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DISAPPEARING TAX DOLLARS; WHAT CHANGES

ARE NEEDED?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

OCTOBER 3, 2002

Serial No. 107–234

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DOUG OSE, California

ADAM H. PUTNAM, Florida

JOHN SULLIVAN, Oklahoma

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

BONNIE HEALD, Staff Director and Chief Counsel

DAN COSTELLO, Professional Staff Member

CHRIS BARKLEY, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on October 3, 2002 ............................................................................ 1

Statement of:

Antonelli, Angela M., Chief Financial Officer, U.S. Department of Housing and Urban Development ........................................................................ 45

Calbom, Linda, Director, Financial Management and Assurance, U.S.

General Accounting Office ............................................................................ 10

Martin, Jack, Chief Financial Officer, U.S. Department of Education ........ 56

Letters, statements, etc., submitted for the record by:

Antonelli, Angela M., Chief Financial Officer, U.S. Department of Housing and Urban Development, prepared statement of ................................. 48

Calbom, Linda, Director, Financial Management and Assurance, U.S.

General Accounting Office, prepared statement of .................................... 13

Everson, Mark W., the Deputy Director for Management, in the Office

of Management and Budget, prepared statement of .................................. 73

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 3

Martin, Jack, Chief Financial Officer, U.S. Department of Education:

Followup questions and responses ........................................................... 83, 89

Prepared statement of ............................................................................... 59

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 7

(1)

DISAPPEARING TAX DOLLARS; WHAT

CHANGES ARE NEEDED?

THURSDAY, OCTOBER 3, 2002

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:10 p.m., in room

2247, Rayburn House Office Building, Hon Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn and Schakowsky.

Staff present: Bonnie Heald, staff director; Henry Wray, senior

counsel; Dan Daly, counsel; Dan Costello, professional staff member; Chris Barkley, clerk; Ursula Wojciechowski, intern; David

McMillen, minority professional staff member; and Jean Gosa, minority assistant clerk.

Mr. HORN. I ask unanimous consent that the subcommittee hearing begin before completion of today’s full committee hearing.

I’m sorry that we can’t immediately go forward. We’ll do the best

we can. But the fact is, we’ve got a situation on the Floor where

votes are called about every 5 to 10 minutes. So I’m going to start

in on my opening statement until we have to go and cast our votes

again. We’ve already gone through this bit for the last five votes.

A quorum being present, this hearing of the Subcommittee on

Government Efficiency, Financial Management and Intergovernmental Relations will come to order. Today’s hearing is on the important subject of improper payments made by Federal agencies.

Each year, the Federal Government wastes countless billions of

dollars of the taxpayers on improper payments. Some of these payments result from fraud and waste. Others represent simply mistakes. No matter what the cause, improper payments are a chronic

problem that must be stopped.

These improper payments occur for a number of reasons. In some

cases, agencies lack appropriate approval structures. Sometimes,

the payments are simply not being monitored. And in some cases,

there is a widespread circumvention of agency rules and guidelines.

When an agency lacks proper controls to monitor payments, it promotes a rubber stamp environment in which payments are made

with little or no supporting evidence.

The General Accounting Office has found that the purchase card

problems at the Department of Education and the Department of

Housing and Urban Development suffer from a lack of adequate internal controls. HUD, the Housing and Urban Development departVerDate 11-MAY-2000 09:47 Sep 04, 2003 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\DOCS\88610.TXT HGOVREF1 PsN: HGOVREF1
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ment, was unable to provide the GAO, the General Accounting Office, headed by the Comptroller General, with an adequate support

for more than $2 billion in purchase card transactions during fiscal

year 2001. The Department of Education was unable to find over

$200,000 worth of computer equipment that employees bought

using their Government guaranteed purchase cards.

In addition to the purchase card problem, the General Accounting Office found that HUD’s multi-family program is extremely susceptible to improper payments. The GAO discovered that HUD had

made payments to multi-family property managers for services that

were never performed and for goods that were never received. The

GAO also determined that the Department of Education’s loan and

grant programs are at high risk for improper payments. The Departments could not provide adequate documentation for $8.5 million in grants that were disbursed over a 26 month period.

As alarming as these numbers are, they are only the tip of the

iceberg. The extent of improper payments in the Federal Government is unknown because Federal agencies are currently not required by law to estimate them. According to the GAO, the handful

of agencies that do report voluntarily estimate that they make improper payments of about $20 billion a year. And just today, the

Office of Management and Budget has given us an updated estimate of over $33 billion in improper payments for many of the

same programs.

I’ve introduced legislation, H.R. 4878, The Proper Payments Information Act of 2002, that will require nearly all Federal agencies

to begin measuring the extent of this problem. Enactment of this

bill would provide a major step toward addressing this wasteful

and abusive loss of taxpayers’ dollars.

Now I welcome our witnesses today, and I look forward to discussing some strategies to resolve this egregious problem. I now

yield for an opening statement to the ranking member, Ms.

Schakowsky, the lady from Illinois. I am going to go and vote.

[The prepared statement of Hon. Stephen Horn follows:]

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Ms. SCHAKOWSKY. Thank you, Mr. Chairman, for holding this

hearing. And I thank the witnesses for taking time out of their

busy schedules to testify today.

I have worked closely with the chairman throughout this Congress to highlight the lack of fiscal management in the administration. Most of our work has focused on the Department of Defense,

and it is clear that DOD is wasting public funds at an alarming

rate. I’m pleased that today we’re looking beyond DOD.

I believe it is important that we confront waste throughout the

Government. GAO has told us that the Department of Education,

since its original testimony in April, has made significant progress

in correcting the management failures in the purchase card program. HUD, however, continues to be more like the management

at DOD.

I believe these issues are important because dollars wasted by

the Government are dollars that are not available for the important programs within these agencies. However, even if we eliminate all of the purchase card problems at the Department of Education, there will not be enough money to fund Title I and Pell

Grants and all the other important education programs. We are

confronted with a more fundamental problem. There is simply not

enough money to fund the Government next year. This problem exists not because of the events of September 11, but because of

President Bush’s tax cut. Given the title of this hearing, Disappearing Tax Dollars, it seems fitting that we look at this important information as well.

On the easel is a chart that summarizes a study by the Congressional Budget Office. CBO looked at the deterioration of the surplus since last year, and concluded that the main cause for the disappearing surplus is not September 11, and it is not the Bush recession. The main cause of the disappearing surplus is the Bush

tax cut. The Bush tax cut has ended the brief period of surpluses

and returned us to massive deficits.

The second chart shows just how dramatic the change is. If Congress does not restore the fiscal restraint that characterized the

budget process during the Clinton administration, we face massive

deficits over the next 10 years. As most economists will tell you,

those deficits will have a chilling effect on the economy.

When President Clinton signaled to the world that he was serious about balancing the budget, it had an important effect. International investment began to flow into the U.S. economy and was

one of the engines of the expansion of the 1990’s. These deficits will

have the opposite effect, holding back the economy and taking a

toll on everyone. We have already seen that happening. Last week,

the Department of Commerce announced that the poverty rate was

up, and household income was down. The last time we saw poverty

go up and income go down was during the recession in 1991. The

tax dollars that disappeared because of the Bush tax cut are already having an effect on programs designed to help the neediest

of our citizens, some of which are at the agencies before us today.

The failure of this administration to follow through on its commitment to education is shameful. The President’s program, Leave

No Child Behind, was supposed to provide our children with the resources needed to obtain the best education possible. Instead, the

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President’s education budget for 2003 would stop 6 years of steady

progress and Federal support to local schools. The President’s education budget would reduce Pell Grants, eliminate funding for rural

education and technological training for teachers, resulting in

16,000 fewer teachers getting trained and 50,000 fewer children in

after-school programs. It is clear that in the President’s budget,

children are being left behind.

This afternoon, Ms. Calbom from GAO will testify about the

waste, fraud and abuse at the Department of Housing and Urban

Development. Quite frankly, I’m not surprised. I am dismayed at

the insensitivity of the leadership at HUD toward the people they

are supposed to serve. Last year, I introduced the Domestic Violence and Sexual Assault Victims Housing Act, which had bipartisan support, it does have, and over 100 co-sponsors. One of the

main provisions of that bill, funding for transitional housing for domestic violence victims, was included in the bill sponsored by

Chairwoman Marge Roukema of the Housing and Community Opportunities Subcommittee. The Secretary of HUD opposes these

provisions and argues that there are sufficient programs for these

victims. Why then does the HUD Commission’s evaluation of transitional housing programs find that among all people served battered women are the least likely to experience improved employment and stable housing?

If the Bush administration can turn its back on these victims, it

is not surprising that it turns its back on the financial management responsibilities at the Department. If financial management

is any indication of clear priorities, then I guess I shouldn’t be surprised.

As the chairman knows, I feel strongly about waste in our Government, because it steals money from those programs that are already under-funded. As the President leads our Nation on a path

toward war, financial management in his administration is actually

a national security liability. I commend him on his leadership on

these issues, and it has been a pleasure to work with him on the

subcommittee. While this isn’t the last hearing, I want to say, even

in his absence, I want to salute the chairman of this subcommittee

for his many accomplishments under his leadership.

Thank you. And I’m going to go vote, too. We’ll be back soon.

The subcommittee is at recess. Thank you.

[The prepared statement of Hon. Janice D. Schakowsky follows:]

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[Recess.]

Mr. HORN. We will need to have you take the oath, so if you

would stand up and raise your right hands.

[Witnesses sworn.]

Mr. HORN. Thank you.

The clerk will note that all three witnesses affirmed. And we will

now start from the witnesses in the order. You’ve been here many

times, Linda, and we thank you, Linda Calbom, Director, Financial

Management and Assurance, General Accounting Office.

STATEMENT OF LINDA CALBOM, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE

Ms. CALBOM. Thank you, Mr. Chairman. I’m pleased to be here

today to discuss the results of our improper payments reviews of

selected areas of the Departments of Housing and Urban Development and Education, and also to talk about some strategies these

and other Federal agencies can use to better management their improper payments.

Improper payments occur for many reasons, but the root causes

can typically be traced to a breakdown in internal control. This certainly was the case at both HUD and Education for the areas we

reviewed, which included purchase card transactions at both HUD

and Education, grant and loan disbursements at Education and

multi-family contractor payments at HUD. First, purchase cards.

We found, as you were mentioning, Mr. Chairman, that both HUD

and Education lacked fundamental internal controls over their purchase card program.

For example, neither agency had an effective review and approval process. While both had policies requiring supervisory review of monthly purchase card statements and supporting documentation, this process was not carried out effectively for 77 percent of our sampled transactions at HUD and 37 percent of our

sampled transactions at Education. Combined with the lack of

monitoring over these programs an environment was created at

HUD and Education where improper purchases could be made with

little risk of detection.

Inadequate controls over these expenditures, along with the inherent risk of fraud and abuse associated with purchase cards,

likely contributed to the $3 million of fraudulent, improper and

questionable purchases we identified at HUD and Education. The

bulk of these transactions, about $2.3 million, relates to questionable purchases at HUD from vendors such as Lord and Taylor,

Clean Cuts Music and the Cheesecake Factory, for which the agency could provide little or no supporting documentation.

We also identified over $1 million of likely split purchases at

HUD and Education. These are purchases that are split into two

or more transactions in order to circumvent the $2,500 micro purchase limit. Education has taken a number of actions to address

our recommendations we made to them regarding the problems

with purchase cards that we identified in our review. I’m sure that

you’ll hear about that in a few minutes. We will be making similar

recommendations to HUD in a forthcoming report.

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Controls were also an issue in Education’s grant and loan disbursements, which did not include a key edit check or followup

process to help identify schools that were disbursing Pell Grants to

ineligible students. Our test and followup investigation identified

four schools that fraudulently or improperly disbursed about $3.4

million of Pell Grants to ineligible students. We referred the results

of our investigation of these four schools to Education’s Inspector

General. We also identified 31 other schools that had similar disbursement patterns, and we have referred those to Education for

followup.

Now I want to talk a little bit about some of the problems we

found with contractor oversight at HUD. HUD contracts with two

property management firms to oversee the operation of its multifamily properties, including arranging for repairs, maintenance and

renovation. We found that one of these property management firms

regularly circumvented HUD controls by alleging that construction

renovations were emergencies, thus not requiring multiple bids or

HUD pre-approval, and splitting renovations into multiple projects

to stay below the $50,000 threshold of HUD-required approval.

HUD failed to comply with its own policies that require quarterly

onsite inspections and management reviews, and thus did not question these practices, which based on our review resulted in several

cases where HUD paid for work that was not performed. In one

such case, HUD’s contractor submitted falsified documents indicating emergency replacement of 15,000 square feet of sidewalk at a

cost of $227,500. The work was billed on five identical invoices for

$45,500 each, for replacement of concrete sidewalk in front of five

buildings.

With the assistance of an independent construction firm, we determined that only about one-third of the work billed and paid for

was actually performed. As an example, we brought a photograph

today, which I think is in your packet there, Mr. Chairman, that

shows the front of one of the buildings; the outlined portion is the

portion of the sidewalk that was actually replaced. The other portion that’s not outlined was billed for but had not been replaced.

As a result of this, for the work done at the five buildings, more

than $164,000 of the $227,500 billed and paid for emergency installation of concrete sidewalk appears to be fraudulent. The HUD OIG

and GAO Offices of Special Investigations are now investigating

this case, as well as other improprieties we found during our review of this contractor.

Mr. HORN. That insert will be in the record at this point, and it’s

HUD Improper Payments, $164,000 overpayment for sidewalk repairs.

Ms. CALBOM. Yes, thank you, Mr. Chairman. By the way, that

picture is also on page 17 of my written statement.

I’d like to shift gears just a little bit now and talk about some

of the things that HUD, Education and other Federal agencies can

do to comprehensively address their improper payments. Our executive guide, which is entitled Strategies to Manage Improper Payments, Learning from Public and Private Organizations, which was

issued last October, identifies strategies that other organizations,

both here and abroad, found effective in reducing improper payments. And it provides some case illustrations and other informaVerDate 11-MAY-2000 09:47 Sep 04, 2003 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 D:\DOCS\88610.TXT HGOVREF1 PsN: HGOVREF1
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tion for Federal agencies to consider when addressing improper

payments.

Again, we have another insert, Mr. Chairman, that I think is in

your packet, and we also have a chart here that really shows the

five key areas of internal controls which can be used to combat improper payments. As is shown in this chart, it’s a circular process,

and that indicates that it really is a continuous process that’s interrelated.

The first area, which is the perimeter, is the control environment. This really deals with instilling a culture of accountability.

Setting the tone at the top is critical in this area and must include

clearly communicating from the top the need for improved program

operations and changes in organizational culture. As the chart

shows, this area surrounds and reinforces all of the other control

areas.

The next area is risk assessment. This is determining the nature

and extent of the problem. It’s very easy to rationalize avoiding addressing a problem if you don’t know how big it is. And it’s just

critical that the problem be identified and measured through a systematic risk assessment process and openly communicated to all

relevant parties. Mr. Chairman, this is exactly what your bill calls

for. It’s absolutely key to this whole process.

Control activities are the next area. And that’s taking action to

address identified risks. Organizations need to tailor their activities to fit their particular needs. There’s a wide range of activities,

both high tech and low tech, that can be efficiently and effectively

used to address improper payments. Information and communication is the next area. That’s using and sharing knowledge to manage improper payments. An important part of this strategy involves

the education of agency employees, contractors and beneficiaries

about what is expected of them and the consequences of not meeting those expectations.

Finally, monitoring is tracking the success of improvement initiatives. Just putting control activities in place is not the end of the

process. Monitoring progress and results is essential and must include the involvement of top officials.

In closing, Mr. Chairman, I want to emphasize that high levels

of improper payments need not and should not be an accepted part

of running Federal programs. And I know that you agree with that.

The organizations in our study found that they could effectively

and efficiently manage improper payments, using the strategies I

just outlined that are discussed in detail in our executive guide.

While HUD, Education and other agencies have taken some steps

in these areas, effectively addressing improper payments requires

a comprehensive strategy that permeates the entire organization.

Implementation of this process in the Federal Government will not

be easy or quick, and it will take money. However, as shown in our

study, such investments ultimately pay for themselves in program

savings, and also produce large dividends in the form of renewed

public trust and confidence.

That concludes my statement, Mr. Chairman.

[The prepared statement of Ms. Calbom follows:]

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Mr. HORN. Thank you. The reporter will put in the Managing

Improper Payments through Internal Controls with the various

segments, control, environment, monitoring, risk assessment, information and communications, control activities, with the objective of

manage improper payments.

We will now go with the second witness, the Honorable Angela

M. Antonelli, Chief Financial Officer, Department of Housing and

Urban Development. Thank you for being with us.

STATEMENT OF ANGELA M. ANTONELLI, CHIEF FINANCIAL

OFFICER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Ms. ANTONELLI. Thank you, Mr. Chairman.

Mr. Chairman, thank you for the opportunity to appear before

you today to discuss HUD’s initiatives to identify and reduce erroneous payments. Every dollar that HUD pays in error is a dollar

that is not available to serve the intended low-income beneficiaries

of our housing and community development programs.

Improved financial performance, including erroneous payment reduction, is a key components of the President’s management agenda. HUD Secretary Mel Martinez and his leadership team are focused on meeting the President’s goals. I am pleased to report that

HUD is making real progress in strengthening internal controls

and reducing the risk of erroneous payments. And I applaud your

efforts, Mr. Chairman, to aggressively tackle this issue.

I am pleased to appear before you today with Jack Martin, the

CFO at Education, as well as Linda Calbom from GAO. As I’m sure

my colleague from Education will agree, GAO and its fine staff, like

Linda Calbom, have issued very useful guidance for more effective

management of erroneous payments by Federal agencies. The

GAO’s extensive audit work at HUD also has been instrumental in

identifying vulnerable areas in need of stronger internal controls to

reduce the risk of erroneous payments. My testimony today will

focus on two such areas reviewed by GAO.

Before I continue, I would like to request that my more detailed

written statement be submitted for the record.

Mr. HORN. I should have said in advance, it automatically goes

in the record once you are noted. All of that goes in.

Ms. ANTONELLI. Thank you.

I would also like to introduce two people who are with me. Behind me are seated Vickers Meadows, HUD’s Assistant Secretary

for Administration, and John Weicher, HUD’s Assistant Secretary

for Housing and the FHA Commissioner.

First, I want to discuss HUD’s efforts to reduce the risk of erroneous payments in its Government credit card program. I’ll first

start with our travel card to illustrate what I believe HUD can accomplish with strong leadership and an effective plan. This was a

good place for Secretary Martinez and his new leadership team to

start to create a culture of accountability at HUD.

When I became HUD’s CFO in mid-July 2001, HUD had a recognized payment delinquency problem in its travel credit card program. We took aggressive action that included staff training, travel

payment system improvements, and the use of salary offsets for

more egregious cases. We also began to produce monthly delinVerDate 11-MAY-2000 09:47 Sep 04, 2003 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 D:\DOCS\88610.TXT HGOVREF1 PsN: HGOVREF1
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quency reports that the Deputy Secretary distributed for followup

and action at monthly executive management meetings with all of

HUD’s assistant secretaries. I’m proud to say that action reduced

the monthly balance of delinquencies over 60 days and reduced it

by 96 percent.

In July 8, 2002, in the Federal Times, HUD and the Department

of Justice were reported as tied for first place with the lowest travel card delinquencies, with only 1 percent delinquent, versus a 6

percent Government-wide average. It’s clear HUD’s travel card

users now understand the rules and follow them with appropriate

management oversight to assure they do.

The story on HUD’s purchase credit card program is not yet as

good. But it will be. HUD’s Office of Administration administers

the purchase credit card program. HUD’s new Assistant Secretary

for Administration was not confirmed to serve in her position until

March 2002. She will provide leadership in this area. Earlier this

year, the Director of OMB requested all agencies to review the adequacy of their internal controls over purchase card use and establish remedial action plans to address deficiencies. Working with

OMB, HUD’s Office of Administration developed plans for stronger

program controls and increased oversight.

However, HUD’s GAO briefing on the results of their audit of HUD’s $10 million fiscal year 2001 purchase card activity disclosed

the need to strengthen controls and oversight immediately, and

we’ve begun to do so. Of particular concern was the GAO’s finding

on purchase card holders failing to maintain adequate documentation in support of their purchases. The Office of Administration has

initiated interim action to advise all purchase card holders of the

need to use a designated HUD form to clearly document a description of the purchase, the business need for the purchase and the

required approvals. Also, a staff person has now been assigned to

work exclusively on the internal audit functions of the program.

Failure to maintain required documentation and obtain required

approvals will result in the card holder’s loss of the purchase card

and possible other appropriate disciplinary action.

HUD staff will be fully accountable for the purchase card program activity and our goal is to establish a model purchase card

program in fiscal year 2003. I am confident we will achieve this.

The GAO also recently performed a vulnerability assessment and

audit of payments for contracted services for the management and

maintenance of HUD-owned multi-family housing property inventory. The GAO detected possible fraud. Pending conclusion of an investigation by GAO and HUD’s IG, HUD does not have complete

information at this time on the specifics of the GAO review, and

has been restricted in its ability to pursue any necessary followup

actions on the activities now under investigation. Nevertheless, the

Office of Housing is proactively analyzing its existing contract activity to determine if there are other, similar circumstances requiring immediate attention.

In addition, even before GAO’s reporting of the preliminary results of its review, the Office of Housing had already initiated several actions that would bring greater control and accountability to

the property management control activity. These actions are designed to collectively establish a strong quality control program for

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HUD’s existing property management contracts and new contracts

to begin in January 2003. The actions strengthen HUD’s oversight

of all property management contractor activity, as well as the property management contractors’ oversight of their own subcontractor

activity. Further details on these actions are provided in my written statement.

Mr. Chairman, HUD embraces the content of GAO’s October

2001 executive guide on strategies to manage improper payments.

As the GAO has referenced in recent testimony and reports to Congress, HUD’s current administration is already well underway, taking action and doing well to address erroneous payments in its

largest program area, rental housing assistance. Our rental housing assistance program constitutes over two-thirds of HUD’s budget

authority, with over $21 billion of expenditures in fiscal year 2001.

And in fiscal year 2001 financial statements we reported an estimated net annual housing assistance overpayment of $2 billion. We

will continue to improve these estimates. In addition, the President’s management agenda has set a goal for a 50 percent reduction in that amount by 2005.

HUD also will need congressional support to reduce the overpaid

housing assistance. As noted in the OMB testimony submitted for

the record, of particular importance is the need for statutory authority to perform computer matching with available Federal

sources of income data for use by HUD and HUD’s program administrator in correctly calculating housing assistance.

Mr. Chairman, HUD will continue to focus on reducing the risks

of erroneous payments in its rental housing assistance program

area, and to address other internal control deficiencies identified by

the GAO and our IG. In addition, we will increase the efforts of

HUD managers to assess erroneous payment risks in other areas

and to strengthen controls.

That concludes my remarks, and I would be happy to answer any

questions.

Thank you.

[The prepared statement of Ms. Antonelli follows:]

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Mr. HORN. Thank you.

We will now go to the Honorable Jack Martin, Chief Financial

Officer for the Department of Education.

STATEMENT OF JACK MARTIN, CHIEF FINANCIAL OFFICER,

U.S. DEPARTMENT OF EDUCATION

Mr. MARTIN. Mr. Chairman, and members of the subcommittee,

good afternoon. I want to thank you for the opportunity to discuss

the Department of Education’s progress toward improving financial

management, including the reduction of improper payments and instituting an improved culture of accountability. I would also like to

thank you for your continued efforts in helping Federal agencies

identify and address management problems and supporting our efforts to improve the overall efficiency and management of Government operations, particularly in the area of financial management.

The Department supports the need to effectively address the

issue of improper payments in the context of improving the overall

financial management of Federal programs. Recognizing the work

of the General Accounting Office, the Inspector General community

and others, the President’s Management Agenda initiative for improved financial performance specifically identifies erroneous payments as a critical problem that needs to be addressed by Federal

agencies. To insure a coordinated approach to erroneous payments

Government-wide, OMB, through the Chief Financial Officer’s

counsel, established an erroneous payments committee approximately 1 year ago. This committee’s membership is comprised of

staff from more than a dozen CFO Act agencies. The Department’s

Deputy CFO chairs this committee.

The President’s Management Agenda directs agencies to establish baselines on the extent of erroneous payments within the Federal Government. In their fiscal year 2003 budget submissions,

Federal agencies were required to include information on erroneous

payment rates in the form of actual rates, as well as targeted rates

of reduction for benefit and assistance programs over $2 billion.

For the first year of reporting, the Department of Education was

required to provide information on four program areas: Title I, special education grants to States, vocational rehabilitation grants to

States, and student financial assistance. We have established at

the Department specific annual targets for the reduction and/or

elimination of both the numbers and amounts of erroneous payments by 10 percent per year through fiscal year 2007. Secretary

Paige has assigned me the responsibility for establishing policies

and procedures for assessing agency and program risks of improper

payment, assuring actions are taken to reduce those payments and

reporting the results of the actions taken.

We have made much progress to date. In response to specific concerns raised in GAO’s recent audit reports, we have taken additional measures to strengthen our internal controls, including a 2-

hour internal control training course for all Department employees

and an 8-hour internal control course for all Department managers.

With respect to purchase cards, we have implemented new policies

and procedures to reduce the Department’s vulnerability to future

improper purchases. We issued a revised Procedures Directive in

January 2002 that provided instructions to card holders and to apVerDate 11-MAY-2000 09:47 Sep 04, 2003 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 D:\DOCS\88610.TXT HGOVREF1 PsN: HGOVREF1
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proving officials who are responsible for reviewing and approving

purchase card transactions.

We have trained all approving officials and all alternate approving officials in the new procedures and have increased the number

of approving officials and program officers where disbursement reviews were considered inadequate. We have accepted GAO’s suggestion and are conducting compliance reviews of a random sample

of purchase card transactions. As of September 30, reviews have

been conducted of all Department Program Offices at headquarters

and in all regional offices. A quarterly review is ongoing. These reviews will ensure that purchases are not above thresholds and that

there are no split purchases, that goods and services were properly

received and accepted, and that appropriate separation of duties

existed between the card holder and the approving official.

The Department has blocked more than 300 Merchant Category

Codes for purchase cards that are clearly not business related or

appropriately chargeable to a purchase card. In addition, computer

equipment cannot be purchased on a purchase card without the

consent of the Office of the Chief Information Officer and new policies have been designed to maintain control over the procurement

of computers and related equipment.

We also initiated data mining technology to proactively identify

potential improprieties in purchase card use and payments. By

January 2003, we anticipate expanding data mining to analyses to

identify potential improprieties in travel cards. We believe that all

of these efforts will be effective in eliminating the types of abuse

that GAO and the IG noted in our purchase card process.

But we can’t stop there. So we continue to communicate to our

employees and managers as well as our delivery partners the importance of these and future internal control initiatives.

Turning now to Federal Student Aid [FSA], GAO’s financial management audit report of the Program’s loan and grant disbursements found that four schools disbursed $3.4 million in Pell Grants

to ineligible students. While this represents a very small percentage of the FSA disbursements that GAO reviewed, the Department

recognizes the importance of identifying and correcting the underlying causes of internal control weaknesses that allowed these erroneous payments.

Thus, FSA has begun to perform various types of data analysis

to identify areas where problems may exist. Working with GAO,

FSA has adopted techniques to locate unusual concentrations of

students with particular characteristics, has determined what the

norm is for concentrations of such students and has begun to determine what constitutes abnormal concentrations which warrant further review. Cases where fraud and abuse are suspected are referred to the OIG.

FSA routinely conducts matches with the Social Security Administration to ensure that applicants have valid Social Security numbers. In fiscal year 2000, we enhanced our student eligibility edits

by matching information supplied on the application for Federal

student aid with the Social Security Administration’s dead file to

intercept attempts to secure Federal funding using a false Social

Security number. In addition, the Department’s Central Processing

System [CPS] performs pre-screening matches to ensure that appliVerDate 11-MAY-2000 09:47 Sep 04, 2003 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 D:\DOCS\88610.TXT HGOVREF1 PsN: HGOVREF1
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cants who are in default on Federal loans or who owe over-payments of Federal grant funds do not receive additional funds.

Hundreds of millions of dollars of potential improper payments

a year are averted because of these matches. The Secretary has set

as one of his highest priorities the goal of getting the student financial assistance programs off the GAO list of high risk programs.

But to do that, we need Congress’ help. In 1998, as part of the reauthorization of the Higher Education Act of 1965, Congress authorized a data match with the Internal Revenue Service on student aid applicant data. However, because return information may

not be disclosed to third parties unless authorized by the Internal

Revenue Code of 1986 itself, the match described in Section 484(q)

of the Higher Education Act could not be implemented. Section

6103 of the Internal Revenue Code must be amended to allow for

this critical verification.

In early June 2002, Treasury informally provided draft legislation to the Joint Committee on Taxation for technical review that

would address this issue. The Director of OMB and the Secretaries

of the Treasury and Education formally transmitted the proposed

amendment to Congress on August 9, 2002. Staff from Treasury

and Education are currently identifying and agreeing on processes

and procedures to support the match once authorized, including

necessary followup with applicants and schools in a manner that

will protect the privacy of the taxpayer in accordance with the proposed legislation.

Implementation of the proposed data match between the Department and IRS has the potential to ultimately eliminate over $300

million in erroneous payments in the Federal Pell Grant program

each award year. I urge Congress to consider this proposal in the

near future.

I believe our efforts thus far demonstrate our firm commitment

to address the overall problems of improper payments and to complete necessary improvements in the administration of the Department’s programs. They have strengthened internal controls

throughout the Department. We are actively monitoring the use of

purchase cards and analysis of travel expenditures. In our student

financial assistance programs, we have a very clear focus on integrating systems, maintaining critical accountability while improving customer service, demonstrating a balanced yet accountable

school monitoring approach and addressing quickly suspected

anomalies in the payment of funds to recipients.

We will periodically report on our progress in reducing erroneous

payments to OMB and the Congress, as well as announcing any future plans for controlling improper payments.

I would like to close by saying that our management improvements have clearly put us on a very positive course toward our goal

of becoming a model agency of management and program excellence. I have come before you today with confidence to assure you

that corrective actions are being well targeted throughout our Department.

This concludes my testimony. I will be happy to answer any

questions you may have.

[The prepared statement of Mr. Martin follows:]

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Mr. HORN. Thank you very much.

We have a statement to put in the record by the Honorable Mark

W. Everson, the Deputy Director for Management, in the Office of

Management and Budget. Without objection, that’s put into the

record.

[The prepared statement of Mr. Everson follows:]

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Mr. HORN. So we will move now to go to a few questions. It

seems like things are improving, thank heavens.

Questions for Ms. Calbom, how would you characterize the responsiveness of these Departments to your requests for documentation concerning questionable purchase card transactions?

Ms. CALBOM. Education was very responsive in the work we did

there. That’s been, I guess about a year or so ago when we started

our work, or maybe 18 months ago. We actually got all but about

I think maybe 1 or 2 percent of the information that we asked for.

At HUD, we had a little more difficulty in getting the information that we needed, and that would be the support for transactions. I believe it was about 68 percent of the dollar amount of

transactions that we asked for support for HUD was not able to

provide. So we did have a little more difficulty. And just in general,

there was, I think, a more cooperative spirit at Education. I think

that is part of why you’re seeing the differences in levels of documentation provided.

Mr. HORN. When you look at these various types of line of years

going back probably 50 to 100 years in some cases, and HUD and

Education, it’s a newer agency, what was the role of the Inspector

General in all the cases that you looked to them, and is a good part

of the documentation put up by the Inspector General or what?

Ms. CALBOM. Actually, the Inspector General didn’t have any role

at all, typically, in providing the documentation, unless there happened to be transactions that their employees entered into. We

pretty much dealt with either the CFO office or the program offices, in the case of HUD, to come up with our documentation. The

Inspector General played a role in both agencies when we referred

certain items to them for further followup and investigation.

Mr. HORN. And did that happen?

Ms. CALBOM. That has happened and is happening now, yes.

Mr. HORN. Are there any agencies you can name that they might

serve as examples of best practices for reducing improper payments?

Ms. CALBOM. I think there are agencies where pieces of the agencies would serve as good examples for reducing improper payments.

And of course, that’s what your bill is trying to get more and more

people to do. And actually, HUD has been one of the agencies, for

their rental assistance programs, where they have been measuring

the payments. And that, is key because you’ve got to know how

much the problem is before you can figure out how many controls

you need to put in place, and how much money you need to spend

addressing the problem.

Also, Social Security Administration has been one that’s been

doing a fairly good job in measuring the improper payments and

taking a lot of good actions in trying to address the improper payments in their big programs. Also, we do note in our executive

guide, there are several States, actually, that have done an excellent job, Kentucky, Illinois and Texas are three States that we talk

about in our guide that do a lot of data matching and that kind

of thing, and some real good monitoring on their improper payments.

So there are a number of agencies that are doing some things.

What isn’t being done is really an across the board program that

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has all of these components that I talked about, so that there is

really a program that permeates entire organizations.

Mr. HORN. It was noted, Mr. Martin, that Education is missing

a high number of computers acquired with purchase cards. Would

you please elaborate on this, and also on your comment that there

are indications of similar problems at HUD?

Mr. MARTIN. I didn’t comment, Mr. Chairman, that there were

similar problems at HUD.

Ms. CALBOM. I could comment on that, after you answer the

original question.

Mr. MARTIN. We have implemented a new fixed asset inventory

management system. I think that system should be fully implemented by the end of December. We have inventoried all of our

computer equipment. I think practically all of that equipment has

been accounted for.

Mr. HORN. Well, give me an idea of that. Is this a GS–9, a GS–

12, 13, whatever, to supervise it?

Mr. MARTIN. That’s conducting the inventory?

Mr. HORN. Yes.

Mr. MARTIN. We are using an outside contractor to conduct the

inventory, and we do have probably GS–12s and 13s working with

that contractor to help facilitate the completion of the inventory.

Mr. HORN. How long will that contractor be doing that?

Mr. MARTIN. The contractor should be wrapped up, Mr. Chairman, I would guess. I can get you an absolute date if you require

that. But I think the contractor should be——

Mr. HORN. Tell us who it was, tell us how much it cost, how long

will they be around, etc. And that will go at this point in the

record.

[The information referred to follows:]

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Mr. MARTIN. OK. They should be complete, I think, by the end

of November, no later than that. And I will get you the name of

the contractor and——

Mr. HORN. How much they’re getting paid and how long and for

what.

Mr. MARTIN. OK. I will provide that information.

Mr. HORN. Because you know, these contractors come in, they go

out and you do it for one audit, and if you don’t do that, the whole

thing goes back.

Mr. MARTIN. I think at Education we’re very sensitive to that

problem.

Mr. HORN. The question is, if they’re really a fixed asset, as you

say, we’ve got to have some sort of structure in there so it doesn’t

come every month, every quarter, every half year, every budget

year, and have to have all this be spread out again.

Mr. MARTIN. The system that we’re implementing will track our

purchases and disposals, so that we will have good balances that

we will be able to use in our financial statements.

Mr. HORN. You indicated something earlier—would you please

elaborate on not just the computers, but what else a person can use

with not thinking about it, and did any of them come from their

own personal life that they want to do it with that Government

card, and did you find much of that?

Mr. MARTIN. Mr. Chairman, I’m not quite sure I understand the

question.

Mr. HORN. Well, let me give you an example. We started in on

this in the U.S. Navy in San Diego. It was unbelievable. I mean,

hundreds of people were out spending the taxpayers’ money. And

we want the U.S. Attorney to move in on them. So fraud is what

we’re talking about. And we ought to be serious about it.

So in one case down there, one of the worst, the Navy somehow

palmed that person off here in the Pentagon, in the Army. I

couldn’t believe it. I said, what kind of idiocy is this. Senator

Grassley and I sent a letter several months ago to Secretary Rumsfeld, we gave him about 800 names. You can start going to them.

And he was just livid. He’s got a task force over in the Pentagon

now, the Secretary is beginning to move very quickly and quietly

and try to get the message to everybody, ‘‘Hey, this is important,

do something about it.’’

So I’m just curious, what’s your strategy, and whether it’s one

person or ten people or something, is it worth doing?

Mr. MARTIN. We just implemented a table of penalties that applied to any employee that is discovered to be using either travel

cards or purchase cards improperly. I think right now we’ve identified, since 1999, there are 58 employees that have been subject to

formal disciplinary action as a result of mis-use of travel cards.

And we have another 38 recently that we are reviewing with no actions concluded for mis-use of purchase cards.

So in any case, the penalties have been communicated to the employees. They have been essentially reviewed with our union representatives, and the union has agreed to our table of penalties. We

are vigorously enforcing penalties where there is any indication of

mis-use of travel or purchase cards.

Mr. HORN. What are the types of sanctions?

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Mr. MARTIN. They can range from a temporary suspension of the

use of the cards to termination from the Department. And that’s

the range that’s shown in the table of penalties.

Mr. HORN. Has anyone been put out of the Department?

Mr. MARTIN. I believe one person has been terminated, Mr.

Chairman, and I will get that information to you.

Mr. HORN. It will go at this point in the hearing.

[The information referred to follows:]

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Mr. HORN. Now, Ms. Antonelli, you’ve got a handful, no question

about it. Of all of these agencies, that’s why you’re there, and that’s

why Congress has put in Inspectors General and the Chief Financial Officer, the Chief Information Officer, all of them are very important. They can’t just sit in their office, they’ve got to go and find

out how this system works in HUD or Education or Agriculture,

whatever it is.

So what can you do to educate us as to what’s happening, so we

don’t have to go through this every year?

Ms. ANTONELLI. Well, in the time that I’ve been at HUD, and the

example that I presented on the travel card, I think there’s a tremendous amount that we can do, in my opinion, in a relatively

short period of time to address many of the issues that have been

raised by GAO. I believe we’ve already taken significant steps to

tackle the two specific issues that GAO has raised today with respect to its work at HUD.

In the case of the purchase card program, we will be doing many

of the similar things that we had done in the case of travel cards.

I do believe that by the time 1 year from now, if you are asking

us about what we’ve done at HUD in terms of our purchase card

program, I’m confident that we will be able to come back to you

with a very positive story. Because this kind of issue, along with

any of these other types of financial management issues, are a very

high priority for Secretary Mel Martinez to address.

It is given monthly attention within the Department. All the assistant secretaries are fully engaged. They will be receiving reports

on people in their program offices who hold these purchase cards,

what levels they’re approved for use of a purchase card. There will

be training of staff who have purchase cards. In instances where

we discover abuse of the use of purchase cards, we will take appropriate disciplinary action. As in the case of travel cards, we are reviewing the policies and procedures that are in place. We will review the course of disciplinary actions that can be taken to make

sure they are in place, and that they are communicated clearly to

staff. And again, to the extent that we identify problems, we will

take appropriate action.

I believe that we can address many of the concerns. Documentation we’ve already taken steps to address. The splitting of purchases is another area where, to the extent that we more adequately train card holders as well as approving officials, review

who the card holders are, review who the approving officials are,

we should be able to more effectively, through training, identify

who these officials should be, and through the use of automated

systems, through working with Bank One that manages the purchase cards, be able to make significant steps to identify in real

time as opposed to the paper and manual reporting that could take

as much as a month or more, more quickly identify these kinds of

problems when they occur.

We were all very disturbed to see what GAO had uncovered.

Again, I believe that I speak not only for myself but for the Secretary and my colleagues, the assistant secretaries, that we take

this very seriously and will move very rapidly to address it.

In addition, GAO has said that it has reviewed our remediation

plan, it still thinks that it can be improved. We agree, and we will

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continue to work with GAO and with OMB and the IG in the days

and weeks ahead and look for their additional feedback and assistance to further strengthen our remediation plan that we will aggressively implement in 2003. We would be more than happy to report or submit that plan to the committee once we have the feedback and agreement from all parties that they feel comfortable

with that plan.

Mr. HORN. You mentioned the assistant secretaries. It rang a

bell with me. How is the management situation in HUD? Does it

work with a weekly or monthly deputy secretary and in the room

are the assistant secretaries?

Ms. ANTONELLI. That’s correct.

Mr. HORN. And any under secretaries floating around?

Ms. ANTONELLI. Deputy assistant secretaries do attend those

meetings as well. But it has been a priority from as long as I’ve

been there, day one, with the Secretary and the Deputy Secretary

that communication and making sure a culture of accountability is

established, that it permeates the organization, is a very high priority. And those monthly meetings are a very good vehicle for the

Deputy Secretary to communicate these types of concerns fairly

rapidly to the senior team. And the senior team works very well

together and in turn works with their staffs to address these kinds

of issues.

So we’re very happy and we’re committed to seeing the type of

improvements we saw in travel cards with purchase cards as well.

Again, I’m very confident that we can achieve that same level of

improvement in a very short period of time.

Mr. HORN. Well, I hope it works. What happens to the employees

in your Department that if they are caught using their cards in

properly, in other words, what are the types of penalties? We’ve,

I think, gone with that.

Ms. ANTONELLI. I think the penalties that Education, that Mr.

Martin had mentioned, are not dissimilar from the ones that we

would employ at the Department of Housing and Urban Development. Anything from reprimand to dismissal from the position, depending on the severity of the offense. In the case of travel cards,

for example, early on we discussed, we sat down internally with

our general counsel, asked for them to review the procedures, the

disciplinary actions that were currently on the books to make sure

that they were satisfactory, whether or not they needed to be

strengthened. Our general counsel had reviewed it, said those were

satisfactory. To the extent we identified problems, we could then

take those actions.

We have not, to my knowledge, dismissed anyone at this time.

But certainly to the extent that we have some problem in the future that we identify, I can assure you that we would be aggressive

in addressing it.

Mr. HORN. Well, do you find that the assistant secretaries really

care about this and under them are the real working bit of HUD

or Education or Agriculture, whatever, and the question is, you can

talk about it at the top and it doesn’t mean a thing because you’ve

got 12 different layers and several thousand people. So how are you

going to get to that? It really takes the Secretary, the Deputy Secretary, to go after it.

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Ms. ANTONELLI. Well, another way that the emphasis on improved financial performance is communicated throughout the Department, we have these monthly meetings led by the Deputy Secretary. Our Deputy Secretary and Secretary, unlike previous Secretaries and Deputy Secretaries, have made working with our field

offices a very high priority, making it one Department, not headquarters versus field, but an integrated Department. Many of these

monthly management meetings that we have don’t simply focus on

headquarters. Every month they then go out to the field and meet

with the field and communicate these messages to our field offices.

Our Secretary and Deputy Secretary have, to the best of my

knowledge, pretty much been to every region, probably more than

once, to probably almost every field office. So it’s very important

that these messages are communicated, not just by the assistant

secretaries, the Secretary and the Deputy Secretary, in headquarters, but two-thirds of our Department is in the field. They are

using these purchase cards. This kind of message gets carried out

to the field on a regular basis. These management meetings are

done not just in headquarters, but in the field.

Mr. HORN. Well, besides e-mail or whatever, do you ever swap

between field and Washington for a day or two, so they understand

what a region does? Because often people don’t, believe it or not,

they just don’t know. Because that’s been their career, a lot of the

career people just remain in Washington.

Ms. ANTONELLI. Right.

Mr. HORN. And that’s where part of the problems are. Are we

getting people back and forth so they know what everybody’s doing

and why?

Ms. ANTONELLI. I believe that has very much been a message

that’s been communicated by the Secretary and Deputy Secretary.

Again, that the field cannot be forgotten, it is an extremely important part of the ability of the Department to execute its programs

and our ability to manage those programs well. So everything that

we’re talking about here in terms of improving financial performance, the issues of erroneous payments, is a message that’s not carried just in Washington, but it is carried to the field. And an effort

to have the folks in Washington get out to the field and see what

is being done in the field, where they are really where the rubber

hits the road, and the execution of our programs, and similarly our

field folks certainly come into Washington.

Mr. HORN. In order to, and this is directed at both HUD and

Education, the order to manage the problem of improper payments,

you must first understand the size of the problem . In the future,

how do you plan to measure the amount of improper payments that

your Departments are making?

Ms. ANTONELLI. In the case of HUD, our rental housing assistance area, one of the areas that’s identified as high risk by GAO,

it is by far the largest area of expenditure in terms of HUD’s budget. We have the $2 billion estimate of erroneous payments. That

has been a very, very, very high priority for this Department, this

administration, to continue to improve those estimates. We will do

another estimate, re-estimate, in 2003 of the extent of the subsidy

overpayments, under-payments, net overpayment in the rental

housing assistance area. We have a very detailed plan of action

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that we’ve developed to reduce those overpayments. We have a 50

percent reduction target by 2005. We have interim targets, we hope

15 percent in the next year, 15 percent in 2004, and then ultimately 50 percent by the time we reach 2005.

The estimation is extremely important. GAO is certainly right in

that regard. In our other areas, we will certainly do what we can

to identify where there are erroneous payments, estimate it to the

extent that we can. But again, by far our largest area is the rental

housing assistance, and we are focusing a tremendous amount of

resource, time and energy in trying to do that right and to actually

accomplish our goal, finally, within the next couple of years.

Mr. HORN. Let’s take that as an example. Tell me what happens

when the client gets so much, and then they have extra left over

that they shouldn’t have had? How do you see this?

Ms. ANTONELLI. In the case of rental housing assistance, it’s the

process by which the public housing authorities, project owners and

agents estimate the amounts of subsidies that need to be paid. Because we have to work through so many intermediaries, several

thousand, there’s quite a challenge. We have very complex rules for

determining the amounts of the subsidies and there’s often errors

that are done by those who actually have to do the subsidy determinations. In addition, we have issues related to the tenant.

Mr. HORN. Give me an example of subsidies and how you deal

with them, and where does the improper aspect come in?

Ms. ANTONELLI. The amount of subsidy that a family, an eligible

family or individual would be entitled to, there has to be a determination of what that subsidy amount is. It has to be based on the

amount of income that family holds. There are types of exclusions

and deductions to determine the amount of rent, and the amount

that has to be subsidized of that rent.

It’s a very complex process and we need to do a better job of educating public housing authorities about how to go about doing those

calculations, so that they do them more accurately. At the same

time, the individual or the family in terms of presenting income information sometimes makes errors. They may under-report their

income. There’s a variety of different reasons why the calculations

may be erroneous.

So from our perspective, we need to do a lot in the way of additional program guidance and training. We’re developing a rent calculator, something that is just more computerized, that makes it

much easier for someone to enter the data and do the calculations,

rather than for it to be a manual exercise that’s much more prone

to basic mathematical mistakes.

Anything that we can do in terms of education guidance, the use

of technology, to make the subsidy calculations more accurate, so

that we can reduce the levels of error. So there are many different

things that we’re going to be needing to do and to develop over

time. And also, our communication efforts with the public housing

authorities and other stakeholders, to help them understand what

we’re trying to do. Obviously to the extent that we could reduce the

level of erroneous payments, we’re able to serve a greater, larger

population of people who are eligible for benefits. So ultimately,

that’s a great motivator for us to reduce the level of erroneous payments. And I think our stakeholders see those benefits.

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Mr. HORN. Do you find the housing people in the county or the

city need education and how do you educate them? Have you had

various types of panels for them or what?

Ms. ANTONELLI. The effort within the Department is led by our

Assistant Secretary for Public and Indian Housing.

Mr. HORN. I’m not talking about within HUD now, I’m talking

about their clients.

Ms. ANTONELLI. I understand. It’s the Public and Indian Housing, along with Office of Housing, working together, certainly have

plans in place to do greater outreach and greater communication

efforts to work with stakeholder organizations to talk more about

this effort and the directions in which we want to go. Because I

think ultimately, information and communication is one of the

steps in managing improper payments and that’s extremely important. The degree to which we do that well is going to have a significant impact on our ability, ultimately, to succeed.

Mr. HORN. Is there an inventory up in HUD as to what kind of

housing we have put up and invested the taxpayers’ money?

Ms. ANTONELLI. Is there an inventory——

Mr. HORN. Inventory, yes.

Ms. ANTONELLI. Of housing?

Mr. HORN. Yes.

Ms. ANTONELLI. Yes, to the best of my knowledge. Absolutely.

Mr. HORN. Well, I’ll give you an example. Four years ago, one of

the cardinals was looking at the housing situation. When he got to

the city, they couldn’t find the housing. And yet the special authority or the city or whatever had simply given them the money and

they ran and never even put a brick on the ground. So is that the

Inspector General’s role, the Chief Financial Officer, or we can always use GAO?

Ms. ANTONELLI. Well, certainly GAO obviously helps us identify

those kinds of problems. But certainly we do have these inventories

of our properties. If there’s a specific example, we’d be more than

happy to look into that and get back to you about it to see what

the issue was, perhaps where the problem is. I certainly would assume that the type of example——

Mr. HORN. It wasn’t under this administration. It was about 4

to 10 years.

Ms. ANTONELLI. Well, we certainly don’t want it to be an example in this administration. Again, we’d be happy to respond to any

specific situations that you might be aware of, and look into it in

more detail.

Mr. HORN. Well, how do you work out these situations, you’re the

Chief Financial Officer, with the Inspector General? How does that

work out?

Ms. ANTONELLI. Certainly from my perspective as the CFO at the

Department, and the Secretary and the Deputy Secretary and

HUD’s leadership team are all in agreement that we want to and

believe that we do have a very good working relationship with our

Inspector General. And again, as is the case with the General Accounting Office, much of the work that they do, the audits that

they conduct, the investigations, obviously supplement the work

that we do, highlight areas of vulnerability that allow us to turn

around and to develop plans of action to address problems.

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So we have a very good working relationship with the IG. I believe we’ve just finished a third semi-annual reporting period

where we’ve reached management decisions on all outstanding

audit findings. Previously, that was never done, in previous administrations. So I think that reflects how much of a priority we’ve

made it in this administration to work with the IG to address audit

findings, come to management decisions on how we’re going to address those findings. So it’s been a very, very high priority for the

Department to work very closely with the GAO as well as the Inspector General.

Mr. HORN. Now, let’s get back to the General Accounting Office,

and Ms. Calbom. You’ve noted that there are various practices that

we ought to be using on what you and the Controller General have

called the best for reducing improper payments. Upon what you’ve

heard what else ought to be tagged on that hasn’t come up yet?

Ms. CALBOM. I think again, at both HUD and Education, they’re

doing some good things in some areas. But what I think needs to

happen there as well as at all Federal agencies is, it needs to be

something that encompasses the entire organization. I think people

are starting to do that in the Federal Government. But as I said

in my testimony, it takes money to do this. But what people have

found in the study we did, and we went to Australia and the

United Kingdom and several other places, they found that the

money they saved in implementing this kind of a strategy paid for

the program itself. And as I said, when you’re a steward of taxpayer money, I think it’s absolutely critical that the public have

trust in these agencies and that their money is being spent appropriately.

So it is going to take an up-front investment. It is going to take

the support from the Congress, things like your bill and the President’s management agenda. We’re beginning to see more and more

agencies addressing this issue. OMB is pushing this issue very

hard with the agencies. And so it’s beginning to happen. We just

need to keep the momentum going now.

Mr. HORN. Very good. Are there any comments you want to add

to the record that we haven’t brought up, or you haven’t, let us

know, and we’ll wind it up. Anything you want to add to it?

Ms. CALBOM. Mr. Chairman, I’d like to just add one thing. On

a personal note, I want to thank you for all the efforts that you’ve

made in improving financial management in the Federal Government. Certainly there have been tremendous improvements, and a

lot of that is a result of these kinds of hearings that you’ve been

holding, and your efforts in this area.

Mr. HORN. Thank you. I appreciate that.

I want to thank the people here on the Hill that have helped us

with getting this proper-improper bit, because that is new to everybody. Bonnie Heald is the staff director, Henry Wray, senior counsel, Dan Daly, counsel, has been the person leading on this in particular, Dan Costelo, professional staff member, then Chris Barkley, the majority clerk, right over there, his hands are always full,

and Ursula Wojciechowski, our new intern.

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Minority staff, David McMillen, professional staff, Jean Gosa, minority clerk. And our court reporter was Mary Ross. Thank you

very much.

With that, we are adjourned.

[Whereupon, at 3:25 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

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