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[109 Senate Hearings]
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S. Hrg. 109-473
IMPROPER PAYMENTS: WHERE ARE TRUTH AND TRANSPARENCY IN FEDERAL
FINANCIAL REPORTING?
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JULY 12, 2005
__________
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and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
Trina D. Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coburn............................................... 1
Senator Carper............................................... 4
WITNESSES
Tuesday, July 12, 2005
McCoy Williams, Director, Financial Management and Assurance,
U.S. Government Accountability Office.......................... 6
Hon. Linda M. Combs, Controller, Office of Federal Financial
Management, U.S. Office of Management and Budget............... 7
Timothy Hill, Director, Office of Financial Management, Centers
for Medicare and Medicaid Services, U.S. Department of Health
and Human Services............................................. 9
Kate Coler, Deputy Under Secretary, Food, Nutrition, and Consumer
Services, U.S. Department of Agriculture....................... 11
Alphabetical List of Witnesses
Coler, Kate:
Testimony.................................................... 11
Prepared statement........................................... 60
Combs, Hon. Linda M.:
Testimony.................................................... 7
Prepared statement........................................... 48
Hill, Timothy:
Testimony.................................................... 9
Prepared statement........................................... 52
Williams, McCoy:
Testimony.................................................... 6
Prepared statement........................................... 39
APPENDIX
Chart entitled ``$45 Billion =,'' submitted for the Record by
Senator Coburn................................................. 37
Article from The Washington Post, July 12, 2005, entitled
``Medicare's Spinal Tap: A Checkup on Health Care Costs and
Coverage''..................................................... 38
Questions and responses for the Record from:
Mr. Williams................................................. 64
Ms. Combs.................................................... 69
Mr. Hill..................................................... 74
IMPROPER PAYMENTS: WHERE ARE TRUTH AND TRANSPARENCY IN FEDERAL
FINANCIAL REPORTING?
----------
TUESDAY, JULY 12, 2005
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:02 p.m., in
room SD-562, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF CHAIRMAN COBURN
Senator Coburn. Good afternoon. The hearing will come to
order.
The Federal Financial Management Subcommittee of the
Homeland Security and Government Affairs Committee has been
holding numerous hearings. I am going to ask unanimous consent
that my written testimony be put in the record, if that is OK
with my friend from Delaware, reserving the right to object.
Senator Carper. I won't object.
Senator Coburn. Would you care to state your reservation?
Senator Carper. No, no, I am fine.
Senator Coburn. And I want to welcome our panelists here.
I have to tell you, as a grandfather and also someone who
spent the majority of his time taking care of people in a
medical practice, most of whom were Medicaid patients, that the
findings that this Subcommittee has uncovered are atrocious.
And I asked my staff last night, I said, I want you to go to
every accounting firm in the country and find out what the
proper rate of improper payments is. Do you know what we heard?
Zero is the amount of improper payments. And to think that we
have, I believe, 17 of all of the government agencies in
compliance in terms of reporting and those at 3.9 percent
improper payments, and if you extrapolate that at all across
the government, we are talking about $110 to $125 billion a
year that this government is spending and paying for things
improperly, things that we have not received, overpayments,
which says, in effect, that we are terrible managers.
The whole purpose for this Subcommittee hearing is to try
to establish the transparency and bring it to light.
Unfortunately, this Subcommittee hearing won't get the
coverage, the press coverage in Washington and throughout the
country that it deserves, and I would tell you that if the
American people truly understood that four to five cents out of
every dollar that is spent is paid out for something we did not
receive, they would be up in arms. And if they personalized
that with four to five percent of their tax money coming back
to them because it was wasted and that they could spend that
four to five percent on their grandchildren or their children,
or to make a downpayment on a home, or to buy a car because
they don't have adequate transportation, or to buy just
sustenance to live every day in this country, they would ask
for that.
And so I think the tone of the hearing ought to be, how do
we get out of this mess? How do we start on the track for
transparency in this government? Transparency--the problems are
so great that agencies don't even comply and the standards that
have been set, that if you don't spend $2 billion, it doesn't
apply to you. Well, $2 billion is 40 percent of the State of
Oklahoma's budget, and for us to set a standard of $2 billion
to me seems ludicrous.
So I will tell you, I am not going to let go of this issue.
I am going to be here for 6 years, whether I am in the Majority
or Minority. I am going to work to make sure that the
transparency and the accountability in government agencies
comes into line with what the American people deserve and
expect.
We must have an environment committed to creating the
culture of accountability. That is not just in our finances,
that is in every aspect of our government. Creating the culture
starts from the top. It starts with the President and some of
the great things he has done, but more is required. Today, we
just went over the numbers. Tomorrow, the White House will
announce the deficit is $75 billion less than what it was going
to be. That is a meaningless number. The fact is that $460
billion is going to be added to the Federal debt this year
based on what we spend versus what we get in. And if you divide
that out, that is about $1,850 per man, woman, and child in
this country, $1,850 per man, woman, and child that we are
going to spend more than we have.
So the obligation is on you as leaders, or those people
testifying, you testifying before us today, but also on the
Senate to start doing its job and to do the oversight, to do
the accountability, the questioning that is going to be
required to get us to the level that we expect of every other
area.
The other thing I think is important is Congress passed
Sarbanes-Oxley and is requiring every corporation in this
country to meet a new standard of professional financial
accounting, openness, and transparency, and to think that the
very government that is forcing that on the private sector
today can't even come close to the same standards themselves,
to me this is tremendously ironic and should not be in any way
acceptable to anybody in the Congress, regardless of their
political stripe.
[The prepared statement of Chairman Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
In Fiscal Year 2004, the Federal Government spent $2.5 trillion. At
least $45 billion of those dollars were paid improperly, mostly in
overpayments--$45 billion. This dollar amount could go to pay for much
needed resources for Americans. As you can see, $45 billion would
provide 300,000 up-armored humvees, at $150,000 per vehicle. This
figure equates to two humvees per American Soldier--$45 billion dollars
could also go to pay for seniors world-wide, to get flu vaccinations
for the next 6 years. As you can see, it's difficult to even equate $45
billion to things needed by Americans.
Many of these payments were made without adequately supported
claims, or for services not provided, or provided to ineligible
beneficiaries in programs like Medicare, Social Security, Food Stamps,
and Medicaid. I am still astounded by the lack of reporting for
programs in the Department of Defense. So far, they have only reported
for the Military Retirement Fund and Military Health Benefits programs.
In recent years,the Bush Administration and Congress have made the
reduction of improper payments a priority, both through the President's
Management Agenda, and the passage of the Improper Payments Information
Act in November 2002. The first line of the President's Management
Agenda reads: ``The President's Management Agenda strives to instill
first class financial management practices in departments and agencies
throughout the Executive Branch.''
I applaud the Administration and the Office of Management and
Budget for making Eliminating Improper Payments a major focus of the
President's Management Agenda. This initiative is a big step in helping
to ensure that each taxpayer dollar is accounted for, and I look
forward today to discussing ways in which agencies can continue to
improve the integrity of their payments.
In Comptroller General Walker's manuscript, ``Saving Our Nation's
Future: An Intergovernmental Challenge,'' he estimates that ``if we do
nothing by 2040 we may have to cut Federal spending by more than half
or raise Federal taxes by more than two and a half times to balance the
budget.'' Walker contends that a crucial step in turning this dismal
outlook around is ``insisting on truth and transparency in government
operations, including Federal financial report.''
I couldn't agree more with Mr. Walker's comments, and believe that
the Federal Government should be able to provide an explanation for
each and every dollar it spends--this means dollars spent properly and
improperly. Today's reality is that we have a current budget deficit of
$462 billion.
According to the Office of Management and Budget, errors made by
the Federal Government compose a total of at least $45 billion in
improper payments for FY 2004. We must have ``truth,'' and
``transparency'' in government operations to combat these billions of
dollars in payments that are in no way justifiable.
The astounding figure--$45 billion--did not even include 12
programs with outlays of about $249 billion that were required to
report previously under OMB Circular A-11; and required to report at
the end of Fiscal Year 2004 pursuant to OMB's implementation guidance
to the Improper Payments Information Act of 2002. This amount is just
the tip of an iceberg of an unknown size.
Furthermore, there were three agencies, NASA, DOJ, and DHS, who had
reported they had performed risk assessments to see whether or not
their programs could make improper payments. When outside auditors came
in to check on this, they could not confirm that risk assessments had
even been done. This is deplorable that agencies have allegedly
reported assessments. I will look into this potential deceit to uncover
the whole story.
I am also interested to hear why agencies that have been required
to report improper payment information for several years are still
unable to do so. Medicaid is one program that does not report improper
payment information, though it has been required to do so since July
2001. Some have argued that because Medicaid is a state-based program,
it is too hard to report improper payments. That argument is refuted by
the progress the Food Stamp Program has made.
While the Food Stamp Program made payment errors totaling about
$1.4 billion in Fiscal Year 2003, the national dollar payment error
rate for the program has declined by almost one-third over the last 5
years to a record low rate of 6.63 percent. The decline in their error
rate has been widespread, and I look forward to examining the reasons
for their success, and remaining challenges in eliminating improper
payments. An improper payment rate of 6.63 percent is still way too
high considering any improper payment rate in the private sector would
be intolerable.
Americans will not tolerate one more year where $45 billion of
their hard-earned money is squandered. This problem is inexcusable, no
matter how complex and labrynthine the government is. I cannot go back
with a number like this to Oklahoma, where my patients and neighbors
are struggling to make ends meet, while the government takes up to 40
percent of their income.
I know the witnesses share my outrage and commitment to ending this
abuse of the taxpayer trust. Thank you for appearing today.
Senator Coburn. I am very happy that our Ranking Member is
here. We first heard things on improper payments on our first
Subcommittee hearing. At this time, I would like to recognize
him for an opening statement.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. During our caucus
luncheon, I was saying earlier to our witnesses, and we welcome
each of you today and the folks that are present at the hearing
today, that we were just wrapping up our respective caucus
luncheons, and I don't know what you guys talked about today,
but one of the things we focused on was the number for the
budget deficit and just an update as to how we are doing as we
come to three-quarters through the year. The good news is that
the deficit, as you suggest, is going to be a little bit lower
this fiscal year than had earlier been projected. The bad news
is this will still be, I believe, the third-largest budget
deficit in the history of our country, and as you suggest, add
over $400 billion to our Nation's debt.
In our earlier hearings, one of the things we have learned
is that about an amount equal to roughly about 10 percent of
the anticipated new debt that we will take on this year can be
attributed to improper payments, and a lot of times, my
dealings in the private sector have been that the improper
payments that are made there are oftentimes underpayments as
opposed to overpayments. We are not very good in the government
at making underpayments, but we are very good in making
overpayments. Maybe we can learn how to make those
underpayments and that will help a little bit.
But budget deficits, clearly, if we are overpaying, we
ought to do something about it and that is our full intent. We
are not the first people who made this call. If you go back 4
or 5 years, you will find that this was something that the
Congress and President not just talked about, but actually
enacted legislation in 2002 and we are seeing in 2004 the first
fruits of that work.
It is important for us today not to shoot the messenger.
What is the old saying, rate the sin, not the sinner? You are
not sinners, but the message that we are going to hear today, I
think, is that we recognize and identified a whole lot of areas
where we can make progress, and that is, I think, the beginning
of actually making progress.
The other thing is while we are concerned about
overpayments, Mr. Chairman, I am also concerned about taxes
that are owed that ought to be collected by the Federal
Government. Before we think about cutting programs, talking
about raising taxes for people, we want to make sure that the
folks who owe money are actually paying the dollars that are
owed.
I have a statement I would also like to enter for the
record, Mr. Chairman. I am just glad that we are here. I thank
you for your willingness to have this hearing today. This is
valuable for this Subcommittee, but even more valuable, I
think, for the people of this country. Thank you.
Senator Coburn. Without objection.
[The prepared statement of Senator Carper follows:]
PREPARED STATEMENT OF SENATOR CARPER
Thank you, Mr. Chairman, for holding this important and timely
hearing. At a time when our Federal budget deficit is near historic
levels, it's vital that we do all we can to reduce the number of
accidental or fraudulent payments agencies made each year.
As my colleagues are aware, Federal agencies officially make about
$45 billion in improper payments each year. Most of these are
overpayments. We'll learn today, however, that this is likely only the
tip of the iceberg. Some agencies are not doing all they need to do to
determine whether or not programs they administer are at risk for
improper payments. There are other programs that we know are at risk
for improper payments but that aren't figured into the $45 billion
tally at all.
Our predecessors on this subcommittee, Mr. Chairman, worked back in
2002 to enact the Improper Payments Information Act--legislation that
is clearly helping us get a better sense of the magnitude of the
improper payments problem. In addition, OMB has now made the
elimination of improper payments a top management priority. It is my
hope that the new attention this problem is seeing now will lead to
some dramatic improvements in the coming months.
We're just embarking on another appropriations season here in
Congress where we'll be called on to make some very difficult decisions
about what to do with scarce Federal dollars. I don't need to remind
anyone here that every time a dollar is spent improperly, a worthy
program is cheated of much-needed funding that could be use to help
people.
Freeing up the tens of billions of dollars wasted every year on
improper payments wouldn't solve our nation's fiscal problems, Mr.
Chairman, but it would probably make our jobs in that area a lot
easier. There will always be mistakes made here and there but it seems
to me that the key to solving this problem is to find a way to get
agencies to abide by the basics of sound financial management.
I think it's inexcusable that an agency is unable to look at its
balance sheet and report to OMB on the areas that they think are at
risk for improper payments. I understand that GAO will testify today,
however, that some agencies simply aren't complying with the 2002
legislation and letting us know where they're vulnerable.
And it's shocking to me that many agencies don't have the ability
to detect things like double payments or benefits going out to
individuals who don't quality. It's clear however, that too many of
these kinds of mistakes are still slipping past agencies' internal
controls.
It sounds like we're making progress on this issue, Mr. Chairman,
but we probably have a long way left to go. I look forward to hearing a
progress report from our witnesses today and to learning what, if
anything, we need to do to help agencies further.
Senator Coburn. I would like for you to put up the poster
on the $45 billion, if you would.\1\
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\1\ The chart referred to appears in the Appendix on page 37.
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We have before us today four very distinguished individuals
and I will not go into extreme detail on your bios, but I do
want to thank you for coming. I want to thank you for the work
that you are doing.
Ms. Coler, I want to particularly commend you on the work
that you have done with the Federal Food Stamp Program. It is
still way too high, but you have demonstrated that if an effort
is made, things can change, and I think it is a great example
of where we start. I also think it is great because it is a
State-run program and people are giving us the statements that,
in fact, State-run programs can't be accountable, and, in fact,
they can, and I think you have proven that through your efforts
at the Department of Agriculture.
On our witness list today is McCoy Williams, who is
Director of the Financial Management and Assurance Team of the
Government Accountability Office.
We also have Linda Combs. She has been with us before. We
thank you for being here.
Senator Carper. I think the last time Ms. Combs was before
us, I think she was here for----
Senator Coburn. Maybe for a hearing on her nomination.
Senator Carper. She has since been confirmed.
Senator Coburn. We are very pleased to have you here.
The bios are about five pages long, so I am going to skip
through those. Timothy Hill, thank you----
Senator Carper. Ms. Combs, does it say where she went to
undergraduate school?
Senator Coburn. Yes, it did, and we went through that
again, but would you care to elaborate?
Senator Carper. For the folks in the audience who never
heard this, her undergraduate math teacher at Appalachian State
University was my father-in-law, and he is deceased now, but he
would be so proud to see----
Senator Coburn. Now you get the connection of why he is on
this Subcommittee.
Senator Carper. He would be so pleased to see one of his
students sitting at the table accomplishing all the things that
you have accomplished.
Ms. Combs. Thank you so much.
Senator Coburn. Timothy Hill is the Centers for Medicare &
Medicaid Services Chief Financial Officer and Director of the
Office of Financial Management.
And Kate Coler was appointed Deputy Under Secretary for
Food, Nutrition, and Consumer Services on December 1, 2003, and
that is my comment in relationship to the work that you have
done at the Department of Agriculture. I appreciate it.
We would love to have your testimony. Your full testimony
will be made a part of the record. Would you please limit your
comments to 5 minutes.
Mr. Williams, please begin.
TESTIMONY OF McCOY WILLIAMS,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Williams. Thank you, Mr. Chairman. Mr. Chairman and
Senator Carper, I am pleased to be here today to discuss the
government-wide problem of improper payments in Federal
programs and activities.
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\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 39.
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Fiscal Year 2004 marked the first year that Federal
agencies government-wide were required to report improper
payment information under the Improper Payments Information Act
of 2002. OMB has continued to provide strong emphasis on the
Act through the President's Management Agenda and Federal
agencies' response to fulfilling the requirements of the Act
has generally been positive. My testimony today is based on our
March 31, 2005, report that focused on the extent to which
agencies have performed the required assessments to identify
programs and activities that are susceptible to significant
improper payments, and the annual amount of improper payments
estimated by the reporting agencies for Fiscal Year 2004.
Mr. Chairman, we found that agencies made progress in
identifying programs susceptible to the risk of improper
payments. At the same time, our findings suggest that even with
enhanced emphasis on improper payment reporting, certain
agencies had not yet performed risk assessments of all their
programs and their estimated improper payments for their
respective programs.
Specifically, 6 of the 29 agencies we reviewed reported
that they had not assessed all programs. We also found that 29
agency programs did not report improper payment estimates. Mr.
Chairman, 12 of these programs had prior improper payment
reporting requirements under OMB Circular A-11.
I will now focus on the amount of government-wide improper
payments reported for Fiscal Year 2004. Mr. Chairman, while 17
agencies reported improper payment estimates totalling more
than $45 billion for 41 programs, the magnitude of the
government-wide improper payment problem is still unknown
because, as I mentioned earlier, some agencies have not yet
prepared estimates of significant improper payments for all of
their programs.
The $45 billion represents almost a $10 billion, or 27
percent, increase in the amount of improper payments reported
by agencies in Fiscal Year 2003. This increase was primarily
attributable to changes in the method for estimating and
reporting improper payments in the Medicare program.
In closing, Mr. Chairman, we recognize that measuring
improper payments and designing and implementing actions to
reduce or eliminate them are not simple tasks and will not be
easily solved. The level of importance each agency, the
Administration, and the Congress place on the efforts to
implement the Act will determine its overall effectiveness in
assuring that Federal funds are used efficiently and for their
intended purposes.
This concludes my statement, Mr. Chairman. I would be
pleased to respond to any questions that you or other Members
of the Subcommittee may have. Thank you.
Senator Coburn. Thank you. Controller Combs.
TESTIMONY OF HON. LINDA M. COMBS,\1\ CONTROLLER, OFFICE OF
FEDERAL FINANCIAL MANAGEMENT, U.S. OFFICE OF MANAGEMENT AND
BUDGET
Ms. Combs. Thank you, Dr. Coburn, Senator Carper, and
Members of the Subcommittee. I am certainly pleased to be here
with you today for the first time since being confirmed to the
position of Controller and I certainly look forward to working
with you on this very important Subcommittee.
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\1\ The prepared statement of Ms. Combs appears in the Appendix on
page 48.
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There are many significant financial issues facing our
government today and certainly the financial reporting that we
are talking about today and making our reporting more
transparent, improving internal controls processes, and the
very important topic which we are here to discuss today of
eliminating improper payments.
Let me say I stand with you in creating a culture of
accountability in the Federal Government and I think this
Administration is saying by the actions that we have put
forward in response to the legislation that we continue to make
the elimination of improper payments a very high priority.
There is simply no more important undertaking than the
efficient stewardship of our taxpayer dollars. The Federal
Government should be accurate and transparent, as we have
talked about before, in its financial reporting. Our citizens
deserve to know that their money is being spent appropriately
for the purpose that it was intended and legislated.
Be assured that we are hard at work to ensure that these
things are happening, continue to happen, and I agree, we have
much more to do. The bar needs to be set higher and I stand
here ready to help you set that bar higher.
When the President's Management Agenda was first announced
in 2001, the elimination of improper payments was indeed a key
part of the improving financial performance initiative,
initially focusing on those Federal programs making annual
payments in excess of $2 billion, and the 2002 enactment of the
Improper Payments Information Act broadened the review of all
these programs and activities.
In May 2003, the agencies began to comply with the Act, and
in 2004, last year's Performance and Accountability Reports
that were issued on November 15, we saw further evidence of
this compliance.
In Fiscal Year 2004, as we just heard Mr. Williams talk
about, that marked the first full year of the implementation of
the Improper Payments Act by agencies, and agencies reported
their improper payment elimination efforts in their November
PAR reports. It was soon after that, in January 2005, that OMB
issued a report called ``Improving the Accuracy and Integrity
of Federal Programs.'' That served one purpose, and that was to
aggregate the results of these agency-specific reports into a
single comprehensive document. This provided the clearest
picture that we have to date on the extent of the government-
wide improper payments as well as the significant efforts that
continue to be underway to eliminate them.
What we learned from that report was that, indeed, Federal
agencies reported a collective total at that time of $45.1
billion in improper payments in 2004, and that represented a
3.9 government-wide improper payment rate. Approximately 92
percent of the Federal improper payments are overpayments.
There are seven programs alone that account for 95 percent of
the improper payments that were reported in Fiscal Year 2004.
If the agencies are successful in meeting their reduction
targets, the overall improper payments total measured and
reported in Fiscal Year 2004 is expected to decline when the
reports come in November 2005, of this year.
A significant and specific PMA program initiative,
Eliminating Improper Payments initiative, is also adding
further agency focus on eliminating improper payments. As you
recall, under the President's Management Agenda, agencies are
required to meet a ``green'' standard, and as agencies continue
to move forward toward the completion of the necessary steps
for the Improving Financial Management Initiative, improper
payments is definitely one of the areas that we track during
that.
I think with the tools of the Improper Payments Information
Act, and this Administration's efforts that are currently in
place, we are building upon our successes. The Federal
Government is in a very strong position right now to continue
the efforts that we have already identified and eliminate
improper payments throughout agency and program activities.
With our goal of ensuring that each taxpayer dollar is
spent wisely, efficiently, and for the purpose of which it was
originally intended, we remain committed to eliminating Federal
improper payments. We look forward to working with Congress to
see that this objective is truly accomplished.
Thank you for the opportunity to speak before you today,
and I am pleased to answer any questions.
Senator Coburn. Thank you. Mr. Hill.
TESTIMONY OF TIMOTHY HILL,\1\ DIRECTOR, OFFICE OF FINANCIAL
MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID SERVICES, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Hill. Dr. Coburn, Senator Carper, other distinguished
Subcommittee Members, thank you for inviting me here to discuss
the CMS's initiatives to reduce improper payments in the
Medicare and the Medicaid programs.
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\1\ The prepared statement of Mr. Hill appears in the Appendix on
page 52.
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In Fiscal Year 2005, the Medicare and Medicaid programs
will spend $658 billion on health care benefits for nearly 85
million beneficiaries. By any measure, this is an awesome
fiduciary responsibility and one that the agency as a whole and
I, in particular, as the Chief Financial Officer (CFO), take
very seriously. Given the staggering size of the expenditures
for these programs, even small amounts of payment error can
represent a significant impact to both Federal and State
treasuries and taxpayers. I recognize that Medicare makes up a
significant portion of that $45 billion.
Thus, CMS, as part of our overall financial management
strategy, has a long history of using improper payment
calculations as a tool to preserve the fiscal integrity of the
programs that we administer. As a general matter, we look to
our improper payment activities to help us identify improper
payments, to identify and study their root causes, and to help
strengthen internal controls to prevent improper payments from
occurring in the future. However, because Medicare and Medicaid
vary in terms of their financing and their Administration, our
specific approaches to measuring and eliminating improper
payments for each program are slightly different.
We began reporting a national improper payment rate for
Medicare in Fiscal Year 1996 as part of our annual CFO audit.
Beginning in Fiscal Year 2003, we expanded on that process to
include a national rate, as well as rates that produce data at
much lower levels of aggregation to allow us better management
information for our program by assessing how well our claims
processors process claims as well as assessing broad categories
of providers and benefit types. In 2002, when the Improper
Payments Information Act (IPIA) was enacted, CMS needed to make
only minor modifications to our ongoing processes to come into
compliance with the OMB-issued guidance.
Calculating the error rates is only one step in the
process. Remediation is the key to CMS's IPIA compliance
activities. The cornerstone of our remediation efforts in
Medicare is our error rate reduction plan, which includes
agency-level strategies to clarify our policies and implement
new initiatives to reduce improper payments. It also lays out
how we use the improper payment information to evaluate the
performance of our contractors that process our claims and to
target billing education for particularly error-prone benefit
areas or provider types.
While we have a long way to go, our efforts to date have
shown promise. Our goal is to lower the national Medicare rate,
which currently stands at 10.1 percent, to 7.9 percent by
November 2005. I am happy to report that our preliminary data
indicate that we are on track to meet this 2005 goal.
Let me now turn to compliance for Medicaid and SCHIP. CMS,
along with the States, has a strong interest in strengthening
financial management and oversight payment accuracy in the
Medicaid and SCHIP programs. Thus, our IPIA compliance strategy
rests on a policy of joint Federal-State cooperation to achieve
the intended outcomes of the statute. Our strategy has evolved
since Fiscal Year 2000, when we first initiated a payment
accuracy measurement demonstration project to test various
methods and strategies for measuring improper payments at the
State level. By the end of Fiscal Year 2005, 38 States will
have participated in this program.
Last August, based on our experiences with this program, we
published a proposed rule that would require States to measure
and report IPIA compliant payment accuracy rates for Medicaid
and SCHIP. We hope to finalize this rule later this summer
using the assessment of our pilots as well as industry and
beneficiary comments on our proposed rule. Our goal is to have
full IPIA compliance in Medicaid and SCHIP in time for
reporting in the Fiscal Year 2008 Performance and
Accountability Report.
In addition to becoming IPIA compliant for Medicaid, a key
challenge facing CMS in the coming years will be assessing IPIA
compliance with the new drug benefit and expanded Medicare
Advantage programs. We conducted a risk assessment of the
Medicare Advantage program this year, and we will be outlining
a strategy for IPIA compliance for Fiscal Year 2006. For the
drug benefit, which begins in January, we will be conducting a
risk assessment in the next calendar year, in time to lay out a
strategy for compliance in 2007.
Mr. Chairman, CMS maintains a strong commitment to
protecting taxpayer dollars and ensuring the sound financial
management of our programs. We have taken significant actions
to both meet and exceed the IPIA standards in Medicare and we
are taking a number of proactive steps to become IPIA compliant
in Medicaid. We have made a great deal of progress, but we look
forward to continuing to work with you to move forward.
I look forward to answering any questions the Subcommittee
may have.
Senator Coburn. Thank you very much, Mr. Hill. Secretary
Coler.
TESTIMONY OF KATE COLER,\1\ DEPUTY UNDER SECRETARY, FOOD,
NUTRITION, AND CONSUMER SERVICES, U.S. DEPARTMENT OF
AGRICULTURE
Ms. Coler. Good afternoon, Dr. Coburn and Senator Carper. I
am pleased to be here to share with you some of what USDA and
our State partners have been doing over the years to improve
the payment accuracy rate in the Food Stamp Program.
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\1\ The prepared statement of Ms. Coler appears in the Appendix on
page 60.
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The Food Stamp Program ensures access to a nutritious,
healthful diet for households through nutrition assistance and
nutrition education. The Federal Government pays the full cost
of the benefits, which is $24.6 billion for Fiscal Year 2004,
and funds approximately half of the expenses incurred by the
States to administer the program.
The Office of Management and Budget recently completed a
Program Assessment Rating Tool, or PART, review of the Food
Stamp Program in 2003. The review showed that food stamp
benefits are well targeted to low-income beneficiaries and are
virtually always spent for their intended purpose. The program
achieves its annual performance goals to reduce payment error
while still keeping the program accessible to eligible people.
Also, in May of this year, the Government Accountability
Office issued a report on error reduction efforts in the Food
Stamp Program. This report noted the significant recent decline
in the error rates and suggests that continued attention from
top USDA leadership as well as continuing efforts of the Food
and Nutrition Service will likely continue to be important
factors in further reductions.
There has also been an increase in the participation rates
of the Food Stamp Program over the last 4 years. Increasing
caseloads can make it quite challenging for State agencies to
calculate eligibility with accuracy, and yet I am proud to
report that our State partners are doing a better job than ever
in accurately determining benefits.
Just 3 weeks ago, on June 24, Agriculture Secretary Mike
Johanns announced that the Food Stamp Program has achieved an
historic 94.12 percent overall payment accuracy rate, the best
performance since the inception of the Food Stamp Program and a
34 percent improvement from just 5 years ago. The result of the
combined error rate reduction from Fiscal Year 2000 to 2004 is
an aggregate decrease in erroneous benefits of $1.4 billion.
The improvement in payment accuracy is a result of strong
partnerships with States who administer the program as well as
implementation of program changes from the 2002 Farm Bill. The
new Farm Bill has enabled States to better simplify shelter
cost deductions and reporting requirements, align food stamp
income and resource policy with State TANF and Medicaid
programs, and employ other new options to streamline
eligibility determinations.
The food stamp payment accuracy rate is developed from a
longstanding process called quality control, a system which is
mandated by the Food Stamp Act to ensure program integrity.
Each State selects and reviews a statistical sample of its
participating food stamp households each year and reports the
findings to the Food and Nutrition Service, where those
findings are then validated. Those results are used to
calculate an error rate for each State and then weighed to
determine a national average.
Erroneous payments, as I mentioned, are at a record low.
Fewer than 4.5 percent of payments are overissued and fewer
than 1.5 percent are underissued, for a combined total of 5.88
percent. We regard both of these errors, overissuances and
underissuances, as equally important. It is critical that
payments are given in the proper amount. We want to make sure
people are receiving the proper amount to which they are
entitled.
It is also important to note with the Food Stamp Program
that over 98 percent of the people who participate are, indeed,
eligible for some level of benefit. What we are measuring is,
are we getting it exactly right?
State agencies are required to do corrective action
planning whenever their payment error rate is at 6 percent or
greater. The Food and Nutrition Service regional offices work
closely with States to assist them in developing effective
correction strategies as well as provide them with technical
assistance for data analysis, policy interpretation, and
training. Additionally, the Food and Nutrition Service enters
into settlement agreements that require poor performing States
subject to liabilities to undertake targeted error reduction
actions and to commit to specific improvement goals.
The Food Stamp Program also has a system in place to
recover erroneously issued benefits from food stamp recipients.
A little over 12 years ago, FNS approached State agencies and
encouraged them to participate in the Treasury Offset Program.
That partnership has grown over the years, and as a result, we
have collected more than $800 million in delinquent food stamp
recipient claims.
We are very proud of our efforts and the progress that we
have made to ensure that food stamp benefits provide nutrition
assistance and that they are well targeted to the Nation's
needy families.
I would also like to point out that in the last Farm Bill,
the 2002 Farm Bill, there were legislative changes to the
quality control system that may impact our ability to ensure
continued improvement in payment accuracy. Those changes reduce
the penalties associated with payment errors as well as the
incentives that we provide to States that excel in payment
accuracy. However, we are working closely with our State
partners--from the top all the way through the front-line
eligibility workers--to ensure that this mutual commitment to
reduce the error rate is still in place even with the new
quality control system.
We continue to seek opportunities and strategies to share
best practices and information critical to ensuring that the
program is administered properly. As we look toward the next
Farm Bill in 2007 which authorizes our program, we are going to
be holding listening sessions early this fall across the
country to get input from our State partners as well as
advocates on new ways to improve the program. We are committed
to maintaining public confidence in this nutrition assistance
program and ensuring that these Federal dollars are used for
the purpose for which they were intended.
With that, I will be happy to answer any questions.
Senator Coburn. Thank you all.
I intend on spending quite a bit of time on asking
questions. I wanted to give you a heads up on that.
I also would like to put into the record an article \1\ in
The Washington Post 7/12/05, ``Medicare's Spinal Tap.'' I don't
know if you saw that. One group of providers, the
chiropractors, received $285 million in improper payments in
2001, according to the Inspector General's Office of the
Department of Health and Human Services. That amounts to two of
every three dollars paid to chiropractors. Medicare is supposed
to cover chiropractic care only when there is a reasonable
chance of correcting the problem or improving the patient's
ability to function. That is from 2001. We are just now hearing
about it, 4 years later. So there is a timeliness problem.
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\1\ The article appears in the Appendix on page 38.
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Let me just start with some questions, and then I will go
to Senator Carper.
Why was 6 percent chosen as an error rate?
Ms. Coler. That is part of the legislation. Historically,
the rate that Congress recognized that a State was entitled to
enhanced funding or a bonus if they were able to achieve 6
percent. This is the first time that we have actually had a
national error rate below that, and so----
Senator Coburn. So it would be your recommendation that the
next Farm Bill have something significantly lower than that?
Ms. Coler. Well, we are all working to continue to lower
the error rate. I think that is something that Congress will
consider.
Senator Coburn. And your net on food stamps, the net
overpayment was about 3.3 percent?
Ms. Coler. It was--yes, just a little bit over.
Senator Coburn. And 3.3 percent times the total amount
spent on food stamps is how much?
Ms. Coler. The net over-issuance is about $1.1 billion.
Senator Coburn. One-point-one billion dollars----
Ms. Coler. And then the under-issuance is about $350----
Senator Coburn. So it would be $1.4 billion over, and the
net being $1.1.
Ms. Coler. Yes.
Senator Coburn. So there is $1.1 billion right there, just
right there in one program.
As you can see on the left side, improper payments reported
in fiscal 2004, 35 agencies reported improper payments. These
programs are considered ``significant'' to the U.S.
consolidated financial statements.
Mr. Williams, can you explain how the distinction is made
on ``significant''? What makes an agency significant to the
U.S. consolidated financial statements?
Mr. Williams. Mr. Chairman, we basically look at the
numbers as far as assets and liabilities and budgets, etc., and
based on those numbers, we are looking at the issue from a
materiality standpoint. There are certain criteria that we use
2 or 3 percent of total assets, etc. And when we look at all
the agencies and we look at how much they contribute, when you
are looking at the financial reports, such as the balance sheet
and the statement of net costs, that is how we come up with
those agencies that have major contributions and consider----
Senator Coburn. So if I run an agency that is not
significant, I don't have to worry about you?
Mr. Williams. That is not true.
Senator Coburn. OK. Explain that to us.
Mr. Williams. If you are running an agency that we have
determined at the government level that may not be significant
to the statements overall, those numbers still could be
significant and would be significant to the audit report that
is being done at that particular agency level.
Senator Coburn. Is that if it meets the $2 billion?
Mr. Williams. No. It does not have to meet the $2 billion.
It would be significant to the auditors that are looking at
that particular entity. In other words, we are looking at the
government operations as a whole. While we are looking at it as
a whole, there are other auditors down at the various agency or
component levels that are looking at government operations, and
while it might not be significant to the numbers that we are
looking at, those numbers that those individual agencies are
producing have some significance or are significant to the
auditors that are looking at them at the lower level.
Senator Coburn. Where does the criteria come from? Who
developed the criteria to say something is significant or not
significant in terms of this legislation?
Mr. Williams. In terms of this legislation, as far as
significant, we at GAO had an opportunity to comment on the
draft in the early stages and the issue came up, what should be
considered significant when we are talking about an improper
payment? I think when the legislation was initially drafted, it
had a number of about $1 million as being the point of
significance. In various discussions, it was eventually settled
on to be $10 million, and the thinking there was every dollar
that is an overpayment is significant, but just looking at it
from a practical standpoint, when you are talking about an
operation that has outlays of over $1 trillion at the time----
Senator Coburn. That is the very point I want to get to.
Mr. Williams. Right.
Senator Coburn. If you create a culture that says there is
significance and non-significance, what I believe you are doing
is undermining those that aren't within that frame.
Mr. Williams. Right.
Senator Coburn. And the President's management plan, I
believe, was $2 billion. Wasn't that his criteria, under the
President's Management Agenda, was $2 billion? And I guess the
question I am asking is, why shouldn't the same standard apply
for every agency, every functioning agency of the Federal
Government, and why shouldn't a zero improper payment rate be
the goal for the entire Federal Government?
Mr. Williams. That should be the goal----
Senator Coburn. But it is not. That is a point I want to
get across. That is not the goal for the Federal Government.
Mr. Williams. Right.
Senator Coburn. And a goal something less than, and I
know--Senator Carper, I am not trying to shoot the messenger. I
am trying to make the point--expectations of performance are
the most important thing you all can do in your positions. And
if it is not expected, it won't happen except in very rare
instances.
So can the average taxpayer decide in their own budget what
is significant and what is non-significant? Can they waste in a
non-significant area and not waste in a significant area? It
just doesn't fly.
So the message I want to send back is maybe we need to
rethink and relook both at the President's area and the GAO in
terms of what you are looking at and what you are accepting
for, as well as OMB, is nobody should be off the radar screen.
If they are wasting a dollar, they are stealing it from the
next generation and we need to be asking, how do we get this
plan all the way out? How does everyone become accountable? It
is not just becoming accountable. Having the expectation of
accountability changes behavior, and then the follow-up, the
auditing.
On this placard over here, what you can see is the total
number of agencies that do not even--this doesn't even cover
all agencies. This is 70 agencies. It is clearly stated in the
IPIA that all Federal agencies must report improper payment
information. Where are we? Does anybody care to answer that? We
just have 70 programs considered up there. Does the $45
billion, for example, cover the Department of Defense? General
Walker testified, I think it was $45 billion in overpayments
and $5 billion in underpayments just for the Department of
Defense alone. Is that in this $45 billion that you all are
reporting, the Department of Defense?
Mr. Williams. The $45 billion that we are reporting
includes the Department of Defense, but it is basically not
including those numbers that you just mentioned----
Senator Coburn. So basically, we are really at $94 billion,
or $90 billion?
Mr. Williams. Agencies have reported in the PARs for those
that we have on the board there--$45 billion for those 17
agencies under the reporting requirements of the Act.
Senator Coburn. Can anybody on the panel give me the number
of total Federal programs? It is in the thousands. That is $45
billion on 70 programs. And if we take and look--if we limit it
to significant only--and as you testified--we don't know what
the real number is, and we know part of the reason the number
of percentage is growing is because we have more accurate
reporting. But if we have 70--and we have 35 of the agencies
out of that 70 programs reporting and we have $45 billion, is
the problem not a great deal larger?
Ms. Combs. Let me just add that the 70 programs that you
are referring to in the improper payments area here, every
department and agency is required to work through their
internal control mechanism and those are reported through the
PAR every year. So it is not like we are giving some of these
other programs a pass, so to speak, on these reporting
relationships. They are using other mechanisms rather than this
particular report. They are reporting it through the PAR, in
essence. So I think maybe that might deserve some thought, as
well.
Senator Coburn. But I believe these are considered. Seventy
were considered, right? Does that mean they are actually
reporting, out of these 70? The 70 did not report, is that
correct? Thirty-five reported out of these 70 programs.
Ms. Combs. Let me get this right----
Senator Coburn. OK.
Ms. Combs [continuing]. So you can be clear.
Senator Coburn. The IPIA requires every government program
to report. We all agree on that, right?
Ms. Combs. Correct.
Senator Coburn. What percentage report to Congress? That is
what it requires. What percentage of the government programs
are actually compliant with reporting?
Ms. Combs. We don't have that percentage, but we will get
that.
Senator Coburn. If you would. I think that is really
important, because to get a handle on this $45 billion. We
know, for example, Medicaid, you don't have a handle on yet. It
is $178 billion, I think, this year. We don't know what that
is, but if it is 3 or 4 percent of that, you are talking $7,
$8, or $10 billion.
I just think one of the things we have to do is--and I am
not demeaning the start. We had to start somewhere. But I think
that the culture that needs to be created is that everybody is
accountable. Everybody has to report under IPIA and everybody
ought to do that on a timely basis.
I am going to defer to Senator Carper now and let him ask
some questions. Senator Carper.
Senator Carper. Thanks, Mr. Chairman.
I want to go back to a question that is a follow-up to what
the Chairman was asking in referring to the poster over here,
the chart to my right. It is different than the question he was
asking. What percentage of Federal spending do the 70 programs
that are represented on this chart, what percentage of Federal
spending do these 70 programs represent? Is it half? Is it less
than half? Is it more than half?
Ms. Combs. It is approximately $2.3 trillion,
approximately.
Senator Carper. All right. And my follow-up question would
be, roughly what percentage of spending does that reflect, $2.3
trillion? Is it half? Is it more than half?
Ms. Combs. The $2.3 trillion I referred to is the outlays.
That is the corpus that I think you were referring to. But you
are referring to the 70 programs and what part of that $2.3
trillion that----
Senator Carper. I guess my point is 70 programs doesn't
sound like a lot, but, however, it is possible that those 70
programs represent a whole lot of our spending.
Ms. Combs. Well, that is----
Senator Carper. That is what I am trying to get to.
Ms. Combs. We don't have that. We can supply that for you.
Senator Carper. Can anybody give me a feel for that? Mr.
Williams.
Mr. Williams. We do not have that information. And
expanding on that, one of the things that we attempted to do
was to identify the universe of all the Federal programs, and
that turns out to be a difficult task because of definitional
reasons--how do you define this program, is this a program,
etc.? But as far as the percentage, we were not able to get
that number.
Senator Carper. All right. I wrote down as someone was
testifying, seven programs alone account for 95 percent of
improper payments. Who said that?
Ms. Combs. I did.
Senator Carper. Would you just elaborate on that, please?
Ms. Combs. As the assessments were done that Mr. Williams
is referring to, there were actually seven programs that were
identified that represented 95 percent of all the improper
payments that were identified at that time. That was for the
2004 time period.
Senator Carper. Could you just tell us, what were those
seven, do you recall?
Ms. Combs. Medicare, Earned Income Tax Credit, Unemployment
Insurance, Supplemental Security Income, Old Age Survivors' and
Disability Insurance, Public Housing/Rental Assistance, and
Food Stamps. And might I just say, while I have the microphone
here, that those seven programs, I would consider to be the
higher-risk areas. And, of course, that is where we wanted to
start, with the understanding of our partners and the auditing
community, as well as in the IG community, those were some very
large areas that we wanted to start with. And so I would
consider that those, being as high-risk as they were because of
the dollar value, gave us the best opportunity to get that
money back to the American people.
Senator Carper. Would you call them the low-hanging fruit?
Ms. Combs. I would say this is the greatest opportunity we
have at the present time to bring some additional transparency
and to bring some additional dollars, in essence, back to the
American people.
Senator Carper. Thank you. A question for anyone on the
panel, just a really basic question, but why do improper
payments, overpayments or underpayments, why are they occurring
in such numbers? Why is this happening?
Mr. Williams. I will take that. One of the things that we
have found in our reviews over the years is that if you look
for a root cause for an improper payment, it is a lack of good
internal controls. I think that is a common theme that you can
find throughout this whole process, is that where you have a
breakdown or a lack of internal controls, you have a higher
risk for having improper payments.
Senator Carper. Anyone else?
Ms. Combs. I would agree with that, and I would also agree
that there are probably some timing opportunities, as well. In
other words, some of the payments, because people do not have
accurate enough financial information at the time that the
payment is being made in order to make that payment, something
may have happened, and my friends who deal with that all the
time are probably best to answer that, but I would expect that
may have a large portion to do with what we are trying to deal
with here, as well.
Senator Carper. Mr. Hill.
Mr. Hill. I was also going to suggest that internal control
is clearly an issue. It is also important to focus on the
complexity and the nature of the programs themselves. Speaking
for Medicare and Medicaid, while internal controls are an
issue, they are also highly complex programs. Health insurance
benefits for providers on behalf of beneficiaries involve a
multitude of payment systems and coverage criteria that some
would say are hard to understand and----
Senator Coburn. It is designed to be defrauded.
Mr. Hill. It is certainly where the money is and there is a
certain opportunity that folks take to use the system to try
and get money to which they are not entitled.
Senator Carper. Secretary Coler--well, go ahead and then I
have a question for you, as well.
Ms. Coler. I was just going to agree that the complexities
of the programs do have an impact on the improper payments. One
of the nice things we saw with the 2002 Farm Bill, where States
could align some of the income eligibility requirements in the
Food Stamp Program with other State programs like TANF and
Medicaid, it could help because the States could make
determinations and streamline those programs, and therefore, we
have seen a reduction in some----
Senator Carper. I think that is a good point. Make that
point again for us. That is a good point.
Ms. Coler. As the States have been able to streamline the
criteria and eligibility requirements of various programs--many
times, often, the eligibility is determined by the same
caseworker--it has improved the ability of the States to
perform in accurately determining benefits.
Senator Carper. Thank you. In my last job, I was Governor
of Delaware and I have recollections of working with the U.S.
Department of Agriculture to try to reduce our error rates, and
all the States were trying to do that, as well. One of the
things we are trying to do is to go to a paperless system and
there was a fair amount of encouragement, some financial
incentives, some carrots and sticks that were involved. But I
think you have seen a migration in the last decade in virtually
every State now to more of a paperless system. Just talk about
that transformation, if you will, and how it may have had some
positive effect on the better results that we are seeing today
with respect to improper payments.
Ms. Coler. Well, with the Food Stamp Program moving to
electronic benefit payments, or EBT, we have eliminated paper
currency and that is a whole different----
Senator Carper. Explain how it works now.
Ms. Coler. Sure. It is a debit transaction, just like a
commercial debit transaction. The card draws money down from
the household's food stamp account to purchase their groceries
at an authorized retailer. We have been able to lower the
amount of trafficking significantly through EBT, because we are
able to use it to monitor transactions. We can better analyze
where there might be some suspicious activity and better target
our investigative efforts to go after that. So we are 100
percent EBT now. There are no stamps anymore, or at least they
are not being issued. It is an item in the President's budget
to possibly rename the program to better reflect that it is a
nutrition program and to bring it into the 21st Century. EBT
has provided a tremendous benefit on the trafficking end and
our abilities to reduce those instances.
Senator Carper. What lessons might we learn from what the
Department of Agriculture has gone through in managing and
really overhauling this program? And are any of those lessons
applicable to other agencies, particularly the six or seven
which have the greatest prospect for reducing improper
payments?
Ms. Coler. Well, we see our ability to interact with our
State partners, to share the commitment to improve the
performance of this program from the top leadership at USDA to
the top leadership within the States, but then also encouraging
and rewarding performance through our county offices and with
eligibility workers. You really need the entire chain to be
committed to this. I think program simplifications have helped.
We do have a quality control system in place under the law.
Because we are a federally-funded program, but State
administered, there aren't the incentives for a State to
necessarily watch how they are determining eligibility as much
as if they were required to have a match on the benefits. So I
think that is why we are somewhat unique with this legislated
quality control system.
But it has helped. I think efforts to collect liabilities
when States were not performing and to be serious that we need
all levels to be committed to this has had a significant
impact, and so we are pleased with the progress. We recognize
that there is always improvement.
Senator Carper. Continuous improvement.
Mr. Chairman, I have another Subcommittee, Clean Air
Chaired by Senator Voinovich, that I need to slip off to.
Before I slip out on you, could I just ask two questions of Ms.
Combs----
Senator Coburn. Sure, absolutely.
Senator Carper [continuing]. And then I will be on my way.
To Ms. Combs, let me just ask, it seems to me that maybe
the best strategy for addressing the improper payments problem
would be to build on agencies' capacity to prevent erroneous or
fraudulent payments before they are made. Let me just ask, and
I know you are new in this particular position, but what has
OMB been doing that you are aware of to help agencies to build
up the internal controls that we talked about here earlier that
are necessary to prevent improper payments?
Ms. Combs. Thank you for asking that, because I do look on
what has happened thus far as a phase one approach. We are not
there yet, but we certainly have come a long way. I think that
in the phase one approach, we had a lot of attention and added
attention being paid to, in essence, 15 departments that
encompassed about 40-some programs. I know you have 70 on your
chart here, and that was reflected in the GAO report, and it
certainly says how much we have to work on. But just
concentrating on those top 15 departments, when we meet with
these people on a regular basis and the CFOs in each one of
these departments know that they are responsible for doing the
risk assessments, they are responsible for coming up with a
plan, they are responsible for coming to us and showing us how
they are progressing along the way of reducing their improper
payments, and the accountability is there at the top levels in
each one of these departments and agencies and it does go,
then, all the way down.
But it has to start at those top levels. So to answer your
question more specifically, that is one of the things that we
believe at OMB we can help departments and agencies with. We
can showcase the Kate Colers of the world and the best
practices that have taken place in the Food Stamp arena. We can
understand better with our CFO Council members, where we get
together every couple of months, and then individually, we will
have seven or eight of them come in individually and talk about
these things.
So, in essence, being a willing helper, and because I have
done a CFO job in several departments and agencies, I feel like
a lot of people will look to me for some leadership in that
regard, as well.
Senator Carper. One last question, if I could, Mr.
Chairman. Ms. Combs indicates she has been CFO, as we know, in
a couple of other agencies, I think EPA and DOT, as I recall,
are those agencies. I believe you have also had a chance to
work on improper payment issues, not just in the public sector,
but I think in the private sector, as well. I am wondering what
lessons you might share with us briefly that the business
community can teach those of us in Federal agencies about
building internal controls and reducing, maybe eliminating,
improper payments and what efforts, if any, has OMB taken, to
your knowledge, to help agencies learn from businesses or even
other agencies that have done a good job in those areas, as Ms.
Coler has referred to.
Ms. Combs. I think one of the other things that we have
recently done at OMB was to have an industry day where we could
bring industry in and let them share with us some of the best
practices that they have, have a basic sit-down meeting to say,
here are some of our problems. Where have you addressed this in
an industry-wide level?
And I think Dr. Coburn mentioned it earlier, the
expectation of a zero percent improper payment rate is the
right approach. We have to put that out there as our ultimate
goal, to be zero percent, because the best possible internal
control that you can possibly have is to not let the error
occur to begin with.
Yes, you are right, it was very important in the banking
business. It was very important in the private sector where I
was. And putting the expectation out there, both at the EPA as
well as Department of Transportation, certainly helped us to
come to the realization that we can do a whole lot better, and
we can use some newer technology now that we and many of the
other CFOs are exploring to see if some of the newer technology
will help us to identify the correct payer before we are
actually making the payment. So I think particularly in Mr.
Hill's area, that they are looking at some new ways to do that,
and I think that, too, will help.
Senator Carper. Mr. Chairman, I am sorry I have to slip
out. Again, to our witnesses, thank you very much for being
here and to help us as we try to get our arms around this
challenge. I think some good work is being done in this area
and I think maybe part of our job is to put a spotlight on the
good work, but also to put a spotlight on the areas where we
still need a fair amount of work to take place. Thanks very
much.
Senator Coburn. Thanks, Senator Carper.
Let us go back to the chart that is up for a minute. There
are 35 agencies that are considered significant. Twenty-three
agencies assess some programs, not all their programs, but some
programs for improper payment, and that is not exactly the same
number. Agencies that did not even identify problems for all
programs, that is six of them. In other words, they are not
compliant at all. And then there are another three agencies who
said they did an assessment, but when they were audited by GAO,
there was found no evidence that they did an assessment. Could
you comment on that, Mr. Williams?
Mr. Williams. Actually, there were three agencies that had
previous reporting requirements that we identified in the
review that did not report. There were also three agencies that
did not have the previous reporting requirement. But in
addition to that, there were three agencies--NASA, Homeland
Security, and Justice--whose auditors questioned the overall
assessment that had been performed, and in their opinion, as
they reviewed the process, they concluded that the Act had not
been complied with. So it was those three agencies.
Senator Coburn. So the demand for internal controls in
those three agencies needs to be reinstituted and emphasized.
Mr. Williams. There needs to be a little bit more emphasis
on the overall process, based on what the auditors reported for
those three agencies, to make sure that additional steps,
additional procedures are being performed to make sure that the
agency is in compliance in the eyes of the auditors when they
are looking at the compliance issue on their annual audit.
Senator Coburn. Then you go to the other side of this.
Seventy total programs were considered for improper payments,
that is correct, and 41 of them that estimated out of the 70,
but 29 didn't even give an estimate of those 70 programs. Is
that correct?
Mr. Williams. That is the information that we were able to
obtain by reviewing the PAR reports for those particular
agencies. There was no explanation given in some cases as to
why the assessment was not done. In some cases, there were
explanations as far as the complexity of the program, etc., and
some additional guidelines that we plan to assess these
programs in future years. I think we put a chart in the
testimony that lays out when each one of the agencies plan to
be in compliance.
Senator Coburn. Controller Combs, what is the incentive to
have the CFOs at these agencies who didn't comply, what is the
up-side, what is the down-side? How do we get them into
compliance?
Ms. Combs. Well, one of the things I think we will notice
in the 2005 PARs, which are coming up in just a few months,
will be that some of these agencies who did not comply last
year will be in compliance this year. And I think the carrot
and the stick approach that you have continued to either talk
about or allude to is certainly something we have to continue
to look at, because we are continuing in our oversight role at
OMB to look at the agencies and departments who have special
situations such as the ones we just talked about, and see how
we can help them become more compliant. I think they are making
significant progress, so I think we will see that as we present
the November PARs in November 2005.
Senator Coburn. Let me follow up. What are the carrots that
you are using, or what are the sticks? You obviously have six
programs that didn't do anything. You have three programs that
actually demonstrated that they did the assessment, but when
they were audited, there was no evidence that they had done
this. What are those carrots and what are the sticks? What are
you actually doing at OMB to bring them into compliance?
Ms. Combs. One of the things that we are doing is to have
them come in on a quarterly basis and show us their plans, or
more frequently, if we feel like the need is there. But we have
some dedicated staff. We have some resources that are dedicated
specifically to working with agencies and departments for their
internal controls reviews, and the assessments have to be done,
the plan has to be laid out very carefully with deadlines and
responsibilities. We review those with them. We help them. We
share some best practices with them to help them through their
specific situation.
Senator Coburn. Should there be any connection between
performance and internal controls and what their budget is the
next year?
Ms. Combs. Well, I think that----
Senator Coburn. I mean, that is how the real world works.
Ms. Combs [continuing]. There is. There is a lot of that
anyway. I think that is done through the PART, the Program
Assessment Rating Tools. You heard Ms. Coler talk about being
assessed by the Program Assessment Rating Tool. There were many
of those programs that were assessed, as you recall, that were
recommended for sunset.
Senator Coburn. But what I am talking about is with the
CFOs of the individual agencies and the programs who don't come
into compliance with IPIA or the PART assessment rating or your
own directions through your own Administration of internal
controls. Where is the consequences there if there is not
performance?
Ms. Combs. Well, they don't get a clean audit, for one
thing, because if their internal controls are not sufficient,
they would have that consequence.
Senator Coburn. OK. So if I am the CFO of one of these
agencies and I don't do that, what happens to me?
Ms. Combs. I, fortunately, have never had that happen to
me.
Senator Coburn. I think that is a realistic question that
the American people ought to be able to ask. Here is the law,
here is OMB's directions, and here is nonperformance. Is there
no consequence to the person who is responsible for that
nonperformance in relationship to that?
Ms. Combs. That is a good question.
Senator Coburn. I want the answer. [Laughter.]
Has there even been an agency that has had its budget cut
by not getting a clean audit?
Ms. Combs. I don't know.
Senator Coburn. The answer is no, and that is the question
that ought to be out there on the minds of the people
responsible.
I don't have an argument with people who work for our
Federal Government. They are all committed and want to do the
right thing. The fact is, we have to put a culture of financial
management and transparency into every program, not just those
deemed ``significant.'' I have real problems with what OMB did
in terms of their definition of significance because I think it
sends the wrong signal, even though you may be looking at them.
But that culture has to be implemented.
The other question I want to ask, where is DOD on all this?
I mean, you listed seven programs--you correct me if I am
wrong--Social Security, Medicare, Medicaid, then DOD in terms
of order of expenditures other than interest. Why isn't DOD on
that list? Where are we? What are we going to spend, $500
billion, $480 billion on defense this year, and we have already
had testimony from the GAO that there are real problems over
there in improper payments. I mean, they are not sacrosanct. If
anywhere today we ought to insist that they be more efficient
than ever, because every dollar they waste is a dollar we can't
use to defend this country. Where are we on DOD?
Ms. Combs. DOD, I believe, will report this year. I think
they were probably one of the ones that didn't report last
year.
Mr. Williams. I can respond to that.
Senator Coburn. Sure, please.
Mr. Williams. Basically, there were two programs under the
old Circular A-11 report requirement from OMB. It was the
military retirement fund and military health benefits. And
going through the 2004 Performance and Accountability Report
for DOD, they basically assessed those two programs and there
was a statement in the PAR that it was actually reported for
those two programs because, in OMB's implementation guidance,
it basically stated that for all the programs that were
included under Circular A-11 would continue to report under the
Improper Payments Act. But if you looked at those programs,
they did not meet the criteria using OMB's guidance of $10
million and 2.5 percent.
So those were the only two programs that reported, and I
looked further in the PAR report and DOD's statement basically
said that those were the only programs, that they had no other
programs that were susceptible to significant improper
payments.
Senator Coburn. So that comes back to the definition of
``significant.'' Here, the Department of Defense has decided
that the rest of the Department of Defense except those two are
not significant, except it is the third-leading expenditure in
our country, defending our country. What is going to happen
this next year on DOD as far as reporting?
Ms. Combs. One of the opportunities we have, I think, is,
as we have talked about before, we have looked at phase one.
That is my term for where we are now. I think we have an
opportunity to look again at where we are with the program
itself and see if we have got it right. And I know that there
is a committee of the CFO Council, the CFOs themselves, that is
looking at improper payments. After a year's worth of looking
at and seeing how it is shaping up, it is probably an
opportunity for the CFO Council to step up and take a look and
see whether or not we have got it right.
Senator Coburn. Is the Department of Defense outside the
IPIA requirements?
Ms. Combs. I don't think so.
Senator Coburn. So then why would they not be reporting?
Why can they rely on OMB's guidance to not report under the
PARs assessment but then totally exclude what the IPIA says in
terms of reporting? How do we explain that?
Ms. Combs. They should be accountable and be----
Senator Coburn. And they should be reporting, correct? They
should be reporting the improper payments----
Ms. Combs. They should be reporting----
Senator Coburn [continuing]. At every level in the
Department of Defense, isn't that correct?
Ms. Combs. To comply with the law.
Senator Coburn. With IPIA. So let me ask Mr. Williams this.
Can you give me, or you don't have to today, but could you get
back to me, under the GAO's guidelines--under the OMB's
guidelines, implementation guidelines, what programs do you all
consider outside of their implementation guidance, based on the
guidelines that we have today, nonsignificant, 2.5 percent, $10
million? Can you give us a list of the programs that under
those guidelines would be presumed to be outside of them?
Mr. Williams. Yes, we can provide you with that
information.
Senator Coburn. I would like to have that, because I think
it is--I will go back. I think the guidelines need to be
tightened up.
I also would ask, do we need to change the statute in terms
of the language? Do we need to have additional Federal
legislation that changes the statute that will require
individuals to have to report improper payments? In other
words, I guess the question I am astounded at is here is a
Federal law that is required, and I understand since 2000, we
are starting to get Federal financial accountability and
transparency and controls in. But here we have one large
department that, in essence, is reporting nothing, either
through IPIA or your guidelines under the PARs program. Do we
need to change the statute? Is there something that needs to be
done by Congress to bring that group, or all those groups, not
just the Defense Department, but all those others that have not
complied into compliance? Do you need more legislation or do
you just need better implementation?
Ms. Combs. I think that is one of the things that we, as
the CFO Council's Subcommittee on Improper Payments, could look
at, to see whether or not we feel like we have within our own
purview of responsibility the strength we need to make that
determination and make it work, or do we need to look and work
with you folks to see if there is additional legislation that
we need to have required. But I think we have--certainly I
have, being as new as I am in my position, I know I need a
little bit more opportunity to look at some of the things you
have brought to our attention today, and Mr. Williams has
agreed to come forward with to see exactly where we are with
this.
Senator Coburn. Do you have any comments on that?
Mr. Williams. Mr. Chairman, there are two or three points I
would like to make. I was paraphrasing the PAR report for DOD,
but I have the specific language here. Basically, when they
talk about the Improper Payments Information Act, the statement
is DOD's Fiscal Year 2004 survey did not identify any programs
or activities where erroneous payments exceeded the established
threshold, that is an error rate greater than 2.5 percent and
erroneous payments in excess of $10 million, and that is in
parentheses, nor were any found to be susceptible to
significant risk. So that was basically what DOD reported----
Senator Coburn. I just find that almost laughable, as that
is----
Mr. Williams [continuing]. For 2004.
Senator Coburn. They meet the word of the law, but not the
intent.
Mr. Williams. Now, one of the things that I have had an
opportunity to look at is that when the original legislation
was drafted, I think the Congressional intent was that anything
greater than $10 million would be reported. In looking at
correspondence between the Congress and the Director of OMB,
OMB's position at the time was that the legislation did not
define the word ``significant'' and in OMB's implementation
guidelines ``significant'' was defined as this 2.5 percent and
$10 million. So the correspondence that I saw back from
Congress was basically that it was not the Congressional intent
of the original legislation, that the Congressional intent was
basically $10 million and not the 2.5 percent that was included
in the implementation guidelines.
I guess one way that it could be addressed, if the Congress
is concerned about the definition of ``significant,'' is maybe
``significant'' could be dropped from the legislation and just
basically spelled out as $10 million is what we are interested
in as being the amount they would like to have reports on.
Senator Coburn. Let me just stop you there for a second.
Mr. Williams. OK.
Senator Coburn. I want you to think about this. If you are
a factory worker at Georgia Pacific in Muskogee, Oklahoma, and
you hear somebody say $10 million isn't significant, I think
about the cultural difference of what we are saying with that.
So basically, we need to clarify that.
Mr. Williams. The Congress has interpreted it one way and
the Administration has interpreted it another way, based on the
correspondence that I have seen. Congress basically stated that
this was our intent. OMB has basically stated that in passing
the legislation, you were silent, that you did not define
``significant'' and we define ``significant'' in our
implementation guidelines, so----
Senator Coburn. Is there any hope to see that change,
Controller Combs?
Ms. Combs. As I mentioned a while ago, I am very happy to
look at where we are right now after the year of----
Senator Coburn. And we get all those programs, the list of
the programs that don't fall into this.
Ms. Combs. Correct, and we have a mechanism within the CFO
community through the CFO Council to look at that and to help
us together assess whether or not that is the appropriate
avenue.
Senator Coburn. I want to touch on another area, and
anybody, feel free to jump in on this one. There is variability
in the options on the part of the Administration in terms of
OMB, in terms of how they implement things. But if you really
think about the financial controls and operational controls of
any organization, whether it be a government agency or a
private agency or a charitable foundation, those basic
principles are the same in terms of being able to have an audit
track, balancing books, knowing where your assets are, knowing
what your liabilities are, knowing what your exposure is. Those
are all the same.
Should it not be that we fix this so that this doesn't
change as administrations change? In other words, Generally
Accepted Accounting Principles ought to be the guide no matter
who is in charge of the White House. Transparency ought to be
the guide no matter who is in charge of the White House.
Accountability for performance standards based on the internal
controls and financial accounting standards ought to be the
guide.
How do we do that as a Congress, because we have seen this
Administration has chosen to interpret this one way. If we are
going to have Sarbanes-Oxley on the business community in terms
of transparency, accountability, timeliness, etc., then why
should we not apply those same standards, regardless of the
political drift of one administration or the other, to all the
government agencies?
Ms. Combs. Well, I think that is certainly why you have
legislation, because that in statute does go from one
administration to the other.
Senator Coburn. Well, but it is wide open for
interpretation, as OMB has already made. What if the next
administration comes in and says significant is this? That is
the point I am making. In other words, there shouldn't be a
variability, and again, I will go back. We talked to all the
major auditing firms in this country and their standard is zero
improper payments. So why should we have anything less than
that and why should we implement any standard less than that?
The Congress sets it as a goal to start, but why shouldn't the
goal be reduced to zero? That is the goal, isn't it?
Ms. Combs. That is my goal.
Senator Coburn. The farm bill's goal is 6 percent. Is zero
possible?
Ms. Combs. Of course, it is possible. If there are
departments now who have close to that, it is certainly
possible. I think that we have an opportunity here to, as Mr.
Williams mentioned, the original legislation was not as clear,
but I think we do have an opportunity to look at it and tell
whether or not, after the experience we have had, whether we do
need to clarify any of the terms of that legislation.
Senator Coburn. So can I have the commitment from you that
we will do that, that we will come back and do that in terms of
the communication back to Congress, what do we need to change
to put this on a financial standard rather than a political
standard?
Ms. Combs. Yes, and I think that one of the things that Mr.
Williams mentioned earlier relative to the materiality is what
we are probably going to find out, but we are certainly more
than happy to work with you on that, because materiality for a
program, as Mr. Williams mentioned, is certainly going to be
different than it would be for an entire department or
certainly government-wide. But with those considerations, the
CFO Council, I think, is the appropriate group of people to
work and gather the information and look through our successes
and look through where you feel like we have some difficulties
that we need to work through and see if there are ways we can
work through those together.
Senator Coburn. Mr. Hill, let me visit with you for a
minute. You have a very tough job. I have been on the other
side of this. The fact is, there is nobody in CMS who
understands Medicare. Not one person understands every aspect
of Medicare, so your job is made particularly difficult. The
same is true of Medicaid. You testified that you hope to have
this in place by 2008. What are you finding from your pilot
program and what are you seeing?
Mr. Hill. The 2008 commitment that we are making is to
produce reportable rates that are IPIA compliant. That in no
way means that we are not trying to take action right now.
Senator Coburn. I understand.
Mr. Hill. So we have pilots underway and we are doing as
much as we can.
In Medicaid, unlike Medicare, where we have had a lot of
history, there are four sets of issues that challenge us. One,
unlike in food stamps, is just the diversity of programs. If
you have seen one State Medicaid program, you have seen only
one State Medicaid program. There are 50 different Medicaid
programs, and that causes both methodological as well as
logistical issues in terms of determining improper payment
rates.
Also, the needs basis of the program where eligibility can
vary from State to State, subject to Federal waivers, results
in a logistical set of issues.
In adition, a significant portion of the beneficiaries, are
in managed care instead of fee-for-service. While the
predominance of the benefits are paid on a fee-for-service
basis, the fact that a huge portion of the beneficiaries are in
managed care, again leads to a challenge.
And the States will tell you as they have told us--that
there is a cost issue. They believe they have incentives to
keep the error rates down because it is a shared program. They
have skin in the game, so to speak, and so they do all that
they can to keep their error rates down. What we have heard at
the State level is that IPIA compliance, including key
requiring a statically valid sample of claims is a Federal
requirement, not a State requirement, and that the States have
trouble bearing the added costs with their current budget
situations.
And so those are the challenges we confront. We think we
are going to have, as I noted in my testimony, by the end of
the summer, a plan that we can roll out much more publicly in
response to our regulations from last year that will address
these issues. But those are the issues that we are finding the
biggest challenges in the Medicaid program.
Senator Coburn. GAO was kind of critical saying that you
weren't putting enough money into your program to develop this.
Do you have any answer?
Mr. Hill. One of the GAO criticisms we have heard most
recently has to do with our program integrity efforts on
Medicaid across the board, which are somewhat separate and
distinct from the financial management IPIA activities. The
Department and CMS in particular have instituted and
implemented a longstanding process working with the States and
our regional offices to be very aggressive in helping the
States understand what their program integrity issues are and
providing the technical assistance and feedback that they want.
Again, as a shared Federal-State partnership, our role, the
Federal role, is as much guidance and technical assistance as
it is boots on the ground, if you will, much different than
Medicare in terms of fighting fraud and addressing the issues
that the States are addressing.
Senator Coburn. A lot of corporations have to deal with
multiple State regulatory environments. If, in fact, Federal
matching grants were dependent on compliance, don't you think
things would turn around pretty fast?
Mr. Hill. I will tell you that coming back from the beach
reading the report on the Food Stamp Program and the incentive
pieces of the Food Stamp Program, clearly has a lot of things
to tell us about not just Medicaid but Medicare in terms of
things that we can think about to incent States or contractors
who process claims to do a better job.
Historically in Medicaid, there was a program on the
eligibility side where the error rates varied against a set
norm, and there were penalties assessed on States and we
withheld State matching. Not surprisingly, much litigation
ensued from that activity and the benefits of the stick, so to
speak, were somewhat limited by getting caught up in that
litigation.
So the lesson for us as we go forward is to be very
deliberate and careful about how we pick the methodologies and
how we go about creating the incentives or disincentives.
Senator Coburn. Are a large percentage of the improper
payments in Medicare associated with durable medical equipment?
Mr. Hill. Because it is a weighted average, the vast
percentage of our overpayments are for Part A hospital
inpatient services. That is where most of the payments are. I
will tell you, we have ongoing problems, improper payments,
fraud, and the whole range of issues in the durable medical
equipment (DME) world. The general notion that I have had is
whenever we have situations, whether it is DME or unlicensed
providers who are providing services for our beneficiaries,
that seems to be where we can always kick over stones and find
problems. So DME has always been an issue for us.
Senator Coburn. Is FMAP not a big stick for you to use on
States in terms of compliance with this?
Mr. Hill. It certainly could be, to the extent that----
Senator Coburn. Don't you have broad discretion there?
Mr. Hill. We do.
Senator Coburn. Very broad discretion of which to force
compliance on Medicaid?
Mr. Hill. Right. And again, I think that is where we need
to be deliberate with the States in terms of looking at our
history with the eligibility quality control program where we
imposed FMAP disallowances. We held back on FMAP to the extent
error rates went above or below a mean. And again, the States
complained and sued and said, the methodologies you used
weren't appropriate or weren't valid and we got ourselves hung
up in litigation. I think moving forward, to the extent we want
to use FMAP or withholding State payments, we need to be sure
that the methodologies and the approach we use can withstand
that test.
Senator Coburn. Thank you. Well, my hat is off to you. You
have got a tough job over there.
Mr. Hill. This is a long hearing. I was kind of hoping I
would get away without having questions, but I guess----
Senator Coburn. You are not going to make it. [Laughter.]
I actually have about ten more pages of questions----
Mr. Hill. I am sure you do. [Laughter.]
Senator Coburn. Ms. Combs, the 2001 version of Circular A-
11 included the U.S. Agency for International Development in
Section 57. GAO reports that in June 2002, a revision to the A-
11 Circular reduced the number of CFO Act agencies required to
submit erroneous payment data from 15 to 14, removing the
Agency for International Development from this list. Can you
explain the reasoning for this change, and are they required to
report improper payments under the IPIA?
And I would tell you that since we have just had one
hearing in this Subcommittee on one program in which we were
appalled at not necessarily improper payments, but the lack of
attention by this one subpart of U.S. AID, and that is the
malaria program, in terms of the money not going where it was
supposed to go, and I would just like to know why that was
exempted. Where is their reporting and are they required to
report under the IPIA?
Ms. Combs. Yes, they are required to report under the
IPIA--and they report through the PAR, the Performance and
Accountability Report.
Senator Coburn. Well, they were exempted in 2002 from the
A-11 Circular, so explain to me why they were in it and why
they are out all of a sudden.
Ms. Combs. Well, I think there was a--what I understand
between the correspondence that I have seen from OMB at the
time, it looks like that there might have been a certain
threshold that was being looked at at the time and that their
annual outlays for their grants and their cooperative
agreements didn't meet that threshold at the time. But OMB
required U.S. AID to reassess its program inventory as part of
the government-wide IPIA implementation in February 2004 and--
--
Senator Coburn. So they will report this year?
Ms. Combs. Yes.
Senator Coburn. And they are required to report under the
PARs this year?
Ms. Combs. They are required to report.
Senator Coburn. One of their quotes was, for Fiscal Year
2004, they had assessed all programs and found no risk. Can you
explain that?
Ms. Combs. I believe that--I am not sure I can explain that
because I wasn't there then, but I will be glad to get that
information.
Senator Coburn. Well, a couple of things, if you would get
for the Subcommittee, I would appreciate. Why were they dropped
for the 2 years? Why were they not required to report? And why,
when they reported in 2004, they assessed all programs and
found a risk, actually, and probably, Mr. Williams, I would
like for you all to look at that and see if, in fact, they did
assess, since we have three agencies who supposedly assessed
and the audit trail would say they didn't have a good
assessment. If you would do that for us, I would appreciate it.
Mr. Williams. We will be more than glad to take a look at
those.
Mr. Chairman, you have raised two or three points that, if
it is OK----
Senator Coburn. Please feel free to comment.
Mr. Williams [continuing]. I would like to make some points
on. There has been discussion about the progress in bringing
down the rate in the Food and Nutrition Service, Food Stamp
Program.
I would like to add, I testified on this particular area
about five times now and I always put a plug in that we at GAO
have put together a guide that basically talks about best
practice strategies in addressing improper payments. We had an
opportunity to talk to the private sector. We had an
opportunity to talk to governments of a couple other countries.
We had a chance to talk to a couple of State governments, also,
to get their input. I would strongly encourage OMB and the
agencies to take a look at that particular guideline. There are
some pretty good best practices in there as far as things that
can be done.
There was also some discussion about the goal of getting
improper payments down----
Senator Coburn. Let me stop you for a second.
Mr. Williams. OK.
Senator Coburn. Controller Combs, have you seen those best
practices? I know you know what best practices are. You have
proven that. You have implemented them in a lot of places. Have
you looked at those, and is that a part of what OMB is doing?
Ms. Combs. I have seen and am aware of this--you are
talking about the report, the recent report?
Mr. Williams. No, this is a guide that we put out a few
years ago. It is called, ``Strategies for Addressing Improper
Payments,'' and it is basically a document that goes through
various things that other countries have done, other States
have done, and things that have been done at various agencies
in the Federal Government that have been classified as best
practices----
Senator Coburn. And have been successful----
Mr. Williams [continuing]. And have been successful in
addressing the issue, and it has got all kinds of techniques
from where we were talking earlier about how the Food Stamp
Program has gone from one in which you are issuing stamps to
all EBT, and there are techniques in there where we talk about
how you can perform various procedures to try to identify where
there are areas that you might have a high risk or high
incident of improper payments and just across the gamut. These
are just best practices, and I have always encouraged at every
hearing that I have participated in that this is a guide that
we recommend that people take a look at. This is just one more
tool in the process.
Senator Coburn. To your knowledge, have the CFOs of all--do
you call it CFO Roundtable, is that what you call it?
Ms. Combs. Council.
Senator Coburn. Council. Have they looked at this?
Ms. Combs. I am sure, individually, they probably have. As
a collective group, the subgroup that I mentioned, the CFO
Council subgroup that is looking into improper payments, they
were actually instrumental in helping to set up the industry
day.
Mr. Williams. Yes, that is correct.
Ms. Combs. I think that Mr. Williams or some of your
people----
Mr. Williams. Staff.
Ms. Combs [continuing]. Actually worked with. But the more
of those things that we can continue to do together, and we
will look at this particular one together.
Senator Coburn. Continue, Mr. Williams.
Mr. Williams. The next area that was discussed earlier, you
had focused in on the issue of making sure that you have
requirements in statute. I go back to 1990 when I was detailed
to the Hill to assist in the drafting of the CFO Act of 1990.
The big issue that came up at that particular point in time was
the current Administration had administratively required
agencies to have financial statement audits, and the issue back
then, and that issue continues until today, is that the reason
why you want to get this financial management in the statute is
because administrations change and you want to make sure that
years from now, that you have these procedures in place and you
don't have another administration to come in down the road and
say, I don't think that that is worth the time of the day.
But by having it in statute and having it clear, it gives--
it should give the taxpayers some comfort that years from now,
we will still have these procedures in place and there will
still be these requirements to make sure that things are being
done to increase and improve accountability throughout the
Federal Government.
The other area that I want to talk a little bit about is
internal controls. It was mentioned earlier from one aspect,
but internal controls basically have two components. You have
what is called preventive internal controls and you have what
is called detective internal controls.
Preventive internal controls are those controls that are
put in place to prevent an improper payment from occurring in
the first place. Detective internal controls are those controls
that are put in place to detect after the improper payment has
been made.
We, at GAO, have always pushed for more emphasis on the
preventive controls because, as the old saying goes, once the
horse gets out of the barn, sometimes it is kind of difficult
to get it back in. A lot of these programs that we talk about,
when you look at them, if there is an improper payment made, it
is usually made to a group of our society that cannot afford in
a lot of cases to repay that money, and we are not talking
millions of dollars, we are talking smaller amounts, but just a
huge number of people that might be involved in this process.
So you want to put as many preventive controls in place as you
possibly can to make sure that the improper payment does not
occur in the first place.
The other point about the improper payment issue and
looking at it from an internal control standpoint is that it
should be the goal of every agency to get their improper
payments down to zero. That should definitely be the goal. And
there should be internal control procedures put in place to try
to make sure that an agency is able to attain that goal.
But from a practical standpoint, you have to look at
various programs throughout the Federal Government and there
are just some inherent risks in certain programs that you will
probably end up with some improper payments, and I think we
might have had an example of that over the weekend when you
might want to look at a FEMA program where you are talking
about a hurricane coming through and people need help right
then. In the process of providing that help right then, there
is always the inherent risk that someone is going to make a
duplicate payment or someone is going to get a payment that
should not receive a payment.
But what you want to look at in those situations where you
have those inherent risks is you want to look at the internal
controls that you have put in place and you want to follow a
concept of I am going to put an internal control in place. I
don't want to put an internal control in place that is going to
cost me $1.01 that is going to result in me getting back $1. So
it should be cost beneficial when you are looking at those
internal controls.
Senator Coburn. But I also would tell you that this
Subcommittee has had hearings on FEMA, for example, on the last
hurricane where we paid for four times as many funerals as the
people that actually died----
Mr. Williams. Exactly.
Senator Coburn. So the compassionate side of the argument,
I understand, and food stamps, we are not ever going to get it
to zero percent. I understand that, because if we do, we might
harm someone, but one percent or half of one percent. Those are
all achievable. But in other areas, whether it is defense
procurement or----
Mr. Williams. Yes.
Senator Coburn [continuing]. Benefit payments on people who
actually are not due, you are paying for somebody who does not
have something, we should have a zero error rate----
Mr. Williams. That is the point that I have made in
previous testimonies, is that there is no standard number
across the government. What might be an error rate of 2 percent
at one agency might be a real good number. At another agency,
it might be that is ridiculous. It should be zero. So you have
to look at it on a program-by-program basis when you are
setting your goals for what you think your improper payments
rate should be.
Senator Coburn. Well, I would propose that the improper
payment rate for every agency ought to be zero percent,
accepting something less than that in humanitarian regards. But
if you set the goal higher than that, you are going to get
higher than that.
Mr. Williams. Exactly.
Senator Coburn. Controller Combs, I want to come back to
you for a minute, and again, you are answering questions when
you weren't there, but I want to ask as a position. I also
would let the panel know--you may not know this--my first
degree is I am an accountant. I have a degree in accounting and
production management from Oklahoma State University and I did
a lot of accounting for the first 10 years of my business
career. So it is not something that I am not attuned to,
although I will admit auditing was my least favorite subject.
[Laughter.]
The second step to comply with IPIA is to develop a
statistically valid estimate of improper payments for all
programs and all activities identified as susceptible to
improper payments and the risk assessment. In the guidance that
OMB issued, the statistical estimate must be based on a sample
size sufficient to yield an estimate of 90 percent confidence
level. Well, I don't know anything that uses a 90 percent
confidence level that is worth anything. Every one that I have
ever looked at in statistics, in medicine, in science, and in
business is a 95 percent confidence interval.
Why in the world would we choose less than a standard that
is accepted across industry, across the government, across
science, across engineering, as an acceptable level of a
confidence level that is meaningful? Why did the OMB put
something in less than something that is--actually, you can't
even use 90 percent statistical confidence because what it is
saying is 10 percent of the time, it is going to happen by
chance alone and you don't know what the ``R'' factor is on it
and it is probably going to be, like, 0.25, which means it
doesn't mean anything. So where did we come up with 90 percent?
Ms. Combs. I don't know where that came from, but I will be
glad to----
Senator Coburn. I would love to know that, because the
minimum it ought to be is at 95 percent confidence level. Then
it is statistically meaningful. Less than that, it is not. And
I found it really ironic in looking that they would set a
confidence interval that you can't trust statistically.
Ms. Combs. I will be glad to look into that.
Senator Coburn. All right. We are getting there.
What happens in the future if CMS doesn't have a program
for improper payments developed by 2008? What should Congress
do?
Mr. Hill. This comes back to the issue you were raising
earlier about accountability, and from HHS's perspective, we
can't lose sight of the President's Management Agenda and the
scorecards that are developed there. The agencies are taking
these quite seriously. Now, I don't think in a mandatory
program, a benefit program like Medicare, an issue of reducing
a budget is a logical outcome of the rate. I mean, you are
looking at more management-related actions.
I can tell you, from the CFO of HHS on down through my
boss, the Administrator of CMS, to me, the accountability is
quite clear for achieving the milestones that are set out in
the PMA and it includes achieving the error rate by 2008, and
so I can be fairly certain that there will be some quite harsh
personal consequences of not meeting that objective.
Now, whether or not that leads to the agency being
punished, so to speak, or consequences therein I cannot tell
you, but I can tell you from the performance plans and from
having to sit before Secretary Levitt and say why we did or did
not achieve a yellow or a green or what we achieved is a
culture of accountability in HHS.
Senator Coburn. When was CMS first asked to have improper
payments data on Medicaid?
Mr. Hill. I believe the first time that it came out was in
the Circular A-11 in 2000 or 2001.
Senator Coburn. OK, and so we are going to have that 7
years later?
Mr. Hill. Well, to be clear, sir, we began collecting that
data in 2002----
Senator Coburn. I understand, but I am looking at this
perspective as a citizen, not somebody from inside Washington.
Mr. Hill. Right.
Senator Coburn. Here is a requirement that comes in 2001,
and in 2008, we are going to have it.
Mr. Hill. Correct.
Senator Coburn. I understand the enormity of the problem
that you face. If I had my best wish in the world tomorrow, it
would be to change all of Medicare and Medicaid to a much
simpler system that would work and make your job easier and
make actually the delivery of it better. But the fact is, is 7
years from the time a request is made to an agency to become
accountable on improper payments to the actual implementation
of that, what would you tell the average common citizen in this
country why 7 years is an appropriate amount of time to do
that?
Mr. Hill. Well, 7 years is certainly not an appropriate
amount of time to do it if we were not making good progress. We
have been committed and are committed in working with the
States. We have gone in and calculated individual State-level
error rates in 38 States since 2002.
As I said in the testimony, the way we approach our
improper payment calculations is two-fold. First, it is a
performance assessment, meeting IPIA requirements, assessing
and saying for reporting purposes what our rates are. It is
also a management tool, and in that respect, the most important
piece there then would be to tell each individual State,
whether it is Oklahoma or whether it is Kansas or Delaware,
here is your----
Senator Coburn. Oklahoma needs it, by the way.
Mr. Hill. Right, so I think we could work on that. We have
been focusing on working with the States to do that.
Now, it is true for the national Medicaid program, we won't
have a rate. this year. That is a meaningful number and one
that is important, but it is also as important that each
individual State has a rate, and far before 2008, we will be
there.
Senator Coburn. Great. Let us just play with the numbers
here for a minute. Over the last 7 years, including this year,
Medicaid will spend a trillion and 50 billion dollars. And if
their improper payment rate was 3.9 percent, or 4 percent, that
is $45 billion. And the growth is going to grow, to $39 billion
over the next 5 years, so we are going to be well over $200
billion. So you are talking about over the 7 years of having
another $9 billion had we had appropriate improper payments, if
we assume the average is what the nationwide government--and it
is probably going to be higher than that.
But if we had it at 4 percent and we saved that money, how
many more lives would we impact? How many more lives would have
better care? How many more people would not be caught in the
crux of making a choice between a pill and supper? I want us to
bring it down to real people and how it impacts. So if we had
that $40-some billion that wasn't improperly paid out through
lots of things, it is not just that we cut the deficit. It is
that we impact people's lives the way the programs were
intended.
Mr. Hill. Dr. Coburn, that is exactly how we think about
the improper payments we make in terms of the benefits that are
being denied to the people we serve. We think just because the
measurement won't be in place on a national basis until 2008,
in no way, shape, or form are we not doing all we can between
now and then to eliminate improper payments. This is a high-
risk program. Measurement is important, but I can tell you,
even without measuring, it is a high-risk program and we have a
robust program and both in Medicare and Medicaid, we are
working with the States, at the Federal level, to do all we can
to stop inappropriate payment from happening.
I won't be able to tell you 7 years from now how much we
saved, because we are doing it as we go. But just because we
haven't measured and assessed doesn't mean that we are not
taking corrective actions because we know that there are risks
and we are putting our resources where those risks are.
Senator Coburn. How often are States' Medicaid programs
audited?
Mr. Hill. The single-state audit occurs every year.
Senator Coburn. Every year, every Medicaid program is
audited?
Mr. Hill. There is a single-state audit, yes, sir.
Senator Coburn. OK. Am I correct in assuming that under
IPIA, every agency is required to submit improper payments to
Congress every year? Mr. Williams.
Mr. Williams. You are correct in assuming that under IPIA,
every agency is required to do the assessment and determine if
they have programs that are significant to or susceptible to
improper payments and report that information to the Congress,
is the way that the statute--so that would be every agency is
required to report.
Senator Coburn. Are they compliant?
Mr. Williams. I can't say every agency because I really
don't know every agency. We have reviewed the ones that we
identified on the board. I do not have the information as to
whether those reports have actually made it up to the Congress
or not. We have talked about it in terms of these particular
agencies that we were able to look at, and we looked at those
because those were the ones that had the Performance and
Accountability Reports available that we could get access to at
the particular point in time that we were doing this particular
job. But whether every agency actually complied, I cannot say--
--
Senator Coburn. OK.
Mr. Williams [continuing]. As far as providing that
information to the Congress.
Senator Coburn. Well, I want to thank each of you for being
here. This is a big problem, and it is a problem, if you all
solve correctly, you won't have to solve again. It is one of
the few problems in government that if you fix the first time,
you don't have to fix it again.
So the hope is great that as we implement good financial
controls with transparency of those controls--one of the
biggest problems we have as Members of Congress is getting
information from Federal Government agencies. The American
public may not believe that, but we have to fight, beg, plead,
claw to get information. And I will tell you, on average, for
example, U.S. AID is 4 years behind on transparency, just
having available their information for the Congress.
So what you all are doing is tremendously important in
terms of improper payments. But the financial controls and the
transparency and accountability that goes with those isn't just
about improper payments. It is about making us get through the
problems.
And I know most of you have read this, and if you haven't,
you should. David Walker is right on. We are on an
unsustainable path, and every day that goes by that we don't
correct these problems, the people in this room probably aren't
going to feel, but your grandchildren are.
I thought it ironic a minute ago, I was looking at the
iceberg and I am thinking about the Titanic. This country is
about to hit a bigger iceberg than that. And so I would applaud
your efforts. I want to thank you for being here. But every
minute, every day counts in terms of reforming the financial
operations of the Federal Government, and what each of you can
do, whether it is in your leadership at GAO, leadership in
changing the Office of Management and Budget--and I will say it
again, the worst performing under the PAR program is OMB. That
needs to be said so we can eventually embarrass them to be the
best, because they should be the best under this program.
Medicare and Medicaid, the largest percentage of our
dollars that are going out, the financial management of that is
critical, and we can see what has happened in terms of 30
percent reduction in terms of improper payments at the
Department of Agriculture just through one program, $1 billion.
But it also means that there is another billion we can save
there. There is another billion that doesn't have to be spent
if we can improve it and refine it better.
So I would congratulate you on the job you are doing. I
think I would again just want to say, from Controller Combs, I
really want a real assessment of what ``significant'' is and I
want you to look at that. I really want to know why the U.S.
AID is not in that program. I think there is more fraud and
waste and abuse in that program as a percentage of the total
budget than there is any other aspect of the Federal Government
in terms of waste, and I am going to find it, I promise you
that, and I will expose it.
This will not be the last hearing. I am going to call you
back in 6 months. We are going to talk about it again. We are
going to see where we are and see what the programs are. We
will have had 2005's numbers then and we will go from there.
Thank you all very much for being here.
The hearing is adjourned.
[Whereupon, at 3:58 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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