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41–799 CC 1997

OVERSIGHT OF THE GENERAL ACCOUNTING

OFFICE’S HIGH-RISK SERIES

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

AND OVERSIGHT

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

FEBRUARY 13, 1997

Serial No. 105–16

Printed for the use of the Committee on Government Reform and Oversight

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

J. DENNIS HASTERT, Illinois

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

STEVEN H. SCHIFF, New Mexico

CHRISTOPHER COX, California

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

JOHN SHADEGG, Arizona

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

JOHN E. SUNUNU, New Hampshire

PETE SESSIONS, Texas

MIKE PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas

BOB BARR, Georgia

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

CAROLYN B. MALONEY, New York

THOMAS M. BARRETT, Wisconsin

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

TIM HOLDEN, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JUDITH MCCOY, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

PETE SESSIONS, Texas

THOMAS M. DAVIS, Virginia

JOE SCARBOROUGH, Florida

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

JOHN E. SUNUNU, New Hampshire

——— ———

CAROLYN MALONEY, New York

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director

ANNA MILLER, Professional Staff Member

ANDREA MILLER, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on February 13, 1997 ....................................................................... 1

Statement of:

Dodaro, Gene L., Assistant Comptroller General, Accounting and Information Management Division, U.S. General Accounting Office, accompanied by Keith O. Fultz, Assistant Comptroller General, Resources,

Community, and Economic Development Division, U.S. General Accounting Office; and Henry L. Hinton, Jr., Assistant Comptroller General, National Security and International Affairs Division, U.S. General

Accounting Office .......................................................................................... 9

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

Dodaro, Gene L., Assistant Comptroller General, Accounting and Information Management Division, U.S. General Accounting Office:

Information concerning exposure to fraud .............................................. 61

Prepared statement of ............................................................................... 16

Hinton, Henry L., Jr., Assistant Comptroller General, National Security

and International Affairs Division, U.S. General Accounting Office, information concerning military officers ........................................................ 55

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

California:

Followup questions and responses ........................................................... 88

Letter dated February 13, 1997 ............................................................... 80

Prepared statement of ............................................................................... 4

Sessions, Hon. Pete, a Representative in Congress from the State of

Texas, prepared statement of ....................................................................... 8

(1)

OVERSIGHT OF THE GENERAL ACCOUNTING

OFFICE’S HIGH-RISK SERIES

THURSDAY, FEBRUARY 13, 1997

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY, COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, Washington, DC.

The subcommittee met, pursuant to notice, at 9:30 a.m., in room

311, Cannon Office Building, Hon. Stephen Horn (chairman of the

subcommittee) presiding.

Present: Representatives Horn, Sessions, and Maloney.

Staff present: J. Russell George, staff director; Anna Miller, professional staff member; Andrea Miller, clerk; and David McMillen,

and Mark Stephenson, minority professional staff members.

Mr. HORN. The Subcommittee on Government Management, Information, and Technology will come to order. Today’s hearing is on

the Oversight of the General Accounting Office’s High-Risk Series.

We are going to take a look at what I have called the catalog of

horrors, the areas of Federal agency mismanagement that the General Accounting Office monitors, and brings to our attention at the

beginning of every Congress, that makes up this series. The GAO

has done an outstanding job in going into the agencies, following

a series of misadventures, and warning both executives and members of the oversight committees and the legislative branch as to

some of the problems that exist.

They have been compiling this list since 1990. And 7 years later,

10 of the original 14 areas are still listed as at high-risk for fiscal

mismanagement. Seven years is a long time. Long enough, one

would imagine, for an agency that really wanted to improve its

management of the funds entrusted to it to make the changes that

would have tangible results.

Not so, apparently, for those agencies that were characterized in

1990 as lacking the controls needed to ensure that Federal funds

were not being wasted, stolen, or otherwise spent inappropriately.

In many cases, the General Accounting Office noted that these

agencies were aware of the problems, aware that they were not in

compliance with the requirements of the Federal Managers’ Financial Integrity Act, yet did nothing to correct the problems. And 7

years later in 10 cases, they still have done very little or nothing

about it.

As many of you know, the Federal Managers’ Financial Integrity

Act of 1982 required agencies to establish systems of internal control that would ensure that funds, property, and other assets were

2

safeguarded against waste, loss, unauthorized use, or misappropriation.

I think that something needs to be done to ensure that the Federal agencies make at least some sort of effort to comply with the

laws that the Congress has passed. If they do not, then the executive branch is really out of control.

The 10 cases that were on the initial high-risk list and have

made so little improvement that they remain on that list year after

year and Congress after Congress, include the Internal Revenue

Services’ receivables, farm loans, student financial aid, defense inventory management, defense acquisition system, asset forfeiture

programs, Medicare fraudulent claims, and contract management

in the Department of Energy, the National Aeronautics and Space

Administration, and the Superfund.

The Internal Revenue Service is what I have called repeatedly a

basket case agency. Its collections rate is extremely poor, and the

entire agency seems to have this mind-set that makes them hunker

down, think of excuses, and resist change, rather than try to improve.

The debt collection legislation, which I offered and Mrs. Maloney,

the ranking Democrat, co-authored, will improve debt collection

throughout much of the Federal Government, but it has not yet applied to the Internal Revenue Service. But we are told that the

Committee on Ways and Means will report a bill almost similar to

our own. And yet a year has gone by.

The IRS claims that it is hampered by privacy considerations. So

we need to do more to encourage them to adapt and to make the

attempt to collect from the deadbeat taxpayers what is owed to the

other taxpayers. Because when they cannot collect what is owed,

it means that the rest of us are paying the bills of the Federal Government. Agencies need to work together on this, to share information on the deadbeats before they hand out more money.

And that is what got me into this thing, when I read about a

farmer in northern California, who had a farm loan, and was defaulting on that. And then he gets a loan to get an apartment

building in Santa Barbara, even though he was in arrears on the

first loan.

If we could root out this waste of Federal funds, we could go a

long way toward balancing the budget. There are actions that the

agencies can take that would immediately stop this hemorrhaging

of funds. A foolproof ID card would certainly eliminate fraudulent

claims. That has been done in Los Angeles County, and thousands

of people suddenly quit claiming welfare. Because they knew that

the 5 or 10 claims that they had filed under different names at different offices, that they would then have some criminal action

taken against them.

Checking on people’s eligibility status would send a message that

we are serious enough about paying benefits only to those who deserve them, and many of the disabled are not adequately paid. And

if we could get rid of the people that are bogus disabled, we could

help those that are really in need.

It would cut down on improper claims if we had the proper identifications, and it would let more money go out to those who truly

need it.

3

It is possible to get off the General Accounting Office’s high-risk

list. Four programs from the 1990 series have gotten off. They were

the Resolution Trust Corporation, the Pension Benefit Guaranty

Corporation, the Federal Transit Administration Grant Management, and the State Department Overseas Property Program. The

Bank Insurance Fund was on for only about a year.

So it is possible to improve. The question is: why do the other

areas not show similar rates of improvement? I hope that the General Accounting Office in its testimony today will shed some light

on this.

Today, we will also spend time discussing the five new areas

added to the list in 1997, as new challenges for this Congress and

this administration. Two of the new areas that were added are Information Security and the year 2000 computer problem. This subcommittee has been conducting active oversight in both of these

areas, and will be doing more in this Congress.

Also added are fraud in the Supplemental Security Income Program, the Defense infrastructure, and the Decennial Census for the

year 2000. We will hear more about these areas from the representatives of the General Accounting Office.

Mr. Gene Dodaro, the Assistant Comptroller General in GAO’s

Accounting and Information Management Division, will give an

overview of the areas in the 1997 series. He will be accompanied

by Henry Hinton, the Assistant Comptroller General, National Security and International Affairs Division, and Keith Fultz, Assistant Comptroller General, Resources, Community, and Economic

Development Division. They will all be available, as will additional

staff in the room, to answer questions in specific areas. And we

look forward to your testimony.

We will give the oath after the ranking member gives her opening statement. And I would ask the leadership of GAO that is here

to decide who is going to testify besides you. And we will have one

mass swearing in of whoever you suggest, Mr. Dodaro, rather than

have to go through giving the oath every time somebody comes up

to the table.

So I am now delighted to call on the distinguished ranking member from New York, Mrs. Maloney.

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

4

5

6

Mrs. MALONEY. Thank you very much, Mr. Chairman. And I welcome Mr. Dodaro to the hearing.

As you know, I am a big fan of the high-risk series. I have always found the series to be a valuable tool for focusing our efforts

in this committee, and in my own personal legislative agenda. So

I thank you for this series. It is tremendously helpful.

It is a sad commentary that so little progress has been made in

these programs over the last 2 years. Most of the problems on the

high-risk list have been there since the list began in 1990. But as

you said to me yesterday, Mr. Dodaro, these programs are the culmination of years of neglect, and they cannot be fixed overnight.

Let me turn first to the items added to the list this year. Information issue dominate the list of the new items. This reflects a belief that I brought to Congress from my experience in New York

City, that good management practices begin with good information.

I congratulate the GAO for adding the 2000 census to this list.

I was dismayed by the report passed by this committee last year,

which would prohibit the Census Bureau from using techniques

that would make the census more accurate, more fair, and less expensive. I plan to work during this Congress to make sure that the

2000 census is as accurate as possible, and fair to all Americans.

But problems with the census may just be the tip of the iceberg

of problems with the Federal statistical system. Federal Reserve

Chairman Greenspan has focused attention on problems with the

Consumer Price Index, and we have seen how that affects our

measures of productivity and the Gross Domestic Product.

I hope that the chairman will work with me to pass the Statistical Confidentiality bill that we introduced last year, which will

provide some of the tools necessary to prepare our statistical system for the 21st century.

I would also like to draw attention to the issues that are important to this subcommittee: the year 2000 computer problem, and information security. The former was brought to public attention by

this subcommittee. The latter is one that I have been concerned

about, and look forward to working with Chairman Horn to see

that Government agencies protect the information entrusted to

them.

I am dismayed to see that there is so little improvement at the

Department of Defense. In fact, a new trouble spot has been identified, the inability of the Department to shrink the infrastructure to

be parallel with the reduction in forces over the past 6 years.

Meanwhile, problems with financial management, contract managements, and inventory management continue.

Also, it is distressing to see so little progress at the Internal Revenue Service. While the GAO makes the point that HUD is the

only agency where the entire agency is at risk, the IRS is not far

behind.

I am reminded of a prediction by my colleague, Senator Daniel

Patrick Moynihan, that the United States would have a flat tax by

the year 2000. Not that he supports a flat tax, but he said that it

would be the only system that the IRS will be able to administer.

There are a number of issues here, like Medicare, that highlight

the importance of Congress and the administration working together. For too long, Congress has pressed the administration to

7

speed up payments, and then turned around and beat them up over

errors resulting from that haste.

We need to work together to craft a system that does not delay

payments to doctors and insurance companies, and at the same

time, prevents fraud and abuse.

I look forward to working with Chairman Horn on these issues

on this committee. With GAO’s help and cooperation from the administration, I am sure that we can make progress on many of

these risky projects.

I would like to end by saying that I appreciate the chairman’s

comments on the Debt Collection bill. That was a very exciting bill

for me, to have worked together on it, and to have passed it, and

to have a prediction from Treasury that it will bring in $10 billion

over 5 years.

I would also like to mention the work that we did on royalty collection, which I believe will bring in $2 billion, but it needs a lot

more work. And I would just like to thank the chairman for his

help in the past, and hope that he will schedule hearings on the

royalty issue, and particularly the global settlements. Because it is

very timely and important.

Thank you very much.

Mr. HORN. Well, we thank you.

And now, ladies and gentlemen, if you have decided, Mr. Dodaro,

who will testify with you, just have them stand, and we will swear

them in.

[Witnesses sworn.]

Mr. HORN. I take it that there is affirmation from everybody, and

the reporter will note that. Please be seated.

Mr. Dodaro, may I say I guess before we start that we have an

additional member, the vice chairman of the committee, Mr. Sessions, who has spent a lot of work on this.

Would you like to make an opening statement at all?

Mr. SESSIONS. Mr. Chairman, I am glad to be here today.

[The prepared statement of Hon. Pete Sessions follows:]

8

9

Mr. HORN. I agree with you on that approach to opening statements.

Mr. Dodaro.

STATEMENTS OF GENE L. DODARO, ASSISTANT COMPTROLLER GENERAL, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE;

ACCOMPANIED BY KEITH O. FULTZ, ASSISTANT COMPTROLLER GENERAL, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE; AND HENRY L. HINTON, JR., ASSISTANT COMPTROLLER GENERAL, NATIONAL SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING

OFFICE

Mr. DODARO. Good morning, Mr. Chairman, Congresswoman

Maloney, and Congressman Sessions.

We are pleased to be here today to testify on GAO’s 1997 highrisk series. As you pointed out, many of these areas we have been

tracking for the last 7 years. We have made hundreds of recommendations aimed at correcting the fundamental core problems

of accountability underlying many of these high-risk areas.

We have seen in the last few years progress being made by the

agencies, as well as greater attention by the Congress in passing

some specific legislative proposals and broad management reforms.

However, none of these actions have yet come to fruition. And as

a result, the 20 areas that we have been tracking since the 1995

series remain on the list, and we have not yet removed their highrisk designation. And as you pointed out in your opening statement, we are adding five new areas to the list.

I thought I would focus my opening remarks on taking a quick

tour through the 20 areas that are still on the list, and then discuss the new ones quickly. And then we can enter into some questions.

As you pointed out, many of the areas focus on the Defense Department. Our focus there is focusing in on accountability for a

large percentage of the Federal Government’s budget, as well as

making sure that Defense has a cost effective means of carrying on

its mission.

Many of these problems have been entrenched, serious ones for

a number of years. Department officials to their credit have recognized the seriousness of the problems, in many cases for the first

time, and are beginning to take some action.

We have seen in the contracting area some effort to streamline

the process. In the inventory area, there has been some attention

to limited parts of the inventory, especially medical supplies and

foodstuffs. The Department is trying to get on top of its billions of

dollars in problem disbursements. And there are some efforts to reform the acquisition process by buying more commercially available

goods, as well as the Congress implementing the new Federal Acquisition Streamlining Act.

So we have seen some progress, but nowhere near what is needed to really correct these programs. And as a result of these problems not being corrected, we are at risk of continuing to make millions of dollars of overpayments to contractors. We are at risk of

spending over several billion dollars of inventory that is not needVerDate 11-MAY-2000 10:44 May 28, 2002 Jkt 078982 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 W:\DISC\41799 pfrm09 PsN: 41799
10

ed. As of 1995, about half of the $70 billion in defense inventory,

or about $35 billion, was not needed.

We are also at risk of not properly accounting for the Department’s funds. No major component of the Defense Department has

yet to receive a positive audit opinion. And the prospects of any

part of DOD receiving a clean opinion are extremely dim at this

time. We are also at risk for continuing to have inefficiencies in our

weapon systems procurement process.

And as a result of all of these activities, basically you have a de- partment that accounts for over $1 trillion in assets, and accounts

for $250 billion or about half of the total discretionary spending of

the Federal Government, not able to have an accurate accounting

for its activities and programs.

And you are also at risk for billions of dollars of money being

drained away from being productively invested in enhancing our

military readiness, and also from being able to support properly the

activities weapon systems that really need to be acquired and fielded in the Department to make sure that it is best able to enhance

its mission.

Now in the next area, we highlight problems not only in how the

Federal Government accounts for money that it spends for its activities, but how it has difficulties in accounting for money that it

takes in from the American taxpayers.

Over the past 4 years we have been unable to render an audit

opinion at the Internal Revenue Service, because of its ability to

not substantiate balances of total amounts collected for $1.4 trillion

in revenues with the account balances of individual taxpayers.

They also have been unable to substantiate balances by type of tax.

And we have been unable to verify the accuracy of accounts receivable, both the valid amounts for delinquent taxes, as well as

how much is actually collectable and could be dealt with appropriately.

The IRS has responded to some of these changes. We have seen

some improvements. We now have a statistical sampling method

with them to estimate accounts receivable. Unfortunately, it has

not been carried out properly. So we still have problems there.

IRS is making some efforts in better accounting for its $7 billion

in appropriated funds. They have about reconciled their fund balance with Treasury, and we are verifying all of these activities as

we complete our 1996 financial audit of IRS, which will be out in

the next few months.

The problems remain, though. We are still a long way in the revenue accounting system from having full compliance with the Chief

Financial Officers’ Act. There are some interim measures that we

have suggested that IRS is pursuing, but it is going to be some

time before they get on top of these issues and have proper accounting for tax revenues.

Also in the receivables area, we give IRS a bit of credit for accelerating collections, to try to get to these things faster in the process. Collections are up a bit, however, we still have serious problems related to the lack of good information to accurately measure

the receivable balances, and actually go after effectively and collect

these large amounts of money that are owed the Federal Government. So that problem remains a serious one.

11

Also, filing fraud grew dramatically from 1991, where we had

about 11,000 filing fraud returns to 77,000 in 1994. In 1995, it

came down to 62,000. IRS put in some better up front filters to

screen out people, for example, who are eligible to do electronic filing. But the fact remains that we still have a serious filing fraud

problem at IRS that needs continuing attention.

There were still 60,000 returns filed in 1995 with estimated values of over $100 million; this is still a serious problem in need of

attention.

I would turn your attention to another one of the Federal Government’s major activities, which is granting loans. We have about $1 trillion in loans and loan guarantees. The Federal Government

is the largest lender in the United States.

In the three areas that we have been tracking, we have seen important progress in the past few years, particularly in the farm

loan area, with the passage of the Agricultural Improvement Act.

The student loan area has had some success implementing previous congressional reforms, but it still remains at risk, because of

the inability to have accurate information to measure the amounts

of money that the Federal Government is liable for, and to effectively manage the collections process, and keep defaults at a minimum.

HUD, which was the original impetus for the high-risk list back

with the scandals in the late 1980’s, remains a problem. They have

made some progress in correcting some of their fundamental problems, which revolve around poor controls and systems. They have

also had problems with clear organizational accountability between

headquarters and the regions, as well as difficulties in having the

appropriate number of skilled staff necessary to carry out their activities.

They made some progress in each of those areas, but many of

their actions are not yet complete. And we think that it is a good

opportunity at this point to look at HUD and its mission, and possibly the need to consolidate some of its programs, moving forward.

In addition, in that area, we think, as mentioned in your opening

statements, that the Debt Collection Act that was passed is an important tool. And we are monitoring it as it unfolds over the next

few years. And we supported the passage of that legislation, and

think that will make a difference in these programs and other lending programs across the Government.

In 1995, we added a major new category of information technologies projects. We added four multi-billion dollar activities on

the part of the Federal Government, which have a great deal of importance.

The IRS tax system modernization effort, which affects IRS’ dealings with individual taxpayers and has a broad effect on the citizens; the air traffic control modernization effort, obviously of great

import to national safety in carrying out the air traffic system; the

National Weather Service, which gathers important data for weather forecasting purposes, particularly for severe activities; and, the

Defense Department’s multi-billion effort to revamp its information

technology projects and information systems.

We have seen a litany of problems in these areas. And there are

some common problems that have been identified, and I will not go

12

through each one right now. But some of the common problems are

the failure to have the modernization activities governed by a welldefined plan and a business strategy: What exactly do we want to

accomplish? This was at the heart of the IRS’ problems, for example.

No. 2, we have seen a lack of an overall systems blueprint, or

technical architecture, for carrying out those activities.

No. 3, we have seen Federal agencies, as they go through and develop software on their own, do it in a rather haphazard fashion.

We have rated many aspects of the Federal Government according

to the Software Engineering Institute criteria, and we found them

to be at the bottom level, initial level, which means that the software development is ad hoc and chaotic. And that is the reason

why you do not get quality systems developed on time and within

cost and performance goals.

The fourth area is that we found that Federal agencies are not

much better at managing contractors developing software systems,

either. This was true at the FAA, of defining requirements and

monitoring the contractors. We found similar problems at IRS with

their cyber-file effort that has been abandoned in the past year.

Part of what we have done over the last few years is to work

with the Congress and the administration to go out to the private

sector and look at how organizations in the private sector successfully put in place information technology projects to increase their

effectiveness, as well as to reduce their costs.

And the Congress in the last couple of years has reauthorized the

Paperwork Reduction Act, and passed the Clinger-Cohen Act. For

the first time in over a decade now, we have modern management

practices that take lessons learned in the private sector and apply

them to Government.

We have got a requirement now for chief information officers to

lead these efforts, and to support chief executives in carrying out

their missions. We now have got better information investment

processes to focus on, are we really going to get a return on this

investment.

We encourage the development of modular procurements, not

multi-year efforts that you cannot track whether you are getting

activities or not. There is also a requirement now for architectures

to be put in place.

So a lot of the management tools that have been successfully applied in the private sector are now requirements for Federal agencies. We are encouraged by this, but we are also cautious about the

fact that we have seen reforms put in place before, and it takes a

long time for them to get implemented.

So we would encourage this subcommittee and other committees

of the Congress to really monitor how well this legislation is being

put in place especially the quality of the chief information officers,

and whether we are going to get the Federal Government into the

information technology age.

This is a pivotal point and one of the greatest risk categories that

we have, because unless the Federal Government can manage technology better, we are not going to have good service delivery to our

citizens, and we are going to continue to waste billions of dollars

that could be better productively invested.

13

The next area has to do with benefit programs. We have had

Medicare on the list from the beginning. This is a program that

continues to be ripe for exploitation. Fraud estimates in the Medicare programs range from 3 to 10 percent, which means about $6

to $20 billion a year we are losing out of that program because of

fraudulent activities.

Again the Congress has responded in the past year in passing

legislation to put back some program safeguards and screens into

the process, as well as providing some additional money for the Inspector General’s Operation Restore Trust Program, which is to

track down people who are taking undue advantage of the system.

But some of the best tools that need to be applied here are more

up front better software with commercially acceptable screening

packages to prevent fraudulent payments from going out in the

first place, rather than the pay and chase mentality. And HCFA is

putting together some reforms. They are also moving toward a new

Medicare Transaction System, which is intended to put some of

these benefits in place. We have identified some risks with planning for that system, and HCFA has responded. And they are retooling that program now, and we are continuing to evaluate it.

But that will be an important factor.

In the last category, a number of critical Government functions

have been carried out historically by private contractors. In these

three areas, Energy, NASA, and Superfund, we have seen some improvement over the past few years with contract management reforms under way. However, in all of the cases, there are still remaining problems. And we are a bit reticent to take any of them

off the list until we actually see some of the practices put in place.

For example, in the Energy area, the notion of having more competition for the contracts has yet to become the rule rather than

the exception. And we are also concerned that the contractors’ priorities mesh with the Department’s priorities as well.

In the Superfund area, there continues to be a problem with

prioritizing what best areas for clean-up, as well as monitoring contractors; recovering all of the costs that are due to the Government,

particularly in the indirect cost area; and making sure that we are

not overpaying the contractors.

Now in addition to these 20 areas, we are adding 5 new areas

in 1997. Defense infrastructure. About two-thirds of the Defense

budget right now is spent for operations and support activities. We

have had a reduction in the force structure, but we have not had

a commensurate and concomitant reduction in the support structure.

And, as a result, you have excess capacity in laboratories, health

care areas, transportation, and in old facilities that are being maintained at an extraordinary cost.

We advocate a structured approach to get on top of this issue

similar to the base closure activities that have been carried out in

the past, and maybe looking toward whether or not we need to

start another process like that again.

Information security in the year 2000. This is the first time in

the high-risk series that we are adding government-wide issues.

We have been very concerned in the information security area. For

14

example, we issued a report last year that talked about hackers

getting into DOD systems.

But in 1995 alone, about 250,000 intrusions were reported, 64

percent were successful, and many speculate that this is just the

tip of the iceberg, and not all activities are being reported. Over the

last 2 years, we have issued thirty reports on information security

problems across the spectrum of Federal agencies with some very

serious problems.

We have also issued a report to OMB to encourage them to take

more government-wide leadership in this area. This is just a very

serious problem. Our information systems right now are porous,

and we need to get on top of this issue, particularly as we move

more in a network environment.

The year 2000 problem is one that this committee needs no spelling out of the problems. Indeed, the committee has taken a leadership role in this area over the past year. We agree with the subcommittee that this is a serious problem, and could have disastrous

consequences on how the Federal Government delivers benefit services and carries out its operations.

We are currently looking at the readiness of the Department of

Defense, the IRS, the Social Security Administration, and the

Health Care Financing Administration. We are developing a best

practices guide based upon lessons learned in dealing with this

problem in the private sector. And we are going to use that guide

to evaluate Federal agencies’ readiness and report their progress.

The SSI program is another new area we are adding. It is a fastgrowing program. Currently, it is over $22 billion a year. We estimate about 5 percent, or $1 billion, in overpayments. There are difficulties here controlling the eligibility, both the initial determination and the ongoing eligibility for the SSI program.

We have issued reports in the past about people who are not currently eligible continuing to receive benefits, including prisoners

that are receiving checks.

The welfare reform legislation last year put in place some eligibility determinations to tighten this for immigrants, for example.

But determining eligibility in this case has been a concern from the

beginning, and we think that with the growing potential work load

in this area, that it is time for us to raise the visibility of the problem.

The last area is the 2000 census. Now this is an area that does

not necessarily fit neatly into the categories in the high-risk areas

that we have been tracking, but it would be very late as we do our

next update in 1999, to alert the Congress to the growing problem

here.

The problem with the census has been that in the last few censuses the cost has grown dramatically. The response rate for the

questionnaire has gone down, which requires enumerators to go

from door to door. For almost one-third of the households in the

1990 census, the Bureau had to send a person to the door. And the

quality of the count has gone down.

The Census Bureau has developed a plan to do statistical sampling. We think that merits looking at, although the quality of the

sampling plan is important, and we are looking at that. By no

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means is that an easy task, and it needs to be carried out successfully.

But we think that the Congress and the administration need to

agree on the methodology for conducting this census. We are running out of time. In about another year, the census will conduct

their dress rehearsal. And if we are going to make any major

changes, we need to focus attention on this in the next year. And

that is the reason that is on the list.

In closing, Mr. Chairman, all of these high-risk areas present

huge opportunities for savings to the taxpayer. They also present

opportunities to improve service to the public. They really have at

their core fundamental accountability problems. And we need to get

on top of this, and make sure that we can give the American people

the accountability that they deserve for how we use their tax dollars.

We are not there yet. The Congress has put in place some important management reforms with the Chief Financial Officers Act,

the Government Performance and Results Act, the technology reforms, Debt Collection, and the Federal Acquisition Streamlining

Act.

But we need to make these reforms work. They cannot just be

hollow echoings and exhortations. They need to be actually put in

place. And they will address many of the underlying problems in

these high-risk areas. So we would encourage the Congress to continue oversight of how the agencies implement these broad reforms.

That completes my statement. My colleagues and I would be glad

to answer any questions.

[The prepared statement of Mr. Dodaro follows:]

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Mr. HORN. That is very helpful, and we thank you on that very

good summary.

Do either of your colleagues want to add something at this point?

Mr. DODARO. We thought that we would get right into questions.

Mr. HORN. All right. What we are going to do is have 10 minutes

to a person, so they can thoroughly get through, since some of

these areas are a little complicated. Mr. Sessions will be asking

most of the complicated questions for the majority. I am just going

to get into some of my pets in my 10 minutes. Let’s start with the

census.

Has GAO had an opportunity to check the statistical reliability,

credibility, and validity of what the census did in 1970, 1980, and

1990 in terms of statistical analysis?

I was on the Civil Rights Commission for 13 years as vice chairman and a member, and we did two studies in the 1970 and 1980

census. Our conclusion was that there was a large minority undercount. And that is one of the questions I think that concerns everyone from urban America.

As you suggested, this is not just to apportion. What I read in

the study, it is not just to apportion the House of Representatives

anymore. Although as most of us are concerned, the only reason

the fathers put it in here is they had no concept of benefit payments that would be adjusted based on census track and everything else.

So what has GAO found out about the statistical approach versus

the let’s knock on all doors approach, which as a kid I recall doing

in our end of the county?

Mr. DODARO. Basically, we have been tracking the census over a

number of years, and we have looked at the quality of the count.

And we found continuing problems that have occurred, and the

under-count has grown I believe in a number of areas. The cost

definitely has gone up.

There have been problems. The basic problem here is the reluctance of the American citizen to fill out the questionnaire. The

questionnaire response rates have gone down from the 1980 census

of around 70 percent or 72 percent or so down to 65 percent.

The Census Bureau has not shortened the form, as we have suggested in the past, to improve the response rate. And they are still

carrying it out basically the same way they had. The census activities have become more complex.

I have asked Bernie Ungar, who is our expert in this area, to

come to the table and elaborate a little bit further on our research

here. Bernie.

Mr. UNGAR. Yes, Mr. Chairman. We have looked at the error

rates, as you suggested, and came to the same conclusion that you

came to, that the error rates have gotten worse. We have looked

at the results of the 1990 census, as well as the cost, and came to

the conclusion that something would have to change in a very significant way in 2000, in order to avoid the errors.

And we did suggest in that time, which was in 1992, after we

made a thorough assessment of the results of 1990, that the Bureau ought to explore the use of sampling techniques over and

above or further than they had used them then. Subsequently, the

National Academy of Sciences had come out with a study, which

34

concluded the same thing. Over the last several years, we have

supported or promoted the Bureau’s exploration of the sampling alternative, and we still support that.

We were a little concerned last year because we had hoped that

the Bureau would come out with additional data that would demonstrate that the concept would produce less error. It was fairly

clear that it would be less costly, but it was not entirely clear how

much of a difference the error rate would be.

Fortunately, the Bureau in late December or early January did

provide those data, which would suggest very clearly that sampling, if properly implemented, could reduce the error rates, as well

as reduce the cost.

Mr. HORN. One of the concerns that we have in the southwest

and the southeast is the illegal alien count problem. Now that is

great to add seats to Florida, and to add seats to Texas, and New

Mexico, and Arizona, and California.

And as I have told my eastern colleagues one-on-one, many of

them, that if you do not want to help us on some of these problems,

you are just going to lose one or two seats, as Pennsylvania did,

another one seat as Kentucky did, and New York will lose, and so

forth.

So I would think that would be a concern to those Members of

Congress. And I am glad to say that they are finally waking up to

the impact of the census. And the fact that when you go to some

houses in southern California, that there are 26 people living in the

house.

Now how do you handle that on the statistical side? And on the

count side, do you have a better chance of handling it? And I will

say now what I would say later. One of the great tools that the census has not been using is the postal worker. The postal worker in

my end of urban Long Beach, she knows everybody. She has been

walking that route for years.

And I do not understand why the census does not say, ‘‘Let’s pay

the postal workers a little something extra to walk their route.’’

They would know more, and it would be more accurate. They know

if 10 or 20 people live in a house. And it is very hard for anybody

else to know that. Because they see the mail, and they see 20 different names getting mail there.

Sometimes three or four I have found are the same name, because that is way that some of the South Asian families are named.

Just like some of ours, with junior, and senior, and so forth.

So what do you think on some of those thoughts?

Mr. UNGAR. Mr. Chairman, I definitely agree that the Census

Bureau ought to rely more on the Postal Service. In fact, we made

that suggestion back in the early 1990’s. And the Census Bureau

has responded in a positive way. It has been working with the

Postal Service, and is going to rely substantially more on the Postal

Service, to make sure that it has as good an address list as it could

possibly have.

I do not believe that the Bureau has gone as far as you are suggesting, at this point anyway, as to having the postal workers actually help with the census. I think that is something that we could

look at and see what discussions have taken place, and what the

advantages and disadvantages of that are. I know that the Bureau

35

is going to have a substantial problem in recruiting and hiring the

large number of enumerators that it is going to need.

Mr. HORN. Well, yes. You are not going to find the people who

are going to want to go into some of urban America, and that is

what leads to the under-count in part. The postal workers do go

into urban America. In some areas, they have got difficulty accessing, but generally they do it.

Mr. UNGAR. That is correct.

Mr. DODARO. Mr. Chairman, just to add on to that. The Postal

Service has been a little reluctant in the past to get involved in the

way that you are talking about. So I would encourage you as part

of the dialog to get them involved.

They have often argued that the new way that they deliver mail

in some cases to large apartment buildings and to cluster boxes in

neighborhoods, that a lot of their activity now has shifted away

from door to door.

But that is an avenue worth exploring. And I would just say that

engaging them early in the debate would be an important part of

it as well.

Mr. HORN. When you talk to politicians here, you can realize that

we walk door to door many times in precincts. And the gated community without question is a major problem, unless you have got

a friend inside who lets you through the door. And that is obviously

resented in some communities. So you weigh, are you going to alienate them, or are you going to gain some friends?

But that is also a problem with the census count, because we

gate America one street after the other. Well, I am concerned about

that, and I am sure that all of us are. And we would just like to

see a fair count. I do not want to deprive States of their benefit,

and I do not want to give extra points to other States, just simply

because we have no way to—well, we are over-counting in some

areas. I guess I would say that too.

Now let me move to the FAA/IRS technological innovations. I sat

on the Aviation Committee in the 103d Congress. And Mr. Oberstar took Mr. Mica and I out to look at the mess. And you could

tell right away that it was not being managed. And now we read

about IRS, and you are suggesting also lack of management.

Why do we not learn something, and in what area of the Federal

Government should that learning take place? I would think that it

is OMB.

Does OMB get on top of these management issues in a major

procurement like that?

Somewhere we have got to have the sort of inventory on management practices that we used to have in the old Bureau of the Budget.

Mr. DODARO. I think clearly or particularly in the information

technology arena that OMB needs to play a more active role in

screening the investments to make sure we are going to get what

everybody expects to get out of the investments. They have not

played that role in the past. I have reported and testified on the

fact that in the tax system modernization effort that we have encouraged them to become more involved.

I am concerned though, however, and we have recommended that

OMB go to some outside resources to bring in the technical experVerDate 11-MAY-2000 10:44 May 28, 2002 Jkt 078982 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 W:\DISC\41799 pfrm09 PsN: 41799
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tise that they need. They do not have enough of the right type of

resources to do this. And it cannot be centrally managed, but somebody has to screen these investments carefully.

OMB has set up councils and boards, but it is all people within

the Federal Government. And we need to bring additional expertise

in to bear.

So we are clearly on record that OMB needs to augment its resources. We have made similar recommendations to OMB in the security area as well. They have complained that they do not have

enough resources to deal with that. Our point is if you do not have

it, you need to go out and get it, and put it in a central location.

The world is changing, and the technology issues you need to be

on top of.

This is an area that I really have been concerned about for a period of time. The whole issue of technical expertise, it is not there

in enough numbers that the Government needs.

Mr. HORN. On that point, Mr. Dodaro, have any of the nominees

of the President in any administration—I have forgotten how long

you have been at GAO.

Mr. DODARO. Twenty-four years.

Mr. HORN. Twenty-four years. We can cover quite a few administrations.

Have any of them ever come over to GAO and sat down and said, ‘‘Look, you ladies and gentlemen are examining the Federal Government, what could you tell me as a new cabinet officer or a new

assistant secretary for whatever, or a deputy secretary.’’ That is the

first thing I would do, if the President was ever dumb enough to

appointment me to something.

I would walk over and I would see your people, and I would see

the budget examiners in OMB. And I would say OK, you guys have

been here, you have been looking over this apparatus that I am

going into, this system of human beings, most of whom are very

good, they just need leadership.

Has anybody ever done that?

Mr. FULTZ. I can speak to the Air Traffic Control Modernization

System, and I think you are raising a very good point. We have

seen in FAA a revolving door quite frankly in the leadership of that

agency over a number of years. And we believe that is one of the

reasons why it has taken so long to get this new modernization

program up and running.

As you know, it is very long overdue, and way over cost. In fact,

I believe they have had something like eight different administrators over a 5-year period; over a very key and integral part of the

development of this process.

Mr. HORN. Did they ever come over and sit down with your people?

Mr. FULTZ. They have not asked specifically. But I have to assure

you and other members of this committee that we make an effort

to talk with the agency officials. In fact, I am waiting for the name

of the new FAA administrator. As soon as he or she is named, I

plan to set up a meeting with that individual, and talk about the

problems with the Air Traffic Control Modernization Program, as

well as the safety and security of the air traffic system that we

have in the United States.

37

And I will be taking with me Mr. Robert Levin, who is sitting

to my right, who has been monitoring the Air Traffic Modernization

Program for about 7 years.

Mr. HORN. Well, has any Director of OMB ever come over to

GAO and said gee, you know, I am getting into this job now, and

it is the second most powerful job in the United States. Well, you

have got Mr. Greenspan that we have got to think about. When he

coughs, things happens. I do not know how much the Director has

to cough to have things happen.

Mr. DODARO. Our policy has been to outreach to all new cabinet

agencies, as they come in. But typically, the outreach is on our

part, and not people soliciting advice from us. The one exception

probably has been in the IRS. Each new commissioner has contacted us early in the process. That is the only one I could say that

there has been a pattern over time.

Mr. HORN. Where they have sat down with you?

Mr. DODARO. Yes.

Mr. HORN. And you have told them the facts of life?

Mr. DODARO. Right.

Mr. HORN. And we still have them on the agency list?

Mr. DODARO. Right.

Mr. HORN. The high-risk list?

Mr. DODARO. Mr. Chairman, in the time I have been at GAO, the

problem has not been necessarily us communicating the problems.

We have done that very effectively, and people have listened. The

problem is lack of management follow-through and attention to

these issues.

Mr. HORN. I agree with that. But the start is to find out what

the problem is. And if you are a new manager, all of you people

ought to be sitting around the table. And I hope you are issuing

an invitation to any new cabinet appointee, assistant secretary,

deputy under secretary, or secretary, and say we are available.

That is all you can do.

Mr. DODARO. Right. And we do do that.

Mr. HORN. If they have any common sense, they will take you

up on it.

Mr. DODARO. We do that.

Mr. HORN. And if they do not, maybe we ought to find out before

the confirmation in the other body as to whether they have common sense. And one thing would be heading in your direction.

I now yield 10 minutes to the ranking minority member.

Mrs. MALONEY. Thank you, Mr. Chairman.

I was particularly interested in your statement on the census, because I am likewise concerned about the census. And I would like

to begin my questioning with that. In 1995, the GAO testified that

sampling should be part of the design for the 2000 census.

Is that still your recommendation?

Mr. DODARO. Yes. We think that it is a viable option that should

be explored. I would ask Mr. Ungar to expand upon that. Bernie.

Mr. UNGAR. Yes, Mrs. Maloney. We certainly do support it at this

point in time, at least conceptually. As you may know, the Census

Bureau has not worked out all of the details yet of its plan. And

we are certainly waiting to see what those are before we feel more

comfortable. But at least at this point——

38

Mrs. MALONEY. When are they supposed to be through with their

plan?

Mr. UNGAR. Well, that is a good question. Unfortunately, to our

knowledge, there is no overall project plan that the Bureau has

completed yet that lays out the specific dates, which of course is

a concern to us. And we would have hoped or at least felt more

comfortable if the Bureau were done earlier. But I would suspect

that as the next several months unfold, the Bureau will unroll

more and more details of its plan.

Particularly because of the dress rehearsal that is scheduled for

1998, we think that it is critical that the Bureau lay out these

plans hopefully by summertime, so we, as well as the Congress, can

look at these and weigh in on them, and hopefully put the Bureau

in a position that it would be testing what it is actually hoping to

implement in 2000.

Mrs. MALONEY. I intend to write the Secretary of Commerce, and

ask for the plan, and exactly where they are going with it.

You say in the report that the Census Bureau has not effectively

communicated with Congress the importance of sampling.

What would you recommend to improve that communication?

Mr. UNGAR. Mrs. Maloney, I think that what we would like to

see and what we have not seen is for the Bureau to provide to you

when it provides its proposals the data that would support the concept or the contention that No. 1, that costs will be reduced; and

No. 2, that quality will be improved, as well as comparing what

their proposal is to the alternative or alternatives that exist.

And, of course, one of those alternatives is the approach that was

used in 1990. We have been asking the Census Bureau for the last

year for that data. And as I mentioned, starting at the end of December and the first part of January it has provided that to us, at

least part of that data. And I think that the Bureau should be providing that to you.

Mrs. MALONEY. And when you get this data, what are you going

to do with it? Are you going to analyze it, or what are you going

to do with it?

Mr. UNGAR. Yes, we are going to analyze it. And actually, we are

scheduled to issue a report to the Senate in the next 60 days hopefully, and that data will be contained in that report.

Mrs. MALONEY. OK, great.

If the Congress continues in the direction that it is currently

heading, the result could be a census without sampling and an

overall budget of only about $3 billion, instead of the $4 billion that

is needed.

What would the level of error be in a $3 billion census without

sampling?

Mr. UNGAR. Mrs. Maloney, I am not quite sure what it would be.

I think that it would be substantially higher than it was in 1990,

not only the gross error or the net error the differential undercount

as well. And my guess would be that unless the Bureau or somebody else can come up with an alternative that has not been put

on the table yet, the results could be very unsatisfactory to the

point where the Congress would not be comfortable, nor would anybody else be comfortable with, using or relying on the results.

Mrs. MALONEY. Could it be the worse census of the century?

39

Mr. UNGAR. Well, it could be.

Mr. DODARO. I think you run a high risk, and that is why we are

advocating an early decision and agreement on the methodology,

and then the proper funding to carry it out. If you have to switch

courses and go back to the old enumeration approach that they

have used without proper funding, you run a significant risk.

Mrs. MALONEY. I would like to touch on Medicare. I am getting

complaints from my constituents. They complain to me that they

are being billed by Medicare for services which they have not received.

Is this a problem that you have documented in your work on

Medicare, and what can be done to address this problem?

Mr. DODARO. It is a very significant problem. Our reports have

shown and those of others that the fraud rate is extremely prevalent and high, and we are losing billions of dollars. Bill Scanlon is

our expert in the Medicare area, and I am going to ask him to

elaborate on that a bit.

And then I want to link back part of the solution in this area

to implementation of some of the management reforms that I

talked about earlier. Bill.

Mrs. MALONEY. I just want to state that I will walk into senior

centers, and the seniors will literally run up with pieces of paper

on which they are mentioned as being billed for all kinds of thousands of dollars worth of services that they claim they have not

gotten. We just mail it in to the IG. But I would like more information. As I said, it happens quite frequently, which is scary.

Mr. SCANLON. As Mr. Dodaro indicated, we believe that the

amount of fraudulent billing is a significant problem. And in fact,

beneficiaries are one of the first lines of defense. Over the years,

many of the fraudulent schemes that have been uncovered have

been uncovered because there have been tips from beneficiaries and

their families about services that were not received, or services

that were billed at excessive rates.

We reported about some of the services, that beneficiaries are

never given notice that the services have been billed to Medicare

on their behalf. There are services that require no co-payments,

such as laboratory services and home health.

And in the Health Insurance Portability Act enacted last summer, there was a provision that beneficiaries will now receive an

explanation of benefits for every service regardless of whether they

have any co-insurance obligation.

We think this is a positive step. It is something that we recommended, because it alerts the beneficiary that a provider may be

billing fraudulently for a service that they never received.

Mrs. MALONEY. When did that go into effect, that the person receiving it has to get it?

Mr. SCANLON. It was enacted in August, and it is being implemented at the beginning of this year.

Mrs. MALONEY. So it has not even gone into effect yet?

Mr. SCANLON. It has not even gone into effect. So if you are seeing some of these explanation of benefits that the beneficiaries say

are services that they have not received in the past, those are some

of the areas where there is a problem as well, but we are also going

to be uncovering problems in new areas.

40

Some of our work identified that in the areas of home health and

laboratory services, there was fraudulent billing, that beneficiaries

never were aware of.

This is a very important way for the program to identify fraud.

However, many services that are identified this way turn out to be

legitimate. Because of the complexity of medical care, someone may

not understand about the lab tests that they received.

And therefore, some of these investigations turn out to show that

there is no fraud involved. That is why we do need more systematic

ways to try and identify the potential for a fraudulent scheme, and

to use the limited resources we have for safeguards to the maximum extent to uncover the fraud.

Mrs. MALONEY. Are you tracking in any way if this is widespread, say a firm moves in and bills a lot in my district, and then

moves to Congressman Horn’s and bills a lot in his district, and

just keeps moving around the country?

Mr. SCANLON. We have noted instances where a firm or individuals will operate in different areas and that once there is a discovery of their activities in one area, that they will relocate to another area. One of the difficulties though, of tracing those kinds of

actions is that they may change their identity.

It is very easy to become a certified provider in the Medicare program. You have to have very little experience in providing the services that you are going to offer, and you can become a certified provider.

So an entity can open up, bill the program for a period of time,

and be discovered to be billing fraudulent services, close down, and

move to another area and reopen, and start the process over again.

Mrs. MALONEY. How much do you estimate that we are losing because of this activity?

Mr. SCANLON. As Mr. Dodaro indicated, there are estimates that

have been made of between 3 and 10 percent of program spending,

which translates to between $6 and $20 billion.

It is harder to get a very precise estimate of these losses. Because frankly, just like the hackers who break into the Defense Department computers, people who are interested in defrauding the

program are very clever, and they are numerous. And it is often

difficult to uncover the scams and schemes that they have to defraud the program.

Mr. DODARO. Two of the systemic improvements that we are trying to put in place as a result of congressional mandates. Fiscal

year 1996 was the first year that we are doing a financial audit of

the Medicare program. GAO is doing it jointly with the HHS IG.

We have been spending $200 billion a year without financial accountability. We are taking a Nation-wide sample of claims, and

looking at their validity. The other issue is we have encouraged

HCFA to look at——

Mrs. MALONEY. You are going to begin this financial audit when?

Mr. DODARO. It has been underway. We are almost finished with

the claims review. It is for the financial statements and reports for

fiscal 1996. It should be available this summer. That is when we

are targeting to have all of the claims work done. But we are actually getting the data from the providers, and checking the error

41

rates, and whether or not the services were not only valid, but also

whether they were medically necessary. It is a statistical sample.

We have also advocated that HCFA look at using automated systems and software that are widely available for commercial purposes that other insurance carriers use, and adapt that to screen

and provide more sophisticated screening of the applications as

they come in. And they are now finally testing that. But we had

difficulty originally in getting them to look at some of this commercially available technology.

And as Bill indicated, as part of the financial audit, we are also

looking at the computer controls that HCFA has available to guard

against unauthorized access to their computer systems, both at the

carrier level as well as at the computer facility in Baltimore.

Mrs. MALONEY. Could a solution be something as simple as a

person receiving the service, having them contact and make sure

that they got the service?

Mr. DODARO. I think that the volume is really the big dilemma

here. I do not know, Bill, what the volume of claims are. But it is

enormous and growing.

Mr. SCANLON. Today it exceeds 800 million. We have been growing at more than 10 percent a year in terms of the number of

claims. So we will soon be at a billion claims. And many of those

claims are for very small amounts. And so we have often been very

concerned about the amount of resources that we can devote to the

review of a single claim. Today it is less than $1.

Mrs. MALONEY. If you reviewed say claims of over $1,000, would

that be cost effective?

Mr. DODARO. That is one of the issues that we had a problem

with. HCFA had a claims review function in place, which they diminished funding over the years. And that is part of this new legislation that passed last year, to restore some of that medical review

at the end.

But my personal view on this is that you need to rely on the

beneficiaries as one level of safeguard. But you also need to have

proper technology in place to handle the volume of these claims.

And it is going to grow with the aging of our population, and the

expected enrollment in Medicare by the year 2010. We are going

to have an enormous problem. And unless we avail ourselves to

modern technology, we are not going to have a handle on it.

Mrs. MALONEY. How many individuals in America would you say

are in Medicare now?

Mr. SCANLON. There are approximately 38 million.

Mrs. MALONEY. There are 38 million.

Thank you. My time is up.

Mr. HORN. I will just add a question at the end to round it out

on the Medicare. GAO has said for several years that you suspected an estimated 10 percent fraud, waste, and abuse in Medicare. Your testimony today now was 3 to 10 percent.

Where did the three come in?

Mr. DODARO. Bill.

Mr. SCANLON. There have been some other studies that other organizations have done that have reported fraud estimates as low

as 3 percent. Because of the difficulty of being precise in this area,

we felt that it was fair to report the range, recognizing that at eiVerDate 11-MAY-2000 10:44 May 28, 2002 Jkt 078982 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 W:\DISC\41799 pfrm09 PsN: 41799
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ther end of that range that this is a serious problem. It is a problem that we think that HCFA needs to devote the limited resources

that it has available to it in a better way to try to reduce that volume of fraud.

Mr. HORN. I might add, and I do not know to what degree GAO

is involved, you ought to be I would think, but the Ways and

Means Subcommittee dealing with Medicare, one of the intents of

that in saving Medicare from bankruptcy is that you reward the

senior citizen to read that bill. And if they send it in, hopefully

there will be something to alert them, and money helps.

And I think that is exactly what is needed here. Because like the

gentlewoman from New York, when I get these cases, we refer

them to the Inspector General. And the Inspector General who is,

as you know, a very able person, having dealt with the Pentagon,

she can certainly deal with this.

She told me, I guess a year ago, that the preceding year she col- lected $6 or $7 billion. I do not know what the current figure is,

in fraud, waste, and abuse from various recipients. But there is no

question that the commercial equipment you are talking about that

every insurance company and every HMO uses, which you can

screen that bill, and if certain things are not related to what the

operation was about, the flags come.

One woman in one case that I am aware of said she read her bill

very carefully, and she turned it over, because she went into the

hospital for a hip operation, and was also charged for a mastectomy. Now she recalled having that 10 years before, and did not

see how she could have another one.

Some of the people are not very bright in their fraud. But when we are talking about a $300 billion program here in a few years,

and we are almost there, you are talking about $30 billion in

waste, fraud, and abuse a year based on your percentage.

I am delighted now to yield to the vice chairman of the subcommittee, who has immersed himself in this subject, and who will

ask you all of the hard technical questions, instead of the softballs

that I have been giving you.

Mr. SESSIONS. Mr. Chairman, thank you. I appreciate the introduction also.

I am interested in this. And as I sat back and listened to the testimony here today, I really believe that in another life that I would

like to grow up and be in the GAO, and be a wannabe for what

you do. But that did not befall me in this life. So I take what I get.

My parents still introduce me as the son who simply had no

bearing in life, so I became a Congressman. I am certainly the least

successful of the siblings.

I would like to, if I could, for just a minute, before I get into a

more esoteric discussion about the things that you have, I want to

go back directly to what has been discussed here today. Part of what you touched on was the IRS. And certainly, the $4

billion worth of the spending from the computer project. But you

also, I believe, at some point talked about some sort of a random

sample audit. You went in and tried to look at how much money

the IRS actually takes in.

My question would be this, in any of your samples dealing specifically with the IRS, is there any indication that there is fraud

43

involved, not waste, not abuse, not mismanagement, but fraud that

was uncovered where more digging needs to be done?

Mr. DODARO. Well, we have been looking at several different aspects of the IRS. The sampling that I referred to is doing sampling

of their accounts receivable inventory to get a figure as to how

much is actually in that inventory. They put a lot of things for collectability purposes in there that are not valid receivables. And

then we try to estimate how much is collectable.

For example, when we started this in 1992, IRS was showing $110 billion on their books for receivables. Once we completed a

sample, it was more like $65 billion. And of that, only $19 billion

was actually deemed to be collectable. Since then, we have had

problems. We did 100 percent verification of that sample that year.

We turned over to IRS the responsibility for doing the sample. And

then we take a sample of their sample, and verify whether they

have done it properly.

The problems we run into is that some of the records have been

unavailable, missing, or destroyed. And that IRS has been unable

to successfully complete that sample.

In that case, we run into what we call error situations and problems. I do not think that we have encountered through that sampling process any systemic fraud problems.

Separately, however, we have had a high-risk area for a number

of years looking at filing fraud problems. And the filing fraud problems have grown. In 1991, it was about 11,000 returns. And 77,000

is what it rose to in 1994. In 1995, it has come down to about

62,000 returns. The filing fraud is a problem.

Those are the amounts that IRS detects. And so part of this

problem, for example, was if you wanted to be a person that could

file electronically and take returns in, it was sort of like the Medicare providers that Bill talked about, it was very easy to get the

ability to do the electronic filing.

IRS now does fingerprinting and checking. Before that in 1995,

they screened out about 350 people who wanted to do that that

they eliminated. They also are now checking Social Security numbers at the time that they are processing the initial returns. And

I believe that the number of Social Security numbers that have

popped up for them as a result of their checking rose from 1 million

to 4 million in 1995 returns, indicating that there was a problem.

Ultimately, they let go about 2 million of the returns, because

they did not have enough time to check it, and let the refunds go

and check it later.

But that screening up front is real important, and they have not

had that in the past. So that is the explanation of the fraud versus

the sampling.

Mr. SESSIONS. Good.

Did any of your work also get into looking at the IRS and the

accessibility of employees to individual filings; did you address this

at all, and can you please give me any information that you have,

or that you have uncovered in that regard?

Mr. DODARO. Sure. I am going to ask Lynda Willis who is our

expert in the IRS tax area to come up.

We noted, and in fact it was part of our first financial audit in

1992 that we uncovered some internal IRS reports that talked

44

about the browsing problems within the IRS of IRS employees looking at an ex-spouse’s return or a return of a celebrity. That was

a significant problem at that time, and it continues to be a problem.

Lynda, do you want to add to that?

Ms. WILLIS. What I would add is that it continues to be a problem, and we expect to issue a report later this spring addressing

our most recent work. We have found problems with the systems

that IRS has put in place to identify browsing incidents, in part because they do not allow an efficient way for IRS managers to get

in and track through where they have a real problem or potentially

a perceived problem. IRS is continuing to work on this, but there

is more work that needs to be done.

Mr. SESSIONS. So at this point, you have no quantification, you

simply are aware that it is a problem?

Ms. WILLIS. Right.

Mr. SESSIONS. You believe that the IRS is aware of that, and is

trying to take steps to alleviate this?

Ms. WILLIS. Yes.

Mr. DODARO. There are numbers on the number of browsing

cases that have been reported, and what the disciplinary action has

been. That will be in our report.

Mr. SESSIONS. And that is what I was going to ask, is there disciplinary action?

Mr. DODARO. Right.

Mr. SESSIONS. Did you look at their what I would call a ‘‘code of

conduct’’ that is required, and does that fit the circumstance?

Mr. DODARO. Right. There is a penalty set that they use for various methods. But IRS’ own internal studies point at some problems with inconsistency, and how that penalty code, if you will, is

enforced from one part of the country to another. And we made

some recommendations that they develop better information for

tracking and browsing, and tracking how the consistency of the

penalties are put in place.

And that report will be available soon. We are doing that at the

request of Senator Glenn, who has had us tracking this problem for

a number of years now.

Mr. SESSIONS. My earlier question to you, I believe you answered

carefully, but I would like to go a little bit further in relationship

to your audit of the IRS, specifically related to the money that

comes in as revenue to the Government, not related to the filing

or whether one was done fraudulently or not, and not related to

how many people file and do not file, but specifically as some national columnists say the money.

Mr. DODARO. Right.

Mr. SESSIONS. The money that comes in, is there any evidence

or any evaluation that you have made, and did you look at the trail

from the check to the bank to the correct place it is supposed to

be, or the account?

Mr. DODARO. Right.

Mr. SESSIONS. Can you elaborate on that?

Mr. DODARO. Sure. I will ask Greg Holloway, who is on my far

left here, who has been leading our financial audits for the past 4

years. I will ask Greg to answer that.

45

Mr. SESSIONS. Good. Thank you, Greg.

Mr. HOLLOWAY. I would answer your——

Mr. SESSIONS. Have you been sworn?

Mr. HOLLOWAY. Yes.

Mr. SESSIONS. OK. Thank you.

Mr. HOLLOWAY. I was in the third row.

Mr. SESSIONS. Thank you. I am sure you have been sworn at. We

all join in that.

Mr. HOLLOWAY. That is exactly right.

Mr. SESSIONS. Yes, sir.

Mr. HOLLOWAY. I would answer your fraud question a couple of

ways. As a result of some of the detailed testing we have done—

you have to keep in mind that IRS has a lot of what they call

under reporter programs, where they effectively check for under reporting by individuals as well as entities to ensure that people report the revenue and the related tax associated with what they

owe.

And part of what comes out of our testing is looking at those

cases to identify what IRS has called its matching program, where

they seek to identify that.

The difficulty of the word fraud is that it becomes a very legalistic term in terms of levels of evidence, part of which suggests intent. And our work certainly does not try to determine intent. But

in terms of the equity, I guess that would probably be a more accurate question.

Certainly, our testing has shown in quantitative ways to some

extent where IRS has identified in some cases, and in other places

where we have seen cases, I do not know that I would call it fraud,

but I have certainly seen cases where it appears that the taxpayer

probably paid more than they owed, and cases where they did not

pay enough based on third party evidence.

One particular case comes to mind in terms of the reverse of that

where the taxpayer probably paid more than they owed was a case

where an individual had a company, and he filed as a Subchapter

S. Somewhere along the line, his filing got lost. As part of that, IRS

then assessed a tax on to the individual’s company saying that they

have incorrectly, and so then assessed a greater amount of tax.

Over the course of the process, as they went into their files and

looked at it, and this was a case that came out in our testing, what

they discovered was that there was evidence in their case file that

showed that the individual had communicated with them inquiring

about where IRS stood in responding to their filing request to be

Subchapter S.

And through their own internal documentation, they concluded

on something that they called hazards of litigation, which in

English means if this thing goes to court that we may not win, let’s

settle. And the person ended up settling and paying probably at 50

percent for something that they did not owe anything.

Now is that fraud? I do not know that I would call it fraud, but

it certainly looked inequitable. So we see a lot of those kind of

cases. And we certainly see cases that have surfaced out of IRS’

under reported efforts, where people appear to be paying less than

what they owe based on the way that they filed their return.

46

Mr. DODARO. You might want to also explain how we do the testing of the revenue stream.

Mr. HOLLOWAY. Right. Basically, what we have done, IRS had a

detailed what they call master file record of everybody that files

taxes. So they have a record on this country, and effectively what

we do is pull down that whole file of transactions, and we use statistical sampling to test that sample.

I do not want to get into all of the technical boring parts of auditing, but the thrust of it is that we use what they call Dollar Unit

Sampling, which puts the focus on the higher dollar cases, for us

to then go look at what is the make-up and the nature of the transactions of the higher dollar cases.

And we then go in and look at the detailed tax returns and case

files to determine whether or not what is reflected in IRS’ records

is consistent with the source documentation, which would be the

tax return, which would be the FTD coupon, or other manner of

payment that the recipient made, going back to your question, and

trying to track it from the point of payment throughout IRS’ process into the taxpayer’s record.

And that is what we test for. So when we find these kinds of

things, it is the result of trying to determine whether or not IRS’s

records on individual taxpayers accurately reflects what the supporting documents suggest that it should.

Mr. SESSIONS. Do you believe, as you have looked at these, that

you have given adequate, proper feedback for adequate control

back to the IRS?

Mr. HOLLOWAY. I do not think that there is any question. We

have endless lines of reports. And we continue to work with them

looking for ways to improve it. But part of the problem is that

many of the financial systems that IRS uses—IRS is basically a return processing factory. And many of their systems were set up to

process tax returns, and get them out. They were not set up necessarily and always to focus on trying to financially report, and accurately summarize and report out what they have done and collected.

It is a challenge for them to try to take something that was designed to do one thing to make it do something else.

But yes, we have reported out over the last 5 years numerous reports, and testified many times before Chairman Horn and this

subcommittee, and subcommittees before that.

Mr. DODARO. We have made approximately 60 recommendations

to IRS as a result of these audits. Greg, and I, and Lynda meet

monthly with the Chief Financial Officer and the Deputy Commissioner in IRS to try to get on top of this issue. We have worked

out a specific action plan with them. The Appropriations Committee last year mandated that that action plan be provided to the

Congress by March 1st. We have looked at IRS’ draft plan.

So, we are working hard and trying to help them come up with

some short-term solutions to these problems, as well as some

longer term system fixes.

Mr. SESSIONS. And you believe that you have not only their attention, but that they are addressing these issues?

Mr. DODARO. They are working on it. It is just a difficult problem, and is going to take awhile. Particularly the receivables area.

47

And the receivables area is one that I think that we need to go further. We are going to issue a specific report on the tax receivables

this year with some additional recommendations of what needs to

be done. And we are learning more too, as we go through the process.

Mr. SESSIONS. I am sure they are also.

Mr. Chairman, do you mind if I take a few more minutes?

Mr. HORN. I have a question before you leave.

Mr. SESSIONS. I want to go to the military. So, Mr. Chairman,

why don’t you go ahead.

Mr. HORN. Let me just ask you about the systems that IRS has,

if they know that a file has been penetrated in terms of the browsing bit, is there any way that they can trace back which computer

in IRS was celebrity searching, or browsing, or spouse searching,

whatever you want to call it, how do they deal with that?

Mr. DODARO. They have an automated system that they put in

place to track one major system for accessing taxpayer files called

the IDRS system. One of the recommendations that we have made,

however, is that their method of tracking that system with the

automated processes is cumbersome, and it kicks out too many

things to followup on.

And second, they do not have in place systems to detect access

through other systems that you can get into them. And we have to

continually make recommendations.

Mr. HORN. Are you telling me that every IRS employee with a

computer could get into that system, and not leave a trail?

Mr. DODARO. It depends on what system that they use. Let me

ask Dr. Rona Stillman to come to the table. She is our chief scientist for computers and telecommunications. Rona has been leading our work in the IRS tax system modernization effort. She could

address that question.

Ms. STILLMAN. There are numbers of systems that IRS employees

can use to access taxpayer data. One of those systems is called

IDRS. That is the primary system that tax assistors use to access

data. That system is monitored by a system called EARL. And

what EARL does is it profiles. It has got a profile of what it assumes would be legitimate activity of a tax assistor. And if his pattern of accesses differs substantially from that, it will report it.

There are two problems with EARL. EARL only works with

IDRS, and not with six or seven other systems that employees can

use to access taxpayer data. And second, the problem with EARL

is that it does not distinguish very well between legitimate activity

and illegitimate accesses to which an employee has no right as part

of his job.

So it reports tremendous numbers of potential violations, most of

which are not violations at all. And it takes a tremendous amount

of effort on IRS’ part to distinguish one from the other.

Mr. HORN. Now as a scientist in this area, are you aware of systems that they could use that say private industry uses, and banks

use, whatever?

Ms. STILLMAN. We have not evaluated what is used in private industry, but clearly IRS could do a whole lot better in detecting and

preventing browsing on its own.

48

Mr. HORN. Let’s take the Department of Defense, and NSA, and

whatever; have they various systems that can track access to some

of their files, or CIA, that would be useful if IRS had it to solve

the problem?

Ms. STILLMAN. Actually, we have not done work to evaluate those

specific systems. The problem itself for IRS is a difficult problem,

in that these are authorized users. These are not hackers. These

are authorized users.

Mr. HORN. Right. I understand that. And we are going to be

holding a number of hearings this year on the whole problem of security. I notice that the Science and Technology Committee the

other day had a topic, I did not have a chance to watch it on C–

SPAN, but a topic on computer security.

But I think that it is a very real problem when you have confidential Government files, and I know that the IRS is very sensitive on that point. But the fact that they do not have a system

that really deals with their other systems that employees could

use, is sort of the fox guarding the chicken coop.

There is somebody whose curiosity is getting the better of them,

and how do you know? You might know that it happens. It might

be leaked to the Enquirer or something. And maybe somebody is

getting some money even for it. That is a pretty sad state of affairs,

if we have not in GAO, and IRS, and DOD shared whatever knowledge, we have to get the best confidentiality system possible.

And in that $4 trillion boondoggle so far down there, was one

part of it trying to deal with the confidentiality thing, or do we

know yet where they went wrong?

You see, I do not understand how you can spend $4 trillion, let

alone $1 million, let alone $1 billion. And I guess that I just do not

understand Government.

Ms. STILLMAN. A critical shortcoming of the TSM effort was the

fact that it did not have what we call an integrated systems architecture, and part of that is a security architecture. IRS did not

have a complete analytical approach defining how they would provide security in the system. It did not exist, and it does not exist

at this moment.

Mr. HORN. And this report of yours is going to come out when?

Ms. STILLMAN. We have issued reports at least since 1995 specifically citing the absence of a security architecture as a major problem, and recommending that they complete one.

Mr. HORN. Can you bundle up three sets of those, one for the

Democratic side, one for the Republican side, and one for me?

Ms. STILLMAN. Absolutely.

Mr. HORN. And mark it personal, or I will never see it.

Ms. STILLMAN. Absolutely.

Mr. DODARO. I might add to that.

Mr. HORN. They will check it for bombs, but that is OK.

Mr. DODARO. I might add, Mr. Chairman, that the IRS by the appropriation bill last year was required by February, this month, to

provide the Congress a plan for implementing all of our recommendations that we made in the tax system modernization effort. The Treasury Department has also been directed to provide

quarterly reports.

49

So there will be a number of activities occurring over the next

few months on this timetable that would, I think, provide opportunities to review where they are in implementing our recommendations. And we will be happy to share that information as it comes

available to us as well.

Mr. HORN. Now one of the things that I have discussed with the

Commissioner over the last 2 years is the system that they have

to collect the receivables.

Now what have you found out this year on how they are doing

it? As I remember, there are a few pilot projects under way.

Mr. DODARO. Right.

Mr. HORN. Did you look at those projects, were they fairly awarded? Because they are sure fighting us on using private collectors,

which everybody else uses in the country, but IRS. And I get this

static about oh, well, the tax records are confidential. I said what

is confidential, you give them $5,000, if that is what they owe, give

them the address, and let them make a deal. Because right now,

you are writing off over $100 billion, which I regard as a scandal.

We are sitting around here grappling with every $10 million in

trying to balance a budget. And $100 billion goes uncollected. So

that bothers me. And I just wonder: what are they doing in your

judgment? You are a fair neutral in this thing.

Mr. DODARO. That is a very good question, and I will give you

two answers on that. Lynda will answer from the private debt collection standpoint. And then I would like Greg to elaborate on the

quality of the information in the data base that is available either

to IRS employees or private debt collectors. Lynda.

Ms. WILLIS. Let me answer a little more than just the private

debt collection question, because I think that there are some things

that IRS has done in terms of improving their collection efforts,

partially in response to our recommendations, and partially in response to some of their own work.

For the last year, one of the things that they have done that we

believe has increased collections is they have improved their ability

to access taxpayers by telephone. And accessing them earlier in the

system, so that the debts are not so old by the time that IRS goes

out and attempts to find the taxpayer.

They have also improved some of their notices, reduced the number of notices, and get the notices out there quicker, and more

money is coming in from there as well.

And Greg will speak to this after I talk about private debt collection. But one of the issues that remains is that how effective these

programs are on the margin. They are not solving the underlying

problems with accounts receivable, which gets back to the quality

of the information that is in the files, the accessibility of the information, and basically overall what we know about not only accounts receivable in the aggregate, but individual cases in terms of

how to best target our compliance programs.

So going to the private debt collection initiative, GAO has supported for some time testing the use of private debt collectors. And

IRS does have an ongoing program right now with contractors, five

different companies, that are looking at collecting selected types of

cases and accounts.

50

We are in the early stages of reviewing that for the Ways and

Means Committee. We continue to have some of the same concerns

that we had when the pilot was set up. And that is that these private collectors are going to face the same problems that IRS collectors face, i.e., the accounts are old.

Mr. HORN. How ‘‘old’’ is old in your definition?

Ms. WILLIS. Well, some of the accounts may be 5 or 6 years old

before they ever hit this point.

Mr. HORN. Well, I agree with your point. And I have told the

Commissioner that. I would not mind Government employees, the

first 30 or 60 days. But you are absolutely right, that you need to

be phoned, so people say gee, I have a debt to pay.

You see this with students. And that is why we had a better

record when we started counseling students that this guaranteed

Government loan is not a grant, and you are going to have to pay

it back. And that helps when you educate the person that a debt

has been ensued here, and you need to do something about it.

You are telling me that they are doing better on the telephoning

at least from the beginning?

Ms. WILLIS. They are telephoning people earlier. They have

moved more resources into earlier contact with the taxpayer.

The thing that we hope to get out of the private debt collection

project is feedback from the private debt collectors in terms of better practices for collecting these types of debts, insurmountable

problems with the cases in terms of either age, identifying or locating the taxpayers, et cetera.

So I think that in terms of best practices that there are still

things out there that IRS can learn from private debt collectors.

Mr. HOLLOWAY. I would just want to add on the quality aspect

of this, that I think that are two core problems. I mean having

worked in the private sector and in a financial institution where

collecting debts is a key part of it, two very important things are

missing at IRS.

The first one, and when we talk about improved telephone and

other things, the rudimentary problem is the untimeliness of even

identifying who owes the money. One of the fundamental things

that they have, and until it is corrected, I do not care if you bring

in the Army, Navy, Air Force, and Marines; if you do not identify

who owes you the money sooner, collecting it is always going to be

tough.

I mean IRS’ matching program, for example, which is probably

its best program of identifying people who owe money that are noncompliant, what we found in our testing typically does not identify

to the point where they can then notify and begin the telephone

and all of that until anywhere from 18 months to 3 years after the

fact.

If anybody in the private sector took that long to figure out that

somebody owed them money, I do not care who you brought in to

try to collect it, it would be a challenge.

The second myth of IRS is a lot of the accounts receivables by

design are not even collectable. One of the things that we found,

and we looked at several cases of what we call over $10 million

cases, many of those, for example, are cases where they set up receivables to close tax loopholes.

51

Back when several banks were failing, a lot of acquiring institutions were making money on NOL carry-backs by buying failed institutions using the benefit of those losses and carry them back

over prior taxes that they paid.

One of the loopholes that IRS closed was assessing taxes against

those failed institutions, so as to preclude any NOL carry-back to

be recovered.

Now those sit in IRS’ tax files. As a matter of fact, a large portion of what is deemed uncollectable are cases that nobody could

collect. They are people who have died. They are defunct corporations.

Part of the problem of bad information and the lack of quality

information is you do not cut to the bone to figure out what is the

real population here.

So I think what they have got to do is get a much more precise

analysis of what the content is of what is really owed. Because I

suspect what you will find is that there is a big bucket of things

that you could just throw away, whether it was private or IRS, it

would not even matter.

And then when you got to that, when you look at how long it

took to identify the ones that are left, even if the private sector

went after it, you run into the problem of being unable to locate

people. And then they have the basic fundamental problem that

they cannot pick their borrowers.

Mr. HORN. That is very well said. But I am concerned about the

ones who have taken bankruptcy to avoid the taxes, and pop up

somewhere again.

Does IRS have any way to really know when that individual is

playing the bankruptcy game to avoid taxes, and popping up in another State, or with another small business, or whatever?

Mr. HOLLOWAY. Yes, they do, unless the person designs a new

alias and pops up under a different name and Social Security number. But effectively, what IRS does in many cases, and this is

where the statute that has been extended to the 10 years comes

into play, they typically will have on file what they call debit modules, which means an indicator that somebody owes them money

based on that taxpayer identification number.

So if that person were ever to file to get a refund or anything

like that, it should kick in. And that is one of the things that we

test for.

Mr. HORN. Taking refund for the previous tax debt?

Mr. HOLLOWAY. That is right. They would go back and check to

see if that person owed any moneys and any other tax modules

that are sitting in that file.

So they do have some of those kinds of things. But the untimeliness of identification, and continuing to report on amounts that nobody could collect.

Mr. HORN. In the testimony, one of you mentioned that IRS does

fingerprinting, and checking the Social Security number. Well, that

is great. That should have been done, of course, years ago. But the

fingerprinting intrigued me.

How are they getting them to get fingerprints?

Mr. DODARO. Lynda can answer. This is on the electronic filing.

52

Ms. WILLIS. These are fingerprints that they are getting on people who are involved in the business of electronic filing returns

with IRS. These are not fingerprints vis-a-vis individual taxpayers.

If someone wants to be certified as an official, or have the ability

to file electronically other people’s returns with IRS, they do now

have to have fingerprint records as well as background checks.

Mr. HORN. Now where do they go, the local police, to have that

done for them, or the sheriff’s office or what, how do we get this

done?

Ms. WILLIS. I am not positive, but I believe they go through the

FBI to have those done.

Mr. HORN. OK. Well, it is just a matter of people out in the countryside can electronically file, but might not have the agency that

they are designating be able to get the prints. But I think that is

a great idea, and let us get some information on that. I think that

we would all feel a little better. And, of course, we would feel a lot

better if the welfare organizations of the Government did the same

thing.

I think that I cited the other day to some of you, L.A. County,

when they went to a photo and fingerprinting, thousands of people

voluntarily got off the rolls. This was on general relief. Because

they knew they would be caught in the five different names they

had used and all of the rest, when they knew Government was

asleep. And so L.A. County moved in that area.

And to IRS’ credit, a good example of that is when they started

requiring Social Security numbers on dependents. Quite a few people lost a lot of dependents after that happened. Right.

Mr. HOLLOWAY. The family shrunk.

Mr. HORN. That is right. We did not know family planning was

at work.

Mr. HOLLOWAY. That is right.

Ms. WILLIS. Family planning through the tax code.

Mr. HORN. I thank the gentleman from Texas for letting me

round out some of my concerns on IRS. Please go ahead.

Mr. SESSIONS. Thank you, Mr. Chairman.

I would now like to redirect some of my questions probably to

other panel members. I would like to talk about the Pentagon and

the Defense Department for just a minute, if I could.

And I try to put things into a simple form. When you are from

Texas, you try to boil it down to something that you can talk about

and think about.

I kind of think about the entire Federal Government as being

like 10, or 12, or 13 Exxons, the size of that. And if you break down

the Government, you can put the Pentagon as probably two or

three Exxons, I guess, and the rest of the Government as the rest

of that. So I know it is big.

And you have talked about a lot of the problems, the waste, the

fraud, the abuse, and the mismanagement that goes on there.

In many companies, and certainly within Exxon, they are concerned about continuation training for their people who are the

managers of the business, and leading edge issues related to their

business. And I know that the Pentagon and the Defense Department is not any different.

53

A good number of the officers as they rise in rank are required

to get masters degrees, and are required to get these sorts of training.

Can you discuss with me going back to the military academies

forward through the process of the masters programs, of a continuation in learning, has the military through the Secretary of Defense instructed or given instructions down through the Secretary

of the Air Force and the other Secretaries that listen, this is a

problem, include this as part of our training about identifying

waste, fraud, and abuse, and about looking at and knowing generally accepted standards of accounting practices, so they can spot

these things?

Can you give me just some sort of a feeling, have you looked at

this, do you know it exists, what would be your thought process on

the Defense Department’s recognition of the problem. Have they

made sure that it is in its training program and in its educational

programs, such that it is an identified problem?

Mr. HINTON. Mr. Sessions, I think the answer to that is yes, they

are starting to get their arms around that. It is a problem for them

right now, having all the skills that they need to keep the records

in the Department.

On the other side of the fence, if I could use the acquisition side,

they have a very good plan for training people who work the acquisition work force. And I am going to ask Lisa Jacobson to tell you

about on the accounting side of things.

Mr. SESSIONS. And please, as much as possible, give methodology

a feeling about how broad this is.

Are we dealing with personnel only in those areas? I am interested also in a broad overview to where the military understands

that this is a problem. Just as the security of our country is a mission statement for them, so should be effective use of resources.

Ms. JACOBSON. In the financial management area, we have been

doing a lot of work on this very issue. We are undergoing some

work dealing with companies like Exxon, and asking them to provide us with some basic data on what kind of people they would

expect to be in the types of positions running their companies, and

performing the financial management activities in their organizations.

So we will have some base line data very soon to compare with

the Department of Defense. The Department of Defense under the

CFO Act that you were a party to is required, as the other agencies, to look at their personnel, and assess where they stand, and

whether or not they have qualifications. They have not done that

to date.

And they are participating with us in a review to assess their

personnel in the financial management area, and see where they

stand.

Most of these employees in financial management are civilian, as

opposed to military. And we have done some preliminary work in

DFAS, the Defense Finance Accounting Service, which does the

vast majority of their accounting, and found that they have very

few CPAs in the top ranks. They have very limited accounting.

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ber of hours of accounting for an accountant in the Federal Government.

So we questioned whether or not they are adequately educated.

And then training beyond that, there is no training curriculum or

requirements within the Department.

Mr. DODARO. I would say overall on the business side in the financial management arena that the emphasis on training is nowhere near as great as it has been on the military side, obviously.

And that is true not just in the Defense Department, in the financial management area, but across the Government.

In my view, I have often characterized financial management

and the accounting function of the Government as sort of an administrative backwater for the last 40 years. There needs to be,

and we have urged, continuing professional education requirements. We have put out some core competencies, GAO, OMB, and

Treasury together, to get this material to the agencies.

This is an area that I think your instincts are correct, that there

is not enough emphasis going into it. And this is one area that we

are trying to give more visibility to by comparing the gap. We know

that there is a big gap in the qualifications, and we are trying to

provide more impetus to improve training.

Part of the problem is that at the same time we are trying to elevate the importance of training, and upgrading the quality of the

financial management work force across the Government, it is the

same time that personnel reductions and the down sizing in a lot

of agencies are taking place, and training money is becoming tight

because of greater competition.

But that needs to be worked through. But you are on the right

track in terms of your assessment in that area, and it needs a lot

more attention.

Mr. SESSIONS. In other words, your statement as to whether

there is training specifically at the military academies, you really

do not know at this point. That is a requirement for all graduates

to understand some basic techniques in identifying waste, fraud,

and abuse, and identifying that we really do count things in this

organization, that you have resources and assets that the taxpayer

expects to be utilized efficiently.

That here is generally if you did come into an audit, here is what

they are looking for and asking for, and a basic understanding of

a filing system to where if you have 88 raincoats and you normally

use 4 in a year, do not order until you get to a specific level. Just

these basic things that are Accounting 101.

Mr. HINTON. Some of that through the military side does occur,

Mr. Sessions. And it will be dependent on their military occupation

specialty that they will sign up to.

Mr. SESSIONS. That is what I heard you say. But not a general

across the board management.

Mr. HINTON. It would depend on the specialty that you are going

into. But I think that I can provide for the record some more details around this, if you would let me do that.

Mr. SESSIONS. I would ask that you do that.

And I would also like to have you render a conclusion right now,

am I still on the right track for asking for those things?

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Mr. HINTON. Yes, yes. And I think that you will see, as we get

into all of the areas here, that we are talking about business practices. That permeates across acquisition, inventory management, financial management, and there are deficiencies in all of those.

Mr. SESSIONS. Good.

Mr. HINTON. And a lot of it depends on the skills of the people,

and their ability to deal with the problems.

Mr. SESSIONS. Without going back into too much of my history

about myself, I served as a scout master for quite a long period of

time. And even a scout master has to understand waste, fraud, and

abuse when he sees it. So I think that certainly a military officer

could receive this training, understand it, and apply that theory

and training to what needs to be done.

Mr. DODARO. As part of training under the Federal Managers Financial Integrity Act, I know that the Department does some training in raising the visibility about the need for internal controls and

systems. And we can include it as part of our discussion for the

record on that issue.

I think that your questions go a couple of levels. One is the general training for everybody as sort of a core training. And what we

are also talking about is specialized training for people who are in

these different occupational series, particularly the accounting and

finance people. And we will provide the information on both levels

for you.

Mr. HINTON. Let me ask Mr. Warren, Dave Warren, who is Director of our Defense Management area to comment.

Mr. WARREN. I would just like to add that a lot of that training

is included in the fundamental type courses that you are talking

about, particularly for military officers and for civilian employees,

but particularly for the military officers. However, when they get

into the operational environment, and this is an issue that we

stress particularly in the high-risk inventory report, is that you are

dealing with a cultural issue in terms of them in fact in an operational environment focusing on economy and efficiency.

When the officers move into the operational environment, their

first duty and highest priority, they feel, from a cultural mind set,

and again I will go to inventory, is to make sure that they have

those items there when they need them. And then costs become

secondary.

And what we are trying to stress in our reports, and just as you

are saying, is that there needs to be a better balance here. We need

to accomplish both missions, and have effective stewardship over

the Defense dollar.

So the training, I have seen a lot of it introduced, and people are

aware of it. But when you get into the operational environment,

what priority in fact is placed on that is an issue. So I think that

is a critical part of the answer.

Mr. SESSIONS. The answer would always be reasonableness. And

you do not know where that is. I mean, we cannot predict these

kinds of things always. But I know that is a problem. But if we

cannot have them to be managers of the business, then we are all

in trouble.

Mr. HINTON. You are clearly on the right track.

Mr. SESSIONS. Yes.

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Mr. HORN. Would the gentleman yield for a minute?

Mr. SESSIONS. Mr. Chairman, I was just going to say that I am

now leaving this area. If you would like to join in, please.

Mr. HORN. Yes. I will tell you that I think you have asked an

excellent series of questions on this. Because what we are talking

about is basic accountability of what one does when you are in a

large organization, be it military or not. I think that the military

does a superb job of post-collegiate education for its officer class.

I can recall in General Powell’s memoirs that he recalls going to

George Washington University for his masters degree in computing. I do not know if he felt it helped him that much to be a

leader. But the military has been very good at this, way ahead as

you said of the civilian side of most agencies.

That leads me to the obvious, what is OPM doing in this area?

And when we have a bill like the Clinger-Cohen bill and these

other bills, are there workshops being systematically developed by

OPM that Departments can have access to? Has this been decentralized, or as we call it here devolved to the Departments, and

OK, you are on your own, where are we on that basic training of

new skills that we all need to know?

Mr. DODARO. Basically, OPM still provides some training functions. It has been awhile since I have looked at that, and I will confine my remarks to the financial management area for right now.

But OPM has not been as active as I believe they could be in this

area. And basically, it devolved, the responsibility to the Chief Financial Officers Council, and to the agencies to develop a lot of

training.

There are schools, for example, the graduate school at the Agriculture Department, that offers training courses. When the Chief

Financial Officer Act passed, and we said we have a problem across

Government, let’s do something about it. And part of the goal and

objective was to improve the qualifications of financial management personnel.

But, OPM has not been actively engaged in addressing those

issues. That is just my sense of dealing with the players on these

issues. It is not based on any analytical studies.

We did do a review of OPM, a management review, years ago,

that we were responsible for in the late 1980’s, and concluded that

not only from a training standpoint, but from strategic planning,

human resource planning; OPM was not providing enough governmentwide leadership.

Mr. HORN. And when was that study done?

Mr. DODARO. That was in 1988.

Mr. HORN. 1988.

Mr. DODARO. I can provide that.

Mr. HORN. I would like to see it. So we are 9 years from that.

Is it not time that GAO goes back and takes a look at the broader

aspect?

They should be the creator group or the facilitator group that is

ahead of the curve, when all of these new practices start commonly

in the civil service. And it just seems to methodology that there

ought to be some leadership there to do this. And maybe there is,

and I just do not know about it.

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But I would think that Mr. Mica in his subcommittee would be

very interested in that. And certainly, we would, just on the economy and efficiency grounds that we are interested in.

Mr. DODARO. OK.

Mr. HORN. Because you cannot be very efficient if you have not

trained people correctly.

Mr. DODARO. This is a very true statement, and it is something

that needs a lot of attention.

Mr. HORN. I yield to the gentleman to pursue his next area.

Mr. SESSIONS. Thank you, Mr. Chairman.

I have neared the end of my time here today. And I know that

you have been here for a long time also. I want to really thank

each and every one of you from the GAO, who has not only participated and been here, but I want to applaud you and pat you on

the back and urge you to continue the work that you are doing.

I am somewhat amazed in the marketplace, as I was in private

industry. We used to look across and find out where who was leading edge, who was developing things that we felt like would aid

and abet our cause. So I would be interested some day in finding

out how many of you were actually hired by these competing interests in the Government, because you represent I think a good

thought process.

And I wish that they would reach out and take you within their

agencies, but perhaps that goes on every day. I just do not know.

But if I had a word to say to each cabinet officer, I would say go

and hire one of these people within your own area.

So I applaud you for the work that you are doing, and want you

to know that throughout this 105th session, that I am very interested, and I want to be involved in what you do. And most of all,

I want to say to you please go do it, because you represent the essence of what good Government is all about.

Mr. Chairman, thank you for allowing me to serve with you. I

have got to skip out for a little while. But it has been a pleasure

for me to be with you. Thank you.

Mr. HORN. I am delighted to have you here. You have asked

some excellent questions. And we will see that those are pursued.

Let me just go through a few things I marked down as you were

talking. And the staff will send you some other questions, which if

you do not mind filing the answers for the record, we can do that.

But as I listen to you on the electronic filing, that is of great interest to me. And we see some of the groups that represent senior

citizens. They are not keen on electronic filing. And yet, those are

the people being exploited, people living in the low income slum

areas of our cities. The crooks, and the robbers, and the thieves,

and the exploiters know exactly when that Social Security check or

that welfare check is coming.

And you have this tremendous number of reports of missing

checks, in brief stolen out of the person’s postal box and so forth.

Where are we on electronic filing throughout the Government in

terms of what the Government does if they are writing checks to

go directly to the bank, and in terms of filing reports?

In one of my hearings, and I forget which committee it was now,

it might have been Transportation and Infrastructure, we had very

good testimony from the California Environmental Protection

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Agency that they had worked out with business, because it was

mostly business filings, the filing of both their reports, and their

original applications, and all of the rest of it. And it saved warehouses filled with trees that we call paper.

And so I wonder what your estimate is of what is going on in the

Federal Government, and what could we do to stimulate some of

that? Well, we have passed some laws in this area.

Mr. DODARO. Right.

Mr. HORN. Is there anything else that needs to be done?

Mr. DODARO. Offhand, I would say that we are making some

good progress in that area. I know that in the Federal Government,

Treasury is encouraging people, all Federal employees, to receive

their checks and do business electronically.

The Government is moving toward electronic benefit transfers for

programs. That is being tested, and as Keith knows for many of his

agencies, for benefit programs, and food stamps, et cetera is being

tested as well.

IRS has put up a new system in Treasury to get electronic fund

transfers for the revenues coming in. It is an area that I would like

to give a little more thought to your question, Mr. Chairman, as

to what additional things could be done.

But I think that there are a number of initiatives under way that

I am generally encouraged about. The problem is making sure that

everybody has appropriate access and that the appropriate protections are taking place. But it is definitely the way that we need to

move as a Government.

Mr. HORN. Do you have any estimates from your surveys as to

the degree of fraud or robbery that might be occurring, because we

have not used electronic filing, and we are still doing it the oldfashioned way of sending the check to the person’s house. Do we

have any data on that from agencies, or postal inspectors?

Mr. DODARO. I do not think that there is any systematic data

available on that. We know that there are high error rates in many

things, because of the manual transactions and processes. And that

is a big part of the Defense Department’s accounting problems and

other accounting problems. I am not aware of anything.

Mr. HORN. Well, furnish us with that. I would like to go through

that.

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Mr. HORN. You mentioned that we ought to look at HUD regarding its mission. Now could you elaborate on that a little bit for the

record? I realize that some of this is in print. I have got them all

behind me. But I have not read them all, since they just came out

yesterday for us.

How do you feel about HUD? Do we have a confusion of mission

within there in terms of what they are doing, or how would you put

it?

Mr. DODARD. I would like to have Judy Joseph, who is sitting to

my right, respond to your specific questions. But I would like to

give an overall statement in response to your question of how do

we feel about HUD.

HUD is the only agency that we have on the list that the entire

agency is listed as high-risk. In fact, when I met with you a couple

of weeks ago, I explained that that is because the problems that

we have seen with HUD have developed over 20, 30, and 40 years.

And they are very systemic, and they are very deep-rooted. And it

is going to take a substantial number of years before they can work

their way out of it.

Judy has testified on numerous occasions on areas needing improvement at HUD. She has met with the Secretary and his chief

of staff on numerous occasions, trying to work them through to

solve some of their problems. And she can respond to any question

you might have.

Mr. HORN. OK.

Ms. JOSEPH. Regarding the mission, I think the real question

falls in the area of what is the Federal housing policy that the Congress and the administration can come to consensus on. And I

think that really is a part of the real issue with HUD, and why

we have HUD on the high-risk list. Until we really understand as

a county what we want our Federal housing policy to achieve, it

is awfully difficult to have numerous programs.

At last count, there were over 240-some programs, and many initiatives that have been either earmarked or identified by the Congress or by the administration as a way of trying to address some

pretty sorely needed problems, addressing some very, very serious

problems.

HUD’s financial management, its information systems, its organizational structure, its skills and abilities of its staff, its internal

controls are fundamentally the basis by which we originally put

them on the list, because I viewed it as an infrastructure concern.

No matter what the Congress and the administration wanted to

choose to have as Federal policy, we needed to have good information on which to base those decisions from a public policy perspective. And we needed to have good systems in place to oversee and

manage those programs.

But as we have been at HUD and have seen the numerous programs that exist there, and many of them are programs that really

have the opportunity to be consolidated or streamlined, or in some

cases perhaps viewed in a broader context of Federal housing policy

outside of HUD; when you think of housing policy also being a part

of the tax code, obviously housing policy through programs at the

Agriculture Department in rural housing. We have VA, Veterans

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Administration housing, and then we have numerous economic and

community development programs throughout the Government.

So when you think about housing policy or housing and economic

policy, it really is a lot larger than HUD. And because there are

so many other players, I think that it continues to confuse the real

role and mission of HUD to some extent.

And in many ways, that is why we feel that we need to work to

build or strengthen HUD’s infrastructure from a management perspective, but then we have to really set them in a course or a direction that really gets to what you all are most concerned about in

terms of housing, the Nation’s poor as well as people of middle and

upper income.

Mr. HORN. Let me read you a letter from my good friend and colleague Rick Lazio, Chairman of the Subcommittee on Housing and

Community Opportunity of the Banking and Financial Services

Full Committee. This just appeared on my rostrum here. It is dated

today.

Dear Chairman Horn: Last September, I sent a letter to the General Accounting

Office, asking them to devote significant effort to their ongoing investigation of the

Department of Housing and Urban Development as a high risk agency. I commend

you for holding this timely hearing on the waste, fraud and abuse within Federal

departments and programs.

In their latest evaluation of HUD, GAO concludes that the Department is still

very much a high-risk government agency. HUD’s long-standing deficiencies in internal controls, information and financial management systems, organizational

structure, and developing staff expertise continue to leave the Department vulnerable to program mismanagement.

HUD’s Office of Inspector General recently released its Semiannual Report to

Congress in which it recognized improvements in some aspects of HUD’s performance. However, it also noted that under current circumstances ‘‘the prospects for

further improvement are dim.’’ In particular, it found that the number and varied

types of HUD programs and initiatives are beyond the capability of HUD staff to

carry out. In addition, the Office of Inspector General found that various components of HUD are ‘‘not equipped to provide reasonable stewardship over taxpayer

funds expended for their programs.’’ Of the offices listed as incapable of exercising

appropriate oversight over funding, of greatest concern is the Office of Multifamily

Housing. This office will manage more than $10 billion in Section 8 contract renewals in fiscal year 1998. Even more alarming are the number of contracts coming due

over the next several years. The cost of renewing these contracts, if left unchecked,

could consume HUD’s entire discretionary budget within the next 5 to 7 years. We

must continue to work together with the administration to create a permanent solution that deals with the approaching crisis.

As we roll up our sleeves for the work of the 105th Congress, we look forward

to building communities of opportunity in our cities and towns along with HUD’s new Secretary Andrew Cuomo. During his confirmation hearing, Secretary Cuomo

stated that HUD’s mission must be ‘‘the development of self-sufficiency, not the perpetuation of government programs.’’ Secretary Cuomo looks forward to a ‘‘future in

which everyone willing to do his or her part will be empowered with the tools to

reach as high as their talents and hard work will take them.’’ Those words echo

President Clinton’s recent Inaugural Address that the ‘‘pre-eminent mission of our

new government is to give all Americans an opportunity—not a guarantee, but a

real opportunity—to build better lives.’’

On the first day of the 105th Congress, I introduced H.R. 2, the Housing Opportunity and Responsibility Act of 1997, which comprehensively reforms our nation’s

public housing system, removes disincentives for public housing residents to work

and encourages self-sufficiency. Rather than imposing Washington-knows-best prescriptions tied to a hand-out, we offer working families a hands up the ladder of

personal success. H.R. 2 is the first step in transforming public housing from a way

of life into a way to a better life.

In the present environment of finite resources, HUD must devote all of its energies toward a tightly focused mission. As President Clinton has stated, we must

learn to do more with less, and do it even better. H.R. 2 provides the tools to help

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ties, giving greater power and flexibility to local governments and communities to

manage housing programs, and permanently eliminating Federal regulations that

have concentrated the poorest families in the worst housing. H.R. 2 repeals the last

vestiges of the welfare state by replacing the United States Housing Act of 1937.

The bill declares that it is the policy of the Federal government to promote and protect the independent action of citizens, state and local governments, and private and

non-profit organizations to develop housing opportunities and strengthen their own

neighborhoods.

Last session, Congress devoted tremendous effort and resources toward enacting

permanent housing reform legislation. This year, we have hit the ground running.

Majority Leader Armey, in a recent Republican radio address stated that public

housing reform is one of the priorities of the 105th Congress. We will be working

every step of the way with House Members on both sides, Republicans and Democrats in the Senate, and HUD’s new administration under Secretary Cuomo. I am

confident that this will be the year that Congress passes the reforms crucial to our

neighborhoods and communities.

That said, I must express my serious concern regarding HUD’s continuing management and oversight deficiencies. In 1994, the National Academy of Public Administration concluded that if HUD was not operating under a clear legislative mandate

and in an effective accountable manner in 5 years, Congress and the Administration

should consider dismantling the Department. During the last several years, I have

convinced many colleagues that we must preserve a place at the President’s Cabinet

table for American communities. Despite former Secretary Henry Cisneros’ noble efforts, HUD still sways under the sword of Damocles. Permanent reform legislation

is a significant part of the solution. The remaining problems outlined by GAO and

HUD’s Inspector General must be addressed by the Department itself and Secretary

Cuomo’s continuing efforts to reform HUD from within.

I look forward to working with Secretary Cuomo, and am confident that Congress

will pass bipartisan housing reform legislation with support from the Administration. Again, I commend you for holding this hearing on a subject of such critical importance to all Americans.

Rick Lazio, Chairman, Subcommittee on Housing and Community Opportunity.

[The letter referred to follows:]

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Mr. HORN. Does the GAO have any feel for what the Secretary

is talking about, is it the way to go, or what is the feeling?

Ms. JOSEPH. Well, the reform legislation he is speaking to focuses

primarily on public housing. And many of the issues that concern

us are outside of public housing. There are clearly management

issues as well as program design issues in public housing, but we

have issues and concerns in the FHA multi-family portfolio area.

And we have concerns as it relates to the management and financial infrastructure of the agency as a whole.

So there are a number of issues beyond what H.R. 2 actually addresses. It is obviously a beginning, and there are many things

about that bill, which largely reflects the bill that was introduced

last year. Many things about it really would streamline public

housing.

Mr. HORN. Well, we passed it, and then it was over at the other

body, as we say.

Ms. JOSEPH. Yes, sir.

Mr. HORN. What I am curious about is in GAO studies of HUD,

are there parts of HUD that should be in other agencies, for example? I am thinking of lending programs generally. Maybe they

ought to be under one roof, if we are going to get efficiency out of

it. Although the argument would be you are taking them away

from the mission of the agency broadly construed. And that is just

a mechanical way of carrying out part of the mission.

Ms. JOSEPH. Right. There are a couple of aspects of HUD’s mission that could possibly be performed in other places. Obviously,

the guaranteed loan programs for home ownership, single family

home ownership, as well as multi-family housing could possibly be

consolidated with the Veterans Administration’s rural housing program. Those have never been put together on the table for discussion.

We have looked at FHA from the standpoint of determining

whether it should be separated from HUD and be a stand-alone

Government corporation. And there are pros and cons to that particular activity. The single family side of FHA——

Mr. HORN. Is there a report on that that GAO has?

Ms. JOSEPH. Yes, sir. Actually, we are in the process of issuing

on the 21st of this month a report based on a request from the Senate subcommittee dealing with oversight of HUD. Chairman Faircloth had introduced a bill last year on the dismantlement of HUD.

And he asked GAO to do a review of the implications of his bill.

And in that, we do discuss a proposal that he makes to move

FHA to the Treasury, actually completely changing the way we

would do single family mortgage insurance. It would be quite different than the way that the Government does it today. And his

bill also would eliminate completely multi-family loan insurance as

a program for the Federal Government.

Mr. HORN. That is interesting.

Mr. FULTZ. Excuse me, sir, if I could just add.

Mr. HORN. As you were talking, I had the thought that Treasury

could manage some of these, and talk about it as a business-type

program. So I would be very interested in seeing the letter that you

are sending to the Senator.

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Mr. FULTZ. Mr. Chairman, if I could add to Judy’s comments.

One of the agencies that I also have responsibility for is the Department of Energy. And as you know, there have been numerous

proposals and thoughts about abolishing it also. As a caution we

have suggested to many different committees that one has to be

careful where those programs might go, and what agencies they

would be assigned to.

Because then you would need to restructure the priorities and

the responsibilities of those receiving agencies. And we would suggest that if those agencies, or if parts of these agencies are moved,

a very careful thought process has to evolve with clear understanding of measures given to the receiving agencies, and an understanding of what Congress expects to happen, and how those

programs are to be folded within those other agencies.

Mr. HORN. Did GAO historically ever get involved in the various

reorganizations going back to the Hoover’s Commissions 1 and 2,

going back to the Nixon administration where they had probably

the last substantive recommendations of any administration in

terms of reorganization of the Government, was GAO ever consulted in history? Do we know that?

Mr. DODARO. I would have to do a little research with you people

who are a little older than me, Mr. Chairman.

Mr. HORN. Elmer Statts will know.

Mr. DODARO. Elmer will know. I will consult with Elmer and

Chuck, and give you an answer. I do not think so. If my memory

serves correctly, we would be commenting on some of the proposals

after the fact, but not consulted during their development.

Mr. HORN. Well, you were not into the program analysis aspect

in those days, as much as you are now anyhow. You had to wait

until Speaker Rayburn left, and Mr. Cannon the head of Appropriations left, because they fought that for years.

So you are in it now, and we all depend on you for some objective

advice here. And I appreciate your comments. And we will be getting to certain agencies again. Certainly, Commerce is the easiest

one probably to pick off, since there is very little commerce. What

we need is a Department of International Trade, and make the

Patent Office an independent agency, and try to get things out of

the Cabinet that are not controversial, and sort of do their thing,

leave them alone, you know. At least, that is where I am coming

from on it.

Now the information age. You mentioned getting the Federal

Government into the information age. The question is, again, it

gets down to education, training, and using best practices, that you

have done so well and all of that.

What is the feeling of GAO as to how well the executive branch

is doing in learning from each other, learning from business, and

getting into the information age, and what else should be done?

Mr. DODARO. A couple of things. One, I think that we are making

some progress, but it is very incremental. I am very worried about

the success of the reforms ushered in by Clinger-Cohen and the Paperwork Reduction Acts. I do not think that we are off to a rapid

start in many aspects of implementing that legislation.

The first thing that ought to be a high priority for the Congress.

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tation of that, is to get moving on it. We no longer can afford delays

in implementing and getting into this arena.

We also have to look hard at squeezing the money down to make

sure that we do not make bad investments, as we have had in the

past. And we have to look at upgrading the technical capabilities

of agencies in order to do that.

Now that is one aspect of the Clinger-Cohen Act that really is

not addressed, the technical capabilities, other than making sure

that we have good quality chief information officers.

Now we know that having good quality chief financial officers

have helped, but you need the underpinning in the organizational

structure to do it. And that is a very serious concern about whether

we are going to be able to turn the corner on that issue.

But I would encourage the Congress to have a tight hold on the

purse strings until it sees that agencies have good plans and good

strategies, and that this situation is under control.

Effectively assessing how well that legislation is being implemented is essential, and that is where I would start, and then go

from there. And we are looking at the other possibilities for enhancements to that core legislation.

Mr. HORN. What year did we start the chief financial officers in

actual implementation?

Mr. DODARO. The act passed in November 1990. So during 1991,

we started implementation of aspects of the act, putting in place

the leadership structure. The financial audit, one was on a pilot for

awhile. We do not have that aspect of the CFO Act being fully implemented across Government until the fiscal 1996 financial statements and audits.

Originally, a lot of the CFOs were just anointed for people who

were already in place, and we had a problem then. So we lost 2

or 3 years earlier bringing in some additional qualified people. And

I do not want to see that happen in the chief information officers.

Mr. HORN. Well, that is what I am leading to.

Has GAO done a sort of story of the implementation of the CFO

Act, just a case study you would call it in a business school or a

school of public administration, and can we learn something from

that in administering the CFO Act, have you got some material in

that area?

Mr. DODARO. Yes, we do. We have been tracking progress and

giving updates on the progress in implementing the CFO Act, and

there are many lessons to be learned. First of all, to make sure

that you get the qualified person in place, you do not add additional duties and responsibilities. That is a problem. And that you

get the investment processes. And the CFO has to have the proper

amount of authority to enforce many of the investment provisions

and requirements in the act. So getting the right person and the

right type of authorities is important.

We are planning a series of evaluations to provide that information to the Congress. As you know, that act became effective in August 1996. So we are not that far into it yet. But we think that

early assessments in dealing with the problems are critical.

That is the biggest lesson learned, not only out of the CFO Act,

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mented over the years. If there is not active congressional oversight

and pushing, a lot of those things just do not happen.

Mr. HORN. I realize that there is not a Comptroller General in

full term at the present time.

But when an assistant secretary is nominated by the President,

has the GAO ever said here is the bundle of reports that relate to

the function you are about to take over, and good luck, here they

are? Do we send them to them, or is that considered too aggressive?

Mr. DODARO. No. We meet with everybody right away. As Keith

indicated earlier, we are in an outreach mode constantly, meeting

with new people, and talking to them, and encouraging them, and

offering assistance.

Mr. HORN. Do you do that before confirmation?

Mr. DODARO. We do not. And actually, a lot of the people who

are pending confirmation are advised by the White House not to

talk to us, because they are not in an official capacity yet. So there

are very strict limits on people during the confirmation.

Mr. HORN. That is another stupid decision by the White House.

You know, it is just insane. They are not giving policy views, but

they ought to be semi-educated on the responsibilities that they are

undertaking. Because once they get over there, the confirmation

period is a very good time for them to read those reports. Because

it will help them to answer some questions of various Senate committees.

And I just cannot imagine an appointee that would not want to

read those reports, and see where the snakes are, after they have

charmed him to come here, and give up his home in Okatella or

wherever. And it just seems to me that that is the kind of necessary information that a nominee ought to have, to know what the

ground is that he or she is going into.

Mr. DODARO. Actually, that is a good point. One of the things

that we could look into is I do not know if there is——

Mr. HORN. Just send it to him in a blank envelope or something.

Mr. DODARO. Well, it may not have to be blank. But that is what

I was going to suggest. Your thought stimulated that. There is no

reason we cannot correspond.

Mr. HORN. It is one thing for them to sit over in the agency. And

we have had a few sad cases there, where they were making decisions and all of the rest, and they have not even been confirmed

yet. That happened a few administrations ago, as I remember.

Mr. FULTZ. Mr. Chairman, if I could also add. As part of our outreach effort, in dealing with congressional committees and Congressmen like yourself, we also have ongoing dialog with the staff

of various committees.

And during the confirmation process, or in interviews that we

might have with the members of responsible committees, we will

suggest questions or issues that need to be addressed. And often,

those questions and issues do come up in the confirmation process.

Mr. HORN. Well, that is great. And I think that is very helpful.

Well, we could all stay here and go through other questions. But

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the hearing record here will remain open to allow for followup

questions that have been prepared by both staffs that we have not

had a chance to answer today. And if you would be good enough

to have those answered and submit them for the record, we will

put them at this point.

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Mr. HORN. I might add that we also established a quorum in this

hearing, at the end of my first page of my opening statement. So

we have conducted ourselves according to the House rules.

Again, I share what Mr. Sessions said to you. I congratulate you

as both an institution and as individuals for doing a superb job on

this.

I happened to have gone through the other series you did. I have

only gone through about two booklets of the current one, since I

spent most of last night down here arguing about bills coming up

in the next few months.

But thank you all, and it was good to see the staff that backs

up Mr. Dodaro. I knew that he was bright, and I knew that he was

articulate, but now I know why. I thank all of you for coming. You

have each made a contribution.

And with that, if you do not have any last words, we will adjourn

this hearing. Thank you.

Mr. DODARO. My only last words are to thank you and Mr. Sessions for your comments. Thank you very much.

Mr. HORN. And I would like to thank the following people: J.

Russell George, staff director; Anna Miller, professional staff member; Andrea Miller, clerk; David McMillen, minority professional

staff member, Mark Stephenson, minority professional staff member; and Patricia Kueber, court reporter.

The subcommittee is adjourned.

[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]

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