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[Senate Report 106-502]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 950
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-502

_______________________________________________________________________

TO AMEND TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE 
  AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES, 
  AND FOR OTHER PURPOSES

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                             together with

                            ADDITIONAL VIEWS

                              to accompany

                                S. 3030

    TO AMEND TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE 
AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES, AND 
                           FOR OTHER PURPOSES

   October 12 (legislative day, September 22), 2000.--Ordered to be 
                                printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
89-010                     WASHINGTON : 2000

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
GEORGE VOINOVICH, Ohio               RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
             Hannah S. Sistare, Staff Director and Counsel
                     Ellen B. Brown, Senior Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                 Deborah Cohn Lehrich, Minority Counsel
                     Darla D. Cassell, Chief Clerk
                                                       Calendar No. 950
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-502

======================================================================

 
AMENDING TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE 
  AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES, AND 
  FOR OTHER PURPOSES

                                _______
                                

   October 12 (legislative day, September 22), 2000.--Ordered to be 
                                printed

                                _______
                                

Mr. Thompson, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 3030]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 3030) amending title 31, United States 
Code, to provide for executive agencies to conduct annual 
recovery audits and recovery activities, and for other 
purposes, having considered the same, reports favorably thereon 
without amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for Legislation..............................2
III. Legislative History..............................................3
 IV. Section-by-Section Analysis......................................4
  V. Regulatory Impact Statement......................................7
 VI. CBO Cost Estimate................................................8
VII. Additional Views................................................12
VIII.Changes to Existing Law.........................................15

                         I. Purpose and Summary

    S. 3030 amends chapter 35 of title 31, United States Code, 
to require Federal agencies to perform recovery audits if their 
direct purchases for goods and services total $500 million or 
more per fiscal year. Agencies that must undertake recovery 
auditing also would be required to institute a management 
improvement program to address underlying problems of their 
payment systems.

                II. Background and Need for Legislation

Improper payments in the Federal Government

    Each year, the Federal government spends hundreds of 
billions of dollars for a variety of grants, transfer payments, 
and the procurement of goods and services. The Federal 
government must be accountable for how it spends these funds 
and for safeguarding against improper payments. Unfortunately, 
the problem of improper payments by Federal agencies and 
departments is immense. The General Accounting Office recently 
identified $20.7 billion in improper payments in just 20 major 
programs administered by 12 Federal agencies in Fiscal Year 
1999 alone (Financial Management: Improper Payments Reported in 
Fiscal Year 1999 Financial Statements (GAO/AIMD-00-261R)). This 
represents an increase of more than $1.5 billion from the 
previous year's estimate. In its report, GAO wrote that its 
``audits and those of agency inspectors general continue to 
demonstrate that improper payments are much more widespread 
than agency financial statement reports have disclosed thus 
far.''
    Legislative efforts have focused on improving the Federal 
government's financial control processes. Recently-enacted 
laws, such as the Chief Financial Officers Act, the Government 
Management Reform Act, and the Government Performance and 
Results Act, have provided an impetus for agencies to 
systematically measure and reduce the extent of improper 
payments.
    However, the risk of improper payments and the government's 
inability to prevent them continue to be significant problems. 
While the Committee continues to work to improve the 
government's widespread financial management weaknesses, it is 
important to begin to address the recovery of the tens of 
billions of dollars in improper payments.

Recovery auditing in the private sector

    Recovery auditing is used extensively by private sector 
businesses, including a majority of Fortune 500 companies. 
These businesses typically contract with specialized recovery 
auditing firms that are paid a contingent fee based on the 
amounts recovered from payment errors they identify. Recovery 
auditing is not ``auditing'' in the usual sense. Recovery 
auditing firms do not examine the records of vendors doing 
business with their client companies or assess the vendors' 
performance. Instead, these firms develop and use computer 
software programs that are capable of analyzing their clients' 
own contract and payment records in order to identify 
discrepancies in those records between what was owed and what 
was paid. They focus on obvious but inadvertent errors, such as 
duplicate payments or failure to get credit for applicable 
discounts and allowances.
    Payment errors identified by private sector recovery 
auditors average only 0.1 percent of all payments reviewed. 
Nevertheless, recoveries are substantial when applied to large 
volumes of transactions. The 0.1 percent average error rate 
produces $1 million in recoveries for each $1 billion of 
payments reviewed.

                        III. Legislative History

                             HOUSE ACTIVITY

    The House companion to S. 3030--H.R. 1827--was introduced 
on May 17, 1999 by Rep. Dan Burton (R-IN), Chairman of the 
Committee on Government Reform. Original co-sponsors were 
Majority Leader Dick Armey (R-TX), Rep. Pete Sessions (R-TX), 
and Rep. Doug Ose (R-CA). H.R. 1827 was referred to the 
Committee on Government Reform, then referred to the 
Subcommittee on Government Management, Information, and 
Technology on May 25, 1999.
    The Subcommittee held a legislative hearing on June 29, 
1999. Witnesses at the hearing were: David Walker, Comptroller 
General of the United States, General Accounting Office; Deidre 
Lee, Acting Deputy Director of Management and Administrator of 
the Office of Federal Procurement Policy, Office of Management 
and Budget; George H. Allen, Deputy Commander, Defense Supply 
Center Philadelphia; Gerald R. Peterson, Chief, Accounts 
Payable Division, Army and Air Force Exchange Service; Michelle 
Snyder, Director, Financial Management Office, and Chief 
Financial Officer, Health Care Financing Administration; Paul 
Dinkins, Executive Vice President, The Profit Recovery Group 
International, Inc.; Douglas R. Wilwerding, Chief Executive 
Officer and President, Omnium Worldwide, Inc.; Terrance Lyons, 
Director of Accounting, the Walgreen Company; Stephen R. Booma, 
private consultant; Robert Koehler, American Logistics 
Association.
    A business meeting was held by the Subcommittee on July 21, 
1999, at which time the Subcommittee chairman, Rep. Steve Horn 
(R-CA), offered an amendment in the nature of a substitute to 
H.R. 1827. It was ordered favorably reported to the full 
Committee on Government Reform by voice vote. On November 10, 
1999, the full Committee on Government Reform met to consider 
H.R. 1827. Chairman Dan Burton offered an amendment in the 
nature of a substitute. Two additional amendments were offered 
and accepted. The Committee on Government Reform approved the 
amendment in the nature of a substitute, as amended, by voice 
vote. The Committee on Government Reform then ordered the bill 
reported favorably, as amended, to the House by voice vote. On 
November 17, 1999, the bill was reported by the Committee on 
Government Reform and placed on the House Calendar. On March 8, 
2000, H.R. 1827 was passed by the House 375-0.

                            senate activity

    S. 3030 was introduced by Committee on Governmental Affairs 
Chairman Fred Thompson on September 12, 2000, and referred to 
the Committee. On September 27, 2000, the Committee held a 
business meeting and discussed S. 3030. Chairman Thompson 
recognized that some issues still remained open and committed 
to working with the Committee to resolve them prior to bringing 
S. 3030 up for consideration by the full Senate.
    The Committee ordered S. 3030 reported without amendment 
favorably to the full Senate by voice vote (en bloc). Senators 
present were: Thompson, Roth, Stevens, Collins, Voinovich, 
Domenici, Cochran, Levin, Akaka, Durbin, Torricelli, Cleland, 
and Edwards.

                    IV. Section-by-Section Analysis

Section 1. Recovery audits

    Section 1(a)(1) would add a new subchapter to chapter 35 of 
title 31, United States Code, entitled ``Recovery Audits'' 
containing sections 3561 through 3566.
            Section 3561. Definitions
    This section would contain definitions of terms applicable 
under this legislation. For example, the term ``Director'' 
would mean the Director of the Office of Management and Budget 
(OMB). The definition of ``facial discrepancy payment error'' 
is meant to convey Congressional intent with respect to the 
conduct and meaning of ``recovery audit'' in this legislation. 
Under this legislation, the subject of the recovery audit is 
the contract, invoice, and payment documents held by the 
agency. A recovery audit contractor would not be authorized to 
access or audit the vendor's records. The Committee intends for 
the recovery audit to be performed strictly to identify payment 
errors found from a review of the facts and figures on the 
``face'' of contract, invoice, and payment documents held by 
the agency and would not entail assessments, evaluations, or 
judgement calls regarding the quality of goods or services 
provided to the agency. Further, the language is not meant to 
restrict a recovery audit contractor from substantiating agency 
payment errors such as missed discounts or rebates. The term 
``payment activity'' would mean an agency activity that entails 
making payments to vendors or other nongovernmental entities 
that provide goods or services to support the performance of 
the agency's mission. The term ``recovery audit'' would mean a 
financial management technique used by an agency to perform 
internal audits of its records to identify payment errors in 
connection with agency payment activities. The term ``recovery 
activity'' would mean the process, otherwise authorized by law, 
to try and collect payment errors.
            Section 3562. Recovery audit requirement
    Subsection (a) would require each executive agency to 
conduct recovery audits for every fiscal year if combined 
payment activities total at least $500 million annually on 
goods or services for the use or direct benefit of the agency. 
Agencies may conduct recovery audits for payment activities 
under this threshold if they so choose.
    Subsection (b) would provide agency heads the authority to 
seek from the Director of OMB exemptions to the requirement in 
(a).
    Subsection (c) would provide that agency heads prescribe 
procedures for recovery audits and recovery activities which 
will ensure the greatest financial benefit to the United 
States. It also would provide that agency heads consult and 
coordinate recovery audits with the agency Chief Information 
Officer and the Inspector General. Agencies would be authorized 
to conduct recovery audits in-house, contract with private 
recovery audit specialists, or use any combination thereof. It 
would be necessary for recovery audits to comply with a 
recovery audit standard to be set forth by the Director of OMB.
    Subsection (d) would prescribe authorities and functions of 
recovery audit contractors and terms and conditions required in 
recovery audit contracts. Under (d)(1), the agency head would 
have the explicit authority to use contingency contracts, 
whereby contractors would be allowed to retain a percentage of 
collections from payment errors they identify during the audit.
    Under (d)(2), it is made explicit that a contract for 
recovery auditing would not affect an agency's authorities 
under the Contract Disputes Act, the Debt Collection Act, or 
other applicable laws to resolve disputes and take collection 
action. It also is made clear that nothing in this subchapter 
would require the production of documents by anyone other than 
the executive agency or that nothing in this subchapter would 
create the authority for a physical presence on the property of 
a vendor by the executive agency.
    Under (d)(3), recovery audit contractors would be required 
to protect any financial information they come across in the 
course of their recovery audit work or any other information 
which has not been released for general public use. They would 
be required to report periodically to the agency on the causes 
of payment errors they identify and offer any recommendations 
they have on how to mitigate them. They also would be required 
to notify the agency of any payment errors they happen to 
identify that are beyond the scope of their contracts. They 
would have to promptly notify the agency head of suspected 
fraudulent or criminal activity.
    Agencies, under (d)(4), would be required to take prompt 
and appropriate action in response to contractor 
recommendations and notifications.
    Under (d)(5), agencies would have to conduct a public-
private cost comparison to determine whether to conduct 
recovery auditing in-house or by contract.
    Subsection (e) would indicate that the legislation would 
not affect current authorities of Inspectors General, including 
such authorities under the Inspector General Act of 1978.
    Subsection (f) would specify that the legislation would not 
affect current payment authorities and claim procedures for 
certain types of transportation provided to the government.
    Subsection (g) would limit the disclosure by recovery audit 
contractors of any individually identifiable information 
obtained during the course of the audit and places liability 
for damages on any violators of this restriction. The 
subsection also would require the return of individually 
identifiable information at the conclusion of the audit.
            Section 3563. Disposition of amounts collected
    Subsection (a) would provide that this section applies to 
annual amounts recouped by the United States.
    Subsection (b) would provide authority for amounts 
recovered to be available to pay recovery audit contractors and 
to reimburse applicable appropriations for recovery audit costs 
incurred by the agency.
    Subsection (c) would provide authority for up to 25 percent 
of collections to be used to fund agency management improvement 
programs under section 3564.
    Subsection (d) would require that at least 50 percent and 
any additional amounts not used for recovery audit costs or the 
management improvement program would revert to the Treasury.
    Subsection (e)(1) would exempt from this section amounts 
collected if the application would be inconsistent with other 
provisions of law governing the crediting of collections. 
Examples include non-appropriated fund instrumentalities, 
revolving funds, working capital funds, and trust funds.
    Subsection (e)(2) would provide that, except for use for 
the recovery audit contract, the disposition authorities and 
requirements for collected amounts under this section would not 
apply to funds that remain available for obligation at the time 
the amounts are collected.
            Section 3564. Management improvement program
    Subsection (a) would require the agencies that are mandated 
to conduct recovery audits to implement management improvement 
programs consistent with guidance prescribed by the Director of 
OMB. Other agencies that conduct recovery auditing in 
compliance with OMB guidance would be authorized to implement 
management improvement programs.
    Subsection (b) would require the agency to address the 
problems that contributed to the payment errors as the first 
priority of the management improvement program. The agency head 
also would be able to use the management improvement program 
for other initiatives to reduce error and waste in agency 
programs.
    Subsection (c) would authorize the agency head to integrate 
the management improvement program with other management 
improvement programs within the agency or with other agencies. 
Agency heads would have flexibility, within the guidance 
established by OMB, over how to conduct their management 
improvement programs; however, they must be able to account for 
the use of amounts made available from recovery audit proceeds.
            Section 3565. Responsibilities of the Office of Management 
                    and Budget
    Subsection (a) would assign the Director of OMB general 
responsibility for coordinating and overseeing the 
implementation of the legislation.
    Subsection (b) would require the Director of OMB in 
consultation with the Chief Financial Officers Council (CFOC) 
and the President's Council on Integrity and Efficiency (PCIE), 
to issue implementation guidance and support to the agencies. 
The guidance must include recovery audit standards to be 
developed in consultation with GAO and private recovery audit 
specialists. This subsection also would require the guidance to 
include specific standards and procedures for the 
identification and disposition of payment errors which cause 
underpayments to vendors.
    Subsection (c) would authorize the Director of OMB to place 
limitations on percentage amounts paid to recovery audit 
contractors under contingency fee arrangements.
            Section 3566. Exemptions
    Subsection (a) would authorize the Director of OMB to make 
exemptions from the recovery audit mandate if compliance with 
such a mandate would impede the agency's mission or would not 
be cost effective. Under subsection (b), the Director of OMB 
would have to promptly report any such determination and 
exemption to Congress.
    Subsection (c) would provide exemptions for certain 
contracts which, under current law, already are subject to 
extensive audit scrutiny and oversight.
    Section (1)(a)(2) would add the new table of sections to 
chapter 35.
    Section (1)(b) would clarify that its provisions apply to 
all Executive Branch agencies.
    Section (1)(c) would require the Director of OMB to issue 
initial guidance on implementation of this legislation not 
later than 180 days after enactment, and such initial guidance 
shall include the standards required by paragraph (2) of 
section 3565(b).
    Section (1)(d) would require each executive agency to begin 
the first recovery audit required under section 3562(a)(1) not 
later than 18 months after date of enactment and that such 
recovery audit will cover 2001, the preceding fiscal year, and 
any additional fiscal years that the head of the executive 
agency determines are practical and cost-effective.
    Section (1)(e) would prohibit information obtained from a 
recovery audit to be used by plaintiffs in certain actions.
    Section (1)(f) would authorize the Director of OMB to 
establish a recovery audit pilot program at one or more 
agencies to test the feasibility and effectiveness of recovery 
audits with respect to payment activities other than those 
related to Federal contracts for the procurement of goods and 
services.
    Section (1)(g)(1) would require the Director of OMB to 
submit to the President and Congress, not later than 30 months 
after the date of enactment and then annually for each of the 
two years thereafter, detailed reports on implementation of 
this legislation. The reports would include: a description and 
evaluation of agency efforts to conduct recovery audits; an 
assessment of the benefits of the Act, including amounts 
identified and recovered; an identification of best practices; 
a list of any significant problems or barriers to more 
effective performance of recovery audits and activities; a 
report on agency expenditures related to recovery auditing; a 
description of the management improvement programs; 
recommendations for changes in agency practices or law that 
would improve agency efforts under this Act; and a description 
and evaluation of each pilot program conducted.
    Section (1)(g)(2) would require the GAO, not later than 60 
days after the submittal of each report under paragraph (1), to 
report to Congress and the Director of OMB on implementation of 
this legislation.
    Section (1)(h) would require the Director of OMB to conduct 
a study on the effects of recovery audits including any 
problems relating to improper or inadequate notice of recovery 
audits. The study would be reported to Congress and would 
contain the Director's findings, conclusions, and 
recommendations.

                     V. Regulatory Impact Statement

    Paragraph 11(b)(1) of the Standing Rules of the Senate 
requires that each report accompanying a bill evaluate ``the 
regulatory impact which would be incurred in carrying out this 
bill.''
    The enactment of this legislation will not have significant 
regulatory impact. S. 3030 contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act and would have no impact on state, local or tribal 
governments.

                         VI. CBO Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 11, 2000.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 3030, a bill to 
amend title 31, United States Code, to provide for executive 
agencies to conduct annual recovery audits and recovery 
activities, and for other purposes.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
Righter.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 3030--A bill to amend title 31, United States Code, to provide for 
        executive agencies to conduct annual recovery audits and 
        recovery activities, and for other purposes

    Summary: S. 3030 would require federal agencies to conduct 
specialized audits of accounts that purchase at least $500 
million of goods and services in a given year from the private 
sector. By increasing the federal government's recovery of 
erroneous payments made to the private sector, CBO estimates 
that enacting S. 3030 would decrease direct spending by $60 
million over the 2001-2010 period. Consequently, pay-as-you-go 
procedures would apply to the bill. Implementing the bill also 
could yield similar savings for amounts made available in 
future years, but such savings would depend on the amounts 
appropriated for the relevant accounts. In addition, CBO 
estimates that the Office of Management and Budget (OMB) would 
spend less than $500,000 a year to oversee and report on the 
bill's implementation and that the General Accounting Office 
(GAO) would spend less than $500,000 in each of fiscal years 
2001 through 2003 to report on the bill's effectiveness.
    S. 3030 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on the budgets of state, local, or 
tribal governments.
    Major provisions: S. 3030 would require federal agencies to 
conduct specialized audits of accounts that purchase at least 
$500 million of goods and services in a given year from the 
private sector. The audits, referred to as recovery auditing, 
are conducted using software that identifies such anomalies as 
pricing errors on invoices, duplicate payments, miscalculated 
freight charges, and any failure to provide applicable rebates, 
allowances, and discounts.
    For certain accounts, S. 3030 would allow agencies to 
retain and spend, without further appropriation action, one-
half of any amounts collected from conducting recovery audits. 
Agencies could use the amounts they retain to improve 
management functions and to pay for the costs of performing the 
audits. The bill would require agencies to deposit the 
remaining amounts recovered in the Treasury as miscellaneous 
receipts.
    S. 3030 would require both OMB and GAO to report to the 
Congress on the bill's implementation in each of fiscal years 
2001 through 2003. As part of its role in overseeing such 
implementation, OMB could exempt agencies or programs from the 
bill's requirements.
    Estimated cost to the Federal Government: CBO estimates 
that implementing S. 3030 would increase offsetting receipts 
from the recovery of overpayments by about $120 million over 
fiscal years 2002 through 2005. That estimate represents 
recovery of overpayments made with funds appropriated during 
fiscal years 2000 and 2001. Because the bill would allow 
agencies to retain and spend one-half of such amounts without 
further appropriation, CBO estimates that agencies would spend 
about $60 million of those recoveries over fiscal years 2002 
through 2006. Implementing the bill could yield similar savings 
in net spending for amounts made available in years after 
fiscal year 2001, but such savings would depend on the amounts 
appropriated.
    The estimated budgetary impact of S. 3030 is shown in the 
following table. The costs of this legislation fall within 
multiple budget functions.

------------------------------------------------------------------------
                                      By fiscal year, in millions of
                                                 dollars--
                                 ---------------------------------------
                                   2001    2002    2003    2004    2005
------------------------------------------------------------------------
Recovery of Overpayments:
    Estimated Budget Authority..       0   (\2\)     -20     -90     -10
    Estimated Outlays...........       0   (\2\)     -20     -90     -10
Spending by Agencies:
    Estimated Budget Authority..       0   (\2\)      10      45       5
    Estimated Outlays...........       0   (\2\)       5      25      25
Net Changes:
    Estimated Budget Authority..       0   (\2\)     -10     -45      -5
    Estimated Outlays...........       0   (\2\)     -15     -65      15
------------------------------------------------------------------------
\1\ Implementing the bill would also affect spending subject to
  appropriation.
\2\ Less than $500,000.

    Basis of estimate: This estimate assumes that the bill will 
be enacted early in fiscal year 2001 and that it would apply to 
appropriations provided for 2001 and 2000.

Direct spending

    Audits of Appropriated Accounts. Within 18 months of 
enactment, S. 3030 would require agencies to begin conducting 
recovery audits of payments made from certain accounts during 
fiscal years 2000 and 2001. Based on an analysis of 1998 and 
1999 data from the Federal Procurement Report, which is 
compiled by the General Services Administration, CBO estimates 
that recovery audits could apply to about $125 billion in 
annual payments made in each of fiscal years 2000 and 2001, net 
of those payments (including payments from revolving and 
working capital funds) that we expect will be audited under 
current law. However, CBO expects that OMB would exempt certain 
accounts from the bill's requirements, including accounts that 
involve the research, testing, and procurement of military 
weapons, finance federal law enforcement activities, and 
involve medical records. Thus, we estimate that the bill's 
requirement to audit payments would apply to about $60 billion 
in annual payments.
    In the private sector, companies using the recovery audit 
process have identified and collected approximately $1 for 
every $1,000 in audited payments, or a rate of 0.1 percent. 
Recovery audits of some payments made by the Department of 
Defense (DoD) have identified a payment error rate of 0.4 
percent; however, DoD's experience in recovering the identified 
overpayments is mixed. On average, CBO assumes the federal 
government would recover about 0.1 percent of the $60 billion 
audited, or $60 million a year. That rate takes into account 
the increased difficulty in collecting overpayments that are 
more than one year old and the likelihood that federal agencies 
will settle for less than full payment on some of these debts. 
We expect that agencies would not begin collecting overpayments 
from contractors until the end of fiscal year 2002.
    Audits of Revolving and Working Capital Funds. S. 3030 also 
could affect spending from accounts that receive no annual 
appropriations, such as revolving and working capital funds. 
Some agencies, particularly the DoD, are currently auditing 
tens of billions of dollars of payments from such accounts 
already, and CBO expects that they will continue to expand 
their use of recovery auditing to recapture overpayments made 
from these accounts. Under the bill, none of the funds 
recovered by revolving and working capital funds would be 
deposited in the Treasury. Therefore, the legislation would 
have no net budgetary effect for such accounts.

Spending subject to appropriation

    If recovery audits are used to collect overpayments made 
with funds appropriated after 2001, then implementing the bill 
could yield savings similar to the net recoveries estimated for 
audits of 2000 and 2001, but such savings would depend on the 
amounts appropriated for the relevant accounts. If 
appropriations were to continue at about the same level as in 
fiscal year 2001, the net savings would average about $30 
million a year in 2004 and subsequent years (allowing time for 
agencies to complete their audits of 2000 and 2001 funds and 
begin recovering 2002 overpayments).
    In addition, CBO estimates that OMB would spend less than 
$500,000 a year to oversee and report on the bill's 
implementation and that GAO would spend less than $500,000 in 
each of fiscal years 2001 through 2003 to report on the bill's 
effectiveness.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays that are subject to pay-as-you-go procedures 
are shown in the following table. For the purposes of enforcing 
pay-as-you-go procedures, only the effects in the budget year 
and the succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        By fiscal year, in millions of dollars--
                                                               -----------------------------------------------------------------------------------------
                                                                  2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays............................................        0        0      -15      -65       15        5        0        0        0        0
Changes in receipts...........................................                                        Not applicable
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: S. 3030 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on the budgets of 
state, local, or tribal governments.
    Previous CBO estimate: On November 17, 1999, CBO prepared a 
cost estimate for H.R. 1827, the Government Waste Corrections 
Act of 1999, as ordered reported by the House Committee on 
Government Reform. CBO estimated that H.R. 1827 would decrease 
direct spending by $100 million over the 2000-2004 period and 
by $90 million over the 2000-2009 period. The estimate of net 
savings under H.R. 1827 is higher because that bill would 
require that federal agencies conduct specialized audits of 
payments made in the year in which the bill is enacted and the 
two preceding fiscal years. In contrast, S. 3030 would require 
that agencies only audit payments made in the year in which the 
bill is enacted and the preceding fiscal year. As a result, our 
estimate of total recoveries--and, therefore, net savings--is 
greater under H.R. 1827.
    Estimate prepared by: John R. Righter.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                         VII. Additional Views

                              ----------                              

                   ADDITIONAL VIEWS OF SENATOR LEVIN

    I fully support the objective of S. 3030 to encourage 
federal agencies to conduct recovery audits to identify and 
recover erroneous payments. Reviews by the General Accounting 
Office and others indicate that federal agencies make erroneous 
payments far too often, and rely far too much on contractors 
and other recipients of federal funds to identify the errors 
and volunteer repayment.
    However, I have a number of concerns about the details of 
S. 3030. First and foremost, it appears that this bill would 
exclude from its coverage most of the federal payments with 
which the General Accounting Office and others have identified 
problems. The bill would address only contract payments, 
excluding payments to States, entitlement payments, and federal 
grants and loans. The vast majority of contract payments would 
be excluded from coverage as well, because the bill contains an 
exclusion for all contracts that are covered by the Truth In 
Negotiations Act, the Cost Accounting Standards, or statutory 
audit requirements. Such contracts account for most contract 
dollars, including the major weapons systems contracts on which 
GAO has identified significant problems.
    The result is that the bill would establish detailed and 
prescriptive requirements for a small number of contracts 
(where there has been no identifiable problem) while excluding 
the bulk of federal payments. While it would make sense to give 
agencies the authority to structure their own recovery audit 
programs, and to exclude categories of contracts for which the 
costs of conducting recovery audits would exceed the benefits, 
broad statutory exclusions like those in S. 3030 could send the 
message that Congress does not expect federal agencies to 
address payments that account for the vast majority of federal 
dollars.
    Secretary of Defense William Cohen expressed additional 
concerns about the bill in a February 10, 2000 letter to the 
House of Representatives. These concerns included the 
following:
     The bill would permit agencies to take a 
significant percentage of funds recovered by recovery audits 
and put them into ``management improvement programs.'' All of 
the funds recovered were authorized and appropriated for 
specific programs identified by Congress--not for ``management 
improvement programs'' selected by the executive branch. For 
this reason, Congress should carefully consider Secretary 
Cohen's request that the bill be modified to ``[r]ecognize that 
funds collected from recovery audit activities should not be 
used for management improvement programs or returned to the 
Treasury if those funds are needed for liquidation of 
obligations or obligational adjustment.''
     The bill would require a public-private 
competition before any recovery audit could be conducted by a 
private sector company. This requirement appears to go beyond 
the requirements of OMB Circular A-76, because it would apply 
even in the case of audit work which is not currently being 
performed by government employees. For this reason, Congress 
should carefully consider Secretary Cohen's request that the 
bill be revised to ``eliminate the requirement to conduct 
public-private cost comparisons before any agency may contract 
for recovery audit services,'' where those audits are not now 
being conducted in the public sector.
    It is my hope that we will be able to address these issues 
before S. 3030 is brought to the Senate floor.

                                   Carl Levin.

                   ADDITIONAL VIEWS OF SENATOR AKAKA

    During the markup of S. 3030, I pointed out that H.R. 1827, 
a similar bill to S. 3030, was approved on a roll call vote of 
375-0. I noted that the reason the House bill enjoyed such wide 
bipartisan support was because the measure included a provision 
requiring that whenever an agency is planning to do a recovery 
audit, that government employees must be given an opportunity 
to compete against any outside contractors for that work.
    This public-private competition, as it is called, would 
determine whether the audit would be performed in-house or by a 
private recovery audit contractor. Although a similar provision 
is included in S. 3030, it has been altered slightly. The two 
largest federal employee unions--the National Treasury 
Employees Union and the American Federation of Government 
Employees--expressed concern that section 3562(c)(2)(B) of S. 
3030 would prevent the use of interagency service agreements 
and would limit in-house performance of the recovery audit to 
payment office personnel. The unions argue that such 
limitations micro-manage agencies in a way that could limit 
public-private competition. For example, if an agency develops 
a proficiency for recovery audits, that agency should be 
allowed to compete with other agencies' in-house staff, as well 
as outside firms. Similarly, agencies should be allowed to 
determine if they want to reallocate their contract 
administration personnel to meet the mandate to perform 
recovery audits, and, therefore, should not be limited to using 
only payment office personnel. I suggest that the language 
found in H.R. 1827 be considered in lieu of that in S. 3030.
    I also note that federal Inspector Generals and the Office 
of Management and Budget have some lingering concerns about S. 
3030, as drafted. I understand that the Majority is working on 
those issues. I am pleased that Chairman Thompson recognized 
that there are those who expressed concern with the bill and 
that he would attempt to address those concerns.

                                   Daniel K. Akaka.

                     VIII. Changes to Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows, (existing law 
proposed to be omitted is enclosed in black brackets, new 
material is printed in italic, existing law in which no change 
is proposed is shown in roman).

               CHAPTER 35 OF TITLE 31, UNITED STATES CODE

                 CHAPTER 35--ACCOUNTING AND COLLECTION

                          Subchapter I--General

Sec.
3501. Definition.
      * * * * * * *

                     Subchapter VI--Recovery Audits

3561. Definitions.
3562. Recovery audit requirement.
3563. Disposition of amounts collected.
3564. Management improvement program.
3565. Responsibilities of the Office of Management and Budget.
3566. Exemptions.
      * * * * * * *

                     Subchapter VI--Recovery Audits

Sec. 3561. Definitions

  ``In this subchapter:
          ``(1) Amounts collected.--The term `amounts 
        collected' means monies received or credited, by any 
        means, including offset, by the United States 
        Government.
          ``(2) Chief financial officer.--The term `Chief 
        Financial Officer' means--
                  ``(A) the official appointed or designated 
                under section 901 of this title; or
                  ``(B) in the case of an executive agency that 
                is not required to have a Chief Financial 
                Officer under that section, an official of the 
                agency whose authority and functions are 
                substantially equivalent to the authority and 
                functions of an agency Chief Financial Officer 
                under section 902 of this title.
          ``(3) Director.--The term `Director' means the 
        Director of the Office of Management and Budget.
          ``(4) Disclose.--The term `disclose', with respect to 
        individually identifiable information on any person, 
        means release, publish, transfer, provide access to, or 
        otherwise divulge the individually identifiable 
        information to any other person.
          ``(5) Facial-discrepancy payment error.--The term 
        `facial-discrepancy payment error'--
                  ``(A) means, except as provided in 
                subparagraph (B), any error in a payment made 
                by an executive agency for goods or services 
                that is apparent from a review of the face of 
                an invoice or other payment document that is 
                presented to the executive agency by the 
                supplier of the goods or services in the usual 
                and customary conduct of business or pursuant 
                to a requirement in law or a contract to 
                substantiate the claim for the payment, 
                including any such document that is presented 
                electronically; and
                  ``(B) does not include a payment error 
                identified, resulting, or supported from a 
                document that is--
                          ``(i) a record of a proprietary 
                        nature that is maintained solely by the 
                        supplier of the goods or services;
                          ``(ii) not specifically required to 
                        be presented to the executive agency by 
                        contract, law, or regulation, or not 
                        necessary for the substantiation of the 
                        claim for the payment; or
                          ``(iii) submitted to the executive 
                        agency for evaluative purposes before 
                        the award of the contract under which 
                        the payment was made.
          ``(6) Individually identifiable information.--The 
        term `individually identifiable information', with 
        respect to a person, means any information, whether 
        oral or recorded in any form or medium, that identifies 
        the person or with respect to which there is a 
        reasonable basis to believe that the information can be 
        used to identify the person.
          ``(7) Oversight.--The term `oversight', with respect 
        to a payment activity, recovery audit, or recovery 
        activity, means activities by a Federal, State, or 
        local governmental entity to enforce laws relating to, 
        to investigate, or to regulate such audit or activity.
          ``(8) Payment activity.--The term `payment activity' 
        means an executive agency activity to pay 
        nongovernmental sources for goods or services acquired 
        from those sources by the agency to support the 
        performance of the agency's mission.
          ``(9) Recovery audit.--The term `recovery audit' 
        means a financial management technique of an executive 
        agency that is used by the executive agency to perform 
        internal audits of its records to identify facial-
        discrepancy payment errors that are made by the 
        executive agency in connection with a payment activity, 
        including facial-discrepancy payment errors that result 
        from any of the following:
                  ``(A) Duplicate payments.
                  ``(B) Invoice errors.
                  ``(C) Failure to take advantage of applicable 
                discounts, rebates, or other allowances.
                  ``(D) Any other similar facial-discrepancy 
                payment errors resulting in inaccurate 
                payments, including underpayments identified 
                pursuant to guidance issued under section 
                3565(b)(3) of this title.
          ``(10) Recovery activity.--The term `recovery 
        activity' means an executive agency activity to attempt 
        to collect, under the authority of chapter 37 of this 
        title or any other provision of law, a payment error 
        identified in a recovery audit.
          ``(11) Recovery audit contractor.--The term `recovery 
        audit contractor' means any private sector person who 
        is obligated under a contract entered into with an 
        executive agency to perform a recovery audit for the 
        executive agency.

``Sec. 3562. Recovery audit requirement

  ``(a) In General.--Except as exempted under section 3566 of 
this title, the head of each executive agency--
          ``(1) shall conduct each fiscal year--
                  ``(A) recovery audits of the payment 
                activities of the agency for the preceding 
                fiscal year if the payment activities for the 
                fiscal year total at least $500,000,000 
                (adjusted by the Director annually for 
                inflation); and
                  ``(B) the recovery activities determined 
                warranted with respect to those payment 
                activities; and
          ``(2) may conduct in any fiscal year--
                  ``(A) recovery audits of the payment 
                activities of the agency for the preceding 
                fiscal year if the payment activities for the 
                fiscal year total less than $500,000,000 
                (adjusted by the Director annually for 
                inflation); and
                  ``(B) the recovery activities determined 
                warranted with respect to those payment 
                activities.
  ``(b) Request for Exemption.--The head of an executive agency 
required to conduct a recovery audit under subsection (a)(1) 
may request that the Director exempt a payment activity, in 
whole or in part, from that requirement if the head of the 
executive agency determines and can demonstrate that the 
exemption is justified on any basis described in section 
3566(a) of this title.
  ``(c) Procedures.--
          ``(1) In general.--The head of each executive agency 
        shall prescribe procedures for the performance of 
        recovery audits and recovery activities in the agency 
        that implement this section in a manner designed to 
        ensure the greatest financial benefit to the United 
        States.
          ``(2) Specific procedures.--In conducting recovery 
        audits and recovery activities under this section, the 
        head of an executive agency--
                  ``(A) shall consult and coordinate with the 
                Chief Financial Officer and the Inspector 
                General of the agency to avoid any duplication 
                of effort;
                  ``(B) may conduct recovery audits and 
                recovery activities regarding payments by the 
                executive agency by using personnel of the 
                agency's payment office without reimbursement 
                or payment for services in accordance with the 
                standards issued by the Director under section 
                3565(b)(2) of this title, by procuring the 
                performance of recovery audits by contractors, 
                or by any combination of both methods; and
                  ``(C) shall ensure that the recovery audits 
                and recovery activities are carried out 
                consistent with the standards issued by the 
                Director under section 3565(b)(2) of this 
                title.
  ``(d) Recovery Audit Contracts.--
          ``(1) Authority to use contingency contracts.--
        Notwithstanding section 3302(b) of this title, as 
        consideration for performance of any recovery audit 
        procured by an executive agency, the head of the 
        executive agency may pay the recovery audit contractor 
        an amount equal to a percentage of the total amount 
        collected by the United States as a result of payment 
        errors identified by the recovery audit contractor in 
        the audit.
          ``(2) Construction.--
                  ``(A) Relationship to other executive 
                authorities.--A contract for the performance of 
                a recovery audit shall not affect--
                          ``(i) any authority of the head of an 
                        executive agency, or any other person, 
                        under the Contract Disputes Act of 1978 
                        (41 U.S.C. 601 et seq.) and other 
                        applicable laws, including authority to 
                        initiate litigation or referrals for 
                        litigation; or
                          ``(ii) the requirements of sections 
                        3711, 3716, 3718, and 3720 of this 
                        title that the head of an executive 
                        agency resolve disputes, compromise, or 
                        terminate payment of error claims, 
                        collect by offset, and otherwise engage 
                        in recovery activities with respect to 
                        payment errors identified by the 
                        recovery audit.
                  ``(B) Contractor authorities and duties.--
                Nothing in this subchapter shall be construed 
                to authorize a recovery audit contractor with 
                an executive agency--
                          ``(i) to require the production of 
                        any record or information by any person 
                        other than an officer, employee, or 
                        agent of the executive agency; or
                          ``(ii) to establish, or otherwise 
                        have, a physical presence on the 
                        property or premises of any private 
                        sector entity as part of its 
                        contractual obligations to an executive 
                        agency.
          ``(3) Required contract terms and conditions.--The 
        head of an executive agency shall include in each 
        contract for the procurement of the performance of a 
        recovery audit the following requirements:
                  ``(A) That the recovery audit contractor 
                protect from improper use and from disclosure 
                to any person inside or outside the recovery 
                audit contractor's firm who is not directly 
                involved in the identification or recovery of 
                payment errors--
                          ``(i) any financial information that 
                        is viewed or obtained in the course of 
                        carrying out a recovery audit for an 
                        executive agency; and
                          ``(ii) any other information so 
                        viewed or obtained that has not been 
                        released for general public use by the 
                        audited person or an authorized agent 
                        of that person.
                  ``(B) That the recovery audit contractor 
                submit to the head of the executive agency 
                periodic reports on conditions giving rise to 
                payment errors identified by the recovery audit 
                contractor and any recommendations on how to 
                mitigate such conditions.
                  ``(C) That the recovery audit contractor 
                notify the head of the executive agency of any 
                payment errors identified by the contractor 
                pertaining to the executive agency or to 
                another executive agency that are beyond the 
                scope of the contract.
                  ``(D) That the recovery audit contractor 
                promptly notify the head of the executive 
                agency of any indication of fraud or other 
                criminal activity discovered in the course of 
                the audit.
          ``(4) Executive agency action following 
        notification.--The head of an executive agency shall 
        take prompt and appropriate action in response to a 
        notification by a recovery audit contractor pursuant to 
        the requirements under paragraph (3), including 
        forwarding to the head of another executive agency any 
        information that applies to that agency.
          ``(5) Contracting requirements.--Before contracting 
        for any recovery audit, the head of an executive agency 
        shall determine and compare the cost of using employees 
        of the United States to perform the audit and the cost 
        of procuring the performance of the audit from the 
        private sector. The head of the executive agency shall 
        use the outcome of the cost comparison process to 
        determine whether to use the employees of the United 
        States or to procure recovery audit services from the 
        private sector.
  ``(e) Relationship to Authority of Inspectors General.--
Nothing in this subchapter shall be construed as impairing the 
authority of an Inspector General under the Inspector General 
Act of 1978 or any other provision of law.
  ``(f) Relationship to Requirements for Payments for 
Transportation.--Nothing in this subchapter shall be construed 
to affect the requirements and authorities provided in section 
3726 of this title.
  ``(g) Privacy Protections.--
          ``(1) Limitation on disclosure of individually 
        identifiable information.--
                  ``(A) Restriction.--Any recovery audit 
                contractor that obtains individually 
                identifiable information on a person through 
                the performance of a recovery audit or recovery 
                activity under this subchapter may disclose 
                that information only for the purpose of such 
                audit or activity, respectively, and for the 
                oversight of such audit or activity, unless 
                otherwise authorized by that person.
                  ``(B) Sanctions.--Any person that violates 
                subparagraph (A) shall be liable for any 
                damages (including nonpecuniary damages, costs, 
                and attorneys' fees) caused by the violation.
          ``(2) Return of information.--
                  ``(A) Requirement.--Upon the date determined 
                under subparagraph (B), a recovery audit 
                contractor having possession of individually 
                identifiable information disclosed in the 
                course of a recovery audit or recovery activity 
                that is performed under this subchapter by the 
                recovery audit contractor shall return it to 
                the person from whom it was obtained unless 
                another applicable law requires retention of 
                the information.
                  ``(B) Time for return of information.--The 
                date referred to in subparagraph (A) is the 
                date of the conclusion of the matter or need 
                for which the information was disclosed, except 
                that if, on that date, the recovery audit 
                contractor has actual notice of any oversight 
                of the recovery audit or recovery activity, the 
                date referred to in subparagraph (A) is the 
                date of the conclusion of such oversight.

``Sec. 3563. Disposition of amounts collected

  ``(a) In General.--Notwithstanding section 3302(b) of this 
title, the total amount collected in a fiscal year by the 
United States as a result of recovery audits by an executive 
agency under this subchapter shall be disposed of in accordance 
with this section.
  ``(b) Use for Recovery Audit Costs.--
          ``(1) Contractor payments.--Amounts referred to in 
        subsection (a) shall be available to the executive 
        agency to pay amounts owed to any recovery audit 
        contractor for performance of the audit.
          ``(2) Other costs.--Subject to the limitation in 
        subsection (e), amounts referred to in subsection (a) 
        shall be available to the executive agency--
                  ``(A) to reimburse any applicable 
                appropriation for other recovery audit costs 
                incurred by the executive agency with respect 
                to the audit; and
                  ``(B) to pay any fees authorized under 
                chapter 37 of this title.
  ``(c) Use for Management Improvement Program.--Subject to the 
limitation in subsection (e), up to a total of 25 percent (as 
determined under the guidance issued under section 3565 of this 
title) of the amount referred to in subsection (a)--
          ``(1) shall be available to the executive agency to 
        carry out the management improvement program of the 
        agency under section 3564 of this title; and
          ``(2) may be credited for that purpose by the head of 
        the executive agency to any agency appropriation that 
        is available for obligation at the time of the 
        collection and shall be merged with other amounts in, 
        and shall remain available for the same period as, the 
        appropriation to which credited.
  ``(d) Remainder to Treasury.--Subject to the limitation in 
subsection (e), there shall be deposited into the Treasury as 
miscellaneous receipts a sum equal to--
          ``(1) 50 percent of the amount referred to in 
        subsection (a); plus
          ``(2) any of that amount that remains unallocated 
        after the application of subsections (b) and (c).
  ``(e) Limitation on Application.--
          ``(1) In general.--This section does not apply to 
        amounts collected through recovery audits and recovery 
        activities to the extent that such application would be 
        inconsistent with another provision of law that 
        authorizes the crediting of the amounts to a 
        nonappropriated fund instrumentality, revolving fund, 
        working-capital fund, trust fund, or other fund or 
        account.
          ``(2) Amounts paid out of currently available 
        funds.--Subsections (b)(2), (c), and (d) shall not 
        apply to amounts collected through recovery audits and 
        recovery activities that were paid out of an 
        appropriation or fund that remains available for 
        obligation at the time the amounts are collected.

``Sec. 3564. Management improvement program

  ``(a) In General.--
          ``(1) Required program.--The head of each executive 
        agency that is required to conduct recovery audits 
        under section 3562 of this title shall conduct a 
        management improvement program under this section, 
        consistent with guidelines prescribed by the Director.
          ``(2) Discretionary program.--The head of any other 
        executive agency that conducts recovery audits under 
        section 3562 of this title that meet the standards 
        issued by the Director under section 3565(b)(2) may 
        conduct a management improvement program under this 
        section.
  ``(b) Program Features.--In conducting a management 
improvement program under this section, the head of an 
executive agency--
          ``(1) shall, as the first priority of the program, 
        address problems that contribute directly to payment 
        errors of the executive agency; and
          ``(2) may seek to reduce errors and waste in other 
        programs and operations of that executive agency by 
        improving the executive agency's staff capabilities, 
        information technology, and financial management.
  ``(c) Integration With Other Activities.--The head of an 
executive agency--
          ``(1) subject to paragraph (2), may integrate the 
        program under this section, in whole or in part, with 
        other management improvement programs and activities of 
        that agency or other executive agencies; and
          ``(2) shall retain the ability to account 
        specifically for the use of amounts available to the 
        executive agency under section 3563 of this title.

``Sec. 3565. Responsibilities of the Director of the Office of 
                    Management and Budget

  ``(a) In General.--The Director shall coordinate and oversee 
the implementation of this subchapter.
  ``(b) Guidance.--
          ``(1) In general.--The Director, in consultation with 
        the Chief Financial Officers Council and the 
        President's Council on Integrity and Efficiency, shall 
        issue guidance and provide support to the executive 
        agencies for the implementation of this subchapter.
          ``(2) Recovery audit standards.--The Director shall 
        include in the guidance standards for the performance 
        of recovery audits under this subchapter. The Director 
        shall develop the guidance in consultation with the 
        Comptroller General and private sector experts on 
        recovery audits, including such experts who use 
        recovery auditing as part of their financial management 
        procedures.
          ``(3) Treatment of underpayments.--The guidance 
        developed under this subsection shall include specific 
        standards and procedures for the identification and 
        disposition of facial-discrepancy payment errors that 
        result in underpayments to vendors.
  ``(c) Fee Limitations.--The Director may limit the percentage 
amounts that may be paid to recovery audit contractors under 
section 3562(d)(1) of this title.

``Sec. 3566. Exemptions

  ``(a) In General.--The Director may exempt an executive 
agency, in whole or in part, from the requirement to conduct 
recovery audits under section 3562(a)(1) of this title if the 
Director determines that compliance with the requirement--
          ``(1) would impair the performance of the agency's 
        mission; or
          ``(2) would not, or would no longer, be cost-
        effective.
  ``(b) Report to Congress.--The Director shall promptly report 
the basis of any determination made and exemption granted under 
subsection (a)(1) to Congress.
  ``(c) Exemption of Certain Contracts.--The requirements of 
section 3562(a) of this title shall not apply to any of the 
following contracts:
          ``(1) A contract that provides for periodic audit of 
        invoices pursuant to section 2313 of title 10 or 
        section 304C of the Federal Property and Administrative 
        Services Act of 1949 (41 U.S.C. 254d).
          ``(2) A contract for which cost or pricing data were 
        required to be provided pursuant to section 2306a of 
        title 10 or section 304A of the Federal Property and 
        Administrative Services Act of 1949 (41 U.S.C. 254b).
          ``(3) A contract that is subject to cost accounting 
        standards issued by the Cost Accounting Standards Board 
        under section 26 of the Office of Federal Procurement 
        Policy Act (41 U.S.C. 422).''.

                                  
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