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[109 Senate Hearings]
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S. Hrg. 109-774
REPORTING IMPROPER PAYMENTS: A REPORT CARD ON AGENCIES' PROGRESS
=======================================================================
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
SECOND SESSION
__________
MARCH 9, 2006
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
27-749 PDF WASHINGTON : 2007
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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 Driessnack 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
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............................................... 6
WITNESSES
Thursday, March 9, 2006
Hon. Linda M. Combs, Controller, Office of Management and Budget. 8
McCoy Williams, Director, Financial Management and Assurance
Team, U.S. Government Accountability Office.................... 10
Hon. Mark Everson, Commissioner, Internal Revenue Service........ 21
Hon. James B. Lockhart III, Deputy Commissioner, Social Security
Administration................................................. 23
Hon. Samuel T. Mok, Chief Financial Officer, U.S. Department of
Labor.......................................................... 33
Hon. Charles Johnson, Assistant Secretary for Budget, Technology
and Finance, U.S. Department of Health and Human Services...... 34
Alphabetical List of Witnesses
Combs, Hon. Linda M.:
Testimony.................................................... 8
Prepared statement........................................... 58
Everson, Hon. Mark:
Testimony.................................................... 21
Prepared statement........................................... 90
Johnson, Hon. Charles:
Testimony.................................................... 34
Prepared statement........................................... 119
Lockhart, Hon. James. B., III:
Testimony.................................................... 23
Prepared statement........................................... 99
Mok, Hon. Samuel T.:
Testimony.................................................... 33
Prepared statement........................................... 110
Williams, McCoy:
Testimony.................................................... 10
Prepared statement........................................... 63
APPENDIX
Charts submitted for the Record from Senator Coburn.............. 47
Copy of the ``FY 2007 Budget Proposal'' submitted for the Record
by Mr. Lockhart................................................ 52
Questions and responses for the Record from:
Ms. Combs.................................................... 133
Mr. Williams................................................. 148
REPORTING IMPROPER PAYMENTS: A REPORT CARD ON AGENCIES' PROGRESS
----------
THURSDAY, MARCH 9, 2006
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 2:33 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn,
Chairman of the Subcommittee, presiding.
Present: Senators Coburn and Carper.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. The Subcommittee on Federal Financial
Management will come to order.
Let me first thank each of our panelists for being here.
This is not an exciting subject for most people, but it is,
nonetheless, a very important subject when it comes to the
process and the unsustainable course we find ourselves on over
the next few years.
I appreciate the frankness with which many of our panelists
have dealt with our Subcommittee and the general cooperative
nature. And I want to thank you in advance for that.
This will probably be a fairly long hearing because of the
nature and extent of the questions and the importance of it. We
are here again, this is our third hearing on improper payments
in just over 8 months. A lot of people find the subject dry and
overly technical. Some people think payment errors are simply
too arcane to interest taxpayers. When you look at the total
amount of money, it is far from a small amount of money.
This Subcommittee is dedicated to continue having hearings
on the subject, first of all, because if the American people
were aware of some of these numbers, they would vote us all out
of office and probably fire most in the executive agencies when
they see the scope of the problem.
Let me give you an example of what I mean. The Federal
Government pays out a lot of money to individuals,
organizations, businesses, States, and local government.
Between this year and last year, $83 billion of those payments
were wrong. The vast majority of them, greater than 95 percent,
were overpayments.
That means that $83 billion didn't go to accomplish the
goals that the government set out. And it meant that $83
billion could have been used to help somebody. It could have
been used to offset the tremendous deficit that we are facing.
This amount translates into over $300 for every man, woman, and
child in America.
If we eliminated improper payments, we could do a lot of
things with that money that would make a significant difference
in this country. The $83 billion would fund everything we are
going to need, four times fold, for Hurricane Katrina this
year. It would pay completely for this year's war effort in
Iraq, rather than charging it to our children.
There are several problems I want to outline in my opening
statement, and then we will get into details after we have
heard our panelists. The first problem is that the $83 billion
is an underestimation. It is much greater than that. That is
only what we know about based on agency reporting.
At our first hearing, we heard that $45 billion improper
payments represented only 23 of the 35 Federal agencies that
were required to report improper payment information, and those
reports only showed the agencies that performed a risk
assessment of programs and activities, just the first step in
complying with the improper payments law.
Eight months later, that number is not changed, and the $37
billion in improper payments for last year represents again
only 23 agencies. It is not easy to bring the agencies into
compliance, and I know that Linda Combs and the CFO Council are
working hard to do that. But I think they would agree with me
that it is still not good enough. The law does not exempt any
agency from reporting.
Here we have a poster that shows the worst offenders. The
Department of Health and Human Services, the Department of
Agriculture, and Department of Housing and Urban Development
have a combined total of seven programs that are not reporting
on these programs whose total outlays last year equaled $228
billion.
There are two major programs and activities at the
Department of Agriculture that have failed to report--School
Programs and WIC. At HHS, four major programs are not reporting
improper payments--Medicaid, TANF, Child Care, and Development
Fund, the State SCHIP Program.
At HUD, the Community Development Block Grant Program has
failed to report. We will be inviting representatives from both
USDA and HUD back to testify before this Subcommittee on their
failure to comply with the law.
Major programs from these three agencies with combined
budgets of over $200 billion are not yet reporting their
payment errors. So we can't even estimate how much is in error
each year.
Some of the lowest payment error rates we have seen are
around 3 percent. And if we pretended that these agencies had
about 3 percent, we would be still looking at another $7
billion in improper payments. And I suspect it is much higher.
One of the worst examples is the Medicaid Program, or
health safety net for the poor. Outlays for this program were
almost $200 billion last year. In 2004, the program told us
they would be reporting their payment errors by this year. But
last summer, we heard that they wouldn't be able to do it until
2008. That wasn't acceptable news then, and it is not
acceptable news now.
Second problem. Reporting agencies report unacceptable
rates. Not all programs are out of compliance with the law.
Some are reporting, and the reports are deplorable.
The worst example by far is the earned income tax credit
with a payment error rate of 28 percent. That is $1 in every $4
that goes to that program is improper, most of which are
improper overpayments. That means at least a quarter of the
payments paid out by the program are wrong, and they are
increasing in error, not decreasing.
Not all the news is bad. Food Stamp rate is going down,
though it is still staying high. The Department of Labor's
Unemployment Insurance Program and other agencies have
implemented great public policies that help bring the payment
error rate down.
And I would note, and we will be talking about this later,
the Department of Labor has to work through State programs to
do that. And what we have heard in this Subcommittee is many
agencies say we can't get the information because we have to
work through State programs. But the Department of Labor has
shown that you can do that and that you can, in fact, know what
the improper payment rate is, and you can bring it down.
Transparency is the means. It is not the end. This
Subcommittee is not going to rest until every program of every
agency is in compliance with the improper payments law. I think
most people know that I mean what I say and I say what I mean.
And so, we will be back here multiple times until we get to
that point.
The law doesn't tell us what to do when reporting reveals
bad news. Transparency is the first and foundational principle
of accountability, but it is only the beginning, not the end.
You still need performance programs, and programs can be
compliance with the law, but still have astronomical payment
error rates. It is important that the American people have
confidence to know what is going on, how the money is being
spent.
The solution. Can you imagine the accounts payable
department of Wal-Mart or Microsoft reporting an error rate of
28 percent or even 3 percent? What would happen to the people
in the position of responsibility if 3 percent of the payments
were overpayments for everything that Wal-Mart bought or
Microsoft bought? The people responsible for that would not be
there.
So it is not that we don't have people trying. It is not
that there aren't hurdles in terms of the bureaucracy to get
there. But it is something that we have to solve for our
children and our grandchildren.
Congressional responsibility. We have some as well.
Accountability in the Federal Government requires political
will on the part of our elected officials. I say,
unfortunately, because our system of checks and balances
intended by our Framers is broken, only Congress has the power
to pull the plug on programs that are fleecing the taxpayers.
Instead of providing a check on wasteful spending, Congress
prefers writing a blank check to the Executive Branch, no
matter the waste, fraud, or abuse of that money. No matter or
not, whether they are complying with the law. When we have
offered amendments to cut the funding of programs with
unacceptably high payment error rates, those amendments have
failed.
Congress should be in the business of protecting the
taxpayer from being forced to subsidize broken systems. It also
should be in the business of protecting the future. Financial
systems that aren't working, that aren't measuring results, or
are measuring results that are unacceptable without appropriate
action is an unacceptable thing for Congress to be accepting.
The Department of Defense has over 4,000 financial
reporting systems that don't even talk to each other. Like the
board of directors of a corporation is supposed to look out for
all its shareholders, the American people rely on Congress to
look out for their investments by scrutinizing the government's
performance on these and other problems. America needs to
require Congress to take that responsibility seriously.
In the meantime, this Subcommittee will not give up. We
will keep trying to make the case to our colleagues until these
amendments start passing or agencies find a way to get the
results the taxpayers deserve.
I want to again thank our witnesses for coming today. Each
one of them faces a monumental task. This is not an easy
problem to solve. Cleaning up financial systems has had a great
start under President Bush and his management team. I am very
appreciative for that. I applaud their efforts, and I hope that
this hearing will help efforts back at the agencies that are
affected.
[The prepared statement of Senator Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
Well, here we are again. This is our third hearing on Improper
Payments in just over 8 months. A lot of people find this subject dry
or overly technical. Some people think payment errors are simply too
arcane to interest the taxpayers.
But this Subcommittee is going to keep having hearings on the
subject, because I think if the American people heard some of these
numbers, they would vote us all out of office, and they'd be right to
do so. Let me give you an example of what I mean. The Federal
Government pays out a lot of money to individuals, organizations,
businesses, States, and local governments. Between this year and last
year, $83 billion of those payments were wrong. Most of those errors
were overpayments rather than underpayments. That means we just threw
away the better part of $83 billion.
That translates into almost $300 for every man, woman, and child in
America. We could buy every American an iPod! Remember that $300 tax
refund check the President's tax cuts sent out a couple years ago? If
we eliminated improper payments, we'd be able to do it all over again
without the hassle of a nasty floor debate. More seriously, we could
use that $83 billion to pay for this year's war effort in Iraq, or fund
this year's Katrina reconstruction efforts four times over.
But the $83 billion is an underestimation. that's only what we know
about, based on agency reporting. At our first hearing, we heard that
$45 billion in improper payments represented only 23 of the 35 Federal
agencies required to report improper payment information--and those
reports only showed that agencies had performed a risk assessment of
programs and activities--the first step in complying with the law.
Eight months later, that number has not changed, and the $37 billion in
improper payments for last year represents again, only 23 agencies.
Now, I know that it is not easy to bring these agencies into compliance
and I know that Linda Combs and the CFO council are working hard on
this. But I think they would agree with me that it's still not good
enough. The law does not exempt any agency from reporting.
The Department of Health and Human Services, the Department of
Agriculture and the Department of Housing and Urban Development have a
combined total of seven programs that are not yet reporting for
programs whose total outlays equal about $228 billion. There are two
major programs and activities at the Department of Agriculture that
have failed to report: School Programs, and Women, Infants, and
Children (WIC). At HHS, four major programs are not reporting improper
payments information: Medicaid, Temporary Assistance for Needy Families
(TANF), Child Care and Development fund, and the State Children's
Insurance Program. At HUD, the Community Development Block Grant
program has also failed to report. I will be inviting representatives
from both USDA and HUD back to testify before this Subcommittee on
their failure to comply with the law. Major programs from these three
agencies with combined budgets of over $200 billion are not yet
reporting their payment errors, so we cannot even estimate how much
they are wasting each year.
Some of the lowest payment error rates we've seen are around 3
percent. Let's pretend that these non-reporting programs have error
rates at that so-called low rate--we would still be looking at almost
$7 billion in wrong payments from these non-reporters. And I suspect
that it's actually much higher, because, appallingly, very few programs
who do report are reporting a rate as low as 3 percent.
One of the worst examples is the Medicaid program, our healthcare
safety net for the poor. Outlays for this program were almost $200
billion last year. In 2004, the program told us they'd be reporting
their payment errors by this year. But last summer, we heard that they
wouldn't really be able to do it until 2008. That wasn't acceptable
news, and I hope I'll hear some better news today.
Not all programs are out of compliance with the law. Some are
reporting, and the reports are deplorable. The worst example by far is
the Earned Income Tax Credit program, with a payment error rate of 28
percent. That means that at least a quarter of payments paid out by
this program are wrong. Social Security Administration programs also
have unacceptable rates, which have actually been increasing.
Not all the news is bad. The Food Stamps rate is going down, tough
it is still stunningly high. Department of Labor's Unemployment
Insurance program and other agencies have implemented some good
policies to help bring the payment error rate down.
This Subcommittee will not rest until every program of every agency
is in compliance with the Improper Payments law. But the law only
requires reporting. The law doesn't tell us what to do when the
reporting reveals bad news. Transparency is the first and foundational
principle of accountability, but it's only the beginning, not the end.
You still need performance. Programs can be in compliance with the law
but still have astronomical payment error rates.
I think I know why. Can you imagine the Accounts Payable Department
at Microsoft or Wal-Mart reporting an error rate of 28 percent, or even
3 percent? In the private sector, there are consequences for poor
performance. In the Federal Government, the natural consequence of
either failing to report payment errors or reporting an unacceptable
error rate should be that you lose your funding. Why should taxpayers
support a program that wastes a third, a tenth, or even 3 percent of
their investment? Taxpayers should not have to tolerate programs that
have outrageous waste just because those programs are founded on good
intentions, or because the financial officers in those agencies are
working long hours and trying hard to fix the problem. There should
come a time when it's no longer acceptable to fund a program that's
wasting a significant fraction of its budget.
Unfortunately, accountability in the Federal Government, unlike in
the private sector, requires political will on the part of elected
officials. I say ``unfortunately'' because our system of checks and
balances intended by the Framers is broken. Only Congress has the power
to pull the plug on programs that are fleecing the taxpayers. Instead
of providing a ``check'' on wasteful Washington spending, Congress
prefers writing a ``blank check'' to the Executive Branch, no matter
the waste, fraud, or abuse of that money.
When we have offered amendments to cut the funding of programs with
unacceptably high payment error rates, those amendments have failed.
Congress should be in the business of protecting the taxpayer from
being forced to subsidize broken systems. Homeland Security's contract
to get its financial reporting systems in order was such a failure,
they recently just cut their losses on that contract and have proposed
to start over next year. Department of Defense has over four thousand
financial reporting systems that don't talk to each other. Like the
Board of Directors of a corporation is supposed to look out for all its
shareholders, the American people rely on Congress to look out for
their investment by scrutinizing the government's performance on these
and other problems. Americans need Congress to take that responsibility
seriously.
In the meantime, we will not give up. This Subcommittee will keep
harping on these themes. We will keep trying to make the case to our
colleagues until these amendments start passing or the agencies find a
way to get the results the taxpayers deserve.
I want to thank our witnesses for coming today. Each one of them
faces a monumental task. Cleaning up financial systems in the Federal
Government is not for the faint of heart. I applaud their efforts and I
hope that this hearing will help those efforts back at the agencies.
Senator Coburn. I would like to recognize my Ranking Member
and good friend, Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thanks, Mr. Chairman. How are you today?
Senator Coburn. I am better.
Senator Carper. Good.
To our witnesses--Mr. Williams, Hon. Linda Combs--nice to
see you both. Thanks for joining us, and we look forward to
your testimony and that of the other panels who follow.
I am going to probably repeat a little bit of what the
Chairman has said, and I would ask you just to bear with me. I
have a statement. I am going to ask you to enter it for the
record.
Senator Coburn. Without objection.
Senator Carper. And I will just summarize it if I can. We
have a budget deficit that David Walker was telling us the
other day that he said set aside cash-basis accounting. He said
think of accrual accounting. And he said this is not a $300
billion deficit. This is really about a $600 billion or $700
billion deficit.
And that makes what we are talking about here today and
what some of you are trying to do even all the more worthwhile.
If there are $50 billion worth of improper payments, if we can
only somehow reduce that by half, that is a huge improvement.
If there are $350 billion in tax revenues that are going
uncollected out there, if we could only get a third of that,
that is a third of the deficit right there, and it is money
that we have to go after rather than increase our debt.
And as I think the Chairman has already talked about, back
in 2002, when the Improper Payments Information Act was
adopted--were you in the House then?
Senator Coburn. No.
Senator Carper. I was here in the Senate, got to vote for
it. But I don't think many of our colleagues had much of a
sense of what it could mean.
And I think the Administration has shown a real commitment
to making it work. We have had great support from GAO--and with
the appointment and confirmation of Ms. Combs to be our, I will
call her CFO, if you will, at OMB. That is a lot of
alliteration. That is a lot of acronyms there. But with her
confirmation, I am encouraged that we are going to make good
progress.
I was tempted, I forgot to bring this magazine because it
was a great magazine. What is it called?
Ms. Combs. Government Executive.
Senator Carper. Government Executive. Your picture is on
the cover of it. I wanted so badly to hold it up and just to be
able to brag on you a little bit, on the work that you are
doing.
But OMB has now made the elimination, I believe, of
improper payments a top management priority, and the leadership
of Linda Combs is going to be critical if we are going to
actually make the progress we need to make.
There is some evidence now that all of the attention paid
to improper payments in recent years is starting to pay off. We
are encouraged by that. I am told that reported improper
payments among Federal agencies were about $37 billion in 2005.
That is down by about 17 percent from fiscal year 2004, when I
think the estimate was about $45 billion. So we are heading in
the right direction.
And as we learned at a hearing we had last summer that some
of us were present at, the official improper payments estimates
we will hear discussed today are probably just the tip of the
iceberg. And the estimates for some programs that we know are
at risk for improper payments, one of them is Medicaid, are not
included in this $37 billion tally.
In addition, GAO will testify today, I believe, that some
agencies are not doing as rigorous a job as they ought to be
doing in assessing the programs that they administer to
determine whether or not they are at risk for waste. Still
others, GAO has found, have not even conducted the necessary
assessments for all of their programs. Those are obviously
things we are concerned about.
And I say in closing, I understand that OMB-issued guidance
that the agencies use to conduct their work under the Improper
Payments Information Act may perhaps unintentionally leave
significant amounts of waste that is unreported. We would like
to find out if that is the case.
Agencies apparently must only report on and develop
remediation plans for improper payments that both exceed $10
million and make up at least 2.5 percent of program outlays. So
it has to be at least $10.5 million and make up at least 2.5
percent of program outlays. And our concern is that might leave
a fair amount of money on the table. So I think there may be a
good reason why the guidance was written as it was, and perhaps
we can talk about that and find out if that is the case.
So, again, it is an important hearing. I am just pleased
that we didn't have one hearing and kind of let this one go,
but to continue to be diligent and to do the oversight that
this Subcommittee is becoming known for, and under the
leadership of our Chairman. And I am just pleased to be his
compadre.
Thank you.
[The prepared statement of Senator Carper follows:]
PREPARED STATEMENT OF SENATOR CARPER
Thank you, Mr. Chairman, for continuing this Subcommittee's focus
on the problem of improper payments.
As you know, our country is currently in the midst of some very
trying fiscal times. The size of the Federal budget deficit and the
burden our growing national debt force Congress every day to make
difficult decisions about what to do with scarce resources. This
situation makes our work on this Subcommittee even more important.
Every dollar wasted because of lax financial management--whether
due to error or fraud--is a dollar that can't be used to fund worthy
programs or to lessen the debt burden on future generations.
As you know, Mr. Chairman, our predecessors on this Subcommittee
worked back in 2002 to enact the Improper Payments Information Act--
legislation that, for the first time, required all agencies to
determine which programs are at significant risk for waste, estimate
the amount those programs are spending improperly each year, and then
come up with a plant to do something about it.
In addition, OMB has now made the elimination of improper payments
a top management priority and, under the leadership of Linda Combs and
others, has been working hard to help agencies comply with the Improper
Payments Information Act.
There's some evidence now that all of the attention paid to
improper payments in recent years is starting to pay off. Reported
improper payments among Federal agencies were about $37 billion in
fiscal year 2005. This is down 17 percent from the fiscal year 2004
estimate of about $45 billion.
As we learned at a hearing last summer, however, the official
improper payments estimates we hear about are only the tip of the
iceberg. Estimates for some programs we know are at risk for improper
payments, like Medicaid, are not included in the $37 billion tally.
In addition, GAO will testify today that some agencies are not
doing as rigorous a job as they should be in assessing the programs
they administer to determine whether or not they're at risk for waste.
Still others, GAO has found, have not even conducted the necessary
assessments for all of their programs. Finally, I understand that the
OMB-issued guidance that agencies use to conduct their work under the
Improper Payments Information Act may, perhaps unintentionally, leave
significant amounts of waste unreported.
Agencies must only report on and develop remediation plans for
improper payments that both exceed $10 million and make up at least 2.5
percent of program outlays. In a large program, Mr. Chairman, this
could mean that improper payments that you, me or any casual observer
would deem significant are largely being ignored.
There may be a good reason why the guidance was written this way
but I don't know of any private company that would ignore such large
payment errors. We should see to it that the Federal Government no
longer does either.
Thank you again, Mr. Chairman, for your commitment to this issue. I
look forward to hearing some more today about the progress that is or
isn't being made and to seeing what we might need to do in Congress to
make sure we have a better picture of the problem and are giving
agencies all of the tools they need to address it.
Senator Coburn. Thank you very much, Senator Carper.
Our first panel is Linda Combs, Controller, Office of
Management and Budget. She served in that position since June
2005. Prior to her time as controller, she served as Assistant
Secretary for Budget and Programs, and CFO at the Department of
Transportation.
She also has a history of serving as the chief financial
officer at the Environmental Protection Agency and served in
various oversight roles in executive-level management positions
at the Department of Education, Veterans Affairs, and Treasury.
That makes her extremely well qualified in terms of her
knowledge of all of these other agencies, and we are very
pleased that she is in the position that she is in.
Also on the first panel is McCoy Williams, Director,
Financial Management and Assurance Team in the Government
Accountability Office. He has worked with this Subcommittee
quite well. We are very appreciative of his help and direction.
He has worked in the financial management and audit issue
area since 1980 and is responsible for GAO's financial
management work at the Department of Defense, Homeland
Security, Veterans Affairs, State, NASA, and USAID. He also
covers government-wide improper payments work in financial
management systems.
Welcome to you both. Your complete statement will be made a
part of the record, and Ms. Combs, you are recognized.
TESTIMONY OF THE HON. LINDA M. COMBS,\1\ CONTROLLER, OFFICE OF
MANAGEMENT AND BUDGET
Ms. Combs. Thank you very much, Senator Coburn, Senator
Carper, and Members of the Subcommittee.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Combs appears in the Appendix on
page 58.
---------------------------------------------------------------------------
And I must say, Senator Carper, I, too, thought of bringing
that magazine today. And I thought I would sit it up right
here, and you could have the magazine instead of me.
[Laughter.]
Thank you so much for letting us be here today. I am
pleased to be here. It is a very important topic, and I am
pleased to discuss the Administration's efforts to improve
accuracy and integrity in our Federal payments.
There is no more important topic that we can be discussing
today than the American taxpayer's money. The effectiveness and
the efficient stewardship of taxpayer dollars is extremely
important to all of us, and I can't tell you how much I
appreciate the collaborative spirit and the continuing
partnership and cooperation. We get an awfully lot out of these
hearings ourselves because we need to also know what our
partners think are important, and we want to respond and be
aggressive in responding to not only what we believe is
important, but what you believe is important as well.
The President has made the elimination of improper payments
one of his highest priorities. During fiscal year 2005, the
Federal Government made substantial progress in meeting the
President's goal to eliminate improper payments. And most
significantly, the government-wide improper payment total
reported in 2004 did, indeed, decrease from $45.1 billion to
$37.3 billion. And that was a reduction in $7.8 billion, or 17
percent.
We have some wonderful news to share in some of these
programs. Medicare reported improper payments decreased by more
than $9 billion, or 44 percent. USDA reported an error rate of
less than 6 percent in the Food Stamp Program, and that is the
lowest error rate in that program's history.
The Department of Labor, as you mentioned earlier, has
reduced improper UI payments--unemployment insurance payments--
by approximately $600 million in fiscal year 2005. And this
represents a greater than 15 percent decrease in the level of
improper payments for this program since last year's reporting.
The Department of Housing and Urban Development has reduced
improper payments in their program by more than $1.8 billion
since 2000.
There are a couple of programs, as we will talk about, I am
sure, today, who have reported some increases. But the
government-wide improper payment total is trending
significantly downward.
Our CFOs and our program officers in various departments
are working very hard to continue to leverage new technologies,
to generate more cost-efficient methods for measuring and
eliminating improper payments, and doing many other things that
probably don't show up on any of our reports.
But another critical accomplishment in 2005 was that
Federal agencies reported error measurements on an additional
17 programs. And as you mentioned earlier, that is what we need
to do. We need to continue to get the right measurement rates.
We have an error measurement in place for approximately 85
percent of all the payments that were deemed risk susceptible
by Federal agencies. And although we are proud of that record,
we are not satisfied with it.
Also of note, in direct response to suggestions made by
this Subcommittee in some of our previous hearings, agency
reporting on improper payment to vendors is now included in our
government-wide reporting as well. And that is not an
insignificant number either. But providing a more complete
picture on government-wide improper payments is what we both
seek in the transparency here.
But specifically, Federal agencies reviewed $365 billion in
vendor payments in 2005, and they identified $557 million in
improper payments, of which $467 million, or 84 percent of
that, has been recovered.
Because 95 percent of the reported improper payment total
continues to reside within the seven programs that we talked
about in our first hearing, we continue to focus on these
agencies. But we certainly want to be open to pursue aggressive
strategies in any other programs that are deemed worthy by this
Subcommittee or by GAO. And we have embarked upon a lot of
case-by-case work with different programs and different
agencies.
We also have within the President's 2007 budget an
aggressive legislative agenda that will help us in the arena of
improper payments as well. But with the tools that we have with
IPIA and our Administration's management initiatives, the
Federal Government today is in a stronger position to build on
dynamic reduction in improper payments that we have achieved
this year and to ensure that an error measurement is provided
for all higher risk programs.
With the goal of ensuring that each taxpayer dollar is
spent wisely, efficiently, and for the purpose for which it was
originally intended, we remain committed to eliminating Federal
improper payments. We look forward to continuing to work with
the Congress and with this Subcommittee to see that objective
is, indeed, accomplished.
Thank you.
Senator Coburn. Thank you, Ms. Combs. Mr. Williams.
TESTIMONY OF McCOY WILLIAMS,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Williams. Thank you, Senator Coburn and Senator Carper.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 63.
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I am pleased to be here today to discuss the government-
wide problem of improper payments in Federal programs and
activities. Our work over the past several years has shown that
improper payments are a long-standing, widespread, and
significant problem in the Federal Government.
The extent of the problem initially had been underestimated
because only a limited number of agencies reported their annual
payment accuracy rates and estimated improper payment amounts
prior to the passage of the Improper Payment Information Act of
2002. Our work has also shown that primary causes of improper
payments are a lack of internal controls or a breakdown in
existing controls.
Mr. Chairman, fiscal year 2005 marked the second year that
Federal agencies government-wide were required to report
improper payment information in their performance and
accountability reports. The act has increased visibility over
improper payments to a higher, more appropriate level of
importance.
It requires executive agency heads, based on guidance from
OMB, to identify programs and activities susceptible to
significant improper payments, estimate amounts improperly
paid, and report on the amounts of improper payments and their
actions to reduce them. Further, in fiscal year 2005, OMB began
to separately track the elimination of improper payments under
the President's Management Agenda.
Mr. Chairman, the Federal Government has made progress
under the leadership of OMB in identifying programs susceptible
to the risk of improper payments. At the same time, significant
challenges remain to effectively achieve the goals of the act.
For example, while progress has been made, the full
magnitude of the problem remains unknown because some agencies
have not yet prepared estimates of improper payments for all of
their programs. We note in my written statement that seven
major agency programs with outlays totaling about $228 billion
have not reported improper payment estimates, even though these
agencies had been required to report this information since
2002 with their fiscal year 2003 budget submissions under
previous OMB Circular A-11 requirements.
Further, agency auditors have identified major management
challenges related to agencies' improper payment estimating
methodologies and significant internal control weaknesses for
programs susceptible to significant improper payments. Mr.
Chairman, we recognize that measuring improper payments and
designing and implementing actions to reduce them are not
simple tasks and will not be easily accomplished. The ultimate
success of the government-wide effort to reduce improper
payments depends on the level of importance each agency, the
Administration, and the Congress place on the efforts to
implement the act.
In closing, I want to thank you and the Members of this
Subcommittee for your continued interest in this problem and
providing important leadership to ensure that this problem is
properly addressed. I look forward to working with this
Subcommittee as well as Federal agencies and the Administration
in the future to address this problem.
This concludes my statement. I would be pleased to answer
any questions that you or Senator Carper may have. Thank you.
Senator Coburn. Thank you, Mr. Williams.
Well, let me just start, and we will try to get through
these. Several of the questions we have, we will try to put in
written form for you, Ms. Combs. I have way too many questions,
but I still want the answers, and so I won't delay all of our
other witnesses with all of the questions.
According to the testimony we have received from HHS and
our confirmation is there really wasn't a reduction in Medicare
improper payments. There was a change in methodology, which
actually said they measured it wrong last year. Is that
correct?
Ms. Combs. I think what happened last year and, of course,
our good friend and CFO, Charles Johnson, is here----
Senator Coburn. Right.
Ms. Combs [continuing]. As a witness today, and he can
certainly substantiate this. But I look on what happened as a
good news story because I think what they did is they actually
corrected some audit findings that they had the year before. In
other words, they were counting payments as improper because
they could not find an audit trail.
Senator Coburn. Right. It is good news in that their
methodology is much improved, and the actual payment error is
probably lower than what they thought it was.
Ms. Combs. That is exactly how I view it.
Senator Coburn. So that is good news. But it does say that
we really haven't reduced the payments, and that is the point I
want to make.
As we go through these questions, I want you to know I
appreciate everybody out there that is working. For the first
time, our government is going to have some financial
accountability, and I don't mean to belittle that at all as we
try to go through this hearing.
And I have confidence in those that are testifying today,
in their leadership potential and what they are going to do.
But I think it still behooves us to outline where the problems
are.
I heard you say, Ms. Combs, 85 percent of the susceptible
agencies are the higher risk programs. And then I heard Mr.
Williams talk about the necessity of and the law government-
wide. And I have some real problems with where we are on that
because you can make it look good if you don't look at all of
it.
And the question I would have to you is that if you were
running anything other than this, you would have the same
financial controls in business or any other, in State
governments, they have the same financial controls at every
level. In other words, there should not be anybody exempted,
even though the act and the arbitrary definition that OMB put
out of 2.5 percent or $10 million.
To most people in this country, if you wasted, overpaid
$9.99 million, that is more than they will ever see in their
entire lifetime. And so, to me, I read the law, and it says
everybody is required to report. What is your understanding of
that?
Ms. Combs. That is my understanding as well. And what I
don't want to leave the impression of is that we are certainly
not giving anyone a pass.
What we have, and it is in my written testimony, and there
is a chart attached. And it shows specifically that there is
one piece of that pie, and it is practically this piece of the
pie you have up on your chart. But one of the things I want to
make very clear is just because we have 15 percent still yet to
go doesn't mean we are not looking at those.
It also does mean that 15 percent is the hardest part to
get because what we are saying is we can't yet get the error
rate for that. And there are many reasons for that. I can
certainly explain and embellish that in some of the answers we
give to you.
Senator Coburn. Well, let me ask you just a little more
specifically. If the Department of Labor can get a payment
error rate on unemployment insurance that runs through the
States, and yet HHS can't get one on Medicaid that runs through
the States? Tell me why the difference is so great.
Ms. Combs. Well, I am glad you have CFO Sam Mok here today
because this success story is, indeed, a good one for, I think,
a legislative model. And I think you will hear him talk about
some of the things they did as far back as 1987 to actually set
their program up, set it in place, so that it can actually
operate in the way that it is operating today.
And I think it is a model. I think it is a great
opportunity for us to look at that and do the collaboration and
look at the transparency that we both seek in order to do that.
I think they have been at this for quite a while. They used
some mechanisms in setting this up that serve them well today,
and I think that having that single entity in the State helps
them an awfully lot because they are in control of this.
Some of these programs that are causing the most difficulty
right now in your thinking and in mine, they don't have a way
to go out and collect some of this information. They are
prohibited, in essence, from collecting some of that. So I
think you will hear some of that from some of our colleagues
today as well.
Senator Coburn. Are you suggesting that there could be
legislative changes that would alleviate the collection of
data?
Ms. Combs. I am suggesting that there probably are some
things we need to look at together----
Senator Coburn. OK.
Ms. Combs [continuing]. With these programs and with our
State colleagues as well. And I have used every available
opportunity or some available opportunities--probably not every
one. When we would have some of our State treasurers in town,
for example, to ask them, Are there things that we can do
together that would get at some of these things?
And I think if we could figure out a way to not be
legislatively prohibited from doing those things and pair those
other collegial working relationships together, we probably
could make a very good start at this.
Senator Coburn. So what you are really telling me is the
Department of Labor has some better practices that work?
Ms. Combs. They do.
Senator Coburn. So why can't those be replicated at the
other agencies?
Ms. Combs. I think they could be replicated if the
legislation in the other agencies will let them do the same
things that the Department of Labor has been doing for several
years now.
Senator Coburn. Well, it would seem to me that the
Administration would mandate that they do it, not let them do
it. Is there a problem with motivation?
Ms. Combs. No, sir. I don't think it is the motivation.
Senator Coburn. Will you make a commitment to this
Subcommittee that you will give us the list of the legislative
changes you think need to be made so that the other agencies
can have the flexibility to be able to measure improper
payments?
Ms. Combs. We would love to work with you on that. And then
there are some in our President's budget for 2007.
Senator Coburn. All right. Senator Carper.
Senator Carper. Just to follow up on that last point, if I
could?
If we are serious about reducing improper payments, it was
helpful to have passed the 2002 legislation. If we are serious
in reducing improper payments, it is helpful to have an
administration that is serious not just at OMB, but throughout
the agencies, where particularly those that are making a lot of
payments are serious about doing something about it.
If we are serious about reducing improper payments, I think
it is helpful probably for us to have oversight hearings to put
a spotlight on those that are doing a good job to reduce
improper payments and, frankly, to put a spotlight on those
that aren't doing as much as they can and ought to.
What further can we do to be helpful? You bring in sort of
a different perspective than we do to this problem. What
further can we do on this Subcommittee, on our full Committee,
in the Legislative Branch that would add to the efforts that
are already under way?
Ms. Combs. Thank you for asking, Senator Carper. There are
six legislative proposals in the President's 2007 budget that
directly have a direct bearing on our ability to further the
improper payments initiative forward. And the projected savings
are in the billions of dollars for each and every one of these.
The unemployment insurance, even the one that has such a
good record, we have a recommendation there, where we can make
that even better. The child tax credit. The computational
complexity of that program, and I think you will probably hear
that from Mr. Everson when he comes to testify before you. The
rules and the complexity of that is part of the legislative
proposal.
But any of these legislative proposals will make a step in
the right direction. And while they may look like, ``Oh, well,
we could do a lot more than this,'' every step is a good step
if it is in the right direction. So I would encourage you to
support the Food Stamps portion of that and the ones that are
in the President's budget.
Senator Carper. Good. Thanks.
Ms. Combs. Thank you.
Senator Carper. Let me ask Mr. Williams a question next, if
I could?
Mr. Williams. Yes.
Senator Carper. And I think there was some discussion at
our last hearing about requiring some of our agencies to obtain
regular independent audits of their internal controls as part
of the effort to beef up the process and the procedures that we
are using to try to reduce improper payments.
I understand that since that hearing, a panel convened by
OMB determined that internal control audits would not be
beneficial. And I don't know if you were aware of this, but if
you are or you are not, I would ask you if maybe you can share,
either today or for the record, your views on that
determination, the fact that the internal control audits are
deemed not to be very beneficial.
And on the question of whether or not OMB or even Congress
should require internal control audits at least for certain
select agencies that have really big improper payment problems?
Mr. Williams. Yes, Senator Carper. If you look a little bit
closer at the legislation that required the particular report,
there was a provision that requires GAO to take a look at the
report that is issued by PCIE and the CFO Council and to give
our assessment of the report.
We are currently in the process of performing that
assessment as we hold this hearing today. Several things about
the overall issue of internal control reporting. As a policy,
we have basically concluded that there are several factors that
you need to look at.
First of all, if you look at this area of improper
payments, as I stated in my opening statement, a breakdown in
the internal controls or lack of internal controls is a primary
cause for some of the improper payment issues or the problem
that we are dealing with today. What we have determined is, is
that you need to look at the scenario in which you are
currently working with as far as the agency is concerned.
If the agency has a mature internal control environment,
then we have come to the conclusion that it would be a good
idea to get an opinion on internal controls. And the way we
look at that is by getting that opinion on the internal
controls, what you have is an independent set of eyes that is
validating what management has asserted.
We also have come to the conclusion that if you have an
operation that have several material internal control
weaknesses, there are compliance issues, and going into that
audit, you basically know that there is a lot of work that
needs to be done, then we don't think it would be an efficient
use of resources to get an opinion on the internal controls.
That those resources could probably be better used for the
purpose of working with management to try to correct the
problems that have caused auditors in the past to identify
material control weaknesses, reportable conditions, and
noncompliance issues.
So we have tried to break it down into various components
with the ultimate goal of somewhere down the road, if you can
address these internal control weaknesses, if you can get a
mature system of internal controls in place across the
government. We, in general, think that would be a good concept
because it would be those independent set of eyes looking at
what management is asserting as far as this internal control
environment.
Senator Carper. Thanks.
Mr. Chairman, I have some more questions. I will submit
them for the record. Is this our only----
Senator Coburn. I am going to go one more round.
Senator Carper. OK. Good enough.
Senator Coburn. Ms. Combs, would you submit to this
Subcommittee the programs that report more than $10 million in
improper payments but are less than 2.5 percent?
Ms. Combs. Yes, I will be happy to do that.
Senator Coburn. DOD, SBA, and SSA, all have programs that
expend billions of dollars annually, but they are not
considered to be at risk for making ``significant improper
payments'' because they do not meet OMB's criteria for
significant. Mr. Williams, which programs did GAO identify as
expending billions of dollars, but are not considered to be at
risk for making significant improper payments?
Mr. Williams. Mr. Chairman, in my written statement, we
have identified several agencies that actually reported the
amounts because of the requirement that OMB placed on the
agencies in the implementation of the act. And there are
several programs that we have identified that if you go through
the exercise of looking at the two criteria that were laid out,
and you could come to the determination that these agencies
would not have to report based on the criteria.
There were two or three in the Department of Defense--
Military Retirement Fund, military health benefits, Education's
Title 1. Department of Energy, some payment programs.
Department of Health and Human Services, Head Start, railroad
retirement, board retirement and survivors benefit, SBA
investment and Social Security Administration, Old Age
Survivors Insurance and Disability Insurance Programs.
So these are some of the programs that, if you look at them
and there had not been this particular requirement that if you
were under the old A-11, you would be excluded from reporting
amounts under the $10 million, 2.5 percent criteria.
And by the way, Mr. Chairman, that amount, if you take a
look at the performance and accountability reports for 2005,
would have resulted in about $4.3 billion not being included.
In other words, that $38 billion would have been actually $4.3
billion less.
Senator Coburn. OK. I am aware that there is some revised
guidance that OMB has proposed that would allow programs that
have been at low risk for over a 2-year period to request a
waiver in having to report improper payments. Is that true?
Ms. Combs. We have a very aggressive program on improper
payments, and as I mentioned to you, we are looking and are
eager to work collaboratively. To the extent that high-risk
programs are identified, we will put extra scrutiny on those. I
have no intention of reducing that.
Senator Coburn. Yes, it is not true then?
Ms. Combs. Let me just say this. We have been collecting,
for 3 years now, comments, considerations that people wish to
have in any kind of revisions, and we are looking at some
revisions because it is probably about time to think about
those. But in terms of releasing or making things less, we are
not in that posture.
Senator Coburn. Are you comfortable with this definition of
2.5 percent of $10 million? I have to tell you, I am
tremendously uncomfortable with that.
Ms. Combs. Well, in my testimony and in some of our
discussions, one of the things that we have talked about is we
can't do everything at one time. And I know you and I agree on
that. And I think one of the things that I have to keep
thinking about are those seven programs. I have to keep a rifle
eye on those seven programs that we identified originally that
make up 95 percent of this. And if I keep my eye on that, we
are going to get a lot done.
And one of the ways to help agencies keep their eye on that
is to leave that 2.5 percent, $10 million in our assessment. So
I would like to continue that. But as I have said, if there are
specific other programs that we find in our assessments, that
GAO finds, or that you find in whether it is this or some of
your other efforts that you are working with, that you want us
to look at on a case-by-case basis that don't meet that
threshold, we are more than happy to put them in our mix.
Because through the President's Management Agenda, we
monitor a lot of these 118 programs, not just the ones you have
talked about. And there are at least eight of them that I am
aware of that we have handled on a case-by-case basis in that
way, and I am happy to have your input and include more of
those.
Senator Coburn. Are you aware of the GAO report that came
out on defense purchasing on performance bonuses?
Ms. Combs. No, sir. I am not.
Senator Coburn. It is a very revealing report. As a matter
of fact, it is very disturbing because, and I think this is
right, it is between 80 and 90 percent of the performance
bonuses paid, the contractor did not meet the performance bonus
requirements. And if that isn't an improper payment, I don't
know what it is. And yet we have the Pentagon says they don't
have any improper payments.
And so, I am going to submit the rest of my questions, and
I am just going to ask you one more. Community Development
Block Grant and Medicaid, are you going to commit to get us the
improper payment on those big programs? I mean, we don't have
it. And there is a good estimate to say $40 billion in Medicaid
is improperly paid. Fourteen billion just what looks like in
New York City.
And we are sitting here saying that if, in fact, we wait
until the end of fiscal year 2008 to get the data on Medicaid
and if my estimate is two times too high, it is still going to
mean $40 billion got spent that shouldn't have gotten spent.
And that is a significant amount of money. Why should we have
to wait until 2008 to get improper payments on Medicaid?
Ms. Combs. Well, we certainly share your concern about the
complexity and about the magnitude of what that program will
entail. But I think to get that comprehensive error rate, it is
going to require an awfully lot of work, and you have an expert
witness here to talk to you today about how much work that is
going to require and what the complexities of that is.
We are happy to work with you, and if you find some ways
that you think we can enhance that and improve that from a time
standpoint, we certainly want to work with you to do that.
Senator Coburn. One last question, and I will hand it over
to Senator Carper. The 2005 performance and accountability
report said that it had no programs susceptible to significant
improper payments. And I just want to read this for the record.
Department of Commerce, none. General Services
Administration, which I know is not the fact based on the
hearings that we have had here, none. The Department of
Homeland Security, no improper payments? I can show you a ton
of improper payments just on what they have done in Louisiana
and Mississippi.
The Department of Interior. NASA, we can't even get them to
answer or even to give us a response. The Nuclear Regulatory
Commission and the Securities and Exchange Commission. We have
had a hearing on the SEC, how they spent, I think, something
like $27 million more than they should have on a building, and
yet that doesn't come up under improper payments.
So how confident are you of these agencies' assertion that
they have no improper payments?
Ms. Combs. It may not come up under the improper payment
initiative, but it certainly comes up under the recovery audit
initiative.
Senator Coburn. Right. So does that not mean that maybe
this definition of ``significant'' needs to be changed?
Ms. Combs. Well, I am happy to look at any of those
programs that you would like me specifically to look at and
report back to this Subcommittee. I am happy to work in any way
we can to address your specific concerns on that.
I do know that most of the Departments that you have
mentioned in your question there, they certainly have plenty of
contracts. And that is why the recovery audit is so important
for them.
Senator Coburn. Right. Thank you.
Mr. Williams, any comment on that, and then I will turn it
over.
Mr. Williams. I would just add the point that we took a
close look at this particular statement also as we were
reviewing the performance and accountability reports. And I
guess the question that came to my attention, having
responsibility for the Department of Homeland Security, also
for NASA, and looking at some of the control weaknesses,
Homeland Security I believe had 10 material internal control
weaknesses. There were two reportable conditions, and I think
there were seven issues of noncompliance. And that was one of
the agencies in which, I think, the auditors of the financial
statement questioned the quality of the assessment that the
agency performed.
So I think you have raised a question that needs to be
debated and discussed a little bit further as we go along in
trying to address this issue.
Senator Coburn. Thank you. Without objection, I have about
14 other pages of questions that I would like to enter for the
record.
Senator Carper. I think you should ask them all, Senator.
[Laughter.]
Senator Coburn. No, I don't think so. I want supper
tonight, and I know everybody else does, too. So I will submit
those for the record, and if both Mr. Williams and Ms. Combs
would respond to those, I would very much appreciate it.
Senator Carper. I have a couple of questions I would like
to offer for the record and ask you to respond in writing, if
you would?
Mr. Williams. OK.
Senator Carper. I just want to come back and revisit--I
apologize for being so slow on the uptake on this. But do I
understand that there is roughly seven or so programs or
agencies that are responsible for about 95 percent of the
improper payments that are being reported? Could you just
mention those briefly, please?
Ms. Combs. Yes. Medicare, EITC, unemployment insurance,
SSI, OASDI, HUD rental assistance, Food Stamps, and then there
is a small portion of others that make up the 100 percent. But
those I just mentioned make up 95 percent.
Senator Carper. And just in relative terms, of those seven
or so, which is the largest?
Ms. Combs. Medicare.
Senator Carper. Or did you sort of list them in order of
their magnitude?
Ms. Combs. Somewhat.
Senator Carper. All right. Which of the seven is heading in
the right direction most quickly?
Ms. Combs. Most quickly, well, we have a head start here
with unemployment insurance, I think. While they make up about
9 percent of that, they certainly have a great model, as we
have talked about earlier today. And the others, I think, would
be Medicare and the HUD rental assistance and Food Stamps that
I mentioned in my testimony.
Senator Carper. So, again, you said unemployment insurance
(UI), Medicare, HUD rental assistance, and Food Stamps?
Ms. Combs. Food Stamps, right.
Senator Carper. Are generally the better performers?
Ms. Combs. They have had some very good successes.
Senator Carper. And of the others that you have not
mentioned--EITC and SSI, OASDI--can you just characterize how
we are doing in those three? Or how the agencies responsible
for them are doing?
Ms. Combs. Well, I think all of them are responding well.
The question is how hard is it to get success? And I think you
have the representatives, I believe, are here from each one of
those other programs to talk with you today.
Senator Carper. OK. We will let them speak for themselves.
The major programs that are not included here, that are not
reporting improper payments, and I have heard Medicaid
mentioned a time or two. What are some of the other larger
programs for which improper payments are not being reported?
Ms. Combs. Well, the error rates that have not yet been
accumulated or assessed for those were on primarily the first
chart that was up here.
Senator Carper. Which, fortunately, you can see, but we
cannot.
Ms. Combs. Oh, you can't see it--the Department of
Agriculture's School Programs.
Senator Carper. School lunch and breakfast programs?
Ms. Combs. School Programs.
Senator Carper. OK.
Ms. Combs. The Health and Human Services Children's
Insurance Program. Department of Agriculture, Women, Infant,
and Children. Health and Human Services, Medicaid. Health and
Human Services, Child Care and Development Fund. Health and
Human Services, Temporary Assistance for Needy Families. And
Department of Housing and Urban Development, Community
Development Block Grants are the major programs that we
understand have not yet reported their improper payment
estimates.
Senator Carper. Of those that you have mentioned, and the
Chairman was good enough to give me a listing here, it says at
the bottom of the page that total outlay is about $227 billion
in a year. So, from reading this, what we should understand is
that while roughly seven agencies are responsible for 95
percent of the known improper payments, there is a bunch of
pretty big programs for which we just don't know?
Ms. Combs. That is correct.
Senator Carper. And could you just give us a sense--and you
have probably done this before, and I am going to ask you to do
it again--when do you think some of these big programs are
going to be in a position to report improper payments?
Ms. Combs. Some of them are going to report in 2007, and
some of them are going to report in 2008.
Senator Carper. Do you think we will have them all by 2008?
Are you saying everybody will be in by then?
Ms. Combs. Probably not all of them, unless you hear
something different than we have been hearing.
Senator Carper. OK. Who do you think might still not be
able to report by the end of 2008?
Ms. Combs. Probably Medicaid. Which one? TANF and child
care, it looks like. The Temporary Assistance for Needy
Families and Child Care Development Fund. We yet do not have an
estimate of when they might be able to report.
Senator Carper. OK. Do we have somebody coming before us
today from HHS? We do, don't we?
Ms. Combs. Yes.
Senator Carper. Maybe we can talk about that a little bit
further.
Ms. Combs. I am sure he is my very good friend now.
[Laughter.]
Senator Carper. He or she, you never know.
All right. Well, Ms. Combs, thanks so much for being with
us today. And Mr. Williams, good to see you.
Ms. Combs. Thank you.
Mr. Williams. Thank you.
Senator Carper. Thank you very much for your help. We look
forward to continuing to work with you.
Mr. Williams. Thanks.
Senator Coburn. Thank you all very much.
Ms. Combs. Thank you.
Senator Coburn. And you will be receiving a list of
questions for both of you. And timeliness in that response, if
you could have that back to us in a couple of weeks, we would
appreciate it very much.
Thank you.
Our next panel is Mark Everson, Commissioner of the
Internal Revenue Service. Prior to his time at the IRS, he was
Deputy Director for Management for the Office of Management and
Budget, where he provided government-wide leadership to
Executive Branch agencies to strengthen Federal management and
improve program performance.
With him today is the James Lockhart, Deputy Commissioner
of the Social Security Administration. He is the agency's Chief
Operating Officer and a member of the Executive Committee of
the President's Management Council.
Mr. Lockhart served as Executive Director for the Pension
Benefit Guaranty Corporation under the previous Administration
and has served in various private sector positions.
Welcome, each of you. Mr. Everson, you will be recognized
first. Your complete statement will be made part of the record.
TESTIMONY OF THE HON. MARK EVERSON,\1\ COMMISSIONER, INTERNAL
REVENUE SERVICE
Mr. Everson. Thank you, Mr. Chairman. Nice to see you
again, Senator Carper.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Everson appears in the Appendix
on page 90.
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I am pleased to be with you again to talk about our
performance under the Improper Payments Information Act. Before
I turn to that, though, I would like to give you a brief update
on the subject that we talked about last October, the tax gap.
You will recall at that time that we had not yet finalized
our estimate. I think you may have seen in recent weeks we have
now done that, and the estimate came in at that top end of the
range, basically, of what we had for 2001--$345 billion for the
gross tax gap. But that is $290 billion after the late payments
and our enforcement activities. I point this out because we are
already using the----
Senator Carper. Would you say that last part again, if you
will? That is what after?
Mr. Everson. The number $345 billion is the estimate of the
gross noncompliance. But because the tax gap is defined as what
is paid on a timely basis, is it timely or not? So if you get a
late payment that comes in, you say to us you owe $10,000, but
you only sent us $3,000, there is a $7,000 underpayment gap
there.
So if it comes in late or we do something from the
enforcement activities, we consider that a recovery. That is
the $55 billion. So that brings the $345 billion down
ultimately to $290, but over time.
We are already using this research to change our audit
selection model. So that is good news. That will make us more
effective, and it will also drive down the no-change rate,
where we audit somebody but really don't find anything.
As the President's proposed fiscal year 2007 budget does,
it continues to rebuild our enforcement efforts as well through
more enforcement activities. I am thankful for this
Subcommittee, and the full Committee, for the support it has
provided over the last several years to securing or for
securing adequate funding for the IRS.
And I would like to also note that in the 2007 request,
there are additional legislative proposals for incremental
reporting. This is, indeed, a set of what could be viewed as
modest proposals, but they are very significant because this is
really the first time since 1986 that any administration has
made new proposals on reporting. We think that will have a big
impact.
There are two that are particularly of interest to this
Subcommittee. I will be testifying next week in terms of
government contracting. One is about due process, collection
procedures for employment taxes, and the other is about
additional reporting for payments made by governmental
entities, Federal, State, and local.
So those are all very important developments, and I hope
the Subcommittee will support us on those.
Senator Coburn. We will. And at Senator Carper's request
and my agreement, we are going to have another hearing on that.
Mr. Everson. Great.
Senator Coburn. You have just not been noticed on it, but
we will give you plenty of time.
Mr. Everson. OK. I have a busy hearing schedule, and I
somehow thought I would hear back from you on this.
Senator Coburn. You will.
Mr. Everson. Let me turn to the EITC for just a minute or
two. The EITC is one of the Nation's most successful anti-
poverty programs. It lifts millions out of poverty each year.
In fiscal year 2005, 22 million taxpayers received $40 billion
through the EITC.
It is a refundable Federal tax credit that offsets income
tax owed. If the credit exceeds the amount of taxes owed, a
lump sum payment is provided to those who qualify. At the IRS,
our philosophy concerning the EITC is clear. Everyone who
qualifies for the credit should receive it, but only those who
qualify.
Senator Carper. Can I interrupt for just a second? Mr.
Chairman, the chart has just been replaced. I don't know if
this is a chart we are supposed to be able to see or not.
Mr. Everson. I am happy to have it face your way instead of
mine. [Laughter.]
Senator Carper. Oh, yes. Let me just say to our staff that
you can actually put the chart in a place so that they can see
it and we can, too. And I would ask you that, maybe just pull
it toward you? There you go. That is great. Thank you.
Mr. Everson. In 2005, the IRS spent approximately $165
million on EITC activities. These funds supported an EITC
compliance program, which conducted over 500,000 audits and
prevented $2 billion in EITC refunds from being paid in error.
We estimate that EITC enforcement efforts have directly
protected an estimated $6.5 billion from 2002 through 2005.
Nevertheless, this chart points out erroneous payments
under the program remain too high. Our latest estimates are
that even after our efforts, $9.5 to $11.5 billion, or 23 to 28
percent--and since we are interested in accuracy, I would ask
that maybe we have 23 to 28 percent instead of just the high
end--is paid out erroneously each year.
As we continue our efforts to improve the EITC program and
reduce erroneous claims, let me make the following
observations. EITC administrative expenditures are a tiny
fraction of program benefits. Current administration costs are
less than 0.5 percent of the benefits delivered. These costs
are quite low compared to other benefit programs in which
administrative costs can run as high as 20 percent.
Let me depart for just a second. Food Stamps. The Food
Stamps Program budget is $3 billion to deliver $30 billion in
benefits. If we were to take that ratio for the EITC, we would
add $4 billion to the IRS budget. Our whole budget right now to
run a $2.2 trillion system is only $10.6 billion. So we would
be talking about a very real departure in how we do business.
I would also point out that the current improper payment
estimating technologies are not precise enough for us to
capture annual estimates of good reliability, which is really
what the act would want us to do. Going forward, we propose to
simplify EITC eligibility requirements, and we will continue to
refine our efforts to better enforce the law.
In summary, I would just like to make three points. We have
a balanced approach to administering the EITC. Again, we want
those who qualify to get it. This program enjoys the highest
participation rate for any of these big benefit programs,
something like 80 percent. That is a good thing for our
country. But again, we want to make sure that we aren't paying
out more than we should.
We also plan to grow the use of community-based volunteer
organizations to help people prepare their returns here. We
have seen that as an effective way of getting people to claim
the credit without having to take these predatory RALs, these
refund anticipation loans. I am sure if Senator Akaka were here
today, he would be grilling me about RALs. That is one of his
most pointed remarks whenever I see him.
And the final thing I would say is that adopting the
President's budget request would be helpful. There are several
constructive points in here. They won't make a huge difference
in this, but they will help simplify the credit, and we think
they are good ideas.
Thank you.
Senator Coburn. Mr. Lockhart.
TESTIMONY OF THE HON. JAMES B. LOCKHART III,\1\ DEPUTY
COMMISSIONER, SOCIAL SECURITY ADMINISTRATION
Mr. Lockhart. Senator Coburn and Senator Carper, thank you
for inviting me here today to discuss the efforts the Social
Security Administration (SSA) is undertaking to strengthen and
maintain the integrity of the Old-Age, Survivors and Disability
Insurance (OASDI) Program and the second program we administer,
the Supplemental Security Income Program, referred to as SSI.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Lockhart appears in the Appendix
on page 99.
---------------------------------------------------------------------------
In 2005, Social Security paid $520 billion in benefits to
over 48 million retirees, survivors, disabled persons, and
their dependents. SSI is a needs-based program, and it paid $38
billion to over 7 million disabled and aged individuals.
The importance we put on improper payments can be noted
that one of our nine strategic objectives is to detect and
prevent fraudulent and improper payments and improve debt
management. As you can see with the charts I attached to the
testimony, our combined error rate for the two programs have
been about 1 percent, which is well below the OMB's threshold
guidance of implementing the improper payments act of 2.5
percent. But I hasten to add both of these programs are
included--both SSI and Social Security--despite Social Security
being well below the 2.5 percent limit.
In measuring payment accuracy, Social Security considers as
proper those payments it is required to make under statute or
court order. Both OMB and GAO have affirmed this to be a
correct methodology. However, I think it is very important to
emphasize that we pursue the recovery of all overpayments, not
just those considered to be improper. I would like to add also,
our collection effort is very successful. Over time, we collect
over two thirds of the overpayments.
In 2004, Social Security's improper overpayment rate was a
very low 0.5 percent on overpayments and 0.2 percent on
underpayments. Despite these low percentages, we are committed
to taking the steps to further reduce these levels. That is
very important in a program the size of Social Security, where
each 0.5 percent increase in payment accuracy equals $2.6
billion of error prevented.
SSI is a much more complicated program than Social Security
in that we must know income, living arrangements, in-kind
support, and resources. In 2004, our SSI error rates were 6.4
percent for overpayments and 1.3 percent for underpayments.
We build accuracy controls into every payment decision we
make at Social Security. In addition, we have two major
processes to prevent and detect improper payments. They are
continuing disability reviews (CDRs) and redeterminations of
eligibility for SSI. About $8 program dollars are saved for
every $1 administrative dollar spent on these reviews. As an
example, in 2004, redeterminations enabled us to collect or
prevent $2.4 billion in overpayments and $1.3 billion in
underpayments.
We have developed plans and performance goals to support
the President's Management Agenda initiative of eliminating
improper payments, and we report our progress every quarter to
OMB. We also developed a specific SSI corrective action plan in
June 2002 to help get SSI off GAO's high risk list. Even though
GAO did remove us from the high risk list in 2003, the plan is
updated regularly, and I meet monthly with the accountable
executives.
We are making great strides in preventing improper payments
by obtaining beneficiary information from independent sources
sooner and by using technology more effectively. For example,
we have data matches with a number of Federal and State
agencies, and we have developed jointly with the States the
Electronic Death Registry (EDR).
We are testing an automated telephone process for SSI
recipients to report monthly wages. We have a very successful
pilot in the New York region to gather information
electronically about unreported bank accounts and work directly
from financial institutions.
The President's 2007 budget request includes two
legislative proposals for Social Security. One would simplify
the administration of our workers' compensation offset
provisions and the other would establish a mandatory system for
collecting data on pension income from noncovered State and
local employment. These two proposals will prevent $2.8 billion
improper payments over the next 10 years. We are also working a
plan to simplify SSI, focusing on the very complex in-kind
support and maintenance rules.
Last, in the President's budget, there is a request to
increase funding to do additional continuing disability reviews
through a discretionary cap adjustment of $201 million, which
would save over $2 billion in program costs.
Finally, I would like to confirm we are very committed to
continue to work with Congress and OMB to eliminate improper
payments. I would be happy to answer any questions you have.
Senator Coburn. Any comments, Mr. Williams?
Mr. Williams. No, sir. Not at this time.
Senator Coburn. First of all, I know that both of you are
dedicated in what we are trying to accomplish here, and I want
to thank you for your efforts.
Mr. Lockhart, did I hear you say, did I understand that of
the overpayments that you all make, two thirds are re-
collected?
Mr. Lockhart. That is correct.
Senator Coburn. OK. So your net overpayment is a third of
what you are actually reporting in terms of the improper
overpayments?
Mr. Lockhart. That is correct.
Senator Coburn. All right. Thank you.
So, for example, on SSI, yours would be 2.1 percent
overpayment net, after collection. In other words, you go back
and get it back?
Mr. Lockhart. Right. We go back and get it back. Some we
can do almost automatically because they are still receiving
benefits. In SSI, we can take 10 percent out a month. In
disability, we can take the whole check.
Others, we have all sorts of debt collection activity. But
over a 5- to 10-year period, we do collect over two thirds.
Senator Coburn. On the EITC program, Commissioner, is there
a number that brings that down, that 23 to 28 percent?
Mr. Everson. The numbers I cited, the $2 billion, are
before that. And EITC, again, the distinction between it and
almost anything else is there is no front-end eligibility
verification as there is with all of these other programs. What
Congress did allow the agency to do was to take a look, and
then what we will do is we will hold the refund if we have a
suspicion.
If we are going to do an audit, and these audits that I
mentioned--I think of the $2 billion, something like $1.3
billion was the amount that was held. There is the other piece
of what we call ``math errors,'' where there are certain
problems facially on the return, where we hold another $300 or
$400 million.
And then there is the last piece that gets you up to $2
billion, another $300 million. That happens later basically
through an audit or document matching. And then what happens is
you don't participate, you don't get the money the next year.
You are not eligible to file again, or it is offset in a
subsequent period, or maybe in some instances you get it back.
But by and large, we don't get a lot back. We don't have
the same ability to get it back as Jim's people do.
Senator Coburn. So would that mean that you need statutory
changes to change the front end to improve this eligibility?
Mr. Everson. Well, the basic choice that the Congress made
was to embed the largest means-tested benefits program in the
tax code when they set up the EITC. And so, we are on the honor
system here, and there is error. There is a high degree of
error, and there is fraud. I can't tell you with precision what
the balance is between the two.
So there are a number of things that can be done here. One
is clearly simplification, and that applies not just to the
EITC, but to other credits. There are something like seven
education credits. When I testify before the tax panel, we
believe simplification is an important thing to do.
Senator Coburn. Both for you and for the----
Mr. Everson. For everybody. That is right. I think as I
mentioned last October, we believe that complexity obscures
understanding. That makes it tougher for the person who desires
to be compliant to comply. It also makes it easier for that
person who seeks to not comply to be noncompliant.
But the big change here, if you really wanted to drive this
down--again, I drew the comparison to Food Stamps--and this
would be a big change. You would have a front-end eligibility
requirement, as you do in most of these other programs. Then
you would have higher program costs, not $165 million, or 0.4
percent of the benefits paid. And then you would get a much
cleaner program.
Now, on the other hand, sir, think about this. We have an
80 percent participation rate. This program does very good
things for people, for families, and for communities around the
country. That would change, no doubt, as well. So it is a
policy choice.
Senator Coburn. Well, by your data, 20 percent of those
people aren't eligible? You have 20 percent of the people who
aren't eligible taking money from the program----
Mr. Everson. That is exactly right. The money is being
spent to a certain degree in the wrong place. The way I think
about this, if you say it is a $40 billion program, and 20
percent of the people aren't eligible, maybe it ought to be
paying out $50 billion. But then you would have to reduce it by
the quarter that you are talking about. You would have to spend
$35 or $38 billion that way.
Senator Coburn. Have you all done an analysis to look at?
The goal is, is we have EITC, and we know who we want to get
that.
Mr. Everson. Yes.
Senator Coburn. Have you done an analysis on what the cost
would be for program management to get that range down to where
you don't have such--and I believe this is correct. Correct me
if I am wrong. This isn't error. Most of it is fraud.
Mr. Everson. No, I don't agree with that, sir.
Senator Coburn. You don't.
Mr. Everson. I do not.
Senator Coburn. Is most of it error and not fraud?
Mr. Everson. I don't think we know for sure, but I think
the people who have looked at this most broad, the academics,
have sort of said probably, maybe there is about a third that
is clear error. Maybe at the other end, maybe there is about a
third that has got some intentional distortion of the
eligibility. And then there are lots of questions in between,
if you will.
Senator Coburn. How much do we pay out every year in EITC
dollars?
Mr. Everson. Forty billion dollars. Let me explain that, if
you will. The first $5 billion of that is a reduction of income
tax that individuals would otherwise pay.
Senator Coburn. Right. But it is still paid?
Mr. Everson. That is right. And then the next $35 billion
is actually cash out.
Senator Coburn. So it is $40 billion. So let us go between
23 and 28 percent, let us set it on 25 percent. That is $10
billion.
Mr. Everson. Yes, sir.
Senator Coburn. And a third of that is fraud. So that is $3
billion a year. The question I would have to you is what do we
have to spend to find that $3 billion? Where is the break-even
line for you as an agency, and what can we do to help you to
where we get to that point?
Mr. Everson. Well, this gets back into the overall tax gap
question. We spend about 5 percent of our personnel resources
on the EITC, and that is roughly proportional with the tax gap,
the component of the tax gap.
On the other hand, though, if you look at the number of
audits--I mentioned 500,000. That is a huge proportion of the
1.2 million audits we did last year. This is the single-highest
audit rate for individuals because of this history.
If the Congress threw an extra billion dollars at me, sir,
in all good conscience, I would not spend it in this area. I
might put some small piece of it there, but I would be working
on corporations, high-income individuals, and the small
businesses area, where if I could just digress for one second?
Floyd, if we could have the chart on the reporting because
I think it is pertinent? The bar chart on what kind of
reporting we have?
It gets back to where we were talking about last--no the
other chart, right. It gets back to the President's proposals.
Look out to the left here. We talked about wages. If the
noncompliance rate for salary and wages where we have reported.
We know how much you make as a senator. Even if you don't tell
us, the Senate tells us. The noncompliance rate there is 1
percent.
If you go all the way out here to where there is little or
no information reported, and this is individuals operating
small businesses, the noncompliance rate is 1 in 2. This, if
you will, is squarely in the middle.
So, obviously, to run a rational program, what we want to
do is attack all of these areas, but we will be devoting more
audit resources here, and also we want to get a little more
reporting.
The last thing I will say on this is--I am making a
commercial here for U.S. senators, not on this particular EITC
subject--is these proposals, they just treat--we want to get
credit cards as an example--credit card issuers to give us
information on receipts that they get for businesses. This is
no different than 150 million employees already get some
reporting on their wages. That is what we are trying to do.
Senator Coburn. Senator Carper.
Senator Carper. I think the Chairman asked a part of a
question on the EITC that I was going to ask. But I don't know
that he asked this part while I was out of the room. Let me
just ask it, Commissioner Everson.
Are the errors per EITC recipient usually fairly large, or
are they usually fairly small? And can you maybe quantify them?
Mr. Everson. I am not sure I understand what you mean. If
we look at the credit here, just to familiarize you. Do you
have this chart, Floyd?
These are relatively small amounts of money. This shows the
credit. It maxes out at $4,400 if you were a family and you
have two children. And then it actually declines as your income
goes up, and it is in the mid 30s now.
So on any individual return, it is a relatively small
amount of money compared to what we do on the corporations that
is at stake. But again, there are 22 million taxpayers that are
claiming this.
I think the other element of your question, though, is we
see, where we do see the fraud, you may have read about. There
was a lot of discussion a couple of months ago about the refund
fraud program that we have. We do see rings of people who
generate false returns, and they somehow find it right at this
sweet spot, if you will, where the credit maximizes.
They send us a return that shows the income to be $15,000,
the person working, and then claiming the $4,400 credit. So
that is in there, too.
Senator Carper. OK. I am going to ask you the same question
I asked the earlier panel that Mr. Williams was on, and that is
I think you have spoken to this already, each of you. What can
we do to be of direct assistance, particularly to you, Mr.
Everson, to try to ratchet down the EITC overpayments? And to
our panel is it deputy administrator?
Mr. Lockhart. Commissioner.
Senator Carper. To our deputy commissioner, particularly
for the programs that you spoke to, SSI and others. But what
specifically? I know you mentioned there are two legislative
initiatives. But just go back and revisit those for us.
Mr. Everson. The first point is this Subcommittee has been
great in terms of supporting the President on making sure there
is adequate funding. I think the oversight of this Subcommittee
has been second to none in the tax areas outside of finance
because your colleagues on the Permanent Subcommittee on
Investigations are constantly looking at our issues.
Your own inquiries on the tax gap, I am very appreciative
of that. The more we can educate members to understand what is
at stake here, and then take solutions like the incremental
reporting, which will be terribly important, that is
principally what you can do.
If you really want to get after this problem, this 25
percent problem, you do need to think of this question--the
construction of the program. Do you want to have a front-end
eligibility verification as opposed to just a back-end?
But again, I caution you, this program has a great
participation rate and lifts millions out of poverty. We need
to have an important national discussion on that if we really
want to move it down to 5 percent or something.
Senator Carper. All right. Mr. Lockhart.
Mr. Lockhart. Well, certainly, first of all, thank you for
having a hearing, and this is my first opportunity to talk to
you. But I really appreciate you----
Senator Carper. What was your job in the Clinton
Administration?
Mr. Lockhart. It was President Bush ``41'' Administrative.
I ran the Pension Benefit Guaranty Corporation.
Senator Carper. Would you like to have that job again?
Mr. Lockhart. It was pretty bad then.
Senator Carper. It is a lot worse now. That could be a
whole other hearing, Mr. Chairman.
Mr. Lockhart. So I really appreciate you having this
hearing and your offer. Certainly, there are two proposals in
the President's budget. One on simplifying the workers'
compensation offset. If you get disability benefit, in some
States, your disability benefit is lowered if you are getting
workers' compensation. So we have a proposal to simplify that.
That is a very messy workload.
We also have one to get pension reporting of people that
are getting pensions that can be offset against Social
Security, and that is for State and local workers.
We are also in the process of putting one together to help
simplify the very complicated SSI program. In SSI, the reason
for the high error rate is basically the complexity of the
program. And one of the complexities and really intrusiveness
of the program is that we have to know monthly what your income
is, what your rent is, who is paying for your food, clothing,
and all of these sort of things, and we need to try to simplify
that.
And then, last, we have a tremendous payback from what we
call our stewardship work.
Senator Carper. What does that mean?
Mr. Lockhart. The work to ferret out improper payments. We
find in our redetermination process, which, again, is looking
at SSI and looking at all those complexities, we get a payback
of close to $9 for every dollar we spend. And then from
continuing disability reviews, which are basically look to see
that the person is still disabled, we get a payback of almost
10 to 1.
So those are tremendous paybacks that we can give. But
unfortunately, one is in the administrative bucket of expenses,
and the other is the program bucket. And it is over a longer
period of time, and it is hard to get them funded in a proper
way.
Senator Carper. All right. Mr. Lockhart, I think you
mentioned something about working with States, and I think I
heard you say electronic death registry. Did you say that?
Mr. Lockhart. Yes, I did.
Senator Carper. I think I understand, but tell us how it
works.
Mr. Lockhart. Well, we have been working over the last few
years to have States electronically report all death records,
and at the same time, we verify the Social Security number so
we know it is a good death report, if you will.
And we now have it up and running in 10 States and the
District of Columbia. We funded another 10 States and New York
City, and we are looking this year to award contracts to as
many States as funding allows. It will be going to the
Department of HHS as part of legislation that was passed a
couple of years ago.
But this will not only be good for Social Security, but for
any benefit-paying program to know if people are dead and no
longer deserve benefits. And we are going to make it available
to everybody.
Senator Carper. When you say ``we are going to make it
available to everybody,'' do you mean for other programs where
it would be helpful to have that kind of information?
Mr. Lockhart. Yes, other government programs.
Senator Carper. That is good to hear.
Are we going to have another round here, Mr. Chairman?
Senator Coburn. I hadn't planned on it.
Senator Carper. Could I ask one more question of
Commissioner Everson, please?
Senator Coburn. Sure.
Senator Carper. Commissioner Everson, I want to go back to
something that I heard you say. Like I think most of us here,
we believe the EITC is a real good program, and it is one of
those things that Republicans like Ronald Reagan and Democrats
like Bill Clinton and myself and others think, all of us,
basically this is a good thing.
And we all want to figure out how we can reduce the
overpayments, and you mentioned how it really sounds like
fraud, these rings that are created to go out and bilk
taxpayers out of refunds. You mentioned the cost of
administering the program----
Mr. Everson. Yes, sir.
Senator Carper [continuing]. On a percentage basis, which
is actually very small. I think you said maybe 0.5 percent?
Mr. Everson. Yes, sir. As part of our budget, we spend
about $165 million a year on this out of a total of $10.6
billion that, as you know, is our whole budget. So it is small,
and that contrasts with the figure I saw. I looked at the
President's budget--$3 billion for Food Stamps against $30
billion of expenditure.
So you could, no doubt, spend more, a lot more on this and
do better on the error rate. You are still left with the fact
that it is at the back end, which is not the most effective way
to deal with this.
But again, you have to balance this out with your first
point, with which I agree, that this program is very important,
and it does have a high participation rate. So there is a
dampening effect on this that you see, the degree to which you
do more.
Senator Carper. Did you say the participation rate, Mr.
Commissioner, is 80 percent?
Mr. Everson. About 80 percent is what we estimate, plus or
minus a few points. Yes, sir.
Senator Carper. That is pretty high. Is that counting the
people who are not eligible who are still participating? Is
that in that number or not?
Mr. Everson. No, it is not, sir. But we think that is 80
percent of the eligible people are participating.
Senator Carper. And I would just ask you to answer--you
don't have to answer it here--but for the record. You have
spoken to it, the point about whether or not if we are not
encouraging you to dramatically raise your administration
costs.
But the question that is in the back of my mind here, maybe
the front of my mind, is if you were to spend a bit more money
for administration, how would that help us to address the
improper payments, the overpayments? And if you can see if
there is some kind correlation? I am sure you have looked at
that.
Mr. Everson. Yes.
Senator Carper. Or folks, before you have looked at that.
And just for the record, if you could just share some of that
with us?
Mr. Everson. Yes, sir. Certainly.
Senator Carper. Good. Thanks so much.
Thanks, Mr. Chairman.
Senator Coburn. The point of diminishing returns, I think,
is what he is looking for.
I just want to have one other question. This idea between
avoidable and unavoidable overpayments, I think I understand
it. Would you try to explain it to me because I have a little
concern that we start using this language, we are liable to see
other departments start describing ``avoidable'' and
``unavoidable'' payments. So would you clarify that for me, Mr.
Lockhart?
Mr. Lockhart. I would be happy to. We look at overpayments
in two categories--first, improper, and the other category is
required by statute or law. And those are the ones that are
unavoidable.
A simple example is due process. When someone's benefit is
reduced or eliminated, they have 60 days to appeal. And if they
appeal, we don't cut their benefits until that appeal is
decided.
Senator Coburn. But the problem I have with that is that
reported as an improper payment is not an improper payment. It
is not an improper payment because you are following the law.
Mr. Lockhart. Right.
Senator Coburn. It is like continuing SSI for somebody or
somebody's Social Security after they die, but you don't have
the notice that they are dead.
Mr. Lockhart. Right.
Senator Coburn. You can't stop it because they might be
dead. You can only stop it when you know they are dead. And so,
the point is that is not an improper payment.
Mr. Lockhart. Right. But it is an overpayment, and we go
out and collect it when we find out about it.
Senator Coburn. Yes. But that is not an improper payment
because you are actually following the law. Mr. Williams, do
you have any comments on that?
Mr. Williams. I would agree with that. We talked about this
with our attorneys. And as you correctly stated, if the statute
requires you to continue to make the payment as you go through
the due process, by definition of the improper payments act,
that is not an improper payment.
At the point that a decision is reached, a ruling is made
on it, and it is determined that person is required to pay that
money back, it becomes a receivable. But at no point in time
should that be classified as an improper payment.
What we at GAO further believe is that because you have
this particular scenario, we believe that it is a good practice
to continue to track these types of activities because for
informational purposes, it is good information to provide to
the Congress and decisionmakers in case there is a need for
some type of change in legislation, etc..
Senator Carper. Before we finish, could I ask one more
questions before we finish?
Senator Coburn. Yes. Let me finish this point.
Each of you have made note of recommendations in the
President's budget. Would you be so kind as to send those
specifically to me for your Department so we can look at them
as things will move faster if we can get everything back
together before the Subcommittee.\1\ And you will have a
multitude of questions coming from us that, if you would,
please answer, we would appreciate, on a timely basis.
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\1\ Copy of the ``FY 2007 Budget Proposal'' submitted for the
Record by Mr. Lockhart appears in the Appendix on page 52.
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Mr. Everson. Yes.
Mr. Lockhart. Be happy to.
Senator Coburn. Senator Carper.
Senator Carper. Just one more for Commissioner Everson. Mr.
Commissioner, you mentioned in your testimony, somewhere I
think you mentioned the word ``certification?'' That you are
using or testing to determine how effective certification is in
reducing improper payments in the EITC.
Mr. Everson. Yes, sir.
Senator Carper. Could you just give us a little more in
terms of detail about what those tests involve and how
effective they have been, if you have had a chance to make that
determination? And what kinds of unintended consequences you
have discovered?
Mr. Everson. Well, sir, we have been testing over the last
2 years or so in the tens of thousands to try and provide some
form of an up-front verification of eligibility. And if I were
to characterize the results so far, I would say that the
results do drive down the improper payments, but it appears
they also dampen participation. So there is this tradeoff that
I mentioned before.
Senator Carper. And have you reached some conclusion as to
whether the costs or the unintended consequences is greater?
Mr. Everson. I haven't reached a conclusion yet. We have a
little ways to go on this. But I think we will be left, again,
with what I would consider this fundamental policy choice of
right now we let people claim this on a tax return, and with a
minimum of hassle, if you will, if you really want to change
this, do you go to what is a more traditional benefits program
model?
Senator Carper. OK. Thanks so much.
Senator Coburn. I would like to make a note. Don't we want
the ineligible not to be getting the money?
Mr. Everson. I absolutely agree with that, sir.
Senator Coburn. Thank you all very much.
Our next panel is Assistant Secretary Charlie Johnson from
HHS. Mr. Johnson serves as Assistant Secretary for Budget and
Technology and Finance at the Department of Health and Human
Services.
Prior to his service at HHS, Assistant Secretary Johnson
was appointed to Chief Financial Officer at the Environmental
Protection Agency. He has spent 31 years in the public
accounting profession and served on numerous boards and
committees related to accounting and management.
We also have Samuel Mok, CFO at the Department of Labor.
Mr. Mok was confirmed by the Senate in January 2002 to be the
Chief Financial Officer at the Department of Labor. Prior to
his time at the Department of Labor, he served as Chief
Financial Officer and Controller of the Treasury Department,
where he was responsible for implementing many management
programs to enhance financial reporting and control.
Mr. Mok has extensive private sector accounting and
auditing experience and also served in active duty as a
lieutenant in the U.S. Army.
I want to recognize each of you and recognize that Mr.
Johnson has been here before. We thank him for returning. Your
full statements will be made a part of the record.
Mr. Mok, you are recognized for 5 minutes.
TESTIMONY OF THE HON. SAMUEL T. MOK,\1\ CHIEF FINANCIAL
OFFICER, U.S. DEPARTMENT OF LABOR
Mr. Mok. Thank you, Senator Coburn and Ranking Member
Carper.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Mok appears in the Appendix on
page 110.
---------------------------------------------------------------------------
I appreciate the opportunity to testify before this
Subcommittee today to discuss the Department of Labor's
compliance with the Improper Payment Information Act of 2002.
In fiscal year 2005, the Department had three programs
classify at high risk for improper payments. The Unemployment
Insurance Benefits Program had nearly $3 billion in improper
payment, with an estimated overpayment rate of 9.5 percent. The
Federal Employees Compensation Act, otherwise known as FECA,
benefits had $3 billion in improper payments, with an estimated
error rate of 0.1 percent. And the Workforce Investment Act,
otherwise known as WIA, grant programs had $8 billion in
improper payment, with an estimated error rate of 0.2 percent.
I am pleased to report that the Department met its improper
payment reduction and recovery targets for each of these
programs in fiscal year 2005. Improper payment fell
approximately about $600 million, a 15 percent decrease over
the previous years.
While statistical sampling allows estimation of improper
payments for most of the Department's programs, WIA grants pose
unique challenges. Grants to States, cities, counties, private,
nonprofits, and other organizations fall under the single audit
act. We found that it is more efficient and effective to rely
on the findings of a single audit to monitor grant recipient
funding.
By analyzing all of the available single audit reports for
WIA grants, we are able to develop a proxy for improper
payments to estimate the improper payment rate. Our program
with the highest dollar outlay and the highest rate of improper
payments is the UI program. This Federal-State partnership is
based on Federal law, but it is administered by State employees
under State law.
In the UI program, the sooner the State finds an improper
payment, the sooner the State can cut off the benefits and
start collecting the overpayment. In 2004, the Department
entered into an agreement with the Social Security
Administration that essentially allows State UI agencies to
cross-match UI claim information against Social Security
records. This helped prevent payments to persons working under
stolen Social Security numbers and helped to determine the
correct benefit amounts for individuals receiving pensions.
The Department funds States to use data in a State
directory of new hires to detect and prevent improper payments
to beneficiaries who continue to collect despite having
returned to work. State directory cross-matching has saved at
least, in our estimate, $150 million in the last 2 calendar
years. The reason is States have gained access to the National
Directory of New Hires to tap employment information from a
wider variety of employers, including Federal agencies and
multi-State employers who report all the new hires to a single
State. Such cross-matching is an effective way to reduce
improper payments.
The President's fiscal year 2007 budget includes
legislative proposal and funding request to better help States
deter, detect, and collect UI overpayments. These include
allowing States to use a percentage of all recoverable payment
for benefit payment control activities and requiring States to
impose at least a 15 percent penalty on fraud overpayments and
allowing States to permit collection agencies to retain a
percentage of fraud overpayment recovered.
Further, requiring employers to report start work date to
the State directory of new hires. And last, but not least,
authorizing the U.S. Department of Treasury to intercept
Federal income tax refund to recover overpayment of UI
benefits. We believe that these legislative proposals would
reduce overpayment and increase overpayment recoveries and
delinquent tax collections by an estimate of $5.4 billion over
the next 10 years.
The President's fiscal year 2007 budget requests $10
million to prevent and detect fraudulent UI claims filed using
personal information stolen from unsuspecting workers, an
effort to combat identity theft. And $30 million to help States
better assess claimants' eligibility and provide re-employment
assistance.
In closing, I would emphasize that the Department of Labor
recognizes the important stewardship challenges of ensuring the
funds go to their intended purposes, and eliminating improper
payment is a task that we must continue to pursue with great
diligence.
Thank you, and I will be glad to take any questions you may
have, Mr. Chairman.
Senator Coburn. Thank you. Mr. Johnson, welcome back.
TESTIMONY OF THE HON. CHARLES JOHNSON,\1\ ASSISTANT SECRETARY
FOR BUDGET, TECHNOLOGY, AND FINANCE, U.S. DEPARTMENT OF HEALTH
AND HUMAN SERVICES
Mr. Johnson. Well, thank you.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Johnson appears in the Appendix
on page 119.
---------------------------------------------------------------------------
Senator Coburn. I think you kind of got slammed before you
got up here.
Mr. Johnson. I was going to say I heard a lot of nice
things said about the Department of Labor, and I heard a lot of
things said about the Health and Human Services. It is sort of
like ``beauty and the beast,'' and I am not the beauty.
But let me report to you on where we are because I do think
we have had some successes, and certainly we have some
challenges. I think all seven of our programs have been
mentioned. Let me just briefly go through each one, if I may?
In Medicare, in fiscal 2005, we reported a Medicare fee-
for-service error rate of 5.2 percent. And that rate is, of
course, significantly lower than the 10.1 percent that we
reported in the previous year. And I think you correctly
pointed out that the significant drop in the rate is primarily
attributable to our measures taken to ensure that necessary
documentation is in place. That I consider to be the low-
hanging fruit. I think there is no question about that.
I would like to speak about Medicaid and SCHIP together. We
have looked at a lot of options to measure Medicaid and SCHIP.
We have concluded that the best way to measure this is the same
way we measure our Medicare program. Medicaid and SCHIP are
just 50 different Medicare programs conducted by 50 different
States.
And so, we have engaged contractors this year that are
going to develop a national Medicaid error rate. And these
reviews will be much the same as they are in Medicare. By the
end of 2008, all 50 States will have been surveyed. We are
going to start with 17. After the first 17, we will have a
pretty good idea of what that error rate is going to be.
Under Head Start legislation, grantees are required to be
monitored at least once every 3 years. We reported a Head Start
payment error rate reduction from 3.9 in 2004 to 1.6 in 2005.
This is primarily achieved by reinforcing the requirement that
90 percent of the served populations come from low-income
family. That was, again, maybe you can call it low-hanging
fruit, but it had to happen.
On the Foster Care Program, we developed a methodology for
estimating a national payment error rate centered around
eligibility reviews, and those are required by regulation.
That, too, dropped from 10.33 percent to 8.6 percent. So we
have had drops in the first three programs I have mentioned,
and that is the success part.
Let me tell you about TANF. We have had many pilots which
are successful, and yet we have not identified an efficient and
effective approach for determining an estimate of improper
payments in the TANF program. By design, States are given great
flexibility in the administration of this program. There were
also statutory limitations with regard to the information that
the Department can request of States.
But in the meantime, we have installed alternative
procedures to stop improper payments immediately upon
discovery. The first initiative is our PARIS system. It is the
Public Assistance Reporting Information System.
It provides--again, similar to Department of Labor--a
matching program, matching the capability to identify improper
payments in Medicaid, TANF, and Food Stamps. Thirty-four
States, the District of Columbia, and Puerto Rico are using the
PARIS system and reporting millions of dollars in annual
savings. That is a self-reporting system.
Even more promising is the use of our National Directory of
New Hires, again referred to by the Department of Labor. That
matches the database with new hires under W4s, quarterly wage
data, and unemployment compensation, finding great success with
that.
We had a pilot in the District of Columbia in which 33
percent of the individuals reviewed were identified as being
employed. Over 81 percent of those identified were verified as
actually being employed. The vast majority of those recipients
were not known to be employed by the TANF agency. So, again,
these matching programs really do work, and we have 30 States,
the District of Columbia, and Puerto Rico now on that program.
Senator Coburn. You said 81 percent. Is that what you said?
Mr. Johnson. Eight-one percent of----
Senator Coburn. Were employed?
Mr. Johnson. First, we found a third of the people that we
looked at went on this list as hitting a match. And when we hit
the match, then in subsequent verification of whether or not
they really were employed, 81 percent were, indeed, employed.
Senator Coburn. So 24 percent of the people?
Mr. Johnson. That is right.
Senator Coburn. OK. It is kind of like EITC, isn't it?
Mr. Johnson. Yes. And so, we are sold on this as a program.
The problem with this is it doesn't get us to, by definition,
the national error rate that is required by the act.
In the child care program, as with TANF, the child care
program legislation gives the States great flexibility in the
design and administration of the program. With child care, we
have initiated an improper payment pilot in which 18 States
participated. Based upon these pilots, we believe we now have a
methodology to evaluate participant eligibility, which is the
highest risk area, and we think we are on our way with at least
a plan.
So, in conclusion, we have valid improper payment systems
and are reducing error rates in three of the seven programs--
that is, Medicare, Head Start, and foster care. In Medicaid and
SCHIP, we have developed and are implementing a plan similar to
the Medicare model, which we believe will be equally
successful.
In the two programs we have not yet developed a
methodology, that is the TANF and the child care program. In
TANF, as I mentioned, we have implemented data match systems,
which allow us to reduce improper payments, and in child care,
we are engaged in a pilot that we think has some real promise
to lead us to methodology that will comply with the act.
I would like to leave you with one very interesting
statistic, though. And I think the American taxpayer is well
served by the money spent at HHS to combat both improper
payments and particularly health care fraud and abuse. Since
1997, we have spent $5.7 billion on our Medicare program
integrity work, $5.7 billion, but have recovered approximately
$82 billion, a 14 to 1 cost-benefit ratio. So we do have some
good news to report to you, Senator Coburn.
Thank you again for the opportunity to talk about the
Department's improper payments, and I will also be pleased to
answer any of your questions.
Senator Coburn. Thank you. I just want to address a little
business. I don't think OMB likes you. [Laughter.]
Well, the reason I say that is our last hearing, your
testimony didn't come in on time. And this hearing, we got it
last night. And we had a little discussion about that, and
either they are gunning for you or they are not getting it soon
enough.
And I would also say that Mr. Mok's testimony didn't come
in until yesterday as well. And I don't know if that is an OMB
problem, or it is a problem with it getting there. But I can't
do the job if I don't have your information in time to study
it.
I mean, my staff can study it. They can stay up all night.
But I can't stay up all night and then be sharp and ask you the
questions that the American taxpayers want. So I just ask for
your indulgence, 48 hours sooner than you did this time try to
get it. This hearing has been on for quite a while, and I would
just appreciate that help.
Mr. Johnson. You have my apology, and from our end, we will
do better.
Mr. Mok. Same here.
Senator Coburn. I am pleased to hear progress. I am still
confused how we can be making better progress in one program
that is State run, and we can't in other areas. And the
unemployment insurance is still way too high in terms of
improper payments, and most of that is overpayments. It is not
underpayments.
And tell me how, even though I know both of you are
dedicated to making these things happen, what can you learn--
for Mr. Mok. And actually, the question really is, is did this
really start in 1987, or did you all really start good
management 5 years ago or 4 years ago?
Ms. Combs really alluded to the fact that you all were
improving and had a lower error rate because it started a long
time ago. Not to question her word, but is that what happened?
Is that why you are where you are today and improving, or is it
because management things and management principles were
applied, and audit trails were followed, and programs were put
in place to actually lower this?
Mr. Mok. I think Ms. Combs is right and what you said
earlier is right, too. I think there are many factors. We have
put together a program, which today is known as the Benefit
Accuracy Measurement Program, since 1987.
So in the 1970s, we had been requiring the States to report
statistics to us. In 1987, we have this program that we measure
and assess. So we have a history of collecting data and trying
to collect some of these overpayments. But I will also say that
since President Bush came into office, with the PMA and other
initiatives, there is a culture to get this overpayment
recovered and also eliminate overpayment to the best of our
ability.
At the Department of Labor, I am also very fortunate
because under the leadership of Secretary Elaine L. Chao, she
is a Harvard MBA. She understands finance. She also inherited
the United Way after its fiasco, financial crisis. So she
understands very well that if you don't pay attention to
financial management, horrible things can happen.
So my office receives incredible support from her and my
contemporaries to effect a good program to live up to President
Bush's promises to reduce improper payments, and we have an
excellent working relationship with the States and also
excellent working relationship with other assistant
secretaries, primarily because of the culture fostered by
Secretary Chao to go after these problems.
So it is really a foundation that I have been fortunate to
inherit, and we are able to leverage that. And also the
stability of the management team helps. Because the Labor
Department, again under Secretary Chao, has probably one of the
most stable management teams.
I am currently the longest-serving CFO in the history of
the U.S. Department of Labor. So I learn from my mistakes, and
so we are able to do some good things there.
Senator Coburn. That is great. Well, what you are saying is
leadership really matters?
Mr. Mok. Yes, sir.
Senator Coburn. And what the President has instituted is
really going to matter, and the key is, is it carried down? Mr.
Johnson.
Mr. Johnson. Let me discuss TANF because that has been
maybe our most difficult to penetrate and get a national error
rate.
I was formerly chief of staff to now Secretary Leavitt when
he was governor of the State of Utah. And of course, the TANF
program had a couple of provisions. You were able, by design,
to use that money in a manner that would best fit your State.
And it was sort of a hands off from the Federal Government and
hands on by the State.
I can tell you that in our State, and I suggest probably in
every State, that they are also working hard to reject and
eliminate improper payments. We have a data survey out to them
asking them, ``What are you doing in your individual State?''
We will compile those. They will be on a Web site as a best
practices.
We are trying to get at this in another way. And yes, I
guess we could as a public policy decide, look, the flexibility
that we have given the States on design of the program and on
the amount of data that we can request from them, we could
legislate that and, of course, get all the cooperation that we
needed through legislation.
We are trying to work at it in a different method, and
maybe we are wrong. Maybe we need to revisit that. But we would
be happy to work with you on that issue.
Senator Coburn. Are you having trouble getting cooperation
from the States?
Mr. Johnson. Well, they are cooperative in telling us what
they are doing. But if you ask them to spend some money--and
all of these things take money--and to get a statistically
valid rate, then, yes. There is some resistance.
Senator Coburn. So let us go back. Your oral testimony was,
I believe, with TANF in one area, where you are running a
demonstration project, hooking up----
Mr. Johnson. We are doing the matches, yes.
Senator Coburn. You are doing the matches?
Mr. Johnson. Yes.
Senator Coburn. And of the 30 percent that you looked at
that was not accurate, 81 percent of that actually were
employed?
Mr. Johnson. And that is in the District of Columbia.
Senator Coburn. That is here in Washington, DC?
Mr. Johnson. Yes. So I don't say that is representative.
Senator Coburn. Well, I am not going to generalize that,
but I am just saying here is one where it looks like you have
24 percent improper overpayment on TANF?
Mr. Johnson. Right.
Senator Coburn. And what is the total payments for TANF for
a year in this country?
Mr. Johnson. I think $17 billion, if someone can help me?
Senator Coburn. $17 billion. So let us say that it is not
24 percent. Let us say it is 8 percent. It is a billion dollars
a year.
Mr. Johnson. Right.
Senator Coburn. Tremendous amounts of money. Well, what I
would like, Mr. Johnson, is for you to give to this
Subcommittee any suggestions that you might like to see that
would tend to incentivize the States to be much more
cooperative in terms of improper payment because if the States
really won't be cooperative with you and yet you are being
hammered by us, then it is up to us to give you the tools to
get the information.
Mr. Johnson. Yes. And I do think that they are incented
when we give them these data matching programs. They are
incented to use those because that is to their benefit. But
that doesn't translate to a national error rate calculation. We
can give you the results of all of that, and I think you get
the same benefit. But if you want exact compliance with the act
and a statistically valid error rate, that is a different
issue, and we are trying to do both.
Senator Coburn. How about for Medicaid? You got an FMAT
match on administrative cost. What do they get, $8 or $9 for
every dollar they spend?
Mr. Johnson. Not that high, but----
Senator Coburn. OK, $6 or $7 for every dollar they spend on
administrative costs from the Federal Government. The point is
you would think that they would gold mine that to get you the
data.
Mr. Johnson. Now on Medicaid, it is true these contracts,
they are cooperating. They are paying part of the contractual
price, yes.
Senator Coburn. So the real problem is not a problem on
SCHIP and Medicaid?
Mr. Johnson. No, that is not the problem.
Senator Coburn. The problem is on TANF, children's care?
Mr. Johnson. Yes. And again, we think we may have that
solved. But TANF is going to remain our most difficult program
to get a statistical measurement.
Senator Coburn. And there is a good guess that there might
be a billion, at least a billion dollars a year there? Well, if
you take a third of what is happening in DC.
Mr. Johnson. Sure. Right.
Senator Coburn. And you say Washington, DC is three times
worse than the rest of the country, on average, you get a
billion dollars. And if it is only two times worse, you get a
billion and a half.
Mr. Johnson. And I think that is why we are getting these.
As we put out these matching programs, we are getting reports
back from the State--again, State reporting----
Senator Coburn. Right.
Mr. Johnson. That they are saying, yes, it is millions of
dollars that they are saving individually. We can compile all
of that.
Senator Coburn. Do all of the States have this now?
Mr. Johnson. They have access to it.
Senator Coburn. How many of them are not using it?
Mr. Johnson. Well, 34 States are. So 16----
Senator Coburn. Sixteen are not.
Mr. Johnson. If my math is right.
Senator Coburn. Your math is usually right. It is not what
we want to see all the time, but it is usually right.
Senator Carper.
Senator Carper. Thanks so much, gentlemen. Good to see you.
And Mr. Williams, nice to see you again.
Mr. Williams. Thank you.
Senator Carper. You just got yourself a permanent seat
there, don't you?
Mr. Williams, let me just start off with you. Any
observations you would like to share, sort of reflecting on the
testimony and responses of our other two witnesses?
Mr. Williams. Yes, not only the other two on this panel,
but on the previous panel. I think that one of the things that
I did in preparing for this hearing was to realize that I am
looking at agencies across the government, and I am not an
expert in all of these agencies. So I talked to some of our
experts and made sure I got as much information about these
various programs.
And the feedback that I got from our experts is consistent
with some of the things that I have heard today as far as what
the Congress can do to help out, and that relates to
simplification of some of the processes. That really could be
of benefit.
Senator Carper. Could you give us maybe an example of that?
Mr. Williams. I think when we were talking about the earned
income credit. In talking to our experts, one of the things
that they pointed out to me was that while the tax code is
complicated, their thinking was the section that related to the
earned income credit was probably one of the more complicated
sections of the code.
And to take that a step further, a lot of people that
qualify for it might not have the most education and is aware
of how to go about filling it out. So that is something that
you might want to take into consideration when you are looking
at simplification of a process. That is one thing that they
pointed out to us.
They also pointed, and I have testified to this over the
years, and that is when you are looking at these various
programs, you definitely want to take into consideration cost-
benefit factors. And I think there was a lot of discussion
about that today. And I would concur with those statements that
the way I like to put it, why would you spend a dollar and one
cent to get back a dollar. So I would concur with those
statements.
Most recently, there was a statement that was made about
are we better off in some programs than others because we have
been working at this longer? I could take HHS as an example. If
you look at the reporting that is going on under Medicare, this
process started back in 1996, when the IG began taking a
sample.
And as recently as last year, you can see that they are
still making refinements to it and that we have had the
discussion today that the number dropped down because of better
reporting of the documentation that is coming in from the
medical providers.
So I think you would have to conclude that it does take
time in some of these programs. That might be one of the
reasons why some of these programs are showing not reporting
instead of having an amount.
So I think with time, and I think we all would agree that
people are working hard at trying to address this issue, and
there are various things that are going on. Because as I read
through their various performance and accountability reports, I
saw numerous examples of various matching concepts that have
been put into place and things along this line that should help
reduce some of the improper payments that is occurring in the
Federal Government today.
But in conclusion, I also want to point out that $38
billion is still $38 billion, and we still don't know today
exactly what that number is in total based on the reporting
that I have seen up through fiscal year 2005. Thank you.
Senator Carper. Good. Thanks. You mentioned people are
working hard. Are there any folks out there that aren't working
hard enough that you know of?
Mr. Williams. None that I know of. [Laughter.]
Senator Carper. All right. I was out on a phone call here
for a minute, and I missed a part of the testimony of two of
our witnesses. I was trying to watch it on TV in the anteroom
here and do my phone call as well and probably didn't do a good
job with either of them.
But I came in and I think I heard the Chairman talking
about these programs where the Feds partner with the States and
maybe the States administer the programs and where I think
Medicaid might have been an example of one of those programs
where we still haven't been able to get our arms around the
improper payments problem.
I think I heard some discussion about incentivizing the
States to cooperate more. It reminded me a little bit of a
conversation we had in another hearing where I think we dealt
with real property management, and we were looking at, I think,
the Veterans Administration, where they are actually doing a
much better job than some of our other agencies in handling
their property management because they have an incentive to do
so.
Let us come back to the issue and programs that either of
you partner with the States, in other words, on UI or Medicaid.
And just talk to us about, let us say you are a governor or a
State legislator, what incentives are we providing the States
to partner with us in reducing the improper payments? Why
should the States want to help us on this, aside from being the
right thing to do?
Mr. Johnson. Yes, and as a former governor, you know that
States do want to do the right thing, and they do have a vested
interest.
Senator Carper. I know in Delaware and Oklahoma they sure
felt that way. I can't speak for some of those other States.
Mr. Johnson. The issue then is whether or not the
incentives just to do the right thing is all that it takes. And
with respect to Medicaid, we think now that the States have
entered into a contract, joint contract--they are paying their
part, we are paying our part--and we do think we have a
solution there.
We have just introduced these matching programs just
recently. But our success factor then in getting States to sign
up has been rather astounding. So they can see the benefit of
using these matching programs to find errors because if you
take TANF or the child care, the benefit comes right back to
them, right back to the State.
But again, those work and those are dollar savers. It just
doesn't get us to the technical statistically valid national
error rate. And so, I look at it from a cost benefit, I think
we are doing a lot of the right things. And getting to this,
the technical, we are eliminating errors, and we are
eliminating fraud and abuse, but we are missing somewhat
getting this technical requirement down.
And I know we have to obey the law, and we intend to. But
in the meantime, we are trying to save dollars.
Senator Carper. For a State, their incentive on TANF, the
large States don't have enough money in their Temporary
Assistance for Needy Families. They have a waiting list for
child care.
Mr. Johnson. Yes.
Senator Carper. So what they need to do is to stretch the
dollars. And so, the incentive for them is if we can ferret out
an improper payment, then there is more money in their
allocation to use for the needs that need to be met. That is a
pretty good incentive.
Mr. Johnson. That is a very good incentive. Where it breaks
down is if you say, ``I would like you to spend some of your
administrative dollars to do some statistical sampling that
will give us a national error rate.''
They are saying, ``I like the matching program. I like
that. I can see direct benefit of that.'' It gets a little more
distant when you start asking them to get some statistical
sampling so it will help the Federal Government get a national
error rate. And so, I understand that.
Senator Carper. All right. One more question, if I could,
Mr. Williams, to ask you to talk about the controls, I guess I
would say controls against waste along the Gulf Coast with
respect to the recovery, and your confidence or lack of
confidence that FEMA can set up a system to prevent waste
during a disaster? Anything you could offer us on that?
Mr. Williams. Well, one of the things that I would like to
point out, first of all, is that if you look at the event from
a timing standpoint, if you are looking at the 2005 reports
that the agencies have put out, the events took place very
close toward the end of the fiscal year.
So from an improper payment standpoint, if there are
several major impacts in the improper payments area, it will
probably show up more in the 2006 financial reports than the
2005 because you only had about a month, month and a half.
We have always had concerns about internal controls, and
when you look at audit reports in which an agency had 10
material internal control weaknesses, they had two reportable
conditions, and they had seven noncompliance with laws and
regulations. And one of those noncompliance issues related to
not being compliant with the improper payments act.
So that raises an antenna right there, and I would suggest
that in an environment like that, you would want to have every
resource possible working in your favor to put internal
controls in place so that you can prevent improper payments
from occurring, as well as having procedures in place to detect
improper payments.
I like to look at it from the standpoint of putting
procedures in place to prevent the horse from getting out of
the barn, but once the horse gets out of the barn, you need to
have something, and those are my detectable controls. So you
would want to see as much of those in place as possible when
you have an area that has that number of material weaknesses,
noncompliance, reportable conditions.
It would be an area in which not only would you want to
look close at it, but you would want to make sure that you have
good oversight, good communications, and I think that was the
thinking of the Congress when it passed the Department of
Homeland Security Financial Accountability Act, was the
Congress was trying to get involved in this process to make
sure that there was a structure in place that would highlight
some of these issues, would put strong management in place at
the organization.
I think the statute had some specific requirements as far
as the chief financial officer at the agency. That they would
be confirmed by the Senate, that they would have certain
experience, extensive experience in accounting, budgeting,
financial systems. And I think that was the thinking along that
line, and I would encourage anything that the Congress can do
in going forward to assist the agency in any way possible to
make sure that these procedures are put in place because there
is a susceptibility to risk, based on the reporting that we
have seen from the auditors at the agency over the years.
Senator Carper. All right. Good. Thanks so much.
And Mr. Chairman, thanks for being so generous with the
time.
Mr. Williams. Could I add one more point? Without going
into any details, I would just like to make the both of you
aware of the fact that I currently have an assignment under way
in which I am basically looking at what things are going on in
this area with the States, what needs to be done from a State
perspective in order to try to address the issue of improper
payments, given the fact that the States play such a large role
in this particular issue with grants in the neighborhood of
$400 billion a year.
And we are in the latter stage of gathering that
information, but I just wanted to make you aware that we are
looking at that, and we are looking at issues such as what can
the Federal Government do? What can OMB do? And things along
this line to address any communications issues, things that
could be done to improve the link between the Federal
Government and the States in some of these programs that we are
talking about today.
Senator Carper. I don't think we would be interested, do
you?
Senator Coburn. I have a couple of other questions. One is,
we started a brand-new program this year. It is called Medicare
Part D.
Mr. Johnson. That is correct.
Senator Coburn. What aspects of Medicare Part D had in it
so that we will know what the improper payment rate is? Is
there a program in it?
Mr. Johnson. Well, I think the Medicare Integrity Program
encompasses Part D. Part D, of course, will be a little bit
different from the standpoint that we are now going through
other insurance companies or, therefore, other providers. And
so, it will have a little less risk on that side because
someone else is setting premium rates.
Senator Coburn. I understand that. But here is my question.
Mr. Johnson. Yes.
Senator Coburn. With a brand-new program, knowing we have
an improper payments law, was there a component of that program
that said, here is this new multi-, multi-, multi-, multi-,
multi-billion program, was part of the design of that program
in its implementation a way to audit and report improper
payments?
Mr. Johnson. I have been given a note that says starting
next week, we are having discussions on that issue. But as of
now, we don't have anything in place.
Senator Coburn. OK, but you would agree----
Mr. Johnson. Oh, absolutely.
Senator Coburn [continuing]. That one of the things that
should have been in that rather than after the fact, design it
with the fact as a part of the program. And so, this is part of
the management agenda the President has to get ahead of. I
mean, if we have something new, then you have to meet the
requirements.
The other point that I would make is the improper payments
act may be hard, but it is the law. And I will tell you
personally I am not going to rest until every agency is
reporting on it accurately. And then if it cannot happen, then
the President and the Administration has an obligation through
OMB to come back to us and say this has to be changed, and here
is why because it is not achievable.
But to say it isn't going to happen, and we can't get it
done because it is hard to get done isn't an acceptable
response. I know it is difficult, and I don't doubt dedication.
I want to make sure you all understand that.
My communication to you is, I think, we have wonderfully
dedicated people, but I think we have to be thinking down the
road, and what the President is attempting to do through this
difficult process of changing bureaucracy, I think we are
seeing some good signs that we are seeing change. But one of
the reasons we are having this hearing is the pressure is going
to stay on, OK?
GAO reported that Department of Labor did not follow the
required format for recovery auditing included in OMB's
guidelines. Are you aware of that, Mr. Mok?
Mr. Mok. Yes, I am aware of that if you are talking about
the recovery audit, where the auditor is allowed to keep
certain percentage recovered. According to our internal
analysis and study, we do not see the cost effectiveness of
doing that because if you look at some of the programs that we
can apply it to, the amount is not there.
Senator Coburn. Right. You also reported that no improper
payments were noted from recovery auditing activities for 2005.
Is that correct?
Mr. Mok. That is correct.
Senator Coburn. And that recovery audit effort was,
therefore, unnecessary?
Mr. Mok. We do not see the need at this time. However, we
are continuously looking at that, monitoring that.
Senator Coburn. Yes. What do you find on that, Mr.
Williams?
Mr. Williams. That is consistent with your statement. You
have made an accurate statement. What I would point out in this
area is that if that is the conclusion now, that you need to
continue to monitor the process because things change as you go
down the road.
Mr. Mok. And that is our intent.
Senator Coburn. Well, let me once again thank each of you.
I am sorry for the late hour. I apologize for it. I thank you
for your dedication and your service. We will be back here in
about 6 months, doing this again, I will assure you.
You will have some additional questions. I would also ask
that you give us recommendations from your agencies that you
would like to see changed. I think Senator Carper and I have a
good handle on improper payments, and we can work both sides of
the aisle to try to get some of this stuff to happen.
You will be sent some additional questions, and we would
like a prompt reply on that, if we could.
Thank you very much, and the hearing is adjourned.
Mr. Mok. Thank you very much.
Mr. Johnson. Thank you.
[Whereupon, at 4:52 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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