[Senate Report 112-181]
[From the U.S. Government Publishing Office]


112th Congress  }                                           {    Report
  2d Session    }            SENATE                         {   112-181
_______________________________________________________________________
                                                       Calendar No. 449
 
   IMPROPER PAYMENTS ELIMINATION AND RECOVERY IMPROVEMENT ACT OF 2011 

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 1409

 TO INTENSIFY EFFORTS TO IDENTIFY, PREVENT, AND RECOVER PAYMENT ERROR, 
            WASTE, FRAUD, AND ABUSE WITHIN FEDERAL SPENDING

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                 July 12, 2012.--Ordered to be printed



        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
       Beth M. Grossman, Deputy Staff Director and Chief Counsel
                        Kenya N. Wiley, Counsel
  Peter P. Tyler, Professional Staff Member, Subcommittee on Federal 
                         Financial Management,
 Government Information, Federal Services, and International Security 
               Nicholas A. Rossi, Minority Staff Director
           J. Kathryn French, Minority Deputy Staff Director
                  Trina Driessnack Tyrer, Chief Clerk










                                                      Calendar No. 449
112th Congress  }                                           {    Report
  2d Session    }             SENATE                        {   112-181               =======================================================================

   IMPROPER PAYMENTS ELIMINATION AND RECOVERY IMPROVEMENT ACT OF 2011

                                _______
                                

                 July 12, 2012.--Ordered to be printed

                                _______
                                

Mr. Lieberman, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 1409]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 1409) to intensify 
efforts to identify, prevent, and recover payment error, waste, 
fraud, and abuse within Federal spending, having considered the 
same, reports favorably thereon with an amendment in the nature 
of a substitute and recommends that the bill, as amended, do 
pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................4
 IV.  Section-by-Section Analysis.....................................4
  V. Evaluation of Regulatory Impact..................................7
 VI. Congressional Budget Office Estimate.............................8
VII. Changes in Existing Law Made by the Bill, as Reported...........10

                         I. Purpose and Summary

    Each year, the Federal government makes billions of dollars 
in ``improper payments''--funds sent to the wrong recipient, 
checks written for the wrong amount, or government money going 
for an improper purpose. S. 1409 seeks to prevent the loss of 
these taxpayer dollars by intensifying agencies' efforts to 
prevent, identify, and recover improper payments. The Act 
directs the Office of Management and Budget (OMB) to issue new 
guidance to agencies to enable them to better estimate and 
thereby understand the scope of the improper payment problem. 
The Act also establishes a ``Do Not Pay Initiative'' to help 
federal agencies easily identify entities to which it should 
not make payments, and it directs OMB to work with other 
agencies and stakeholders to curb improper payments made to 
deceased individuals. Finally, the Act requires the federal 
government to establish a set of Recovery Audit Contracting 
pilot programs through which private companies will help 
identify improper payments made by agencies.

              II. Background and Need for the Legislation

    Federal agencies began to deal comprehensively with 
improper payments following the enactment of the Improper 
Payments Information Act of 2002 (IPIA),\1\ which required each 
agency subject to the requirements of the Chief Financial 
Officers Act of 1990\2\ to annually review all programs and 
activities that it administers, identify all such programs and 
activities that may be susceptible to significant improper 
payments, develop improper payments estimates for those 
programs deemed susceptible, and report the estimates annually. 
Congress revisited the issue in July 2010, with the enactment 
of the Improper Payments Elimination and Recovery Act of 2010 
(IPERA).\3\ This law amended IPIA by expanding on the previous 
requirements for identifying, estimating, and reporting on 
programs and activities susceptible to significant improper 
payments, and expanding requirements for recovering 
overpayments across a broad range of federal programs.
---------------------------------------------------------------------------
    \1\Pub. Law 107-300.
    \2\Public Law 101-576. Section 901 of the CFO Act specifies the 
agencies subject to its mandate.
    \3\Pub. Law 111-204.
---------------------------------------------------------------------------
    As with IPIA, IPERA requires agencies to identify programs 
that are susceptible to significant improper payments and, for 
those programs, estimate the annual amount of improper payments 
and submit those estimates to the Congress and the public. 
IPERA also added a requirement that any program with estimated 
improper payments exceeding specific dollar amounts and error 
rate thresholds set out in the law must report on the actions 
the agency is taking to reduce improper payments. The law also 
requires improper payment recovery audits for all programs with 
annual expenditures greater than $1 million. The law specifies 
that agencies can direct recovered funds to pay for a variety 
of efforts aimed at ensuring better administration of its 
programs. IPERA also includes incentives and budgetary 
penalties for programs that fail to comply with the 
requirements of the law over a reasonable number of years.
    According to the Government Accountability Office (GAO), 
federal agencies reported an estimated $125.4 billion in 
improper payments in fiscal year 2010, an increase of about $16 
billion over the fiscal year 2009 estimate of $109.2 
billion.\4\ The fiscal year 2010 estimate represents about 5.5 
percent of the $2.3 trillion of reported outlays for the 
related programs. The $125.4 billion in improper payments in 
fiscal year 2010 comes from over 70 programs spread among 20 
federal agencies. An overwhelming majority of the $125.4 
billion of reported improper payments came from just 10 
programs, which account for about $118 billion or 94 percent of 
the total estimated improper payments reported for fiscal year 
2010.\5\ It is worth noting that these figures probably 
underestimate the problem; seven high risk programs, which 
almost certainly make some improper payments, still are not 
reporting improper payment estimates.\6\
---------------------------------------------------------------------------
    \4\GAO, Status of Fiscal Year 2010 Federal Improper Payments 
Reporting, GAO-11-443R, March 25, 2011.
    \5\The ten programs are: Federal Student Aid-Pell Grants, National 
School Lunch Program, Supplemental Nutrition Assistance Program, Old 
Age and Survivor's Insurance, Supplemental Security Income Program, 
Medicare Advantage, Earned Income Tax Credit, Unemployment Insurance, 
Medicaid, Medicare Fee-For-Service.
    \6\The seven high risk programs not reporting improper payment 
estimates are: Department of Education--Federal Family Education Loan 
Program; Department of Health and Human Services--Temporary Assistance 
for Needy Families; Department of Health and Human Services--Medicare 
Prescription Drug Benefit; Department of Health and Human Services--
Children's Health Insurance Program; Federal Communications 
Commission--High-Cost Support Program; Federal Communications 
Commission--Low-Income Program; Federal Communications Commission--
Schools and Libraries.
---------------------------------------------------------------------------
    Although the existing statutes and executive actions have 
made important strides in addressing improper payment rates, 
federal agencies continue to make a substantial amount of 
improper payments. Further, not all agencies are making robust 
and complete estimates of improper payments. For example, the 
DOD Office of Inspector General completed an audit describing 
the Department's need for improved estimates.\7\ The GAO made 
similar comments regarding DOD.\8\
---------------------------------------------------------------------------
    \7\``DOD Needs to Improve High Dollar Overpayment Review and 
Reporting,'' D-2011-050, March 16, 2011, DOD Office of Inspector 
General.
    \8\``Improper Payments: Progress Made but Challenges Remain in 
Estimating and Reducing Improper Payments,'' GAO, April 22, 2009.
---------------------------------------------------------------------------
    On May 25, 2011, the Committee's Federal Financial 
Management Subcommittee held a hearing to examine the improper 
payments issue and to explore whether additional measures are 
needed to address the problem.\9\ Daniel I. Werfel, OMB's 
Comptroller, discussed the Administration's improper payments 
estimates and offered the Administration's view on the root 
causes of the improper payment problem. He also described the 
implementation of IPERA. Mr. Werfel, along with Richard L. 
Gregg, Fiscal Assistant Secretary from the Department of 
Treasury, detailed an Administration initiative, outlined in an 
Executive Memorandum, to screen all federal payments before 
they are made.\10\ Calvin L. Scovel III, Vice Chairman of the 
Recovery Accountability and Transparency Board (an entity 
established as part of the American Recovery and Reinvestment 
Act to examine Recovery Act spending) testified about the 
Board's history in detecting and preventing fraudulent 
payments. Kelly Croft, Deputy Commissioner for Systems at the 
Social Security Administration, and Robert F. Hale, Comptroller 
of DOD, described improper payments issues arising in their 
respective agencies, as well as opportunities for improving the 
detection, prevention, and recovery of improper payments.
---------------------------------------------------------------------------
    \9\``Assessing Efforts to Eliminate Improper Payments, May 25th, 
2011; http://hsgac.senate.gov/public/
index.cfm?FuseAction=Hearings.Hearing&Hearing_id=7dd2c4ec-1fee-4117-
8efd-f0.277206607
    \10\``Presidential Memorandum--Enhancing Payment Accuracy Through a 
`Do Not Pay List','' The White House, June 18th, 2010, http://
www.whitehouse.gov/the-press-office/presidential-memorandum-enhancing-
payment-accuracy-through-a-do-not-pay-list.
---------------------------------------------------------------------------
    S. 1409 reflects the lessons learned through the May 2011 
hearing, as well as the Committee's other ongoing oversight in 
the area. The bill directs the OMB to issue new guidance to 
agencies to enable them to better estimate and thereby 
understand the scope of the improper payment problem. The Act 
also establishes a ``Do Not Pay Initiative'' to help federal 
agencies more easily identify entities to which it should not 
make payments, and it directs OMB to work with other agencies 
and stakeholders to curb improper payments made to deceased 
individuals. Finally, the Act requires the federal government 
to establish a set of Recovery Audit Contracting pilot programs 
through which private companies will help identify improper 
payments made by agencies.

                        III. Legislative History

    S. 1409 was introduced by Senators Carper, Collins, 
Lieberman, and Scott Brown on July 22, 2011, and referred to 
the Committee.
    The Committee considered S. 1409 at a business meeting on 
October 19, 2011. The Committee adopted by voice vote a 
substitute amendment offered by Senators Carper, Collins, 
Lieberman, and Brown. Members present for the vote on the 
substitute were Senators Lieberman, Akaka, Carper, Pryor, 
McCaskill, Begich, Collins, Brown, and Johnson. The Committee 
then voted to report the bill, again by voice vote. Members 
present for the vote on the bill were Senators Lieberman, 
Akaka, Carper, Pryor, McCaskill, Begich, Collins, Brown, and 
Johnson.
    The substitute amends S. 1409 to make several substantive 
improvements. Some of the definitions of Section 2 were 
clarified. The language in Section 3 that requires more 
consistent estimates of improper payments was modified for 
purposes of clarity, and to more closely address the 
recommendations of both the Government Accountability Office 
and Inspectors General. The requirement of the original 
language to develop a database of incarcerated individuals was 
changed to become a requirement to report on recommendations 
for such a database. The requirement for a plan by OMB to 
develop potential statutory recommendations for implementing 
the ``Do Not Pay Initiative'' was modified to, in addition, 
place in statute allowing multilateral data use agreements. 
Finally, there were some small modifications to the description 
of databases and types of Recovery Audit Contracts.

                    IV. Section-by-Section Analysis


Section 1. Short title

    This section titles the bill as the ``Improper Payments 
Elimination and Recovery Improvement Act of 2012''.

Section 2. Definition

    This section defines the term ``agency'' used in the bill 
by reference to 5 U.S.C. Sec. 105, part of the Chief Financial 
Officers Act laying out the major agencies covered under 
current statutes defining executive branch agencies.

Section 3. Improving the determination of improper payments by Federal 
        agencies

    Subsection (a) amends the IPIA of 2002 by strengthening the 
identification and reporting of agency improper payments, 
including codifying an existing Executive Order on improper 
payments estimating and reporting.\11\
---------------------------------------------------------------------------
    \11\Executive Order 13520, Reducing Improper Payments, November 20, 
2009.
---------------------------------------------------------------------------
    It requires the Director of the OMB annually to identify 
high-priority programs for greater oversight and review based 
on those that have the highest dollar value or percentage of 
improper payments on a government-wide basis, or for which 
there is high risk of improper payments. For these programs, 
OMB, in conjunction with the agency identified as having a 
high-priority program or programs, would establish annual 
targets, and semi-annual or quarterly actions, for reducing 
improper payments.\12\
---------------------------------------------------------------------------
    \12\Executive Order 13520, Sec. 2(a).
---------------------------------------------------------------------------
    In addition, agencies would be required to report annually 
to their Inspectors General and make available to the public a 
report on any high-dollar improper payments identified by the 
agency.\13\ This public disclosure would occur in compliance 
with existing privacy policies and would not include referrals 
to the Department of Justice. These reports would also include 
action planned or taken by the agency to recover improper 
payments and would be made public by OMB on a central, publicly 
available website. Upon submission of these reports, the 
Inspector General would (1) review the risk level associated 
with the program, including the quality of the improper 
payments estimates and the methodology used by the agency; 2) 
assess the adequacy of financial controls to identify and 
prevent improper payments; and 3) make recommendations to the 
agency, including those regarding the improper payments 
determination and estimation methodology.
---------------------------------------------------------------------------
    \13\Executive Order 13520, Sec. 3(f).
---------------------------------------------------------------------------
    Subsection (b) would require the OMB Director to provide 
guidance to federal agencies for improving agency estimates of 
improper payments not later than 180 days after enactment. This 
requirement is intended to strengthen the estimation process by 
having OMB set standards to ensure the underlying validity of 
sampled payments, including by: 1) instructing agencies to give 
persons or entities performing improper payments estimates 
access to all necessary payment data, including relevant 
documentation; 2) explicitly barring agencies from basing 
estimates solely on self-reporting by the sub-agencies that 
made the payments or outside contractors who received the 
payments; 3) reporting all overpayments regardless of whether 
they have been recovered; 4) capturing payments to employees, 
including salary, locality pay, travel pay, purchase card use, 
and other employee payments, subjecting them to risk 
assessments and including them in the improper payment 
estimation where appropriate; and 5) requiring agencies to 
tailor corrective action for high-priority programs to better 
reflect the unique procedures, processes, and risks of each 
program.
    Subsection (c) provides for technical and conforming 
amendments to IPERA.

Section 4. Improper payments information

    This section would provide for a technical correction to 
IPERA that has already been addressed in guidance by OMB.\14\ 
This correction would require that, beginning in fiscal year 
2014 and in each fiscal year thereafter, agencies subject to 
IPERA are required to report programs with improper payments of 
$10 million annually or that represent 1.5 percent of program 
outlays, or programs with improper payments over $100 million. 
The date in the enacted legislation was incorrect, and the 
technical correction conforms IPERA to Congressional intent.
---------------------------------------------------------------------------
    \14\M-11-16, Part I (A).
---------------------------------------------------------------------------

Section 5. Do Not Pay Initiative

    Subsection (a) establishes the Do Not Pay Initiative, which 
would require prepayment and contract award screening against 
databases containing relevant information on payees to verify 
eligibility and prevent improper payments. The subsection 
requires that each agency review its prepayment and pre-award 
procedures and ensure a thorough review of available databases 
containing relevant information on payee eligibility in order 
to determine payment or award eligibility and prevent improper 
payments. At a minimum, before payment and award, agencies 
would check as appropriate the: (1) Social Security 
Administration's Death Master File; (2) General Services 
Administration's Excluded Parties List System; (3) Debt Check 
Database of the Department of the Treasury; (4) Credit Alert 
System or Credit Alert Interactive Voice Response System of the 
Department of Housing and Urban Development; and (5) List of 
Excluded Individuals/Entities of the Office of Inspector 
General of the Department of Health and Human Services.
    Subsection (b) requires OMB to establish a Do Not Pay 
Initiative comprised of the databases above, and other 
databases as designated by the OMB Director, which may assist 
in preventing improper payments. Each agency would have access 
to and use the Do Not Pay Initiative for pre-payment and pre-
award screening once the OMB Director determines its 
appropriateness for use by the agency. When using the Do Not 
Pay Initiative, agencies should recognize that there may be 
circumstances under law that require payment(s) or award(s) be 
made to a recipient, irrespective of whether that recipient is 
on the Do Not Pay Initiative.
    Subsection (c) requires that within 60 days of enactment, 
the OMB Director must provide Congress with a plan for 
including other databases in the Do Not Pay Initiative, 
establishing lawful agency access to the databases, and 
creating a multilateral data use agreement setting parameters 
for database access between relevant agencies.
    Subsection (d) requires OMB to establish the initial Do Not 
Pay Initiative system within 90 days of enactment. The initial 
system may be located within an appropriate agency, shall 
include at least three participating agencies, and must include 
investigation activities for fraud and systemic improper 
payment detection through analytic technologies, which may 
include commercial database use or access. Each agency would be 
required to review all of its payments and awards through the 
Do Not Pay Initiative no later than January 1, 2013.
    Subsection (e) requires that within 60 days of enactment, 
OMB shall establish a plan for executing multilateral data use 
agreements for the Do Not Pay Initiative, including access to 
the New Hires Database (a database maintained by the U.S. 
Department of Health and Human Services and that includes 
specific employment information) and other databases. The 
subsection amends the Privacy Act to allow for the multilateral 
data use agreements between and among federal agencies. 
Currently, that Act only allows bilateral agreements between 
two agencies. The subsection requires multilateral data use 
agreements to include regulations and guidelines that ensure 
data access, as well as transfer and storage of data in a 
manner consistent with relevant privacy, security, and 
disclosure laws. The OMB Director would be required to consult 
with the Council of Inspectors General on Integrity and 
Efficiency, the Secretary of Health and Human Services, the 
Social Security Administrator, and other agency heads as 
appropriate.
    Subsection (f) requires that within one year of enactment, 
the Attorney General would submit to Congress recommendations 
for increasing the use of, access to, and technical feasibility 
of using Federal, State, and local conviction and incarceration 
databases to determine the incarceration status of individuals 
in order to identify and prevent improper payments.
    Subsection (g) requires the OMB Director, in consultation 
with stakeholders, States, and the Social Security 
Administrator, to establish a plan for improving the quality 
and timeliness of death data maintained by the Social Security 
Administration. The plan must include actions to increase the 
quality and frequency of access by agencies, including a goal 
of at least once-daily access. It must also provide for 
improved electronic means of accessing and providing data. The 
plan must also address potential proactive steps for 
identifying improper payments to deceased individuals, as well 
as address specific issues relevant to federal retirement 
programs. Within 120 days of enactment, the OMB Director must 
report to Congress on the plan.

Section 6. Improving recovery of improper payments

    Subsection (a) requires the OMB Director to determine 
current and historical rates and amounts of improper payment 
recovery by audit contractors, and identify numerical or 
percentage targets for recovering improper payments.
    Subsection (b) requires the OMB Director, within 90 days of 
enactment, to establish and implement a plan for no fewer than 
ten recovery audit contracting programs at ten agencies. The 
ten programs must represent programs of varying size, payment 
types, and recipient types. These programs must become 
operational within one year of the plan establishment and be 
conducted for three years. Within two years of establishment, 
the agency head conducting the program would be required to 
report to Congress regarding the program's impact on savings 
and recoveries, and provide recommendations to extend or expand 
the program.

                   V. Evaluation of Regulatory Impact

    Pursuant to the requirement of paragraph 11(b)(1) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill and has 
determined that the bill will have no regulatory impact within 
the meaning of the rule. The Committee agrees with CBO's 
statement that the bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act and would impose no costs on state, local, or tribal 
governments.

             VI. Congressional Budget Office Cost Estimate


S. 1409--Improper Payments Elimination and Recovery Improvement Act of 
        2011

    Summary: S. 1409 would amend federal law to require federal 
agencies to expand their efforts to identify, recover, and 
prevent improper payments (including overpayments, 
underpayments, payments that were not adequately documented, 
and fraudulent payments). The legislation would require the 
Office of Management and Budget (OMB) to provide guidance, 
oversight, and review of agencies' efforts to manage improper 
payments. S. 1409 also would establish additional 
responsibilities for agencies and require them to operate 
Recovery Audit Contracting (RAC) programs.
    Based on information from federal agencies, CBO estimates 
that implementing S. 1409's new requirements to identify, 
recover, and prevent improper payments would cost $735 million 
over the 2013-2017 period, subject to appropriation of the 
necessary funds. CBO expects that conducting RAC programs would 
lead to net recoveries that would exceed the costs of operating 
the programs, with net savings for the federal government that 
would probably be several million dollars. However, the savings 
cannot be attributed to S. 1409 because of long-standing rules 
established by the Congress for estimating the effects of 
proposed legislation that could generate programmatic savings 
stemming from new authority for administrative activity. 
Enacting S. 1409 would not affect direct spending or revenues; 
therefore, pay-as-you-go procedures do not apply.
    S. 1409 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 1409 is shown in the following table. 
The costs of this legislation fall within most budget 
functions.

----------------------------------------------------------------------------------------------------------------
                                                                 By fiscal year, in millions of dollars--
                                                         -------------------------------------------------------
                                                            2013     2014     2015     2016     2017   2013-2017
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...........................       50      245      245      195        0       735
Estimated Outlays.......................................       45      225      245      200       20       735
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that S. 
1409 will be enacted in fiscal year 2012, that the necessary 
funds will be provided for each year, and that spending will 
follow historical patterns for similar programs.
    S. 1409 would expand upon current law, Executive Order 
13520, and two Presidential memoranda to require federal 
agencies to expand their efforts to identify, recover, and 
prevent improper payments. The legislation would require that 
10 RAC pilot programs be initiated for three years. (Recovery 
auditing is a process of using contractors to review payment 
transactions and supporting data to identify and recover 
overpayments and respond to underpayments.) In addition, the 
legislation would require additional reporting by agencies and 
an expansion of the federal government's ``Do Not Pay List'' (a 
database to prevent the government from paying benefits, 
contracts, grants, and loans to ineligible people or 
organizations).
    Improper payments include payments of an incorrect amount 
(both overpayments and underpayments), to the wrong recipient, 
made without proper documentation, or for unauthorized or 
inappropriate purposes. Not all improper payments involve fraud 
or result in a loss to the federal government. The Government 
Accountability Office has reported that federal agencies 
estimate they made $115.3 billion in improper payments during 
fiscal year 2011. Just 10 federal programs accounted for 93 
percent of those improper payments.\1\
---------------------------------------------------------------------------
    \1\Those programs were: Medicare fee-for-service, Medicaid, Earned 
Income Tax Credit, Unemployment Insurance, Medicare Advantage, 
Supplemental Security Income, Old Age Survivors and Disability 
Insurance, Supplemental Nutrition Assistance, National School Lunch, 
and Medicare Prescription Drug Benefit.
---------------------------------------------------------------------------
    In 2005, the Centers for Medicare and Medicaid Services 
(CMS) started a RAC demonstration program. As part of the 
demonstration, CMS made available to recovery audit contractors 
claims from 2001 through 2007, and the contractors identified 
and corrected errors in about 0.3 percent of those claims. The 
demonstration program cost about $200 million to operate and 
returned about $695 million to the Medicare trust funds. A RAC 
program was subsequently implemented nationwide for fee-for-
service claims: over the 2008-2011 period, CMS spent about $570 
million to develop the Recovery Audit Contractor Data 
Warehouse, to improve data collection and analysis, and to pay 
for recurring costs of the contract. As a result, it recovered 
overpayments of $873 million and corrected underpayments of 
almost $160 million, for a net savings of about $140 million. 
In 2012 and subsequent years, net recoveries should exceed the 
recurring costs of the program by a larger margin as the 
nonrecurring expenditures to establish the program continue to 
produce savings.
    Assuming other agencies would have similar costs for 
establishing RAC programs, CBO expects that implementing 10 RAC 
programs would cost $735 million over the 2013-2017 period. 
This would include about $1 million annually to implement each 
of several smaller RACs and about $50 million annually per RAC 
for larger programs with improper payments, including health 
care, taxes, Social Security, unemployment, and nutrition.
    CBO also expects that, over time, net recoveries from RACs 
would exceed payments to contractors for program management 
costs. That is, net recoveries would probably exceed $735 
million. Based on the current program operated by CMS, CBO 
expects that the new RACs would incur net costs over the first 
few years for development, implementation, and administration, 
but would have net gains in later years. Net savings over time 
would depend upon the programs reviewed. CBO expects that such 
savings would likely total several million dollars over the 
2013-2017 period, but would likely be significantly less than 
the RAC program run by CMS. The current program recoups 
payments from institutions such as hospitals, skilled nursing 
facilities, and other providers, including physicians and 
suppliers of durable medical equipment. Amounts can be 
recovered by reducing future program payments to those 
institutions or by seeking reimbursement from their assets. In 
contrast, many of the new RACs would seek to recover 
overpayments to many individual beneficiaries of income support 
programs such as Disability Insurance and Supplemental 
Nutritional Assistance. Agencies may face limits on the amount 
that they can garnish from subsequent payments to such 
individuals, who are also less likely to have savings or other 
income with which to repay the federal government.
    For this cost estimate, however, CBO cannot attribute 
savings to S. 1409's RAC provisions because any such savings 
would either be contingent on future legislation or would be 
subject to Scorekeeping Guideline 14 (as established by the 
Congress and explained below). While S. 1409 would authorize 
and direct agencies to operate RAC programs, this bill would 
not provide any funds to operate those new programs. In some 
cases, the amounts necessary to operate such programs would 
stem from subsequent appropriation acts; thus, S. 1409 cannot 
be credited for achieving those savings itself. In other cases, 
a mandatory spending program might directly fund the 
administrative costs of a RAC program, but Scorekeeping 
Guideline 14 states that: ``No increase in receipts or decrease 
in direct spending will be scored as a result of provisions of 
a law that provides direct spending for administration or 
program management activities.'' Therefore, any savings that 
may result from additional spending on administrative 
activities aimed at achieving operational efficiencies cannot 
be counted (for Congressional scorekeeping purposes) as a 
direct result of the legislation providing such a funding 
source. If enacted, any expected savings attributable to the 
creation of new RAC programs would ultimately be included in 
baseline budget projections, and any savings achieved would be 
reflected in the budget data.
    Pay-As-You-Go considerations: None.
    Intergovernmental and private-sector impact: S. 1409 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no significant costs on state, 
local, or tribal governments.
    Estimate prepared by: Federal costs: David Newman, Matthew 
Pickford, and Lara Robillard; Impact on state, local, and 
tribal governments: Elizabeth Cove Delisle; Impact on the 
private sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Assistant Director 
for Budget Analysis.

       VII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 1409 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

           *       *       *       *       *       *       *


PART I--THE AGENCIES GENERALLY

           *       *       *       *       *       *       *



CHAPTER 5--ADMINISTRATIVE PROCEDURE

           *       *       *       *       *       *       *



Subchapter II--Administrative Procedure

           *       *       *       *       *       *       *



SEC. 552A. RECORDS MAINTAINED ON INDIVIDUALS.

           *       *       *       *       *       *       *


                          MATCHING AGREEMENTS

    (o) Matching Agreements.--
          (1) No record which is contained in a system of 
        records may be disclosed to a recipient agency or non-
        Federal agency for use in a computer matching program 
        except pursuant to a written agreement between the 
        source agency and the recipient agency or non-Federal 
        agency or an agreement governing multiple agencies' 
        specifying--
                  (A) the purpose and legal authority for 
                conducting the program;

           *       *       *       *       *       *       *


                      TITLE 31--MONEY AND FINANCE

                   Subtitle III--Financial Management

           CHAPTER 33--DEPOSITING, KEEPING, AND PAYING MONEY


                        Subchapter II--Payments

    Improper Payments Information Act of 2002. Act Nov. 26, 
2002, P.L. 107-300, 116 Stat. 2350; July 22, 2010, P.L. 111-
204, 2(a)-(f), 124 Stat. 2224, provides:

SECTION 1. SHORT TITLE.

           *       *       *       *       *       *       *


SEC. 2. ESTIMATES OF IMPROPER PAYMENTS AND REPORTS ON ACTIONS TO REDUCE 
                    THEM.

    (a) Identification of Susceptible Programs and 
Activities.--
          (1) * * *
          (2) * * *
          (3) Risk assessments.
                  (A) * * *
                          (i) * * *
                          (ii) [with respect to fiscal years 
                        following September 30th of a fiscal 
                        year beginning before fiscal year 2013 
                        as determined by the Office of 
                        Management and Budget,] with respect to 
                        fiscal year 2014 and each fiscal year 
                        thereafter that improper payments in 
                        the program or activity in the 
                        preceding fiscal year may have 
                        exceeded--

           *       *       *       *       *       *       *

    (b) Improving the Determination of Improper Payments.--
          (1) In general.--The Director of the Office of 
        Management and Budget shall on an annual basis--
                  (A) identify a list of high-priority Federal 
                programs for greater levels of oversight and 
                review--
                          (i) in which the highest dollar value 
                        or highest frequency of improper 
                        payments occur; or
                          (ii) for which there is a higher risk 
                        of improper payments; and
                  (B) in coordination with the agency 
                responsible for administering the high-priority 
                program, establish annual targets and semi-
                annual or quarterly actions for reducing 
                improper payments associated with each high-
                priority program.
          (2) Report on high-priority improper payments.--
                  (A) In general.--Subject to Federal privacy 
                policies and to the extent permitted by law, 
                each agency with a program identified under 
                paragraph (1)(A) on an annual basis shall 
                submit to the Inspector General of that agency, 
                and make available to the public (including 
                availability through the Internet), a report on 
                that program.
                  (B) Contents.--Each report under this 
                paragraph--
                          (i) shall describe--(I) any action 
                        the agency--
                                  (aa) has taken or plans to 
                                take to recover improper 
                                payments; and
                                  (bb) intends to take to 
                                prevent future improper 
                                payments; and
                          (ii) shall not include any referrals 
                        the agency made or anticipates making 
                        to the Department of Justice, or any 
                        information provided in connection with 
                        such referrals.
                  (C) Public availability on central website.--
                The Office of Management and Budget shall make 
                each report submitted under this paragraph 
                available on a central website.
                  (D) Availability of information to inspector 
                general.--Subparagraph (B)(ii) shall not 
                prohibit any referral or information being made 
                available to an Inspector General as otherwise 
                provided by law.
                  (E) Assessment and recommendations.--The 
                Inspector General of each agency that submits a 
                report under this paragraph shall--
                          (i) review--
                                  (I) the assessment of the 
                                level of risk associated with 
                                the applicable program, and the 
                                quality of the improper payment 
                                estimates and methodology of 
                                the agency; and
                                  (II) the oversight or 
                                financial controls to identify 
                                and prevent improper payments; 
                                and
                          (ii) provide recommendations, for 
                        modifying any plans of the agency, 
                        including improvements for improper 
                        payments determination and estimation 
                        methodology;

           *       *       *       *       *       *       *

    [b] (c) Estimation of Improper Payments.--With respect to 
each program and activity identified under subsection (a), the 
head of the relevant agency shall--
          (1) produce a statistically valid estimate, or an 
        estimate that is otherwise appropriate using a 
        methodology approved by the Director of the Office of 
        Management and Budget, of the improper payments made by 
        each program and activity; and
          (2) include those estimates in the accompanying 
        materials to the annual financial statement of the 
        agency required under section 3515 of title 31, United 
        States Code, or similar provision of law and applicable 
        guidance of the Office of Management and Budget.
    [c] (d) Reports on Actions To Reduce Improper Payments.--
With respect to any program or activity of an agency with 
estimated improper payments under subsection [(b)] (c), the 
head of the agency shall provide with the estimate under 
subsection [(b)] (c) a report on what actions the agency is 
taking to reduce improper payments, including--
          (1) a description of the causes of the improper 
        payments, actions planned or taken to correct those 
        causes, and the planned or actual completion date of 
        the actions taken to address those causes;
          (2) in order to reduce improper payments to a level 
        below which further expenditures to reduce improper 
        payments would cost more than the amount such 
        expenditures would save in prevented or recovered 
        improper payments, a statement of whether the agency 
        has what is needed with respect to--
                  (A) internal controls;
                  (B) human capital; and
                  (C) information systems and other 
                infrastructure;
          (3) if the agency does not have sufficient resources 
        to establish and maintain effective internal controls 
        under paragraph (2)(A), a description of the resources 
        the agency has requested in its budget submission to 
        establish and maintain such internal controls;
          (4) program-specific and activity-specific improper 
        payments reduction targets that have been approved by 
        the Director of the Office of Management and Budget; 
        and
          (5) a description of the steps the agency has taken 
        to ensure that agency managers, programs, and, where 
        appropriate, States and localities are held accountable 
        through annual performance appraisal criteria for--
                  (A) meeting applicable improper payments 
                reduction targets; and
                  (B) establishing and maintaining sufficient 
                internal controls, including an appropriate 
                control environment, that effectively--
                          (i) prevent improper payments from 
                        being made; and
                          (ii) promptly detect and recover 
                        improper payments that are made.
    [(d)] (e) Reports on Actions To Recover Improper 
Payments.--With respect to any improper payments identified in 
recovery audits conducted under section 2(h) of the Improper 
Payments Elimination and Recovery Act of 2010 (31 U.S.C. 3321 
note), the head of the agency shall provide with the estimate 
under subsection [(b)] (c) a report on all actions the agency 
is taking to recover improper payments, including--
          (1) a discussion of the methods used by the agency to 
        recover overpayments;
          (2) the amounts recovered, outstanding, and 
        determined to not be collectable, including the percent 
        such amounts represent of the total overpayments of the 
        agency;
          (3) if a determination has been made that certain 
        overpayments are not collectable, a justification of 
        that determination;
          (4) an aging schedule of the amounts outstanding;
          (5) a summary of how recovered amounts have been 
        disposed of;
          (6) a discussion of any conditions giving rise to 
        improper payments and how those conditions are being 
        resolved; and
          (7) if the agency has determined under section 2(h) 
        of the Improper Payments Elimination and Recovery Act 
        of 2010 (31 U.S.C. 3321 note) that performing recovery 
        audits for any applicable program or activity is not 
        cost-effective, a justification for that determination.
    [e] (f) Governmentwide Reporting of Improper Payments and 
Actions To Recover Improper Payments.--
          (1) Report.--Each fiscal year the Director of the 
        Office of Management and Budget shall submit a report 
        with respect to the preceding fiscal year on actions 
        agencies have taken to report information regarding 
        improper payments and actions to recover improper 
        overpayments to--
                  (A) the Committee on Homeland Security and 
                Governmental Affairs of the Senate; and
                  (B) the Committee on Oversight and Government 
                Reform of the House of Representatives.
          (2) Contents.--Each report under this subsection 
        shall include--
                  (A) a summary of the reports of each agency 
                on improper payments and recovery actions 
                submitted under this section;
                  (B) an identification of the compliance 
                status of each agency to which this Act 
                applies;
                  (C) governmentwide improper payment reduction 
                targets; and
                  (D) a discussion of progress made towards 
                meeting governmentwide improper payment 
                reduction targets.
    [f] (g) Definitions.--In this section:
          (1) Agency.--The term ``agency'' means an executive 
        agency, as that term is defined in section 102 of title 
        31, United States Code.
          (2) Improper payment.--The term ``improper 
        payment''--
                  (A) means any payment that should not have 
                been made or that was made in an incorrect 
                amount (including overpayments and 
                underpayments) under statutory, contractual, 
                administrative, or other legally applicable 
                requirements; and
                  (B) includes any payment to an ineligible 
                recipient, any payment for an ineligible good 
                or service, any duplicate payment, any payment 
                for a good or service not received (except for 
                such payments where authorized by law), and any 
                payment that does not account for credit for 
                applicable discounts.
          (3) Payment.--The term ``payment'' means any transfer 
        or commitment for future transfer of Federal funds such 
        as cash, securities, loans, loan guarantees, and 
        insurance subsidies to any non-Federal person or 
        entity, that is made by a Federal agency, a Federal 
        contractor, a Federal grantee, or a governmental or 
        other organization administering a Federal program or 
        activity.
          (4) Payment for an ineligible good or service.--The 
        term ``payment for an ineligible good or service'' 
        shall include a payment for any good or service that is 
        rejected under any provision of any contract, grant, 
        lease, cooperative agreement, or any other funding 
        mechanism.
    [g] (h) Guidance by the Office of Management and Budget.--
          (1) In general.--Not later than 6 months after the 
        date of enactment of the Improper Payments Elimination 
        and Recovery Act of 2010 [enacted July 22, 2010], the 
        Director of the Office of Management and Budget shall 
        prescribe guidance for agencies to implement the 
        requirements of this section. The guidance shall not 
        include any exemptions to such requirements not 
        specifically authorized by this section.
          (2) Contents.--The guidance under paragraph (1) shall 
        prescribe--
                  (A) the form of the reports on actions to 
                reduce improper payments, recovery actions, and 
                governmentwide reporting; and
                  (B) strategies for addressing risks and 
                establishing appropriate prepayment and 
                postpayment internal controls.''.

           *       *       *       *       *       *       *

    Recovery audits.--Act July 22, 2010, P.L. 111-204, 2(h), 
124 Stat. 2228, provides:
          (1) Definition.--In this subsection, the term 
        ``agency'' has the meaning given under [section 2(f) of 
        the Improper Payments Information Act of 2002 (31 
        U.S.C. 3321 note) as redesignated by this Act.] section 
        2(g) of the Improper Payments Information Act of 2002 
        (31 U.S.C. 3321 note).

           *       *       *       *       *       *       *

    Compliance.--Act July 22, 2010, P.L. 111-204, 3, 124 Stat. 
2232, provides:
    (a) Definitions.--In this section:
          (1) Agency.--The term ``agency'' has the meaning 
        given under [section 2(f) of the Improper Payments 
        Information Act of 2002 (31 U.S.C. 3321 note) as 
        redesignated by this Act.] section 2(g) of the Improper 
        Payments Information Act of 2002 (31 U.S.C. 3321 note).

           *       *       *       *       *       *       *

          (3) Compliance.--The term ``compliance'' means that 
        the agency--
                  (A) * * *
                  (B) * * *
                  (C) if required, publishes improper payments 
                estimates for all programs and activities 
                identified under section [2(b)] 2(c) of the 
                Improper Payments Information Act of 2002 (31 
                U.S.C. 3321 note) in the accompanying materials 
                to the annual financial statement;
                  (D) publishes programmatic corrective action 
                plans prepared under section [2(c)] 2(d) of the 
                Improper Payments Information Act of 2002 (31 
                U.S.C. 3321 note) that the agency may have in 
                the accompanying materials to the annual 
                financial statement;
                  (E) publishes improper payments reduction 
                targets established under section [2(c)] 2(d) 
                of the Improper Payments Information Act of 
                2002 (31 U.S.C. 3321 note) that the agency may 
                have in the accompanying materials to the 
                annual financial statement for each program 
                assessed to be at risk, and is meeting such 
                targets; and
                  (F) has reported an improper payment rate of 
                less than 10 percent for each program and 
                activity for which an estimate was published 
                under section [2(b)] 2(c) of the Improper 
                Payments Information Act of 2002 (31 U.S.C. 
                3321 note).

                                  
