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S. Hrg. 109–975

AN ASSESSMENT OF THE IMPROPER PAYMENTS

INFORMATION ACT OF 2002

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

DECEMBER 5, 2006

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

BRANDON L. MILHORN, Staff Director 

MICHAEL L. ALEXANDER, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 4

WITNESSES 

TUESDAY, DECEMBER 5, 2006

Hon. David M. Walker, Comptroller General, U.S. Government Accountability 

Office ..................................................................................................................... 6

Hon. Clay Johnson, III, Deputy Director for Management, Office of Management and Budget .................................................................................................. 9

ALPHABETICAL LIST OF WITNESSES

Johnson, Hon. Clay, III: 

Testimony .......................................................................................................... 9

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

Walker, Hon. David M.: 

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 27

APPENDIX 

Chart submitted for the Record from Senator Coburn ......................................... 62

(1)

AN ASSESSMENT OF THE IMPROPER 

PAYMENTS INFORMATION ACT OF 2002

TUESDAY, DECEMBER 5, 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 10:33 a.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 CHAIRMAN COBURN 

Chairman COBURN. The Subcommittee on Federal Financial 

Management, Government Information, and International Security 

of the Committee on Homeland Security and Governmental Affairs 

will come to order. 

I first want to thank our two guests for being here. They are two 

people this Subcommittee has found very diligent in their work 

with us and we appreciate their service to the country. 

I have a written statement that I will introduce for the record 

and will be available. 

In thinking about this hearing and the importance of it, I 

thought about constituents back home and I thought about if I was 

a postal worker or a teacher or a doctor or a retiree that was still 

having an amount of income, that was still paying taxes, and if you 

were to ask them how it could be that on 60 percent of the Federal 

Government, $38 billion a year at a minimum is improperly paid 

out, what would they think about that? 

I know in my heart what they would think about that. What in 

the world is going on? Thirty-eight billion dollars? and that is highly inaccurate, I believe, as to the full extent, especially from what 

this Subcommittee’s work has done the last 2 years. and that is 

talking about improper payments only. That is not talking about 

fraud, waste, or abuse. 

So when you start considering that and the financial plight that 

we have in front of us, improper payments and the correction of 

it—the reason we want to know what the improper payments are 

is not to know what the improper payments are, it is how do we 

make managerial changes so that we don’t have that? What we are 

not measuring, we can’t manage. 

2

A full $850 billion of the Federal Government’s spending in 2005, 

and OMB should know the request for that on this came from this 

Subcommittee, it wasn’t generated by GAO. It was our request that 

it be 2005 data and not 2006 because 2006 wasn’t completed by the 

time we asked for that data. The fact that there is another $800 

billion that nobody is even looking at in terms of improper payments, either because we don’t think it is there or we don’t have 

the resources with which of the managerial techniques in place to 

measure, comes back. 

If you just extrapolate, at a minimum, we have $55 billion to $60 

billion a year in improper payments. If you are the guy or the gal 

that is working out in Oklahoma or Delaware and paying taxes 

every year and are thinking that 2.5 percent of everything that you 

pay is improperly paid out, and then knowing that there is another 

$150 to $200 billion of fraud, abuse, or duplication, which brings 

you to about 2.5 percent of everything that you pay in is what I 

consider waste, you have a hard time not getting a little bit angry 

when you go to send that check in on April 15. 

As both of you know, we have had several hearings on the tax 

gap in this country, and motivation to be a great citizen in this 

country and pay your fair share, part of it is that you feel like you 

are getting some good value for what you are paying. 

First of all, I want to applaud OMB because I think they have 

done a phenomenal job from hitting the ground in 2001 with the 

mess that they had and the Improper Payments Act and implementing that and doing the job that they have done. So this hearing isn’t to be critical in any way of the job that they have done. 

I think it has been a phenomenal job, but I think we need to do 

better. I believe that we need to measure it all. Once we measure 

it all, I believe that we can then put into place both managerially 

but also legislatively some of the things that might need to be put 

in place to lessen that burden and to build the confidence in the 

American public eye. 

I am concerned there is a crisis of confidence in our country in 

both the institutions of government in the Executive Branch, but 

also in the institutions of government in the Congressional and 

Legislative Branch. I think to fix that requires cultural changes 

within the Congress and management changes within the Administration. 

I also believe that this next Congress ought to work on some new 

rules, and the rules ought to be something similar to the following: 

We are not going to authorize new bills that duplicate programs 

that are existing without either eliminating the programs that are 

existing or cleaning up the programs that are existing; we are not 

going to authorize new bills with such sums as necessary. If we 

think something ought to be authorized, we ought to know what it 

is going to cost and we ought to do the hard work of doing that; 

and the third thing is we shouldn’t authorize anything until great 

and thorough oversight has occurred on every aspect of the program that we are thinking about legislating on. 

Those are the duties that we have. Those have not been accomplished by what I consider to be lazy Congresses over the last 10n 

to 12 years. I believe that ought to be the start of the 110th Congress, that we make a commitment across the aisle. 

3

I know my Co-Chairman, Senator Carper, has been a great ally 

on this Subcommittee in terms of how we have looked, and what 

we have looked at, and what we have done with what we have 

looked at and has been instrumental in one of the key pieces of legislation that we passed, which was the Transparency Act of 2006. 

But I believe with those things in mind and really measuring what 

we are doing and giving the Administration the authority to make 

the changes they need to make—we have had hearings on the 

PART analysis, etc.—that we can do great things for the American 

people and we can also reestablish confidence that what we are 

doing makes common sense, makes managerial sense, and is efficient. 

Those are all important things because as General Walker has 

been relating to the Congress, and now, thank goodness, relating 

throughout the country in his trips throughout the country, the impending fiscal disaster that faces this country, and it has to start 

with us. It can’t just start by saying there is a problem. We have 

to start doing the hard work to reach the goals and the solutions 

for those problems. General Walker, I would thank you for your efforts in building up the grassroots support and the knowledge of 

the American citizen for what the problems are that face us. 

To Mr. Johnson, I would say thank you for your hard and diligent work to accomplish cleaning up some of this. 

[The prepared statement of Chairman Coburn follows:]

PREPARED STATEMENT OF CHAIRMAN COBURN 

Improper payments isn’t a glamorous topic. Accounting systems and standards set 

by Congress and finessed by the Administration don’t make headlines. But this 

country is in a crisis. We are at war. We have a deficit in the hundreds of billions 

and a debt limit at $9 trillion. We’ve got a generation of Americans about to retire 

and rely on bankrupt Federal entitlement programs. The President is asking for 

$150 billion in ‘‘emergency’’—that is, over-budget—war spending. No amount of 

waste is ever acceptable but our efforts to track down every penny need to be all 

the more aggressive in our current fiscal climate. Does it take resources to make 

our improper payments policy more comprehensive? Sure. But every employee we 

devote to ending payment errors more than pays for his own salary in the billions 

that are being lost every year. 

There has been some controversy about today’s topic. We’re not here to examine 

individual agency performance or to quibble about the validity of certain program 

reporting estimates, as we have done in our previous hearings. And let me be 

clear—we’re not here to complain about or criticize the Office of Management and 

Budget’s performance on improper payments. What OMB faced when this President 

first took office was a Katrina-sized accounting problem at every Federal agency. 

Before Congress had even passed the Improper Payments Information Act, this 

President recognized the alarming scope of the problem and set to work with a 

major initiative to reduce payment errors. Congress came in a little later and passed 

the Act. 

The intent of the Act was pretty clear—clean up the whole problem, not just the 

squeakiest wheels. However, when you’re facing a Katrina-sized problem and you 

have limited staff resources at OMB and the agencies, you have to triage. Congress 

gave OMB some discretion to set some rules about where to start. I would argue 

that some agencies did a pretty haphazard job of following those rules, but even 

among the agencies who complied fully—the rules—perhaps understandably—were 

aiming for the low-hanging fruit rather than a comprehensive solution. 

Some have argued that OMB’s definition, by not being comprehensive enough, violated Congressional intent. Let me speak in OMB’s defense. They inherited a 

trainwreck and they made some judgment calls. They will argue today that they 

needed to make serious progress right away and focusing on the perfect would have 

impeded progress on the good. They will argue today that they took care of 95 percent of the problem with their rules. I think there’s some good evidence to suggest 

that’s not quite the case, and we can discuss that more today. But I just want to 

4

personally applaud OMB for their fantastic work on this issue. They faced a 

Katrina-sized fiscal disaster and they rightly fixed highways, bridges and hospitals 

before they got around to clearing tree stumps and filling side-street potholes. 

That said, we are now approaching the 5-year mark on the Improper Payments 

Information Act, and I think there’s nothing wrong with commending this President 

on the accomplishments to date while still asking him step it up a notch. I think 

our friends in the Gulf coast area would agree that while the first efforts in Katrina 

recovery needed to be on the low-hanging fruit, ultimately they want that neighborhood debris removed and schools rebuilt. In other words, 5 years in, it seems reasonable to start looking at how to build on the successes and lessons learned of the 

first 5 years and cobble together a more comprehensive approach to the problem of 

payment errors. 

The first step to reducing payment errors is knowing how many errors are being 

made. I’m concerned that the reporting on these errors—just getting a baseline estimate from which to measure later progress—is not always optimal. For those unfamiliar with the Improper Payments Information Act, it first requires agencies to review all programs and activities annually and identify those that may be susceptible 

to significant improper payments. Congress directed OMB to prescribe guidance for 

agencies to annually review all programs and activities. What Congress did not do, 

however, was direct OMB to define this susceptibility for agencies. Nonetheless, 

OMB defined susceptible programs as those whose improper payment amounts exceed both 2.5 percent and $10 million. This leaves out a large number of government programs. For example, the Social Security Administration’s Old Age and Survivors’ Insurance represents $493.3 billion in outlays, yet because their improper 

payment rate is only .74 percent, they are not required to estimate improper payments and address other improper payment reporting requirements in the Act. 

Let me explain why the threshold may not be ideal: Of the 23 agencies that reported assessing ‘‘all’’ programs and activities for risk, six limited their risk assessment reviews to only those programs that would likely meet OMB’s definition. Two 

of these six agencies reported that they did not perform a complete risk assessment 

because the programs would not have exceeded both of OMB’s threshold criteria. 

The remaining four agencies did not perform a complete risk assessment of programs with annual outlays ranging from $40 million to $200 million, generally citing the threshold criteria as the reason why these medium-sized programs weren’t 

assessed. In this way, OMB’s definition of susceptibility has ironically prevented 

some agencies from complying with the Act. 

While it’s not my intention to criticize OMB’s past performance—their efforts have 

been unprecedented and rigorous—it’s important that we learn from the past in 

order to improve the future. I’ve found that good work always leads to more work. 

The better someone is at his job, the more he realizes there’s always more to do. 

So I hope this hearing will provide an opportunity to look at some of the challenges 

faced so far in addressing payment errors, and we can start talking about how to 

overcome those challenges, either with or without legislation. 

To the end, GAO has done outstanding work. It is GAO’s job to be the thorn in 

every Administration’s side—to commend the good while still demanding the perfect. To shine light on what works and to expose what doesn’t. The job of Congress 

is not to pick ‘‘sides,’’ but to look at GAO’s findings in light of the substantial success and remaining challenges of the Administration and the statute at hand, and 

to use those findings as a tool to improve upon legislation, oversight or both. So 

thank you to both Mr. Johnson and General Walker for being here and helping to 

do that.

Senator COBURN. With that, I would yield to my friend from 

Delaware. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. To our guests, welcome 

back. General Walker and Mr. Johnson, it is always good to see 

you and we thank you for being with us, for testifying before our 

Subcommittee, and for responding to our questions. We thank you 

and the members of your team for your service to this country. 

As sort of a personal note, a side note, I was approached by 

somebody in Delaware this last week who told me they had heard 

a general speak, not in Delaware but in a place other than Delaware, who was really good on fiscal issues and talking about budgVerDate 0ct 09 2002 10:24 Sep 20, 2007 Jkt 032355 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 C:\DOCS\32355.TXT SAFFAIRS PsN: PAT
5

et, sort of the debacle that we face and the impending doom and 

disaster. He said it was not an uplifting speech, but he was talking 

about the Comptroller General. I don’t know what State he caught 

you speaking in, but we know you are out across the country and 

that is a good thing. We appreciate that. 

I want to just reemphasize a couple of things the Chairman has 

said and then make one or two points and then we will turn it over 

to both of you. I don’t know if the number is $38 billion in improper payments for 2005, or $40 or $42 billion, but its somewhere around $40 billion. It is real money and it is money that we are borrowing that 

we don’t need to borrow, we shouldn’t be borrowing, and we want 

to further reduce that amount. 

My suspicion is that the number is down a little bit from where 

it was a year or so ago, maybe because of a time delay or a paperwork transaction rather than so much that the improper payments 

have been reduced. I think there is a sequencing issue that may 

have caused the apparent reduction by several billion dollars. But that notwithstanding, if the amount is actually $40 billion 

in improper payments in 2005, I don’t believe that includes Homeland Security at all. I don’t believe it includes much of the Department of Defense. I don’t believe that it includes the Department of 

Justice. I don’t believe that it includes a number of our entitlement 

programs, including among others Medicaid and TANF, maybe the 

school lunch program, to mention a few. I don’t believe that it includes the Community Development Block Grant program. So there 

are a number of fairly substantial programs and outlays that are 

not included in the improper payments that we just don’t know. 

My hope is that for the balance of this year and going on into 

the next Congress that we will have the opportunity to commend 

those agencies that are doing a good job of finding out what their 

level of improper payments are and reducing those and put a spotlight on those agencies. I always think if you use positive reinforcement, you are more likely to get the kind of behavior you want, so 

we want to incentivize the agencies by commending those that are 

doing an especially good job. 

We want to put, I believe, a spotlight on those agencies that are 

not doing enough, that can do more, but they are doing something. 

and finally, we want to figure out why we are not—some of our 

larger agencies, some of our larger outlay programs, aren’t even on 

the radar screen here with respect to improper payments. We don’t 

even have an idea what the amount of improper payments are in 

some of these large agencies. 

And finally, as the Chairman has said, I hope that we will be 

turning back to the tax gap issue. I realize this is for legislative 

purposes in the purview of the Finance Committee and we are not 

interested in taking any of their jurisdiction. That is not what we 

are trying to do here. What we are interested in doing, though, is 

making sure that we are working on both fronts, improper payments on the spending side and revenue collection to make sure 

that the monies that are owed are being collected. 

With that having been said, again, we are delighted that both of 

you are here and we look forward to your testimony and to continue to work with both of you. Thank you. 

6

1The prepared statement of Mr. Walker appears in the Appendix on page 27. 

Chairman COBURN. Thank you, Senator Carper. 

David Walker has been Comptroller General of the United States 

since November 1998. He serves as the Nation’s Chief Accountability Officer and head of the U.S. Government Accountability Office. He has extensive executive-level experience in both government and private industry. He is a Certified Public Accountant and 

has a B.S. degree in accounting from Jacksonville University. He 

also holds a Senior Management in Government Certificate in Public Policy from the John F. Kennedy School of Government at Harvard University, as well as honorary degrees in both business and 

public service. 

Mr. Walker, thank you for appearing today. Thank you for your 

work for our country, your dedication to the facts and figures and 

not to spin. You are now recognized. 

TESTIMONY OF HON. DAVID M. WALKER,1 COMPTROLLER 

GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WALKER. Thank you, Chairman Coburn and Senator Carper. 

It is a pleasure to be back before you, and as I have said before 

and I will say again, this Subcommittee has clearly been one of a 

few that has been actively engaged in oversight for an extended period of time, and it does make a difference when you engage in that 

oversight. I thank you for both of your efforts and look forward to 

continuing to work with you. 

It is a pleasure to be before you today to talk about the issue of 

government-wide improper payments. My testimony today is based 

primarily on the report that both of you have referred to that was 

issued in November 2006. As the Chairman noted, the request was 

for us to look at the 2005 improper payments. As you know, the 

annual summary is done by OMB and usually released in February 

of each year. 

But we do have some preliminary information with regard to 

2006 and so since the agencies have now reported their financial 

statements. As you know, the consolidated financial statement report will not be published until sometime next week—but I wanted 

to go ahead and give you a sense as to where things are for 2006 

on a preliminary basis since we now have that information available, and I have two boards to help in that regard. 

First, I think it is important to note that under OMB’s leadership, progress has been made in each of the last 3 years with regard to implementing the Act. As we can see in 2004, in the blue 

section, 52 percent of Federal spending was covered by the reporting requirement under the Act. It went up to 64 percent in 2005 

and a little over two-thirds in 2006. So progress is being made each 

year with regard to the percentage of Federal spending where the 

agencies are reporting. 

On the next board, you can see what the trend has been with regard to improper payments for the period fiscal year 1999 to 2006, 

and again, the 2006 number is a preliminary number, but you can 

see that for a variety of reasons, you have more people reporting 

as well as improved sophistication of their estimation process since 

the effective date of this Act. We saw a significant increase in the 

7

reporting of improper payments between 2002 and 2004, and now 

we have seen somewhat of a moderation with regard to the total 

amount of payments. 

But I think it is important to note that the estimated incidence 

rate is 2.3 percent for those reporting, and therefore, if we had the 

same incidence rate for the balance of the Federal Government 

that has yet to be reported, then total improper payments would 

be around $62 billion. 

I also think it is important to keep in mind that improper payments don’t necessarily mean that the entire amount was inappropriate. In fact, you could have an improper payment where $8 of 

the $10 was proper and one of the questions is to what extent 

agencies are reporting that as a $2 improper payment or a $10 improper payment. I will come back to that later because I think one 

of the things that would be very helpful is to clarify certain terms 

in the legislation in order to maximize the chance that the intent 

of the legislation, in fact, is being achieved. 

As you know from our report, for fiscal years 2004 and 2005, we 

concluded that the magnitude of the problem was still unknown because we have still got a significant percentage of Federal dollars 

not being estimated. While DHS did not estimate in 2005, they estimated in 2006. The two biggest programs that did not report in 

2006, based upon data that I have, would be the Medicaid program 

and the TANF program. The Medicaid program was about $183 billion in fiscal year 2006—I have little doubt in my mind that there 

is more than 2.5 percent improper payments in the Medicaid program. The TANF, or Temporary Assistance for Needy Families program expenditures were $17.4 billion in 2006. 

In our report, we found several things. First, that the agencies 

reporting improper payment information was incomplete but 

progress is being made. Second, that the total improper payment 

estimate does not include certain large risk-susceptible Federal 

programs, including the two that I noted. And third, that OMB’s 

criteria in defining such terms as which programs are susceptible 

to significant risk are such that there are a number of programs 

that will not be required to report which may or may not be consistent with your expectations for the type of items that would be 

reported in connection with this Act. 

Specifically, it is my understanding that, and obviously I look forward to Director Johnson commenting here, OMB’s criteria basically are that you have to have improper payments that for a particular program would exceed $10 million in a year and 2.5 percent 

of the program payments if the 2.5 percent of the program payments is greater than $10 million. Well, 2.5 percent of the Federal 

budget is $67.5 billion, and 2.5 percent of the Medicaid program is 

$4.5 billion. 

So I think one of the issues is while I think OMB clearly has the 

authority to define these terms under the statute because they are 

not specifically defined in the statute, I think one of the issues that 

needs to be considered is whether or not certain terms need to be 

defined statutorily in order to try to help make sure that your intent is being met and to try to help ensure consistency both today 

and, frankly, over the longer term. We know that there will be new 

administrations in the future, and while OMB has clearly been 

8

committed to management issues, that level of commitment can 

vary from time to time with different administrations and with the 

different passage of time. 

Mr. JOHNSON. Why would they have anything to do with it? 

Mr. WALKER. Article I does have something to do with it, there 

is no doubt about that. 

With regard to agencies recovery auditing efforts, which is a 

mechanism that is used once you have the improper payment to try 

to rectify those improper payments, kind of as the horse is already 

out of the barn, you have already identified that, we found that the 

data that is being reported there may not represent an accurate 

view of the actual experience. The example I would give there is 

NASA, where there is a huge difference of opinion between what 

management reported and what NASA’s Inspector General reported. So that is an area, I think, where additional emphasis is 

necessary. 

We did include a matter for Congressional consideration and four 

recommendations in our report which have been summarized and 

I know you are very familiar with. 

In summary, Mr. Chairman, progress has been made. More remains to be done—sounds like a typical GAO report. But in this 

particular case, I do believe that the Congress should consider 

clarifying certain definitions, and I will be happy to get into that 

in the question and answer portion, in order to maximize the 

chance that the intent of Congress is being achieved, in order to 

help assure consistency today, and in order to help ensure consistency across administrations. 

Thank you, Mr. Chairman. 

Chairman COBURN. Thank you, General Walker. 

Clay Johnson, III, is Deputy Director for Management at the Office of Management and Budget. In this capacity, he provides government-wide leadership to Executive Branch agencies to improve 

agency and program performance. Prior to this, he was Assistant 

to the President for Presidential personnel. He was responsible for 

the organization that identifies and recruits approximately 4,000 

senior officials, middle management personnel, and part-time board 

and commission members. 

He has a wealth of public and private sector management, including Chief of Staff to Governor George W. Bush, Chief Operating Officer and Acting Director for the Dallas Museum of Art, 

President of Horchow mail order, and then President of Neiman 

Marcus mail order after Neiman Marcus was purchased by the 

Horchow Company. Mr. Johnson received his undergraduate degree 

from Yale University and a Master’s degree from MIT’s Sloan 

School of Management. 

Welcome, Mr. Johnson, again before our Subcommittee and 

thank you for your service. You are recognized. 

9

1The prepared statement of Mr. Johnson appears in the Appendix on page 59. 

TESTIMONY OF HON. CLAY JOHNSON, III,1 DEPUTY DIRECTOR 

FOR MANAGEMENT, U.S. OFFICE OF MANAGEMENT AND 

BUDGET 

Mr. JOHNSON. Thank you, Chairman Coburn and Senator Carper. Thanks for having me. As General Walker said, I congratulate 

you all on your attention to this and the priority you place on it. 

I feel like I am amongst friends here today. 

I want to make the point that Federal agencies are working to 

eliminate virtually all improper payments. There is a lot of talk 

about what we are reporting and what we are not reporting. General Walker in the report talks about it is probably impossible to 

eliminate improper payments. Our goal is to eliminate improper 

payments virtually and we think this is doable. It is a 10 year, plus 

or minus, kind of a time frame thing to do, but that is the mindset. 

That is the mindset, not to reduce but to eliminate improper payments. 

We have come a long way. Federal agencies have come a long 

way in the last 3 years. Eighty-five percent of what we consider to 

be all programs with high-risk outlays, or $1.3 trillion, have error 

measurements and agencies are working on those programs to 

eliminate all forms of payment impropriety. The remaining 15 percent of what we consider to be high-risk, there is risk of an improper payment, $200 billion, that will be measured by 2008. 

Separately, there are about half of the contract payments have 

been looked at from the standpoint of recovery audits. One of the 

things we have got to talk about here is get clarification and probably a tighter definition of what needs to be done with regard to 

contract payments. Right now, there is a recovery audit approach 

to it and that is one of the primary reasons why there is a difference between what contracting offices find versus the IGs, because they don’t limit themselves to recovery audits. 

It has always been clear, I would hope, what programs were to 

be measured and in what sequence. The next time you want to 

know what is currently being audited and what is not, just call us. 

You don’t need to call GAO. It should come as no surprise that 

Medicaid has not been audited up until now. That has always been 

our intention. Our intention has been to focus on big problems and 

also programs that could be measured. It is going to be extremely 

difficult to measure Medicaid, extremely difficult to measure 

TANF. We are going to do it. It will be totally measured by the end 

of 2008. But it has always been our intent that would be a year 

four, year five program. So this is not new news. 

The reason for the 2.5 percent and the $10 million—the program 

called for $10 million as the hurdle to focus on significant risk of 

improper payments. Our attempt has been to focus agencies on just 

that, significant risk of improper payments. That is why there is 

the dual criteria, 2.5 percent and $10 million. 

Incidentally, if there is ever any interest on your part or General 

Walker’s part, GAO’s part, to add a program to this because you 

have reason to believe that there is a high risk of improper payments, we can add that to the list. 

10

There has been no attempt—I don’t think it was implied, but I 

wanted to clarify, there is no attempt to produce an overly optimistic view of the improper payment situation. They are $40-plus 

billion. Whether it is 40 versus 60 versus 100, $40 billion is of huge 

national consequence. Even though it is a small percentage, we 

need to be placing a high priority on its elimination and I believe 

we are doing so. 

We generally don’t believe that the Improper Payments Act 

needs major modification. We need to better understand about primarily the contract payments, we believe. But it was designed 

originally to be a risk assessment, approaching a risk assessment 

standpoint. If you want everything measured, that can be the law, 

but that is not a risk assessment. That is assuming that you want 

everything measured and the key is are there resources and monies 

and so forth to make that happen. So as we talk about this new 

legislation we are going to talk about, let us make sure that we 

have got the resources to be able to follow through on it. 

Most importantly, though, we think, it is critical that Congress 

work with GAO and with OMB and Federal agencies to create enabling legislation which would allow us to better recover improper 

payments or eliminate improper payments. There are issues with 

agencies’ access to other agencies’ databases that have significant 

impact on an agency’s ability to prevent or to recover improper payments. 

There are eligibility rules in some programs that are too complex 

and so complex that they create improper payments or the risk of 

improper payments, and that can be clarified. There are also statutory constraints on State-administered programs that limit our 

ability to go in and work with States to deal with the issue of improper payments. That needs to be looked at, as well. 

And then, as with everything, these kinds of efforts require monies and we need to make sure that our appropriator friends understand this takes money and that we would identify that we have 

got the necessary funds to take care of business here. 

So this is a high priority. We have made great progress. There 

is work still to do. But we are making significant progress at eliminating improper payments and I believe that it is a very strong 

story and I believe it is closer to 10 years than 5 years or 20 years 

we can see these being at virtually zero. If not, then we have not 

done our job. Thank you, sir. 

Chairman COBURN. Thank you. Let us go over a couple of things. 

I recall from some of our previous hearings, there are some estimates as high as $15 billion worth of Medicaid fraud in New York 

City. I also recall from some of our early hearings where we have 

programs that are administered through the States, like food 

stamps, where we have seen pretty big progress in terms of cutting 

that down. 

The question that I would ask, and I think, Mr. Johnson, you are 

right. The American public, what they want is to eliminate improper payments, and I think General Walker is right that we need 

to make sure we are talking apples and apples. If there are truly 

gross improper payments or net improper payments, we need to 

know what that number is. If you are going to tell us what you 

need us to change in terms of legislative parameters, or funding to 

11

be able to do something about that, we need to know what the real 

number is. So I think that is one area where we need clarification 

within the law. 

I think the other area that we have is your reporting of 85 percent of the high-risk outlay is still just $1.3 trillion of a $2.8 trillion 

budget. So the question is, in my mind, as we look at all these 

areas that you all do not consider high-risk but yet this Subcommittee has had hearings on that show that they are significant, 

there has got to be something—and it may be the priority in which 

you are placing it. We know about Medicaid. Mr. Johnson, Charlie 

Johnson, has testified about the plans on that and we understand 

the difficulty with that and that is advancing. 

But nevertheless for the American taxpayer to say we are not 

looking at $800 billion worth of programs—for example, the CDBG 

block grant, HUD says there is no problem. I don’t believe that. I 

believe there is a big problem with fraud and mispayments in 

CDBG block grants. and for us to just say, no problem, we are not 

looking at it——

The other thing that concerns me, and this is OMB and it is 

probably my lack of understanding rather than a true criticism, is 

that if somebody is not high-risk or they get a waiver for a couple 

of years, there seems to be an unending waiver. Well, I believe everybody ought to have to report improper payments. They ought to 

have to go through the analysis to do that. And I don’t believe it 

ought to be OMB’s job to do that. It ought to be the agency’s job 

and it ought to be using agency resources to do that. The reason 

that is important is because if they know they are going to have 

to measure it, then they are going to make some judgment in terms 

of management decisions on how to minimize it. 

So I guess I would go to the first question to Mr. Walker. Why 

is it important that the Improper Payments Information Act define 

what is considered susceptible to significant improper payments? 

Why is it important that we revise——

Mr. WALKER. I think it is important in order to make sure that 

we have a vast majority of the Federal Government’s programs and 

activities on the radar screen. It is also important that we make 

sure that the intent of the Congress is being met. For example, as 

I mentioned before, OMB has the authority to define significant 

risk and they have exercised that authority. They have done two 

things. One, they have used the $10 million number, which is in 

the statute. Second, they have said in defining significant risk, it 

exceeds $10 million and 2.5 percent of the expenditures for that 

program. 

Well, as I mentioned, 2.5 percent can be a very big number and 

therefore my view is that has to be looked at to determine, if you 

want something other than the $10 million, what is a reasonable 

percentage. I would respectfully suggest that 2.5 percent is too 

high. That is about $67 billion. So that is an issue, because otherwise, we could have a significant amount of improper payments 

going on that would never have to be reported. 

Chairman COBURN. You were Comptroller General when this bill 

became law. In your recollection, and my staff is looking at the history of this, do you believe that there was an intent to give the 

12

kind of discretionary level to OMB at this 2.5 percent when you 

look at the House testimony. 

Mr. WALKER. Stated differently, I believe that in the absence of 

clarity in the statute and/or the related legislative history, that 

OMB had the ability to exercise some discretion here and I don’t 

believe that they have abused their discretion. I do, however, believe that how they have used their discretion may or may not be 

consistent with what the Congress intended. 

What is more important is not to focus on what has happened 

in the past because a lot of people are working very hard to try to 

make progress here and we are making progress. I think the important thing now is to say, where might there need to be clarifications from this point going forward rather than focusing on whether or not things have been done in the past. 

And in that regard, I would suggest, Mr. Chairman, several 

areas. First, clarification of the definition of program and activities. 

Second, a clarification of the definition of significant risk, which 

deals with this 2.5 percent issue. 

Third, a clarification of how do you handle an improper payment 

in the circumstance that I articulated where the payment may be 

$10 of which you know that $8 is proper, and $2 is improper. How 

are we counting that to make sure we have apples and apples? 

And fourth, there is a whole category of payments now that, as 

I understand it under the statute, aren’t on the radar screen. They 

may be different but we somehow need to get them on the radar 

screen, and that is the handling of due process payments. In other 

words, where you have a situation where there is a payment that 

has been made for Social Security or otherwise and you believe it 

is improper but there are certain due process requirements that 

the individual is entitled to, my understanding is those aren’t being 

captured and they don’t have to be captured under current law. 

They are off the radar screen. Now, maybe we want to count those 

as a different category, but I think it is something that we need 

to focus on. 

And then last, I would agree with Mr. Johnson that it is not just 

trying to prevent improper payments. To the extent that they happen, we want to make sure that we can go after them. But to help 

both in preventing and to go after them, I think there are certain 

legislative changes that may be necessary to facilitate more data 

matching and more data mining that cannot occur right now. 

I would respectfully suggest while privacy issues are a matter of 

concern. When you are talking about taxpayer dollars, we ought to 

be able to pursue reasonable data matching and data mining in 

order to make sure that only eligible individuals are receiving the 

benefit of these taxpayer dollars. 

Chairman COBURN. Mr. Johnson, any response to that? 

Mr. JOHNSON. I am going to clarify the $2.5 trillion and the 

thought there is a potential area of risk of 2.5 percent times $2.5 

trillion is $60-some-odd billion. Three-hundred-and-fifty billion dollars of our $2.5 trillion in outlays, there is virtually no risk of improper payments. It is payroll——

Senator CARPER. Say that amount again, please. 

Mr. JOHNSON. Three-hundred-and-fifty billion dollars——

Senator CARPER. Out of how much? 

13

Mr. WALKER. Two-point-seven trillion. 

Senator CARPER. OK. 

Mr. JOHNSON. That is payroll——

Chairman COBURN. Let me just stop you there. I sent a letter out 

yesterday, and I don’t know if you were a cosignatory on it, on absent Federal employees. No agency is measuring people—not people taking leave, people that are just absent. Several of the agencies that we talked to on background, this is a big problem. So for 

you to tell me that payroll has no risk, I don’t believe that is true 

because we have significant risk. We have a lot of Federal employees that aren’t working that are getting paid that are not using 

leave. They are just absent. 

It is not a lot, but the point is we want to manage and that 

comes back to my whole point. This is not to say that OMB hasn’t 

done a fantastic job——

Mr. JOHNSON. No, you all can stop saying nice things about OMB 

and apologizing. Nobody is taking any offense here, OK. 

Chairman COBURN. OK. 

Mr. JOHNSON. Let us just talk about our business here. 

Chairman COBURN. The point is for OMB to take the position 

that there is no risk with payroll, I don’t believe that. I believe 

there is risk with payroll. Now, the question is what is the risk? 

Well, if we never look at it, we are never going to know. So at least 

we ought to look at it a couple of times and say, what does it look 

like, rather than saying we are not going to look at it because we 

don’t think there is any risk there. and I will assure the taxpayers 

of this country there is more than $10 million in improper payments to Federal payroll every year. 

Now, that is a small percentage, I agree, but we don’t really 

know what that number is. So I guess my point is I believe we 

ought to run it all by trying to do the best job we can and measuring performance indicators, looking at metrics to help us know 

where we are weak and where we are strong, and I know you believe that and you have built your career on that. 

The question is, where is the risk and reward, and that is really 

what you said. 

Mr. JOHNSON. Right. 

Chairman COBURN. Where do we start spending more dollars 

versus getting fewer dollars back? 

Mr. JOHNSON. Right. Let me comment——

Chairman COBURN. Go ahead. 

Mr. JOHNSON. There is no such thing as no risk. There is a risk 

with everything. You have to pay extra to look at 1 percent error 

rates versus 2 percent error rates versus 10 percent error rates. If 

we want to go looking for errors in a $130 or $140 or $150 billion 

payroll and benefit account, we can do that, and there is almost 

certainly $10 million in there. 

Chairman COBURN. Yes. 

Mr. JOHNSON. Should that be a priority? I would suggest not. The reason we focused on 2.5 percent and $10 billion——

Chairman COBURN. That is where——

Mr. JOHNSON [continuing]. Is to focus on the priority. Let us get 

that under control first and then go to the lower level opportunities. 

14

Chairman COBURN. Right. 

Mr. JOHNSON. I would suggest that payment on the Federal debt, 

if there is such a thing as being really close to low-risk, that is it. 

That is included in $2.7 trillion. 

Chairman COBURN. That is $200 billion. 

Mr. WALKER. Two-hundred-and-twenty-four billion, roughly. 

Mr. JOHNSON. There is $250 billion in low-volume, what we consider to be low-risk programs that will be looked at. We agree totally with you that every program should have to assess their programs to have some substantial basis for saying that they don’t 

reach the $10 million and 2.5 percent hurdle. They should not be 

able to say that just whimsically. 

But going in and looking at this and where are the big pockets 

of opportunity for improper payments, our approach has been to 

apply a $10 million, 2.5 percent hurdle to it and that has focused 

us to place resources where the opportunity to do the best for the 

taxpayer is the greatest. Once we get that under control, I would 

suggest then it is appropriate to go where the return on our time 

and expenditure of taxpayer resources, the return on that investment is likely to be less, but nevertheless, it is likely to be positive. 

But let us focus on the high-return opportunities first. Let us get those $40, $50, $60 billion numbers down to acceptable numbers, 

virtual zero, before we start getting all consternated, to use the 

new word here, over what the error rate is with payroll. I think 

that should be a really low priority. We will be glad to do it if that 

is what the will of the Congress is. But I would suggest to you that 

is a real low priority. 

We should be going to great lengths to determining what the legislative fixes are that allow agencies to get at databases that they 

can’t now get access to that allow us to reduce improper payments 

that we already know exist, but we can’t do a very good job of preventing them or recovering them. 

So it is just a question of how we want to prioritize our time, and 

the focus is on eliminating priorities, eliminating improper payments, and doing so quickly, doing so with some sense of priority, 

and I would suggest that is the priority versus having a full accounting of what all improper payments are. 

I had the luxury in this regard, or the benefit of being the Market Research Manager at Frito Lay for a year back in the mid1970s. The primary thing I did was cut out market research. We 

were doing so much research that was nice to know. It was nice 

to know what people felt about this or people felt about that. But 

the question was, if you knew this information, would you do anything any differently, and the answer in so many cases was no. I 

wouldn’t do anything different right now, but maybe in a year or 

two I would do something. 

That is what a lot of this reporting can end up being. We need 

to make sure we don’t get into the ‘‘nice to know’’ reporting business. We are in the elimination of improper payment business. 

That is the way we need to think about it. and we need to be thinking about eliminating the biggest chunks of the most egregious improper payments first before we start getting into the programs 

where the error rates, both percentage and absolute dollars, are 

very small. 

15

Chairman COBURN. I guess my response to that is I would agree 

with it. What we would like to know is what are your plans? In 

other words, when you get there, what are the plans to go looking 

at, because we haven’t seen them. We have no knowledge that is 

going to happen after the fact because of the guidance that you 

have put out there. 

So one of my concerns is that if you look at the 2.5 percent or 

$10 million and you take, for example, SSA’s Old Age and Survivors’ Insurance of $4.93 billion, they get over $10 million, but 

they are a low percent. But the point is, there is still a lot of money 

there. 

Mr. JOHNSON. Right. 

Chairman COBURN. How do we move, once this Administration, 

both with its PART analysis, its management systems that it has 

put in, and its improper payment look, how do we move to the next 

step of having good management tools that say that this is automatic? To run this department effectively, we have to know we are 

paying the bills right. 

Mr. JOHNSON. Yes. 

Chairman COBURN. How does that become a part of every agency, whether they have $10,000, $100,000, or $100 million a year in 

improper payments? I guess that is why I have some concern. I 

don’t see that in the planning and it certainly wasn’t in the statute. 

Mr. JOHNSON. We need to——

Chairman COBURN. When the statute first came out, it was $1 

million, period. Of course, that was changed to $10 million. I mean, 

when it was the original bill in the House, it was $1 million. It was 

changed to $10 million. and I guess that is where we are getting. 

We are looking at what has been done and what we know is going 

to be done. The question is, where do we go? 

Mr. JOHNSON. Yes. And we know where $40 billion is, and when 

we get through in the next 2 years looking at Medicaid and these 

other programs, TANF and so forth, we will know where $50 or 

$55 or $60 billion is. I would suggest our priorities should be, both 

Congressional and Executive Branch and GAO, is getting that $50 

and $60 billion to zero, and that is a higher priority than going and 

finding out what improper payments are in payroll and in $250 

million that we would deem are not likely to meet the $10 million 

and 2.5 percent hurdle. We will get at that, but I would suggest 

that would be a low priority for us. 

Chairman COBURN. General Walker. 

Mr. WALKER. You have to set priorities because ultimately you 

have limited human, financial, and technological resources. There 

is no doubt about that. But I think there is a difference between 

having something on the radar screen and setting priorities as to 

how you are going to go about attacking the problems. They are 

two different things, in my opinion. 

Second, there is no question in my mind that there is significant 

susceptibility to improper payments in payroll, especially with regard to DOD. I mean, we have issued reports showing huge improper payments within DOD for its payroll. But more importantly, 

I think we also need to put things into context here, and that is 

we need to get things on the radar screen. We need to set priorities 

16

about how you go about it. You want to try to get it as close to zero 

as you can, although I don’t think it will ever be zero. 

We also have to keep in mind that there are a whole new category of payments that nobody is reporting here that is a lot of 

money, too, that we are all aware of in this room, and I will give 

you an example and it is something we have issued a report on. 

The Defense Department spent billions of dollars in incentive and 

award fees, paying incentive and award fees to contractors that 

were late, over-budget, and under-performing. 

Chairman COBURN. Six billion dollars. 

Mr. WALKER. Yes, billions of dollars. I would bet a lot of money 

that there is not a dime of that that is shown as an improper payment. Now, I am not saying it should be, but I am saying it is a 

problem and we have to go after it. 

Mr. JOHNSON. In that regard, we pay out hundreds of millions 

of dollars, if not billions of dollars, in salary increases to employees 

that have not earned it, and we employ people that don’t perform 

satisfactorily. We don’t call that an improper payment, either, but 

that is another committee. That is another set of issues. So we 

have to be careful about having this thing expanded to include 

every moving thing in the Federal Government where the value is 

not——

Chairman COBURN. That is not our goal with this hearing. The 

goal of this Subcommittee is to find out where we are not spending 

money wisely. Most of that is not the Administration’s problem. 

Most of that is a Congressional problem. 

Mr. JOHNSON. We will do whatever the legislation wants us to 

do, I am just saying, but think about really what is the value of 

it? Social Security, if there are improper payments and the court 

says we have to continue to make them until it has been proven, 

do we measure that? We don’t do that now. We can, we just never 

have because it is nice to know information. There is nothing we 

can do about it. Once they have, once all the appeals have been exhausted and Social Security begins to collect the information, we 

collect that like within a 98 percent rate. It is not a problem collecting it. But to know that it is out there is nice to know. 

Chairman COBURN. I will turn it over to Senator Carper, knowing what is out there can sometimes change what you do so that 

it never gets out there in the first place. I agree that there are statutory requirements on Social Security payments, but maybe things 

could change inside Social Security so that there are fewer of those 

going out there, so that there are fewer having to go back and get 

it. The deal is not about going and getting the money. The deal is 

about not paying the money in the first place. 

Mr. JOHNSON. Right. 

Chairman COBURN. Again, those are judgment calls. I am not 

critical of it. The purpose of this hearing is where are we going on 

improper payments? Do we need to tweak it somewhat so we get 

a better benefit? There is no undermining of what we have seen 

being done. It is to raise the awareness of the American people that 

we do have $60 billion at a minimum of improper payments. But 

we don’t know what percentage of that is true payments to people 

that don’t deserve it versus a portion of that. 

Mr. JOHNSON. Yes. 

17

Chairman COBURN. So defining what that is, I think is important, not just for the American people, but also for a management 

tool. 

Mr. JOHNSON. We know where more than, I would suggest, 75 

percent of all improper payments are now. Let us go get those 

down to zero at the same time that we are finding out and detailing and specifying exactly what that remaining 25 percent or whatever it is is. But let us not get so focused on reporting every dollar 

that is improperly paid out that we lose sight of the importance of 

having legislation we need to access the databases, et al that we 

need to get what we know to be improper to zero. 

Chairman COBURN. OK. Senator Carper. 

Mr. WALKER. Can I, real quickly, Mr. Chairman? 

Chairman COBURN. Sure. 

Mr. WALKER. This is important. We need to make sure that we 

are focusing on implementing preventative controls to try to make 

sure that we don’t have an improper payment to begin with. To 

talk about what the two of you just talked about, the Social Security due process, we might recover 98 percent—I don’t know if that 

is accurate or not—we might recover a very high percentage of 

what ultimately goes through the adjudicatory process, but we 

spend a lot of money on the adjudicatory process and it takes a lot 

of time. So there is a cost. 

So it is not just a matter of how much we ultimately recover, it 

is what can we do to prevent this to begin with and how can we 

minimize the amount of costs that we are having to spend in dealing with those types of issues, and it is considerable. 

Senator CARPER. I am reminded, Mr. Chairman, of something my 

father used to say to my sister and me over and over and over 

again when we were kids growing up in Dan Pool and Roanoke, 

Virginia. He would observe our behavior, and whether we were 

doing our homework or working around the house or in the yard 

or whatever, and it wouldn’t meet his standards and he would say, 

‘‘Just use some common sense. Just use some common sense.’’ and 

what I have often tried to do is apply what I call a common sense 

rule or approach to just about everything I have ever done, in the 

Navy, in government, in State Government when I was Governor 

of Delaware and certainly here today. 

We have talked about some statutory changes that might be appropriate to make in the improper payments law, but let me just 

ask you to put on your common sense caps, and have a conversation together, sort of both of you can talk not at the same time, but 

just have a conversation with us. If we are going to use some common sense to make some changes to this law next year, what would 

we be doing? And I would be interested in hearing especially, I 

think it would be helpful to us to know where you agree on those 

changes that should be made. 

I don’t care who goes first, second, third, fourth, but just——

Mr. WALKER. Why don’t I start? 

Senator CARPER. Take off, if you would. 

Mr. WALKER. I totally agree that you have to set priorities and 

you have to consider cost-benefit. I totally agree with that. That is 

a common sense approach. 

18

I would respectfully suggest that in defining significant risk, the 

$10 million may be too low in certain circumstances, but 2.5 percent of total payments from a program is too high, is way too high. 

In the case of Medicaid, that is over $4.5 billion. 

So, therefore, I think you need to consider lowering that 2.5 percent to a much lower percentage, e.g., half-a-percent. Still for Medicaid, that is over $1 billion, but it makes a difference because it 

gets you on the radar screen. Then you can decide how you are 

going to allocate your resources on what are you going to go after 

to try to be able to recover. 

Senator CARPER. Mr. Johnson, do you want to comment on that 

point, please? 

Mr. JOHNSON. Well, I think—what was the one that you referred 

to, Medicare? 

Mr. WALKER. Medicaid. 

Mr. JOHNSON. Medicaid. That error rate is greater than 2.5 percent. 

Mr. WALKER. I agree. 

Mr. JOHNSON. So that one is going to be in there. It is going to 

be a huge number and it is going to be very difficult to collect and 

it will be collected. It will be eliminated, virtually. It is going to be 

very hard to do. So this 2.5 percent and $10 million does not prevent us from tackling Medicaid. 

If there is a program that 2.5 percent and $10 million causes us 

to not pay attention to, let us know what it is. We would be glad 

to include it. 

Mr. WALKER. But here is the problem with that, Mr. Johnson. 

We are talking informally and we know each other well. We work 

together constructively. 

Mr. JOHNSON. We have the same agent. [Laughter.] 

Mr. WALKER. We have found that when you speak for free, you 

can get a lot of bookings. 

Mr. JOHNSON. Yes. [Laughter.] 

Mr. WALKER. And two-for-one, two times zero is zero. 

But in any event, the other issue is, I trust what you are saying, 

but frankly, you are only going to be in your job another 2 years. 

Part of the issue here is how can we assure consistency, not just 

within an administration but between administrations? 

So I take you at your word where you say, ‘‘if there is one that 

is a problem, let us put it on there.’’ I don’t know who your successor is going to be and I don’t know what their attitude is going 

to be about management issues to begin with. So that is why I 

would respectfully suggest that while I trust what you are telling 

me, it is probably not in the institutional interest of the Congress 

or in the broader taxpayers’ interest to take that approach. 

Mr. JOHNSON. You are talking about codifying what the rules 

are——

Mr. WALKER. Right. 

Mr. JOHNSON [continuing]. But, in fact, the discussion here is 

what should the rules be. Should it be $10 billion and 2.5 percent? 

I am saying all the programs that everybody knows we should be 

looking at or anybody has been suggesting that we look at get covered by 2.5 percent and $10 million. 

19

There is $250 billion in programs that we think don’t meet that 

in our general way of looking at it and our intention is to, and we 

need to be clear about what our plans are, I am hearing from this, 

that we need to scrub that to see are there any programs that besides our omniscience and understanding of these programs, in 

fact, have large numbers of improper payments that we need to include in this. But I have not heard anybody identify a program yet 

that they know has high improper payments that is not covered by 

the $10 billion and 2.5 percent. 

Mr. WALKER. Payroll. I would——

Mr. JOHNSON. Military payroll is considered high-risk, and, I was 

mistaken, is in——

Mr. WALKER. It is in there? 

Mr. JOHNSON [continuing]. The $1.5 trillion that we are looking 

at. The civilian payroll——

Mr. WALKER. Well, here is what I would suggest. If it doesn’t 

make a difference between the half-a-percent and the 2.5 percent, 

which I don’t know that is true or not, but if it doesn’t make a difference, then why shouldn’t you lower it? 

Mr. JOHNSON. It is a hugely different approach to try to find 

error rates down to one-half percent. The sample sizes, the time it 

takes to do it, the level of precision you have to go to is dramatically different at those levels. You are talking about being able to 

demonstrate that you can measure error rate at 2.5 percent before 

you try to get it down to measure it down to half of 1 percent. You 

are talking about taking programs that we have never measured 

error rate and all of a sudden now trying to figure out what we 

have, it is a real challenge to measure it with a 2.5 percent accuracy level and that is dramatically orders of magnitude more difficult than to measure it with precision down to one-half of one percent. 

So walk before you run. If we then decide we get that $50, $60 

billion down to near zero, then let us take it down to a much lower 

level, or at a minimum, let us talk to the statisticians and confirm 

what the costs are and the difficulty is and the value of going down 

to 1 percent or 1.5 or half of 1 percent versus the benefit. 

I know we have got all that agencies and we and you can say 

grace over with the current criteria. 

Senator CARPER. Say that again. We have got what? 

Mr. JOHNSON. We have all the improper payments identified, or 

will have them all identified by 2008, that we can say grace over 

and do an effective job of eliminating using the criteria we have 

now. When we get that to zero, then it would make sense, our level 

of monitoring, our level of sampling, our ability to access the databases and so forth will be such that we will have the ability to get 

the error rate down from 2.5 percent to something lower than that. 

Right now, we have a 10-year challenge ahead of us to get it down 

to 2.5 percent. 

Senator CARPER. All right. I appreciate this discussion. I think 

it has been illuminating. But my question is sort of using a common sense test or application, what changes do we need to make 

next year in the current law with respect to improper payments? 

Mr. JOHNSON. I was talking with my brain trust on the way 

down here and asking them that very question. 

20

Senator CARPER. It is an impressive group. 

Mr. JOHNSON. Well, it is a large group because this is a complex 

issue. 

Senator CARPER. I think you told me coming in that the more 

complex the issue——

Mr. JOHNSON. The more complex——

Senator CARPER [continuing]. The bigger the posse. 

Mr. JOHNSON [continuing]. The bigger the posse, right. But it is 

a huge issue. I remember visiting with the President a couple of 

years ago and he asked me what I was involved in and working 

on. I talked about this and that and one was improper payments. 

I said, guess what our level of improper payments are, and he had 

no earthly idea. I said, well, we have only measured, I don’t know, 

two-thirds of all the programs that are at risk of making improper 

payments and we think it is $45 billion. He was dumfounded, as 

you all are and as the American people would be if they knew. It 

is a huge opportunity for us to really do good work here. 

But the things that are not as clear as we would like them to 

be and as you all would like them to be are what we should be 

doing with regard to contract payments and what we should be 

doing with regard to things like tax refund errors. Those are improper payments. But how do we want to be treating those? So 

there is some clarification of categories of payments that I think 

need to be dealt with that will make it clear to all, and with IRS 

and Treasury and OMB and the relevant agencies as to what kinds 

of things we should be looking at here. 

And there should be a time to focus on those things where we 

can go do some good work. There is action to be taken to eliminate 

them. Contrarily, when talking about Social Security, it is nice to 

know. We can’t do anything about it. We might be able to prevent 

it, but that is not what I have understood the opportunity is. 

To me, that is what the biggest opportunity is on this, plus 

changing the laws that prevent us from getting at data that would 

allow us to prevent a lot of these improper payments. And I don’t 

know if that would fall under this Act, amendments to this Act, or 

that would fall under legislation that dealt with education matters 

or labor matters or defense matters or whatever. 

Senator CARPER. Mr. Walker. 

Mr. WALKER. Several things. One, I think you need to consider 

cost-benefit in defining risk, and I do think that you need to consider what the cost would be if you modified the 2.5 percent, but 

I think that needs to be focused on because that determines what 

is on the radar screen. 

Two, I think that there are categories of payments that you need 

to clarify how they should be handled. Mr. Johnson talked about 

a couple. Another one that I talked about was the due process payments. I am not saying what the answer is. I am just saying you 

need to focus on it and decide whether or not you think they ought 

to be included or not included and to try to help assure that there 

is consistency. 

Senator CARPER. Can you give an example? You mentioned due 

process earlier, I think with respect to, what was it, Social Security 

payments? 

21

Mr. WALKER. Yes, disability payments. It is any kind of payment 

where by law there—even though you know it is improper, there 

is a due process right that the person has by law, and it is very 

common for entitlement benefits and things of that nature. 

Right now, my understanding is they are not on the radar 

screen, and I think there are two angles to that. One angle is the 

one that Mr. Johnson talked about. How much do we recover after 

you go through all the due process? But the second angle is, well, 

how much money are we spending on due process that otherwise 

we might not have to spend if we had the preventative controls in 

place that kept us from having the problem to begin with, and I 

think that is a cost-benefit issue, too. I think we have got to talk 

about that. 

My only point is he mentioned a couple. I mentioned a third 

where I think we need to decide how they ought to be treated and 

we ought to consider cost-benefit. 

The third angle is, and I am not sure if this has to be legislative, 

maybe it could be done administratively, but if you are going to do 

legislation anyway you may want to think about how do we want 

to count the improper payments? On the example that I gave you, 

if the payment that was made was $10 and it was not a duplicative 

payment, all right, but the only amount in question is a portion of 

that, do you want to count the whole thing or do you want to count 

a piece of it? 

I think this is very important and I am not sure that it relates 

directly to this Act but I think it is necessary in order to deal with 

the intent of this Act, and that is there are certain barriers that 

prevent the government from employing data matching and data 

mining techniques in order to, A, prevent improper payments to 

begin with, and B, to recover on improper payments after they 

occur. And I think when you are talking about taxpayer money, I 

think that we need to look at where additional flexibility could be 

provided there. That is different than when you are talking about 

the use of data and data matching where you are not talking about 

taxpayer money. I mean, they are not taxpayer resources. 

And then last, and this is clearly beyond the scope of this legislation but I think it is clearly valid based upon one of the things that 

Mr. Johnson said, I think the eligibility requirements for some Federal programs are just so complex that ultimately down the road, 

and this is separate and distinct from this legislation. We need to 

relook at a lot of existing Federal spending programs and tax policies because they are just so complicated it is almost impossible to 

effectively comply and minimize errors. 

Senator CARPER. And if we were to do so, General Walker, following up on your last comment, if we were to do so, and clearly 

that is beyond the scope of this—well, you just said it is beyond the 

scope of this law, but if we were to do so, what are the implications, if you will, or the benefits from taking those steps? I think 

I know the answer, but go ahead and say it. 

Mr. WALKER. We would save billions of dollars and we would improve the credibility of and the confidence in government in a variety of ways, among other things. 

Senator CARPER. And who would have the responsibility for 

doing that? At the Congressional level, it would be program by proVerDate 0ct 09 2002 10:24 Sep 20, 2007 Jkt 032355 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 C:\DOCS\32355.TXT SAFFAIRS PsN: PAT
22

gram, committee by committee, and within the Executive Branch, 

department by department? 

Mr. WALKER. I think with regard to eligibility requirements, 

many of those may be statutory and that is going to be the Congress’ responsibility and I would say it would be the committee 

with jurisdiction over the particular programs involved. 

As you know, Senator Carper, and Senator Coburn does, too, we 

issued a document in February 2005 called ‘‘21st Century Challenges: Reexamining the Base of the Federal Government.’’ That 

just gives 200 examples of things that need to be looked at and reengineered. The eligibility requirements of certain programs. I am 

sure we have some examples in that document, but they need to 

be done by the appropriate authorizing committees and those that 

have responsibility for the respective programs. 

Mr. JOHNSON. Two ideas kind of along the lines of the question 

you are asking, Senator Carper, is I will bet you the access to different databases or the statutory changes, it is enabling legislationspecific and it has to come out of that authorizing committee. But 

when you—and I am not the most knowledgeable person about how 

Congress works, but my impression is when you approach an authorizing committee about wanting to change some enabling legislation, they think, well, I don’t want to do this because this has 

served us well for 10 years and I don’t want to change it. 

But if they understand that this is a common problem amongst 

several authorizing committees, six, eight, ten authorizing committees and there are access to database opportunities for all these 

committees, maybe one of the things this Subcommittee can do is 

help us bring all these different authorizing committees together 

and look at it as a group so that we are making the argument to 

all the relevant authorizing committees with you all’s endorsement 

so we get them all to understand this is a government-wide opportunity for us to better spend the taxpayers’ money and to better account for the taxpayers’ money, and then they can go off and make 

the necessary changes, but they understand they are part of a government-wide effort as opposed to being singled out. So that isn’t 

just changing the law, but it is a way that you would operate and 

interact with other committees. 

And then I don’t know if this impacts the law, but one of the 

things that I didn’t understand at the beginning when I started 

working in improper payments was if the improper payments are 

$45 billion and we take it to zero, that does not mean that we reduce our outlays to zero, our improper outlays to zero, because a 

lot of these improper payments are payments that are at risk of 

being improper. We don’t have the necessary paperwork to say this 

is a proper payment, so we put it as it is improper. We did not get 

the required paperwork. When we tighten our processes and, in 

fact, get the required paperwork, we confirm in many cases that, 

in fact, it was proper. 

This happened this past year when the Medicare error rate went 

down seven-point-something billion dollars. Payments remained the 

same, but we had confirming paperwork. We started getting confirming paperwork from physicians that we did not have before. So 

we now know that these payments are proper, but without that paperwork, there was a risk that they were improper. 

23

If we want to distinguish between those and have a reporting on 

the difference, distinguish between, in our reporting, about what 

impacted outlays or recoveries and what took us from a risk of 

overpayment or underpayment to an assurance of propriety, that 

would be important, because right now there is a suggestion, because I wasn’t clear about this for the first year, that we are not 

saying that we are paying out $41.6 billion improperly. There is 

some of that, but there is some of it where there is the risk of that 

that we will subsequently find out was proper. 

Senator CARPER. And that is the point that I think General Walker has been making, about if you have a $10 payment and $8 

of it is appropriate, is it really a $10 improper payment? 

Mr. JOHNSON. Right. 

Mr. WALKER. That is correct. I mean, it may be a lack of documentation and it could have been a proper payment, and I think 

that is an issue——

Mr. JOHNSON. Right. 

Mr. WALKER [continuing]. That we need to understand. Should 

we somehow recognize that and report it differently? 

Let me give you an example that you all can relate to, earmarks. 

Congressional earmarks clearly have proliferated. Clearly, there is 

a major problem. Clearly, something needs to be done. But even if 

you eliminated every dollar of Congressional earmarks, you are not 

necessarily going to save a dollar of taxpayer money because it is 

saying how you are going to spend the money, not how much 

money you have to spend. On the other hand, it could significantly 

increase public confidence and trust in their government and credibility if something was done about earmarks. There is an analogy 

here. 

The last thing is let me give you two examples, I believe, of programs, one on the spending side, one on the tax side, where there 

are very complicated eligibility requirements. Disability——

Senator CARPER. Under Social Security? 

Mr. WALKER [continuing]. Under Social Security would be a 

spending side. On the tax side, the Earned Income Tax Credit, 

mind-bogglingly complex. And so while that is beyond the scope of 

this Subcommittee, one of the great things about the Senate Homeland Security and Governmental Affairs Committee is that you are 

concerned with all of government with regard to how government 

is organized and managed. And a lot of the things we are talking 

about here are systemic problems that cross many organizational 

boundaries in the Legislative Branch as well as the Executive 

Branch. Somebody has to have a more strategic and cross-cutting 

approach and I think this Subcommittee is well positioned to try 

to do that in partnership with the other committees with jurisdiction over particular programs and policies. 

Senator CARPER. OK. I think I have almost used up my time, Mr. 

Chairman. What do you think? Let me just stop there and just say 

at this point thanks very much for those responses. 

It would be of value to me, and I suspect to the Chairman, but 

certainly to me as we look to the next Congress, if we were to ask 

you to put in writing some of what you have just said in response 

to my original question, common sense changes to the current law 

on improper payments. 

24

Chairman COBURN. I would think in addition to that the specifics 

of the cross-availability of data, specifically what data needs to be 

cross-referenced to be able to protect against fraud. I think that is 

a legitimate role for the Federal Government, to make sure that 

public money isn’t fraudulently scammed, and the easy way to look 

at that is where is the money coming from, where is it going, and 

who is claiming disability and yet has filed an income tax report 

that doesn’t have that? The two aren’t looked at together. I don’t 

think there is anything wrong with doing that in a very limited 

perspective that will save us a ton of money. 

The final point I would make, and I know Mr. Johnson agrees 

with this but it is detail and it goes all the way down, I agree that 

the very expensive small percentage changes are not something we 

should go after now. But I don’t agree that management systems 

shouldn’t have individual managers saying, we ought to look at this 

because it is good management inside our own agency. So if that 

happens in terms of improper payments, what happens is they 

never have to report it, they just fix it. And that is what ought to 

be our goal. 

The reason we have an Improper Payments Information Act is 

because we didn’t know. The purpose behind the Act ultimately is 

to be more efficient and more accurate with what we do. So I would 

just encourage that something come out from OMB all the way 

down to the ones that even have no risk saying maybe you ought 

to take a look at this once and see. It still sticks in my mind when 

HUD says there is absolutely no risk with CDBG block grants and 

so therefore they don’t look at it, that is a signal to the rest of the 

people getting CDBG block grants, we can take advantage of this. 

They are not looking at it. 

So I think management systems need to be the same throughout 

every level of government and every area. Good management is 

good management and that requires checks and balances and tools 

to assess that what we did this year needs to be changed in this 

way to be more efficient with why we do it next year. And I know 

you all are trying to do that. I know to get your hands around this 

behemoth is difficult and I think we are making good progress. I 

just think we need to make more and we need to make it faster, 

and part of that is because what is impending coming down the 

road for us. 

You are going to be thankful you are not in OMB in 10 years 

when the real problems start hitting the fan. And I am thankful 

again, I will say it to General Walker, the American people need 

to know what is going on because Congress certainly hasn’t been 

honest with the American people about the impending nature of 

the financial difficulties we face and I am very thankful that he is 

out there. I have been preaching this since I have been in the Senate, what is going to happen. 

We need to do the best job we can now to get things under control because we are going to have to make a lot of cuts 10 years 

from now and we need to have the financial tools to know which 

ones are good and which ones aren’t, which ones are efficient and 

which aren’t, because we need to be able to have the Congress say, 

we are going to have to make hard decisions. Which ones go? 

25

Which ones stay? And if we don’t have good management tools, we 

are not going to be able to do that. 

I want to thank each of you. I would reiterate, I would love to 

have from you in writing the cross-agency data mining you think 

minimally is necessary to accomplish your goals, the recommended 

changes that you would like to see in the statute, and if none. And 

also what is happening on these other areas, where are you going 

and why, so that we can look at that. 

With that, are there any other comments? 

Thank you for your attendance. The Subcommittee is adjourned. 

[Whereupon, at 11:46 a.m., the Subcommittee was adjourned.] 

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