SENATOR FRED THOMPSON
INTRODUCTION TO
A BILL TO PROVIDE FOR ANNUAL RECOVERY AUDITS

Each year, the Federal government spends hundreds of billions of dollars for a variety of grants, transfer payments, and the procurement of goods and services. The Federal government must be accountable for how it spends these funds and for safeguarding against improper payments. Unfortunately, the problem of improper payments by Federal agencies and departments is immense. Today, I released a GAO report which I requested which identifies $20.7 billion in improper payments in just 20 major programs administered by 12 Federal agencies in Fiscal Year 1999 alone. And this represents an increase of more than $1.5 billion from the previous year's estimate. In its report, GAO writes that its "audits and those of agency inspectors general continue to demonstrate that improper payments are much more widespread than agency financial statement reports have disclosed thus far."

Legislative efforts have focused on improving the Federal government's control processes. Recently-enacted laws, such as the Chief Financial Officers Act, the Government Management Reform Act, and the Government Performance and Results Act, have provided an impetus for agencies to systematically measure and reduce the extent of improper payments.

However, the risk of improper payments and the government's ability to prevent them continue to be a significant problem. While we continue to work to improve the government's widespread financial management weaknesses, we also can attempt to recover the tens of billions of dollars in improper payments. And that's what the legislation I am introducing today will do.

The legislation is modeled on H.R. 1827, a bill sponsored by House Committee on Government Reform Chairman Dan Burton, to require the use of a management technique called "recovery auditing" which would be applied to a Federal agency's records to identify improper payments or payment errors made by the agency.

Recovery auditing is used extensively by private sector businesses, including a majority of Fortune 500 companies. These businesses typically contract with specialized recovery auditing firms that are paid a contingent fee based on the amounts recovered from overpayments they identify. Recovery auditing is not "auditing" in the usual sense. Recovery auditing firms do not examine the records of vendors doing business with their client companies or assess the vendors' performance. Instead, these firms develop and use computer software programs that are capable of analyzing their clients' own contract and payment records in order to identify discrepancies in those records between what was owed and what was paid. They focus on obvious but inadvertent errors, such as duplicate payments or failure to get credit for applicable discounts and allowances.

The bill I am introducing today would require Federal agencies to perform recovery audits in order to identify discrepancies between what was actually paid by the agency and what should have been paid. This bill seeks to address concerns with H.R. 1827 which were raised after its passage by the House. For example, this bill would make clear that the relationship established by this bill is one between the agency and the recovery audit contractor, and all communications and interaction on the part of the recovery audit contractor is with the agency. Further, this bill includes exemptions for contracts which, under current law, already are subject to extensive audit scrutiny and oversight. Also, this bill includes Federal agency authority for recovery audit pilot programs for contracts, grants or other arrangements other than those covered by this bill.

I appreciate all the work done by Chairman Burton on H.R. 1827. I believe my legislation appropriately addresses concerns raised with that bill and goes a long way in addressing the wasted taxpayer dollars and government inefficiencies resulting from Federal agency payment errors which are made each year.

# # #