<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:95220.wais]
$35 BILLION AND COUNTING--A REVIEW OF THE IMPROPER PAYMENTS ACT OF 2002
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
AND FINANCIAL MANAGEMENT
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 15, 2004
__________
Serial No. 108-176
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut 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
MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
CHRIS CANNON, Utah DIANE E. WATSON, California
ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia C.A. ``DUTCH'' RUPPERSBERGER,
CANDICE S. MILLER, Michigan Maryland
TIM MURPHY, Pennsylvania ELEANOR HOLMES NORTON, District of
MICHAEL R. TURNER, Ohio Columbia
JOHN R. CARTER, Texas JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee ------ ------
PATRICK J. TIBERI, Ohio ------
KATHERINE HARRIS, Florida BERNARD SANDERS, Vermont
(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 Efficiency and Financial Management
TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio PAUL E. KANJORSKI, Pennsylvania
CANDICE S. MILLER, Michigan MAJOR R. OWENS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
KATHERINE HARRIS, Florida
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Mike Hettinger, Staff Director
Larry Brady, Professional Staff Member
Sara D'Orsie, Clerk
C O N T E N T S
----------
Page
Hearing held on April 15, 2004................................... 1
Statement of:
Gerow, Charles, chairman, Pennsylvania Chapter, Citizens
Against Government Waste; and Paul Gessing, National
Taxpayers Union............................................ 63
Springer, Linda M., Controller, Office of Federal Financial
Management, Office of Management and Budget; and McCoy
Williams, Director, Financial Management and Assurance
Team, General Accounting Office............................ 6
Letters, statements, etc., submitted for the record by:
Gerow, Charles, chairman, Pennsylvania Chapter, Citizens
Against Government Waste, prepared statement of............ 67
Gessing, Paul, National Taxpayers Union, prepared statement
of......................................................... 74
Platts, Hon. Todd Russell, a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 4
Springer, Linda M., Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared
statement of............................................... 9
Williams, McCoy, Director, Financial Management and Assurance
Team, General Accounting Office, prepared statement of..... 15
$35 BILLION AND COUNTING--A REVIEW OF THE IMPROPER PAYMENTS ACT OF 2002
----------
THURSDAY, APRIL 15, 2004
House of Representatives,
Subcommittee on Government Efficiency and Financial
Management,
Committee on Government Reform,
York, PA.
The subcommittee met, pursuant to notice, at 2:30 p.m., at
the Yorktowne Hotel, Lafayette Room, York, PA, Hon. Todd R.
Platts (chairman of the subcommittee) presiding.
Staff present: Mike Hettinger, staff director; Larry Brady
and Tabetha Mueller, professional staff members; Amy Laudeman,
legislative assistant; and Sarah D'Orsie, clerk.
Mr. Platts. This hearing of the Subcommittee on Government
Efficiency and Financial Management will come to order, and I
appreciate everyone's attendance here today at this first field
hearing in the 19th District. We have traveled to our vice
chairwoman's district in Tennessee, but delighted to certainly
be here in York County, my hometown. I appreciate our
witnesses, both from Washington as well as here from the local
community, for participating in today's hearing.
Today, as millions of Americans pay their Federal taxes,
and a number of friends, who have commented to me in the last
24 hours how they were rushing to beat the deadline, it seemed
like an appropriate time for us to focus on the issue of
improper payments by the Federal Government and how we are
seeking to better protect the expenditure of the hard-earned
tax dollars of our citizens. Unfortunately, as we will hear
today in our testimony, billions of dollars continue to be lost
to payment errors each year. While some of these payments are
recoverable, a majority are not, and you know, are lost and
never to be recovered.
To his great credit, President Bush and his administration,
along with Congress, and my predecessor especially, Chairman
Steve Horn, now retired, have made the reduction of improper
payments a significant issue and a priority focus. In support
of this effort, the subcommittee believes that the taxpayers
have a fundamental right to know how their tax dollars are
being spent. Improper payments by Federal agencies are a
serious and growing problem which cost taxpayers billions of
dollars. The Office of Management and Budget estimates that $35
billion is wasted through improper payments, and there is much
belief that this number is just the tip of a much larger
iceberg.
An improper payment is any payment that should not have
been made. It can be a correct payment, an over or
underpayment, and can include, among other things, a payment to
an ineligible recipient, a payment for an ineligible service, a
duplicate payment, or a payment for a service never received.
In 2002, my colleague, who I mentioned, Congressman Steve
Horn, who was then Chair of 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. All Federal
agencies will soon be required to make estimates of erroneous
payments, and if those estimates are more than $10 million
annually, to develop plans to reduce or eliminate these errors.
On May 26 of last year, the Office of Management and Budget
issued guidance which established governmentwide procedures for
dealing with erroneous payments.
While we do not yet have our arms around the total extent
of this problem, we are beginning to get a better sense of the
total picture. What we do know is that mistakes, these mistakes
which occur throughout government, are made because agencies do
not have adequate internal controls and business process
systems to protect against these errors.
Today, we look forward to exploring the process of agencies
in implementing the act, review the status of OMB's guidance,
and learn from GAO about strategies to better identify and
reduce improper payments. We are also eager and grateful to
hear from Citizens Against Government Waste and the National
Taxpayers Union, who will express their views on this issue and
on how to get a better handle on improper payments and reduce
government waste.
We will have two panels today. Our first one features the
Honorable Linda Springer for the White House Office of
Management and Budget, and Linda, thanks for being with us
again. You are getting to be a regular with us, that may be
good or bad for you, I am not sure, we think it is good.
Ms. Springer. So do we.
Mr. Platts. And we are delighted to have your mother here
with us from Lancaster over to participate, sit in on the
hearing, and your second time with us as well. Once in D.C., so
thanks for being with us, as well as McCoy Williams, of the
U.S. General Accounting Office. And McCoy, we, as always,
appreciate your work, participation and efforts, hand in hand
with our committee.
Mr. Williams. Thank you.
Mr. Platts. In our second panel, we will have a gentleman,
Mr. Charlie Gerow, representing the Pennsylvania branch of the
Citizens Against Government Waste, and Paul Gessing, from the
National Taxpayers Union. We appreciate both of you making the
efforts, and Charlie, I think, has the shortest commute for our
witnesses. And we are delighted to have all of you, and
Charlie, we especially appreciate the Pennsylvania perspective
that you will bring to the issue on behalf of the national
organization, Citizens Against Government Waste.
Could we have all four of our witnesses take the oath up
front, and then we will get into our first panel testimony and
questions. So, if we could have our four witnesses come forward
and stand, please.
[Witnesses sworn].
Mr. Platts. We certainly appreciate what I call my hearing
homework, your written testimonies, which allows me to, in
advance of today's hearing, review your comments and deliberate
on the thoughts you want to share, and will lead to a better
discussion today. Typically, we do ask for our opening
statements to be roughly 5 minutes, but with the importance of
the issue, and also, as we are in a smaller setting, I am
certainly not going to be strict in holding to that, but if you
want to--as you best feel--summarize your written statements,
and share whatever you think is most appropriate in your
opening statements, that would be great. And Linda, we will
begin with you, and then move to McCoy.
[The prepared statement of Hon. Todd Russell Platts
follows:]
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STATEMENTS OF LINDA M. SPRINGER, CONTROLLER, OFFICE OF FEDERAL
FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND
McCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE
TEAM, GENERAL ACCOUNTING OFFICE
Ms. Springer. Thank you, Mr. Chairman.
I do appreciate the opportunity to testify again before
this subcommittee, this time on the propriety of government
payments. And as you mentioned, I am pleased to be near my
family today, which resides in Lancaster County, in a
neighboring district.
First, I would like to say that eliminating improper
payments by the Federal Government has been, and continues to
be, a major focus of President Bush and this administration. We
strongly feel that one of the most important requirements in
executing our missions is the responsible spending and
efficient stewardship of taxpayer dollars, and we view them as
taxpayer dollars, not OMB dollars or anyone else's dollars.
It is the goal of the administration to ensure that every
dollar spent by the Federal Government is a dollar that is
spent wisely and for the purpose to which it was intended. No
payment made by the government should be wasted or spent in an
erroneous or improper fashion. Given the Federal Government's
current budget, in excess of $2 trillion annually, and the many
competing important priorities, we believe our mission is more
important today than it has ever been before.
Since the President's management agenda was first announced
in 2001, early in the term, the elimination of improper
payments has been a key component of the improving Financial
Performance Initiative of the President's agenda. As part of
that initiative, we have been working very hard with Federal
agencies, both to identify and to eliminate improper payments
within their major programs and their activities.
Specifically, at the Office of Management and Budget [OMB],
it is our job to make certain that government agencies review
their payments, and assess whether a risk of improper payment
exists. If a risk does exist, it is our job to make sure the
corrective action is taken to ensure that it won't happen
again. We anticipate that all of these ongoing efforts will
ultimately lead to a review of every single dollar for which
the government intends to spend. The total $2 plus trillion we
expect to be inventoried and subject to scrutiny, to ensure
that taxpayer money is spent for that purpose for which it was
intended.
Our initial efforts to eliminate improper payments focused
on Federal programs making annual payments in excess of $2
billion. That is per program. In total, that amounted to about
$1 trillion, or roughly half of the budget in a given year.
There were 40 programs included, found within 15 different
agencies. These agencies were directed to follow necessary
requirements set out in Section 57 of OMB Circular A-11 and
report on their programs within their--the context of their
budget submissions. That was the initial approach used by OMB.
Collectively, these Section 57 programs, as I mentioned,
comprise about $1 trillion in government spending. We
estimated, as you mentioned earlier, Mr. Chairman, that
improper payments just on that first $1 trillion exceed $35
billion, and I use the word exceed because that is the initial
report that we have gotten, and we believe that not all of
those dollars have been fully measured yet. But--so that it
is--we believe $35 billion is the bottom threshold of what we
expect, just on those Section 57 programs.
Our goal to eliminate improper payments, as first
envisioned in the PMA, was later endorsed, as you mentioned, by
the Improper Payments Information Act of 2002 passed by
Congress. And again, it is a credit to the work of this
committee, and not only to Congressman Horn, but to yourself as
well, in bringing that legislation to fruition. It is the
administration's belief that the provisions of the act,
combined with the start that we have gotten--and again, I would
just characterize it as a start through Section 57, will ensure
that all Federal payments and all Federal dollars are looked
at, and ultimately spent only for the purpose for which they
are intended.
Following the enactment of the act, OMB issued last year,
in May 2003, guidance for agencies' compliance with the act.
There are six steps outlined in the guidance, and if you look
at the chart that we have brought--OMB doesn't usually do
charts for hearings, but we decided to follow the lead of some
of our fellow panelists and actually bring one this time, you
will see that the six steps are listed there.
They start with the first one, of compiling the inventory
of all payments and outlays. Second, conducting the initial
risk assessment. This is an assessment of the susceptibility to
risk of the program. The third step is to conduct a statistical
analysis for those programs that are susceptible to risk. The
fourth step, then, would be to develop corrective action plans.
Next would be to develop a baseline of the current level of
erroneousness, if you will, and then, to set improvement
targets. And then next and last, report each year to Congress.
Those are the steps that we believe are directed in the act,
and those are the ones that we have been communicating through
the guidance and working with the agencies to comply with.
In the fall of 2003, I personally met with the Offices of
the Chief Financial Officers and at the same time, in a joint
meeting, the Offices of the Inspectors General of each of the
major agencies that are covered and subject to the act, and
ultimately, they account for the full $2.4 trillion. Following
those meetings, we directed all agencies to submit, by the end
of November 2003, their plans for compliance with the act. All
of the agencies met that goal. After our review of the plans,
in January 2004 we responded back in writing to each of the
Chief Financial Officers with specific comments and questions
that we thought would improve their plans and close any gaps
that we saw. And again, I should mention these are all steps
that we have taken subsequent to our hearing last year. I want
to sort of update you, since the guidance was only just coming
out at that point.
So, the meetings with the CFOs and IGs, the submission of
plans, review by OMB of the plans, with feedback, at the
beginning of this year. Then subsequently, we have had another
series of meetings with the CFOs again, and the IGs during this
past February and March. At these meetings, we finalized the
plans for compliance, and directed agencies to set specific
target dates for each of the required steps, each of those six
steps, as they applied to that agency and to their programs. We
also made sure that their inventories would total up to the
full $2.4 trillion of outlay, so that when we report back to
Congress, we will be able to say with assurance, here is the
full $2.4 present and accounted for. We now have specific dates
in which each of the key milestones are expected to be
completed, and OMB's job will be to track and to make sure that
these deadlines are met over the coming months.
So where are we right now? At this point, most of the
agencies have completed step one, which is the compilation of
their program inventories. Looking ahead to the rest of the
steps, we expect the risk assessments to be pretty much
completed by the end of May for most agencies. Statistical
sampling in most cases done by the end of June, corrective
action plans and the baseline and improvement targets by the
end of September, which is the end of the fiscal year for the
Federal Government. So, that is really a marker. At that point,
then, agencies along with all their other financial reporting
will be compiling that, putting that together into their
performance and accountability reports, which are due out by
November 15, 2004. And we thought that combining it in with
their other financial report and their audit report was a
logical vehicle. It is already submitted to Congress, and that
was why we chose that particular vehicle to communicate their
compliance with the act.
So we are comfortable that we have a plan. We are
monitoring it closely, and we have a good start. I would, in
fairness, want to communicate to you, Mr. Chairman, that there
are significant challenges that remain. Most notably, we are
working with agencies to develop ways to measure the full
stream of payments that are made. In many cases, we have
payments in some of the programs that are on this other chart
that are made to States and then to local governments, or to a
university and then to another university downstream, and our
job doesn't start with that first payoff from the government.
If a payment is made, for example, a grant from the Federal
Government to a university for science, and then that
university turned around and gave it to another university, and
they built a gymnasium with it, that would be an improper
payment, even though we gave the right amount to the right
university. It is a very difficult thing to go all through
those steps for some of these programs, but that is a
complexity that we are dealing with, and we intend to get a
process in place.
I know that you have a number of questions that you will--
and we will--I will address those as they come up, but I want--
I hope that you can see that we believe several things. One,
that every tax dollar must be spent wisely, efficiently, and
for the purpose for which it was intended. We believe that this
administration, under President Bush's leadership, has taken--
undertaken with the help of Congress the most comprehensive
effort ever to deal with the problem of improper payments. And
for the first time ever, to my knowledge, we are reviewing
every Federal program to determine if it is at risk of making
an improper payment. And we believe we are making progress, and
so we are happy to share that with you today, and we look
forward to your questions.
[The prepared statement of Ms. Springer follows:]
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Mr. Platts. Thank you, Ms. Springer, and--I turned it off
because when I touch the table, you are going to hear it, but--
we appreciate and we will get into questions after Mr.
Williams' testimony, but I do appreciate the review, and do
acknowledge the ongoing efforts by you and the entire Bush
administration on the issue of financial management, including
improper payments.
Ms. Springer. Thank you.
Mr. Platts. Mr. Williams, if you would like to begin your
testimony.
Mr. Williams. Thank you, Mr. Chairman.
Mr. Chairman, I am pleased to be here today to discuss the
governmentwide problem of improper payments in Federal programs
and activities.
First, I would like to respond to your request that we
review the fiscal year 2003 performance and accountability
reports of 15 agencies for improper payment information on 46
programs.
Second, I will discuss the importance of effective internal
control to the success of the Improper Payments Information Act
of 2002. In this regard, it is important to recognize that
various legislative and administrative initiatives have called
for continuing assessments and improvements in internal control
and financial management systems over the past two decades.
Meeting the requirements of these initiatives should have
resulted in agencies having significant information available
on their programs and activities that are susceptible to
improper payments.
We found that the fiscal year 2003 performance and
accountability reports typically contained limited amounts of
improper payment information, even for those programs
previously cited in OMB Circular A-11, for which a reporting
requirement has existed for 3 years; 7 of the 15 agencies
involved reported all three categories of information you asked
about for 9 programs; 4 agencies did not report on any of the
three elements for the 11 programs. Further, the reports
contained improper payment estimates totaling almost $36
billion for 31 of the 46 programs listed in the circular,
information on agency initiatives to prevent or reduce improper
payments for 22 programs, and impediments to reducing or
preventing improper payments for 11 programs.
A strong internal control system is key to the effort to
reduce improper payments in Federal programs. Since 1982,
various legislative and administrative initiatives have focused
on and required agency assessments of internal controls over
programs and financial management activities. Although these
initiatives may not specifically target improper payments, by
emphasizing internal controls, they have recognized the
importance of internal controls in ensuring that Federal
programs achieve their intended results, and that Federal
agencies operate them effectively and efficiently.
We believe that only with diligence and vigorous
implementation will the Improper Payments Act have a
significant impact on governmentwide improper payments. The
level of importance each agency, the administration, and the
Congress place on the efforts to implement the act will
determine its overall effectiveness, and the level to which
agencies reduce improper payments and ensure that Federal funds
are used efficiently and for their intended purpose.
Hearings such as this one today are critically important
demonstrations of the congressional commitment to efficient and
effective management of Federal programs and funds. And
ensuring transparency of Federal efforts to address the
governmentwide improper payments problem.
Mr. Chairman, I would be glad to respond to any questions
that you may have.
[The prepared statement of Mr. Williams follows:]
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Mr. Platts. Thank you, Mr. Williams, as well. And as I said
earlier, you and GAO played a very important role as we have
sought to partner with your agency, as well as with OMB, and
really all of the Federal Government to really try to get our
arms around this issue.
Ms. Springer, I would like to begin with you, and as we
talked about the guidelines and your timeframe, and based on
where the various agencies and departments are now, as we are
about to enter the month of May, and they have some benchmarks
to meet, based on the guidance that OMB as a whole provided,
and what they should have already done, and have what they
should have, the risk assessments coming up in May. What is
your best estimate of the guidance as it stands? Is it going to
be pretty solid, or do you think you are going to--as you go
through these next couple months, going to have to revise it
and, the departments and agencies are not stepping up as much
as you maybe hoped they would in fulfilling these requirements?
Ms. Springer. Well, we think, Mr. Chairman, that the
guidance is holding up pretty well, as the agencies have had to
develop plans all the way through each step. It has been a good
opportunity to vet the clarity of the guidance. The section
that has the most challenge for us, and the CFOs are working
along with the Inspectors General, to get further definition,
is in those stream of payment issues. And also, some of the
more complex programs, and how you actually define the rate.
And the need for an annual rate, in some of these cases, where
they have only been doing them every 3 or 4 years, so I think
those are places where we are issuing some further clarity, but
the basic steps are holding up fine.
Mr. Platts. Is there a consequence that has been delineated
to the agencies or departments that if they are not meeting
these, they better have a good explanation of why, or else this
happens? Especially as we approach the November 15 PAR reports.
What if they don't? And I ask that especially in light of Mr.
Williams' testimony, written and mentioning here as that--under
the Section 57 requirements, in those 40 odd programs that were
to be disclosing in their 2003, that a large percentage of them
really didn't, you know, do a very good job. What is going to
be the consequences as we go through and they are not meeting
the requirements?
Ms. Springer. I can't say that we have actually said if you
don't do this, then this will happen to you, or you won't get
your funding, or that type of thing, but what we have done is
to work with every agency to make sure, first of all, that they
do have very specific steps and plans in place, with dates, and
I think that they didn't have that in the past. We just more or
less said here is what you need to report in your budget
submission, and then we let them go for the year, and then we
saw what came in at the end, and as you say----
Mr. Platts. Right.
Ms. Springer. There are holes in that. And I think it was
the first time that some of these programs, frankly, started to
deal with these issues seriously, and found it was difficult to
do. And that is not an excuse, but I think it was an
observation. By having each of the steps, it allows us to make
sure they don't get off track, and we have ways to work with
them. And we will be partnering with the IGs as well throughout
all of this to make sure that their independent oversight, not
just the administration's, but the independent oversight of the
Inspector General, will help to keep them on track as well.
Mr. Platts. As you meet with the CFOs and the others
involved in the process, we certainly will be watching those
who comply or don't comply.
Ms. Springer. We tell them that, too.
Mr. Platts. And as we get to that November 15 deadline,
again, it will be meant in a positive way, but we will
especially be interested in having those agencies or
departments who aren't in full compliance as of November 15,
and to share publicly, you know, what is the challenge, and why
aren't they--and I am sure, as you have stated, there are some
really significant challenges. How to define the improper
payments, how to get your best estimate, but it does worry me
that the consequence on the--because, as in--Mr. Williams, in
your written testimony, you have--in recounting the history
through the 1980's, the 1990's, and then even the response to
the Section 57, that there really, even when it is--
administrative focus is there, and congressional action occurs,
that the agencies and departments continue to show a hesitancy
to really embrace the guidance or the statutory requirements
put in place to go after this, and I hope, and I think there is
maybe an important difference, and that is the fact that this
President has, as part of his management agenda, made financial
management a top priority.
In that example from the top, through OMB, through the CFO
Council, can make a difference, but I do worry that they need
to know that there is some consequence for noncompliance, and--
--
Ms. Springer. Right.
Mr. Platts. Mr. Williams, is there anything from your
perspective that we should have better included in the original
legislation, a statutory consequence, or is there something we
should contemplate?
Mr. Williams. No, I think we have laid the groundwork for
requiring the agencies to report the information that we need.
I think from a legislative standpoint, if I was assessing you
to give you an opinion, you would get a clean opinion, from the
standpoint of using the Green Book criteria, the tone has been
set at the top, right from the beginning, from you and the vice
chair. You have held hearings, and you have made it known the
importance of this issue, so I think at this particular point
in time, we have done the things that we need to do. If there
is any other thing that you might want to consider, is
something similar to what we have reported in previous years,
and that is you might want to consider coordinated efforts with
the authorizing committees, and the appropriators of some of
these programs, to make sure that Congress is in sync, and that
all three committees are working very hard to make sure that
this issue is addressed.
Mr. Platts. And that is an important suggestion for me, as
a member, and for our committee staff with those other
committees that--those that have the most egregious numbers,
when it comes to improper payments, that those authorizing and
appropriating committees for those programs are aware of that
as they go through their appropriations process, are maybe
asking similar, specific, and tougher questions.
Mr. Williams. Tougher questions, right.
Mr. Platts. Yeah.
Mr. Williams. Exactly.
Mr. Platts. As part of that review.
Mr. Williams. Exactly.
Mr. Platts. Ms. Springer, last year, we touched on this, I
have to reexamine it, because there are now two parts of--about
going after every dollar, and to focus on, you know, every
expenditure is closely scrutinized. And in your written
statement, where you talked about ensuring that every dollar is
wisely spent, and no payment should be wasted. The 2.5 percent
caveat that has been placed on the threshold standard is one
that still seems to me to be contrary to that commitment of
every dollar, because the original legislation started at $1
million, as introduced by Chairman Horn. The compromise was $10
million, but with no other caveat, and then, as OMB issued the
guidance, added the $10 million, and that is at least 2.5
percent, which excludes some payments that won't be looked at
and disclosed and able to be acted on. And I guess in
revisiting that, as you have moved through this process, do you
have any new thoughts or have you given any more consideration
to the appropriateness of that 2.5 percent additional caveat?
Ms. Springer. Well, we have been asked that question, as
you know, by your colleague on the Senate side, Senator
Grassley, as well, and actually, I brought up copies I would
like to have entered into the record, if I could, of----
Mr. Platts. Sure.
Ms. Springer [continuing]. The letter we sent to him.
We view it that, first of all, the first step of the act,
or actually, the second step, of conducting the risk
assessment. This is the review to see if there is a significant
susceptibility to risk, and the actual words in the law, in the
act, are ``susceptible to significant improper payments.'' That
is the thing that agencies are directed to identify. That is
the full definition that is in the act. The $10 million
threshold doesn't come in until steps three and beyond. So,
because there was no further specificity, we felt that agencies
would be looking for some definition beyond--what is
susceptible, what is significant improper payment? How do you
define that? And what we had to go on to--what is--our
experience in the first trillion dollars of programs, where we
had seen a threshold of 3.5 percent, $35 billion over the first
trillion dollars of payments, at a minimum, and so that average
3.5, we felt actually would probably be higher, once we were
fully informed about that, and so we said we wanted to pick a
percentage below that number for the programs that are not
already covered by Section 57, and that is an important
clarification. Any program that is in this first trillion,
these large programs, Social Security, Medicare, Medicaid,
unemployment insurance. All of those go through the entire
portfolio and protocol of steps. They won't stop. If their rate
was only a half of a percent, it wouldn't matter. They have to
go all the way through all of the steps. So, we are only really
talking about the balance of the programs, which are typically
less small and less susceptible. But we used, as a benchmark,
our experience on this first trillion, and we said let us use
2.5, in addition to the 10, that comes later on in the act, to
make sure that efforts, the agencies' efforts, were focused
where it would be most meaningful and most fruitful.
And I understand that is--jumped off the page, if you will,
to some of the observers of the guidance, but it was really
done, really, to make sure that efforts were focused, frankly,
to get us the best results. We are focused on results, on
getting these payments back under control, and we didn't want
agencies chasing after nickels and dimes. We wanted them to
focus their efforts in the most meaningful places.
These bigger programs will be, will regardless of what
their rate is, they have to go through every step. They won't
stop at step two.
Mr. Platts. But how is that for the longevity of these regs
and guidance being in place, in a future administration? A
future administration could eliminate the 2.5 percent. You are
saying even if their rate is below, for these larger ones, you
are still requiring them.
Ms. Springer. And that is in the act. That is actually in
writing in the act. That is not just, you know, a sort of a
desk drawer rule.
Mr. Platts. Right. In the----
Ms. Springer. So that is provided for in the--not in the
act, in the guidance.
Mr. Platts. Right. That is in the guidance.
Ms. Springer. Right.
Mr. Platts. The answer is that a future administration can
maintain that, you know, requirement, or choose----
Ms. Springer. Sure. They could. I mean, I guess, I would
turn it around, the perspective around a little bit, and say
that all programs under the Section 57, plus the universe of
the balance of the programs that are above that threshold, that
we think is a pretty low threshold, frankly, based on what we
have seen on these others, we think we are going to capture--
there is very little that is going to fall through the cracks.
And if we could get all of that under control, that is going to
be a big universe for the agencies to deal with. If the time
came when we felt that was well in hand, then we could always
revisit the guidance and reset that threshold for those
programs that aren't in Section 57.
Mr. Platts. The kind of twofold concern, one is, looking at
what is a significant improper payment, is, in reading the act
in total, would take that Congress said for an agency any--the
total of $10 million for that agency, are significant. The fact
that we didn't put a percentage in there, from a statutory
interpretation standpoint, would be that $10 million is
freestanding, not with something else attached. And I guess the
other is that for some smaller agencies, that they know, even
though their dollar amounts are smaller, and not going to be
the big, you know, prize that we are after, that they should be
equally focused on this, and is that, you know, through the CFO
Council, and through the various interactions, you know, that
OMB is having, that even if they are not technically required,
that they still know that they had better be going after this?
Ms. Springer. Yeah, they are. They are. Absolutely. I mean,
that is just part of the level of management scrutiny that we
want them to have, is good financial management, managers
across the board. One other thing that is important to note,
too, is that the programs have to be aggregated in ways that
are meaningful within an agency. So, an agency can't just take
very small pieces and apply the $10 million and the 2.5. They
have to be--it is all of the grants of an agency, for example.
Mr. Platts. Right.
Ms. Springer. We are really trying to safeguard that things
don't fall through the cracks. Our only intention there with
the 2.5 was to provide a definition to what significant meant,
and then to focus efforts where the problems really were
biggest, and you know, again, as I say, if we had to, down the
road, once all the rest of these dollars are well in hand, we
could revisit. I would imagine that we will still have, of the
$2.4 trillion, easily two thirds to three quarters of dollars
going beyond step two, even with this rule. It wouldn't
surprise me at all. So, we are going to have our hands full.
Mr. Platts. Right.
Ms. Springer. Even with this rule.
Mr. Platts. So, maybe the message is that you are--this is
a starting point, and when all goes well now, with--as it is,
will your----
Ms. Springer. We could come back and----
Mr. Platts. Will you go to the next level----
Ms. Springer [continuing]. Take a look at it.
Mr. Platts. And dig a little deeper, and Mr. Williams, your
thoughts from GAO, I guess in a twofold sense----
Mr. Williams. Yes.
Mr. Platts. One is if you want to comment on the 2.5
percent additional requirement----
Mr. Williams. OK.
Mr. Platts [continuing]. But also, Mr. Gerow is going to
talk in his testimony, his written testimony, that the $10
million, you know, being high, and given that Chairman Horn's
original legislation was $1 million, should we be looking at
trying to go back to the original intent, or are we at a good
place to start, and see how it plays out?
Mr. Williams. I think that the issue surfaced here from the
standpoint of the interpretation of significant, and based on
what we have heard today, I think as we go forward, we need to
take a close look to see if we are getting the coverage that we
need to get to make sure that we are addressing this particular
issue. You raised a very good point, from the standpoint of one
of the reasons why you get certain things put into legislation
is because you want to have a process in place that will stand
the test of time, regardless of who is in charge. That statute
would be there from the standpoint of making sure that we are
addressing the improper payments issue. Time will tell, I think
time will tell whether we are getting adequate coverage or not.
I think at this particular point in time, we just have to wait
and see. I was aware that at one point in time, it was $1
million, that was in the original draft legislation. What we
need to do is to take a look, as they come in, on this $10
million, and if it turns out that there are some programs that
are slipping through the cracks, then we might need to revisit,
from the standpoint of lowering that number. It could go in
either direction. We just need to get through this first year,
see what type of information we are getting from this
particular process, and then reevaluate. So, it is a work in
process, I believe, at this particular point in time.
Mr. Platts. Staying with the guidance issue, in the
implementation of those guidelines, one of the challenges, Ms.
Springer, you talked about is the payments that are State
administered, and how to track them. They are Federal dollars,
but each State handles them in various programs. Can you expand
on the guidance that you are giving agencies, as far as how to
try to go after that chain of command of the money as it goes
through, and also they should be working with the States. How
close are you working with the departments and agencies
regarding those type of State implemented Federal payments?
Ms. Springer. Right. And that probably is the single most
important issue that we have as a challenge. We are working
very closely. We have a committee of the CFO Council and
membership on that committee with the Inspectors General,
working with us, with the agencies that have those types of
payments, and to develop ways and to share practices among
them, on how to deal with it.
Now, each agency is dealing with it in their own way.
Medicaid, for example, or Medicare, and Medicaid, with payments
to the State, are working with pilot groups of States to try to
look into and at the State level, be able to do reviews of the
payment process. As they learn more about this pilot group,
then they will be able to extend those practices to a broader
group of States, and that is a learning experience for them. We
are looking to strengthen the Single Audit Act, which looks at
payments, grants payments, for example, and other payments that
are made, and has auditors at that level of the recipients, to
ensure that the payments are used for the purposes that they
were intended. We think that the Single Audit Act, and those
auditors will be able to help us, almost as an extension of the
agency to determine the appropriateness of the payment.
And then third, we believe that some of these entities have
their own audit staffs. States certainly have audit programs in
place, and it is my goal to try and partner with them wherever
we can to not duplicate their efforts, but benefit from them,
and add that to our array of tools.
Mr. Platts. The pilot programs that are ongoing, those are
really in response to the Improper Payments Act being passed?
Ms. Springer. Actually started with the OMB directive,
because there are programs that were on the initial Section 57
list.
Mr. Platts. OK. So, the Section 57----
Ms. Springer. Certainly, the act reinforces it.
Mr. Platts. OK. And with the States, is there--as your--and
maybe it is, again, as those pilots are kind of getting a base
of information, but is there anything being contemplated to the
States that, if you want to have these tax dollars made
available to you from the Federal Government for your citizens,
that you will have to implement, you know, something similar.
Maybe if they have it, you don't want to duplicate it, I agree.
Ms. Springer. Right.
Mr. Platts. But you know, what is the guidance being given
through the agencies to States to say, you know, it may not be
this year, but we are going to be looking at either having your
own that we can extrapolate the information, or we are going to
require you to adopt something that we are doing.
Ms. Springer. Right. I am--the reason I am looking here is
that I don't really have the program on the tip of my tongue,
but there was a program that--where money was given to the
States, and I am not sure if it is an unemployment program, or
it may have been school lunch. But there was a program, and I
can get for you which one it was, where payments actually were
withheld. And don't quote me that it was school lunch, but
there was some program----
Mr. Platts. Right.
Ms. Springer [continuing]. Where there was actually--the
dollars distributed were tied to a better treatment and better
accuracy of handling of payments. I will get for you which one
it--which program that was.
Mr. Platts. Yeah, and I would appreciate your following up
with this, because when I look at some of the dollar figures,
the sums that really are State implemented, some of them are
pretty significant.
Ms. Springer. Yeah.
Mr. Platts. And if we are really going to have great
success Federal Governmentwide, those States that are actually
implementing, or administering those dollars really are going
to be a key part of the effort.
Ms. Springer. Yeah, I am being told that it was the food
stamps program.
Mr. Platts. OK.
Ms. Springer. Where there was something of that type, and
it is a way to test it. If it works there, you are absolutely
spot-on that it is the best way to be able to get some good
enforcement.
Mr. Platts. So, is OMB looking at taking that type of
example, and moving it to other programs? Is that part of----
Ms. Springer. Making a----
Mr. Platts [continuing]. That pilot review, or----
Ms. Springer. Well, it's making agencies aware that this is
an option, and we expect them to use that option wherever they
can.
Mr. Platts. So basically, given the agency, saying one way
or another, we expect you to be able to attest to the accuracy
of your payments, and one option is to get the States to
implement a program that you can--that the Federal agency----
Ms. Springer. That is right.
Mr. Platts [continuing]. Can use?
Ms. Springer. That is right.
Mr. Platts. OK. Staying on the issue, or related to the
guidance and every dollar every payment being focused on, it is
analogous to my concern on the 2.5 percent being added, is the
agreement with the Social Security Administration on the
``unavoidable payments,'' and how they will be treated. I know
one example is with disability payments, and--where Social
Security, if they are making a payment and they determine that
a recipient of that disability payment maybe is not eligible,
the courts have ruled you have to go through the due process,
and you keep paying, and even if at the end of the due process,
you find yeah, we were right, they shouldn't be paid, there is
no ability to recoup, the courts have said. As you know,
unavoidable. Is that an accurate example, in----
Ms. Springer. That is an example.
Mr. Platts. Where----
Ms. Springer. I am not sure if they can recoup in that
case----
Mr. Platts. Where they----
Ms. Springer. But----
Mr. Platts. Because--I guess where they can recoup, but----
Ms. Springer. They can recoup it, but they can't until
after the decision, because until the courts agree that there
has been----
Mr. Platts. Right.
Ms. Springer [continuing]. An accurate determination of the
continued disability or recovery----
Mr. Platts. Right.
Ms. Springer [continuing]. You really can't say that it is
an improper, or that it is a recovery until the courts agree,
because of the due process. We certainly wouldn't want to take
away the due process.
Mr. Platts. Right.
Ms. Springer. Make that recommendation. The agencies in
those cases, where they have to continue to pay, and agency is
the wrong word, Social Security, and that is the only agency to
which this explanation or elaboration on the guidance applies.
No other agency has come to us on this. It is just strictly a
Social Security issue.
Mr. Platts. At this point, just being Social Security, are
we establishing a precedent that other agencies are going to
say hey, we are going to go after that same argument to lessen
what they have to report what they are showing as improper
payments.
Ms. Springer. We haven't seen any indication of it. The
only thing that I could even potentially imagine would be if
there was a legal impediment, or a statutory court type
impediment, similar to the due process issue. But none have
raised that. We are not aware of any. None of--no agencies have
come to us with it. So--but where there is a--bound by the law,
then we really have our hands tied. But there are some other
practical situations with Social Security as well. For example,
payments that are made after death. If a death isn't reported
on a timely basis, once that is known, then at that point, we
have told Social Security, you have to recover those funds. If
you don't recover them pretty quickly, then that becomes an
improper payment. That has to be added in to your rate. So, it
is just a matter of time until it gets to the rate. They are
capturing the dollars. They know how much it is. And--but at
the point of time when the payment was made, they didn't know
that the person had deceased. There are some other situations
where there are estimates of earnings, and the actual earnings
aren't known until they are actually earned, so--but the
payment is made in anticipation of a level of earnings that has
been estimated. That could be higher, it could be lower. Once
the actual earnings are known, then in all likelihood, it would
turn out that the payment should be revised, or would have been
different. And then, it is up to Social Security to make that--
recoup that amount. If they don't, that also would enter into
their improper payment rate. So, it is really just a matter of
the practicality of what information is available, or the due
process issue. It covers the vast majority of the issues.
Mr. Platts. Your example in the Social Security death
payment or after death payment, is a good example. It was
actually one that I was talking about in a previous speaking
engagement earlier today, because of the wrongfulness of how
the law works today, where someone can pass away at 1 minute to
midnight on the last day of the month, and that next first day
payment, first of the month payment is for the month that the
person lived all but 1 minute.
Ms. Springer. Right.
Mr. Platts. And Social Security says we win, you lose, even
though you have bills for the entire month. And I came to learn
of it through the passing of my father on June 25th, sitting
with the funeral director, and my mom already was aware of it,
because of a bad experience with one of her friends, where the
husband died the last day, or the next to the last day, a check
went in, was taken out, which threw the widow's account off,
she didn't know what was going on. And that is a separate issue
of equity or fairness within Social Security, but I guess my
concern with the approach that you are taking with Social
Security in this specific example. It is not the acknowledgment
that there are some--and the due process is a perfect example.
The courts are requiring them to make it, it is not improper
when they are making it, because the due process hasn't run its
course, but how we disclose them. And I would like your
comments, and for OMB to consider that you don't free the
departments or agencies, in this case, just Social Security
thus far, from reporting those type of payments that maybe are
unavoidable, but rather report them with a different title,
that they are unavoidable improper payments. So then we still
know that these type of improper payments, even unavoidably,
are being made, especially if some of them relate to statute,
where they are improper, but statute is requiring them to make
it, we need to know that, Congress, because maybe the statute
needs to be amended. And if they are not reported at all, and
not disclosed at all, then we don't get that base of knowledge
to act on. And so, I think you are being very responsible in
working on Social Security, and saying there are some payments
that are going to be a different breed here, and we need to
address that. But to not require any disclosure of those, I
think, is not going to be the best approach. And I would be
interested in your comments. Widow's account office.
Ms. Springer. Well, I appreciate your recognition of that
there is this different category, and--that doesn't fit nicely
into the black and white model. I think the part that you--that
we would be reporting that doesn't get reported today, is the
small part for the interim period, before it moves from a not
known to a known. Because once it is known, then, and the short
time that we give them to act on it and recover it. It is that
short period, because once--if Social Security doesn't act
promptly on it, it will go in and be reported as an improper
payment. So they are--it is just this small window of time from
when, say, the court rules and says yes, it really is an
improper--or, they are not eligible, until Social Security
doesn't move quickly. So, the question is what do we do in that
window there.
Mr. Platts. Well, you have more faith in the quickness of
our courts, in the sense of it being a quick resolution, versus
perhaps a lengthy process, and that is going to vary----
Ms. Springer. Yeah.
Mr. Platts [continuing]. By the circumstances, but----
Ms. Springer. Well, and the timing is probably different.
It is--I am sure it is longer there than it would be in the
case of the--probably most of the death claims, although some
of those can go for a long time as well. We will look--we will
certainly look at it, Mr. Chairman.
Mr. Platts. Yes. And Mr. Williams, I would be interested in
your thoughts of that aspect of the guidance, the unavoidable
payments.
Mr. Williams. Yes, Mr. Chairman. GAO basically supports the
concept of classifying them as avoidable and unavoidable, but
we think from a transparency standpoint, it is very important
that information be disclosed, because as you stated earlier,
there could be some decisions that the Congress might need to
make based on those two categories. But we definitely support
the position of transparency of this issue, and disclosing the
avoidable as well as the unavoidable.
Mr. Platts. Yes, and that is, I think what again, as we
partner, is what we are all after, is the best way to get our
arms around this challenge is the more information, the better.
Mr. Williams. That is correct.
Mr. Platts. And I think we are--I am worried that we are
going to exclude a base of information that may be--fall back
to Congress to be the ones responsible, because it is
statutory, and that is causing these unavoidable improper
payments. So it is something I do envision following up with
you on, but I would appreciate your--you and the agency--be
giving more thought to the approach you are taking, for now,
just with Social Security, but also because of what precedent
we are setting, that we try to get it as right and responsible
up front now, so that if there are any other agencies that have
similar challenges, and--I would think Social Security, the
examples you have given, I can think of Veterans Administration
would be one that would jump out, where there is similar type
of payments that maybe, you know, down the road something is
determined that we did something that wasn't right, either too
much or not enough. Often, I find with the VA, is that we are
undercompensating our veterans wrongfully. But that we take a
close look at that, and err on the side of disclosure and
transparency, and not on less information.
Mr. Williams, what would be, in your review, and you have
looked at, I guess, now, really, the Section 57 programs----
Mr. Williams. Yes.
Mr. Platts. Your summary is a good one, of compliance, of
the ones that kind of fulfilled all three categories, and there
weren't a whole lot of the total 40 some. Is there one or more
that really jumped out, as the best approach to this issue, and
really, setting an example for the others?
Mr. Williams. There are a couple that I would like to talk
about. One is the food stamp program. That is one that I have
been involved with, going back to 1995. I have worked with the
agency from the standpoint of trying to come up with a good
number to disclose in the financial statements. So, I am very
familiar with that particular program. I think they have done
some good things in coming up with samples, and as mentioned
earlier today, there has been some penalties imposed on the
States, etc., for not meeting certain error rates that they
established. If you take a look at the numbers that are
reported today, you would have to look at them real close if
you are looking at them over 2 or 3 year period, because at
first glance, just looking at the improper payment amount, it
looks like it has gone up at the agency, when in fact, the rate
has gone down. And the reason for that is because the base that
rate is calculated on has increased over the last 2 or 3 years.
So, I think that would be one of the programs. In previous
testimonies before this subcommittee, we have talked about the
Medicare program, and I think that would be another example of
one that other agencies might--would want to take a look at,
and consider some of the experiences of that particular program
in establishing, maybe some best practices in how to go about
identifying and reporting their improper payments.
Mr. Platts. The opposite side of the coin, that is, of the
11 that didn't meet any of them, what is--from a subcommittee
responsibility----
Mr. Williams. Yes.
Mr. Platts. Which ones should we be most worried about?
Mr. Williams. You know, it is difficult to say, because
when an agency is not reporting amounts----
Mr. Platts. It is hard to know.
Mr. Williams [continuing]. You are in the dark as to what
is actually going on in that particular agency, so I would
basically suggest that you put them all in one group, and say,
you know, we need this information, because there are some
critical decisions that we need to make about these particular
programs, so this information is definitely needed for the
decisionmaking process.
Mr. Platts. And that additional scrutiny may be, Ms.
Springer, has OMB gone to the 11 programs that did not comply
with the guidelines for the Section 57 requirements, and have
not reported their estimated improper payment amounts, didn't
report their initiatives, didn't report their impediments as
they were to in the 2003 PART acts? Have they gotten special
attention in saying, hey, that was an OMB internal decision?
Now, it is the statute we are going to be implementing, and
this zero compliance of those 11 are not going to be acceptable
come November 15? Are they getting additional focus or scrutiny
from OMB?
Ms. Springer. Yeah, they are, and you know, we have spent
extra time with them, not only in their methodology for
determining their rate and sounding out the problem, but in
also how they should do their reporting, the format. One of the
things we are doing is working with all of these agencies, and
we are going to prescribe a format for the PART for, starting
for 2004, which is really the first year required under the
act.
Mr. Platts. Right.
Ms. Springer. The 2003 requirement was one that OMB added
just as----
Mr. Platts. A good example of----
Ms. Springer. It is like kind of a dry run.
Mr. Platts [continuing]. The administration trying to----
Ms. Springer. Yeah.
Mr. Platts [continuing]. To take charge and lead the way.
Ms. Springer. Right. And I think that, while we always
expect full compliance when we issue guidance, and this was
short of it, for a variety of reasons, but we really viewed
this as, to use 2003 as a dry run to see what they would do on
their own, and we can see which ones were able to do it, and
which ones weren't. But we also got some very good formats, and
good presentations, that we are now going to make uniform, so
it will be easier for you, for any reader of the PAR to be able
to readily determine the report, and to be able to assess it.
Mr. Platts. Will the as part of that uniform reporting
approach in PAR, identify some of the substance of how they got
to the numbers they have? I mean, some of the process.
Ms. Springer. Yes.
Mr. Platts. That is going to be part of that----
Ms. Springer. Yes.
Mr. Platts [continuing]. Uniform requirement?
Ms. Springer. Yes.
Mr. Platts. And I gather from your testimony, written
statements, and information from the past as well that
transparency of the process is something that is important to
GAO, to how it is working.
Mr. Williams. That is correct. That is correct, and I would
just add that while these are the agencies that we focused on,
I would like to scope it up a little bit, and say that in our
review, we looked at some of the other agencies that were not
required to report, and there was an example of maybe one or
two that probably had some good practices also, that reported,
that were not actually required this year, so you need to look
at the whole universe and try to get your best practices, not
just from these that were required under A-11.
Mr. Platts. OK. Just one, maybe, final question for our
first panel here, and that is kind of the underlying cause of
financial troubles in our agencies and departments, and
especially regarding improper payments, is the internal control
issue. And GAO certainly for years has pushed the importance of
this, and that is establishing that foundation, and----
Mr. Williams. That is correct.
Mr. Platts. Under the President's management agenda, that
has been a priority and identified. Ms. Springer, do you want
to expand on--as you are working with departments and agencies
and moving forward to the November 15 compliance, the specifics
regarding internal controls, and getting agencies to better
embrace that understanding, that if they get their internal
controls, they are going to be much more proud to report their
improper payment amounts, because they will be a lot less?
Ms. Springer. Internal controls is one of the major reasons
why things get to this point. There is no question about it. We
certainly agree with the observation of GAO. And incidentally,
the $35 is made up of $30 billion of overpayments and $5
billion of underpayments, neither of which is good, $35 total.
But regardless of the type, over or under, a lot of it traces
back to the--some weaknesses in the control environment of some
of those programs. I think that you have been in the forefront,
in your committee, of suggesting that agencies look at
strengthening their control environments, in the--with the
backdrop of Sarbanes-Oxley, for example, we have had other
hearings where we have discussed this issue. The CFO Council
and the Inspectors General are right now working on a
comprehensive review of internal controls. What is required
today, under the FMFIA statute, what OMB's A-123 guidance to
implement that, how that lines up in a gap analysis, in effect,
against Sarbanes-Oxley. To be able to say here are some places
where maybe we need to strengthen our guidance and our
direction to agencies, as well as getting them to enforce and
take even more seriously than they do today, and give greater
scrutiny to the existing A-123 direction. I could tell you that
gap isn't as--there is a gap, but it is not as great as maybe
some people think. The Federal Government did have a jump, by
virtue of its foresight with FMFIA, but I would say that there
is need for tightening, and this type of issue will benefit
from that process.
Mr. Platts. Well, and I think your reference to Sarbanes-
Oxley is an important, are because as we are demanding the
private sector to, you know, be responsible and do right with
investor funds, that we set the example ourselves, and do the
same, and hopefully, do even better, because we are talking
about the public's funds.
Ms. Springer. Right.
Mr. Platts. And through their taxes. Mr. Williams, did you
want to add anything on that?
Mr. Williams. Well, I would just like to reinforce some of
the points that have been made already, and that is we do
believe that the internal control weaknesses that have been
identified throughout the years, at the various Federal
agencies, is one of the primary causes for the improper payment
problem that we are talking about today. I think we need to
take a look at them from a couple of standpoints. One, I think
as mentioned earlier today, that there is a lot of work that
needs to be done, from the standpoint of working with the
States to make sure that we have procedures in place. Another
area that I think we need to take a hard look at, in numerous
reports that I have reviewed, I have responsibility for eight
of the CFO agencies, and the Department of Homeland Security.
And in numerous reports, I continue to see system weaknesses,
and areas where processes need to be reengineered. So, I think
those are two prongs that you have that really need focused
attention, and then when you get back to the basic point of
internal controls, we break it down into two components. There
are what we call detective controls, and there are preventive
controls, and an audit function, for example, would be
classified as a detective control. A preventive control would
be a procedure in which you wouldn't have the same person that
is responsible for maintaining the books also maintaining the
cash and depositing the cash. I think that the detective
controls that are put in place will help with the transparency
and the reporting of the improper payments, but we need to put
a lot of focus on the preventive controls, because once you get
those in place, then you will not be having as many of these
improper payments as we are seeing today.
So those are some of the areas that I think we need to
focus on.
Mr. Platts. As a subcommittee, we certainly are going to do
our best to try to keep promoting and pushing those issues, and
hand in hand with GAO, and Ms. Springer, with OMB, and as I
have said in many of our hearings, and continue to believe,
that there is a change in the attitude and approach in
Washington right now----
Mr. Williams. Yes.
Mr. Platts [continuing]. With this administration, and the
GAO----
Mr. Williams. Yes.
Mr. Platts [continuing]. And Comptroller General Walker,
and I am certainly going to do my best as Chair of this
committee, and Ed Towns, our ranking member, that we all
continue to partner and really stay focused on ensuring that
tax dollars are accounted for and spent responsibly, so again,
I appreciate both of you for coming up here, and please come
back and spend lots of money in York County while you are here
today.
Mr. Williams. OK.
Mr. Platts. You know, we want----
Ms. Springer. We will spend it wisely.
Mr. Platts [continuing]. Promote the economy locally, so I
will----
Mr. Williams. OK.
Mr. Platts. I have to, you know, as a proud York Countian,
remind you that you are in the first capital of the United
States. The Articles of Confederation were signed two blocks
from here when the Congress was here for 9 months in 1777, and
we are delighted to have you here, and we will continue to look
forward to working with you.
Ms. Springer. Thank you.
Mr. Williams. Thank you so much.
Mr. Platts. Thank you. Give Ms. Springer and Mr. Williams a
chance to gather their materials, and then we will have our
second panel come forward. We are delighted to have both of our
guests here. Charlie Gerow, the chairman of the Pennsylvania
chapter for Citizens Against Government Waste, and Paul
Gessing, the director of Government Affairs for the National
Taxpayers Union. One, I thank you for being here, and two, for
your patience in being the second panel. There is some
positives, because you get to hear the dialog with our first
panel witnesses, but it also means that you have to be patient,
and I do appreciate your patience as we try to explore these
issues. And I want to also publicly thank each of you and your
organizations for the commitment that you have to protecting
the taxpayers funds, and all of our citizens work hard for the
money, and we all understand the need and the importance of
paying our fair share in tax dollars, and I think what I most
often hear about is certainly depending on the tax, how much we
pay, what is--how we spent what citizens pay. And that would be
if they are going to give up their money, they have to be truly
wisely and responsibly spent on behalf of all Americans, so
your organizations certainly for years have been leaders on
that front, and we welcome you here today.
Mr. Gerow, and it is hard for me to say Mr. Gerow, because
Charlie----
Mr. Gerow. Charlie is fine, Mr. Chairman.
Mr. Platts. It is odd for me, but if you would like to
begin, and the floor is yours.
STATEMENTS OF CHARLES GEROW, CHAIRMAN, PENNSYLVANIA CHAPTER,
CITIZENS AGAINST GOVERNMENT WASTE; AND PAUL GESSING, NATIONAL
TAXPAYERS UNION
Mr. Gerow. Well, thank you, Mr. Chairman, and good
afternoon. I thank you especially for the opportunity to
testify this afternoon before your House Subcommittee on
Government Efficiency and Financial Management.
My name is Charlie Gerow, and as chairman of the
Pennsylvania chapter of Citizens Against Government Waste, I am
here this afternoon representing the more than 1 million
members and supporters of CAGW nationwide, as well as the more
than 45,000 members here in Pennsylvania. CAGW was created 20
years ago after the late J. Peter Grace presented President
Ronald Reagan the nearly 2,500 findings and recommendations of
the Grace Commission, which was formally known as the
President's Private Sector Survey on Cost Control. These 2,478
recommendations provided a blueprint for a more efficient,
effective, less wasteful, and smaller government.
Since 1984, the implementations of the Grace Commission and
CAGW recommendations have helped save taxpayers more than $700
billion.
In your hearing last year on this issue, you noted that
President Bush has made the reduction of improper payments a
significant part of his management agenda, and that your
committee believes that taxpayers have a fundamental right to
know how their tax dollars are being spent. And we concur. CAGW
appreciates that your committee has decided to hold periodic
hearings on improper payments, and that you will be asking
agencies to provide you with their record on compliance. Asking
us to join you here this afternoon and to testify before your
committee on this very important and significant issue is both
an honor and a privilege, and I should note it is especially a
pleasure for me to be with my Congressman here in my
congressional district, and as you noted earlier, to have the
least travel time to this afternoon's deliberations.
CAGW works tirelessly to educate the American public about
wasteful government spending, and the long-term implications of
a bloated Federal bureaucracy. We have long supported efforts
to reduce improper payments. This is a bipartisan, good
government issue. The solutions are well-known, but it will
take vigilance and oversight, including hearings such as this,
to make Federal agencies more accountable. Today is tax day,
and so, as Americans rush to finish their taxes, the problem of
wasted Federal dollars is even more amplified.
In 2002, President Bush signed into law the Improper
Payments Information Act of 2002. The purpose of the act is to
require Federal agencies to make annual estimates of improper
payments. Agencies must undertake a four-step process to meet
the requirements of the act. First, to identify programs
susceptible to significant improper payments. Second, to
identify the amounts of such improper payments in the
susceptible programs. Third, to implement a plan to reduce the
improper payments, and fourth, to report the estimates.
An improper payment, as you, Mr. Chairman, pointed out at
the beginning of today's proceedings, is any payment that
should not have been made for a statutory, contractual,
administrative, or other legal requirement. It can be an
incorrect payment, an over or underpayment, and can include,
among other things, a payment to an ineligible recipient, a
payment for an ineligible service, a duplicate payment, or a
payment for a service that was not received.
If an agency finds that it has made improper payments of
more than $10 million and 2.5 percent of program payments
annually, it must report the improper payments and develop a
plan to reduce or eliminate these errors. Unless there is good
reason, CAGW suggests that threshold be lowered, and I know
that we have heard some discussion. I am sure we will get some
when we come to the questions at the end of this testimony.
Surely, there must be a dollar amount at which the cost of
government action to eliminate improper payments is worth the
savings gained. It is troublesome that we have come to the
point where we are willing to lightly brush off $10 million. We
would encourage the committee to consider reevaluating this
threshold, because as Senator Everett Dirksen once noted, ``A
million here, a million there, and pretty soon, you are talking
about real money.''
Improper payments, however, are a serious issue. According
to the OMB, improper payments may be as much as $35 billion a
year. That amounts to $120 for every man, woman, and child in
our country. The Office of Management and Budget has found that
the top 10 areas of improper payments for fiscal year 2002 were
the Medicare fee-for-service, at $13.3 billion, the Earned
Income Tax Credit, at $9.2 billion, the housing subsidy
programs, at $3.3 billion, SSI at $2.6 billion, unemployment
insurance at $2.2. billion, food stamps at $1.3 billion, old
age and survivors' insurance at $875 million, disability
insurance at $825 million, Medicare cost reports at $493
million, and student assistance Pell Grants at $336 million.
Citizens Against Government Waste has long pointed out that
improper payments made through the Department of Health and
Human Services [HHS], and in particular, the Medicare fee-for-
service programs. Medicare represents about 50 percent of HHS'
outlays. HHS provides the mother lode when it comes to improper
payments, and continues to deserve close scrutiny by the
Department's Inspector General, OMB and the GAO, Government
Accounting Office. Here are just a couple examples of improper
payments that represent, in effect, gross theft of our tax
dollars.
In California, the Lovelace Health System was accused of
falsifying its cost reports for the years 1988 through 1998.
Among the allegations that were levied, Lovelace failed to
report and reimburse overpayments and knowingly used inaccurate
square footage measurements on certain cost reports in order to
inflate reimbursement. As a result of an employee from
Healthcare Financial Advisors, a financial health care
consulting firm that reopened certain cost reports and filed a
qui tam action, Lovelace agreed to pay back $24.5 million and
to implement certain integrity requirements to resolve its
liability under the False Claims Act.
In Virginia, a male individual created bogus medical
invoices and pharmacy receipts that he submitted to an
insurance company for reimbursement. He ultimately was
sentenced to 15 months imprisonment and ordered to pay $126,000
in restitution.
A Missouri pharmacist was found to have diluted and
tampered with drugs on several occasions, conspired to traffic
stolen drugs, and caused the filing of false Medicare claims by
not disclosing to physicians who received the tampered and
diluted drugs. He was sentenced to 30 years in prison and
ordered to pay $10 million in restitutions, and a fine of
$25,000 for tampering with and adulterating chemotherapy drugs
he prepared for cancer patients.
Medicare is the largest, but not the only program
responsible for improper payments. Student aid programs, the
largest dollar outlays administered by the Department of
Education, is another area rife with improper payments. In a
recent semi-annual report to Congress, #47 in particular, the
Department of Education's Inspector General noted that while
the Department has made some progress, reducing risk in student
aid programs continues to be a significant management
challenge. The report also points out a lack of proper
oversight by guaranty agencies. It also suggests that the
Department needs to improve its management controls for
evaluating accrediting agencies that participate in Title IV
programs.
The IG of the Department of Education also found increased
incidents of identify theft and not receiving direct loan
refunds in a timely manner, if at all, from institutions where
students had already left the particular school.
Just a couple examples of the Department of Education's
improper payments include an individual who was arrested at
Mesa Community College in Arizona after he tried to claim a
student loan check under an assumed name. The investigation
showed that the person had used identities of inmates serving
lengthy prison terms in order to obtain more than $300,000 in
student aid.
A trade school owner, which had been barred by the
Department for prior improper activities, subsequently
purchased a beauty school in Puerto Rico, concealing his own
ownership of the school, and subsequently embezzled $600,000 in
Pell Grants. As a result, he received a second prison term, and
was ordered to pay $600,000 in restitution.
A financial aid director of a photography school in Boston
used a fictitious name to submit and certify several Federal
Family Education Loan Program applications. He received more
than $14,000 in loans as a result of that fraudulent activity.
After an investigation, he pleaded guilty as well.
In 2002, the GAO Office of Special Investigations created a
fictitious foreign school that the Department of Education
subsequently certified as eligible to participate in the
student loan program. The investigators successfully obtained
approval for student loans totaling $55,000 on behalf of three
fictitious students.
The Department of Education's Inspector General stated that
more effective monitoring is necessary to make sure that
taxpayer funds are used effectively and efficiently. In
addition to more effective monitoring, the Inspector General
also recommended an income match with data submitted to the
Internal Revenue Service. The Inspector General stated that
such an income match would help to reduce improper payments by
ensuring that the information on the applicant's student aid
application matched the income on their tax returns, and we
agree.
My testimony today, Mr. Chairman, points out just a couple
of examples of improper payments. CAGW's membership appreciates
the hard work that is undertaken by Inspectors General in the
various departments, and their work to root out this expensive
problem, and the auditing work conducted by both the General
Accounting Office and the Office of Management and Budget to
make certain and sure that government agencies are doing what
needs to be done in order to make sure that taxpayer dollars
are well-spent.
We applaud your committee's leadership on this issue as
well, Mr. Chairman. With the approaching appropriations battle,
Congress needs to keep in mind that there are still millions of
dollars of improper payments, and that it needs to continue to
apply all necessary pressure to keep spending in line and to
fight waste, fraud, and abuse of our tax dollars.
Mr. Chairman, it is up to Congress to ensure that the
Improper Payments Information Act is effectively implemented by
the various Federal agencies. I can assure that Citizens
Against Government Waste and its members, wherever possible,
will do whatever it can to make sure that taxpayer dollars are
protected. We offer our help to you and this committee in
undertaking this very important task.
And I thank you for this opportunity to testify before your
committee. This concludes my testimony, and I will be happy to
answer any questions, either at this time, or after Mr. Gessing
has testified.
[The prepared statement of Mr. Gerow follows:]
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Mr. Platts. Thank you. Thank you, Mr. Gerow. And we will
wait and do both, and then take questions. And I would comment
in your closing, you are talking about the responsibility of
Congress to oversee and ensure the effective implementation of
the Improper Payments Information Act is one of the charges
that, as successor to Chairman Horn, as Chair of this
committee, and his leadership on that issue is one of the very
important charges I believe I have. Because the act won't mean
much if it is not fully and responsibly implemented, and as you
heard in my questions, we continue to have an ongoing dialog
with OMB, as they implement it, and fulfill what we believe is
the intent of the law, and the requirements of the law, versus
where they do have discretions.
Mr. Gessing, if you would like to give your statement.
Mr. Gessing. Good afternoon, Chairman Platts. Thank you for
holding these important hearings today. My name is Paul
Gessing. I am director of Government Affairs with National
Taxpayers Union, America's oldest and largest taxpayer lobbying
organization, with 350,000 members in all 50 States nationwide.
You can learn more about NTU and our education affiliate, the
National Taxpayers Union Foundation, on our Web site,
www.ntu.org.
I come here today to offer testimony regarding the problem
of improper payments, an improper payment being an over or
underpayment, a payment to an ineligible recipient, a payment
for an ineligible service, a duplicate payment, or a payment
for a service not received. As you know, today is April 15, the
Federal tax filing deadline also known as tax day. Today, in
Washington, DC, and around the country, NTU and thousands of
fiscal conservatives will be holding events to focus attention
on our tax burden, rising government spending, and the
outrageous size of the Federal budget deficit. For that reason,
this hearing to shed light on the problem of improper payments
is particularly timely. With the budget in increasingly bad
shape and recently passed tax cuts in jeopardy, renewed
dedication to dramatically reducing the problem of improper
payments is sure to become an important issue in the months
ahead.
It is certainly the opinion of NTU and its members, all of
whom pay Federal taxes, that the government takes far too much
of our money regardless of how it is used. Yet, the recent
estimate by the Federal Government that Washington pays out at
least $35 billion each year improperly is a bitter pill to
swallow. Of course, this figure is probably only the tip of the
iceberg, since no one knows just how big the problem is. In
fact, the $35 billion figure doesn't even include Medicaid,
much of the Department of Defense, and several other agencies.
Defense Secretary Donald Rumsfeld, for example, estimates that
5 percent of his budget is wasted. Thus, the Pentagon is
probably making about $20 billion in improper payments above
and beyond the oft-cited $35 billion figure.
Over the years, various agencies have estimated the amount
of improper payments, but most acknowledge that the problem is
big and getting bigger. In 2002, Congress passed the Improper
Payments Information Act, Public Law 107-300. the act requires
executive branch departments and agencies to review all
programs and activities they administer, and identify any that
may be susceptible to significant improper payments. Agencies
are also obligated to estimate the actual amount of improper
payments for those programs. With respect to any program or
activity of an agency with improper payments exceeding $10
million annually, the agency must report to Congress on the
causes of the improper payments, the status of the actions
taken to prevent them, whether the agency has the appropriate
information systems in place to minimize the improper payments,
and the steps being taken to hold agency managers accountable
for reducing improper payments.
NTU is aware that the law is not being fully implemented.
Agencies are delinquent in reporting to Congress on the
estimates, on identifying the causes, and in providing the
status of the actions taken to prevent improper payments. For
the sake of taxpayers as respect for the law, NTU calls upon
the administration to renew the effort to identify all
erroneous payments and put systems in place to eliminate them.
NTU understands that a vast majority of erroneous payments
are wasted dollars, unrecoverable to taxpayers, but this only
makes prevention of mismanagement all the more vital. What is
more, this is not a matter involving only a few dollars. Having
analyzed just under $1 trillion in Federal spending, out of a
budget, a Federal budget of more than $2.4 trillion, the $35
billion in erroneous payments is a significant sum of money
even for the Federal Government.
Even worse than the government having already lost billions
of taxpayer dollars to improper payments, is the prospect of
losing billions of additional dollars due to higher spending
levels on programs that have in the past been prone to improper
payments. In fact, out of the $35 billion lost to taxpayers in
fiscal year 2003, Medicare accounts for nearly $12 billion. If
accounting and management at Medicare is not dramatically
improved in short order, that number is likely to rise
exponentially with implementation of the prescription drug
benefit.
In order to resolve, or at least mitigate the problem of
improper payments by the Federal Government, the Office of
Management and Budget must enforce strict compliance with the
Improper Payments Information Act and be vigilant in monitoring
individual agencies to ensure that they are actively working to
eliminate or dramatically reduce the frequency of improperly
made payments.
In conclusion, it is most ironic that the government
requires corporations to abide by strict accounting standards
under the newly enacted Sarbanes-Oxley law, although nearly all
Federal agencies find it impossible to meet the standards
imposed on the private sector. Taxpayers should expect more
from the government than rampant waste followed by widespread
unwillingness to comply with the law. I urge the committee to
take the necessary steps to remedy this problem, and to work
closely with OMB to ensure agency compliance.
Thank you, Chairman Platts, for allowing NTU to testify
today, and for your work on this important topic. NTU and its
350,000 members stand ready to work with you in tackling the
improper payments problem.
[The prepared statement of Mr. Gessing follows:]
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Mr. Platts. Thank you, Mr. Gessing, and again, to both of
you for your testimony here today, your written statements that
you have submitted, and again, for your personal and
organization efforts regarding protecting tax dollars.
Maybe, Mr. Gessing, lets begin with you, and actually, Mr.
Gerow, both of you, if you want to comment. NTU maybe is more
involved in following the implementation, in some ways, with
the guidance on--of where we stand, and Ms. Springer talked
about kind of their timeframe and the various steps that are
going to be required and where they are in that process. What
is NTU's assessment of how the administration is moving forward
with the implementation, and OMB's guidance especially, that
has been given thus far, as far as how effective you think it
will be once we get to that November 5 deadline?
Mr. Gessing. We are generally happy with the direction they
are going--don't know that it is moving along speedily enough.
I would say that they are certainly well-intentioned, but I am
not sure that they are aggressively moving fast enough.
Mr. Platts. Mr. Gerow, would you like to add anything?
Mr. Gerow. Well, as you know, Mr. Chairman, I spend my days
up here in Pennsylvania, not down in the city where sound
travels faster than light, but I would think that the
leadership of CAGW more or less concurs with what Mr. Gessing
said, in terms of being generally pleased.
There is the issue that I spoke to in my prepared testimony
of the $10 million threshold, or the 2.5 percent threshold
being laid over on top of that, and it just seems to me that
the controls are going in the wrong direction, i.e., they are
not becoming tighter, they are becoming more loose.
You have gone from what Chairman Horn had predicated the
act on at $1 million, to $10 million, to now the additional
requirement, or the additional threshold of 2.5 percent of the
program's payments annually, which could, of course, fail the
$10 million test on its face, and that, I think is a concern,
and it may be up to Congress to help statutorily tighten that
up.
I listened closely to Ms. Springer, and as you know, I am a
great supporter of this administration, and I believe that they
are doing a good job, and have not only admirable intentions,
but good controls in place to effectuate the ultimate policy
goal here. But administrations do change. This is a long-term
problem, and I think that Congress, and your committee in
particular, needs to look at ratcheting down a little bit of
the ``loose ends'' that remain in the interpretation of some of
the statutory language initially, and I know that there were
some definitional problems, and there was the definition left
open, as to what substantial was going to be, and perhaps
Congress needs to go back and take a second look at that.
Mr. Platts. And I would concur with your statements that we
certainly have seen great progress in the focus being where it
needs to be, on financial management and financial
accountability by this administration, and this dialog that Ms.
Springer and I had today is kind of an ongoing one of, as they
focus their efforts and move this process forward, whether we
let them go through this first round, and see what comes
through in the 2004 PAR reports, and how that $10 million/2.5
percent does play out, and we have a base of knowledge. And
give them that opportunity, because one of the things that, and
she expanded on it a little more today, is that there is a
basis for them taking the 2.5 percent. It wasn't a random
number, even though I see it as an additional caveat there,
that wasn't intended by Congress, that there was some basis for
selecting that in how they are moving forward, and how they are
actually imposing that requirement. But I share that concern,
that while they are focusing, as I said, we want to err on the
side of more disclosure, and more scrutiny and focus, not less.
And that relates on the dollar amount, is that the--Chairman
Horn's original proposal, what your organization would envision
as probably the best threshold that, if we were, see how it
plays out, but maybe with an eye toward trying to get back,
tightening it up back to that $1 million number instead of the
$10 million.
Mr. Gerow. Absolutely, Mr. Chairman. I think that you would
agree, and probably most of your colleagues would agree that
your constituents would have a hard time understanding that $10
million is an inconsequential number. You know, if your----
Mr. Platts. Yes. Especially here in central Pennsylvania.
Mr. Gerow. I was about to say that there are a lot of
factory workers in York, or folks out at snack food companies
in Hanover, or retail clerks around the district, who would
say----
Mr. Platts. Forklift operators at Harley, like my brother,
who----
Mr. Gerow [continuing]. That at $20 an hour, if you taxed
somebody at 100 percent of their income, it would take 500
people an entire year to accumulate $10 million. That has some
gravity. And as Ms. Springer pointed out, ultimately ``Federal
money'' is money that is earned by the sweat of the brow and
the muscled arms of people all across this country who get up
early in the morning and work hard all day to create those
dollars. And I think there is a tremendous oversight
responsibility for every one of those dollars. And we
understand that, while ultimately, you know, there is a point
at which you have to have the cost savings recognized by the
threshold, that the threshold really should be much lower than
$10 million, and when you put the 2.5 percent in there, you
have in effect broadened that threshold----
Mr. Platts. Right.
Mr. Gerow [continuing]. Or raised that bar. The bar ought
to be becoming more tight.
Mr. Platts. Mr. Gessing, did you want to add anything on
the dollar amount or the percentage aspect?
Mr. Gessing. No, but I certainly agree that $10 million is
relatively high, fairly generous, and that could come down and
should come down.
Mr. Platts. The related issue, that is, the unavoidable
payments, unavoidable improper payments, and the guidance that
OMB has given to the Social Security Administration, in a
restricted or limited sense, but sets a precedent for other
entities, perhaps, pursuing similar exception, a similar
exception to how they report, and your thoughts, is the idea of
maybe acknowledging that there are ``unavoidable improper
payments,'' but still requiring their disclosure. You know, I
would assume that your organizations would lean, again, on the
side of that disclosure, more transparency, as opposed to kind
of letting them off the hook?
Mr. Gerow. Yes, Mr. Chairman. I think Mr. Williams spoke
very well to that issue, in saying that there needs to be
transparency, that disclosure ought to be the rule of the day,
that taxpayers ultimately have a right to know, and that to the
greatest extent possible, they ought to be so noted, and that
there ought to be transparency, full disclosure, and that
citizens ought to understand, without great pains, how their
dollars are being spent.
Mr. Gessing. Yes. Contrasting that with--what the Federal
Government does with what it expects of private companies, in
which the taxpayers have much less of a stake, that is--it is
ironic that you see very strict accounting measures for private
industry, and much more lax for the government.
Mr. Platts. Yes, and it goes to that, and we should be
setting a good example, and whatever we are requiring of the
private sector, we should require of ourselves. The Department
of Health and Human Services, and that is certainly a big focus
here with the Medicare being almost a third of your total
amount that we are talking about, certainly jumps out. And in
some ways, it is held as a good example, where they are trying
to disclose and get their arms around, but when you look at Mr.
Williams' chart, and the Section 57 programs that were
reviewed, while HHS was in good shape with Medicare, that was
the only of 7 HHS programs that were in good shape. The other
six were all in the zero for zero category, with no compliance
at all.
We are in ongoing discussions with GAO in how to try to
take a more specific look at HHS, and what we need to be doing
from an oversight role with GAO, regarding HHS. Is there
anything in particular that you would like us, as a committee,
to be aware of, and GAO, as we continue that dialog, and try to
fine-tune how we are going to approach that agency, that
department, in ensuring better compliance with the Improper
Payments Act?
Mr. Gessing. Well, this list is kind of similar to, in some
ways, an Alcoholics Anonymous meeting. You--the first step is
admitting you have a problem, so at least Medicare has admitted
that they have a problem, and they are, you know, they laid it
out there, so with them, you know, you can then target specific
aspects of the problem, that they can rectify.
The rest of the list, simply getting them to put the first
step forward, and admit that they have a problem, and lay that
problem out there and get a grip on that number, whatever that
number may be, whether it is higher or lower, or better or
worse than what Medicare is dealing with. You know, pushing in
that direction is the most important priority at this point.
Mr. Gerow. Well, Mr. Chairman, as I noted in my prepared
testimony, Citizens Against Government Waste has, for a long
time, pointed out the improper payments made through HHS, and
in particular, the Medicare fee-for-services program. And in a
broad sense, yes, they are deserving of, particularly, and a
special close scrutiny by both the Department's Inspector
General, OMB, and the GAO, but I would be happy, Mr. Chairman,
to get for you some of the specific recommendations that CAGW
has made over the years, and allow you to have those spread
upon the record if you would like me to do that.
Mr. Platts. Actually, that would be great, and I would
welcome them, and be part of our dialog with GAO and how we
kind of fine-tune that oversight, scrutiny.
Mr. Gerow. And I will see to it that your staff gets that,
Mr. Chairman.
Mr. Platts. That would be great. Yes, when we talk about
the thoughts of a taxpayer here in central PA if we ask do they
think $10 million is a lot, if we asked them a similar
question, and based on the lack on information, the way we have
to assume with a program like Medicaid, and given the size of
that program, that you know, their--as far as their reporting,
or have reported in their 2003 PAR, that they don't have any
improper payments, which, I don't think anyone is going to even
begin to believe that. And you know, I think you make a good
approach that, to get our arms around this problem, we have to
admit there is a problem, and those agencies that aren't
complying are needing to better acknowledge that there is a
problem and be more open about their approach to it.
What about--given that lack of compliance with HHS, six of
their programs not complying with 2003 Section 57 requirement,
and then the other five as well that were zero compliance? Is
there any suggestions you have that OMB should be thinking
about, or we should be looking at for consequences, as we
approach the November 15, 2004 PAR reports for agencies that
don't? Should there be, you know--obviously, there is going to
be public scrutiny. I mean, we are going to be looking at those
reports, and we are going to be seeing who is complying and who
is not, and those who aren't will get added focus from our
committee, as well as from GAO, I am sure, but is there
something that either of your organizations would suggest that
we should consider for a consequence to put more teeth into
these requirements?
Mr. Gessing. Some sort of, you--just like the Sarbanes-
Oxley, you have someone sign off, a responsible party sign off
on the accounting documents. I think an approach similar to
that, where you hold the head of an agency, or you know,
several people who are in charge, in authority, at these
Federal agencies, and you know, there could be employment
related consequences, or you know, funding for their agency
related consequences, anything that really aggressively tackles
the problem, and/or puts a name out there in front as being
someone who is essentially not doing their job. So, something
along those lines would be a real forward, you know, response
to this problem.
Mr. Gerow. Well, Mr. Chairman, I don't have any specific
questions for so-called, you know, punitive measures in that
regard, but I think that Mr. Gessing gets pretty close to it
when he says, or suggests that the use of the appropriations
process tends to get folks' attention in that regard, and as
you begin to go through that process, I think that in the
hearings that you hold, those questions need to be asked, and I
would be glad to again, go back and consult with our folks in
Washington to see if we can't provide you with a list of some
specific measures that might be taken to provide a little bit
more teeth and a little bit more bite to those who fail to live
up to their responsibilities.
Mr. Platts. And again, I welcome any additional specific
suggestions, and my concern is that 11 of the 40 some programs
didn't comply in 2003, and really nothing happened, other than
we identified that they didn't comply, but there was no
significant consequences to the personnel there, and the
suggestion that the appropriate agency head or department head
in a more public way acknowledging their department's failure
to comply with Federal law, because as citizens, if we don't
comply with Federal law, there certainly are always
consequences to us. I certainly would welcome any suggestions,
and we will do our best as a committee from the oversight and
public scrutiny, and try to use the power of public disclosure
and focus to encourage their compliance. But it does worry me,
given how many did not file the OMB Section 57 requirements.
One other specific department, and Mr. Gerow, you touched
on it with Department of Education, and their challenges in
this area. And it is an area that we look at one, because of,
as a person who, but for student loans and grants and things,
wouldn't have been able to get through undergrad and law
school, and also, who celebrated, less than a year ago my final
student loan payment basically, feeling that these programs
need to be properly run, and that people shouldn't be wrongly
compensated, and those who borrow money should be held
accountable and pay their sums back. There is a number of
specific student aid programs that seem to jump out as
problematic, and I don't know if here today, or again, through
written followup from the organization, if there are some
specific proposals that we should be looking at regarding those
Department of Ed programs, and especially the student aid
programs, I would certainly welcome that. And if that is part
of, maybe, that subsequent information, that would be great.
Mr. Gerow. Yeah, Mr. Chairman, and I think the other thing,
I don't know what the status is of the Inspector General's
recommendation that there be a match with the data submitted to
Internal Revenue, and those numbers that are put on
applications.
Mr. Platts. Right.
Mr. Gerow. But that seems, to me, to be a worthwhile
recommendation.
Mr. Platts. And that is--I am checking my staff, see, I am
trying to pool my memory here. There is some dialog going on
with staff, with--and the hesitancy is IRS, their privacy
protections, and they are appropriately being very protective
of their information, because of the sensitivity of it, but if
you want something from the Federal Government, there needs to
be some understanding that you need to be more disclosing, but
that is, and your reminder of that one is one that is under
consideration in how to better match the systems. Because--and
it is not just with student loans we are seeing it, in the last
month or so, with defense contractors, that contractors
continue to get millions of dollars in contracts, yet they
haven't paid their Federal taxes in years. And we are not
matching the systems. That really goes to our discussion with
the first panel, with internal controls, but then
communications within departments and agencies, or between, not
just within, but between departments and agencies, that we need
to do better with.
Those are the areas I wanted to followup with you on, and
your organizations' focus on these issues certainly adds much
to the public debate in Washington and throughout the country,
and helps to generate the public's interest, because I say, as
the chairman of this committee, and as thoroughly--as one who
is thoroughly enjoying and grateful for this opportunity to be
Financial Management and Oversight and Government Efficiency,
but for the average citizen, it is often not the most exciting
issue, when we get into some of the auditing aspects of it and
stuff, and when we put it into dollar terms, and I think, Mr.
Gessing, your testimony about--or actually, both of your
testimony about Medicare being such a big animal here with
improper payments, and we are about to add a $395 or $530
billion, over 10 years, new program, prescription drug for that
average citizen, I say if you think about the average cost, and
if you take the CVO estimate for the new prescription drug
program, you take the OMB estimate, and you--somewhere in
between, we are somewhere $35 to $40 billion a year is the cost
of the new program. And then you realize that we are making
improper payments of roughly that sum, at least, probably
double that. It really puts it in perspective that if we really
get our hands around this problem, how we help meet the
commitments we have made to seniors and others as well in other
programs, but specifically with Medicare.
So, I thank you both for your testimony, and again, your
organizations' efforts year round, and we will look forward to
receiving the additional information. We will keep the record
open for about 2 weeks to allow time for that information from
you, as well as from Ms. Springer on the first panel. I want to
thank all who are here today and our staff. I want to
highlight, being York County, that two of our staff members,
Amy Laudeman and Sarah D'Orsie over here, are York County
natives, a proud York Catholic High School grad, and a
Dallastown High School grad, who are members of our full-time
staff on the subcommittee, and I know, great to have them back
in the home community for today's hearing as well.
So I think that concludes the hearing, and we stand
adjourned.
Mr. Gerow. Thank you.
[Whereupon, at 4:19 p.m., the subcommittee was adjourned.]
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