<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:26655.wais]
IMPLEMENTING THE IMPROPER PAYMENTS INFORMATION ACT: ARE WE MAKING
PROGRESS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
FINANCE, AND ACCOUNTABILITY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JULY 20, 2005
__________
Serial No. 109-126
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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26-655 PDF WASHINGTON : 2006
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Government Management, Finance, and Accountability
TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee
Ex Officio
HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Tabetha Mueller, Professional Staff Member
Nathaniel Berry, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on July 20, 2005.................................... 1
Statement of:
Combs, Linda, Controller, Office of Federal Financial
Management, Office of Management and Budget; and McCoy
Williams, Director, Financial Management and Assurance,
Government Accountability Office........................... 5
Combs, Linda............................................. 5
Williams, McCoy.......................................... 11
Letters, statements, etc., submitted for the record by:
Combs, Linda, Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared
statement of............................................... 7
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
Williams, McCoy, Director, Financial Management and
Assurance, Government Accountability Office, prepared
statement of............................................... 12
IMPLEMENTING THE IMPROPER PAYMENTS INFORMATION ACT: ARE WE MAKING
PROGRESS?
----------
WEDNESDAY, JULY 20, 2005
House of Representatives,
Subcommittee on Government Management, Finance, and
Accountability,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2247, Rayburn House Office Building, Hon. Todd Russell
Platts (chairman of the subcommittee) presiding.
Present: Representatives Platts, Towns, and Duncan.
Staff present: Mike Hettinger, staff director; Dan Daly,
counsel; Tabetha Mueller, professional staff member; Jessica
Friedman, legislative assistant; Nathaniel Berry, clerk; Adam
Bordes, minority professional staff member; and Cecelia Morton,
minority staff.
Mr. Platts. A quorum being present, this hearing of the
Government Reform Committee's Subcommittee on Government
Management, Finance, and Accountability will come to order.
I appreciate everyone's patience as we begin. We hopefully
will get through today's hearing without interruption from the
floor votes. We may have some votes in the Education Committee
on which I serve with an ongoing mark up but hopefully not, and
we will have one continuous interaction here.
Congress has a responsibility to ensure that tax dollars
are spent in the most effective manner and for their intended
purpose. Unfortunately, as we will hear today, billions of
dollars continue to be lost due to improper payments, that is,
payments that should not have been made.
Just 2 days ago, the New York Times reported that it
conducted a year long investigation into fraud in the Medicaid
Program for the State of New York. The results of the
investigation were staggering. Billions of dollars were wasted
because of fraud and abuse. Improper payments are not always
fraudulent but can also be the result of simple mistakes.
Whatever the cause, we have the responsibility to do much
better in safeguarding taxpayer funds.
The most recent information provided this year by the
Office of Management and Budget tells us that the U.S.
Government makes at least $45 billion in payment errors each
year. The Bush administration and Congress have made the
reduction of improper payments a top priority. In support of
that goal, this subcommittee believes that taxpayers have a
fundamental right to know how their tax dollars are being
spent.
In 2002, my esteemed former colleague, Congressman Steve
Horn, who chaired this subcommittee, was successful in securing
the enactment of the Improper Payments Information Act of 2002.
This law has helped bring to the forefront the need to address
this issue more aggressively. The work of the past few years
has brought us a long way to getting our arms around the extent
of the problem. What we know today is that a primary cause of
these mistakes, which occur throughout government, is the lack
of adequate, internal financial controls and business process
systems.
Some agencies have employed new technologies such as data
mining and electronic benefits transfer with great success to
help reduce their error rates. More can be done and we will
continue to conduct effective oversight on this important
topic.
Today, we will hear from the Honorable Linda Combs, who was
recently confirmed as the Controller in the Office of Federal
Financial Management at the Office of Management and Budget.
Ms. Combs, we are delighted to have you with us and look
forward to working with you in your new position.
Ms. Combs. Thank you.
[The prepared statement of Hon. Todd Russell Platts
follows:]
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Mr. Platts. We also have with us McCoy Williams from the
U.S. Government Accountability Office. Mr. Williams, you
certainly have been very helpful to this subcommittee and have
worked very closely with me, the ranking member and our staff.
We are delighted to have you with us once again.
We will begin in just a moment with your testimonies, but
first, I would like to yield to the ranking member from New
York, Mr. Towns. Before I do so, I do have to point out that
you turn 29 tomorrow, so happy early birthday. Usually I am
very belated in birthday wishes, so it is nice to wish someone
happy birthday early. Enjoy that 29th birthday, Mr. Towns.
Mr. Towns. Thank you very much. I really appreciate that.
Let me say, too, that I am involved in a mark up in Energy
and Commerce so I might have some votes there and have to run
out.
Let me also thank you for holding this hearing on improper
payments and the detrimental impact on agency operations. I
welcome our panelists, McCoy Williams and Dr. Combs who is
testifying before us for the first time since her appointment
to OMB. Welcome.
Ms. Combs. Thank you.
Mr. Towns. In an attempt to enhance the accuracy and
integrity of the payments made by agency programs, our
committee played a leading role in development and passage of
the Improper Payments Information Act of 2002. The testimony
provided by OMB and GAO indicates that we still have work to do
before considering these efforts a success.
For fiscal year 2004, the Federal Government reported
approximately $45.1 billion in improper payments throughout 41
individual programs, a $10 billion increase over fiscal year
2003 estimates. According to OMB, seven programs alone,
including Medicare, Food Stamps and the Earned Income Tax
Credit Program accounted for 95 percent of all improper
payments during this budget cycle.
Unfortunately, the short term outlook for stemming the flow
of improper payments remains cloudy. As 12 of our largest
Government programs including Medicaid and Title I Education
Grants have yet to provide OMB with adequate estimates for such
payments. Complicating matters, many agencies are in the
process of implementing new financial management systems
creating additional risks for programs with significant error
rates.
This information is especially troubling for programs with
escalating future liabilities such as entitlements and Homeland
Security priorities. Therefore, Mr. Chairman, it is my hope
that we may continue our joint efforts to root out the wastes
and abuses within such programs so they can remain viable for
future generations.
Mr. Chairman, this concludes my statement and on that note,
I yield back the balance of my time.
Mr. Platts. Thank you, Mr. Towns.
We will now move to our opening statements. It is the
practice of our committee to have our witnesses be sworn.
[Witnesses sworn.]
Mr. Platts. We set a rough framework of 5 minutes but we
are not going to be that tight on that. We are glad to have you
here and appreciate the written testimonies you have provided
as well.
Dr. Combs if you would like to begin?
STATEMENTS OF LINDA COMBS, CONTROLLER, OFFICE OF FEDERAL
FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND
MCCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE,
GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF LINDA COMBS
Ms. Combs. Thank you very much, Chairman Platts,
Congressman Towns and members of the committee.
I am certainly pleased to be here today for the first time,
as you mentioned, since being confirmed as the Controller of
the Office of Management and Budget and the Executive Office of
the President. It is quite an honor for a North Carolina farm
girl to have that honor bestowed upon her. I look forward to
working with the subcommittee very much.
Having had some meetings with you already about some of the
major and significant financial management issues facing our
Government today such as the Federal financial reporting that
we have talked about, making government reporting more
transparent to the consumer, and improving internal processes
at various agencies as well as today's very important topic of
eliminating improper payments.
Let me begin by saying this administration certainly is
committed to making the elimination of improper payments one of
our very highest priorities. I think you have seen some
evidence already that shows that commitment. There is simply no
more important undertaking than the efficient stewardship of
taxpayer dollars. The Federal Government should be accurate and
should be transparent in all of our financial reporting. Our
citizens deserve to know that their money is being spent
appropriately and for its intended purpose. Please be assured
that as I take this position, we are already hard at work to
ensure that good things are happening in that regard.
Fiscal year 2004 marked the first full year of the
implementation of the Improper Payments Information Act and
agencies reported their improper payment elimination efforts in
the November 2004 PAR. Soon after that, OMB issued a report in
January 2005 entitled, ``Improving the Accuracy and Integrity
of Federal Payments.'' This served to aggregate the results of
these agency specific reports into a single, comprehensive
document. This OMB report provides the clearest picture to
date, we believe, on the extent of governmentwide improper
payments, as well as the significant efforts underway to
eliminate them.
Some of the report's key findings include some that have
already been mentioned today. Federal agencies reported the
collective total of $45.1 billion in improper payments in
fiscal year 2004 and that represented a 3.9 percent
governmentwide improper payment rate. Approximately 92 percent
of the Federal improper payments are overpayments, 7 programs
alone account for 95 percent of the improper payments reported
in fiscal year 2004 and if agencies meet the reduction targets,
the overall improper payments total measured reported in fiscal
year 2004 is expected to decline significantly when reported in
2005.
A new President's management agenda program initiative is
also increasing and continuing to bring focus to eliminating
improper payments. Beginning in the first quarter of 2005, OMB
began tracking the progress of 15 major agencies with the
programs and activities with the highest risk of improper
payments on our quarterly score card. For instance, in order to
get to green--or to the highest level that one can attain in
the President's management agenda--on status on this
initiative, agencies must have taken the following very
important measures.
They must have a risk assessment in place that identifies
all programs at significant risk of improper payments. They
must have an OMB approved plan for measuring improper payments
and meeting particular milestones. They must actually
demonstrate that improper payments are being reduced,
consistent with reduction targets.
The effort to eliminate improper payments also extends to
the work of the CFO Council and the Improper Payments
Committee. I have worked on the CFO Council, as many of you
know, in this position and in a couple of other CFO positions
in which I served in the past. I can tell you this level of
scrutiny is a very important element in our ways to help reduce
improper payments.
Across government, we assist agencies in efforts to
identify and reduce these improper payments, to comply with the
statutory requirements and the OMB Guidance, as well as
facilitating the sharing of best practices among agencies.
There certainly is a lot of work that remains to be done and a
lot of discussion needs to be had relative to how we are
assessing our programs to date. But I believe, Mr. Chairman, we
are in a very, very strong position right now to continue the
efforts already identified and eliminate improper payments
throughout agency programs and activities.
With our goal of ensuring that each taxpayer dollar is
spent wisely, effectively, efficiently, and for the purposes
for which it was originally intended, we remain committed to
this effort. We look forward to working with Congress and to
seeing that this objective is accomplished.
Thank you, Mr. Chairman, for the opportunity to speak
before you and the committee today. I am pleased to answer any
questions you may have.
[The prepared statement of Ms. Combs follows:]
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Mr. Platts. Thank you, Ms. Combs.
Mr. Williams.
STATEMENT OF MCCOY WILLIAMS
Mr. Williams. Thank you, Mr. Chairman.
I am pleased to be here today to discuss the governmentwide
problem of improper payments in Federal programs and
activities. Fiscal year 2004 marked the first year that Federal
agencies governmentwide were required to report improper
payment information under the Improper Payments Information Act
of 2002. OMB has continued to provide strong emphasis on the
act through the President's management agenda and Federal
agencies response to fulfilling the requirements of the act has
generally been positive.
My testimony today is based on our March 31, 2005 report
that focused on the extent to which agencies have performed the
required assessments to identify programs and activities that
are susceptible to significant improper payments and the amount
of improper payments estimated by the reporting agencies for
fiscal year 2004.
We found that agencies made progress in identifying
programs susceptible to the risk of improper payments. At the
same time, Mr. Chairman, our findings suggests that even with
the enhanced emphasis on improper payment reporting, certain
agencies had not yet performed risk assessments of all their
programs and/or estimated improper payments for their
respective programs.
Specifically, 6 of the 29 agencies we reviewed reported
they had not assessed all programs. We also found that 29
agency programs did not report improper payment estimates and
12 of these programs had prior improper payment reporting
requirements under OMB Circular A-11. I will now focus on the
amount of governmentwide improper payments reported for fiscal
year 2004.
While 17 agencies reported improper payment estimates
totaling more than $45 billion for 41 programs, the magnitude
of governmentwide improper payment problem is still unknown
because as I mentioned earlier some agencies have not yet
prepared estimates of significant improper payments for all of
their programs. The $45 billion represents almost a $10 billion
or a 27 percent increase in the amount of improper payments
reported by agencies in fiscal year 2003. This increase was
primarily attributable to changes in the method for estimating
and reporting improper payments in the Medicare Program.
In closing, Mr. Chairman, we recognize that measuring
improper payments and designing and implementing actions to
reduce or eliminate them are not simple tasks and will not be
easily solved. The level of importance each agency, the
administration and the Congress place on the efforts to
implement the act will determine its overall effectiveness in
assuring that Federal funds are used efficiently and for their
intended purposes.
This concludes my statement, Mr. Chairman. I would be
pleased to respond to any questions you may have. Thank you.
[The prepared statement of Mr. Williams follows:]
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Mr. Platts. Thank you, Mr. Williams.
Maybe just in a broad sense as you have looked at this
issue and Ms. Combs--I realize you are very new in your current
position but certainly with your background you are very
familiar with the importance of the issue and efforts to
undertake reduction of improper payments and Mr. Williams, with
many years working with my predecessor and this committee on
the issue--is there anything that jumps out as the core problem
that we need to focus on regarding improper payments, under
payments or over payments? Anything that the departments and
each of their programs say this is where we should start and
then go from there?
Ms. Combs. I think the one thing that stands out in my mind
is the leadership element within each and every department in
which I have served and the leadership of the very, very top
level in the department. I know we don't often hear good news
and don't often hear specific small examples, but small
examples can talk and say an awful lot. I know even when I was
at the Environmental Protection Agency, coming from a banking
background I thought it was very, very important to take on
some roles and responsibilities and have program managers
understand that financial accountability is not just a
financial person's responsibility, it is everybody's
responsibility.
That was carried to our top level leadership and very early
on I got commitment from the then Administrator of EPA that we
were going to focus on improper payments and focus on some of
these other internal control elements that you and I have
talked about in private conversations. I share this one example
because I think it says a lot about what is needed.
One of the days a particular matter came to my attention
and it was how an improper payment had been avoided. It was not
avoided by the CFO and it was not avoided by the then
Administrator. It was avoided by a GS-7 clerk who was working
in our accounting office. This GS-7 clerk happened to look at a
document and say, hmm, I think I may have seen that before
because we had very much sensitized all of our people to the
fact that this was important to me and it was important to the
Administrator. True enough, if she had made that payment, it
would have been an improper payment and it wasn't $25 or
$2,500, it was several million dollars.
I say that and yet to sensitize all of us that these
responsibilities can be handled a lot of ways with just top
level leadership. That is a very broad brush example for you,
but I think leadership has an awful lot to do with this, and I
think holding people accountable for corrective actions.
Obviously there is a procedure in place in our internal
controls or she would never have picked up on that. I think it
speaks to a very achievable way that we can handle specific
targets we have for improper payment reductions and it speaks
to the fact that yes, internal control processes can be owned
by every member of every department.
Mr. Platts. Ms. Combs, before we go to Mr. Williams, I
share that sentiment on all the different financial management
issues we have looked at in the last 2\1/2\ years, the
leadership at the top and the interaction between the
leadership. It sounds like in your previous CFO positions, the
communication between you as CFO and the Secretary or the
Administrator was very strong and that direct access was there.
We found having leadership and having the direct communication
between the Secretary or the Administrator and the CFO helps to
reemphasize across the department or agency the importance of
financial management.
Ms. Combs. And it does. Even taking the next simple step,
so when I heard that, I picked up the phone and called the GS-7
clerk and said, thank you for avoiding this improper payment.
By the next morning, the Administrator had also placed that
same call. That word permeates throughout an organization and
can do an awful lot. While we think our efforts are very
important and they are, those little things mean an awful lot
throughout an organization.
Mr. Platts. I share that sentiment exactly.
Mr. Williams.
Mr. Williams. I can only concur with everything that has
been said so far. The bottom line when it comes to improper
payments as we have noted at GAO, the common theme we have
noticed is you get improper payments when there is a lack of
internal controls. You get improper payments when there is a
breakdown in internal controls. That is one primary cause.
One thing we focus on is looking at the internal control
environment. It starts with the right tone at the top as stated
earlier. I would reinforce the point also that when you're
looking at the internal control environment, while you have to
have the right tone at the top, you have to have the internal
control structure in place throughout the organization from the
top person in the organization to every individual. You need
that in order to have a good control environment which would be
what is needed to start the process of addressing the improper
payment issue.
Mr. Platts. That kind of goes hand in hand, leadership and
the processes?
Mr. Williams. That is correct.
Mr. Platts. In the findings of the 2004 numbers, the 60
percent deemed at risk, about 1/7th of that dollar amount was
not determinable of how many improper payments and the value of
those improper payments, I guess about $250 million. Do you
have what percentage of the programs have not fully complied,
not in dollar amounts but 80 percent have complied with it
fully as we look at the 2004 numbers?
Ms. Combs. Can I just say that all 24 of the CFO Act
agencies have complied. I think when we look at it, all the
major agencies have been in compliance. You may have something
you want to add, Mr. Williams?
Mr. Williams. One of the problems we have had in trying to
identify how many agencies complied is that we have not been
able to locate a central spot where we have been able to
identify this is the universe of programs or activities. Until
we are in a position of saying this is the universe, it is
difficult for us at GAO to say x percentage has complied with
the act. I think that is the first step or the first obstacle
that we have to overcome, the basic identification of how many
programs are out there, how many activities are we talking
about.
There are several problems in trying to come up with that
number and we have looked at it in the past. Activities change,
there are regroupings, and so forth, so it makes it very
difficult. It would be difficult for me to say an exact
percentage.
Mr. Platts. A quick followup and then I want to get to Mr.
Towns with questions.
Of the 24 CFO agencies, within those there are some that
have not been able to provide an estimate for some of their
programs, right?
Ms. Combs. For the 2004 PAR.
Mr. Platts. Right.
Ms. Combs. But subsequent to that, people have produced
those requirements for this year. I think when we see the 2005
PARs this year, we will see a lot more comprehensive data much
as Mr. Williams just indicated. I think what we know is 80
percent of the risk susceptible dollars have been identified.
That is a very large chunk of what we know thus far. I think we
will know a lot more as we get into 2005.
Mr. Platts. I have a couple followups on those numbers but
I want to yield now to Mr. Towns for questions.
Mr. Towns. Thank you, Mr. Chairman.
Let me thank Ms. Combs and Mr. Williams for coming to
testify again.
Ms. Combs, does it appear that with some of these agencies,
the lack of additional resources led to the problem?
Ms. Combs. I think a lot of the most frequent reasons that
improper payments are made--if we go back to that, how could we
avoid making them to begin with--are worthy of looking at. One
of the things I think is very difficult is that many of the
eligibility criteria are pretty complex. So without timely,
accurate and verifiable data to inform of benefit or payment
amounts or payment eligibility in some of these programs, I
think we find some of those situations.
My reason for bringing that up is sometimes those require
some additional data resources or technology resources within
the departments and agencies to help them address those
particular issues.
Mr. Towns. Mr. Williams, does this happen mostly with
entitlement programs? I am trying to get a handle on this
thing.
Mr. Williams. It is a combination of programs. One of the
issues here is a lot of these improper payments occur in those
programs in which the Federal Government is passing that money
on to the State. We view it as accountability with the Federal
Government until the money makes it all the way to the
recipient. You are looking at a process in which there has to
be some coordinated effort between Federal and State agencies
to make sure those funds make it to the intended recipient and
for the intended purpose. It is a combination of programs but
there are quite a few that would fall into the grant program
category.
Mr. Towns. What you are really saying is where you have a
situation where there is a match, then that really sort of
exacerbates the problem?
Mr. Williams. You have a situation that makes it difficult
sometimes for the Federal agencies and it is not the Federal
agency just giving the money to the recipient, it has to go
through the State agencies and sometimes other non-profit
organizations. You have to make sure you work with each one of
these entities. In some programs, the rules and regulations
vary from State to State, so you have to work with each State
to make sure you have proper controls and procedures in place
to make sure the money is reaching the intended purpose and not
getting these improper payments.
Mr. Towns. Ms. Combs, I feel comfortable asking this
because you have functioned in so many different capacities
which I think is really great for us, that we can draw on all
this knowledge. Are there distinguishing characteristics
between programs not at risk and those that are?
Ms. Combs. I think the seven programs that comprise that 95
percent we talked about, if you look at what those programs
are, Medicare, Earned Income Tax Credit, for example, the
Supplemental Security Income, Food Stamps, Public Housing,
Rental Assistance, I think we see some of those are the ones
where we need to concentrate.
Mr. Towns. Did you mention Social Security?
Ms. Combs. I may not have, Unemployment Insurance,
Supplemental Security Income which is not. There are only four
departments that are represented by those seven top programs.
Mr. Towns. I said Social Security because Social Security
has probably the biggest outlay and doesn't fall into that
category.
Ms. Combs. They have been working very hard over the years.
They are probably ahead of some of the other agencies in doing
some of their assessments. I think one thing we have to keep in
mind is various departments are at various stages of looking at
improper payments. I would suggest that Social Security over
the last year has already recaptured something like $100
million in improper payments. They have been at this perhaps a
bit longer. Maybe I am not correct with that but Mr. Williams
has been at this longer than I have, but my assessment is they
must have been at it a while longer.
Mr. Williams. When it comes to financial management, Social
Security has been one of the model agencies as far as getting
audit reports and addressing internal controls and receiving
opinions on internal controls. They have been ahead of the
curve in a lot of the financial management issues for which we
have related legislation.
Mr. Towns. Mr. Williams, from a legislative perspective,
has the passage of IPIA given OMB and the agency community
enough directive requirements in order to stem the flow of
improper payments? Are there additional budget requirements or
legislation needed to assist in these goals?
Mr. Williams. I think the act itself has laid the
groundwork needed from a congressional standpoint. We have only
gone through 1 year of reporting this information. There are
probably some things that as a result of going through 1 or 2
years, OMB might identify as we need some assistance. I can
recall the Comptroller General testified in the past in this
particular area, one additional area the Congress might want to
look at is some of the Privacy Acts because a lot of the
process we are talking about here of looking at improper
payments, there are different programs in which recipients
might be receiving improper payments in one program and also
might not be eligible for payment in a similar program. If you
are not able to cross match some of this information, you
wouldn't be able to identify some of the improper payments.
There are some things we have already identified such as
that and there will probably be others that will come up as we
go along to look at the process. That is part of the
legislation, for OMB to work with the agencies to try to
provide them with the tools they need to address these
problems. That is one example of something that could come up
but as we go through the process, I think there will be more
opportunities to identify areas in which various tools could be
provided by OMB and possibly by the Congress and some
modification of the act if it turns out some changes are needed
along the way to make this even more effective.
Mr. Towns. I see my time has expired.
Mr. Platts. Thank you, Mr. Towns.
Now I yield to the gentleman from Tennessee, Mr. Duncan.
Mr. Duncan. Thank you very much, Mr. Chairman. I am sorry
that I had other meetings and wasn't able to get here and I am
sorry I didn't get to hear the testimony although I have read
some of the summary. I understand we are talking about $45.1
billion worth of improper payments. Someplace I read that it is
92 percent overpayments and 8 percent underpayments.
A couple of months ago we had David Walker from the GAO
here to testify before the National Security Subcommittee and
they talked about how the Defense Department had made $35
billion worth of improper payments just in Iraq and another $9
billion for a total of $44 billion that was just lost and
unaccounted for.
We talk about billions up here so often it just becomes
meaningless but I heard somebody say recently that $1 billion
would be somebody making $100,000 a year for 10,000 years. I
thought surely that is wrong, so I multiplied that and it is
true. Another way you can put it is that 10,000 people making
$100,000 a year is just $1 billion.
Now we are talking about $45 billion, so I think this is a
very, very important thing you are looking into and I commend
you for your diligence and going after this type of thing. I
will tell you, it is just shameful that the Federal Government
is not doing better. When we see estimates like this, usually
we are hearing about the tip of the iceberg. Usually these
estimates are very conservative and there are many other things
being missed.
Thank you for holding this hearing and we all need to work
on this and do everything we can to try to cut this down
because it is an unbelievably huge problem apparently in almost
every department and agency throughout the whole Federal
Government. It is beyond scandalous and it is hurting a lot of
poor people around this country. There are a lot of poor, lower
income, and working people who are paying these taxes in direct
and indirect ways. You can't hurt the wealthy people, they will
do all right, but there are a lot of families across the
country that even with husband and wife both working, they are
having trouble paying medical bills, utilities and now their
gas bills and other things.
Thank you very much, Mr. Chairman.
Mr. Towns. Would the gentleman yield for a second?
Mr. Duncan. Yes, sir.
Mr. Towns. Mr. Chairman wished me a happy 29th birthday, I
would like to take the opportunity to wish my friend a happy
28th birthday. [Laughter.]
Mr. Duncan. Mr. Towns and I have been friends for a long
time. He and I and Jim Clyburn and now Mr. Salazar from
Colorado all share the same birthdays. There were a lot of good
men born on that day. [Laughter.]
Mr. Platts. I am honored to be in the presence of two of
them.
Thank you, Mr. Duncan.
I want to come back to those programs that were identified
and we come up with 60 percent. And of that 60 percent at risk,
we come up with the $45.1 billion. If we extrapolate that
percentage of 3.9 percent and apply it to what we have not yet
identified, that would generate about another $10 billion in
improper payments, a straight percentage. My concern is that it
is actually going to be significantly higher because one of
those programs is Medicaid at $175 billion.
I referenced in my opening statement the New York Times
article on Medicaid fraud in New York. One of the former chief
state investigators for Medicaid fraud said his belief is that
outright fraud of Medicaid is 10 percent in New York and there
is some questionable aspect to as much as 40 percent. Even if
we take the 10 percent, just the Federal Government's amount
for just that one program, we are talking about another $17.5
billion and that is the Federal Government's share which is
then matched.
We are talking again tens of billions of dollars more that
we really don't have our arms around yet and are still working
on. That comes with the hope we will get in 2005 a greater
percentage if not all of these programs are in compliance.
My understanding from the Senate hearing on Medicaid
specifically was when the report was done the projection of
2006 of being able to put out some legitimate numbers and based
on the testimony in the Senate this past week, probably it is
at least 2007. Is that your understanding?
Ms. Combs. Over the last 3 weeks since I have been involved
in this, you must know I certainly do have some other
experience to base it on as well, I think the strategy that has
been embarked upon thus far is a very good one, to attack the
most risky programs, so to speak. I like to think of it in a
Phase I and then a Phase II approach. I think particularly
after we get better information with our 2005 PARs this year,
we will be able to then sit down and say, here are the things
that seem to be working well, here are those that probably
aren't working so well.
Between now and then, the PARs are issued in November, so
we will not utilize the time right now to find out as much as
we can as well. One of the things we are doing as a CFO
Council, the Improper Payments Subcommittee of the CFO Council,
is taking a look at where we are. We are trying very, very hard
to say what have we learned, what are the best practices we
have embarked upon and where have we made the most progress and
why, and where do we still need to work.
I think in all fairness we have to look at this in a
structured, phased approach. You just talked about Medicaid and
I don't think the total extent of the errors is known at this
time, so it is probably premature to reach a conclusion about
the amount of improper payments at this time. I think we have
to very much know, yes, this number could go up in spite of our
best efforts to improve our improper payments, yes, we may find
more and more. That would not be a bad thing.
We want to continue to root out all of the improper
payments we can. We already know even during some preliminary
discussions with other CFOs there are some programs that have
been identified that were not placed in the other risk
susceptible category in 2005, and I don't discourage that but
encourage that. If it is a risk, let us face up to it and own
up to it and put it in there. We also know there is some
additional work we need to do.
Mr. Platts. In the breakout with the CFO Council, the
subset, I assume there is a separate effort or focus in
programs like Medicaid where it is State administered? I know
that is one of the challenges of State administered Federal
dollars. How do you get after their internal controls? Is that
part of the dialog with the CFO Council, how to deal with that
special circumstance?
Ms. Combs. I think that is one of the beauties of having a
CFO Council and particularly having a subcommittee, the like
programs, people in one agency or department can see the
similarities between their department and another and learn
from those experiences. Certainly my staff and I consider it
part of our duty and responsibility to assist Federal CFOs in
their best practices to try to communicate through everybody
what the best practices are.
Mr. Platts. I had the opportunity to speak to the
Association of Government Accountants last week. One of the
things the executive director emphasized in our private
conversation at lunch was trying to have better dialog between
the Federal, State and local. Going after improper payments is
critical as Medicaid tells us. I am glad to hear it is being
encouraged and promoted.
Mr. Williams, of the programs that did not report with
estimated timeframes, several in 2005 and 2006, 2007 and 2008
and several that gave no estimate of when they would be able to
report, do you have any update on those estimates that you want
to share with us?
Mr. Williams. That is the latest information we have except
the one on Medicaid. We had noted in the January summary report
that OMB put together that the Medicaid Program was estimated
to be able to report the information in 2005. We also noted in
looking at the PAR report that information was estimated to be
available in 2006. At the hearing you mentioned last week, it
was pushed out to 2008.
I think this highlights the point that we were just
discussing, that this is a complicated process and it is not
something that every agency within the Federal Government is
going to be up to speed at the beginning of this process. It is
going to take a lot of effort, a lot of commitment, and a lot
of focus, as I said earlier, in order to be able to address
this issue because there are some complex programs. For some of
those complex programs and all the steps they are required to
go through, it is going to take some time.
We had talked a bit about whether the $45 billion
represented the total amount and if the number would go higher.
As I stated earlier, the number is actually unknown at this
particular point in time. It wouldn't surprise me in the next
year's report to see the numbers stay where they are and it
wouldn't surprise me if they went down. It wouldn't surprise me
if they went up because you have so many variables. You have
components that didn't report, you don't know how much more
that will increase the number next year compared to agencies
improving the process of putting controls in place based on
having this information for 2004.
There are just too many variables to tell just where that
number is going. But you know for those programs that did not
report, when they report the first year, that is going to push
in the direction of increasing the number. You just don't know
how much better agencies will be in year 2 with identifying
improper payments that could push it up and how many procedures
and processes have been put in place to actually reduce the
process. It is just unknown in this particular point in time.
Mr. Platts. I did not hear all the testimony last week on
the Senate side. I understand each program is different and the
challenges will be different, especially where it is State
administered.
Mr. Williams. That is correct.
Mr. Platts. In a program the size of Medicaid, so I
understand 2005 or 2006 but they are saying 2008 now and it is
hard for me as a lay person to understand, using a simple
analogy, we do a scientific assessment and usually come up
pretty close with what the final vote is going to be, yet it is
going to take us another 3 to 4 years to even be able to say we
think the improper payments are of this magnitude for this one
program.
Is it because of not any the complexity but also the
manpower to put out there and gather enough data to make a
calculation? That doesn't make common sense or seem acceptable
that it is going to take another 3 or 4 years to simply try to
identify what is happening, let alone fix it.
Mr. Williams. I would concur that while it is complicated,
that is a long ways out. Whether there are revisions to that, I
am not sure. That was the date given at the hearing last week.
I took note of it and looked at it from the standpoint of what
was in the PAR.
Mr. Platts. The importance of us doing it as quickly as
possible and we talk a lot about fairness or responsibility to
the taxpayers, but it is also to those in need of the services
of those programs. Across the country, Medicaid is really being
stretched and Governors and the Federal Government are looking
at how to stretch limited dollars which means some may not get
the services they need because of inability to fund it all. If
it is 10 percent that is fraud, that fraud is denying needy
individuals the care they really need. So it is not just
responsibility to the taxpayer, it is actually service to those
in need of the benefit.
Let me address one more area and I will get back to Mr.
Towns and Mr. Duncan.
In the 60 percent deemed at risk, one area that jumped out
was DOD. According to the report, only two programs at DOD,
Military Retiree Benefits, Military Health Benefits, were at
risk and $390 billion in programs at DOD are listed as not
being at risk.
I would be interested in both of your opinions. Is that a
likely and accurate estimate especially given some of the
numbers Mr. Duncan shared of some of the challenges in Iraq and
elsewhere?
Mr. Williams. I looked at the number and actually I went to
the PAR report to get confirmation. I think in the 2004 PAR
report, the conclusion was reached that those two programs were
the only two that DOD would be required to report. Looking at
those numbers in relationship to the outlays, it was being
reported because OMB had put out reporting requirements that
all of those programs under A-11 would still be required to
report. For those two programs, it did not meet the 2\1/2\
percent criteria that was in the implementation guidance put
out by OMB.
Mr. Platts. Some would have made the $10 million?
Mr. Williams. They would have made the $10 million but
wouldn't have made the 2\1/2\ percent, that is correct. But if
you look at some of the reports that GAO has issued that speak
to some of the internal control weaknesses and some of the
breakdowns in internal controls at DOD, and look at our high
risk series and look at how many DOD activities including DOD
financial management is included in our high risk series, when
you go back to the point I made earlier, the lack of internal
controls or breakdown in internal controls is one of the
primary causes of improper payments. It would make one wonder
if there aren't some other programs out there that I would find
it hard to believe.
But it could be based on our definition of improper
payments that some things might not be classified as an
improper payment. It could be a waste or some other category
that we look at. But as I said earlier, it is difficult to
imagine with some of the reports we have issued that there were
only two programs.
Mr. Platts. Ms. Combs.
Ms. Combs. Let me address that a little bit differently. I
think the complexity of programs certainly was already talked
about and I think there are a couple of statutes that deal with
that; the Improper Payments Act itself and the Recovery Audit
Act.
It is my understanding thus far that the Department of
Defense outlays are a lot related to contractor payments. We
have heard that, we all kind of know that and some of that is
being captured in the recovery audits.
I think one of the things we need to take into
consideration and I know you are interested in us making sure
we pull these things together and we are not double counting
and having to do things more than once to get the same
information, one of the things we have to take into
consideration is whether or not some of those payments are
being captured in the recovery audit as well. I would just add
that, yes, I think there are probably a couple ways we can get
at that.
Mr. Platts. Those numbers at DOD kind of further my
concern. We raised this with your predecessor at OMB with the
guidance that was put out for the Improper Payments Act that
the required reported programs is the $10 million and 2\1/2\
percent which is not in the law. We have tried to be very
restrained on pursuing that because of commitments to cast a
very broad net and not allow that band requirement of the 2\1/
2\ percent to miss anything.
When I look at the DOD numbers and it is $400 billion we
are saying is not at risk, to me that probably tells me that
and 2\1/2\ percent is not allowing that net to be nearly as
broad as it needs to be. I would encourage you to continue to
look at whether that 2\1/2\ percent additional requirement is
appropriate.
Ms. Combs. I hear you and I understand your point on that.
Certainly that is one of the things I think we as the CFO
Council Subcommittee on Improper Payments look at. It is an
appropriate time to assess what has happened thus far and it is
an appropriate time to take a look at that. I certainly commit
to you that I will take a look at that.
Mr. Platts. I appreciate that because if we have that in
there and one way or the other we get to all programs that have
significant improper payments, that is great but those numbers
seem to argue that we are not, at least with DOD and perhaps
elsewhere too.
I have some followup on the contract aspect as well but I
want to yield to the ranking member.
Mr. Towns. Thank you very much, Mr. Chairman.
Mr. Williams, in some programs such as Medicare and
Medicaid, it is fair to say that maybe the guidance from the
agency administering such programs is a significant cause of
excessive reimbursement or improper payments, the lack of
clarity. Do you think that has a role in this?
Mr. Williams. There are a couple things you need to look at
when you talk about some of the causes. First of all, there is
an inherent risk in a program. The example I always use is if
you are looking at a program such as FEMA where you have to get
out emergency supplies and get them out right then, ice is
needed today, it won't do you any good a week from now, that
you have inherent risk that you might be making some
expenditures that would turn out to be improper down the road.
Then there is the other component which I think you just
described and that is that in some programs, you probably have
a design issue just basically the way the program is designed
that will result in a higher number of improper payments. Going
back to a previous question, would this be one of the things
that should be coming out as you get a better handle on the
dollar amount of improper payments and if you see a program has
a very high number. That is something the Congress and the
administration can look at; why do we have this high number?
Have we designed this program in a way that will result in a
huge number of improper payments or are there just some
inherent risks in what we are doing here in this particular
program?
Another concept that I talk about is when you put internal
controls in place, you want to put those in place that are cost
beneficial. You don't want to put controls in place that will
cost you more than you would benefit.
In short, yes, there could be just some inherent risk as
well as there could be some design risks in the way the
programs are designed that could cause a high number of
improper payments.
Mr. Towns. A number that really stands out after
Congressman Duncan's comment about billions, I see here in
2003, I think the overall number was $35 billion and then in
2004 it is $45 billion. It seems to me we are moving in the
wrong direction. Is it the fact we are looking harder now and
by 2008 we hope to have things in place. I am trying to figure
out how we will do that if we are going in the wrong direction.
Mr. Williams. Actually the number went up by about $10
billion and it is due primarily to one program, I believe that
is the Medicare Program. It is because the agency came up with
a better methodology in estimating that amount in 2004 than
they had in 2003. I think while it is bad news, it is good news
because you have better information out there that is needed
for this process of trying to identify and come up with
solutions for addressing the improper payments issue. While the
number went up, I think the good news is that the agency has
come up with a better way of estimating and you are getting
better information than you had in 2003.
Mr. Towns. Does enforcement really play a major role? The
reason I ask this question is that in my home State,
enforcement is almost nil in terms of Medicare, Medicaid, all
the programs. Does that play a part in this? I am trying to
figure out if there is aggressive enforcement? Does it help?
Mr. Williams. In terms of the number?
Mr. Towns. Yes.
Mr. Williams. The one example I like to use is if you look
at the Food Stamp Program. There are incentives and
disincentives for reducing that number if that number continues
to go up. For all the programs that might be a model that other
programs can look at because if my understanding is correct, in
that particular program, if you come in under the national
average, there are some incentives or some benefits for doing
that. They just changed the rules a couple years ago, I
believe, which is an average of a couple of years to the best
of my memory.
If you come in above that national average, there are some
penalties or some accountability that comes into place if you
are not doing as good a job as people are overall. I think that
is one of the things you can do in these particular programs.
Look at some of your best practices and look at what other
programs are doing to address this issue. Anywhere there is a
best practice, everybody should jump on the band wagon if
possible.
Mr. Towns. Daniel Sisto said its members believe that
Federal officials had used inappropriate tactics to crack down
on fraud and they had fought the whistleblower law out of fear
that the State would follow suit. He said the group's members
faced a wrath of different requirements from Medicaid, Medicare
and numerous private insurance companies and as a result, made
billing mistakes that were wrongly criminalized. He said, what
concerns me from our past experience is that there is
overzealousness and the interpretation of any overpayment as
fraud and abuse. What is your reaction to that?
Mr. Williams. Fraud is in the definition of an improper
payment. My bottom line opinion on that is Congress has
established a statute and that is the rule. In some cases, they
are complicated but you have to have procedures in place, you
have to have internal controls, be it preventive or be it
detective, to hold people accountable for carrying out the
programs that is basically the intent of the Congress.
I have never had a problem with the audit community
carrying out its role of making sure that money appropriated by
the Congress has been spent for the purpose Congress intended.
Mr. Towns. Thank you, Mr. Chairman.
Mr. Platts. Thank you, Mr. Towns.
A followup on the incentive when you talked about the Food
Stamp Program, you were with us in Tennessee when we did the
hearing. I know there is funding provided for the fraud units
in the States. Is there any incentive in the form of a kind of
finder's fee if States find $1 million in fraud and save $1
million by their efforts getting to keep 10 percent?
Mr. Williams. Yes.
Mr. Platts. Is that out there?
Mr. Williams. I am not sure. I don't know the details of
that.
Mr. Platts. That carrot as opposed to the stick approach of
getting the States to get on board. They are all looking for
money. Help us find it and save it and we will share the
proceeds.
Mr. Williams. I can't speak to it. I am not for sure but
things like that you have to look at as far as what are best
practices and what can we do to make sure the program is
carried out the way Congress intended.
Mr. Platts. It relates to DOD but it is across the
Government on contracts, of the $900 billion deemed not at
risk, there are six main areas, one of which was identified as
contracts administration. Am I understanding correctly that we
are saying Federal contracts in a broad sense are somewhat
deemed as not at risk, paying contracts? Can we expand on what
that is?
Mr. Williams. The Recovery Act basically stated any program
that had contracts over $500 million annually would be required
to do recovery auditing. In my review of a listing of the
various agencies, DOD was No. 1 if I remember correctly. I have
the schedule here for DOD. In fiscal year 2004, DOD states that
it identified for recovery $6.3 million. It actually recovered
$6.3 million in 2004, that is 1 year under this particular
program.
Mr. Platts. Through the recovery audit process?
Mr. Williams. Through the recovery audit process. This is a
letter that GAO, the Comptroller General actually received from
the Deputy Director for Management, Mr. Clay Johnson on the
2004 Recovery Act audit reports for the various agencies. I
have a list of all of them. Looking at the various ones, DOD
was $6.3 million that was recovered.
Mr. Platts. Are you saying million or billion?
Mr. Williams. Million.
Mr. Platts. What dollar sum was reviewed? Do we know that?
Mr. Williams. I don't know.
Ms. Combs. I think it was somewhere around $15 billion that
was actually reviewed.
Mr. Platts. That is $15 billion that generates $6.3
million?
Ms. Combs. Correct.
Mr. Platts. Seems pretty low.
Ms. Combs. Yes, I agree.
Mr. Platts. Again applying those across the board
percentages?
Ms. Combs. It would be wonderful if the rate were that
good.
Mr. Platts. That comes back to our previous discussion that
we set out the law and then the initial guidance but this is a
work in progress and we look at how to tighten the law if
necessary. We would welcome any recommendations if we think it
is statutory or if it is more regulatory in the guidance given
where we need to refine that 2\1/2\ percent being one example.
How common is the recovery audit process? Is that pretty
standard in all departments with their contracts?
Ms. Combs. I can answer from my personal experience as CFO
at both the Department of Transportation and EPA, most
recently. I know recovery audits even though many of the
programs were not in the highest risk susceptibility, recovery
audits were a common practice for us in those agencies and
departments. I know that the improper payments rate within
particularly EPA was less than 1 percent. That is part of all
your internal controls processes. We talked earlier about
consolidating and streamlining some of the ways you look at
internal controls and look at risk within your various
departments and agencies.
I think we have to apply several of those different ways of
looking at risk within the various departments and agencies.
This is what we are trying to do but I think there are some
excellent practices out there. There are some we still need to
work on.
Mr. Williams. Mr. Chairman, in looking at that in total as
I stated earlier, I think the $500 million was the criteria and
the total amount for all of the major agencies I see in this
report is about $52.7 million across Government that was
recovered.
One of the things I would like to point out is OMB has
taken steps to increase accountability over this area and in
the 2005 PAR reports this information will be required in a
separate section so that will give it some visibility that is
needed in that first step in trying to identify the problem,
making sure that the information is out there so people know
what is actually taking place.
Mr. Platts. The total sum for recovery was $50 million?
Mr. Williams. That was $52.7 million.
Mr. Platts. DOD was $6.3?
Mr. Williams. DOD was $6.3 million; Agriculture was $2
million; DOD, $6.3 million.
Mr. Platts. I am extrapolating from a percentage
standpoint, but off the top of my head, I think DOD, $400
billion budget and out of a little over $2 trillion, so about
one-fifth of our expenditures are DOD?
Mr. Williams. That is correct.
Mr. Platts. So you would have thought that DOD would have
been in at least the $10-$15 million range, just extrapolating
straight percentages or reverse if they got $6.3 million, our
total would have only been about $30 billion instead of $50
billion?
Mr. Williams. Right.
Mr. Platts. It seems like DOD again is off on the low end.
I would like to believe that is accurate but given some of our
past hearings and their challenges with internal controls, my
worry is that it is not.
Mr. Williams. I would just add that the larger ones, VA had
$27.3 million; GSA had $11.1 million and Energy and Defense
were in the $6 million range.
Mr. Platts. Ms. Combs, maybe a caveat to my request that we
look at the 2\1/2\ percent additional requirement the guidance
placed on the improper payments, what is required to be
reported, and perhaps looking at it in a piecemeal approach
meaning that for DOD, perhaps that 2\1/2\ percent should not be
out there because of the way they operate, the size of their
contracts, the amount of contracts and things.
I just come back to that $397 billion not being required to
be addressed, that perhaps it is not across the board and maybe
the 2\1/2\ percent is a good approach for most departments and
agencies but maybe we can encourage you perhaps to revisit just
DOD in the short term.
One of the statements that I really appreciated in your
testimony, something we have talked about often here, is the
issue of consequences. In your testimony in talking about the
importance of senior leadership, setting the example, you said
agency management must prioritize resources, properly set
target reduction rates and be held accountable for improving
reductions if we are to see governmentwide results.
I was reading your testimony about midnight last night, my
homework for the evening I took home with me.
Ms. Combs. I am honored.
Mr. Platts. I am a night owl who doesn't get a lot of sleep
but I underlined it and put a question next to it, how to be
accountable in not just the agency management personnel but
agencies in total. Is it a budgetary issue that you are going
to lose money if you don't comply with the Improper Payments
Act instead of the carrot that you get to keep what you find,
you are going to lose if you don't comply. Could you expand on
what you envision with that statement?
Ms. Combs. I think there are a couple of ways we have to
look at accountability. One is individual accountability,
holding individual managers and senior people, even junior
people, responsible for doing their job and doing it correctly.
Mr. Platts. That is a very welcome statement by this
committee because it is one of the challenges, the belief that
public servants, all of us need to be held accountable, the
same as in the private sector where we clearly hold private
employees accountable when it comes to businesses.
Ms. Combs. Thus the reason I led off with the story I gave
earlier. I think that brings it down to the lowest level
accountability that you can have in an organization, the person
who actually inputs the documents in order to not make an
improper payment, but it goes all the way up through the
individual accountability of every supervisor all the way
through the manager, all the way through the CFO and on to in
this case the Administrator.
I think management leadership is a very discreet and
important part of that accountability process. It would be
really good if we could work together from an administration
perspective as well as with Congress to identify what some of
those carrots and some of those sticks actually are because
until people see the consequences not just individually but
collectively of their successes as well as their failures, we
won't stem the tide of some of this or do it as quickly as we
could possibly do it. People may still continue to work on
improper payments, but I think we have to continue to look for
ways to put the carrot and the stick into the process and to
put real teeth into our efforts.
Mr. Platts. Both approaches I think are critical. The
example you gave with the GS-7, the thank you call from you and
the Administrator probably more than anything spurred that
person to be even that much more diligent, the fact they got a
reward, an acknowledgment of their good work.
I think I said this at a previous hearing. I have on my
desk here in the Capitol from my late father when he was a
mechanical engineer a clear pyramid that was a cost improvement
award that I think he got in 1983 or an idea he submitted on
trying to reduce cost for his company and taking
responsibility. I don't think he got anything other than that,
this little recognition but it was something he held on to. I
am reminded of the approach he took in his private work in that
company. So that carrot and stick approach I think is
important.
We certainly will be glad to work with you and all the
members of the CFO Council on how to do it in a way that is
effective and responsible but fair as well.
Ms. Combs. I think that is one reason I very much
appreciate the personal meetings we have already had and look
forward to others because when we talk about prioritizing
resources which is basically what that 2\1/2\ percent is about,
it has more to do with prioritizing the resources for the
higher risk areas than anything else, but it also helps us to
work together to set and meet those most appropriate and right
now the largest target risk as well.
I think the healthy partnership that we can have both
between the administration and Congress, between the States,
between the contractors with our partners who don't like to be
called our partners but I do it all the time anyway, GAO, I
think if we can work together to come up with some of these
incentives, that will go a long way in furthering our
collective efforts in making improper payments almost disappear
in the Federal Government.
We shouldn't be reticent to say we expect a zero percent
improper payment. We should be brave enough to stand up and say
that.
Mr. Platts. I think it is leading by example because in a
wholly different area, we as a Government said to our schools,
teachers, administrators, students, parents, 100 percent
efficiency in the test under No Child Left Behind. Reality is,
getting 100 percent, if that is what we set as our goal and we
will keep working toward it as best we can, showing leadership
and leading by example when it comes to how we spend the money,
I think that needs to be our goal and we just keep chipping
away at it.
I do want to turn specifically to the Department of
Homeland Security. Certainly this reorganization is staggering,
22 different agencies into one department and inheriting from
those 22 agencies lots of material weaknesses in financial
accountability, they project they will be able to comply with
the act again estimating 2005, not able to do it for 2004, but
estimating 2005.
First, one that specific estimate, again Ms. Combs I
recognize you are 3 weeks in the position and whether you can
give an estimate, but where do you think they are? Is that
still realistic or is it going to be later?
Ms. Combs. They actually completed their risk assessment in
June 2005, so they are making substantial progress. We expect
they will be reporting in the 2005 PAR.
Mr. Platts. Do they use the recovery audit process across
the board? A specific example was FEMA and the report that came
out with the IG that there was about $31 million in improper
payments made following the hurricanes in Florida last year.
Some of the examples were $125,000 for three funerals for
people who died with no connection to the storm but we paid
that amount related to their deaths. It is one thing after
another. TVs supposedly damaged, but the total was about $31
million. Would recovery audits apply to those type of payments
effectively and in general, what is the Department of Homeland
Security's approach as best you know it?
Ms. Combs. I can't speak to the Department of Homeland
Security's approach to that but I can tell you that CFOs
responsibility when they realize something like that has
happened, whether they learn it from Congress, through GAO,
through an audit or their own internal auditors, where and
whenever they learn of it, you can do a recovery audit on any
particular element of any program you so desire.
I would suggest that if one has not been done and there are
concerns, that there probably is an expectation within that
department that a recovery audit take place on something like
that anyway.
Mr. Platts. Mr. Williams, I don't know if you have any
specific familiarity with DHS?
Mr. Williams. Yes. That is one of the agencies I have
responsibility for in the financial management arena.
I would say first of all that if you go back to the
statute, if they have contracts that exceed that half a billion
dollars, then the law basically states they are supposed to do
it. In my opinion, that is just the minimum. If you have
scenarios in which you know you have some disbursements that
have been made and you don't meet the $500,000 threshold, I
think most audit organizations would still go after that money
anyway.
I have been involved, and I am quite sure you are aware
because I testified before this subcommittee in the past on the
whole issue of placing the Department of Homeland Security
under the Chief Financial Officer's Act. There have been
extensive discussions about requesting management to be in a
position to assert on its internal controls in fiscal year 2005
and the agency being in a position by fiscal year 2006 to get
an opinion on internal controls.
I have been involved, have attended some of the meetings in
which the CFO, the Under Secretary for Management and other
financial management leaders have begun the process of
documenting and getting an understanding of the internal
control environment so they can be in a position to issue an
assertion on internal controls in fiscal year 2005. That
project is well underway.
I have seen some of the documents. I attended the kickoff
conference. As a matter of fact, the Comptroller General was
one of the keynote speakers at the kickoff conference and he
stressed the importance of the act that placed them under the
CFO Act as well as the importance of having good internal
controls in place.
I know that is well underway. That should help the agency
some. Having said that, there are still a lot of issues that,
based on what I have seen and based on the opinions the
auditors issued in the previous year and based on the fact the
agency's auditor did not agree with DHS' assertion last year as
far as its compliance with the act, it would automatically make
you think there is still work to be done there.
There are some good efforts underway at Homeland Security
to address the requirements of the legislation that came out of
this subcommittee to make sure the controls were put in place
in the internal control area.
Mr. Platts. We will be having a hearing next week
specifically on DHS and getting into some of those issues,
their 2004 audit, including their compliance with the
legislation last year regrading CFO Act and the internal
control audit and where they stand. We will get into more
detail next week.
Ms. Combs, could you expand on the industry day you held
and efforts with the private sector regarding improper
payments?
Ms. Combs. Actually, it was OMB.
Mr. Williams. Actually, we did attend and I could speak to
it but I will let the host.
Ms. Combs. He is probably actually better to speak to it.
Mr. Platts. Give a perspective as a participant, not the
organizer.
Ms. Combs. It was a great opportunity to do what we just
talked about earlier, to share some of those best practices.
There have actually been a couple of those. One was from the
perspective of the industry coming in and showing what kinds of
recovery audit tools are available and the second industry day
was from the perspective of the agencies and departments saying
here are some of the requirements we have, here are some things
we know we need.
It was very well received and I think it is the kind of
thing we need to do more often.
Mr. Platts. I was going to ask, I guess there is not a set
timeframe but it is something you will look at periodically,
kind of revisiting?
Ms. Combs. Certainly.
Mr. Platts. Mr. Williams, as a participant, do you want to
add anything?
Mr. Williams. Here is a publication, Mr. Chairman, from the
first one that was held called ``Improper and Erroneous
Payments, Sharing Workable Approaches.'' It has some good
information in there. I think the most recent one is online if
my memory serves me correct but it is basically an additional
tool looking at best practices and gives people a chance to get
together and exchange ideas and come up with ways in which this
problem can be addressed. We strongly support it at GAO.
Mr. Platts. We have touched on all the main issues I wanted
to get into and in closing, I would thank you both again for
your efforts today in helping to enlighten the committee,
members and staff. We certainly do look to continue and build
on the relationship between OMB, GAO and this committee in that
partnering effort of getting after these dollars because Mr.
Towns' question about the number going from $35 billion to $45
billion may sound unusual but that is a good sign to me because
we know the money is out there.
When we said $35 billion last year, we said it should be
$75 billion to $80 billion. I really look at that $45 billion
number as we are finding more of what is wrong and we are
capturing more of those improper payments.
When the 2005 number comes out and we are at $60 billion,
it is a scary sum that we have but it will say to me we are
making great progress in getting our hands around this huge
problem and are going to be much more effective in protecting
taxpayer funds. While it is unfortunate that those dollars are
going up, in the end it will be a good result long term that we
are being more effective.
I do commend the administration because the statute is one
part of this effort and the administration's efforts through
executive action is a very important and equal part of this
effort. This interaction as we go forward will allow us to be
that much more responsible in protecting taxpayer funds and by
doing so better ensure those who need the services of Federal
Government programs get those services because money is not
going to fraud, to those who shouldn't get but to those who
really are deserving and needing the assistance.
We will keep the record open for 2 weeks for any additional
information you would like to share. Again, thank you for your
testimonies and we look forward to continuing to work with you.
This hearing stands adjourned.
[Whereupon, at 3:45 p.m., the subcommittee was adjourned.]
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