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S. Hrg. 109–774

REPORTING IMPROPER PAYMENTS: A REPORT

CARD ON AGENCIES’ PROGRESS

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MARCH 9, 2006

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

Senator Carper ................................................................................................. 6

WITNESSES 

THURSDAY, MARCH 9, 2006

Hon. Linda M. Combs, Controller, Office of Management and Budget .............. 8

McCoy Williams, Director, Financial Management and Assurance Team, U.S. 

Government Accountability Office ...................................................................... 10

Hon. Mark Everson, Commissioner, Internal Revenue Service ........................... 21

Hon. James B. Lockhart III, Deputy Commissioner, Social Security Administration ................................................................................................................... 23

Hon. Samuel T. Mok, Chief Financial Officer, U.S. Department of Labor ......... 33

Hon. Charles Johnson, Assistant Secretary for Budget, Technology and Finance, U.S. Department of Health and Human Services ................................. 34

ALPHABETICAL LIST OF WITNESSES

Combs, Hon. Linda M.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 58

Everson, Hon. Mark: 

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 90

Johnson, Hon. Charles: 

Testimony .......................................................................................................... 34

Prepared statement .......................................................................................... 119

Lockhart, Hon. James. B., III: 

Testimony .......................................................................................................... 23

Prepared statement .......................................................................................... 99

Mok, Hon. Samuel T.: 

Testimony .......................................................................................................... 33

Prepared statement .......................................................................................... 110

Williams, McCoy: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 63

APPENDIX 

Charts submitted for the Record from Senator Coburn ....................................... 47

Copy of the ‘‘FY 2007 Budget Proposal’’ submitted for the Record by Mr. 

Lockhart ................................................................................................................ 52

Questions and responses for the Record from: 

Ms. Combs ......................................................................................................... 133

Mr. Williams ..................................................................................................... 148

(1)

REPORTING IMPROPER PAYMENTS: A 

REPORT CARD ON AGENCIES’ PROGRESS 

THURSDAY, MARCH 9, 2006

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:33 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. The Subcommittee on Federal Financial Management will come to order. 

Let me first thank each of our panelists for being here. This is 

not an exciting subject for most people, but it is, nonetheless, a 

very important subject when it comes to the process and the 

unsustainable course we find ourselves on over the next few years. 

I appreciate the frankness with which many of our panelists 

have dealt with our Subcommittee and the general cooperative nature. And I want to thank you in advance for that. 

This will probably be a fairly long hearing because of the nature 

and extent of the questions and the importance of it. We are here 

again, this is our third hearing on improper payments in just over 

8 months. A lot of people find the subject dry and overly technical. 

Some people think payment errors are simply too arcane to interest 

taxpayers. When you look at the total amount of money, it is far 

from a small amount of money. 

This Subcommittee is dedicated to continue having hearings on 

the subject, first of all, because if the American people were aware 

of some of these numbers, they would vote us all out of office and 

probably fire most in the executive agencies when they see the 

scope of the problem. 

Let me give you an example of what I mean. The Federal Government pays out a lot of money to individuals, organizations, businesses, States, and local government. Between this year and last 

year, $83 billion of those payments were wrong. The vast majority 

of them, greater than 95 percent, were overpayments. That means that $83 billion didn’t go to accomplish the goals 

that the government set out. And it meant that $83 billion could 

have been used to help somebody. It could have been used to offset 

2

the tremendous deficit that we are facing. This amount translates 

into over $300 for every man, woman, and child in America. 

If we eliminated improper payments, we could do a lot of things 

with that money that would make a significant difference in this 

country. The $83 billion would fund everything we are going to 

need, four times fold, for Hurricane Katrina this year. It would pay 

completely for this year’s war effort in Iraq, rather than charging 

it to our children. 

There are several problems I want to outline in my opening 

statement, and then we will get into details after we have heard 

our panelists. The first problem is that the $83 billion is an underestimation. It is much greater than that. That is only what we 

know about based on agency reporting. 

At our first hearing, we heard that $45 billion improper payments represented only 23 of the 35 Federal agencies that were required to report improper payment information, and those reports 

only showed the agencies that performed a risk assessment of programs and activities, just the first step in complying with the improper payments law. 

Eight months later, that number is not changed, and the $37 billion in improper payments for last year represents again only 23 

agencies. It is not easy to bring the agencies into compliance, and 

I know that Linda Combs and the CFO Council are working hard 

to do that. But I think they would agree with me that it is still not 

good enough. The law does not exempt any agency from reporting. 

Here we have a poster that shows the worst offenders. The Department of Health and Human Services, the Department of Agriculture, and Department of Housing and Urban Development have 

a combined total of seven programs that are not reporting on these 

programs whose total outlays last year equaled $228 billion. 

There are two major programs and activities at the Department 

of Agriculture that have failed to report—School Programs and 

WIC. At HHS, four major programs are not reporting improper 

payments—Medicaid, TANF, Child Care, and Development Fund, 

the State SCHIP Program. 

At HUD, the Community Development Block Grant Program has 

failed to report. We will be inviting representatives from both 

USDA and HUD back to testify before this Subcommittee on their 

failure to comply with the law. 

Major programs from these three agencies with combined budgets of over $200 billion are not yet reporting their payment errors. 

So we can’t even estimate how much is in error each year. 

Some of the lowest payment error rates we have seen are around 

3 percent. And if we pretended that these agencies had about 3 

percent, we would be still looking at another $7 billion in improper 

payments. And I suspect it is much higher. 

One of the worst examples is the Medicaid Program, or health 

safety net for the poor. Outlays for this program were almost $200 

billion last year. In 2004, the program told us they would be reporting their payment errors by this year. But last summer, we heard 

that they wouldn’t be able to do it until 2008. That wasn’t acceptable news then, and it is not acceptable news now. 

3

Second problem. Reporting agencies report unacceptable rates. 

Not all programs are out of compliance with the law. Some are reporting, and the reports are deplorable. 

The worst example by far is the earned income tax credit with a payment error rate of 28 percent. That is $1 in every $4 that goes 

to that program is improper, most of which are improper overpayments. That means at least a quarter of the payments paid out by 

the program are wrong, and they are increasing in error, not decreasing. 

Not all the news is bad. Food Stamp rate is going down, though 

it is still staying high. The Department of Labor’s Unemployment 

Insurance Program and other agencies have implemented great 

public policies that help bring the payment error rate down. 

And I would note, and we will be talking about this later, the Department of Labor has to work through State programs to do that. 

And what we have heard in this Subcommittee is many agencies 

say we can’t get the information because we have to work through 

State programs. But the Department of Labor has shown that you 

can do that and that you can, in fact, know what the improper payment rate is, and you can bring it down. 

Transparency is the means. It is not the end. This Subcommittee 

is not going to rest until every program of every agency is in compliance with the improper payments law. I think most people know 

that I mean what I say and I say what I mean. And so, we will 

be back here multiple times until we get to that point. 

The law doesn’t tell us what to do when reporting reveals bad 

news. Transparency is the first and foundational principle of accountability, but it is only the beginning, not the end. You still 

need performance programs, and programs can be compliance with 

the law, but still have astronomical payment error rates. It is important that the American people have confidence to know what is 

going on, how the money is being spent. 

The solution. Can you imagine the accounts payable department 

of Wal-Mart or Microsoft reporting an error rate of 28 percent or 

even 3 percent? What would happen to the people in the position 

of responsibility if 3 percent of the payments were overpayments 

for everything that Wal-Mart bought or Microsoft bought? The people responsible for that would not be there. 

So it is not that we don’t have people trying. It is not that there 

aren’t hurdles in terms of the bureaucracy to get there. But it is 

something that we have to solve for our children and our grandchildren. 

Congressional responsibility. We have some as well. Accountability in the Federal Government requires political will on the 

part of our elected officials. I say, unfortunately, because our system of checks and balances intended by our Framers is broken, 

only Congress has the power to pull the plug on programs that are 

fleecing the taxpayers. 

Instead of providing a check on wasteful spending, Congress prefers writing a blank check to the Executive Branch, no matter the 

waste, fraud, or abuse of that money. No matter or not, whether 

they are complying with the law. When we have offered amendments to cut the funding of programs with unacceptably high payment error rates, those amendments have failed. 

4

Congress should be in the business of protecting the taxpayer 

from being forced to subsidize broken systems. It also should be in 

the business of protecting the future. Financial systems that aren’t 

working, that aren’t measuring results, or are measuring results 

that are unacceptable without appropriate action is an unacceptable thing for Congress to be accepting. 

The Department of Defense has over 4,000 financial reporting 

systems that don’t even talk to each other. Like the board of directors of a corporation is supposed to look out for all its shareholders, 

the American people rely on Congress to look out for their investments by scrutinizing the government’s performance on these and 

other problems. America needs to require Congress to take that responsibility seriously. 

In the meantime, this Subcommittee will not give up. We will 

keep trying to make the case to our colleagues until these amendments start passing or agencies find a way to get the results the 

taxpayers deserve. 

I want to again thank our witnesses for coming today. Each one 

of them faces a monumental task. This is not an easy problem to 

solve. Cleaning up financial systems has had a great start under 

President Bush and his management team. I am very appreciative 

for that. I applaud their efforts, and I hope that this hearing will 

help efforts back at the agencies that are affected. 

[The prepared statement of Senator Coburn follows:]

PREPARED STATEMENT OF SENATOR COBURN 

Well, here we are again. This is our third hearing on Improper Payments in just 

over 8 months. A lot of people find this subject dry or overly technical. Some people 

think payment errors are simply too arcane to interest the taxpayers. 

But this Subcommittee is going to keep having hearings on the subject, because 

I think if the American people heard some of these numbers, they would vote us 

all out of office, and they’d be right to do so. Let me give you an example of what 

I mean. The Federal Government pays out a lot of money to individuals, organizations, businesses, States, and local governments. Between this year and last year, 

$83 billion of those payments were wrong. Most of those errors were overpayments 

rather than underpayments. That means we just threw away the better part of $83 

billion. 

That translates into almost $300 for every man, woman, and child in America. 

We could buy every American an iPod! Remember that $300 tax refund check the 

President’s tax cuts sent out a couple years ago? If we eliminated improper payments, we’d be able to do it all over again without the hassle of a nasty floor debate. 

More seriously, we could use that $83 billion to pay for this year’s war effort in Iraq, 

or fund this year’s Katrina reconstruction efforts four times over. 

But the $83 billion is an underestimation. that’s only what we know about, based 

on agency reporting. At our first hearing, we heard that $45 billion in improper payments represented only 23 of the 35 Federal agencies required to report improper 

payment information—and those reports only showed that agencies had performed 

a risk assessment of programs and activities—the first step in complying with the 

law. Eight months later, that number has not changed, and the $37 billion in improper payments for last year represents again, only 23 agencies. Now, I know that 

it is not easy to bring these agencies into compliance and I know that Linda Combs 

and the CFO council are working hard on this. But I think they would agree with 

me that it’s still not good enough. The law does not exempt any agency from reporting. 

The Department of Health and Human Services, the Department of Agriculture 

and the Department of Housing and Urban Development have a combined total of 

seven programs that are not yet reporting for programs whose total outlays equal 

about $228 billion. There are two major programs and activities at the Department 

of Agriculture that have failed to report: School Programs, and Women, Infants, and 

Children (WIC). At HHS, four major programs are not reporting improper payments 

information: Medicaid, Temporary Assistance for Needy Families (TANF), Child 

5

Care and Development fund, and the State Children’s Insurance Program. At HUD, 

the Community Development Block Grant program has also failed to report. I will 

be inviting representatives from both USDA and HUD back to testify before this 

Subcommittee on their failure to comply with the law. Major programs from these 

three agencies with combined budgets of over $200 billion are not yet reporting their 

payment errors, so we cannot even estimate how much they are wasting each year. 

Some of the lowest payment error rates we’ve seen are around 3 percent. Let’s 

pretend that these non-reporting programs have error rates at that so-called low 

rate—we would still be looking at almost $7 billion in wrong payments from these 

non-reporters. And I suspect that it’s actually much higher, because, appallingly, 

very few programs who do report are reporting a rate as low as 3 percent. 

One of the worst examples is the Medicaid program, our healthcare safety net for the poor. Outlays for this program were almost $200 billion last year. In 2004, the 

program told us they’d be reporting their payment errors by this year. But last summer, we heard that they wouldn’t really be able to do it until 2008. That wasn’t acceptable news, and I hope I’ll hear some better news today. 

Not all programs are out of compliance with the law. Some are reporting, and the 

reports are deplorable. The worst example by far is the Earned Income Tax Credit 

program, with a payment error rate of 28 percent. That means that at least a quarter of payments paid out by this program are wrong. Social Security Administration 

programs also have unacceptable rates, which have actually been increasing. 

Not all the news is bad. The Food Stamps rate is going down, tough it is still 

stunningly high. Department of Labor’s Unemployment Insurance program and 

other agencies have implemented some good policies to help bring the payment error 

rate down. 

This Subcommittee will not rest until every program of every agency is in compliance with the Improper Payments law. But the law only requires reporting. The law 

doesn’t tell us what to do when the reporting reveals bad news. Transparency is the 

first and foundational principle of accountability, but it’s only the beginning, not the 

end. You still need performance. Programs can be in compliance with the law but 

still have astronomical payment error rates. 

I think I know why. Can you imagine the Accounts Payable Department at Microsoft or Wal-Mart reporting an error rate of 28 percent, or even 3 percent? In the 

private sector, there are consequences for poor performance. In the Federal Government, the natural consequence of either failing to report payment errors or reporting an unacceptable error rate should be that you lose your funding. Why should 

taxpayers support a program that wastes a third, a tenth, or even 3 percent of their 

investment? Taxpayers should not have to tolerate programs that have outrageous 

waste just because those programs are founded on good intentions, or because the 

financial officers in those agencies are working long hours and trying hard to fix 

the problem. There should come a time when it’s no longer acceptable to fund a program that’s wasting a significant fraction of its budget. 

Unfortunately, accountability in the Federal Government, unlike in the private 

sector, requires political will on the part of elected officials. I say ‘‘unfortunately’’ 

because our system of checks and balances intended by the Framers is broken. Only 

Congress has the power to pull the plug on programs that are fleecing the taxpayers. Instead of providing a ‘‘check’’ on wasteful Washington spending, Congress 

prefers writing a ‘‘blank check’’ to the Executive Branch, no matter the waste, fraud, 

or abuse of that money. 

When we have offered amendments to cut the funding of programs with unacceptably high payment error rates, those amendments have failed. Congress should be 

in the business of protecting the taxpayer from being forced to subsidize broken systems. Homeland Security’s contract to get its financial reporting systems in order 

was such a failure, they recently just cut their losses on that contract and have proposed to start over next year. Department of Defense has over four thousand financial reporting systems that don’t talk to each other. Like the Board of Directors of 

a corporation is supposed to look out for all its shareholders, the American people 

rely on Congress to look out for their investment by scrutinizing the government’s 

performance on these and other problems. Americans need Congress to take that 

responsibility seriously. 

In the meantime, we will not give up. This Subcommittee will keep harping on 

these themes. We will keep trying to make the case to our colleagues until these 

amendments start passing or the agencies find a way to get the results the taxpayers deserve. 

I want to thank our witnesses for coming today. Each one of them faces a monumental task. Cleaning up financial systems in the Federal Government is not for 

the faint of heart. I applaud their efforts and I hope that this hearing will help 

those efforts back at the agencies.

6

Senator COBURN. I would like to recognize my Ranking Member 

and good friend, Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. How are you today? 

Senator COBURN. I am better. 

Senator CARPER. Good. 

To our witnesses—Mr. Williams, Hon. Linda Combs—nice to see 

you both. Thanks for joining us, and we look forward to your testimony and that of the other panels who follow. 

I am going to probably repeat a little bit of what the Chairman 

has said, and I would ask you just to bear with me. I have a statement. I am going to ask you to enter it for the record. 

Senator COBURN. Without objection. 

Senator CARPER. And I will just summarize it if I can. We have 

a budget deficit that David Walker was telling us the other day 

that he said set aside cash-basis accounting. He said think of accrual accounting. And he said this is not a $300 billion deficit. This 

is really about a $600 billion or $700 billion deficit. 

And that makes what we are talking about here today and what 

some of you are trying to do even all the more worthwhile. If there 

are $50 billion worth of improper payments, if we can only somehow reduce that by half, that is a huge improvement. 

If there are $350 billion in tax revenues that are going uncollected out there, if we could only get a third of that, that is a third 

of the deficit right there, and it is money that we have to go after 

rather than increase our debt. 

And as I think the Chairman has already talked about, back in 

2002, when the Improper Payments Information Act was adopted—

were you in the House then? 

Senator COBURN. No. 

Senator CARPER. I was here in the Senate, got to vote for it. But 

I don’t think many of our colleagues had much of a sense of what 

it could mean. 

And I think the Administration has shown a real commitment to 

making it work. We have had great support from GAO—and with 

the appointment and confirmation of Ms. Combs to be our, I will 

call her CFO, if you will, at OMB. That is a lot of alliteration. That 

is a lot of acronyms there. But with her confirmation, I am encouraged that we are going to make good progress. 

I was tempted, I forgot to bring this magazine because it was a 

great magazine. What is it called? 

Ms. COMBS. Government Executive. 

Senator CARPER. Government Executive. Your picture is on the 

cover of it. I wanted so badly to hold it up and just to be able to 

brag on you a little bit, on the work that you are doing. 

But OMB has now made the elimination, I believe, of improper 

payments a top management priority, and the leadership of Linda 

Combs is going to be critical if we are going to actually make the 

progress we need to make. 

There is some evidence now that all of the attention paid to improper payments in recent years is starting to pay off. We are encouraged by that. I am told that reported improper payments 

among Federal agencies were about $37 billion in 2005. That is 

7

down by about 17 percent from fiscal year 2004, when I think the 

estimate was about $45 billion. So we are heading in the right direction. 

And as we learned at a hearing we had last summer that some 

of us were present at, the official improper payments estimates we 

will hear discussed today are probably just the tip of the iceberg. 

And the estimates for some programs that we know are at risk for 

improper payments, one of them is Medicaid, are not included in 

this $37 billion tally. 

In addition, GAO will testify today, I believe, that some agencies 

are not doing as rigorous a job as they ought to be doing in assessing the programs that they administer to determine whether or not 

they are at risk for waste. Still others, GAO has found, have not 

even conducted the necessary assessments for all of their programs. 

Those are obviously things we are concerned about. 

And I say in closing, I understand that OMB-issued guidance 

that the agencies use to conduct their work under the Improper 

Payments Information Act may perhaps unintentionally leave significant amounts of waste that is unreported. We would like to find 

out if that is the case. 

Agencies apparently must only report on and develop remediation plans for improper payments that both exceed $10 million 

and make up at least 2.5 percent of program outlays. So it has to 

be at least $10.5 million and make up at least 2.5 percent of program outlays. And our concern is that might leave a fair amount 

of money on the table. So I think there may be a good reason why 

the guidance was written as it was, and perhaps we can talk about 

that and find out if that is the case. 

So, again, it is an important hearing. I am just pleased that we 

didn’t have one hearing and kind of let this one go, but to continue 

to be diligent and to do the oversight that this Subcommittee is becoming known for, and under the leadership of our Chairman. And 

I am just pleased to be his compadre. 

Thank you. 

[The prepared statement of Senator Carper follows:]

PREPARED STATEMENT OF SENATOR CARPER 

Thank you, Mr. Chairman, for continuing this Subcommittee’s focus on the problem of improper payments. 

As you know, our country is currently in the midst of some very trying fiscal 

times. The size of the Federal budget deficit and the burden our growing national 

debt force Congress every day to make difficult decisions about what to do with 

scarce resources. This situation makes our work on this Subcommittee even more 

important. 

Every dollar wasted because of lax financial management—whether due to error 

or fraud—is a dollar that can’t be used to fund worthy programs or to lessen the 

debt burden on future generations. 

As you know, Mr. Chairman, our predecessors on this Subcommittee worked back 

in 2002 to enact the Improper Payments Information Act—legislation that, for the 

first time, required all agencies to determine which programs are at significant risk 

for waste, estimate the amount those programs are spending improperly each year, 

and then come up with a plant to do something about it. 

In addition, OMB has now made the elimination of improper payments a top management priority and, under the leadership of Linda Combs and others, has been 

working hard to help agencies comply with the Improper Payments Information Act. 

There’s some evidence now that all of the attention paid to improper payments 

in recent years is starting to pay off. Reported improper payments among Federal 

8

1The prepared statement of Ms. Combs appears in the Appendix on page 58. 

agencies were about $37 billion in fiscal year 2005. This is down 17 percent from 

the fiscal year 2004 estimate of about $45 billion. 

As we learned at a hearing last summer, however, the official improper payments 

estimates we hear about are only the tip of the iceberg. Estimates for some programs we know are at risk for improper payments, like Medicaid, are not included 

in the $37 billion tally. 

In addition, GAO will testify today that some agencies are not doing as rigorous 

a job as they should be in assessing the programs they administer to determine 

whether or not they’re at risk for waste. Still others, GAO has found, have not even 

conducted the necessary assessments for all of their programs. Finally, I understand 

that the OMB-issued guidance that agencies use to conduct their work under the 

Improper Payments Information Act may, perhaps unintentionally, leave significant 

amounts of waste unreported. 

Agencies must only report on and develop remediation plans for improper payments that both exceed $10 million and make up at least 2.5 percent of program 

outlays. In a large program, Mr. Chairman, this could mean that improper payments that you, me or any casual observer would deem significant are largely being 

ignored. 

There may be a good reason why the guidance was written this way but I don’t 

know of any private company that would ignore such large payment errors. We 

should see to it that the Federal Government no longer does either. 

Thank you again, Mr. Chairman, for your commitment to this issue. I look forward to hearing some more today about the progress that is or isn’t being made and 

to seeing what we might need to do in Congress to make sure we have a better picture of the problem and are giving agencies all of the tools they need to address 

it.

Senator COBURN. Thank you very much, Senator Carper. 

Our first panel is Linda Combs, Controller, Office of Management and Budget. She served in that position since June 2005. 

Prior to her time as controller, she served as Assistant Secretary 

for Budget and Programs, and CFO at the Department of Transportation. 

She also has a history of serving as the chief financial officer at 

the Environmental Protection Agency and served in various oversight roles in executive-level management positions at the Department of Education, Veterans Affairs, and Treasury. That makes 

her extremely well qualified in terms of her knowledge of all of 

these other agencies, and we are very pleased that she is in the position that she is in. 

Also on the first panel is McCoy Williams, Director, Financial 

Management and Assurance Team in the Government Accountability Office. He has worked with this Subcommittee quite well. 

We are very appreciative of his help and direction. 

He has worked in the financial management and audit issue area 

since 1980 and is responsible for GAO’s financial management 

work at the Department of Defense, Homeland Security, Veterans 

Affairs, State, NASA, and USAID. He also covers government-wide 

improper payments work in financial management systems. 

Welcome to you both. Your complete statement will be made a 

part of the record, and Ms. Combs, you are recognized. 

TESTIMONY OF THE HON. LINDA M. COMBS,1 CONTROLLER, 

OFFICE OF MANAGEMENT AND BUDGET 

Ms. COMBS. Thank you very much, Senator Coburn, Senator Carper, and Members of the Subcommittee. 

9

And I must say, Senator Carper, I, too, thought of bringing that 

magazine today. And I thought I would sit it up right here, and you 

could have the magazine instead of me. [Laughter.] 

Thank you so much for letting us be here today. I am pleased 

to be here. It is a very important topic, and I am pleased to discuss 

the Administration’s efforts to improve accuracy and integrity in 

our Federal payments. 

There is no more important topic that we can be discussing today 

than the American taxpayer’s money. The effectiveness and the efficient stewardship of taxpayer dollars is extremely important to all 

of us, and I can’t tell you how much I appreciate the collaborative 

spirit and the continuing partnership and cooperation. We get an 

awfully lot out of these hearings ourselves because we need to also 

know what our partners think are important, and we want to respond and be aggressive in responding to not only what we believe 

is important, but what you believe is important as well. 

The President has made the elimination of improper payments 

one of his highest priorities. During fiscal year 2005, the Federal 

Government made substantial progress in meeting the President’s 

goal to eliminate improper payments. And most significantly, the 

government-wide improper payment total reported in 2004 did, indeed, decrease from $45.1 billion to $37.3 billion. And that was a 

reduction in $7.8 billion, or 17 percent. 

We have some wonderful news to share in some of these programs. Medicare reported improper payments decreased by more 

than $9 billion, or 44 percent. USDA reported an error rate of less 

than 6 percent in the Food Stamp Program, and that is the lowest 

error rate in that program’s history. 

The Department of Labor, as you mentioned earlier, has reduced 

improper UI payments—unemployment insurance payments—by 

approximately $600 million in fiscal year 2005. And this represents 

a greater than 15 percent decrease in the level of improper payments for this program since last year’s reporting. 

The Department of Housing and Urban Development has reduced improper payments in their program by more than $1.8 billion since 2000. 

There are a couple of programs, as we will talk about, I am sure, 

today, who have reported some increases. But the government-wide 

improper payment total is trending significantly downward. 

Our CFOs and our program officers in various departments are 

working very hard to continue to leverage new technologies, to generate more cost-efficient methods for measuring and eliminating 

improper payments, and doing many other things that probably 

don’t show up on any of our reports. 

But another critical accomplishment in 2005 was that Federal 

agencies reported error measurements on an additional 17 programs. And as you mentioned earlier, that is what we need to do. 

We need to continue to get the right measurement rates. 

We have an error measurement in place for approximately 85 

percent of all the payments that were deemed risk susceptible by 

Federal agencies. And although we are proud of that record, we are 

not satisfied with it. 

Also of note, in direct response to suggestions made by this Subcommittee in some of our previous hearings, agency reporting on 

10

1The prepared statement of Mr. Williams appears in the Appendix on page 63. 

improper payment to vendors is now included in our governmentwide reporting as well. And that is not an insignificant number either. But providing a more complete picture on government-wide 

improper payments is what we both seek in the transparency here. 

But specifically, Federal agencies reviewed $365 billion in vendor 

payments in 2005, and they identified $557 million in improper 

payments, of which $467 million, or 84 percent of that, has been 

recovered. 

Because 95 percent of the reported improper payment total continues to reside within the seven programs that we talked about 

in our first hearing, we continue to focus on these agencies. But we 

certainly want to be open to pursue aggressive strategies in any 

other programs that are deemed worthy by this Subcommittee or 

by GAO. And we have embarked upon a lot of case-by-case work 

with different programs and different agencies. 

We also have within the President’s 2007 budget an aggressive 

legislative agenda that will help us in the arena of improper payments as well. But with the tools that we have with IPIA and our 

Administration’s management initiatives, the Federal Government 

today is in a stronger position to build on dynamic reduction in improper payments that we have achieved this year and to ensure 

that an error measurement is provided for all higher risk programs. 

With the goal of ensuring that each taxpayer dollar is spent 

wisely, efficiently, and for the purpose for which it was originally 

intended, we remain committed to eliminating Federal improper 

payments. We look forward to continuing to work with the Congress and with this Subcommittee to see that objective is, indeed, 

accomplished. 

Thank you. 

Senator COBURN. Thank you, Ms. Combs. Mr. Williams. 

TESTIMONY OF McCOY WILLIAMS,1 DIRECTOR, FINANCIAL 

MANAGEMENT AND ASSURANCE TEAM, U.S. GOVERNMENT 

ACCOUNTABILITY OFFICE 

Mr. WILLIAMS. Thank you, Senator Coburn and Senator Carper. 

I am pleased to be here today to discuss the government-wide 

problem of improper payments in Federal programs and activities. 

Our work over the past several years has shown that improper 

payments are a long-standing, widespread, and significant problem 

in the Federal Government. 

The extent of the problem initially had been underestimated because only a limited number of agencies reported their annual payment accuracy rates and estimated improper payment amounts 

prior to the passage of the Improper Payment Information Act of 

2002. Our work has also shown that primary causes of improper 

payments are a lack of internal controls or a breakdown in existing 

controls. 

Mr. Chairman, fiscal year 2005 marked the second year that 

Federal agencies government-wide were required to report improper payment information in their performance and accountVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
11

ability reports. The act has increased visibility over improper payments to a higher, more appropriate level of importance. 

It requires executive agency heads, based on guidance from 

OMB, to identify programs and activities susceptible to significant 

improper payments, estimate amounts improperly paid, and report 

on the amounts of improper payments and their actions to reduce 

them. Further, in fiscal year 2005, OMB began to separately track 

the elimination of improper payments under the President’s Management Agenda. 

Mr. Chairman, the Federal Government has made progress 

under the leadership of OMB in identifying programs susceptible 

to the risk of improper payments. At the same time, significant 

challenges remain to effectively achieve the goals of the act. 

For example, while progress has been made, the full magnitude 

of the problem remains unknown because some agencies have not 

yet prepared estimates of improper payments for all of their programs. We note in my written statement that seven major agency 

programs with outlays totaling about $228 billion have not reported improper payment estimates, even though these agencies 

had been required to report this information since 2002 with their 

fiscal year 2003 budget submissions under previous OMB Circular 

A–11 requirements. 

Further, agency auditors have identified major management 

challenges related to agencies’ improper payment estimating methodologies and significant internal control weaknesses for programs 

susceptible to significant improper payments. Mr. Chairman, we 

recognize that measuring improper payments and designing and 

implementing actions to reduce them are not simple tasks and will 

not be easily accomplished. The ultimate success of the government-wide effort to reduce improper payments depends on the level 

of importance each agency, the Administration, and the Congress 

place on the efforts to implement the act. 

In closing, I want to thank you and the Members of this Subcommittee for your continued interest in this problem and providing important leadership to ensure that this problem is properly 

addressed. I look forward to working with this Subcommittee as 

well as Federal agencies and the Administration in the future to 

address this problem. 

This concludes my statement. I would be pleased to answer any 

questions that you or Senator Carper may have. Thank you. 

Senator COBURN. Thank you, Mr. Williams. 

Well, let me just start, and we will try to get through these. Several of the questions we have, we will try to put in written form 

for you, Ms. Combs. I have way too many questions, but I still 

want the answers, and so I won’t delay all of our other witnesses 

with all of the questions. 

According to the testimony we have received from HHS and our 

confirmation is there really wasn’t a reduction in Medicare improper payments. There was a change in methodology, which actually said they measured it wrong last year. Is that correct? 

Ms. COMBS. I think what happened last year and, of course, our 

good friend and CFO, Charles Johnson, is here——

Senator COBURN. Right. 

12

Ms. COMBS [continuing]. As a witness today, and he can certainly 

substantiate this. But I look on what happened as a good news 

story because I think what they did is they actually corrected some 

audit findings that they had the year before. In other words, they 

were counting payments as improper because they could not find 

an audit trail. 

Senator COBURN. Right. It is good news in that their methodology is much improved, and the actual payment error is probably 

lower than what they thought it was. 

Ms. COMBS. That is exactly how I view it. 

Senator COBURN. So that is good news. But it does say that we 

really haven’t reduced the payments, and that is the point I want 

to make. 

As we go through these questions, I want you to know I appreciate everybody out there that is working. For the first time, our 

government is going to have some financial accountability, and I 

don’t mean to belittle that at all as we try to go through this hearing. 

And I have confidence in those that are testifying today, in their 

leadership potential and what they are going to do. But I think it 

still behooves us to outline where the problems are. 

I heard you say, Ms. Combs, 85 percent of the susceptible agencies are the higher risk programs. And then I heard Mr. Williams 

talk about the necessity of and the law government-wide. And I 

have some real problems with where we are on that because you 

can make it look good if you don’t look at all of it. 

And the question I would have to you is that if you were running 

anything other than this, you would have the same financial controls in business or any other, in State governments, they have the 

same financial controls at every level. In other words, there should 

not be anybody exempted, even though the act and the arbitrary 

definition that OMB put out of 2.5 percent or $10 million. To most people in this country, if you wasted, overpaid $9.99 million, that is more than they will ever see in their entire lifetime. 

And so, to me, I read the law, and it says everybody is required 

to report. What is your understanding of that? 

Ms. COMBS. That is my understanding as well. And what I don’t 

want to leave the impression of is that we are certainly not giving 

anyone a pass. 

What we have, and it is in my written testimony, and there is 

a chart attached. And it shows specifically that there is one piece 

of that pie, and it is practically this piece of the pie you have up 

on your chart. But one of the things I want to make very clear is 

just because we have 15 percent still yet to go doesn’t mean we are 

not looking at those. 

It also does mean that 15 percent is the hardest part to get because what we are saying is we can’t yet get the error rate for that. 

And there are many reasons for that. I can certainly explain and 

embellish that in some of the answers we give to you. 

Senator COBURN. Well, let me ask you just a little more specifically. If the Department of Labor can get a payment error rate on 

unemployment insurance that runs through the States, and yet 

HHS can’t get one on Medicaid that runs through the States? Tell 

me why the difference is so great. 

13

Ms. COMBS. Well, I am glad you have CFO Sam Mok here today 

because this success story is, indeed, a good one for, I think, a legislative model. And I think you will hear him talk about some of 

the things they did as far back as 1987 to actually set their program up, set it in place, so that it can actually operate in the way 

that it is operating today. 

And I think it is a model. I think it is a great opportunity for 

us to look at that and do the collaboration and look at the transparency that we both seek in order to do that. I think they have 

been at this for quite a while. They used some mechanisms in setting this up that serve them well today, and I think that having 

that single entity in the State helps them an awfully lot because 

they are in control of this. 

Some of these programs that are causing the most difficulty right 

now in your thinking and in mine, they don’t have a way to go out 

and collect some of this information. They are prohibited, in essence, from collecting some of that. So I think you will hear some 

of that from some of our colleagues today as well. 

Senator COBURN. Are you suggesting that there could be legislative changes that would alleviate the collection of data? 

Ms. COMBS. I am suggesting that there probably are some things 

we need to look at together——

Senator COBURN. OK. 

Ms. COMBS [continuing]. With these programs and with our State 

colleagues as well. And I have used every available opportunity or 

some available opportunities—probably not every one. When we 

would have some of our State treasurers in town, for example, to 

ask them, Are there things that we can do together that would get 

at some of these things? 

And I think if we could figure out a way to not be legislatively 

prohibited from doing those things and pair those other collegial 

working relationships together, we probably could make a very 

good start at this. 

Senator COBURN. So what you are really telling me is the Department of Labor has some better practices that work? 

Ms. COMBS. They do. 

Senator COBURN. So why can’t those be replicated at the other 

agencies? 

Ms. COMBS. I think they could be replicated if the legislation in 

the other agencies will let them do the same things that the Department of Labor has been doing for several years now. 

Senator COBURN. Well, it would seem to me that the Administration would mandate that they do it, not let them do it. Is there a 

problem with motivation? 

Ms. COMBS. No, sir. I don’t think it is the motivation. 

Senator COBURN. Will you make a commitment to this Subcommittee that you will give us the list of the legislative changes 

you think need to be made so that the other agencies can have the 

flexibility to be able to measure improper payments? 

Ms. COMBS. We would love to work with you on that. And then 

there are some in our President’s budget for 2007. 

Senator COBURN. All right. Senator Carper. 

Senator CARPER. Just to follow up on that last point, if I could? 

14

If we are serious about reducing improper payments, it was helpful to have passed the 2002 legislation. If we are serious in reducing improper payments, it is helpful to have an administration that 

is serious not just at OMB, but throughout the agencies, where 

particularly those that are making a lot of payments are serious 

about doing something about it. 

If we are serious about reducing improper payments, I think it 

is helpful probably for us to have oversight hearings to put a spotlight on those that are doing a good job to reduce improper payments and, frankly, to put a spotlight on those that aren’t doing 

as much as they can and ought to. 

What further can we do to be helpful? You bring in sort of a different perspective than we do to this problem. What further can we 

do on this Subcommittee, on our full Committee, in the Legislative 

Branch that would add to the efforts that are already under way? 

Ms. COMBS. Thank you for asking, Senator Carper. There are six 

legislative proposals in the President’s 2007 budget that directly 

have a direct bearing on our ability to further the improper payments initiative forward. And the projected savings are in the billions of dollars for each and every one of these. 

The unemployment insurance, even the one that has such a good 

record, we have a recommendation there, where we can make that 

even better. The child tax credit. The computational complexity of 

that program, and I think you will probably hear that from Mr. 

Everson when he comes to testify before you. The rules and the 

complexity of that is part of the legislative proposal. 

But any of these legislative proposals will make a step in the 

right direction. And while they may look like, ‘‘Oh, well, we could 

do a lot more than this,’’ every step is a good step if it is in the 

right direction. So I would encourage you to support the Food 

Stamps portion of that and the ones that are in the President’s 

budget. 

Senator CARPER. Good. Thanks. 

Ms. COMBS. Thank you. 

Senator CARPER. Let me ask Mr. Williams a question next, if I 

could? 

Mr. WILLIAMS. Yes. 

Senator CARPER. And I think there was some discussion at our 

last hearing about requiring some of our agencies to obtain regular 

independent audits of their internal controls as part of the effort 

to beef up the process and the procedures that we are using to try 

to reduce improper payments. 

I understand that since that hearing, a panel convened by OMB 

determined that internal control audits would not be beneficial. 

And I don’t know if you were aware of this, but if you are or you 

are not, I would ask you if maybe you can share, either today or 

for the record, your views on that determination, the fact that the 

internal control audits are deemed not to be very beneficial. 

And on the question of whether or not OMB or even Congress 

should require internal control audits at least for certain select 

agencies that have really big improper payment problems? 

Mr. WILLIAMS. Yes, Senator Carper. If you look a little bit closer 

at the legislation that required the particular report, there was a 

provision that requires GAO to take a look at the report that is 

15

issued by PCIE and the CFO Council and to give our assessment 

of the report. 

We are currently in the process of performing that assessment as 

we hold this hearing today. Several things about the overall issue 

of internal control reporting. As a policy, we have basically concluded that there are several factors that you need to look at. 

First of all, if you look at this area of improper payments, as I 

stated in my opening statement, a breakdown in the internal controls or lack of internal controls is a primary cause for some of the 

improper payment issues or the problem that we are dealing with 

today. What we have determined is, is that you need to look at the 

scenario in which you are currently working with as far as the 

agency is concerned. 

If the agency has a mature internal control environment, then 

we have come to the conclusion that it would be a good idea to get 

an opinion on internal controls. And the way we look at that is by 

getting that opinion on the internal controls, what you have is an 

independent set of eyes that is validating what management has 

asserted. 

We also have come to the conclusion that if you have an operation that have several material internal control weaknesses, there 

are compliance issues, and going into that audit, you basically 

know that there is a lot of work that needs to be done, then we 

don’t think it would be an efficient use of resources to get an opinion on the internal controls. That those resources could probably be 

better used for the purpose of working with management to try to 

correct the problems that have caused auditors in the past to identify material control weaknesses, reportable conditions, and noncompliance issues. 

So we have tried to break it down into various components with 

the ultimate goal of somewhere down the road, if you can address 

these internal control weaknesses, if you can get a mature system 

of internal controls in place across the government. We, in general, 

think that would be a good concept because it would be those independent set of eyes looking at what management is asserting as far 

as this internal control environment. 

Senator CARPER. Thanks. 

Mr. Chairman, I have some more questions. I will submit them 

for the record. Is this our only——

Senator COBURN. I am going to go one more round. 

Senator CARPER. OK. Good enough. 

Senator COBURN. Ms. Combs, would you submit to this Subcommittee the programs that report more than $10 million in improper payments but are less than 2.5 percent? 

Ms. COMBS. Yes, I will be happy to do that. 

Senator COBURN. DOD, SBA, and SSA, all have programs that 

expend billions of dollars annually, but they are not considered to 

be at risk for making ‘‘significant improper payments’’ because they 

do not meet OMB’s criteria for significant. Mr. Williams, which 

programs did GAO identify as expending billions of dollars, but are 

not considered to be at risk for making significant improper payments? 

Mr. WILLIAMS. Mr. Chairman, in my written statement, we have 

identified several agencies that actually reported the amounts beVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00019 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
16

cause of the requirement that OMB placed on the agencies in the 

implementation of the act. And there are several programs that we 

have identified that if you go through the exercise of looking at the 

two criteria that were laid out, and you could come to the determination that these agencies would not have to report based on the 

criteria. 

There were two or three in the Department of Defense—Military 

Retirement Fund, military health benefits, Education’s Title 1. Department of Energy, some payment programs. Department of 

Health and Human Services, Head Start, railroad retirement, 

board retirement and survivors benefit, SBA investment and Social 

Security Administration, Old Age Survivors Insurance and Disability Insurance Programs. 

So these are some of the programs that, if you look at them and 

there had not been this particular requirement that if you were 

under the old A–11, you would be excluded from reporting amounts 

under the $10 million, 2.5 percent criteria. 

And by the way, Mr. Chairman, that amount, if you take a look 

at the performance and accountability reports for 2005, would have 

resulted in about $4.3 billion not being included. In other words, 

that $38 billion would have been actually $4.3 billion less. 

Senator COBURN. OK. I am aware that there is some revised 

guidance that OMB has proposed that would allow programs that 

have been at low risk for over a 2-year period to request a waiver 

in having to report improper payments. Is that true? 

Ms. COMBS. We have a very aggressive program on improper 

payments, and as I mentioned to you, we are looking and are eager 

to work collaboratively. To the extent that high-risk programs are 

identified, we will put extra scrutiny on those. I have no intention 

of reducing that. 

Senator COBURN. Yes, it is not true then? 

Ms. COMBS. Let me just say this. We have been collecting, for 3 

years now, comments, considerations that people wish to have in 

any kind of revisions, and we are looking at some revisions because 

it is probably about time to think about those. But in terms of releasing or making things less, we are not in that posture. 

Senator COBURN. Are you comfortable with this definition of 2.5 percent of $10 million? I have to tell you, I am tremendously uncomfortable with that. 

Ms. COMBS. Well, in my testimony and in some of our discussions, one of the things that we have talked about is we can’t do 

everything at one time. And I know you and I agree on that. And 

I think one of the things that I have to keep thinking about are 

those seven programs. I have to keep a rifle eye on those seven programs that we identified originally that make up 95 percent of this. 

And if I keep my eye on that, we are going to get a lot done. 

And one of the ways to help agencies keep their eye on that is 

to leave that 2.5 percent, $10 million in our assessment. So I would 

like to continue that. But as I have said, if there are specific other 

programs that we find in our assessments, that GAO finds, or that 

you find in whether it is this or some of your other efforts that you 

are working with, that you want us to look at on a case-by-case 

basis that don’t meet that threshold, we are more than happy to 

put them in our mix. 

17

Because through the President’s Management Agenda, we monitor a lot of these 118 programs, not just the ones you have talked 

about. And there are at least eight of them that I am aware of that 

we have handled on a case-by-case basis in that way, and I am 

happy to have your input and include more of those. 

Senator COBURN. Are you aware of the GAO report that came out 

on defense purchasing on performance bonuses? 

Ms. COMBS. No, sir. I am not. 

Senator COBURN. It is a very revealing report. As a matter of 

fact, it is very disturbing because, and I think this is right, it is 

between 80 and 90 percent of the performance bonuses paid, the 

contractor did not meet the performance bonus requirements. And 

if that isn’t an improper payment, I don’t know what it is. And yet 

we have the Pentagon says they don’t have any improper payments. 

And so, I am going to submit the rest of my questions, and I am 

just going to ask you one more. Community Development Block 

Grant and Medicaid, are you going to commit to get us the improper payment on those big programs? I mean, we don’t have it. 

And there is a good estimate to say $40 billion in Medicaid is improperly paid. Fourteen billion just what looks like in New York 

City. 

And we are sitting here saying that if, in fact, we wait until the 

end of fiscal year 2008 to get the data on Medicaid and if my estimate is two times too high, it is still going to mean $40 billion got 

spent that shouldn’t have gotten spent. And that is a significant 

amount of money. Why should we have to wait until 2008 to get 

improper payments on Medicaid? 

Ms. COMBS. Well, we certainly share your concern about the complexity and about the magnitude of what that program will entail. 

But I think to get that comprehensive error rate, it is going to require an awfully lot of work, and you have an expert witness here 

to talk to you today about how much work that is going to require 

and what the complexities of that is. 

We are happy to work with you, and if you find some ways that 

you think we can enhance that and improve that from a time 

standpoint, we certainly want to work with you to do that. 

Senator COBURN. One last question, and I will hand it over to 

Senator Carper. The 2005 performance and accountability report 

said that it had no programs susceptible to significant improper 

payments. And I just want to read this for the record. 

Department of Commerce, none. General Services Administration, which I know is not the fact based on the hearings that we 

have had here, none. The Department of Homeland Security, no 

improper payments? I can show you a ton of improper payments 

just on what they have done in Louisiana and Mississippi. 

The Department of Interior. NASA, we can’t even get them to answer or even to give us a response. The Nuclear Regulatory Commission and the Securities and Exchange Commission. We have 

had a hearing on the SEC, how they spent, I think, something like 

$27 million more than they should have on a building, and yet that 

doesn’t come up under improper payments. 

So how confident are you of these agencies’ assertion that they 

have no improper payments? 

18

Ms. COMBS. It may not come up under the improper payment initiative, but it certainly comes up under the recovery audit initiative. 

Senator COBURN. Right. So does that not mean that maybe this 

definition of ‘‘significant’’ needs to be changed? 

Ms. COMBS. Well, I am happy to look at any of those programs 

that you would like me specifically to look at and report back to 

this Subcommittee. I am happy to work in any way we can to address your specific concerns on that. 

I do know that most of the Departments that you have mentioned in your question there, they certainly have plenty of contracts. And that is why the recovery audit is so important for them. 

Senator COBURN. Right. Thank you. 

Mr. Williams, any comment on that, and then I will turn it over. 

Mr. WILLIAMS. I would just add the point that we took a close 

look at this particular statement also as we were reviewing the 

performance and accountability reports. And I guess the question 

that came to my attention, having responsibility for the Department of Homeland Security, also for NASA, and looking at some of 

the control weaknesses, Homeland Security I believe had 10 material internal control weaknesses. There were two reportable conditions, and I think there were seven issues of noncompliance. And 

that was one of the agencies in which, I think, the auditors of the 

financial statement questioned the quality of the assessment that 

the agency performed. 

So I think you have raised a question that needs to be debated 

and discussed a little bit further as we go along in trying to address this issue. 

Senator COBURN. Thank you. Without objection, I have about 14 

other pages of questions that I would like to enter for the record. 

Senator CARPER. I think you should ask them all, Senator. 

[Laughter.] 

Senator COBURN. No, I don’t think so. I want supper tonight, and 

I know everybody else does, too. So I will submit those for the 

record, and if both Mr. Williams and Ms. Combs would respond to 

those, I would very much appreciate it. 

Senator CARPER. I have a couple of questions I would like to offer 

for the record and ask you to respond in writing, if you would? 

Mr. WILLIAMS. OK. 

Senator CARPER. I just want to come back and revisit—I apologize for being so slow on the uptake on this. But do I understand 

that there is roughly seven or so programs or agencies that are responsible for about 95 percent of the improper payments that are 

being reported? Could you just mention those briefly, please? 

Ms. COMBS. Yes. Medicare, EITC, unemployment insurance, SSI, 

OASDI, HUD rental assistance, Food Stamps, and then there is a 

small portion of others that make up the 100 percent. But those 

I just mentioned make up 95 percent. 

Senator CARPER. And just in relative terms, of those seven or so, 

which is the largest? 

Ms. COMBS. Medicare. 

Senator CARPER. Or did you sort of list them in order of their 

magnitude? 

Ms. COMBS. Somewhat. 

19

Senator CARPER. All right. Which of the seven is heading in the 

right direction most quickly? 

Ms. COMBS. Most quickly, well, we have a head start here with 

unemployment insurance, I think. While they make up about 9 percent of that, they certainly have a great model, as we have talked 

about earlier today. And the others, I think, would be Medicare and 

the HUD rental assistance and Food Stamps that I mentioned in 

my testimony. 

Senator CARPER. So, again, you said unemployment insurance 

(UI), Medicare, HUD rental assistance, and Food Stamps? 

Ms. COMBS. Food Stamps, right. 

Senator CARPER. Are generally the better performers? 

Ms. COMBS. They have had some very good successes. 

Senator CARPER. And of the others that you have not mentioned—EITC and SSI, OASDI—can you just characterize how we 

are doing in those three? Or how the agencies responsible for them 

are doing? 

Ms. COMBS. Well, I think all of them are responding well. The 

question is how hard is it to get success? And I think you have the 

representatives, I believe, are here from each one of those other 

programs to talk with you today. 

Senator CARPER. OK. We will let them speak for themselves. 

The major programs that are not included here, that are not reporting improper payments, and I have heard Medicaid mentioned 

a time or two. What are some of the other larger programs for 

which improper payments are not being reported? 

Ms. COMBS. Well, the error rates that have not yet been accumulated or assessed for those were on primarily the first chart that 

was up here. 

Senator CARPER. Which, fortunately, you can see, but we cannot. 

Ms. COMBS. Oh, you can’t see it—the Department of Agriculture’s 

School Programs. 

Senator CARPER. School lunch and breakfast programs? 

Ms. COMBS. School Programs. 

Senator CARPER. OK. 

Ms. COMBS. The Health and Human Services Children’s Insurance Program. Department of Agriculture, Women, Infant, and 

Children. Health and Human Services, Medicaid. Health and 

Human Services, Child Care and Development Fund. Health and 

Human Services, Temporary Assistance for Needy Families. And 

Department of Housing and Urban Development, Community Development Block Grants are the major programs that we understand have not yet reported their improper payment estimates. 

Senator CARPER. Of those that you have mentioned, and the 

Chairman was good enough to give me a listing here, it says at the 

bottom of the page that total outlay is about $227 billion in a year. 

So, from reading this, what we should understand is that while 

roughly seven agencies are responsible for 95 percent of the known 

improper payments, there is a bunch of pretty big programs for 

which we just don’t know? 

Ms. COMBS. That is correct. 

Senator CARPER. And could you just give us a sense—and you 

have probably done this before, and I am going to ask you to do 

20

it again—when do you think some of these big programs are going 

to be in a position to report improper payments? 

Ms. COMBS. Some of them are going to report in 2007, and some 

of them are going to report in 2008. 

Senator CARPER. Do you think we will have them all by 2008? 

Are you saying everybody will be in by then? 

Ms. COMBS. Probably not all of them, unless you hear something 

different than we have been hearing. 

Senator CARPER. OK. Who do you think might still not be able 

to report by the end of 2008? 

Ms. COMBS. Probably Medicaid. Which one? TANF and child 

care, it looks like. The Temporary Assistance for Needy Families 

and Child Care Development Fund. We yet do not have an estimate of when they might be able to report. 

Senator CARPER. OK. Do we have somebody coming before us 

today from HHS? We do, don’t we? 

Ms. COMBS. Yes. 

Senator CARPER. Maybe we can talk about that a little bit further. 

Ms. COMBS. I am sure he is my very good friend now. [Laughter.] 

Senator CARPER. He or she, you never know. 

All right. Well, Ms. Combs, thanks so much for being with us 

today. And Mr. Williams, good to see you. 

Ms. COMBS. Thank you. 

Mr. WILLIAMS. Thank you. 

Senator CARPER. Thank you very much for your help. We look 

forward to continuing to work with you. 

Mr. WILLIAMS. Thanks. 

Senator COBURN. Thank you all very much. 

Ms. COMBS. Thank you. 

Senator COBURN. And you will be receiving a list of questions for 

both of you. And timeliness in that response, if you could have that 

back to us in a couple of weeks, we would appreciate it very much. 

Thank you. 

Our next panel is Mark Everson, Commissioner of the Internal 

Revenue Service. Prior to his time at the IRS, he was Deputy Director for Management for the Office of Management and Budget, 

where he provided government-wide leadership to Executive 

Branch agencies to strengthen Federal management and improve 

program performance. 

With him today is the James Lockhart, Deputy Commissioner of 

the Social Security Administration. He is the agency’s Chief Operating Officer and a member of the Executive Committee of the 

President’s Management Council. 

Mr. Lockhart served as Executive Director for the Pension Benefit Guaranty Corporation under the previous Administration and 

has served in various private sector positions. 

Welcome, each of you. Mr. Everson, you will be recognized first. 

Your complete statement will be made part of the record. 

21

1The prepared statement of Mr. Everson appears in the Appendix on page 90. 

TESTIMONY OF THE HON. MARK EVERSON,1 COMMISSIONER, 

INTERNAL REVENUE SERVICE 

Mr. EVERSON. Thank you, Mr. Chairman. Nice to see you again, 

Senator Carper. 

I am pleased to be with you again to talk about our performance 

under the Improper Payments Information Act. Before I turn to 

that, though, I would like to give you a brief update on the subject 

that we talked about last October, the tax gap. 

You will recall at that time that we had not yet finalized our estimate. I think you may have seen in recent weeks we have now 

done that, and the estimate came in at that top end of the range, 

basically, of what we had for 2001—$345 billion for the gross tax 

gap. But that is $290 billion after the late payments and our enforcement activities. I point this out because we are already using 

the——

Senator CARPER. Would you say that last part again, if you will? 

That is what after? 

Mr. EVERSON. The number $345 billion is the estimate of the 

gross noncompliance. But because the tax gap is defined as what 

is paid on a timely basis, is it timely or not? So if you get a late 

payment that comes in, you say to us you owe $10,000, but you 

only sent us $3,000, there is a $7,000 underpayment gap there. 

So if it comes in late or we do something from the enforcement activities, we consider that a recovery. That is the $55 billion. So 

that brings the $345 billion down ultimately to $290, but over time. 

We are already using this research to change our audit selection 

model. So that is good news. That will make us more effective, and 

it will also drive down the no-change rate, where we audit somebody but really don’t find anything. 

As the President’s proposed fiscal year 2007 budget does, it continues to rebuild our enforcement efforts as well through more enforcement activities. I am thankful for this Subcommittee, and the 

full Committee, for the support it has provided over the last several 

years to securing or for securing adequate funding for the IRS. 

And I would like to also note that in the 2007 request, there are 

additional legislative proposals for incremental reporting. This is, 

indeed, a set of what could be viewed as modest proposals, but they 

are very significant because this is really the first time since 1986 

that any administration has made new proposals on reporting. We 

think that will have a big impact. 

There are two that are particularly of interest to this Subcommittee. I will be testifying next week in terms of government 

contracting. One is about due process, collection procedures for employment taxes, and the other is about additional reporting for payments made by governmental entities, Federal, State, and local. 

So those are all very important developments, and I hope the 

Subcommittee will support us on those. 

Senator COBURN. We will. And at Senator Carper’s request and 

my agreement, we are going to have another hearing on that. 

Mr. EVERSON. Great. 

Senator COBURN. You have just not been noticed on it, but we 

will give you plenty of time. 

22

Mr. EVERSON. OK. I have a busy hearing schedule, and I somehow thought I would hear back from you on this. 

Senator COBURN. You will. 

Mr. EVERSON. Let me turn to the EITC for just a minute or two. 

The EITC is one of the Nation’s most successful anti-poverty programs. It lifts millions out of poverty each year. In fiscal year 2005, 

22 million taxpayers received $40 billion through the EITC. 

It is a refundable Federal tax credit that offsets income tax owed. 

If the credit exceeds the amount of taxes owed, a lump sum payment is provided to those who qualify. At the IRS, our philosophy 

concerning the EITC is clear. Everyone who qualifies for the credit 

should receive it, but only those who qualify. 

Senator CARPER. Can I interrupt for just a second? Mr. Chairman, the chart has just been replaced. I don’t know if this is a 

chart we are supposed to be able to see or not. 

Mr. EVERSON. I am happy to have it face your way instead of 

mine. [Laughter.] 

Senator CARPER. Oh, yes. Let me just say to our staff that you 

can actually put the chart in a place so that they can see it and 

we can, too. And I would ask you that, maybe just pull it toward 

you? There you go. That is great. Thank you. 

Mr. EVERSON. In 2005, the IRS spent approximately $165 million 

on EITC activities. These funds supported an EITC compliance program, which conducted over 500,000 audits and prevented $2 billion in EITC refunds from being paid in error. We estimate that 

EITC enforcement efforts have directly protected an estimated $6.5 

billion from 2002 through 2005. 

Nevertheless, this chart points out erroneous payments under 

the program remain too high. Our latest estimates are that even 

after our efforts, $9.5 to $11.5 billion, or 23 to 28 percent—and 

since we are interested in accuracy, I would ask that maybe we 

have 23 to 28 percent instead of just the high end—is paid out erroneously each year. 

As we continue our efforts to improve the EITC program and reduce erroneous claims, let me make the following observations. 

EITC administrative expenditures are a tiny fraction of program 

benefits. Current administration costs are less than 0.5 percent of 

the benefits delivered. These costs are quite low compared to other 

benefit programs in which administrative costs can run as high as 

20 percent. 

Let me depart for just a second. Food Stamps. The Food Stamps 

Program budget is $3 billion to deliver $30 billion in benefits. If we 

were to take that ratio for the EITC, we would add $4 billion to 

the IRS budget. Our whole budget right now to run a $2.2 trillion 

system is only $10.6 billion. So we would be talking about a very 

real departure in how we do business. 

I would also point out that the current improper payment estimating technologies are not precise enough for us to capture annual estimates of good reliability, which is really what the act 

would want us to do. Going forward, we propose to simplify EITC 

eligibility requirements, and we will continue to refine our efforts 

to better enforce the law. 

In summary, I would just like to make three points. We have a 

balanced approach to administering the EITC. Again, we want 

23

1The prepared statement of Mr. Lockhart appears in the Appendix on page 99. 

those who qualify to get it. This program enjoys the highest participation rate for any of these big benefit programs, something like 

80 percent. That is a good thing for our country. But again, we 

want to make sure that we aren’t paying out more than we should. 

We also plan to grow the use of community-based volunteer organizations to help people prepare their returns here. We have seen 

that as an effective way of getting people to claim the credit without having to take these predatory RALs, these refund anticipation 

loans. I am sure if Senator Akaka were here today, he would be 

grilling me about RALs. That is one of his most pointed remarks 

whenever I see him. 

And the final thing I would say is that adopting the President’s 

budget request would be helpful. There are several constructive 

points in here. They won’t make a huge difference in this, but they 

will help simplify the credit, and we think they are good ideas. 

Thank you. 

Senator COBURN. Mr. Lockhart. 

TESTIMONY OF THE HON. JAMES B. LOCKHART III,1 DEPUTY 

COMMISSIONER, SOCIAL SECURITY ADMINISTRATION 

Mr. LOCKHART. Senator Coburn and Senator Carper, thank you 

for inviting me here today to discuss the efforts the Social Security 

Administration (SSA) is undertaking to strengthen and maintain 

the integrity of the Old-Age, Survivors and Disability Insurance 

(OASDI) Program and the second program we administer, the Supplemental Security Income Program, referred to as SSI. 

In 2005, Social Security paid $520 billion in benefits to over 48 

million retirees, survivors, disabled persons, and their dependents. 

SSI is a needs-based program, and it paid $38 billion to over 7 million disabled and aged individuals. 

The importance we put on improper payments can be noted that 

one of our nine strategic objectives is to detect and prevent fraudulent and improper payments and improve debt management. As 

you can see with the charts I attached to the testimony, our combined error rate for the two programs have been about 1 percent, 

which is well below the OMB’s threshold guidance of implementing 

the improper payments act of 2.5 percent. But I hasten to add both 

of these programs are included—both SSI and Social Security—despite Social Security being well below the 2.5 percent limit. 

In measuring payment accuracy, Social Security considers as 

proper those payments it is required to make under statute or 

court order. Both OMB and GAO have affirmed this to be a correct 

methodology. However, I think it is very important to emphasize 

that we pursue the recovery of all overpayments, not just those 

considered to be improper. I would like to add also, our collection 

effort is very successful. Over time, we collect over two thirds of the 

overpayments. 

In 2004, Social Security’s improper overpayment rate was a very 

low 0.5 percent on overpayments and 0.2 percent on underpayments. Despite these low percentages, we are committed to taking 

the steps to further reduce these levels. That is very important in 

24

a program the size of Social Security, where each 0.5 percent increase in payment accuracy equals $2.6 billion of error prevented. 

SSI is a much more complicated program than Social Security in 

that we must know income, living arrangements, in-kind support, 

and resources. In 2004, our SSI error rates were 6.4 percent for 

overpayments and 1.3 percent for underpayments. 

We build accuracy controls into every payment decision we make 

at Social Security. In addition, we have two major processes to prevent and detect improper payments. They are continuing disability 

reviews (CDRs) and redeterminations of eligibility for SSI. About 

$8 program dollars are saved for every $1 administrative dollar 

spent on these reviews. As an example, in 2004, redeterminations 

enabled us to collect or prevent $2.4 billion in overpayments and 

$1.3 billion in underpayments. 

We have developed plans and performance goals to support the 

President’s Management Agenda initiative of eliminating improper 

payments, and we report our progress every quarter to OMB. We 

also developed a specific SSI corrective action plan in June 2002 to 

help get SSI off GAO’s high risk list. Even though GAO did remove 

us from the high risk list in 2003, the plan is updated regularly, 

and I meet monthly with the accountable executives. 

We are making great strides in preventing improper payments 

by obtaining beneficiary information from independent sources 

sooner and by using technology more effectively. For example, we 

have data matches with a number of Federal and State agencies, 

and we have developed jointly with the States the Electronic Death 

Registry (EDR). 

We are testing an automated telephone process for SSI recipients 

to report monthly wages. We have a very successful pilot in the 

New York region to gather information electronically about unreported bank accounts and work directly from financial institutions. 

The President’s 2007 budget request includes two legislative proposals for Social Security. One would simplify the administration 

of our workers’ compensation offset provisions and the other would 

establish a mandatory system for collecting data on pension income 

from noncovered State and local employment. These two proposals 

will prevent $2.8 billion improper payments over the next 10 years. 

We are also working a plan to simplify SSI, focusing on the very 

complex in-kind support and maintenance rules. 

Last, in the President’s budget, there is a request to increase 

funding to do additional continuing disability reviews through a 

discretionary cap adjustment of $201 million, which would save 

over $2 billion in program costs. 

Finally, I would like to confirm we are very committed to continue to work with Congress and OMB to eliminate improper payments. I would be happy to answer any questions you have. 

Senator COBURN. Any comments, Mr. Williams? 

Mr. WILLIAMS. No, sir. Not at this time. 

Senator COBURN. First of all, I know that both of you are dedicated in what we are trying to accomplish here, and I want to 

thank you for your efforts. 

Mr. Lockhart, did I hear you say, did I understand that of the 

overpayments that you all make, two thirds are re-collected? 

Mr. LOCKHART. That is correct. 

25

Senator COBURN. OK. So your net overpayment is a third of what 

you are actually reporting in terms of the improper overpayments? 

Mr. LOCKHART. That is correct. 

Senator COBURN. All right. Thank you. 

So, for example, on SSI, yours would be 2.1 percent overpayment 

net, after collection. In other words, you go back and get it back? 

Mr. LOCKHART. Right. We go back and get it back. Some we can 

do almost automatically because they are still receiving benefits. In 

SSI, we can take 10 percent out a month. In disability, we can take 

the whole check. 

Others, we have all sorts of debt collection activity. But over a 

5- to 10-year period, we do collect over two thirds. 

Senator COBURN. On the EITC program, Commissioner, is there 

a number that brings that down, that 23 to 28 percent? 

Mr. EVERSON. The numbers I cited, the $2 billion, are before 

that. And EITC, again, the distinction between it and almost anything else is there is no front-end eligibility verification as there is 

with all of these other programs. What Congress did allow the 

agency to do was to take a look, and then what we will do is we 

will hold the refund if we have a suspicion. 

If we are going to do an audit, and these audits that I mentioned—I think of the $2 billion, something like $1.3 billion was the 

amount that was held. There is the other piece of what we call 

‘‘math errors,’’ where there are certain problems facially on the return, where we hold another $300 or $400 million. 

And then there is the last piece that gets you up to $2 billion, 

another $300 million. That happens later basically through an 

audit or document matching. And then what happens is you don’t 

participate, you don’t get the money the next year. You are not eligible to file again, or it is offset in a subsequent period, or maybe 

in some instances you get it back. 

But by and large, we don’t get a lot back. We don’t have the 

same ability to get it back as Jim’s people do. 

Senator COBURN. So would that mean that you need statutory 

changes to change the front end to improve this eligibility? 

Mr. EVERSON. Well, the basic choice that the Congress made was 

to embed the largest means-tested benefits program in the tax code 

when they set up the EITC. And so, we are on the honor system 

here, and there is error. There is a high degree of error, and there 

is fraud. I can’t tell you with precision what the balance is between 

the two. 

So there are a number of things that can be done here. One is 

clearly simplification, and that applies not just to the EITC, but to 

other credits. There are something like seven education credits. 

When I testify before the tax panel, we believe simplification is an 

important thing to do. 

Senator COBURN. Both for you and for the——

Mr. EVERSON. For everybody. That is right. I think as I mentioned last October, we believe that complexity obscures understanding. That makes it tougher for the person who desires to be 

compliant to comply. It also makes it easier for that person who 

seeks to not comply to be noncompliant. 

But the big change here, if you really wanted to drive this 

down—again, I drew the comparison to Food Stamps—and this 

26

would be a big change. You would have a front-end eligibility requirement, as you do in most of these other programs. Then you 

would have higher program costs, not $165 million, or 0.4 percent 

of the benefits paid. And then you would get a much cleaner program. 

Now, on the other hand, sir, think about this. We have an 80 

percent participation rate. This program does very good things for 

people, for families, and for communities around the country. That 

would change, no doubt, as well. So it is a policy choice. 

Senator COBURN. Well, by your data, 20 percent of those people 

aren’t eligible? You have 20 percent of the people who aren’t eligible taking money from the program——

Mr. EVERSON. That is exactly right. The money is being spent to 

a certain degree in the wrong place. The way I think about this, 

if you say it is a $40 billion program, and 20 percent of the people 

aren’t eligible, maybe it ought to be paying out $50 billion. But 

then you would have to reduce it by the quarter that you are talking about. You would have to spend $35 or $38 billion that way. 

Senator COBURN. Have you all done an analysis to look at? The 

goal is, is we have EITC, and we know who we want to get that. 

Mr. EVERSON. Yes. 

Senator COBURN. Have you done an analysis on what the cost 

would be for program management to get that range down to 

where you don’t have such—and I believe this is correct. Correct 

me if I am wrong. This isn’t error. Most of it is fraud. 

Mr. EVERSON. No, I don’t agree with that, sir. 

Senator COBURN. You don’t. 

Mr. EVERSON. I do not. 

Senator COBURN. Is most of it error and not fraud? 

Mr. EVERSON. I don’t think we know for sure, but I think the 

people who have looked at this most broad, the academics, have 

sort of said probably, maybe there is about a third that is clear 

error. Maybe at the other end, maybe there is about a third that 

has got some intentional distortion of the eligibility. And then there 

are lots of questions in between, if you will. 

Senator COBURN. How much do we pay out every year in EITC 

dollars? 

Mr. EVERSON. Forty billion dollars. Let me explain that, if you 

will. The first $5 billion of that is a reduction of income tax that 

individuals would otherwise pay. 

Senator COBURN. Right. But it is still paid? 

Mr. EVERSON. That is right. And then the next $35 billion is actually cash out. 

Senator COBURN. So it is $40 billion. So let us go between 23 and 

28 percent, let us set it on 25 percent. That is $10 billion. 

Mr. EVERSON. Yes, sir. 

Senator COBURN. And a third of that is fraud. So that is $3 billion a year. The question I would have to you is what do we have 

to spend to find that $3 billion? Where is the break-even line for 

you as an agency, and what can we do to help you to where we get 

to that point? 

Mr. EVERSON. Well, this gets back into the overall tax gap question. We spend about 5 percent of our personnel resources on the 

27

EITC, and that is roughly proportional with the tax gap, the component of the tax gap. 

On the other hand, though, if you look at the number of audits—

I mentioned 500,000. That is a huge proportion of the 1.2 million 

audits we did last year. This is the single-highest audit rate for individuals because of this history. 

If the Congress threw an extra billion dollars at me, sir, in all 

good conscience, I would not spend it in this area. I might put some 

small piece of it there, but I would be working on corporations, 

high-income individuals, and the small businesses area, where if I 

could just digress for one second? 

Floyd, if we could have the chart on the reporting because I 

think it is pertinent? The bar chart on what kind of reporting we 

have? 

It gets back to where we were talking about last—no the other 

chart, right. It gets back to the President’s proposals. Look out to 

the left here. We talked about wages. If the noncompliance rate for 

salary and wages where we have reported. We know how much you 

make as a senator. Even if you don’t tell us, the Senate tells us. 

The noncompliance rate there is 1 percent. 

If you go all the way out here to where there is little or no information reported, and this is individuals operating small businesses, 

the noncompliance rate is 1 in 2. This, if you will, is squarely in 

the middle. 

So, obviously, to run a rational program, what we want to do is 

attack all of these areas, but we will be devoting more audit resources here, and also we want to get a little more reporting. 

The last thing I will say on this is—I am making a commercial 

here for U.S. senators, not on this particular EITC subject—is 

these proposals, they just treat—we want to get credit cards as an 

example—credit card issuers to give us information on receipts that 

they get for businesses. This is no different than 150 million employees already get some reporting on their wages. That is what we 

are trying to do. 

Senator COBURN. Senator Carper. 

Senator CARPER. I think the Chairman asked a part of a question 

on the EITC that I was going to ask. But I don’t know that he 

asked this part while I was out of the room. Let me just ask it, 

Commissioner Everson. 

Are the errors per EITC recipient usually fairly large, or are they 

usually fairly small? And can you maybe quantify them? 

Mr. EVERSON. I am not sure I understand what you mean. If we 

look at the credit here, just to familiarize you. Do you have this 

chart, Floyd? 

These are relatively small amounts of money. This shows the 

credit. It maxes out at $4,400 if you were a family and you have 

two children. And then it actually declines as your income goes up, 

and it is in the mid 30s now. 

So on any individual return, it is a relatively small amount of 

money compared to what we do on the corporations that is at 

stake. But again, there are 22 million taxpayers that are claiming 

this. 

I think the other element of your question, though, is we see, 

where we do see the fraud, you may have read about. There was 

28

a lot of discussion a couple of months ago about the refund fraud 

program that we have. We do see rings of people who generate 

false returns, and they somehow find it right at this sweet spot, if 

you will, where the credit maximizes. 

They send us a return that shows the income to be $15,000, the 

person working, and then claiming the $4,400 credit. So that is in 

there, too. 

Senator CARPER. OK. I am going to ask you the same question 

I asked the earlier panel that Mr. Williams was on, and that is I 

think you have spoken to this already, each of you. What can we 

do to be of direct assistance, particularly to you, Mr. Everson, to 

try to ratchet down the EITC overpayments? And to our panel is 

it deputy administrator? 

Mr. LOCKHART. Commissioner. 

Senator CARPER. To our deputy commissioner, particularly for 

the programs that you spoke to, SSI and others. But what specifically? I know you mentioned there are two legislative initiatives. 

But just go back and revisit those for us. 

Mr. EVERSON. The first point is this Subcommittee has been 

great in terms of supporting the President on making sure there 

is adequate funding. I think the oversight of this Subcommittee has 

been second to none in the tax areas outside of finance because 

your colleagues on the Permanent Subcommittee on Investigations 

are constantly looking at our issues. 

Your own inquiries on the tax gap, I am very appreciative of 

that. The more we can educate members to understand what is at 

stake here, and then take solutions like the incremental reporting, 

which will be terribly important, that is principally what you can 

do. 

If you really want to get after this problem, this 25 percent problem, you do need to think of this question—the construction of the 

program. Do you want to have a front-end eligibility verification as 

opposed to just a back-end? 

But again, I caution you, this program has a great participation 

rate and lifts millions out of poverty. We need to have an important national discussion on that if we really want to move it down 

to 5 percent or something. 

Senator CARPER. All right. Mr. Lockhart. 

Mr. LOCKHART. Well, certainly, first of all, thank you for having 

a hearing, and this is my first opportunity to talk to you. But I 

really appreciate you——

Senator CARPER. What was your job in the Clinton Administration? 

Mr. LOCKHART. It was President Bush ‘‘41’’ Administrative. I ran 

the Pension Benefit Guaranty Corporation. 

Senator CARPER. Would you like to have that job again? 

Mr. LOCKHART. It was pretty bad then. 

Senator CARPER. It is a lot worse now. That could be a whole 

other hearing, Mr. Chairman. 

Mr. LOCKHART. So I really appreciate you having this hearing 

and your offer. Certainly, there are two proposals in the President’s 

budget. One on simplifying the workers’ compensation offset. If you 

get disability benefit, in some States, your disability benefit is lowVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
29

ered if you are getting workers’ compensation. So we have a proposal to simplify that. That is a very messy workload. 

We also have one to get pension reporting of people that are getting pensions that can be offset against Social Security, and that 

is for State and local workers. 

We are also in the process of putting one together to help simplify the very complicated SSI program. In SSI, the reason for the 

high error rate is basically the complexity of the program. And one 

of the complexities and really intrusiveness of the program is that 

we have to know monthly what your income is, what your rent is, 

who is paying for your food, clothing, and all of these sort of things, 

and we need to try to simplify that. 

And then, last, we have a tremendous payback from what we call 

our stewardship work. 

Senator CARPER. What does that mean? 

Mr. LOCKHART. The work to ferret out improper payments. We 

find in our redetermination process, which, again, is looking at SSI 

and looking at all those complexities, we get a payback of close to 

$9 for every dollar we spend. And then from continuing disability 

reviews, which are basically look to see that the person is still disabled, we get a payback of almost 10 to 1. 

So those are tremendous paybacks that we can give. But unfortunately, one is in the administrative bucket of expenses, and the 

other is the program bucket. And it is over a longer period of time, 

and it is hard to get them funded in a proper way. 

Senator CARPER. All right. Mr. Lockhart, I think you mentioned 

something about working with States, and I think I heard you say 

electronic death registry. Did you say that? 

Mr. LOCKHART. Yes, I did. 

Senator CARPER. I think I understand, but tell us how it works. 

Mr. LOCKHART. Well, we have been working over the last few 

years to have States electronically report all death records, and at 

the same time, we verify the Social Security number so we know 

it is a good death report, if you will. 

And we now have it up and running in 10 States and the District 

of Columbia. We funded another 10 States and New York City, and 

we are looking this year to award contracts to as many States as 

funding allows. It will be going to the Department of HHS as part 

of legislation that was passed a couple of years ago. 

But this will not only be good for Social Security, but for any 

benefit-paying program to know if people are dead and no longer 

deserve benefits. And we are going to make it available to everybody. 

Senator CARPER. When you say ‘‘we are going to make it available to everybody,’’ do you mean for other programs where it would 

be helpful to have that kind of information? 

Mr. LOCKHART. Yes, other government programs. 

Senator CARPER. That is good to hear. 

Are we going to have another round here, Mr. Chairman? 

Senator COBURN. I hadn’t planned on it. 

Senator CARPER. Could I ask one more question of Commissioner 

Everson, please? 

Senator COBURN. Sure. 

30

Senator CARPER. Commissioner Everson, I want to go back to 

something that I heard you say. Like I think most of us here, we 

believe the EITC is a real good program, and it is one of those 

things that Republicans like Ronald Reagan and Democrats like 

Bill Clinton and myself and others think, all of us, basically this 

is a good thing. 

And we all want to figure out how we can reduce the overpayments, and you mentioned how it really sounds like fraud, these 

rings that are created to go out and bilk taxpayers out of refunds. 

You mentioned the cost of administering the program——

Mr. EVERSON. Yes, sir. 

Senator CARPER [continuing]. On a percentage basis, which is actually very small. I think you said maybe 0.5 percent? 

Mr. EVERSON. Yes, sir. As part of our budget, we spend about 

$165 million a year on this out of a total of $10.6 billion that, as 

you know, is our whole budget. So it is small, and that contrasts 

with the figure I saw. I looked at the President’s budget—$3 billion 

for Food Stamps against $30 billion of expenditure. 

So you could, no doubt, spend more, a lot more on this and do 

better on the error rate. You are still left with the fact that it is 

at the back end, which is not the most effective way to deal with 

this. 

But again, you have to balance this out with your first point, 

with which I agree, that this program is very important, and it 

does have a high participation rate. So there is a dampening effect 

on this that you see, the degree to which you do more. 

Senator CARPER. Did you say the participation rate, Mr. Commissioner, is 80 percent? 

Mr. EVERSON. About 80 percent is what we estimate, plus or 

minus a few points. Yes, sir. 

Senator CARPER. That is pretty high. Is that counting the people 

who are not eligible who are still participating? Is that in that 

number or not? 

Mr. EVERSON. No, it is not, sir. But we think that is 80 percent 

of the eligible people are participating. 

Senator CARPER. And I would just ask you to answer—you don’t 

have to answer it here—but for the record. You have spoken to it, 

the point about whether or not if we are not encouraging you to 

dramatically raise your administration costs. 

But the question that is in the back of my mind here, maybe the 

front of my mind, is if you were to spend a bit more money for administration, how would that help us to address the improper payments, the overpayments? And if you can see if there is some kind 

correlation? I am sure you have looked at that. 

Mr. EVERSON. Yes. 

Senator CARPER. Or folks, before you have looked at that. And 

just for the record, if you could just share some of that with us? 

Mr. EVERSON. Yes, sir. Certainly. 

Senator CARPER. Good. Thanks so much. 

Thanks, Mr. Chairman. 

Senator COBURN. The point of diminishing returns, I think, is 

what he is looking for. 

I just want to have one other question. This idea between avoidable and unavoidable overpayments, I think I understand it. Would 

31

1 Copy of the ‘‘FY 2007 Budget Proposal’’ submitted for the Record by Mr. Lockhart appears 

in the Appendix on page 52. 

you try to explain it to me because I have a little concern that we 

start using this language, we are liable to see other departments 

start describing ‘‘avoidable’’ and ‘‘unavoidable’’ payments. So would 

you clarify that for me, Mr. Lockhart? 

Mr. LOCKHART. I would be happy to. We look at overpayments 

in two categories—first, improper, and the other category is required by statute or law. And those are the ones that are unavoidable. 

A simple example is due process. When someone’s benefit is reduced or eliminated, they have 60 days to appeal. And if they appeal, we don’t cut their benefits until that appeal is decided. 

Senator COBURN. But the problem I have with that is that reported as an improper payment is not an improper payment. It is 

not an improper payment because you are following the law. 

Mr. LOCKHART. Right. 

Senator COBURN. It is like continuing SSI for somebody or somebody’s Social Security after they die, but you don’t have the notice 

that they are dead. 

Mr. LOCKHART. Right. 

Senator COBURN. You can’t stop it because they might be dead. 

You can only stop it when you know they are dead. And so, the 

point is that is not an improper payment. 

Mr. LOCKHART. Right. But it is an overpayment, and we go out 

and collect it when we find out about it. 

Senator COBURN. Yes. But that is not an improper payment because you are actually following the law. Mr. Williams, do you have 

any comments on that? 

Mr. WILLIAMS. I would agree with that. We talked about this 

with our attorneys. And as you correctly stated, if the statute requires you to continue to make the payment as you go through the 

due process, by definition of the improper payments act, that is not 

an improper payment. 

At the point that a decision is reached, a ruling is made on it, 

and it is determined that person is required to pay that money 

back, it becomes a receivable. But at no point in time should that 

be classified as an improper payment. 

What we at GAO further believe is that because you have this 

particular scenario, we believe that it is a good practice to continue 

to track these types of activities because for informational purposes, it is good information to provide to the Congress and decisionmakers in case there is a need for some type of change in legislation, etc.. 

Senator CARPER. Before we finish, could I ask one more questions 

before we finish? 

Senator COBURN. Yes. Let me finish this point. 

Each of you have made note of recommendations in the President’s budget. Would you be so kind as to send those specifically 

to me for your Department so we can look at them as things will 

move faster if we can get everything back together before the Subcommittee.1 And you will have a multitude of questions coming 

32

from us that, if you would, please answer, we would appreciate, on 

a timely basis. 

Mr. EVERSON. Yes. 

Mr. LOCKHART. Be happy to. 

Senator COBURN. Senator Carper. 

Senator CARPER. Just one more for Commissioner Everson. Mr. 

Commissioner, you mentioned in your testimony, somewhere I 

think you mentioned the word ‘‘certification?’’ That you are using 

or testing to determine how effective certification is in reducing improper payments in the EITC. 

Mr. EVERSON. Yes, sir. 

Senator CARPER. Could you just give us a little more in terms of 

detail about what those tests involve and how effective they have 

been, if you have had a chance to make that determination? And 

what kinds of unintended consequences you have discovered? 

Mr. EVERSON. Well, sir, we have been testing over the last 2 

years or so in the tens of thousands to try and provide some form 

of an up-front verification of eligibility. And if I were to characterize the results so far, I would say that the results do drive down 

the improper payments, but it appears they also dampen participation. So there is this tradeoff that I mentioned before. 

Senator CARPER. And have you reached some conclusion as to 

whether the costs or the unintended consequences is greater? 

Mr. EVERSON. I haven’t reached a conclusion yet. We have a little 

ways to go on this. But I think we will be left, again, with what 

I would consider this fundamental policy choice of right now we let 

people claim this on a tax return, and with a minimum of hassle, 

if you will, if you really want to change this, do you go to what is 

a more traditional benefits program model? 

Senator CARPER. OK. Thanks so much. 

Senator COBURN. I would like to make a note. Don’t we want the 

ineligible not to be getting the money? 

Mr. EVERSON. I absolutely agree with that, sir. 

Senator COBURN. Thank you all very much. 

Our next panel is Assistant Secretary Charlie Johnson from 

HHS. Mr. Johnson serves as Assistant Secretary for Budget and 

Technology and Finance at the Department of Health and Human 

Services. 

Prior to his service at HHS, Assistant Secretary Johnson was appointed to Chief Financial Officer at the Environmental Protection 

Agency. He has spent 31 years in the public accounting profession 

and served on numerous boards and committees related to accounting and management. 

We also have Samuel Mok, CFO at the Department of Labor. Mr. 

Mok was confirmed by the Senate in January 2002 to be the Chief 

Financial Officer at the Department of Labor. Prior to his time at 

the Department of Labor, he served as Chief Financial Officer and 

Controller of the Treasury Department, where he was responsible 

for implementing many management programs to enhance financial reporting and control. 

Mr. Mok has extensive private sector accounting and auditing experience and also served in active duty as a lieutenant in the U.S. 

Army. 

33

1The prepared statement of Mr. Mok appears in the Appendix on page 110. 

I want to recognize each of you and recognize that Mr. Johnson 

has been here before. We thank him for returning. Your full statements will be made a part of the record. 

Mr. Mok, you are recognized for 5 minutes. 

TESTIMONY OF THE HON. SAMUEL T. MOK,1 CHIEF FINANCIAL 

OFFICER, U.S. DEPARTMENT OF LABOR 

Mr. MOK. Thank you, Senator Coburn and Ranking Member Carper. 

I appreciate the opportunity to testify before this Subcommittee 

today to discuss the Department of Labor’s compliance with the Improper Payment Information Act of 2002. 

In fiscal year 2005, the Department had three programs classify 

at high risk for improper payments. The Unemployment Insurance 

Benefits Program had nearly $3 billion in improper payment, with 

an estimated overpayment rate of 9.5 percent. The Federal Employees Compensation Act, otherwise known as FECA, benefits had $3 

billion in improper payments, with an estimated error rate of 0.1 

percent. And the Workforce Investment Act, otherwise known as 

WIA, grant programs had $8 billion in improper payment, with an 

estimated error rate of 0.2 percent. 

I am pleased to report that the Department met its improper 

payment reduction and recovery targets for each of these programs 

in fiscal year 2005. Improper payment fell approximately about 

$600 million, a 15 percent decrease over the previous years. 

While statistical sampling allows estimation of improper payments for most of the Department’s programs, WIA grants pose 

unique challenges. Grants to States, cities, counties, private, nonprofits, and other organizations fall under the single audit act. We 

found that it is more efficient and effective to rely on the findings 

of a single audit to monitor grant recipient funding. 

By analyzing all of the available single audit reports for WIA 

grants, we are able to develop a proxy for improper payments to 

estimate the improper payment rate. Our program with the highest 

dollar outlay and the highest rate of improper payments is the UI 

program. This Federal-State partnership is based on Federal law, 

but it is administered by State employees under State law. 

In the UI program, the sooner the State finds an improper payment, the sooner the State can cut off the benefits and start collecting the overpayment. In 2004, the Department entered into an 

agreement with the Social Security Administration that essentially 

allows State UI agencies to cross-match UI claim information 

against Social Security records. This helped prevent payments to 

persons working under stolen Social Security numbers and helped 

to determine the correct benefit amounts for individuals receiving 

pensions. 

The Department funds States to use data in a State directory of 

new hires to detect and prevent improper payments to beneficiaries 

who continue to collect despite having returned to work. State directory cross-matching has saved at least, in our estimate, $150 

million in the last 2 calendar years. The reason is States have 

gained access to the National Directory of New Hires to tap emVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
34

1The prepared statement of Mr. Johnson appears in the Appendix on page 119. 

ployment information from a wider variety of employers, including 

Federal agencies and multi-State employers who report all the new 

hires to a single State. Such cross-matching is an effective way to 

reduce improper payments. 

The President’s fiscal year 2007 budget includes legislative proposal and funding request to better help States deter, detect, and 

collect UI overpayments. These include allowing States to use a 

percentage of all recoverable payment for benefit payment control 

activities and requiring States to impose at least a 15 percent penalty on fraud overpayments and allowing States to permit collection agencies to retain a percentage of fraud overpayment recovered. 

Further, requiring employers to report start work date to the 

State directory of new hires. And last, but not least, authorizing 

the U.S. Department of Treasury to intercept Federal income tax 

refund to recover overpayment of UI benefits. We believe that these 

legislative proposals would reduce overpayment and increase overpayment recoveries and delinquent tax collections by an estimate 

of $5.4 billion over the next 10 years. 

The President’s fiscal year 2007 budget requests $10 million to 

prevent and detect fraudulent UI claims filed using personal information stolen from unsuspecting workers, an effort to combat identity theft. And $30 million to help States better assess claimants’ 

eligibility and provide re-employment assistance. 

In closing, I would emphasize that the Department of Labor recognizes the important stewardship challenges of ensuring the funds 

go to their intended purposes, and eliminating improper payment 

is a task that we must continue to pursue with great diligence. 

Thank you, and I will be glad to take any questions you may 

have, Mr. Chairman. 

Senator COBURN. Thank you. Mr. Johnson, welcome back. 

TESTIMONY OF THE HON. CHARLES JOHNSON,1 ASSISTANT 

SECRETARY FOR BUDGET, TECHNOLOGY, AND FINANCE, U.S. 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Mr. JOHNSON. Well, thank you. 

Senator COBURN. I think you kind of got slammed before you got 

up here. 

Mr. JOHNSON. I was going to say I heard a lot of nice things said 

about the Department of Labor, and I heard a lot of things said 

about the Health and Human Services. It is sort of like ‘‘beauty 

and the beast,’’ and I am not the beauty. 

But let me report to you on where we are because I do think we 

have had some successes, and certainly we have some challenges. 

I think all seven of our programs have been mentioned. Let me just 

briefly go through each one, if I may? 

In Medicare, in fiscal 2005, we reported a Medicare fee-for-service error rate of 5.2 percent. And that rate is, of course, significantly lower than the 10.1 percent that we reported in the previous 

year. And I think you correctly pointed out that the significant 

drop in the rate is primarily attributable to our measures taken to 

35

ensure that necessary documentation is in place. That I consider to 

be the low-hanging fruit. I think there is no question about that. 

I would like to speak about Medicaid and SCHIP together. We 

have looked at a lot of options to measure Medicaid and SCHIP. 

We have concluded that the best way to measure this is the same 

way we measure our Medicare program. Medicaid and SCHIP are 

just 50 different Medicare programs conducted by 50 different 

States. 

And so, we have engaged contractors this year that are going to 

develop a national Medicaid error rate. And these reviews will be 

much the same as they are in Medicare. By the end of 2008, all 

50 States will have been surveyed. We are going to start with 17. 

After the first 17, we will have a pretty good idea of what that 

error rate is going to be. 

Under Head Start legislation, grantees are required to be monitored at least once every 3 years. We reported a Head Start payment error rate reduction from 3.9 in 2004 to 1.6 in 2005. This is 

primarily achieved by reinforcing the requirement that 90 percent 

of the served populations come from low-income family. That was, 

again, maybe you can call it low-hanging fruit, but it had to happen. 

On the Foster Care Program, we developed a methodology for estimating a national payment error rate centered around eligibility 

reviews, and those are required by regulation. That, too, dropped 

from 10.33 percent to 8.6 percent. So we have had drops in the first 

three programs I have mentioned, and that is the success part. 

Let me tell you about TANF. We have had many pilots which are 

successful, and yet we have not identified an efficient and effective 

approach for determining an estimate of improper payments in the 

TANF program. By design, States are given great flexibility in the 

administration of this program. There were also statutory limitations with regard to the information that the Department can request of States. 

But in the meantime, we have installed alternative procedures to 

stop improper payments immediately upon discovery. The first initiative is our PARIS system. It is the Public Assistance Reporting 

Information System. 

It provides—again, similar to Department of Labor—a matching 

program, matching the capability to identify improper payments in 

Medicaid, TANF, and Food Stamps. Thirty-four States, the District 

of Columbia, and Puerto Rico are using the PARIS system and reporting millions of dollars in annual savings. That is a self-reporting system. 

Even more promising is the use of our National Directory of New 

Hires, again referred to by the Department of Labor. That matches 

the database with new hires under W4s, quarterly wage data, and 

unemployment compensation, finding great success with that. 

We had a pilot in the District of Columbia in which 33 percent 

of the individuals reviewed were identified as being employed. Over 

81 percent of those identified were verified as actually being employed. The vast majority of those recipients were not known to be 

employed by the TANF agency. So, again, these matching programs 

really do work, and we have 30 States, the District of Columbia, 

and Puerto Rico now on that program. 

36

Senator COBURN. You said 81 percent. Is that what you said? 

Mr. JOHNSON. Eight-one percent of——

Senator COBURN. Were employed? 

Mr. JOHNSON. First, we found a third of the people that we 

looked at went on this list as hitting a match. And when we hit 

the match, then in subsequent verification of whether or not they 

really were employed, 81 percent were, indeed, employed. 

Senator COBURN. So 24 percent of the people? 

Mr. JOHNSON. That is right. 

Senator COBURN. OK. It is kind of like EITC, isn’t it? 

Mr. JOHNSON. Yes. And so, we are sold on this as a program. The 

problem with this is it doesn’t get us to, by definition, the national 

error rate that is required by the act. 

In the child care program, as with TANF, the child care program 

legislation gives the States great flexibility in the design and administration of the program. With child care, we have initiated an 

improper payment pilot in which 18 States participated. Based 

upon these pilots, we believe we now have a methodology to evaluate participant eligibility, which is the highest risk area, and we 

think we are on our way with at least a plan. 

So, in conclusion, we have valid improper payment systems and 

are reducing error rates in three of the seven programs—that is, 

Medicare, Head Start, and foster care. In Medicaid and SCHIP, we 

have developed and are implementing a plan similar to the Medicare model, which we believe will be equally successful. 

In the two programs we have not yet developed a methodology, 

that is the TANF and the child care program. In TANF, as I mentioned, we have implemented data match systems, which allow us 

to reduce improper payments, and in child care, we are engaged in 

a pilot that we think has some real promise to lead us to methodology that will comply with the act. 

I would like to leave you with one very interesting statistic, 

though. And I think the American taxpayer is well served by the 

money spent at HHS to combat both improper payments and particularly health care fraud and abuse. Since 1997, we have spent 

$5.7 billion on our Medicare program integrity work, $5.7 billion, 

but have recovered approximately $82 billion, a 14 to 1 cost-benefit 

ratio. So we do have some good news to report to you, Senator 

Coburn. 

Thank you again for the opportunity to talk about the Department’s improper payments, and I will also be pleased to answer 

any of your questions. 

Senator COBURN. Thank you. I just want to address a little business. I don’t think OMB likes you. [Laughter.] 

Well, the reason I say that is our last hearing, your testimony 

didn’t come in on time. And this hearing, we got it last night. And 

we had a little discussion about that, and either they are gunning 

for you or they are not getting it soon enough. 

And I would also say that Mr. Mok’s testimony didn’t come in 

until yesterday as well. And I don’t know if that is an OMB problem, or it is a problem with it getting there. But I can’t do the job 

if I don’t have your information in time to study it. 

I mean, my staff can study it. They can stay up all night. But 

I can’t stay up all night and then be sharp and ask you the quesVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00040 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
37

tions that the American taxpayers want. So I just ask for your indulgence, 48 hours sooner than you did this time try to get it. This 

hearing has been on for quite a while, and I would just appreciate 

that help. 

Mr. JOHNSON. You have my apology, and from our end, we will 

do better. 

Mr. MOK. Same here. 

Senator COBURN. I am pleased to hear progress. I am still confused how we can be making better progress in one program that 

is State run, and we can’t in other areas. And the unemployment 

insurance is still way too high in terms of improper payments, and 

most of that is overpayments. It is not underpayments. 

And tell me how, even though I know both of you are dedicated 

to making these things happen, what can you learn—for Mr. Mok. 

And actually, the question really is, is did this really start in 1987, 

or did you all really start good management 5 years ago or 4 years 

ago? 

Ms. Combs really alluded to the fact that you all were improving 

and had a lower error rate because it started a long time ago. Not 

to question her word, but is that what happened? Is that why you 

are where you are today and improving, or is it because management things and management principles were applied, and audit 

trails were followed, and programs were put in place to actually 

lower this? 

Mr. MOK. I think Ms. Combs is right and what you said earlier 

is right, too. I think there are many factors. We have put together 

a program, which today is known as the Benefit Accuracy Measurement Program, since 1987. 

So in the 1970s, we had been requiring the States to report statistics to us. In 1987, we have this program that we measure and 

assess. So we have a history of collecting data and trying to collect 

some of these overpayments. But I will also say that since President Bush came into office, with the PMA and other initiatives, 

there is a culture to get this overpayment recovered and also eliminate overpayment to the best of our ability. 

At the Department of Labor, I am also very fortunate because 

under the leadership of Secretary Elaine L. Chao, she is a Harvard 

MBA. She understands finance. She also inherited the United Way 

after its fiasco, financial crisis. So she understands very well that 

if you don’t pay attention to financial management, horrible things 

can happen. 

So my office receives incredible support from her and my contemporaries to effect a good program to live up to President Bush’s 

promises to reduce improper payments, and we have an excellent 

working relationship with the States and also excellent working relationship with other assistant secretaries, primarily because of the 

culture fostered by Secretary Chao to go after these problems. 

So it is really a foundation that I have been fortunate to inherit, 

and we are able to leverage that. And also the stability of the management team helps. Because the Labor Department, again under 

Secretary Chao, has probably one of the most stable management 

teams. 

38

I am currently the longest-serving CFO in the history of the U.S. 

Department of Labor. So I learn from my mistakes, and so we are 

able to do some good things there. 

Senator COBURN. That is great. Well, what you are saying is 

leadership really matters? 

Mr. MOK. Yes, sir. 

Senator COBURN. And what the President has instituted is really 

going to matter, and the key is, is it carried down? Mr. Johnson. 

Mr. JOHNSON. Let me discuss TANF because that has been 

maybe our most difficult to penetrate and get a national error rate. 

I was formerly chief of staff to now Secretary Leavitt when he 

was governor of the State of Utah. And of course, the TANF program had a couple of provisions. You were able, by design, to use 

that money in a manner that would best fit your State. And it was 

sort of a hands off from the Federal Government and hands on by 

the State. 

I can tell you that in our State, and I suggest probably in every 

State, that they are also working hard to reject and eliminate improper payments. We have a data survey out to them asking them, 

‘‘What are you doing in your individual State?’’ We will compile 

those. They will be on a Web site as a best practices. 

We are trying to get at this in another way. And yes, I guess we 

could as a public policy decide, look, the flexibility that we have 

given the States on design of the program and on the amount of 

data that we can request from them, we could legislate that and, 

of course, get all the cooperation that we needed through legislation. 

We are trying to work at it in a different method, and maybe we 

are wrong. Maybe we need to revisit that. But we would be happy 

to work with you on that issue. 

Senator COBURN. Are you having trouble getting cooperation 

from the States? 

Mr. JOHNSON. Well, they are cooperative in telling us what they 

are doing. But if you ask them to spend some money—and all of 

these things take money—and to get a statistically valid rate, then, 

yes. There is some resistance. 

Senator COBURN. So let us go back. Your oral testimony was, I 

believe, with TANF in one area, where you are running a demonstration project, hooking up——

Mr. JOHNSON. We are doing the matches, yes. 

Senator COBURN. You are doing the matches? 

Mr. JOHNSON. Yes. 

Senator COBURN. And of the 30 percent that you looked at that 

was not accurate, 81 percent of that actually were employed? 

Mr. JOHNSON. And that is in the District of Columbia. 

Senator COBURN. That is here in Washington, DC? 

Mr. JOHNSON. Yes. So I don’t say that is representative. 

Senator COBURN. Well, I am not going to generalize that, but I 

am just saying here is one where it looks like you have 24 percent 

improper overpayment on TANF? 

Mr. JOHNSON. Right. 

Senator COBURN. And what is the total payments for TANF for 

a year in this country? 

Mr. JOHNSON. I think $17 billion, if someone can help me? 

39

Senator COBURN. $17 billion. So let us say that it is not 24 percent. Let us say it is 8 percent. It is a billion dollars a year. 

Mr. JOHNSON. Right. 

Senator COBURN. Tremendous amounts of money. Well, what I 

would like, Mr. Johnson, is for you to give to this Subcommittee 

any suggestions that you might like to see that would tend to 

incentivize the States to be much more cooperative in terms of improper payment because if the States really won’t be cooperative 

with you and yet you are being hammered by us, then it is up to 

us to give you the tools to get the information. 

Mr. JOHNSON. Yes. And I do think that they are incented when 

we give them these data matching programs. They are incented to 

use those because that is to their benefit. But that doesn’t translate 

to a national error rate calculation. We can give you the results of 

all of that, and I think you get the same benefit. But if you want 

exact compliance with the act and a statistically valid error rate, 

that is a different issue, and we are trying to do both. 

Senator COBURN. How about for Medicaid? You got an FMAT 

match on administrative cost. What do they get, $8 or $9 for every 

dollar they spend? 

Mr. JOHNSON. Not that high, but——

Senator COBURN. OK, $6 or $7 for every dollar they spend on administrative costs from the Federal Government. The point is you 

would think that they would gold mine that to get you the data. 

Mr. JOHNSON. Now on Medicaid, it is true these contracts, they 

are cooperating. They are paying part of the contractual price, yes. 

Senator COBURN. So the real problem is not a problem on SCHIP 

and Medicaid? 

Mr. JOHNSON. No, that is not the problem. 

Senator COBURN. The problem is on TANF, children’s care? 

Mr. JOHNSON. Yes. And again, we think we may have that 

solved. But TANF is going to remain our most difficult program to 

get a statistical measurement. 

Senator COBURN. And there is a good guess that there might be 

a billion, at least a billion dollars a year there? Well, if you take 

a third of what is happening in DC. 

Mr. JOHNSON. Sure. Right. 

Senator COBURN. And you say Washington, DC is three times 

worse than the rest of the country, on average, you get a billion 

dollars. And if it is only two times worse, you get a billion and a 

half. 

Mr. JOHNSON. And I think that is why we are getting these. As 

we put out these matching programs, we are getting reports back 

from the State—again, State reporting——

Senator COBURN. Right. 

Mr. JOHNSON. That they are saying, yes, it is millions of dollars 

that they are saving individually. We can compile all of that. 

Senator COBURN. Do all of the States have this now? 

Mr. JOHNSON. They have access to it. 

Senator COBURN. How many of them are not using it? 

Mr. JOHNSON. Well, 34 States are. So 16——

Senator COBURN. Sixteen are not. 

Mr. JOHNSON. If my math is right. 

40

Senator COBURN. Your math is usually right. It is not what we 

want to see all the time, but it is usually right. 

Senator Carper. 

Senator CARPER. Thanks so much, gentlemen. Good to see you. 

And Mr. Williams, nice to see you again. 

Mr. WILLIAMS. Thank you. 

Senator CARPER. You just got yourself a permanent seat there, 

don’t you? 

Mr. Williams, let me just start off with you. Any observations 

you would like to share, sort of reflecting on the testimony and responses of our other two witnesses? 

Mr. WILLIAMS. Yes, not only the other two on this panel, but on 

the previous panel. I think that one of the things that I did in preparing for this hearing was to realize that I am looking at agencies 

across the government, and I am not an expert in all of these agencies. So I talked to some of our experts and made sure I got as 

much information about these various programs. 

And the feedback that I got from our experts is consistent with 

some of the things that I have heard today as far as what the Congress can do to help out, and that relates to simplification of some 

of the processes. That really could be of benefit. 

Senator CARPER. Could you give us maybe an example of that? 

Mr. WILLIAMS. I think when we were talking about the earned 

income credit. In talking to our experts, one of the things that they 

pointed out to me was that while the tax code is complicated, their 

thinking was the section that related to the earned income credit 

was probably one of the more complicated sections of the code. 

And to take that a step further, a lot of people that qualify for 

it might not have the most education and is aware of how to go 

about filling it out. So that is something that you might want to 

take into consideration when you are looking at simplification of a 

process. That is one thing that they pointed out to us. 

They also pointed, and I have testified to this over the years, and 

that is when you are looking at these various programs, you definitely want to take into consideration cost-benefit factors. And I 

think there was a lot of discussion about that today. And I would 

concur with those statements that the way I like to put it, why 

would you spend a dollar and one cent to get back a dollar. So I 

would concur with those statements. 

Most recently, there was a statement that was made about are 

we better off in some programs than others because we have been 

working at this longer? I could take HHS as an example. If you 

look at the reporting that is going on under Medicare, this process 

started back in 1996, when the IG began taking a sample. 

And as recently as last year, you can see that they are still making refinements to it and that we have had the discussion today 

that the number dropped down because of better reporting of the 

documentation that is coming in from the medical providers. 

So I think you would have to conclude that it does take time in 

some of these programs. That might be one of the reasons why 

some of these programs are showing not reporting instead of having an amount. 

So I think with time, and I think we all would agree that people 

are working hard at trying to address this issue, and there are varVerDate 0ct 09 2002 13:29 Jan 30, 2007 Jkt 027749 PO 00000 Frm 00044 Fmt 6633 Sfmt 6601 C:\DOCS\27749.TXT SAFFAIRS PsN: PAT
41

ious things that are going on. Because as I read through their various performance and accountability reports, I saw numerous examples of various matching concepts that have been put into place 

and things along this line that should help reduce some of the improper payments that is occurring in the Federal Government 

today. But in conclusion, I also want to point out that $38 billion is still $38 billion, and we still don’t know today exactly what that number 

is in total based on the reporting that I have seen up through fiscal 

year 2005. Thank you. 

Senator CARPER. Good. Thanks. You mentioned people are working hard. Are there any folks out there that aren’t working hard 

enough that you know of? 

Mr. WILLIAMS. None that I know of. [Laughter.] 

Senator CARPER. All right. I was out on a phone call here for a 

minute, and I missed a part of the testimony of two of our witnesses. I was trying to watch it on TV in the anteroom here and 

do my phone call as well and probably didn’t do a good job with 

either of them. 

But I came in and I think I heard the Chairman talking about 

these programs where the Feds partner with the States and maybe 

the States administer the programs and where I think Medicaid 

might have been an example of one of those programs where we 

still haven’t been able to get our arms around the improper payments problem. 

I think I heard some discussion about incentivizing the States to 

cooperate more. It reminded me a little bit of a conversation we 

had in another hearing where I think we dealt with real property 

management, and we were looking at, I think, the Veterans Administration, where they are actually doing a much better job than 

some of our other agencies in handling their property management 

because they have an incentive to do so. 

Let us come back to the issue and programs that either of you 

partner with the States, in other words, on UI or Medicaid. And 

just talk to us about, let us say you are a governor or a State legislator, what incentives are we providing the States to partner with 

us in reducing the improper payments? Why should the States 

want to help us on this, aside from being the right thing to do? 

Mr. JOHNSON. Yes, and as a former governor, you know that 

States do want to do the right thing, and they do have a vested 

interest. 

Senator CARPER. I know in Delaware and Oklahoma they sure 

felt that way. I can’t speak for some of those other States. 

Mr. JOHNSON. The issue then is whether or not the incentives 

just to do the right thing is all that it takes. And with respect to 

Medicaid, we think now that the States have entered into a contract, joint contract—they are paying their part, we are paying our 

part—and we do think we have a solution there. 

We have just introduced these matching programs just recently. 

But our success factor then in getting States to sign up has been 

rather astounding. So they can see the benefit of using these 

matching programs to find errors because if you take TANF or the 

child care, the benefit comes right back to them, right back to the 

State. 

42

But again, those work and those are dollar savers. It just doesn’t 

get us to the technical statistically valid national error rate. And 

so, I look at it from a cost benefit, I think we are doing a lot of 

the right things. And getting to this, the technical, we are eliminating errors, and we are eliminating fraud and abuse, but we are 

missing somewhat getting this technical requirement down. 

And I know we have to obey the law, and we intend to. But in 

the meantime, we are trying to save dollars. 

Senator CARPER. For a State, their incentive on TANF, the large 

States don’t have enough money in their Temporary Assistance for 

Needy Families. They have a waiting list for child care. 

Mr. JOHNSON. Yes. 

Senator CARPER. So what they need to do is to stretch the dollars. And so, the incentive for them is if we can ferret out an improper payment, then there is more money in their allocation to 

use for the needs that need to be met. That is a pretty good incentive. 

Mr. JOHNSON. That is a very good incentive. Where it breaks 

down is if you say, ‘‘I would like you to spend some of your administrative dollars to do some statistical sampling that will give us 

a national error rate.’’

They are saying, ‘‘I like the matching program. I like that. I can 

see direct benefit of that.’’ It gets a little more distant when you 

start asking them to get some statistical sampling so it will help 

the Federal Government get a national error rate. And so, I understand that. 

Senator CARPER. All right. One more question, if I could, Mr. 

Williams, to ask you to talk about the controls, I guess I would say 

controls against waste along the Gulf Coast with respect to the recovery, and your confidence or lack of confidence that FEMA can 

set up a system to prevent waste during a disaster? Anything you 

could offer us on that? 

Mr. WILLIAMS. Well, one of the things that I would like to point 

out, first of all, is that if you look at the event from a timing standpoint, if you are looking at the 2005 reports that the agencies have 

put out, the events took place very close toward the end of the fiscal year. 

So from an improper payment standpoint, if there are several 

major impacts in the improper payments area, it will probably 

show up more in the 2006 financial reports than the 2005 because 

you only had about a month, month and a half. 

We have always had concerns about internal controls, and when 

you look at audit reports in which an agency had 10 material internal control weaknesses, they had two reportable conditions, and 

they had seven noncompliance with laws and regulations. And one 

of those noncompliance issues related to not being compliant with 

the improper payments act. 

So that raises an antenna right there, and I would suggest that 

in an environment like that, you would want to have every resource possible working in your favor to put internal controls in 

place so that you can prevent improper payments from occurring, 

as well as having procedures in place to detect improper payments. 

I like to look at it from the standpoint of putting procedures in 

place to prevent the horse from getting out of the barn, but once 

43

the horse gets out of the barn, you need to have something, and 

those are my detectable controls. So you would want to see as 

much of those in place as possible when you have an area that has 

that number of material weaknesses, noncompliance, reportable 

conditions. 

It would be an area in which not only would you want to look 

close at it, but you would want to make sure that you have good 

oversight, good communications, and I think that was the thinking 

of the Congress when it passed the Department of Homeland Security Financial Accountability Act, was the Congress was trying to 

get involved in this process to make sure that there was a structure in place that would highlight some of these issues, would put 

strong management in place at the organization. 

I think the statute had some specific requirements as far as the 

chief financial officer at the agency. That they would be confirmed 

by the Senate, that they would have certain experience, extensive 

experience in accounting, budgeting, financial systems. And I think 

that was the thinking along that line, and I would encourage anything that the Congress can do in going forward to assist the agency in any way possible to make sure that these procedures are put 

in place because there is a susceptibility to risk, based on the reporting that we have seen from the auditors at the agency over the 

years. 

Senator CARPER. All right. Good. Thanks so much. 

And Mr. Chairman, thanks for being so generous with the time. 

Mr. WILLIAMS. Could I add one more point? Without going into 

any details, I would just like to make the both of you aware of the 

fact that I currently have an assignment under way in which I am 

basically looking at what things are going on in this area with the 

States, what needs to be done from a State perspective in order to 

try to address the issue of improper payments, given the fact that 

the States play such a large role in this particular issue with 

grants in the neighborhood of $400 billion a year. 

And we are in the latter stage of gathering that information, but 

I just wanted to make you aware that we are looking at that, and 

we are looking at issues such as what can the Federal Government 

do? What can OMB do? And things along this line to address any 

communications issues, things that could be done to improve the 

link between the Federal Government and the States in some of 

these programs that we are talking about today. 

Senator CARPER. I don’t think we would be interested, do you? 

Senator COBURN. I have a couple of other questions. One is, we 

started a brand-new program this year. It is called Medicare Part 

D. 

Mr. JOHNSON. That is correct. 

Senator COBURN. What aspects of Medicare Part D had in it so 

that we will know what the improper payment rate is? Is there a 

program in it? 

Mr. JOHNSON. Well, I think the Medicare Integrity Program encompasses Part D. Part D, of course, will be a little bit different 

from the standpoint that we are now going through other insurance 

companies or, therefore, other providers. And so, it will have a little less risk on that side because someone else is setting premium 

rates. 

44

Senator COBURN. I understand that. But here is my question. 

Mr. JOHNSON. Yes. 

Senator COBURN. With a brand-new program, knowing we have 

an improper payments law, was there a component of that program 

that said, here is this new multi-, multi-, multi-, multi-, multi-billion program, was part of the design of that program in its implementation a way to audit and report improper payments? 

Mr. JOHNSON. I have been given a note that says starting next 

week, we are having discussions on that issue. But as of now, we 

don’t have anything in place. 

Senator COBURN. OK, but you would agree——

Mr. JOHNSON. Oh, absolutely. 

Senator COBURN [CONTINUING]. That one of the things that 

should have been in that rather than after the fact, design it with 

the fact as a part of the program. And so, this is part of the management agenda the President has to get ahead of. I mean, if we 

have something new, then you have to meet the requirements. 

The other point that I would make is the improper payments act 

may be hard, but it is the law. And I will tell you personally I am 

not going to rest until every agency is reporting on it accurately. 

And then if it cannot happen, then the President and the Administration has an obligation through OMB to come back to us and say 

this has to be changed, and here is why because it is not achievable. 

But to say it isn’t going to happen, and we can’t get it done because it is hard to get done isn’t an acceptable response. I know 

it is difficult, and I don’t doubt dedication. I want to make sure you 

all understand that. 

My communication to you is, I think, we have wonderfully dedicated people, but I think we have to be thinking down the road, 

and what the President is attempting to do through this difficult 

process of changing bureaucracy, I think we are seeing some good 

signs that we are seeing change. But one of the reasons we are 

having this hearing is the pressure is going to stay on, OK? 

GAO reported that Department of Labor did not follow the required format for recovery auditing included in OMB’s guidelines. 

Are you aware of that, Mr. Mok? 

Mr. MOK. Yes, I am aware of that if you are talking about the 

recovery audit, where the auditor is allowed to keep certain percentage recovered. According to our internal analysis and study, we 

do not see the cost effectiveness of doing that because if you look 

at some of the programs that we can apply it to, the amount is not 

there. 

Senator COBURN. Right. You also reported that no improper payments were noted from recovery auditing activities for 2005. Is that 

correct? 

Mr. MOK. That is correct. 

Senator COBURN. And that recovery audit effort was, therefore, 

unnecessary? 

Mr. MOK. We do not see the need at this time. However, we are 

continuously looking at that, monitoring that. 

Senator COBURN. Yes. What do you find on that, Mr. Williams? 

Mr. WILLIAMS. That is consistent with your statement. You have 

made an accurate statement. What I would point out in this area 

45

is that if that is the conclusion now, that you need to continue to 

monitor the process because things change as you go down the 

road. 

Mr. MOK. And that is our intent. 

Senator COBURN. Well, let me once again thank each of you. I am 

sorry for the late hour. I apologize for it. I thank you for your dedication and your service. We will be back here in about 6 months, 

doing this again, I will assure you. 

You will have some additional questions. I would also ask that 

you give us recommendations from your agencies that you would 

like to see changed. I think Senator Carper and I have a good handle on improper payments, and we can work both sides of the aisle 

to try to get some of this stuff to happen. 

You will be sent some additional questions, and we would like a 

prompt reply on that, if we could. 

Thank you very much, and the hearing is adjourned. 

Mr. MOK. Thank you very much. 

Mr. JOHNSON. Thank you. 

[Whereupon, at 4:52 p.m., the Subcommittee was adjourned.] 

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