% to 
state prisons. These differences are based on the expertise of 
the INS, which concludes that the percentage of actual illegal 
aliens in a facility differs with the type.
    The application of more verifiable requirements for 
recipients of the Bureau of Justice Assistance's State Criminal 
Alien Assistance Program (SCAAP) will provide positive 
incentives for State and Municipal law enforcement to 
positively identify apprehended aliens suspected of crimes 
through better cooperation with the Department of Homeland 
Security's federal law enforcement component, improve record 
keeping to reduce possible fraud, and to prosecute and convict 
criminal aliens promptly. While the savings from the 
implementation of more rigorous application requirements are 
not precisely ascertainable, such a program will result in 
savings at least $40 million for FY 2004.

Uncollected Student and Exchange Visitor Program (SEVP) Fee Revenue

    The U.S. Government is losing revenue by not collecting a 
fee that Congress mandated students and exchange visitors 
seeking to enter the United States pay to fund the Student and 
Exchange Visitor Program (SEVP).
    Section 641 of the Illegal Immigration Reform and Immigrant 
Responsibility Act (IIRIRA) mandated the imposition of a fee on 
students and exchange visitors to fund the design, development, 
and operation of a program for tracking alien students. That 
tracking system, which is now fully implemented, is known as 
SEVIS. On December 21, 1999, the INS published a proposed rule 
to implement this provision, setting a fee of $95 per student. 
Following the language in section 641(e) of IIRIRA, which 
required that ``an approved institution of higher education and 
a designated exchange visitor program'' collect and remit the 
fee to the Attorney General, the proposed regulation identified 
these two groups as the designated fee collectors. The INS 
received over 4,600 comments to the proposed regulation, most 
of which opposed the role of educational institutions and 
exchange visitor programs as fee collectors as inappropriate 
for such institutions.
    In response, the INS worked with Congress, the State 
Department, and stakeholder groups to amend section 641(e). The 
resulting legislation was included in section 404 of the Visa 
Waiver Permanent Act, Pub. L. 106-396 (2000). The three most 
significant changes in that section were: (1) the removal of 
the requirement that educational institutions and exchange 
visitor programs collect SEVIS fees, and the requirement that 
aliens pay fees directly to the Attorney General; (2) a 
requirement that the alien pay the fee before being classified 
as an F, J, or M nonimmigrant; and (3) a reduction in the fee 
amount for certain J-1 nonimmigrants, specifically au pairs, 
camp counselors, and summer work/travel participants.
    The INS subsequently submitted a fee collection rule to 
OMB, but withdrew that rule following the passage of the USA 
PATRIOT Act, which authorized funding to accommodate the fast 
track implementation of SEVIS. Staff has been told that the 
Administration is currently working on an interim fee rule. On 
April 8, 2003, the Chairman and Chairman Hostettler sent a 
letter to Secretary Ridge asking that the fee regulation be 
implemented by May 31, 2003. On May 1, 2003, DHS responded, 
stating that ``DHS intends to resubmit a revised regulation to 
OMB shortly.'' To date, no proposed rule implementing the fee 
has been issued. In FY 2001, 625,133 student and exchange 
visitor visas were issued. At $95 per visa, the fee set in the 
1999 proposed regulation, this would have provided $59,387,635 
in revenue for the federal government. In FY2002, 547,191 visas 
were issued. This would have totaled $51,983,145 in revenue. It 
is reasonable to extrapolate out those numbers for FY 2003, and 
expect such a fee to generate at least $50,000,000 in revenue.
    I trust that these recommendations will assist the Budget 
Committee's efforts to identify and eliminate waste, fraud, and 
abuse at federal agencies. Thank you for your consideration of 
these proposals.
            Sincerely,
                               F. James Sensenbrenner, Jr.,
                                                          Chairman.
                          House of Representatives,
                               Committee on Small Business,
                                 Washington, DC, September 5, 2003.
Hon. James Nussle,
Chairman, Committee on the Budget,
Cannon HOB, Washington, DC.
    Dear Mr. Chairman: I am pleased to present to you the 
findings of waste, fraud, and abuse identified by the House 
Small Business Committee. Please find enclosed a copy of the 
Small Business Committee's findings in compliance with FY 2004 
Budget Resolution (J. Con. Res. 95).
            Sincerely yours,
                                        Donald A. Manzullo,
                                                          Chairman.

FINDINGS OF WASTE, FRAUD AND ABUSE IDENTIFIED BY THE HOUSE COMMITTEE ON 
                             SMALL BUSINESS

    1. Loan defaults under the Small Business Administration's 
(SBA) 504 Loan Program are currently collected by SBA 
personnel. The current collection rate of these defaulted loans 
is only 17 percent. The SBA re-authorization bill (HR 2802) 
passed by the committee on July 24 corrects this inadequate 
collection rate by mandating that the SBA contract out the 
collection function to firms that have expertise in this field. 
It is anticipated that the collection rate will be 
significantly higher in the future because of this change.
    2. Loan defaults under the SBA's 7(a) Loan Program have 
averaged 14 percent for the last three years. In 2002, 
preferred lending institutions made up 55 percent of the SBA's 
7(a) loans totaling $7 billion. SBA has delegated authority to 
these lenders, yet guarantees to pay up to 85 percent of the 
defaulted loan amount. HR 2802 increases the qualifications to 
become a preferred lender, ensuring that only truly qualified 
institutions are in the program. It is anticipated that the 
default rate will be significantly lower in the future because 
of this change.
    3. HR 2802 also eliminates an overhead position in each SBA 
district, that of Deputy District Administrator. Instead that 
position shall be re-assigned to one of direct assistance to 
small businesses for the purpose of obtaining federal 
contracts. This change will result in a more efficient SBA 
workforce with more employees directly assisting small 
businesses and fewer in redundant management.
    4. On May 7, 2003 the full committee held a hearing titled 
``Are Big Businesses being awarded contracts intended for Small 
Businesses?'' The testimony presented by the witnesses 
established numerous examples of this happening. In some 
instances fraud on the part of the big businesses may have 
occurred; more commonly the agencies were inconsistently 
recording the size status of companies in the various contracts 
they awarded. The Office of Management and Budget (OMB) has 
acknowledged the problem. OMB has issued guidelines for 
agencies to minimize future occurrences of the problem. This 
committee is pursuing this issue and will hold future hearings 
if necessary to determine if the OMB guidelines have corrected 
the problem.
    5. On June 11, 2003 the full committee held a hearing 
titled ``Revitalizing America's Manufacturers: SBA Business 
Administration Development Programs.'' The SBA gave testimony 
on its new electronic catalog website for small businesses to 
sell to federal agencies. As explained at the SBA website:
    `` NEXGEN's Solutions (NEXGEN) is a commercially owned site 
which operates SBAExchange under a contract with SBA. SBA's 
participation on the Exchange does not constitute or imply an 
endorsement of any of NEXGEN's additional products, services or 
operations or those of any other participant or vendor on SBA 
Exchange.
    The United States Small Business Administration (SBA) has 
entered into a contract with NEXGEN's Solutions, Inc. to bring 
you a national E-Procurement initiative to automate 
procurements by creating an Internet-based exchange for the 
procurement of goods and services from the members of the small 
business community.
    Under this initiative, small businesses can participate in 
conducting e-business transactions with a relatively low cost 
of entry and little or no technical expertise.
    The annual cost for a small business to participate in the 
SBAExchange is $1,500. Additionally, a transaction fee of 2 
percent will be added to all orders. The first 2,500 small 
businesses to register will receive a $450.00 discount. 
Instructions regarding payment arrangements and discounts can 
be found at www.SBAExchange.gov.''
    The Committee finds the charges quoted above to be 
excessive in relation to the value given. Furthermore there are 
similar electronic catalogs offered by other agencies such as 
the General Services Administration and the Defense Logistics 
Agency. Another such site merely wastefully duplicates existing 
sites and confuses the small business community about where 
they should be registered.
    6. The Small Business Administration (SBA) has admitted 
ineligible companies into the HUBzone program. The agency has 
attributed this error to ``inadequate resources to monitor the 
program.'' The Committee feels that the agency has sufficient 
funds devoted to the program to monitor it properly and that 
any abuses of the program should be fixed by the SBA with its 
existing resources.
    7. A National Oceanic and Atmospheric Administration (NOAA) 
contract was solicited in 2002 as a total small business set 
aside. There were five awardees. Two large businesses were 
included in these five. The Committee received a complaint from 
one of the small businesses affected by this action. The two 
large businesses have received and continue to receive most of 
the resulting task orders. The negatively affected small 
business further alleged that the other two small business 
awardees were merely American front companies for foreign 
companies based in Canada and India. At the request of this 
committee, the SBA began an investigation into this case. Final 
determination by SBA is pending.
    8. The Committee was contacted several times this session 
by small businesses and their representative associations 
regarding practices discouraging small business utilization by 
the United States Postal Service (USPS). In June, 2003 the 
Postmaster General agreed to have the USPS modify its exclusive 
contract with Boise Cascade, Inc. for office products, to allow 
small businesses to be utilized whenever they offer office 
products at a lower price than what Boise Cascade offers. The 
value of that contract is estimated at $50 million annually, 
thereby allowing small businesses to compete for that much more 
business each year of the contract (until 2006).
    9. The Committee is aware of and has concerns about the 
potential waste involved in the proposed multi-million dollar 
``Circulator'' bus system planned by the Washington DC 
Transportation Authority. This bus system is designed to 
transport riders around the Capital Mall area and downtown 
Washington. Federal funding would be required in the amount of 
many millions of dollars and the result will be a bus system in 
direct competition with existing, for-profit, non-subsidized 
local businesses such as the Landmark Services Tourmobile, Inc. 
and several small van companies currently serving Federal 
agencies. This problem first came to the attention of the 
Committee at a hearing held July 18, 2001 titled ``Federal 
Government Competition with Small Business.'' The Committee has 
been following the ``Circulator'' proposal since that time.
    10. On November 21, 2002 the full committee held a hearing 
titled ``Federal Prison Industry's Unfair Competition with 
Small Business: Potential Interim Administrative Solutions.'' 
Testimony was given of instances of the Federal Prison 
Industries (UNICOR) unfairly fulfilling federal agency 
requirements in which they merely procured, repackaged, and 
delivered items without assembling or manufacturing the items 
themselves, thereby negating the ``learning a trade'' purpose 
behind UNICOR's reason for existing. The extent of this abusive 
practice was not given but UNICOR's total sales in 2002 were 
$679 million. If even a small percentage of sales are 
attributable to this ``reselling'' practice, then millions of 
dollars are being unfairly contracted to this mandatory-sourced 
agency. This problem was also identified in an earlier hearing 
held on June 6, 2001 titled ``Federal Prison Industries 
Procurement and its effects on Small Business.'' At the 
November hearing, it was stated that the UNICOR Board of 
Directors recently announced that it is eliminating the 
practice of ``pass-through'' sales. The Committee will monitor 
UNICOR to determine if the practice has indeed been 
discontinued.
    11. In July 2003, The General Accounting Office (GAO), at 
the request of another committee, began an audit of selected 
agencies to determine how widespread is the abuse of federal 
executives holding degrees from non-accredited universities. 
Several examples of holders of these ``diploma mill degrees'' 
in high positions have been publicized in the media.
    In August 2003, the committee requested that GAO include 
the SBA in the list of agencies being audited. The GAO agreed 
to the request and informed the committee that the audit of the 
approximately 250 SBA executives of GS-15 grade or higher 
should be completed no later than October 2003.
                          House of Representatives,
            Committee on Transportation and Infrastructure,
                                     Washington, DC, July 25, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget, House of Representatives, Cannon 
        House Office Building, Washington, DC.
    Dear Chairman Nussle: In accordance with section 301 of the 
Concurrent Resolution on the Budget for Fiscal Year 2004, there 
is transmitted herewith the Transportation and Infrastructure 
Committee's findings as to changes in law necessary to 
eliminate waste, fraud, and abuse in mandatory spending 
programs under its jurisdiction. This report was adopted by a 
voice vote of the Full Committee at a July 23, 2003 business 
meeting. Not all Members of the Committee agree with each and 
every aspect of this report and also submitted are dissenting 
Member views on certain findings.
      Thank you for the opportunity to present this report. We 
look forward to continued discussions with the Budget Committee 
on how reductions in waste, fraud, and abuse in programs within 
the Committee's jurisdiction may be met.
            Sincerely,
                                                 Don Young,
                                                          Chairman.
    Enclosure.

 TRANSPORTATION AND INFRASTRUCTURE COMMITTEE--WASTE, FRAUD, AND ABUSE 
                                 REPORT

                                Overview

    The Concurrent Resolution on the Budget for Fiscal Year 
(FY) 2004 requires House and Senate authorizing committees to 
identify opportunities to eliminate waste, fraud, and abuse in 
the mandatory spending programs under their jurisdiction. The 
purpose for this activity is to achieve savings and ensure that 
taxpayers are getting the most for their money. Accordingly, 
the Transportation and Infrastructure (T&I) Committee held a 
hearing on July 22, 2003, regarding the Federal-aid Highways, 
the Federal Transit administration (FTA) programs, Essential 
Air Service (EAS), and Railroad Retirement programs. This 
report outlines the Committee's plans for addressing the issues 
raised in that hearing. Additionally, this Committee will 
continue to exercise oversight in all programs under its 
jurisdiction to ensure that tax dollars are used as efficiently 
as possible.
    This report was circulated to all Members of the T&I 
Committee for their review and comment, and was approved in a 
Full Committee meeting on July 23, 2003. While the report 
reflects a bipartisan effort, the Committee wishes to emphasize 
that not all Members of the Committee necessarily agree with 
every aspect. Accordingly, the Committee reserves its 
flexibility to determine program needs as the Committee and 
Congress work their will through the legislative process.

                 Federal-aid Highways and FTA Programs

    The Federal Highway Administration (FHWA) provides funding 
to the states for construction and improvement projects through 
a number of programs that are referred to collectively as 
Federal-aid Highways. Although the states have considerable 
discretion in choosing which projects to pursue with 
apportioned funds, FHWA exercises varying levels of oversight 
depending on the project. FTA is similar to FHWA in that 
localities have discretion in pursuing these projects with 
oversight by FTA.
    In recent years significant variances have developed 
between the need to build, repair, and improve roadways and 
transit systems and the amount of funding available. In 
addition to proposals to increase highway and transit funding, 
more must be done to ensure that existing tax dollars are used 
efficiently. Savings in the Federal-aid Highways and FTA 
programs will mean more money invested more efficiently for 
this nation's transportation infrastructure. The Committee is 
working toward that objective and is addressing the specific 
measures outlined below through the legislative process of the 
ongoing TEA 21 reauthorization.
    In a July 22, 2003 hearing, the Department of 
Transportation (DOT) Inspector General (IG), the General 
Accounting Office (GAO), and the FWHA Administrator testified 
before this Committee, identifying a number of ways to make the 
most of the federal dollars used in state transportation 
projects. Those options include:
     Strengthening project management skills and the 
oversight ability of FHWA and FTA and requiring better project 
management at the state and local level.
     Improving financial management through the use of 
finance plans on transportation projects costing $100 million 
or more.
     Increasing revenue collections by stopping fuel 
tax evasion.
     Continuing efforts to detect and prevent fraud by 
making debarment mandatory and final when a contractor is 
convicted of a fraud.
     Support fraud deterrence and detection efforts by 
the states by allowing them to share in recoveries from fraud 
investigations.
     Redirecting funds that are no longer needed from 
inactive projects to new projects. The IG has identified $238 
million that states could redeploy to projects in need of 
funding.
    In addition to the suggestions above, the issue of reducing 
yearly excess contract authority in Federal-aid Highways was 
addressed in the July 22 hearing. According to the witnesses, 
this could be done by bringing contract authority more in line 
with the obligation limits would make this planning more 
accurate. Additionally, it would limit build up of cumulative 
budget authority over time, thereby improving the accuracy of 
budget planning by Congress and the Administration. FHWA has 
pointed out, however, that states use the cumulative excess 
contract authority to continue obligations for active projects, 
thereby allowing the project to continue independently of 
potential timing difficulties in the appropriations process.

                      Essential Air Service (EAS)

    Costs for the EAS program have increased significantly 
since 1995. According to the General Accounting Office, federal 
appropriations to the program have grown from $37 million in 
1995 to $113 million in fiscal year 2002 (in constant 2002 
dollars). The costs of the program increased gradually until 
September 11, 2001.
    To address the problems outlined above, the Committee 
recommended several reforms to the Essential Air Service 
program. These reforms were proposed in section 415 of H.R. 
2115 as recently reported by this Committee.
    First, the Committee-reported bill provided that certain 
EAS communities located close to hub airport be required to pay 
a local share. Currently, EAS communities do not pay a local 
share toward the cost of the subsidized service they receive. 
The Committee-reported bill included a modest local share of up 
to 10 percent be gradually phased in such that communities have 
an opportunity to adjust their budgets to address this new 
requirement.
    Second, the Committee-reported bill establishes a Community 
and Regional Choice program as an alternative to the EAS 
program. All EAS subsidy-eligible communities will have the 
option to switch from EAS to this alternative program. Under 
the Community and Regional Choice program, rather than 
receiving service from an airline subsidized by DOT, the 
community could receive a grant from DOT to establish and pay 
for the type of transportation service that best meets its 
needs. For example, the community could choose to use its grant 
to pay for scheduled air service, on-demand air taxi service, 
fractional ownership of aircraft where passengers pay for the 
service, surface transportation, or some other approach 
approved by DOT. It could also adopt a regional approach and 
pool its grant funds with other nearby communities that are 
also participating in the Community and Regional Choice 
program.
    It is difficult to estimate the savings associated with 
these reforms for several reasons. First, it is not clear how 
many EAS subsidy-eligible communities would choose to stay in 
the traditional EAS program and pay a local share rather than 
switch to the new Community and Regional Choice Program, in 
which no local share is required.
    Second, for those communities that do switch to the new 
program, it is not clear what amount of subsidy will be 
required to support the transportation services that they 
choose to establish. Presumably, the subsidy will be less, but 
that is not certain.
    Finally, the number of EAS subsidy-eligible communities 
changes each year and has recently trended upward as aviation 
traffic has declined due to the weak economy and other factors. 
According to DOT, since September 11, 2001, carriers at 60 
additional eligible communities filed notice to discontinue 
unsubsidized service, triggering first-time subsidy at 28 of 
them. Therefore, the Committee anticipates that the reforms 
discussed above may result in cost avoidance, rather than cost 
savings. In addition to restraining further cost increases, the 
Committee believes that these reforms would result in a much 
more effective use of federal funds.

                      Railroad Retirement Programs

    The Railroad Retirement Board (RRB) administers 
comprehensive retirement-survivor, unemployment-sickness 
insurance, and Medicare Part B benefit programs for railroad 
workers and their families. These benefit program are funded by 
payroll taxes on railroad workers and industry. The RRB is 
responsible for ensuring that these funds are properly managed 
and dispersed while maintaining excellent customer service.
    Erroneous payments to ineligible recipients are typically 
made because the RRB has out-date information about a 
recipient's eligibility. Once current information is obtained 
the RRB has a recovery rate of more than 90 percent of these 
overpayments within one year of payment. Cases where 
beneficiaries either provide false information about their 
current status or refuse to return funds to the RRB are pursued 
by the RRB Inspector General (RRB IG).
    The RRB IG does not currently have authority for oversight 
or to investigate fraud for any of the over $787 million in 
Medicare funds that are distributed to railroad beneficiaries. 
Previously this was a responsibility of the IG but was 
transferred in a 1997 appropriations bill. The RRB IG has 
estimated, based on experience at the Social Security 
Administration, that over $49 million in fraudulent spending in 
these programs could be avoided through increased oversight and 
investigation. The Committee supports reinstating oversight 
authority for the Medicare benefits managed by the RRB, in 
coordination with the Health and Human Services (HHS) IG, and 
believes it will result in further program savings through the 
identification, investigation, and elimination of waste and 
fraud.
    At the July 22, 2003 hearing the RRB IG outlined several 
options for changing the RRB's operating structure with hopes 
of improving performance and garnering savings through 
operating efficiencies. Those options included delegating 
decision-making authority to a Chief Executive Officer and 
senior agency managers; consolidation of 20 operating bureaus; 
reducing the number of field service locations; transferring 
Social Security Equivalent benefits to the Social Security 
Administration; and pursuing a change in the entity structure 
of the RRB to function as a government corporation or become 
part of the National Railroad Retirement Investment Trust 
(NRRIT).
    Members of the Railroad Retirement Board also testified at 
the July 22 hearing and expressed their viewpoints and concerns 
with the IG's organizational recommendations. At the hearing, 
the Chairman of the RRB and its members confirmed their 
commitment to reviewing RRB operations in their continuing 
efforts to improve service and maximize operating 
effectiveness. Board members outlined their efforts to address 
the IG's improvement recommendations, recently creating the 
role of a Senior Executive Officer to oversee the Executive 
Committee and improve accountability, as well as reducing the 
number of field offices by more than 40 percent while 
maintaining excellent customer service. The consolidation of 
field offices alone has saved an estimated $28 million 
annually. The Board is strongly opposed to the IG's 
recommendations of transferring the Social Security Equivalent 
benefits to the Social Security Administration and changing the 
structure of the RRB.
    The Committee applauds the RRB's improvement efforts and 
encourages continued collaborative efforts by the IG and the 
Board members to eliminate fraud and pursue operating 
efficiencies. The Committee also maintains its position of 
supporting the current RRB structure so that rail beneficiaries 
will continue to receive excellent customer service.

                            Dissenting View

    Mr. Chairman, I want to thank you for yesterday's hearing 
for the purpose of identifying waste, fraud, and abuse in 
Transportation spending programs under our jurisdiction, and 
possible solutions that would save taxpayers' money. I am 
concerned, however, that we are targeting a program that is 
very important for many rural communities across America.
    Yesterday, we discussed the merits of the Essential Air 
Service (EAS) program--a program that ensures that small, rural 
communities have reliable air service from their local airport 
and keeps rural communities connected to the nation's aviation 
and commerce system. As you know, Essential Air Service funding 
increases a community's ability to retain air service--
important for communities who are struggling with a difficult 
economy and where increased travel options have made it 
extremely difficult for many carriers to continue to serve 
small communities.
    Yet, without EAS funding, subsidized carriers would no 
longer find it economical to service many small, rural 
communities and without air service, these communities may face 
the possibility of closing their local airport. This possible 
scenario would have a devastating impact on many communities in 
South Central Pennsylvania. For example, according to a study 
conducted by the Commonwealth of Pennsylvania, the Altoona-
Blair County airport contributes $27.7 million to the local 
area in terms of jobs, tourism, business and consumer travel. 
If air service is discontinued, then enplanements at the 
Altoona-Blair County airport will eventually decrease to a 
level where they may not be eligible to receive Airport 
Improvement Program (AIP) funding of $1 million.
    Considering the economic benefit that local airport service 
provide to small, rural communities across America like Blair 
County; I do not believe that the EAS program raises to the 
level of waste, fraud, or abuse. Instead, the EAS program must 
be continually strengthened and funded at levels so that all 
rural communities remain connected to our national aviation 
system, and prosper by attracting new businesses who in turn 
create jobs.
    Therefore, I strongly believe that it is inappropriate to 
include the EAS program as part of the committee's 
recommendation to eliminate fraud, waste, and abuse. Thank you 
Mr. Chairman for hearing my views on this very important 
matter, and would like my statement submitted for the record.

                                                      Bill Shuster.

                STATEMENT OF REPRESENTATIVE NICK RAHALL

    Mr. Chairman, I ask that my remarks be included to 
accompany the Committee's Report.
    As much as any Member of Congress, I oppose waste, fraud, 
and abuse in government. For that reason, I applaud our 
Committee Chairman, Don Young, and our Committee Ranking 
Member, Jim Oberstar, for their leadership in exploring 
opportunities to ensure that we only dedicate federal resources 
to worthwhile programs.
    While I agree with almost every aspect of the Committee's 
Report, I believe that the Essential Air Service (EAS) program 
should be recognized as appropriate and necessary government 
spending rather than a program in need of cuts or local match 
requirements. EAS is very important to rural airports, which 
have seen their air service and ridership cut dramatically over 
the years. We need to ensure that rural airports can continue 
to operate, and to provide much-needed air service and jobs.
    Although the Committee's Report on Waste, Fraud, and Abuse 
does not note the Committee's actions at the Markup, it should 
be known that Committee Members from both parties agreed to 
insert a hardship provision designed to ensure that local 
communities will not suffer by forced to operate beyond their 
economic means if they are incapable of meeting the local match 
requirement.
    Subsequently, on the floor of the House of Representatives, 
my colleague and friend from the other side of the aisle, Bill 
Shuster, led the effort to have the local match requirement 
removed altogether from the bill in its final form as it passed 
out of our chamber. I applaud Mr. Shuster for his efforts on 
behalf of rural air service, and I understand that he shares my 
sentiment on the topic of EAS within the Committee's Report.
    Earlier this year, Congress provided the airline industry 
with almost $3 billion in emergency wartime supplemental 
appropriations. However, the small communities of America will 
see very little of this money because the airlines will focus 
on their service to urban areas.
    What is good for airline travel in urban sectors of the 
country ought to be good for airline usage throughout the 
entire country. We need to preserve air travel throughout rural 
America, and the EAS program has proven its worth over the 
years. Small communities in over 35 states rely on EAS funding 
to help them manage through this time of economic distress at 
the state and local levels.
    For the reasons, although I agree with the substance of the 
Committee's Report, I remain firmly in the belief that the EAS 
program is entirely worthwhile and in need of continuing 
federal support.
                          House of Representatives,
                            Committee on Veterans' Affairs,
                                 Washington, DC, September 2, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: Enclosed with this letter is the report 
of the Committee on Veterans' Affairs with its findings on 
means of eliminating waste, fraud and abuse in spending 
programs under the Committee's jurisdiction.
    The Committee conducts regular oversight of veterans 
programs in accordance with its Oversight Plan for the 108th 
Congress. Pursuant to the requirement of the Conference Report 
to Accompany the Concurrent Resolution on the Budget for Fiscal 
Year 2004, the full Committee held hearings on waste, fraud and 
abuse in veterans' programs on May 8 and June 10, 2003. The 
topics of the hearings included barring payment of veterans 
benefits to fugitive felons, stopping erroneous benefits 
payments in the Philippines, improving management of long-term 
care for veterans, ensuring that part-time VA physicians meet 
their employment obligations, strengthening debt management, 
and reducing costs in worker's compensation.
    Additionally, the Committee has held hearings on the 
findings of the President's Task Force to Improve Health Care 
Delivery for our Nation's Veterans, and VA's medical care 
collections program. As reflected in the enclosed report, the 
Committee has utilized both the U.S. General Accounting Office 
and the VA Office of the Inspector General in its oversight and 
evaluations of spending programs for veterans.
    Much of the potential savings in spending programs for 
veterans the Committee report has identified can be 
appropriately achieved through improvements in VA program 
management, and legislation is not recommended. However, the 
Committee has reported legislation discussed in the enclosed 
report that would enable VA to significantly increase medical 
care collections from nonfederal sources. This legislation, 
H.R. 1562, was requested by the Administration and reported 
favorably by the Committee, but the House has not acted on it.
    The Committee intends to continue its aggressive oversight 
of spending programs for veterans to ensure that tax dollars 
are efficiently used in the programs under its jurisdiction, 
and will continue its efforts to identify the changes in law to 
eliminate waste, fraud and abuse. The support of the Committee 
on the Budget in these endeavors is most appreciated.
            Sincerely,
                                   Christopher H. Smith,
                                           Chairman.
                                   Lane Evans,
                                           Ranking Democratic Member.
    Enclosures.

        ELIMINATING WASTE, FRAUD AND ABUSE IN VETERANS' PROGRAMS

    Pursuant to section 301 of the Conference Report to 
Accompany the Concurrent Resolution on the Budget for Fiscal 
Year 2004 (H. Con. Res. 95; H. Rept. 108-71), the Committee on 
Veterans' Affairs is transmitting herewith its findings on 
means of eliminating waste, fraud, and abuse in spending 
programs under the Committee's jurisdiction.

              ENHANCING MEDICAL CARE COLLECTION AUTHORITY

    The Committee is concerned that the Department of Veterans 
Affairs (VA) health care system is seriously under-funded and 
unable to meet the demands being placed on it by the health 
care needs of enrolled veterans. The VA health care system is 
under obvious stress, as increasing enrollment and rising 
health care costs have resulted in hundreds of thousands of 
veterans being forced to wait months, some even more than a 
year, for an initial appointment. VA recently reported in 
January 2003 that over 200,000 veterans were waiting six months 
or more to be seen in VA primary care. This waiting list has 
been reduced, but VA still fails to meet its own access 
standards for a very large number of enrolled veterans.
    The Committee conducted hearings and other oversight during 
this Congress and previous Congresses to identify additional 
funding sources and promote management efficiencies to address 
the rising demand for VA medical care services. As a 
consequence of this oversight, on April 2, 2003, H.R. 1562, the 
Veterans Health Care Cost Recovery Act of 2003, was introduced 
by Honorable Bob Beauprez; the Committee's Chairman, Honorable 
Christopher H. Smith; the Committee's Ranking Member, Honorable 
Lane Evans; the Subcommittee on Health's Chairman Honorable Rob 
Simmons; and the Subcommittee's Ranking Member, Honorable Ciro 
D. Rodriquez. After subcommittee and full committee 
consideration, on May 15, 2003, H.R. 1562, as amended, was 
ordered reported favorably to the House by unanimous voice 
vote. To date, the House has not acted on this bill.
    In 1986, in Public Law 99-272, Congress provided VA 
authority to collect from third-party insurers of nonservice-
connected veterans receiving VA health care. These funds are 
used by VA to supplement appropriated funds to maintain high 
quality health care. However, VA is currently unable to collect 
fully from the sizeable preferred provider sector, which now 
accounts for a major portion of all health plans in the United 
States. H.R. 1562, as amended, would enhance the ability of VA 
to collect reimbursements from third-party insurers by 
clarifying VA's power to recover costs for medical care 
provided to veterans at VA facilities covered by preferred 
provider organizations and other non-traditional coverage.
    Specifically, H.R. 1562, as amended, would deem VA as a 
``preferred provider'' for purposes of collection when a payer 
has payment arrangements with preferred provider organizations 
and a covered veteran receives VA health care under an 
equivalent arrangement. This legislation would prevent a third-
party payer from denying or reducing reimbursement to VA solely 
because VA does not have a participation agreement with that 
third-party payer. Additionally, the legislation would grant 
specific authority for VA to recover the cost of providing 
medical care to non-veterans from any private health plan. 
Under current law, the collections recovered would be deposited 
into the Medical Care Collections Fund (MCCF) and treated as 
offsets to discretionary spending. Subject to annual 
appropriation, VA can spend the money in the MCCF to provide 
medical care to veterans.
    The Congressional Budget Office (CBO) estimates that under 
H.R. 1562, as amended, collections from nonfederal sources 
would increase by $111 million in 2004 and $737 million over 
the 2004-2008 period. CBO estimates that implementing this 
legislation would result in net discretionary savings of $24 
million in 2004, and $38 million over the 2004-2008 period, 
assuming appropriation of the estimated collections and after 
accounting for the typical lag between collections and 
spending.

                   IMPROVING MEDICAL CARE COLLECTIONS

    In 1997, Congress gave VA the authority to retain third 
party collections it recovered instead of returning the funds 
to the U.S. treasury. This authority was requested by the 
Department as a part of its 5-year plan to obtain 10 percent of 
its funding from third party collections and other revenue 
sources. In 1999, the Committee received VA's outsourcing 
business plan for health care revenue collection. The plan 
involved consolidating certain revenue collection processes 
(pre-registration, insurance verification, billing collections, 
and customer service) into a ``Consolidated Revenue Unit'' at 
the network level. Also, in 1997 VA adopted a new fee schedule 
called ``reasonable charge'' authorized by Public Law 105-33, 
the Balanced Budget Act of 1997. By November 2000, VHA had 
initiated four pilot tests--two in-house and two by contract. 
VA also received a Price Waterhouse report with 24 major 
recommendations for improving MCCF revenue operations.
    In 2001, the U.S. General Accounting Office (GAO) reported 
in hearing testimony that for the first time since 1995, VA had 
reversed the general decline in its third party collections. 
GAO largely attributed the increase to VA's implementation of 
the reasonable charges billing system. However, GAO reported 
recurring problems, including: (1) VA billing times that were 
14 times greater on average than the private sector; (2) 
continuing weaknesses in VA's collections information systems; 
and (3) a lack of department-wide standardization for 
collections. The VA's Inspector General's Office (IG) also 
reported problems and weaknesses in a number of areas, 
including: (1) determination of veterans' eligibility and 
entitlement status; (2) verification and coordination of 
patient care with insurance carriers; (3) medical record 
documentation of care provided; (4) coding of bills to 
insurance carriers; (5) billing of insurance carriers; and (6) 
collection of insurance carriers' delinquent accounts.
    VA was also mandated by Congress to acquire and implement a 
commercial patient financial system. VA is implementing the 
Patient Financial Services System project, which is intended to 
improve the business process and information technology in 
revenue collections. In May of 2002, VA created a new office in 
the Veterans Health Administration (VHA), the Chief Business 
Office, to improve collections. However, VA's compliance with 
established policies and procedures for MCCF management 
continues to be inconsistent. In his April 1, 2002, to 
September 30, 2002, Semiannual Report to Congress, the IG 
reported that deficiencies in the collections system result 
from the inability to properly bill for services.
    The VA's budget proposal for fiscal year 2003 proposed a 
new outsourcing business plan to reconfigure the revenue 
collection program. However, of the four network pilot tests, 
only one produced an outsourcing contract model. VA's budget 
proposal for fiscal year 2004 indicated VA had made 
considerable progress in executing its new business plan. The 
new plan would reconfigure the revenue collection program to 
include both in-house and contract models.
    MCCF collections have shown a steady improvement since 
fiscal year 2000. Actual collections from third parties have 
been: $394 million for fiscal year 2000; $540 million for 
fiscal year 2001; and $690 million for fiscal year 2002. 
Projected collections are $760 million for fiscal year 2003.
    On May 7, 2003, the Subcommittee on Oversight and 
Investigations held its third oversight hearing on third-party 
collections and received an update from GAO on VA's third-party 
collections since September of 2001. GAO also provided an 
overview of continuing operational problems in collections for 
fiscal year 2002, including missed billing opportunities, 
insufficient documentation of services for billing and coding 
staff, insufficient pursuit of accounts receivable, and 
unidentified insurance for some patients.
    The Deputy Secretary of Veterans Affairs, Honorable Leo S. 
Mackay also testified at the May 7, 2003, hearing about VA's 
efforts to improve third party collections. He informed the 
Subcommittee that the strategies being pursued include 
establishment of health care industry based performance and 
operational metrics, technology enhancements and integration of 
proven business approaches, including establishment of 
centralized revenue operations centers. He further stated that 
VA is developing a demonstration project to fully outsource the 
revenue process functions at a VA Medical Center to test the 
feasibility of this approach to enhancing revenue. The 
Committee will conduct oversight of the demonstrations 
projects.

                     STRENGTHENING DEBT MANAGEMENT

    According to the IG's Report of the Audit of the Department 
of Veterans Affairs Consolidated Financial Statements for 
Fiscal Years 2002 and 2001, Report No. 02-0163847, January 23, 
2003, as of December 2002, debts owed to the VA totaled $3 
billion. The majority of these (52 percent) were active vendee 
loans. The debts owed to the VA are derived from the payment of 
home loan guaranties; direct home loans; life insurance loans; 
Medical Care Collections Fund receivables; and compensation, 
pension, and educational benefits overpayments.
    The IG made several recommendations to the Department 
concerning its debt management activities. During his testimony 
on May 8, 2003, Honorable Richard Griffin, VA Inspector 
General, reported that the Strategic Plan for 2003-2008 shows 
that VA is addressing his recommendations to be more aggressive 
in collecting debts; improve debt avoidance practices; 
streamline and improve quality and uniformity of debt waiver 
decisions. The IG also stressed that debt management activities 
could be improved.
    The Committee will continue its oversight and working with 
VA to ensure that the IG's recommendations are implemented.

                      RESTRUCTURING CAPITAL ASSETS

    As a result of improved technologies, new treatments and 
national changes in practice patterns of health care 
professionals, VA has shifted its focus from inpatient to 
outpatient care. This shift resulted in many instances of 
shortened lengths of stay when hospitalization is required and 
established needs for many new outpatient facilities. 
Consequently, many structures formerly used for inpatient care 
have been converted for new uses. However, the vacant space 
that cannot be converted for effective uses has become a 
significant burden and waste of VA resources that could be used 
for direct health care for veterans.
    GAO concluded in 1999 that VA's existing infrastructure 
could be the biggest obstacle confronting its ongoing 
transformation efforts. During a hearing before the 
Subcommittee on Health in 1999, GAO pointed out that although 
VA was addressing some realignment issues, it did not have a 
plan in place to identify buildings that were no longer needed 
to meet veterans' health care needs. GAO recommended that VA 
develop a market-based plan for restructuring its delivery of 
health care in order to reduce funds spent on underutilized or 
inefficient buildings. In turn, those funds could be reinvested 
to better serve veterans' needs by placing health care 
resources closer to veterans' homes.
    In addition, GAO reported that most delivery locations had 
mission-critical buildings that VA considers functionally 
obsolete. The functional obsolescence included inpatient rooms 
that failed to meet contemporary standards for patient privacy; 
outpatient clinics with too few examination rooms; and 
buildings with life safety concerns.
    In 1999, based on recommendations and actions of the 
Committee, VA began an effort to realign its capital assets, 
primarily buildings, to better serve veterans' needs as well as 
institute other needed efficiencies. The Capital Asset 
Realignment for Enhanced Services (CARES) initiative includes: 
(1) assessing a target population's needs; (2) evaluating the 
capacity of existing assets; (3) identifying any performance 
gaps (excesses or deficiencies); (4) estimating assets' life 
cycle costs; and (5) comparing such costs to other alternatives 
for meeting the target population's needs. Alternatives to be 
considered included: (1) partnering with other public or 
private providers; (2) purchasing care from other providers; 
(3) replacing obsolete assets with modern ones; and (4) 
consolidating servicesduplicated at multiple locations serving 
the same market. CARES is the most ambitious such effort undertaken by 
VA.
    Recent data from VA's CARES office provided an overview of 
VA facilities as follows: VA owns 5,044 buildings and 118.5 
million square feet. The average age of VA buildings is 50.4 
years. The replacement life cycle at the current rate of 
investment is 155 years. VA operates 162 hospitals, 677 
community-based outpatient clinics, 137 nursing home units and 
43 domiciliaries.
    During the CARES process, VA has projected veterans' demand 
for acute health care services through fiscal year 2022, 
evaluated available capacity at its existing delivery 
locations, and targeted geographic areas where alternative 
delivery strategies might allow VA to operate more efficiently 
and effectively while ensuring access consistent with its 
standards for travel time. Efficiencies through economies of 
scale have been identified in 30 geographic areas where two or 
more major health care delivery sites were located in close 
proximity and or provided duplicative inpatient and outpatient 
health care services. Also, six high priority collocations of 
regional benefits offices have been proposed. VA has also 
identified more than 70 opportunities for partnering with DOD 
to better align the infrastructure of both agencies. Twenty-one 
of the collaborations or joint ventures with DOD are considered 
high priority. Four years after GAO recommended the formation 
of CARES, VA expects to issue its final plans by the end of 
2003.
    An exemplary model of public/private partnering supported 
by the Committee is proposed at the site of the former 
Fitzsimons Army Medical Center in Aurora, Colorado. This multi-
acre tract was deeded by the federal government to the 
University of Colorado to enable it to consolidate one of the 
largest regional medical, educational and biomedical research 
complexes in the country. Discussions are underway between VA 
and DOD to negotiate a joint venture to construct and staff a 
Regional Federal Medical Center, sharing resources, services 
and research with the University of Colorado at that site. H.R. 
116, as amended, was reported by the Committee on July 14, 
2003, to authorize the Secretary of Veterans Affairs, in 
consultation with the Secretary of Defense, to construct, 
lease, or modify major medical facilities at the site of the 
former Fitzsimons Army Medical Center, Aurora, Colorado.
    The Committee will continue to monitor carefully the 
progress of CARES and expects to hold a public hearing after 
the plan has been completed.

         IMPROVING EFFICIENCY AND ACCESS THROUGH VA-DOD SHARING

    For approximately twenty years, the Committee has promoted 
the sharing of health care resources between the Departments of 
Veterans Affairs and Defense (DOD). The goal of sharing between 
the two Departments is to improve the quality of health care 
for VA and DOD beneficiaries and to reduce costs that exist in 
both Departments. By collaborating, the two Departments can 
improve access to care and reduce the overall costs of 
furnishing that care to both veterans and the military 
beneficiary population.
    In 1982, Congress enacted Public Law 97-174, (the Sharing 
Act) to foster more effective sharing of health care resources 
between VA and DOD. The law was enacted not only to remove 
legal barriers, but also to provide incentives for military and 
VA health care facilities to engage in health resources sharing 
through local agreements, joint ventures, national sharing 
initiatives, and other collaborative efforts pointed to better 
and more efficient use of Federal health care resources. The 
Sharing Act provides broad authority to both VA and DOD to 
share health resources across the spectrum of health care and 
health-related activities. With advent of the Sharing Act, a 
flurry of VA-DOD sharing activity occurred, and hundreds of 
agreements were executed among military and VA medical centers 
and their clinics. However, over the succeeding years, sharing 
waned as military health care shifted from a facilities-based 
system to the TRICARE program that relies on private health 
care networks.
    On July 27, 2001, Chairman Smith introduced H.R. 2667, the 
Department of Defense-Department of Veterans Affairs Health 
Resources Access Improvement Act of 2001. H.R. 2667 sought to 
establish a health care facilities sharing demonstration 
project in keeping with the intent of the original legislation 
for VA-DOD sharing. Under the bill, five qualifying sites would 
be selected for participation in a demonstration project. The 
purpose of the demonstration project was to identify and 
measure the advantages of sharing and work through the 
challenges of the two systems becoming true partners in health 
care delivery. The two Departments' medical information systems 
are incompatible, but this legislation would have created a 
framework for greater technology compatibility. By improving 
such communication, the Departments could better ensure 
continuity of care, equality of access, uniform quality of 
service and seamless transmission of data. Most of the original 
concepts and objectives of H.R. 2667 were incorporated in 
Subtitle VII of Public Law 107-314, the Bob Stump National 
Defense Authorization Act for Fiscal Year 2003.
    On March 7, 2002, the Subcommittee on Health and the 
Committee on Armed Services Subcommittee on Military Personnel 
held a joint hearing to examine collaboration and health 
resources sharing by the two Departments, including 
consideration of H.R. 2667. Chairman Smith testified to urge 
both subcommittees to aggressively increase resource sharing 
between these two health care systems. Defense Under Secretary 
David S. Chu assured the Committees that he and VA Deputy 
Secretary Mackay share a common vision of quality health care 
for the men and women serving our country, their families, and 
those that have served. According to Under Secretary Chu, the 
cooperative efforts of DOD and VA are focused on a proactive 
partnership that meets the missions of both agencies while 
benefiting the servicemember, veteran and taxpayer with new 
initiatives and increased efficiency.
    On June 3 and June 17, 2003, the Committee held hearings to 
receive the Final Report of the President's Task Force to 
Improve Health Care Delivery for our Nation's Veterans (PTF). 
One of the four organizing principles which this task force 
used in developing recommendations was that committed 
leadership from VA and DOD is essential to achieve VA-DOD 
collaboration to improve health care for veterans and military 
retirees. The PTF found that VA and DOD should maximize the use 
of resources and infrastructurethat each Department currently 
retains individually. Dr. Gail Wilensky, Co-Chair of the PTF, stated in 
her June 3, 2003, testimony, ``The goal of improved collaboration 
between VA and DOD is not collaboration for the sake of collaboration, 
but rather that, through such activity, VA and DOD can improve timely 
access to quality health care and reduce the overall costs of 
furnishing services.''
    H.R. 1911, to amend title 38, United States Code, to 
enhance cooperation and the sharing of resources between the 
Department of Veterans Affairs and the Department of Defense, 
introduced by Honorable John Boozman, was passed by the House 
on May 21, 2003, and would establish a DOD-VA Joint Executive 
Committee to: (1) expand oversight of collaborative efforts 
beyond health care issues to include benefits and other areas 
as determined by the co-chairs; and (2) promote increased 
resource sharing.
    Existing law allows each Department to determine 
individually the number of employees each would designate to 
support the committee, but requires each one to share equally 
in the cost, notwithstanding parity in the numbers. It also 
requires a permanent staff be assigned to the committee. This 
bill would delete these personnel requirements, thereby 
enhancing the flexibility of each Department to use its 
personnel in the most efficient manner possible, while at the 
same time authorizing the establishment of subordinate 
committees and work groups as deemed appropriate by the co-
chairs.
    Existing law specifically authorizes the recommendations of 
the committee for sharing of resources to improve access, 
quality, and cost effectiveness. Under H.R. 1911, the committee 
would also identify changes in policies to improve services, 
efficiencies, and opportunities for collaboration for delivery 
of benefits and services to beneficiaries of both Departments.
    According to CBO, this bill would have a negligible cost. 
Although CBO did not project any cost savings in its reported 
estimate, the Committee expects that cost savings would result 
from the enactment of this bill, as it would further promote 
the sharing between VA and DOD and create new methods by which 
the two Departments would share resources and eliminate 
duplicate activities. The substance of H.R. 1911 was 
incorporated into H.R. 1588, the National Defense Authorization 
Act for Fiscal Year 2004, which the House passed on May 22, 
2003.

                  MANAGING LONG-TERM CARE FOR VETERANS

    In 1999, Public Law 106-117, the Veterans' Millennium 
Health Care and Benefits Act, was enacted to ensure VA better 
meets the needs of its aging patient population. The Act 
required VA for the first time to provide nursing home care and 
certain non-institutional long-term care services to eligible 
veterans. Some studies have shown that appropriate use of case 
management in long-term care can reduce both the number and the 
intensity of expensive acute care hospitalizations. Due to 
recent reports the Committee has received from VA, the 
Committee is concerned about VA's ability to meet the nursing 
home care needs of veterans in accordance with the law, 
particularly considering the World War II generation's 
increasing needs for long-term care.
    At the May 8, 2003, Committee hearing on waste, fraud, and 
abuse, Members raised issues related to VA's role in meeting 
the long-term health care needs of veterans. On May 22, 2003, 
the Subcommittee on Health held a follow-up hearing to examine 
existing VA long-term care programs and expenditures and 
appraise VA's strategy for addressing future long-term care 
needs of aging and disabled veterans.
    To better meet its oversight responsibilities in this area, 
the Committee requested that GAO provide the Committee with a 
report on VA's implementation of the Millennium Act, including 
analysis of current trends and forecasts in nursing home 
utilization and long-term care expenditures by the Department. 
The Committee also asked GAO to examine VA's management of its 
in-house nursing home programs to improve efficiency and assure 
appropriate utilization and access in consonance with the 
Millennium Act.
    GAO will examine the use of nursing homes VA operates, as 
well as the contract care it purchased between fiscal years 
1998 and 2002. The scope of the study will include examining 
the expenditures VA incurred to provide nursing home care to 
these veterans, the extent of the use of nursing homes and how 
their expenditures have varied by VA's 21 health care networks, 
and the degree to which policy differs among VA's networks on 
the type and extent of nursing home care provided to veterans. 
GAO has agreed to complete its work and issue a report to the 
Committee by the fall of 2003. This next report will provide 
the Committee with a basis for further oversight of VA long-
term care programs.

                REDUCING COSTS IN WORKER'S COMPENSATION

    VHA has 214,000 employees and is the largest health care 
system in the United States. Under the Federal Employees 
Compensation Program, employees are eligible for Worker's 
Compensation Program benefit payments for lost wages and 
medical treatment for the specific disability associated with a 
work-related injury.
    In 1998, the IG audited VA's Federal Employee Compensation 
Act program and concluded the program was not effectively 
managed. Audit of VA's Worker's Compensation Program Cost, 
Report No. 8D2-G01-067, July 1, 1998. The IG estimated VA could 
reduce future payments by $247 million, by returning to work 
current claimants who are no longer disabled.
    In order to decrease program liability, VA issued Directive 
7700 on July 8, 1998, to ensure a safe and healthy workplace 
for VA employees, and VHA issued specific related directives. 
Also, the VA's Office of Occupational Safety and Health 
initiated a case management and injury prevention project 
designed to reduce compensation costs and the rate of new 
compensation claims.
    The IG Audit of High-Risk Areas in the Veterans Health 
Administration's Workers' Compensation, Report No. 99-00046, 
December 21, 1999, found that the lack of effective case 
management practices placed the Department at risk for program 
abuse, fraud, and unnecessary costs. In April 1999, the IG 
provided VA with a handbook for ``VA Facility Workers 
Compensation Program Case Management and Fraud Detection.'' By 
the end of FY 1999, Office of Workers Compensation Program 
costs had decreased by 1.6 percent to about $130 million. 
However, since that time costs haveincreased to approximately 
$151 million, which caused the IG to begin a follow-up audit.
      On May 8, 2003, the IG in testimony before the Committee 
on Veterans' Affairs stated, ``* * * VA continues to be at risk 
for program abuse, fraud, and unnecessary costs because prior 
IG program recommendations have not been fully implemented.'' 
At the urging of the Committee, the Office of Inspector General 
is conducting further audits of the Workers' Compensation 
Program. No legislation is recommended by the Department to 
address this issue.

              IMPROVING MANAGEMENT OF PART-TIME PHYSICIANS

    VA currently employs 5,129 part-time physicians at a 
combined salary of $400 million with poor or no accountability 
as to much of their time and attendance. Problems with part-
time physician time and attendance have frequently been 
reported by the IG Combined Assessment Program. In some 
instances, the affiliated medical school determines assignments 
and work schedules for all the physicians on the VA payroll in 
violation of VA policy.
    At the May 8, 2003, Committee hearing, the IG also 
testified concerning the findings in the Audit of the Veterans 
Health Administration's Part-Time Physician Time and 
Attendance, Report No. 02-001339-85, April 23, 2003. The IG 
testified that the audit found that the VHA's management 
controls were not effective in ensuring that part-time 
physicians met their employment obligations and that physician 
staffing was not aligned properly with workload requirements. 
The IG further testified that some VA medical centers do not 
keep duty schedules and timekeepers do not know which 
physicians are supposed to be on duty.
    The IG provided several examples that showed part-time 
physicians were not working the hours established in their VA 
appointments and as a result part-time physicians were not 
meeting their employment obligations to VA. Based on a review 
at five VA medical centers, the audit specifically found:
    1. There was no documented evidence of any patient care 
workload (patient encounters, operating room time, progress 
notes, physician orders, or network log times) for 33 percent 
of the time in a 14-day review, where 223 part-time physicians 
were scheduled for at least four hours of duty.
    2. Part-time physicians did not complete a minimal amount 
of patient care time (at least one hour in surgery or at least 
two progress notes, doctors orders, or encounters per hour 
worked) on 53 percent of days the physicians were scheduled to 
work at least four hours.
    3. Surgeons spent 38 percent of their available time on 
patient care obligations. Of the 153 surgeons reviewed, 70 
spent less than 25 percent of their available time in direct 
patient care.
    4. Part-time surgeons at six VA medical centers reviewed 
were performing surgery at the affiliated medical schools 
during their VA tours of duty.
    5. Attending physicians at four VA medical centers reviewed 
were not present to supervise the residents' treatment of 
patients in six of 29 clinics reviewed.
    The Committee was advised that the IG had provided the 
Under Secretary for Health with recommendations for corrective 
actions. Specifically, the IG recommended that improvements 
include quarterly audits of physician time and attendance. The 
Under Secretary generally agreed with the recommendations.
    The Committee plans to monitor this matter through 
oversight hearings and briefings with VA officials to ensure 
that these recommendations are fully implemented.

            IMPROVING MANAGEMENT OF CONTRACTING, PROCUREMENT

                             AND ACQUISTION

    The IG's testimony at the May 8 2003, hearing indicated the 
existence of ineffective management practices involving the 
procurement of health care items and contracting for health 
care services or resources, especially when service contracts 
involved an affiliated institution as a party. An IG audit of 
procurement practices found VA facilities often failed to use 
VA national purchasing or Federal Supply Service options, and 
often chose less cost-efficient options such as local 
procurement. Studies advocate a more centralized focus for the 
purchase of health care items, but too often this course of 
action is not followed because of a lack of VA procurement 
oversight.
    The IG also commented on the lack of rigor in contracting 
for health care resources, noting an absence of evidence that 
VA had assessed its actual needs or that the contract was in 
the Government's best interests. The IG noted the potential 
conflict of interest in the general process. Other IG concerns 
involved construction contracting, purchase card activities, 
and inventory management--all of which lack adequate oversight 
at critical points in their respective processes. On June 10, 
2003, at the Committee's second hearing on waste, fraud and 
abuse, Deputy Secretary Mackay acknowledged that problems exist 
with VA's report to Congress regarding contracts for services 
other than scarce medical specialties. The Committee believes 
that improved management of contracting, procurement and 
acquisitions has the potential for considerable savings and the 
Committee intends to conduct further oversight of these areas.

                  BARRING BENEFITS FOR FUGITIVE FELONS

    In 1996, Congress enacted Public Law 104-193, which barred 
fugitive felons from receiving Supplemental Security Insurance 
from the Social Security Administration and food stamps from 
the Department of Agriculture. The intent of the law was to 
discontinue the means of federal support that allow fugitive 
felons to continue to flee. However, the law did not prevent a 
fugitive felon who was a veteran from receiving benefits from 
VA.
    In 2001, the Committee on Veterans' Affairs reported H.R. 
1291, as amended, to prohibit veterans who are fugitives from 
receiving benefits from VA. The bill became Public Law 107-103. 
Under the law, a fugitive felon is defined as fleeing to avoid 
prosecution, or custody or confinement after conviction, for an 
offense or an attempt to commit an offense which is a felony 
under the laws of the place from which the veteran flees. The 
benefits barred include those forservice-connected 
disabilities; dependency and indemnity compensation for surviving 
spouses of service-connected veterans; nonservice-connected disability/
death pension; hospital, nursing home, domiciliary and outpatient care; 
insurance; educational entitlements; training and rehabilitation 
benefits for veterans with service-connected disabilities; and housing 
and small business loans.
    Public Law 107-103 requires the Secretary to furnish to any 
Federal, State, or local law enforcement official in specific 
circumstances and upon written request the most current address 
maintained by the Secretary of a person who is eligible for a 
VA benefit. The Secretary is also required to enter into 
memoranda of understanding with Federal law enforcement 
agencies and may enter into agreements with State and local law 
enforcement agencies for purposes of furnishing information to 
such agencies.
    On May 8, 2003, the IG testified before the Committee 
efforts to identify fugitive felons. In response to Public Law 
107-103, the IG has established a fugitive felon program to 
identify VA benefits recipients and VA employees who are 
fugitives from justice. Mr. Griffin provided details of the 
program:

        The program consists of conducting computerized matches 
        between fugitive felon files of law enforcement 
        organizations and VA benefit and personnel records. 
        Once a veteran or employee is identified as a fugitive, 
        information on the individual is provided to the law 
        enforcement organization responsible for serving the 
        warrant to assist in apprehension. Fugitive information 
        is then provided to VA so that benefits may be 
        suspended and to initiate recovery action for any 
        overpayments. Based on our pilot study and matches 
        conducted to date, I anticipate that between 1 and 2 
        percent of all fugitive felony warrants submitted will 
        involve VA beneficiaries.

    Based on computer matches to date, the IG has projected 
savings related to the identification of improper and erroneous 
payments to exceed $209 million annually. The IG has also 
completed memoranda of understanding or agreements with the 
U.S. Marshals Service, the States of California and New York, 
and the National Crime Information Center. These data matching 
efforts have already identified more than 11,000 potential 
fugitive beneficiaries and VA employees. The Committee intends 
to monitor and encourage the implementation of the IG's 
fugitive felon program through oversight hearings and briefings 
with VA officials. No further legislative action is recommended 
by the Department to address this issue.

        STOPPING ERRONEOUS BENEFITS PAYMENTS IN THE PHILIPPINES

    The VA Regional Office in Manila, Republic of the 
Philippines, has long struggled with fraudulent activity due to 
a combination of factors, including the relatively large amount 
of VA payments, poverty and a lack of economic opportunity for 
indigenous persons. The two main types of cases involve 
deceased payees and false claims. In April 2001, the IG 
instituted a ``Philippines Benefit Review'' at the request of 
the Manila Regional Office, which was seeking assistance in 
combating fraud associated with false claims.
    During the six-week operational phase of the review, the 
team conducted 1,134 interviews and 2,391 fingerprint 
comparisons, reviewed 2,600 files, took 1,100 digital 
photographs, initiated nine criminal cases, and obtained one 
search warrant. Five hundred ninety-four beneficiaries were 
identified for suspension or termination of benefits. Criminal 
investigations initiated during the review were turned over to 
the Philippines National Police.
    At the May 8, 2003, Committee hearing, the IG testified on 
the results of the benefits review, and indicated that his 
office was looking at other areas outside the continental 
United States where large numbers of veterans and dependents 
reside. According to the IG, 78,000 benefits recipients outside 
the continental United States are receiving approximately $49 
million a month in benefits, including $2.9 million to 5,100 
veterans and other beneficiaries in Germany, and $28 million to 
42,000 veterans and other beneficiaries in Puerto Rico.
    To date, the Philippines Benefit Review has resulted in 
cost savings to VA of approximately $2.5 million in 
overpayments, and a projected 5-year cost avoidance of over $21 
million. The Committee believes that these investigations of 
fraud outside the continental United States should be 
aggressively pursued and intends to continue its oversight of 
them. No legislative action is recommended by the Department to 
address this issue.

                IMPROVING VOCATIONAL REHABILITATION DATA

    VA's Vocational Rehabilitation and Employment Program 
provides services and assistance necessary to enable veterans 
with service-connected disabilities to become employable and 
obtain suitable employment. This program also helps certain 
veterans with service-connected disabilities achieve functional 
independence in daily activities. Program performance against 
these outcomes is measured by the rehabilitation rate, which is 
defined as the number of veterans who were rehabilitated during 
a period of time compared to the total number that left the 
program during that period. VA's Annual Accountability Report 
for FY 2000 showed the rehabilitation rate for the year was 65 
percent, which exceeded the goal of 60 percent.
    On February 6, 2003, the Office of Inspector General 
released a report, Accuracy of VA Data Used to Compute the 
Rehabilitation Rate for Fiscal Year 2000, Report No. 01-01613-
52, that showed the data used to compute the rehabilitation 
rate for fiscal year 2000 was not accurate. The counseling, 
evaluation and rehabilitation folders of 94 randomly selected 
veterans were reviewed for fiscal year 2000. The audit revealed 
that 7 of the 94 veterans left the program during prior or 
subsequent years and should not have been included in the 
computation of the rehabilitation rate that fiscal year. Of the 
remaining veterans in the sample, 57 were classified as 
rehabilitated and 30 were classified as discontinued. Based on 
the evidence in the veterans' folders, the IG determined that 
VA regional office personnel incorrectly classified 15 of 57 
veterans as rehabilitated. However, no errors occurred among 
the 30 decisions to classify veterans as discontinued. VA 
officials could not readily explain the reasons for the 
discrepancies. They speculated that pressure to achieve the 
performance measure target for therehabilitation rate may have 
influenced the inappropriate decisions to declare veterans 
rehabilitated.
    The IG could not estimate the actual rehabilitation rate 
the program achieved for fiscal year 2000, because regional 
office personnel did not timely classify veterans as 
rehabilitated or discontinued. As a result, an unknown number 
of veterans were improperly excluded from the total number of 
veterans who left the program during the year. Because of the 
significant discrepancies identified, the IG could not attest 
to the accuracy of the rehabilitation rate included in VA's 
Annual Accountability Report for FY 2000.
    The IG recommended additional training for regional office 
personnel who make classification decisions and improved 
supervisor accountability. Additionally, the IG recommended 
strengthened oversight of VA regional office personnel to 
ensure that classification decisions are timely and accurate. 
The Under Secretary for Benefits concurred with the IG's 
recommendations and provided acceptable implementation plans.
    Other accuracy problems in VA's vocational rehabilitation 
program have also been identified. On January 31, 2003, the VA 
released its FY 2002 Performance and Accountability Report. 
Part of this report addressed accuracy of outcome decisions and 
accuracy of evaluation and planning services for veterans 
applying for vocational rehabilitation. In 2002, program 
managers conducted their own quality reviews on 3,243 
vocational rehabilitation cases. The survey found a 19 percent 
error rate in rehabilitation rate outcome decisions.
    The IG report did not estimate entitlement, administrative, 
or cost implications of VA errors that resulted in an 
overstated vocational rehabilitation rate. No legislative 
action is recommended by the Department. The Committee expects 
to hold a public hearing to further examine this matter and 
provide additional oversight.

            REDUCING ERRORS IN EDUCATIONAL ASSISTANCE CLAIMS

    The VA's FY 2002 Performance and Accountability Report 
noted quality assurance deficiencies in education claims. Of 
the 1,541 cases reviewed, 100 had payment errors and 340 had 
service errors (some cases had more than one service error). 
Payment errors mean the monthly educational assistance 
allowances of beneficiaries are being underpaid or overpaid. 
Service errors largely deal with eligibility and entitlement 
determinations. Within the category of service errors, 
development and due process notification errors were 21 and 22 
percent, respectively. The Committee finds these error rates 
unacceptable. For 2001 and 2002, payment accuracy remained 
virtually the same, 92.0 percent and 92.6 percent, 
respectively. The report noted that VA must continue periodic 
refresher training in these areas until improvement is shown.
    The accountability and performance report also noted 
workforce challenges. In fiscal year 2002, the VA Education 
Service employed 864 Full-Time Equivalent Employees (FTEE) in 
administering its programs for about 465,000 veterans, active-
duty servicemembers, reservists, and survivors/dependents. 
About 50 percent of the education adjudicators were trainees at 
the beginning of fiscal year 2002, although turnover decreased 
during the year. The VA Education Service is developing 
standardized training for its employees. The first phase, 
covering claims processing tasks, will be completed in the 
summer of 2003.
    The Committee notes that the report did not estimate the 
amount that could be saved by reduction of payment errors in 
education claims. However, the report showed that VA obligated 
$1.77 billion in this program during fiscal year 2002 and the 
Committee believes that the savings could be substantial. The 
Committee plans continued close oversight of the Department's 
efforts to reduce error rates in its educational assistance 
claims. No legislative action is recommended by the Department 
to address this issue.

                    PREVENTING PENSION OVERPAYMENTS

    VA's improved pension program provides financial assistance 
based upon need to certain wartime veterans with disabilities 
not related to military service. This needs-based program has 
an income limitation, and it is designed to pay benefits on a 
graduated scale whereby the person with the least amount of 
income, and therefore with the greater need, receives the 
greater amount of pension. There are income exclusions in 
determining a person's income for pension purposes, including 
the exclusion of certain unreimbursed medical expenses. At the 
request of the Under Secretary for Benefits, the IG conducted 
an audit of beneficiaries receiving increased benefits as a 
result of unreimbursed medical expense claims. The objectives 
were to: (1) evaluate the effectiveness and efficiency of 
Veterans Benefits Administration (VBA) procedures for 
verification of these claims; (2) identify the extent of 
unsupported claims and processing errors; (3) determine the 
extent of any potential program fraud; and (4) determine causes 
and identify solutions for deficiencies.
    During fiscal year 2001, VA paid $2.9 billion in pension 
benefits to 507,149 veterans and their survivors. On September 
30, 2002, the Office of Inspector General released a report, 
Audit of Veterans Benefits Administration Benefit Payments 
Involving Unreimbursed Medical Expense Claims, Report No. 00-
00061-169. The audit found that some pension beneficiaries are 
inappropriately submitting unreimbursed medical expense claims, 
significantly increasing the level of benefit payments. The IG 
reported that processing errors and potential program fraud 
have occurred because regional offices are not effectively 
managing the processing of these claims.
    Erroneous benefit payments occurred due to the following:

Overpayments

    1. Medicare (Part B) premiums expenses were claimed, but 
not actually paid.
    2. Income and net worth were not properly reported.
    3. Continuing Medical Expense Deductions--expenses allowed 
prospectively if they are recurring or reasonably predictable 
(i.e., nursing home fees)--were not properly adjusted to 
reflect actual lower costs.
    4. Claimed nursing home costs were not reduced for Medicaid 
reimbursements.
    5. Other processing errors occurred because claims were not 
fully developed or mathematical errors were made in computing 
them.

Underpayments

    1. Medicare (Part B) premiums paid were not properly 
claimed or adjusted by VBA to reflect increases in annual 
expenses.
    2. Claims were not fully developed or mathematical errors 
were made in computing claim amounts.

Potential Program Fraud

    1. Income, net worth or unreimbursed medical expenses were 
not properly reported.
    2. Claims were for expenses that had already been 
reimbursed.
    3. Veterans' deaths were not timely reported to VA, and not 
all pension checks were returned.
    According to the IG, processing errors and potential 
program fraud annually result in overpayments of up to $124.7 
million and underpayments of up to $19.9 million. The Under 
Secretary for Benefits provided acceptable implementation plans 
to the IG. The Committee will continue oversight of the VA 
pension program to ensure the issues of processing errors and 
program fraud are adequately addressed. No legislative action 
is recommended by the Department to address these issues.

      IMPROVING CAPABILITY OF THE OFFICE OF THE INSPECTOR GENERAL

    The Committee notes that the VA Office of Inspector General 
is the smallest of the statutory Inspectors General relative to 
the size of the parent agency. The IG has a proven record 
resulting in savings for the VA by elimination of waste, fraud, 
abuse and management inefficiencies by finding meaningful cost 
avoidance opportunities. For every dollar invested in the IG, 
the Department realizes savings or cost avoidance estimated at 
thirty dollars. Committee efforts resulted in increased IG 
capabilities, with an additional 92 FTEE authorized in 2003, 
and should result in annual savings of over $180 million VA-
wide.
                          House of Representatives,
                               Committee on Ways and Means,
                                 Washington, DC, September 9, 2003.
Hon. Jim Nussle,
Chairman, Committee on the Budget,
309 Cannon House Office Building, Washington, DC.
    Dear Chairman Nussle: As required by the Conference Report 
accompanying the budget resolution for fiscal year 2004, and in 
response to your letter dated May 20, 2003, this letter is 
intended to discuss waste, fraud, and abuse identified within 
the jurisdiction of the Committee on Ways and Means. The 
Committee strongly believes that it has an important 
responsibility to ensure that all government services are 
provided efficiently, accurately, and honestly. Too often, 
revenues collected from taxpayers are misused and poorly 
handled. We have a responsibility to all Americans to work to 
minimize this waste, fraud and abuse.
    The Committee has made significant progress during the 
108th Congress both to identify and eliminate waste, fraud, and 
abuse. This includes holding six hearings and favorably 
reporting legislation.
Hearings
    The Committee held a hearing on July 17th to investigate 
the issue of waste, fraud, and abuse in programs under the 
Committee's jurisdiction. At that hearing, we received 
testimony from seven witnesses including the U.S. General 
Accounting Office (GAO) Comptroller General, witnesses from the 
U.S. Department of Justice, Social Security Administration 
(SSA), and Internal Revenue Service (IRS), as well as three 
outside experts.
    In addition, various Subcommittees have held hearings 
during this Congress to examine specific instances of waste, 
fraud, and abuse. On February 27th, the Subcommittee on Social 
Security held a hearing on H.R. 743, the ``Social Security 
Protection Act of 2003,'' a bill introduced by Chairman Shaw to 
protect individuals from benefit misuse by representative 
payees and to eliminate various instances of waste, fraud, and 
abuse in Social Security programs. On July 10th, the 
Subcommittee on Social Security held a hearing on the use and 
misuse of Social Security numbers and examined how criminals 
commit identity theft and perpetrate fraud by misappropriating 
Social Security numbers.
    On June 19th, the Subcommittee on Human Resources and the 
Subcommittee on Oversight held a joint hearing on Unemployment 
Compensation (UC) fraud and abuse issues, specifically focusing 
on underpayment of State unemployment taxes through a process 
known as ``SUTA dumping.'' In addition, in response to a 
request from Subcommittee on Human Resources Chairman Herger, a 
July 2003 GAO report detailed ongoing Supplemental Security 
Income (SSI) residency violations and possible measures to 
address this problem. Between 1997 and 2001, SSA detected 
overpayments of $118 million attributable to residency 
violations.
    The Subcommittee on Health held a hearing on February 13th 
on Medicare Regulatory and Contracting Reform. Regulatory 
reform reduces waste, fraud, and abuse by providing regulatory 
relief to healthcare providers and modernizing Medicare's 
contracting processes. On March 4th, the Subcommittee on Health 
held a hearing on the recommendations from the Medicare Payment 
Advisory Commission, many of which are cost-saving proposals.
Legislative Action
    This year, the Committee has taken legislative action on a 
number of measures to protect taxpayer money.
    On February 13th, the House passed H.R. 4, the ``Personal 
Responsibility, Work, and Family Promotion Act of 2003.'' This 
welfare reform bill protects against waste, fraud, and abuse by 
making better use of data and other resources. A provision 
allowing all States access to the National Directory of New 
Hires database for purposes of more effectively providing 
unemployment benefits would save $70 million over 10 years. 
Another provision increasing the share of SSI eligibility 
determinations subject to reevaluation would save an additional 
$1.4 billion over 10 years.
    On March 13th, the Committee reported H.R. 743, the 
``Social Security Protection Act of 2003.'' This bill, passed 
by the House on April 2nd, reduces waste, fraud, and abuse by 
denying Social Security benefits to fugitive felons and parole 
violators and expanding the SSA's ability to punish and deter 
perpetrators of fraud through new civil monetary penalties. In 
addition, the bill would close the loophole that allows some 
government workers to avoid the Government Pension Offset among 
other provisions. The Congressional Budget Office estimates 
that H.R. 743 would save $655 million over 10 years.
    On April 2nd, the Committee reported H.R. 810, the 
``Medicare Regulatory and Contracting Reform Act of 2003.'' 
This bill would reduce waste, fraud, and abuse by streamlining 
the regulatory bureaucracy in the Centers for Medicare and 
Medicaid Services (CMS) to create a more collaborative working 
relationship between providers, beneficiaries, and CMS.
    Finally, on June 27th the House passed H.R. 1, the 
``Medicare Prescription Drug and Modernization Act of 2003'' 
which would reduce waste, fraud, and abuse by $31 billion over 
the next 10 years. This legislation reforms the Medicare 
secondary payor system to halt improper billing practices, 
fixes the Medicare payment system for outpatient prescription 
drugs, and subjects payment for durable medical equipment and 
off-the-shelf orthotics to competitive bidding.
Identified Waste, Fraud, and Abuse
    Through our hearings, the Committee has identified the 
following examples of waste, fraud, and abuse in programs under 
our jurisdiction.
    Social Security: In addition to enacting H.R. 743, the 
``Social Security Protection Act of 2003,'' as described above, 
the Committee also believes that Congress could reduce waste, 
fraud, and abuse in the Disability Insurance (DI) program and 
the SSI program by fully funding Continuing Disability Reviews 
(CDRs) and SSI non-disability redeterminations through the 
discretionary appropriations process. These reviews allow the 
SSA to cease benefits for individuals who no longer meet 
eligibility criteria. The SSA estimates that the DI trust funds 
save up to $9 for each $1 invested in a CDR and that $7 in 
general revenue savings results from every $1 invested in SSI 
redeterminations. Finally, the Committee will continue to 
pursue legislation to curtail the misuse of Social Security 
numbers.
    Human Resources: As described above, enacting H.R. 4, the 
``Personal Responsibility, Work, and Family Promotion Act of 
2003'', would reduce waste, fraud, and abuse by $1.4 billion 
over the next 10 years. The Committee also is concerned about 
continuing waste, fraud, and abuse in the SSI and UC programs. 
The SSA Inspector General testified on July 17th that 
overpayments in the SSI program totaled an estimated $2 billion 
in fiscal year 2002 alone. Similarly, written testimony 
submitted by the Inspector General of the U.S. Department of 
Labor highlighted an estimated $3.4 billion in unemployment 
benefit overpayments in fiscal year 2002 as an area of concern.
    Tax Policy: The Committee is concerned about tax 
noncompliance problems involving individual and corporate 
taxpayers. At the Committee's July 17th hearing, numerous 
examples of noncompliance were discussed. The Committee 
examined the IRS's efforts to improve its identification of 
specific taxpayer groups considered ``high risk'' as well as 
the IRS's plans to develop audit strategies to better target 
known and likely abuses in our tax system. Also at the hearing, 
the Committee discussed the benefits of tax simplification. The 
Committee and its Subcommittee on Oversight will continue to 
monitor IRS's efforts in this regard and develop legislation to 
address tax noncompliance as necessary.
    Medicare: As described above, enacting H.R. 1, the 
``Medicare Prescription Drug and Modernization Act of 2003'', 
as passed by the House, would reduce waste, fraud, and abuse by 
over $31 billion during the next 10 years.
    The Committee on Ways and Means will continue to pursue 
opportunities to identify and reduce waste, fraud, and abuse 
and work to improve the efficiency and fairness of the tax code 
and all programs under the Committee's jurisdiction.
            Best regards,
                                               Bill Thomas,
                                                          Chairman.