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$35 BILLION AND COUNTING—A REVIEW OF THE

IMPROPER PAYMENTS ACT OF 2002

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY

AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 15, 2004

Serial No. 108–176

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

PATRICK J. TIBERI, Ohio

KATHERINE HARRIS, Florida

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND FINANCIAL MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

MARSHA BLACKBURN, Tennessee

STEVEN C. LATOURETTE, Ohio

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

KATHERINE HARRIS, Florida

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MIKE HETTINGER, Staff Director

LARRY BRADY, Professional Staff Member

SARA D’ORSIE, Clerk

(III)

C O N T E N T S

Page

Hearing held on April 15, 2004 .............................................................................. 1

Statement of:

Gerow, Charles, chairman, Pennsylvania Chapter, Citizens Against Government Waste; and Paul Gessing, National Taxpayers Union ............... 63

Springer, Linda M., Controller, Office of Federal Financial Management,

Office of Management and Budget; and McCoy Williams, Director, Financial Management and Assurance Team, General Accounting Office .. 6

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

Gerow, Charles, chairman, Pennsylvania Chapter, Citizens Against Government Waste, prepared statement of ....................................................... 67

Gessing, Paul, National Taxpayers Union, prepared statement of .............. 74

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 4

Springer, Linda M., Controller, Office of Federal Financial Management,

Office of Management and Budget, prepared statement of ....................... 9

Williams, McCoy, Director, Financial Management and Assurance Team,

General Accounting Office, prepared statement of .................................... 15

(1)

$35 BILLION AND COUNTING—A REVIEW OF

THE IMPROPER PAYMENTS ACT OF 2002

THURSDAY, APRIL 15, 2004

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY AND

FINANCIAL MANAGEMENT,

COMMITTEE ON GOVERNMENT REFORM,

York, PA.

The subcommittee met, pursuant to notice, at 2:30 p.m., at the

Yorktowne Hotel, Lafayette Room, York, PA, Hon. Todd R. Platts

(chairman of the subcommittee) presiding.

Staff present: Mike Hettinger, staff director; Larry Brady and

Tabetha Mueller, professional staff members; Amy Laudeman, legislative assistant; and Sarah D’Orsie, clerk.

Mr. PLATTS. This hearing of the Subcommittee on Government

Efficiency and Financial Management will come to order, and I appreciate everyone’s attendance here today at this first field hearing

in the 19th District. We have traveled to our vice chairwoman’s district in Tennessee, but delighted to certainly be here in York County, my hometown. I appreciate our witnesses, both from Washington as well as here from the local community, for participating in

today’s hearing.

Today, as millions of Americans pay their Federal taxes, and a

number of friends, who have commented to me in the last 24 hours

how they were rushing to beat the deadline, it seemed like an appropriate time for us to focus on the issue of improper payments

by the Federal Government and how we are seeking to better protect the expenditure of the hard-earned tax dollars of our citizens.

Unfortunately, as we will hear today in our testimony, billions of

dollars continue to be lost to payment errors each year. While some

of these payments are recoverable, a majority are not, and you

know, are lost and never to be recovered.

To his great credit, President Bush and his administration, along

with Congress, and my predecessor especially, Chairman Steve

Horn, now retired, have made the reduction of improper payments

a significant issue and a priority focus. In support of this effort, the

subcommittee believes that the taxpayers have a fundamental right

to know how their tax dollars are being spent. Improper payments

by Federal agencies are a serious and growing problem which cost

taxpayers billions of dollars. The Office of Management and Budget

estimates that $35 billion is wasted through improper payments,

and there is much belief that this number is just the tip of a much

larger iceberg.

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An improper payment is any payment that should not have been

made. It can be a correct payment, an over or underpayment, and

can include, among other things, a payment to an ineligible recipient, a payment for an ineligible service, a duplicate payment, or a

payment for a service never received.

In 2002, my colleague, who I mentioned, Congressman Steve

Horn, who was then Chair of this subcommittee, was successful in

securing the enactment of the Improper Payments Information Act

of 2002. This law has helped bring to the forefront the need to address this issue more aggressively. All Federal agencies will soon

be required to make estimates of erroneous payments, and if those

estimates are more than $10 million annually, to develop plans to

reduce or eliminate these errors. On May 26 of last year, the Office

of Management and Budget issued guidance which established governmentwide procedures for dealing with erroneous payments.

While we do not yet have our arms around the total extent of

this problem, we are beginning to get a better sense of the total

picture. What we do know is that mistakes, these mistakes which

occur throughout government, are made because agencies do not

have adequate internal controls and business process systems to

protect against these errors.

Today, we look forward to exploring the process of agencies in

implementing the act, review the status of OMB’s guidance, and

learn from GAO about strategies to better identify and reduce improper payments. We are also eager and grateful to hear from Citizens Against Government Waste and the National Taxpayers

Union, who will express their views on this issue and on how to

get a better handle on improper payments and reduce government

waste.

We will have two panels today. Our first one features the Honorable Linda Springer for the White House Office of Management

and Budget, and Linda, thanks for being with us again. You are

getting to be a regular with us, that may be good or bad for you,

I am not sure, we think it is good.

Ms. SPRINGER. So do we.

Mr. PLATTS. And we are delighted to have your mother here with

us from Lancaster over to participate, sit in on the hearing, and

your second time with us as well. Once in D.C., so thanks for being

with us, as well as McCoy Williams, of the U.S. General Accounting Office. And McCoy, we, as always, appreciate your work, participation and efforts, hand in hand with our committee.

Mr. WILLIAMS. Thank you.

Mr. PLATTS. In our second panel, we will have a gentleman, Mr.

Charlie Gerow, representing the Pennsylvania branch of the Citizens Against Government Waste, and Paul Gessing, from the National Taxpayers Union. We appreciate both of you making the efforts, and Charlie, I think, has the shortest commute for our witnesses. And we are delighted to have all of you, and Charlie, we

especially appreciate the Pennsylvania perspective that you will

bring to the issue on behalf of the national organization, Citizens

Against Government Waste.

Could we have all four of our witnesses take the oath up front,

and then we will get into our first panel testimony and questions.

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So, if we could have our four witnesses come forward and stand,

please.

[Witnesses sworn].

Mr. PLATTS. We certainly appreciate what I call my hearing

homework, your written testimonies, which allows me to, in advance of today’s hearing, review your comments and deliberate on

the thoughts you want to share, and will lead to a better discussion

today. Typically, we do ask for our opening statements to be roughly 5 minutes, but with the importance of the issue, and also, as we

are in a smaller setting, I am certainly not going to be strict in

holding to that, but if you want to—as you best feel—summarize

your written statements, and share whatever you think is most appropriate in your opening statements, that would be great. And

Linda, we will begin with you, and then move to McCoy.

[The prepared statement of Hon. Todd Russell Platts follows:]

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STATEMENTS OF LINDA M. SPRINGER, CONTROLLER, OFFICE

OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND McCOY WILLIAMS, DIRECTOR,

FINANCIAL MANAGEMENT AND ASSURANCE TEAM, GENERAL ACCOUNTING OFFICE

Ms. SPRINGER. Thank you, Mr. Chairman.

I do appreciate the opportunity to testify again before this subcommittee, this time on the propriety of government payments.

And as you mentioned, I am pleased to be near my family today,

which resides in Lancaster County, in a neighboring district.

First, I would like to say that eliminating improper payments by

the Federal Government has been, and continues to be, a major

focus of President Bush and this administration. We strongly feel

that one of the most important requirements in executing our missions is the responsible spending and efficient stewardship of taxpayer dollars, and we view them as taxpayer dollars, not OMB dollars or anyone else’s dollars.

It is the goal of the administration to ensure that every dollar

spent by the Federal Government is a dollar that is spent wisely

and for the purpose to which it was intended. No payment made

by the government should be wasted or spent in an erroneous or

improper fashion. Given the Federal Government’s current budget,

in excess of $2 trillion annually, and the many competing important priorities, we believe our mission is more important today

than it has ever been before.

Since the President’s management agenda was first announced

in 2001, early in the term, the elimination of improper payments

has been a key component of the improving Financial Performance

Initiative of the President’s agenda. As part of that initiative, we

have been working very hard with Federal agencies, both to identify and to eliminate improper payments within their major programs and their activities.

Specifically, at the Office of Management and Budget [OMB], it

is our job to make certain that government agencies review their

payments, and assess whether a risk of improper payment exists.

If a risk does exist, it is our job to make sure the corrective action

is taken to ensure that it won’t happen again. We anticipate that

all of these ongoing efforts will ultimately lead to a review of every

single dollar for which the government intends to spend. The total

$2 plus trillion we expect to be inventoried and subject to scrutiny,

to ensure that taxpayer money is spent for that purpose for which

it was intended.

Our initial efforts to eliminate improper payments focused on

Federal programs making annual payments in excess of $2 billion.

That is per program. In total, that amounted to about $1 trillion,

or roughly half of the budget in a given year. There were 40 programs included, found within 15 different agencies. These agencies

were directed to follow necessary requirements set out in Section

57 of OMB Circular A–11 and report on their programs within

their—the context of their budget submissions. That was the initial

approach used by OMB.

Collectively, these Section 57 programs, as I mentioned, comprise

about $1 trillion in government spending. We estimated, as you

mentioned earlier, Mr. Chairman, that improper payments just on

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that first $1 trillion exceed $35 billion, and I use the word exceed

because that is the initial report that we have gotten, and we believe that not all of those dollars have been fully measured yet.

But—so that it is—we believe $35 billion is the bottom threshold

of what we expect, just on those Section 57 programs.

Our goal to eliminate improper payments, as first envisioned in

the PMA, was later endorsed, as you mentioned, by the Improper

Payments Information Act of 2002 passed by Congress. And again,

it is a credit to the work of this committee, and not only to Congressman Horn, but to yourself as well, in bringing that legislation

to fruition. It is the administration’s belief that the provisions of

the act, combined with the start that we have gotten—and again,

I would just characterize it as a start through Section 57, will ensure that all Federal payments and all Federal dollars are looked

at, and ultimately spent only for the purpose for which they are intended.

Following the enactment of the act, OMB issued last year, in

May 2003, guidance for agencies’ compliance with the act. There

are six steps outlined in the guidance, and if you look at the chart

that we have brought—OMB doesn’t usually do charts for hearings,

but we decided to follow the lead of some of our fellow panelists

and actually bring one this time, you will see that the six steps are

listed there.

They start with the first one, of compiling the inventory of all

payments and outlays. Second, conducting the initial risk assessment. This is an assessment of the susceptibility to risk of the program. The third step is to conduct a statistical analysis for those

programs that are susceptible to risk. The fourth step, then, would

be to develop corrective action plans. Next would be to develop a

baseline of the current level of erroneousness, if you will, and then,

to set improvement targets. And then next and last, report each

year to Congress. Those are the steps that we believe are directed

in the act, and those are the ones that we have been communicating through the guidance and working with the agencies to comply

with.

In the fall of 2003, I personally met with the Offices of the Chief

Financial Officers and at the same time, in a joint meeting, the Offices of the Inspectors General of each of the major agencies that

are covered and subject to the act, and ultimately, they account for

the full $2.4 trillion. Following those meetings, we directed all

agencies to submit, by the end of November 2003, their plans for

compliance with the act. All of the agencies met that goal. After

our review of the plans, in January 2004 we responded back in

writing to each of the Chief Financial Officers with specific comments and questions that we thought would improve their plans

and close any gaps that we saw. And again, I should mention these

are all steps that we have taken subsequent to our hearing last

year. I want to sort of update you, since the guidance was only just

coming out at that point.

So, the meetings with the CFOs and IGs, the submission of

plans, review by OMB of the plans, with feedback, at the beginning

of this year. Then subsequently, we have had another series of

meetings with the CFOs again, and the IGs during this past February and March. At these meetings, we finalized the plans for

8

compliance, and directed agencies to set specific target dates for

each of the required steps, each of those six steps, as they applied

to that agency and to their programs. We also made sure that their

inventories would total up to the full $2.4 trillion of outlay, so that

when we report back to Congress, we will be able to say with assurance, here is the full $2.4 present and accounted for. We now

have specific dates in which each of the key milestones are expected to be completed, and OMB’s job will be to track and to make

sure that these deadlines are met over the coming months.

So where are we right now? At this point, most of the agencies

have completed step one, which is the compilation of their program

inventories. Looking ahead to the rest of the steps, we expect the

risk assessments to be pretty much completed by the end of May

for most agencies. Statistical sampling in most cases done by the

end of June, corrective action plans and the baseline and improvement targets by the end of September, which is the end of the fiscal year for the Federal Government. So, that is really a marker.

At that point, then, agencies along with all their other financial reporting will be compiling that, putting that together into their performance and accountability reports, which are due out by November 15, 2004. And we thought that combining it in with their other

financial report and their audit report was a logical vehicle. It is

already submitted to Congress, and that was why we chose that

particular vehicle to communicate their compliance with the act.

So we are comfortable that we have a plan. We are monitoring

it closely, and we have a good start. I would, in fairness, want to

communicate to you, Mr. Chairman, that there are significant challenges that remain. Most notably, we are working with agencies to

develop ways to measure the full stream of payments that are

made. In many cases, we have payments in some of the programs

that are on this other chart that are made to States and then to

local governments, or to a university and then to another university downstream, and our job doesn’t start with that first payoff

from the government. If a payment is made, for example, a grant

from the Federal Government to a university for science, and then

that university turned around and gave it to another university,

and they built a gymnasium with it, that would be an improper

payment, even though we gave the right amount to the right university. It is a very difficult thing to go all through those steps for

some of these programs, but that is a complexity that we are dealing with, and we intend to get a process in place.

I know that you have a number of questions that you will—and

we will—I will address those as they come up, but I want—I hope

that you can see that we believe several things. One, that every tax

dollar must be spent wisely, efficiently, and for the purpose for

which it was intended. We believe that this administration, under

President Bush’s leadership, has taken—undertaken with the help

of Congress the most comprehensive effort ever to deal with the

problem of improper payments. And for the first time ever, to my

knowledge, we are reviewing every Federal program to determine

if it is at risk of making an improper payment. And we believe we

are making progress, and so we are happy to share that with you

today, and we look forward to your questions.

[The prepared statement of Ms. Springer follows:]

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Mr. PLATTS. Thank you, Ms. Springer, and—I turned it off because when I touch the table, you are going to hear it, but—we appreciate and we will get into questions after Mr. Williams’ testimony, but I do appreciate the review, and do acknowledge the ongoing efforts by you and the entire Bush administration on the

issue of financial management, including improper payments.

Ms. SPRINGER. Thank you.

Mr. PLATTS. Mr. Williams, if you would like to begin your testimony.

Mr. WILLIAMS. Thank you, Mr. Chairman.

Mr. Chairman, I am pleased to be here today to discuss the governmentwide problem of improper payments in Federal programs

and activities.

First, I would like to respond to your request that we review the

fiscal year 2003 performance and accountability reports of 15 agencies for improper payment information on 46 programs.

Second, I will discuss the importance of effective internal control

to the success of the Improper Payments Information Act of 2002.

In this regard, it is important to recognize that various legislative

and administrative initiatives have called for continuing assessments and improvements in internal control and financial management systems over the past two decades. Meeting the requirements

of these initiatives should have resulted in agencies having significant information available on their programs and activities that

are susceptible to improper payments.

We found that the fiscal year 2003 performance and accountability reports typically contained limited amounts of improper payment information, even for those programs previously cited in OMB

Circular A–11, for which a reporting requirement has existed for

3 years; 7 of the 15 agencies involved reported all three categories

of information you asked about for 9 programs; 4 agencies did not

report on any of the three elements for the 11 programs. Further,

the reports contained improper payment estimates totaling almost

$36 billion for 31 of the 46 programs listed in the circular, information on agency initiatives to prevent or reduce improper payments

for 22 programs, and impediments to reducing or preventing improper payments for 11 programs.

A strong internal control system is key to the effort to reduce improper payments in Federal programs. Since 1982, various legislative and administrative initiatives have focused on and required

agency assessments of internal controls over programs and financial management activities. Although these initiatives may not specifically target improper payments, by emphasizing internal controls, they have recognized the importance of internal controls in

ensuring that Federal programs achieve their intended results, and

that Federal agencies operate them effectively and efficiently.

We believe that only with diligence and vigorous implementation

will the Improper Payments Act have a significant impact on governmentwide improper payments. The level of importance each

agency, the administration, and the Congress place on the efforts

to implement the act will determine its overall effectiveness, and

the level to which agencies reduce improper payments and ensure

that Federal funds are used efficiently and for their intended purpose.

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Hearings such as this one today are critically important demonstrations of the congressional commitment to efficient and effective management of Federal programs and funds. And ensuring

transparency of Federal efforts to address the governmentwide improper payments problem.

Mr. Chairman, I would be glad to respond to any questions that

you may have.

[The prepared statement of Mr. Williams follows:]

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Mr. PLATTS. Thank you, Mr. Williams, as well. And as I said earlier, you and GAO played a very important role as we have sought

to partner with your agency, as well as with OMB, and really all

of the Federal Government to really try to get our arms around

this issue.

Ms. Springer, I would like to begin with you, and as we talked

about the guidelines and your timeframe, and based on where the

various agencies and departments are now, as we are about to

enter the month of May, and they have some benchmarks to meet,

based on the guidance that OMB as a whole provided, and what

they should have already done, and have what they should have,

the risk assessments coming up in May. What is your best estimate

of the guidance as it stands? Is it going to be pretty solid, or do

you think you are going to—as you go through these next couple

months, going to have to revise it and, the departments and agencies are not stepping up as much as you maybe hoped they would

in fulfilling these requirements?

Ms. SPRINGER. Well, we think, Mr. Chairman, that the guidance

is holding up pretty well, as the agencies have had to develop plans

all the way through each step. It has been a good opportunity to

vet the clarity of the guidance. The section that has the most challenge for us, and the CFOs are working along with the Inspectors

General, to get further definition, is in those stream of payment

issues. And also, some of the more complex programs, and how you

actually define the rate. And the need for an annual rate, in some

of these cases, where they have only been doing them every 3 or

4 years, so I think those are places where we are issuing some further clarity, but the basic steps are holding up fine.

Mr. PLATTS. Is there a consequence that has been delineated to

the agencies or departments that if they are not meeting these,

they better have a good explanation of why, or else this happens?

Especially as we approach the November 15 PAR reports. What if

they don’t? And I ask that especially in light of Mr. Williams’ testimony, written and mentioning here as that—under the Section 57

requirements, in those 40 odd programs that were to be disclosing

in their 2003, that a large percentage of them really didn’t, you

know, do a very good job. What is going to be the consequences as

we go through and they are not meeting the requirements?

Ms. SPRINGER. I can’t say that we have actually said if you don’t

do this, then this will happen to you, or you won’t get your funding,

or that type of thing, but what we have done is to work with every

agency to make sure, first of all, that they do have very specific

steps and plans in place, with dates, and I think that they didn’t

have that in the past. We just more or less said here is what you

need to report in your budget submission, and then we let them go

for the year, and then we saw what came in at the end, and as you

say——

Mr. PLATTS. Right.

Ms. SPRINGER. There are holes in that. And I think it was the

first time that some of these programs, frankly, started to deal

with these issues seriously, and found it was difficult to do. And

that is not an excuse, but I think it was an observation. By having

each of the steps, it allows us to make sure they don’t get off track,

and we have ways to work with them. And we will be partnering

50

with the IGs as well throughout all of this to make sure that their

independent oversight, not just the administration’s, but the independent oversight of the Inspector General, will help to keep them

on track as well.

Mr. PLATTS. As you meet with the CFOs and the others involved

in the process, we certainly will be watching those who comply or

don’t comply.

Ms. SPRINGER. We tell them that, too.

Mr. PLATTS. And as we get to that November 15 deadline, again,

it will be meant in a positive way, but we will especially be interested in having those agencies or departments who aren’t in full

compliance as of November 15, and to share publicly, you know,

what is the challenge, and why aren’t they—and I am sure, as you

have stated, there are some really significant challenges. How to

define the improper payments, how to get your best estimate, but

it does worry me that the consequence on the—because, as in—Mr.

Williams, in your written testimony, you have—in recounting the

history through the 1980’s, the 1990’s, and then even the response

to the Section 57, that there really, even when it is—administrative

focus is there, and congressional action occurs, that the agencies

and departments continue to show a hesitancy to really embrace

the guidance or the statutory requirements put in place to go after

this, and I hope, and I think there is maybe an important difference, and that is the fact that this President has, as part of his

management agenda, made financial management a top priority.

In that example from the top, through OMB, through the CFO

Council, can make a difference, but I do worry that they need to

know that there is some consequence for noncompliance, and——

Ms. SPRINGER. Right.

Mr. PLATTS. Mr. Williams, is there anything from your perspective that we should have better included in the original legislation,

a statutory consequence, or is there something we should contemplate?

Mr. WILLIAMS. No, I think we have laid the groundwork for requiring the agencies to report the information that we need. I think

from a legislative standpoint, if I was assessing you to give you an

opinion, you would get a clean opinion, from the standpoint of

using the Green Book criteria, the tone has been set at the top,

right from the beginning, from you and the vice chair. You have

held hearings, and you have made it known the importance of this

issue, so I think at this particular point in time, we have done the

things that we need to do. If there is any other thing that you

might want to consider, is something similar to what we have reported in previous years, and that is you might want to consider

coordinated efforts with the authorizing committees, and the appropriators of some of these programs, to make sure that Congress is

in sync, and that all three committees are working very hard to

make sure that this issue is addressed.

Mr. PLATTS. And that is an important suggestion for me, as a

member, and for our committee staff with those other committees

that—those that have the most egregious numbers, when it comes

to improper payments, that those authorizing and appropriating

committees for those programs are aware of that as they go

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through their appropriations process, are maybe asking similar,

specific, and tougher questions.

Mr. WILLIAMS. Tougher questions, right.

Mr. PLATTS. Yeah.

Mr. WILLIAMS. Exactly.

Mr. PLATTS. As part of that review.

Mr. WILLIAMS. Exactly.

Mr. PLATTS. Ms. Springer, last year, we touched on this, I have

to reexamine it, because there are now two parts of—about going

after every dollar, and to focus on, you know, every expenditure is

closely scrutinized. And in your written statement, where you

talked about ensuring that every dollar is wisely spent, and no payment should be wasted. The 2.5 percent caveat that has been

placed on the threshold standard is one that still seems to me to

be contrary to that commitment of every dollar, because the original legislation started at $1 million, as introduced by Chairman

Horn. The compromise was $10 million, but with no other caveat,

and then, as OMB issued the guidance, added the $10 million, and

that is at least 2.5 percent, which excludes some payments that

won’t be looked at and disclosed and able to be acted on. And I

guess in revisiting that, as you have moved through this process,

do you have any new thoughts or have you given any more consideration to the appropriateness of that 2.5 percent additional caveat?

Ms. SPRINGER. Well, we have been asked that question, as you

know, by your colleague on the Senate side, Senator Grassley, as

well, and actually, I brought up copies I would like to have entered

into the record, if I could, of——

Mr. PLATTS. Sure.

Ms. SPRINGER [continuing]. The letter we sent to him.

We view it that, first of all, the first step of the act, or actually,

the second step, of conducting the risk assessment. This is the review to see if there is a significant susceptibility to risk, and the

actual words in the law, in the act, are ‘‘susceptible to significant

improper payments.’’ That is the thing that agencies are directed

to identify. That is the full definition that is in the act. The $10

million threshold doesn’t come in until steps three and beyond. So,

because there was no further specificity, we felt that agencies

would be looking for some definition beyond—what is susceptible,

what is significant improper payment? How do you define that?

And what we had to go on to—what is—our experience in the first

trillion dollars of programs, where we had seen a threshold of 3.5

percent, $35 billion over the first trillion dollars of payments, at a

minimum, and so that average 3.5, we felt actually would probably

be higher, once we were fully informed about that, and so we said

we wanted to pick a percentage below that number for the programs that are not already covered by Section 57, and that is an

important clarification. Any program that is in this first trillion,

these large programs, Social Security, Medicare, Medicaid, unemployment insurance. All of those go through the entire portfolio and

protocol of steps. They won’t stop. If their rate was only a half of

a percent, it wouldn’t matter. They have to go all the way through

all of the steps. So, we are only really talking about the balance

of the programs, which are typically less small and less susceptible.

52

But we used, as a benchmark, our experience on this first trillion,

and we said let us use 2.5, in addition to the 10, that comes later

on in the act, to make sure that efforts, the agencies’ efforts, were

focused where it would be most meaningful and most fruitful.

And I understand that is—jumped off the page, if you will, to

some of the observers of the guidance, but it was really done, really, to make sure that efforts were focused, frankly, to get us the

best results. We are focused on results, on getting these payments

back under control, and we didn’t want agencies chasing after nickels and dimes. We wanted them to focus their efforts in the most

meaningful places.

These bigger programs will be, will regardless of what their rate

is, they have to go through every step. They won’t stop at step two.

Mr. PLATTS. But how is that for the longevity of these regs and

guidance being in place, in a future administration? A future administration could eliminate the 2.5 percent. You are saying even

if their rate is below, for these larger ones, you are still requiring

them.

Ms. SPRINGER. And that is in the act. That is actually in writing

in the act. That is not just, you know, a sort of a desk drawer rule.

Mr. PLATTS. Right. In the——

Ms. SPRINGER. So that is provided for in the—not in the act, in

the guidance.

Mr. PLATTS. Right. That is in the guidance.

Ms. SPRINGER. Right.

Mr. PLATTS. The answer is that a future administration can

maintain that, you know, requirement, or choose——

Ms. SPRINGER. Sure. They could. I mean, I guess, I would turn

it around, the perspective around a little bit, and say that all programs under the Section 57, plus the universe of the balance of the

programs that are above that threshold, that we think is a pretty

low threshold, frankly, based on what we have seen on these others, we think we are going to capture—there is very little that is

going to fall through the cracks. And if we could get all of that

under control, that is going to be a big universe for the agencies

to deal with. If the time came when we felt that was well in hand,

then we could always revisit the guidance and reset that threshold

for those programs that aren’t in Section 57.

Mr. PLATTS. The kind of twofold concern, one is, looking at what

is a significant improper payment, is, in reading the act in total,

would take that Congress said for an agency any—the total of $10

million for that agency, are significant. The fact that we didn’t put

a percentage in there, from a statutory interpretation standpoint,

would be that $10 million is freestanding, not with something else

attached. And I guess the other is that for some smaller agencies,

that they know, even though their dollar amounts are smaller, and

not going to be the big, you know, prize that we are after, that they

should be equally focused on this, and is that, you know, through

the CFO Council, and through the various interactions, you know,

that OMB is having, that even if they are not technically required,

that they still know that they had better be going after this?

Ms. SPRINGER. Yeah, they are. They are. Absolutely. I mean, that

is just part of the level of management scrutiny that we want them

to have, is good financial management, managers across the board.

53

One other thing that is important to note, too, is that the programs

have to be aggregated in ways that are meaningful within an agency. So, an agency can’t just take very small pieces and apply the

$10 million and the 2.5. They have to be—it is all of the grants of

an agency, for example.

Mr. PLATTS. Right.

Ms. SPRINGER. We are really trying to safeguard that things

don’t fall through the cracks. Our only intention there with the 2.5

was to provide a definition to what significant meant, and then to

focus efforts where the problems really were biggest, and you know,

again, as I say, if we had to, down the road, once all the rest of

these dollars are well in hand, we could revisit. I would imagine

that we will still have, of the $2.4 trillion, easily two thirds to three

quarters of dollars going beyond step two, even with this rule. It

wouldn’t surprise me at all. So, we are going to have our hands

full.

Mr. PLATTS. Right.

Ms. SPRINGER. Even with this rule.

Mr. PLATTS. So, maybe the message is that you are—this is a

starting point, and when all goes well now, with—as it is, will

your——

Ms. SPRINGER. We could come back and——

Mr. PLATTS. Will you go to the next level——

Ms. SPRINGER [continuing]. Take a look at it.

Mr. PLATTS. And dig a little deeper, and Mr. Williams, your

thoughts from GAO, I guess in a twofold sense——

Mr. WILLIAMS. Yes.

Mr. PLATTS. One is if you want to comment on the 2.5 percent

additional requirement——

Mr. WILLIAMS. OK.

Mr. PLATTS [continuing]. But also, Mr. Gerow is going to talk in his testimony, his written testimony, that the $10 million, you

know, being high, and given that Chairman Horn’s original legislation was $1 million, should we be looking at trying to go back to

the original intent, or are we at a good place to start, and see how

it plays out?

Mr. WILLIAMS. I think that the issue surfaced here from the

standpoint of the interpretation of significant, and based on what

we have heard today, I think as we go forward, we need to take

a close look to see if we are getting the coverage that we need to

get to make sure that we are addressing this particular issue. You

raised a very good point, from the standpoint of one of the reasons

why you get certain things put into legislation is because you want

to have a process in place that will stand the test of time, regardless of who is in charge. That statute would be there from the

standpoint of making sure that we are addressing the improper

payments issue. Time will tell, I think time will tell whether we

are getting adequate coverage or not. I think at this particular

point in time, we just have to wait and see. I was aware that at

one point in time, it was $1 million, that was in the original draft

legislation. What we need to do is to take a look, as they come in,

on this $10 million, and if it turns out that there are some programs that are slipping through the cracks, then we might need to

revisit, from the standpoint of lowering that number. It could go in

54

either direction. We just need to get through this first year, see

what type of information we are getting from this particular process, and then reevaluate. So, it is a work in process, I believe, at

this particular point in time.

Mr. PLATTS. Staying with the guidance issue, in the implementation of those guidelines, one of the challenges, Ms. Springer, you

talked about is the payments that are State administered, and how

to track them. They are Federal dollars, but each State handles

them in various programs. Can you expand on the guidance that

you are giving agencies, as far as how to try to go after that chain

of command of the money as it goes through, and also they should

be working with the States. How close are you working with the

departments and agencies regarding those type of State implemented Federal payments?

Ms. SPRINGER. Right. And that probably is the single most important issue that we have as a challenge. We are working very

closely. We have a committee of the CFO Council and membership

on that committee with the Inspectors General, working with us,

with the agencies that have those types of payments, and to develop ways and to share practices among them, on how to deal with

it.

Now, each agency is dealing with it in their own way. Medicaid,

for example, or Medicare, and Medicaid, with payments to the

State, are working with pilot groups of States to try to look into

and at the State level, be able to do reviews of the payment process. As they learn more about this pilot group, then they will be

able to extend those practices to a broader group of States, and

that is a learning experience for them. We are looking to strengthen the Single Audit Act, which looks at payments, grants payments, for example, and other payments that are made, and has

auditors at that level of the recipients, to ensure that the payments

are used for the purposes that they were intended. We think that

the Single Audit Act, and those auditors will be able to help us, almost as an extension of the agency to determine the appropriateness of the payment.

And then third, we believe that some of these entities have their

own audit staffs. States certainly have audit programs in place,

and it is my goal to try and partner with them wherever we can

to not duplicate their efforts, but benefit from them, and add that

to our array of tools.

Mr. PLATTS. The pilot programs that are ongoing, those are really in response to the Improper Payments Act being passed?

Ms. SPRINGER. Actually started with the OMB directive, because

there are programs that were on the initial Section 57 list.

Mr. PLATTS. OK. So, the Section 57——

Ms. SPRINGER. Certainly, the act reinforces it.

Mr. PLATTS. OK. And with the States, is there—as your—and

maybe it is, again, as those pilots are kind of getting a base of information, but is there anything being contemplated to the States

that, if you want to have these tax dollars made available to you

from the Federal Government for your citizens, that you will have

to implement, you know, something similar. Maybe if they have it,

you don’t want to duplicate it, I agree.

Ms. SPRINGER. Right.

55

Mr. PLATTS. But you know, what is the guidance being given

through the agencies to States to say, you know, it may not be this

year, but we are going to be looking at either having your own that

we can extrapolate the information, or we are going to require you

to adopt something that we are doing.

Ms. SPRINGER. Right. I am—the reason I am looking here is that

I don’t really have the program on the tip of my tongue, but there

was a program that—where money was given to the States, and I

am not sure if it is an unemployment program, or it may have been

school lunch. But there was a program, and I can get for you which

one it was, where payments actually were withheld. And don’t

quote me that it was school lunch, but there was some

program——

Mr. PLATTS. Right.

Ms. SPRINGER [continuing]. Where there was actually—the dollars distributed were tied to a better treatment and better accuracy

of handling of payments. I will get for you which one it—which program that was.

Mr. PLATTS. Yeah, and I would appreciate your following up with

this, because when I look at some of the dollar figures, the sums

that really are State implemented, some of them are pretty significant.

Ms. SPRINGER. Yeah.

Mr. PLATTS. And if we are really going to have great success Federal Governmentwide, those States that are actually implementing,

or administering those dollars really are going to be a key part of

the effort.

Ms. SPRINGER. Yeah, I am being told that it was the food stamps

program.

Mr. PLATTS. OK.

Ms. SPRINGER. Where there was something of that type, and it

is a way to test it. If it works there, you are absolutely spot-on that

it is the best way to be able to get some good enforcement.

Mr. PLATTS. So, is OMB looking at taking that type of example,

and moving it to other programs? Is that part of——

Ms. SPRINGER. Making a——

Mr. PLATTS [continuing]. That pilot review, or——

Ms. SPRINGER. Well, it’s making agencies aware that this is an

option, and we expect them to use that option wherever they can.

Mr. PLATTS. So basically, given the agency, saying one way or another, we expect you to be able to attest to the accuracy of your

payments, and one option is to get the States to implement a program that you can—that the Federal agency——

Ms. SPRINGER. That is right.

Mr. PLATTS [continuing]. Can use?

Ms. SPRINGER. That is right.

Mr. PLATTS. OK. Staying on the issue, or related to the guidance

and every dollar every payment being focused on, it is analogous

to my concern on the 2.5 percent being added, is the agreement

with the Social Security Administration on the ‘‘unavoidable payments,’’ and how they will be treated. I know one example is with

disability payments, and—where Social Security, if they are making a payment and they determine that a recipient of that disability payment maybe is not eligible, the courts have ruled you have

56

to go through the due process, and you keep paying, and even if

at the end of the due process, you find yeah, we were right, they

shouldn’t be paid, there is no ability to recoup, the courts have

said. As you know, unavoidable. Is that an accurate example,

in——

Ms. SPRINGER. That is an example.

Mr. PLATTS. Where——

Ms. SPRINGER. I am not sure if they can recoup in that case——

Mr. PLATTS. Where they——

Ms. SPRINGER. But——

Mr. PLATTS. Because—I guess where they can recoup, but——

Ms. SPRINGER. They can recoup it, but they can’t until after the

decision, because until the courts agree that there has been——

Mr. PLATTS. Right.

Ms. SPRINGER [continuing]. An accurate determination of the continued disability or recovery——

Mr. PLATTS. Right.

Ms. SPRINGER [continuing]. You really can’t say that it is an improper, or that it is a recovery until the courts agree, because of

the due process. We certainly wouldn’t want to take away the due

process.

Mr. PLATTS. Right.

Ms. SPRINGER. Make that recommendation. The agencies in those

cases, where they have to continue to pay, and agency is the wrong

word, Social Security, and that is the only agency to which this explanation or elaboration on the guidance applies. No other agency

has come to us on this. It is just strictly a Social Security issue.

Mr. PLATTS. At this point, just being Social Security, are we establishing a precedent that other agencies are going to say hey, we

are going to go after that same argument to lessen what they have

to report what they are showing as improper payments.

Ms. SPRINGER. We haven’t seen any indication of it. The only

thing that I could even potentially imagine would be if there was

a legal impediment, or a statutory court type impediment, similar

to the due process issue. But none have raised that. We are not

aware of any. None of—no agencies have come to us with it. So—

but where there is a—bound by the law, then we really have our

hands tied. But there are some other practical situations with Social Security as well. For example, payments that are made after

death. If a death isn’t reported on a timely basis, once that is

known, then at that point, we have told Social Security, you have

to recover those funds. If you don’t recover them pretty quickly,

then that becomes an improper payment. That has to be added in

to your rate. So, it is just a matter of time until it gets to the rate.

They are capturing the dollars. They know how much it is. And—

but at the point of time when the payment was made, they didn’t

know that the person had deceased. There are some other situations where there are estimates of earnings, and the actual earnings aren’t known until they are actually earned, so—but the payment is made in anticipation of a level of earnings that has been

estimated. That could be higher, it could be lower. Once the actual

earnings are known, then in all likelihood, it would turn out that

the payment should be revised, or would have been different. And

then, it is up to Social Security to make that—recoup that amount.

57

If they don’t, that also would enter into their improper payment

rate. So, it is really just a matter of the practicality of what information is available, or the due process issue. It covers the vast majority of the issues.

Mr. PLATTS. Your example in the Social Security death payment

or after death payment, is a good example. It was actually one that

I was talking about in a previous speaking engagement earlier

today, because of the wrongfulness of how the law works today,

where someone can pass away at 1 minute to midnight on the last

day of the month, and that next first day payment, first of the

month payment is for the month that the person lived all but 1

minute.

Ms. SPRINGER. Right.

Mr. PLATTS. And Social Security says we win, you lose, even

though you have bills for the entire month. And I came to learn

of it through the passing of my father on June 25th, sitting with

the funeral director, and my mom already was aware of it, because

of a bad experience with one of her friends, where the husband

died the last day, or the next to the last day, a check went in, was

taken out, which threw the widow’s account off, she didn’t know

what was going on. And that is a separate issue of equity or fairness within Social Security, but I guess my concern with the approach that you are taking with Social Security in this specific example. It is not the acknowledgment that there are some—and the

due process is a perfect example. The courts are requiring them to

make it, it is not improper when they are making it, because the

due process hasn’t run its course, but how we disclose them. And

I would like your comments, and for OMB to consider that you

don’t free the departments or agencies, in this case, just Social Security thus far, from reporting those type of payments that maybe

are unavoidable, but rather report them with a different title, that

they are unavoidable improper payments. So then we still know

that these type of improper payments, even unavoidably, are being

made, especially if some of them relate to statute, where they are

improper, but statute is requiring them to make it, we need to

know that, Congress, because maybe the statute needs to be

amended. And if they are not reported at all, and not disclosed at

all, then we don’t get that base of knowledge to act on. And so, I

think you are being very responsible in working on Social Security,

and saying there are some payments that are going to be a different breed here, and we need to address that. But to not require

any disclosure of those, I think, is not going to be the best approach. And I would be interested in your comments. Widow’s account office.

Ms. SPRINGER. Well, I appreciate your recognition of that there

is this different category, and—that doesn’t fit nicely into the black

and white model. I think the part that you—that we would be reporting that doesn’t get reported today, is the small part for the interim period, before it moves from a not known to a known. Because once it is known, then, and the short time that we give them

to act on it and recover it. It is that short period, because once—

if Social Security doesn’t act promptly on it, it will go in and be

reported as an improper payment. So they are—it is just this small

window of time from when, say, the court rules and says yes, it

58

really is an improper—or, they are not eligible, until Social Security doesn’t move quickly. So, the question is what do we do in that

window there.

Mr. PLATTS. Well, you have more faith in the quickness of our

courts, in the sense of it being a quick resolution, versus perhaps

a lengthy process, and that is going to vary——

Ms. SPRINGER. Yeah.

Mr. PLATTS [continuing]. By the circumstances, but——

Ms. SPRINGER. Well, and the timing is probably different. It is—

I am sure it is longer there than it would be in the case of the—

probably most of the death claims, although some of those can go

for a long time as well. We will look—we will certainly look at it,

Mr. Chairman.

Mr. PLATTS. Yes. And Mr. Williams, I would be interested in

your thoughts of that aspect of the guidance, the unavoidable payments.

Mr. WILLIAMS. Yes, Mr. Chairman. GAO basically supports the

concept of classifying them as avoidable and unavoidable, but we

think from a transparency standpoint, it is very important that information be disclosed, because as you stated earlier, there could

be some decisions that the Congress might need to make based on

those two categories. But we definitely support the position of

transparency of this issue, and disclosing the avoidable as well as

the unavoidable.

Mr. PLATTS. Yes, and that is, I think what again, as we partner,

is what we are all after, is the best way to get our arms around

this challenge is the more information, the better.

Mr. WILLIAMS. That is correct.

Mr. PLATTS. And I think we are—I am worried that we are going

to exclude a base of information that may be—fall back to Congress

to be the ones responsible, because it is statutory, and that is causing these unavoidable improper payments. So it is something I do

envision following up with you on, but I would appreciate your—

you and the agency—be giving more thought to the approach you

are taking, for now, just with Social Security, but also because of

what precedent we are setting, that we try to get it as right and

responsible up front now, so that if there are any other agencies

that have similar challenges, and—I would think Social Security,

the examples you have given, I can think of Veterans Administration would be one that would jump out, where there is similar type

of payments that maybe, you know, down the road something is determined that we did something that wasn’t right, either too much

or not enough. Often, I find with the VA, is that we are undercompensating our veterans wrongfully. But that we take a close look

at that, and err on the side of disclosure and transparency, and not

on less information.

Mr. Williams, what would be, in your review, and you have

looked at, I guess, now, really, the Section 57 programs——

Mr. WILLIAMS. Yes.

Mr. PLATTS. Your summary is a good one, of compliance, of the

ones that kind of fulfilled all three categories, and there weren’t a

whole lot of the total 40 some. Is there one or more that really

jumped out, as the best approach to this issue, and really, setting

an example for the others?

59

Mr. WILLIAMS. There are a couple that I would like to talk about.

One is the food stamp program. That is one that I have been involved with, going back to 1995. I have worked with the agency

from the standpoint of trying to come up with a good number to

disclose in the financial statements. So, I am very familiar with

that particular program. I think they have done some good things

in coming up with samples, and as mentioned earlier today, there

has been some penalties imposed on the States, etc., for not meeting certain error rates that they established. If you take a look at

the numbers that are reported today, you would have to look at

them real close if you are looking at them over 2 or 3 year period,

because at first glance, just looking at the improper payment

amount, it looks like it has gone up at the agency, when in fact,

the rate has gone down. And the reason for that is because the

base that rate is calculated on has increased over the last 2 or 3

years. So, I think that would be one of the programs. In previous

testimonies before this subcommittee, we have talked about the

Medicare program, and I think that would be another example of

one that other agencies might—would want to take a look at, and

consider some of the experiences of that particular program in establishing, maybe some best practices in how to go about identifying and reporting their improper payments.

Mr. PLATTS. The opposite side of the coin, that is, of the 11 that

didn’t meet any of them, what is—from a subcommittee

responsibility——

Mr. WILLIAMS. Yes.

Mr. PLATTS. Which ones should we be most worried about?

Mr. WILLIAMS. You know, it is difficult to say, because when an

agency is not reporting amounts——

Mr. PLATTS. It is hard to know.

Mr. WILLIAMS [continuing]. You are in the dark as to what is actually going on in that particular agency, so I would basically suggest that you put them all in one group, and say, you know, we

need this information, because there are some critical decisions

that we need to make about these particular programs, so this information is definitely needed for the decisionmaking process.

Mr. PLATTS. And that additional scrutiny may be, Ms. Springer,

has OMB gone to the 11 programs that did not comply with the

guidelines for the Section 57 requirements, and have not reported

their estimated improper payment amounts, didn’t report their initiatives, didn’t report their impediments as they were to in the

2003 PART acts? Have they gotten special attention in saying, hey,

that was an OMB internal decision? Now, it is the statute we are

going to be implementing, and this zero compliance of those 11 are

not going to be acceptable come November 15? Are they getting additional focus or scrutiny from OMB?

Ms. SPRINGER. Yeah, they are, and you know, we have spent

extra time with them, not only in their methodology for determining their rate and sounding out the problem, but in also how they

should do their reporting, the format. One of the things we are

doing is working with all of these agencies, and we are going to

prescribe a format for the PART for, starting for 2004, which is

really the first year required under the act.

Mr. PLATTS. Right.

60

Ms. SPRINGER. The 2003 requirement was one that OMB added

just as——

Mr. PLATTS. A good example of——

Ms. SPRINGER. It is like kind of a dry run.

Mr. PLATTS [continuing]. The administration trying to——

Ms. SPRINGER. Yeah.

Mr. PLATTS [continuing]. To take charge and lead the way.

Ms. SPRINGER. Right. And I think that, while we always expect

full compliance when we issue guidance, and this was short of it,

for a variety of reasons, but we really viewed this as, to use 2003

as a dry run to see what they would do on their own, and we can

see which ones were able to do it, and which ones weren’t. But we

also got some very good formats, and good presentations, that we

are now going to make uniform, so it will be easier for you, for any

reader of the PAR to be able to readily determine the report, and

to be able to assess it.

Mr. PLATTS. Will the as part of that uniform reporting approach

in PAR, identify some of the substance of how they got to the numbers they have? I mean, some of the process.

Ms. SPRINGER. Yes.

Mr. PLATTS. That is going to be part of that——

Ms. SPRINGER. Yes.

Mr. PLATTS [continuing]. Uniform requirement?

Ms. SPRINGER. Yes.

Mr. PLATTS. And I gather from your testimony, written statements, and information from the past as well that transparency of

the process is something that is important to GAO, to how it is

working.

Mr. WILLIAMS. That is correct. That is correct, and I would just

add that while these are the agencies that we focused on, I would

like to scope it up a little bit, and say that in our review, we looked

at some of the other agencies that were not required to report, and

there was an example of maybe one or two that probably had some

good practices also, that reported, that were not actually required

this year, so you need to look at the whole universe and try to get

your best practices, not just from these that were required under

A–11.

Mr. PLATTS. OK. Just one, maybe, final question for our first

panel here, and that is kind of the underlying cause of financial

troubles in our agencies and departments, and especially regarding

improper payments, is the internal control issue. And GAO certainly for years has pushed the importance of this, and that is establishing that foundation, and——

Mr. WILLIAMS. That is correct.

Mr. PLATTS. Under the President’s management agenda, that has

been a priority and identified. Ms. Springer, do you want to expand

on—as you are working with departments and agencies and moving

forward to the November 15 compliance, the specifics regarding internal controls, and getting agencies to better embrace that understanding, that if they get their internal controls, they are going to

be much more proud to report their improper payment amounts,

because they will be a lot less?

Ms. SPRINGER. Internal controls is one of the major reasons why

things get to this point. There is no question about it. We certainly

61

agree with the observation of GAO. And incidentally, the $35 is

made up of $30 billion of overpayments and $5 billion of underpayments, neither of which is good, $35 total. But regardless of the

type, over or under, a lot of it traces back to the—some weaknesses

in the control environment of some of those programs. I think that

you have been in the forefront, in your committee, of suggesting

that agencies look at strengthening their control environments, in

the—with the backdrop of Sarbanes-Oxley, for example, we have

had other hearings where we have discussed this issue. The CFO

Council and the Inspectors General are right now working on a

comprehensive review of internal controls. What is required today,

under the FMFIA statute, what OMB’s A–123 guidance to implement that, how that lines up in a gap analysis, in effect, against

Sarbanes-Oxley. To be able to say here are some places where

maybe we need to strengthen our guidance and our direction to

agencies, as well as getting them to enforce and take even more seriously than they do today, and give greater scrutiny to the existing

A–123 direction. I could tell you that gap isn’t as—there is a gap,

but it is not as great as maybe some people think. The Federal

Government did have a jump, by virtue of its foresight with

FMFIA, but I would say that there is need for tightening, and this

type of issue will benefit from that process.

Mr. PLATTS. Well, and I think your reference to Sarbanes-Oxley

is an important, are because as we are demanding the private sector to, you know, be responsible and do right with investor funds,

that we set the example ourselves, and do the same, and hopefully,

do even better, because we are talking about the public’s funds.

Ms. SPRINGER. Right.

Mr. PLATTS. And through their taxes. Mr. Williams, did you want

to add anything on that?

Mr. WILLIAMS. Well, I would just like to reinforce some of the

points that have been made already, and that is we do believe that

the internal control weaknesses that have been identified throughout the years, at the various Federal agencies, is one of the primary causes for the improper payment problem that we are talking

about today. I think we need to take a look at them from a couple

of standpoints. One, I think as mentioned earlier today, that there

is a lot of work that needs to be done, from the standpoint of working with the States to make sure that we have procedures in place.

Another area that I think we need to take a hard look at, in numerous reports that I have reviewed, I have responsibility for eight

of the CFO agencies, and the Department of Homeland Security.

And in numerous reports, I continue to see system weaknesses, and

areas where processes need to be reengineered. So, I think those

are two prongs that you have that really need focused attention,

and then when you get back to the basic point of internal controls,

we break it down into two components. There are what we call detective controls, and there are preventive controls, and an audit

function, for example, would be classified as a detective control. A

preventive control would be a procedure in which you wouldn’t

have the same person that is responsible for maintaining the books

also maintaining the cash and depositing the cash. I think that the

detective controls that are put in place will help with the transparency and the reporting of the improper payments, but we need

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to put a lot of focus on the preventive controls, because once you

get those in place, then you will not be having as many of these

improper payments as we are seeing today.

So those are some of the areas that I think we need to focus on.

Mr. PLATTS. As a subcommittee, we certainly are going to do our

best to try to keep promoting and pushing those issues, and hand

in hand with GAO, and Ms. Springer, with OMB, and as I have

said in many of our hearings, and continue to believe, that there

is a change in the attitude and approach in Washington right

now——

Mr. WILLIAMS. Yes.

Mr. PLATTS [continuing]. With this administration, and the

GAO——

Mr. WILLIAMS. Yes.

Mr. PLATTS [continuing]. And Comptroller General Walker, and

I am certainly going to do my best as Chair of this committee, and

Ed Towns, our ranking member, that we all continue to partner

and really stay focused on ensuring that tax dollars are accounted

for and spent responsibly, so again, I appreciate both of you for

coming up here, and please come back and spend lots of money in

York County while you are here today.

Mr. WILLIAMS. OK.

Mr. PLATTS. You know, we want——

Ms. SPRINGER. We will spend it wisely.

Mr. PLATTS [continuing]. Promote the economy locally, so I

will——

Mr. WILLIAMS. OK.

Mr. PLATTS. I have to, you know, as a proud York Countian, remind you that you are in the first capital of the United States. The

Articles of Confederation were signed two blocks from here when

the Congress was here for 9 months in 1777, and we are delighted

to have you here, and we will continue to look forward to working

with you.

Ms. SPRINGER. Thank you.

Mr. WILLIAMS. Thank you so much.

Mr. PLATTS. Thank you. Give Ms. Springer and Mr. Williams a

chance to gather their materials, and then we will have our second

panel come forward. We are delighted to have both of our guests

here. Charlie Gerow, the chairman of the Pennsylvania chapter for

Citizens Against Government Waste, and Paul Gessing, the director of Government Affairs for the National Taxpayers Union. One,

I thank you for being here, and two, for your patience in being the

second panel. There is some positives, because you get to hear the

dialog with our first panel witnesses, but it also means that you

have to be patient, and I do appreciate your patience as we try to

explore these issues. And I want to also publicly thank each of you

and your organizations for the commitment that you have to protecting the taxpayers funds, and all of our citizens work hard for

the money, and we all understand the need and the importance of

paying our fair share in tax dollars, and I think what I most often

hear about is certainly depending on the tax, how much we pay,

what is—how we spent what citizens pay. And that would be if

they are going to give up their money, they have to be truly wisely

and responsibly spent on behalf of all Americans, so your organizaVerDate 11-MAY-2000 13:15 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6633 D:\DOCS\95220.TXT HGOVREF1 PsN: HGOVREF1
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tions certainly for years have been leaders on that front, and we

welcome you here today.

Mr. Gerow, and it is hard for me to say Mr. Gerow, because

Charlie——

Mr. GEROW. Charlie is fine, Mr. Chairman.

Mr. PLATTS. It is odd for me, but if you would like to begin, and

the floor is yours.

STATEMENTS OF CHARLES GEROW, CHAIRMAN, PENNSYLVANIA CHAPTER, CITIZENS AGAINST GOVERNMENT WASTE;

AND PAUL GESSING, NATIONAL TAXPAYERS UNION

Mr. GEROW. Well, thank you, Mr. Chairman, and good afternoon.

I thank you especially for the opportunity to testify this afternoon

before your House Subcommittee on Government Efficiency and Financial Management.

My name is Charlie Gerow, and as chairman of the Pennsylvania

chapter of Citizens Against Government Waste, I am here this

afternoon representing the more than 1 million members and supporters of CAGW nationwide, as well as the more than 45,000

members here in Pennsylvania. CAGW was created 20 years ago

after the late J. Peter Grace presented President Ronald Reagan

the nearly 2,500 findings and recommendations of the Grace Commission, which was formally known as the President’s Private Sector Survey on Cost Control. These 2,478 recommendations provided

a blueprint for a more efficient, effective, less wasteful, and smaller

government.

Since 1984, the implementations of the Grace Commission and

CAGW recommendations have helped save taxpayers more than

$700 billion.

In your hearing last year on this issue, you noted that President

Bush has made the reduction of improper payments a significant

part of his management agenda, and that your committee believes

that taxpayers have a fundamental right to know how their tax

dollars are being spent. And we concur. CAGW appreciates that

your committee has decided to hold periodic hearings on improper

payments, and that you will be asking agencies to provide you with

their record on compliance. Asking us to join you here this afternoon and to testify before your committee on this very important

and significant issue is both an honor and a privilege, and I should

note it is especially a pleasure for me to be with my Congressman

here in my congressional district, and as you noted earlier, to have

the least travel time to this afternoon’s deliberations.

CAGW works tirelessly to educate the American public about

wasteful government spending, and the long-term implications of a

bloated Federal bureaucracy. We have long supported efforts to reduce improper payments. This is a bipartisan, good government

issue. The solutions are well-known, but it will take vigilance and

oversight, including hearings such as this, to make Federal agencies more accountable. Today is tax day, and so, as Americans rush

to finish their taxes, the problem of wasted Federal dollars is even

more amplified.

In 2002, President Bush signed into law the Improper Payments

Information Act of 2002. The purpose of the act is to require Federal agencies to make annual estimates of improper payments.

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Agencies must undertake a four-step process to meet the requirements of the act. First, to identify programs susceptible to significant improper payments. Second, to identify the amounts of such

improper payments in the susceptible programs. Third, to implement a plan to reduce the improper payments, and fourth, to report

the estimates.

An improper payment, as you, Mr. Chairman, pointed out at the

beginning of today’s proceedings, is any payment that should not

have been made for a statutory, contractual, administrative, or

other legal requirement. It can be an incorrect payment, an over

or underpayment, and can include, among other things, a payment

to an ineligible recipient, a payment for an ineligible service, a duplicate payment, or a payment for a service that was not received.

If an agency finds that it has made improper payments of more than $10 million and 2.5 percent of program payments annually,

it must report the improper payments and develop a plan to reduce

or eliminate these errors. Unless there is good reason, CAGW suggests that threshold be lowered, and I know that we have heard

some discussion. I am sure we will get some when we come to the

questions at the end of this testimony. Surely, there must be a dollar amount at which the cost of government action to eliminate improper payments is worth the savings gained. It is troublesome

that we have come to the point where we are willing to lightly

brush off $10 million. We would encourage the committee to consider reevaluating this threshold, because as Senator Everett Dirksen once noted, ‘‘A million here, a million there, and pretty soon,

you are talking about real money.’’

Improper payments, however, are a serious issue. According to the OMB, improper payments may be as much as $35 billion a

year. That amounts to $120 for every man, woman, and child in

our country. The Office of Management and Budget has found that

the top 10 areas of improper payments for fiscal year 2002 were

the Medicare fee-for-service, at $13.3 billion, the Earned Income

Tax Credit, at $9.2 billion, the housing subsidy programs, at $3.3

billion, SSI at $2.6 billion, unemployment insurance at $2.2. billion,

food stamps at $1.3 billion, old age and survivors’ insurance at

$875 million, disability insurance at $825 million, Medicare cost reports at $493 million, and student assistance Pell Grants at $336

million.

Citizens Against Government Waste has long pointed out that

improper payments made through the Department of Health and

Human Services [HHS], and in particular, the Medicare fee-forservice programs. Medicare represents about 50 percent of HHS’

outlays. HHS provides the mother lode when it comes to improper

payments, and continues to deserve close scrutiny by the Department’s Inspector General, OMB and the GAO, Government Accounting Office. Here are just a couple examples of improper payments that represent, in effect, gross theft of our tax dollars.

In California, the Lovelace Health System was accused of falsifying its cost reports for the years 1988 through 1998. Among the allegations that were levied, Lovelace failed to report and reimburse

overpayments and knowingly used inaccurate square footage measurements on certain cost reports in order to inflate reimbursement.

As a result of an employee from Healthcare Financial Advisors, a

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financial health care consulting firm that reopened certain cost reports and filed a qui tam action, Lovelace agreed to pay back $24.5

million and to implement certain integrity requirements to resolve

its liability under the False Claims Act.

In Virginia, a male individual created bogus medical invoices and

pharmacy receipts that he submitted to an insurance company for

reimbursement. He ultimately was sentenced to 15 months imprisonment and ordered to pay $126,000 in restitution.

A Missouri pharmacist was found to have diluted and tampered

with drugs on several occasions, conspired to traffic stolen drugs,

and caused the filing of false Medicare claims by not disclosing to

physicians who received the tampered and diluted drugs. He was

sentenced to 30 years in prison and ordered to pay $10 million in

restitutions, and a fine of $25,000 for tampering with and adulterating chemotherapy drugs he prepared for cancer patients.

Medicare is the largest, but not the only program responsible for

improper payments. Student aid programs, the largest dollar outlays administered by the Department of Education, is another area

rife with improper payments. In a recent semi-annual report to

Congress, #47 in particular, the Department of Education’s Inspector General noted that while the Department has made some

progress, reducing risk in student aid programs continues to be a

significant management challenge. The report also points out a

lack of proper oversight by guaranty agencies. It also suggests that

the Department needs to improve its management controls for evaluating accrediting agencies that participate in Title IV programs.

The IG of the Department of Education also found increased incidents of identify theft and not receiving direct loan refunds in a

timely manner, if at all, from institutions where students had already left the particular school.

Just a couple examples of the Department of Education’s improper payments include an individual who was arrested at Mesa

Community College in Arizona after he tried to claim a student

loan check under an assumed name. The investigation showed that

the person had used identities of inmates serving lengthy prison

terms in order to obtain more than $300,000 in student aid.

A trade school owner, which had been barred by the Department

for prior improper activities, subsequently purchased a beauty

school in Puerto Rico, concealing his own ownership of the school,

and subsequently embezzled $600,000 in Pell Grants. As a result,

he received a second prison term, and was ordered to pay $600,000

in restitution.

A financial aid director of a photography school in Boston used

a fictitious name to submit and certify several Federal Family Education Loan Program applications. He received more than $14,000

in loans as a result of that fraudulent activity. After an investigation, he pleaded guilty as well.

In 2002, the GAO Office of Special Investigations created a fictitious foreign school that the Department of Education subsequently

certified as eligible to participate in the student loan program. The

investigators successfully obtained approval for student loans totaling $55,000 on behalf of three fictitious students.

The Department of Education’s Inspector General stated that

more effective monitoring is necessary to make sure that taxpayer

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funds are used effectively and efficiently. In addition to more effective monitoring, the Inspector General also recommended an income match with data submitted to the Internal Revenue Service.

The Inspector General stated that such an income match would

help to reduce improper payments by ensuring that the information

on the applicant’s student aid application matched the income on

their tax returns, and we agree.

My testimony today, Mr. Chairman, points out just a couple of

examples of improper payments. CAGW’s membership appreciates

the hard work that is undertaken by Inspectors General in the various departments, and their work to root out this expensive problem, and the auditing work conducted by both the General Accounting Office and the Office of Management and Budget to make certain and sure that government agencies are doing what needs to

be done in order to make sure that taxpayer dollars are well-spent.

We applaud your committee’s leadership on this issue as well,

Mr. Chairman. With the approaching appropriations battle, Congress needs to keep in mind that there are still millions of dollars

of improper payments, and that it needs to continue to apply all

necessary pressure to keep spending in line and to fight waste,

fraud, and abuse of our tax dollars.

Mr. Chairman, it is up to Congress to ensure that the Improper

Payments Information Act is effectively implemented by the various Federal agencies. I can assure that Citizens Against Government Waste and its members, wherever possible, will do whatever

it can to make sure that taxpayer dollars are protected. We offer

our help to you and this committee in undertaking this very important task.

And I thank you for this opportunity to testify before your committee. This concludes my testimony, and I will be happy to answer

any questions, either at this time, or after Mr. Gessing has testified.

[The prepared statement of Mr. Gerow follows:]

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Mr. PLATTS. Thank you. Thank you, Mr. Gerow. And we will wait

and do both, and then take questions. And I would comment in

your closing, you are talking about the responsibility of Congress

to oversee and ensure the effective implementation of the Improper

Payments Information Act is one of the charges that, as successor

to Chairman Horn, as Chair of this committee, and his leadership

on that issue is one of the very important charges I believe I have.

Because the act won’t mean much if it is not fully and responsibly

implemented, and as you heard in my questions, we continue to

have an ongoing dialog with OMB, as they implement it, and fulfill

what we believe is the intent of the law, and the requirements of

the law, versus where they do have discretions.

Mr. Gessing, if you would like to give your statement.

Mr. GESSING. Good afternoon, Chairman Platts. Thank you for

holding these important hearings today. My name is Paul Gessing.

I am director of Government Affairs with National Taxpayers

Union, America’s oldest and largest taxpayer lobbying organization,

with 350,000 members in all 50 States nationwide. You can learn

more about NTU and our education affiliate, the National Taxpayers Union Foundation, on our Web site, www.ntu.org.

I come here today to offer testimony regarding the problem of improper payments, an improper payment being an over or underpayment, a payment to an ineligible recipient, a payment for an ineligible service, a duplicate payment, or a payment for a service not

received. As you know, today is April 15, the Federal tax filing

deadline also known as tax day. Today, in Washington, DC, and

around the country, NTU and thousands of fiscal conservatives will

be holding events to focus attention on our tax burden, rising government spending, and the outrageous size of the Federal budget

deficit. For that reason, this hearing to shed light on the problem

of improper payments is particularly timely. With the budget in increasingly bad shape and recently passed tax cuts in jeopardy, renewed dedication to dramatically reducing the problem of improper

payments is sure to become an important issue in the months

ahead.

It is certainly the opinion of NTU and its members, all of whom

pay Federal taxes, that the government takes far too much of our

money regardless of how it is used. Yet, the recent estimate by the

Federal Government that Washington pays out at least $35 billion

each year improperly is a bitter pill to swallow. Of course, this figure is probably only the tip of the iceberg, since no one knows just

how big the problem is. In fact, the $35 billion figure doesn’t even

include Medicaid, much of the Department of Defense, and several

other agencies. Defense Secretary Donald Rumsfeld, for example,

estimates that 5 percent of his budget is wasted. Thus, the Pentagon is probably making about $20 billion in improper payments

above and beyond the oft-cited $35 billion figure.

Over the years, various agencies have estimated the amount of

improper payments, but most acknowledge that the problem is big

and getting bigger. In 2002, Congress passed the Improper Payments Information Act, Public Law 107–300. the act requires executive branch departments and agencies to review all programs and

activities they administer, and identify any that may be susceptible

to significant improper payments. Agencies are also obligated to esVerDate 11-MAY-2000 13:15 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 D:\DOCS\95220.TXT HGOVREF1 PsN: HGOVREF1
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timate the actual amount of improper payments for those programs. With respect to any program or activity of an agency with

improper payments exceeding $10 million annually, the agency

must report to Congress on the causes of the improper payments,

the status of the actions taken to prevent them, whether the agency has the appropriate information systems in place to minimize

the improper payments, and the steps being taken to hold agency

managers accountable for reducing improper payments.

NTU is aware that the law is not being fully implemented. Agencies are delinquent in reporting to Congress on the estimates, on

identifying the causes, and in providing the status of the actions

taken to prevent improper payments. For the sake of taxpayers as

respect for the law, NTU calls upon the administration to renew

the effort to identify all erroneous payments and put systems in

place to eliminate them.

NTU understands that a vast majority of erroneous payments

are wasted dollars, unrecoverable to taxpayers, but this only makes

prevention of mismanagement all the more vital. What is more,

this is not a matter involving only a few dollars. Having analyzed

just under $1 trillion in Federal spending, out of a budget, a Federal budget of more than $2.4 trillion, the $35 billion in erroneous

payments is a significant sum of money even for the Federal Government.

Even worse than the government having already lost billions of

taxpayer dollars to improper payments, is the prospect of losing billions of additional dollars due to higher spending levels on programs that have in the past been prone to improper payments. In

fact, out of the $35 billion lost to taxpayers in fiscal year 2003,

Medicare accounts for nearly $12 billion. If accounting and management at Medicare is not dramatically improved in short order,

that number is likely to rise exponentially with implementation of

the prescription drug benefit.

In order to resolve, or at least mitigate the problem of improper

payments by the Federal Government, the Office of Management

and Budget must enforce strict compliance with the Improper Payments Information Act and be vigilant in monitoring individual

agencies to ensure that they are actively working to eliminate or

dramatically reduce the frequency of improperly made payments.

In conclusion, it is most ironic that the government requires corporations to abide by strict accounting standards under the newly

enacted Sarbanes-Oxley law, although nearly all Federal agencies

find it impossible to meet the standards imposed on the private

sector. Taxpayers should expect more from the government than

rampant waste followed by widespread unwillingness to comply

with the law. I urge the committee to take the necessary steps to

remedy this problem, and to work closely with OMB to ensure

agency compliance.

Thank you, Chairman Platts, for allowing NTU to testify today,

and for your work on this important topic. NTU and its 350,000

members stand ready to work with you in tackling the improper

payments problem.

[The prepared statement of Mr. Gessing follows:]

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Mr. PLATTS. Thank you, Mr. Gessing, and again, to both of you

for your testimony here today, your written statements that you

have submitted, and again, for your personal and organization efforts regarding protecting tax dollars.

Maybe, Mr. Gessing, lets begin with you, and actually, Mr.

Gerow, both of you, if you want to comment. NTU maybe is more

involved in following the implementation, in some ways, with the

guidance on—of where we stand, and Ms. Springer talked about

kind of their timeframe and the various steps that are going to be

required and where they are in that process. What is NTU’s assessment of how the administration is moving forward with the implementation, and OMB’s guidance especially, that has been given

thus far, as far as how effective you think it will be once we get

to that November 5 deadline?

Mr. GESSING. We are generally happy with the direction they are

going—don’t know that it is moving along speedily enough. I would

say that they are certainly well-intentioned, but I am not sure that

they are aggressively moving fast enough.

Mr. PLATTS. Mr. Gerow, would you like to add anything?

Mr. GEROW. Well, as you know, Mr. Chairman, I spend my days

up here in Pennsylvania, not down in the city where sound travels

faster than light, but I would think that the leadership of CAGW

more or less concurs with what Mr. Gessing said, in terms of being

generally pleased.

There is the issue that I spoke to in my prepared testimony of

the $10 million threshold, or the 2.5 percent threshold being laid

over on top of that, and it just seems to me that the controls are

going in the wrong direction, i.e., they are not becoming tighter,

they are becoming more loose.

You have gone from what Chairman Horn had predicated the act

on at $1 million, to $10 million, to now the additional requirement,

or the additional threshold of 2.5 percent of the program’s payments annually, which could, of course, fail the $10 million test on

its face, and that, I think is a concern, and it may be up to Congress to help statutorily tighten that up.

I listened closely to Ms. Springer, and as you know, I am a great

supporter of this administration, and I believe that they are doing

a good job, and have not only admirable intentions, but good controls in place to effectuate the ultimate policy goal here. But administrations do change. This is a long-term problem, and I think

that Congress, and your committee in particular, needs to look at

ratcheting down a little bit of the ‘‘loose ends’’ that remain in the

interpretation of some of the statutory language initially, and I

know that there were some definitional problems, and there was

the definition left open, as to what substantial was going to be, and

perhaps Congress needs to go back and take a second look at that.

Mr. PLATTS. And I would concur with your statements that we

certainly have seen great progress in the focus being where it

needs to be, on financial management and financial accountability

by this administration, and this dialog that Ms. Springer and I had

today is kind of an ongoing one of, as they focus their efforts and

move this process forward, whether we let them go through this

first round, and see what comes through in the 2004 PAR reports,

and how that $10 million/2.5 percent does play out, and we have

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a base of knowledge. And give them that opportunity, because one

of the things that, and she expanded on it a little more today, is

that there is a basis for them taking the 2.5 percent. It wasn’t a

random number, even though I see it as an additional caveat there,

that wasn’t intended by Congress, that there was some basis for selecting that in how they are moving forward, and how they are actually imposing that requirement. But I share that concern, that

while they are focusing, as I said, we want to err on the side of

more disclosure, and more scrutiny and focus, not less. And that

relates on the dollar amount, is that the—Chairman Horn’s original proposal, what your organization would envision as probably

the best threshold that, if we were, see how it plays out, but maybe

with an eye toward trying to get back, tightening it up back to that

$1 million number instead of the $10 million.

Mr. GEROW. Absolutely, Mr. Chairman. I think that you would

agree, and probably most of your colleagues would agree that your

constituents would have a hard time understanding that $10 million is an inconsequential number. You know, if your——

Mr. PLATTS. Yes. Especially here in central Pennsylvania.

Mr. GEROW. I was about to say that there are a lot of factory

workers in York, or folks out at snack food companies in Hanover,

or retail clerks around the district, who would say——

Mr. PLATTS. Forklift operators at Harley, like my brother,

who——

Mr. GEROW [continuing]. That at $20 an hour, if you taxed somebody at 100 percent of their income, it would take 500 people an

entire year to accumulate $10 million. That has some gravity. And

as Ms. Springer pointed out, ultimately ‘‘Federal money’’ is money

that is earned by the sweat of the brow and the muscled arms of

people all across this country who get up early in the morning and

work hard all day to create those dollars. And I think there is a

tremendous oversight responsibility for every one of those dollars.

And we understand that, while ultimately, you know, there is a

point at which you have to have the cost savings recognized by the

threshold, that the threshold really should be much lower than $10

million, and when you put the 2.5 percent in there, you have in effect broadened that threshold——

Mr. PLATTS. Right.

Mr. GEROW [continuing]. Or raised that bar. The bar ought to be

becoming more tight.

Mr. PLATTS. Mr. Gessing, did you want to add anything on the

dollar amount or the percentage aspect?

Mr. GESSING. No, but I certainly agree that $10 million is relatively high, fairly generous, and that could come down and should

come down.

Mr. PLATTS. The related issue, that is, the unavoidable payments, unavoidable improper payments, and the guidance that

OMB has given to the Social Security Administration, in a restricted or limited sense, but sets a precedent for other entities,

perhaps, pursuing similar exception, a similar exception to how

they report, and your thoughts, is the idea of maybe acknowledging

that there are ‘‘unavoidable improper payments,’’ but still requiring

their disclosure. You know, I would assume that your organizations

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would lean, again, on the side of that disclosure, more transparency, as opposed to kind of letting them off the hook?

Mr. GEROW. Yes, Mr. Chairman. I think Mr. Williams spoke very

well to that issue, in saying that there needs to be transparency,

that disclosure ought to be the rule of the day, that taxpayers ultimately have a right to know, and that to the greatest extent possible, they ought to be so noted, and that there ought to be transparency, full disclosure, and that citizens ought to understand,

without great pains, how their dollars are being spent.

Mr. GESSING. Yes. Contrasting that with—what the Federal Government does with what it expects of private companies, in which

the taxpayers have much less of a stake, that is—it is ironic that

you see very strict accounting measures for private industry, and

much more lax for the government.

Mr. PLATTS. Yes, and it goes to that, and we should be setting

a good example, and whatever we are requiring of the private sector, we should require of ourselves. The Department of Health and

Human Services, and that is certainly a big focus here with the

Medicare being almost a third of your total amount that we are

talking about, certainly jumps out. And in some ways, it is held as

a good example, where they are trying to disclose and get their

arms around, but when you look at Mr. Williams’ chart, and the

Section 57 programs that were reviewed, while HHS was in good

shape with Medicare, that was the only of 7 HHS programs that

were in good shape. The other six were all in the zero for zero category, with no compliance at all.

We are in ongoing discussions with GAO in how to try to take

a more specific look at HHS, and what we need to be doing from

an oversight role with GAO, regarding HHS. Is there anything in

particular that you would like us, as a committee, to be aware of,

and GAO, as we continue that dialog, and try to fine-tune how we

are going to approach that agency, that department, in ensuring

better compliance with the Improper Payments Act?

Mr. GESSING. Well, this list is kind of similar to, in some ways,

an Alcoholics Anonymous meeting. You—the first step is admitting

you have a problem, so at least Medicare has admitted that they

have a problem, and they are, you know, they laid it out there, so

with them, you know, you can then target specific aspects of the

problem, that they can rectify.

The rest of the list, simply getting them to put the first step forward, and admit that they have a problem, and lay that problem

out there and get a grip on that number, whatever that number

may be, whether it is higher or lower, or better or worse than what

Medicare is dealing with. You know, pushing in that direction is

the most important priority at this point.

Mr. GEROW. Well, Mr. Chairman, as I noted in my prepared testimony, Citizens Against Government Waste has, for a long time,

pointed out the improper payments made through HHS, and in

particular, the Medicare fee-for-services program. And in a broad

sense, yes, they are deserving of, particularly, and a special close

scrutiny by both the Department’s Inspector General, OMB, and

the GAO, but I would be happy, Mr. Chairman, to get for you some

of the specific recommendations that CAGW has made over the

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years, and allow you to have those spread upon the record if you

would like me to do that.

Mr. PLATTS. Actually, that would be great, and I would welcome

them, and be part of our dialog with GAO and how we kind of finetune that oversight, scrutiny.

Mr. GEROW. And I will see to it that your staff gets that, Mr.

Chairman.

Mr. PLATTS. That would be great. Yes, when we talk about the

thoughts of a taxpayer here in central PA if we ask do they think

$10 million is a lot, if we asked them a similar question, and based

on the lack on information, the way we have to assume with a program like Medicaid, and given the size of that program, that you

know, their—as far as their reporting, or have reported in their

2003 PAR, that they don’t have any improper payments, which, I

don’t think anyone is going to even begin to believe that. And you

know, I think you make a good approach that, to get our arms

around this problem, we have to admit there is a problem, and

those agencies that aren’t complying are needing to better acknowledge that there is a problem and be more open about their approach to it.

What about—given that lack of compliance with HHS, six of

their programs not complying with 2003 Section 57 requirement,

and then the other five as well that were zero compliance? Is there

any suggestions you have that OMB should be thinking about, or

we should be looking at for consequences, as we approach the November 15, 2004 PAR reports for agencies that don’t? Should there

be, you know—obviously, there is going to be public scrutiny. I

mean, we are going to be looking at those reports, and we are going

to be seeing who is complying and who is not, and those who aren’t

will get added focus from our committee, as well as from GAO, I

am sure, but is there something that either of your organizations

would suggest that we should consider for a consequence to put

more teeth into these requirements?

Mr. GESSING. Some sort of, you—just like the Sarbanes-Oxley,

you have someone sign off, a responsible party sign off on the accounting documents. I think an approach similar to that, where

you hold the head of an agency, or you know, several people who

are in charge, in authority, at these Federal agencies, and you

know, there could be employment related consequences, or you

know, funding for their agency related consequences, anything that

really aggressively tackles the problem, and/or puts a name out

there in front as being someone who is essentially not doing their

job. So, something along those lines would be a real forward, you

know, response to this problem.

Mr. GEROW. Well, Mr. Chairman, I don’t have any specific questions for so-called, you know, punitive measures in that regard, but

I think that Mr. Gessing gets pretty close to it when he says, or

suggests that the use of the appropriations process tends to get

folks’ attention in that regard, and as you begin to go through that

process, I think that in the hearings that you hold, those questions

need to be asked, and I would be glad to again, go back and consult

with our folks in Washington to see if we can’t provide you with

a list of some specific measures that might be taken to provide a

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little bit more teeth and a little bit more bite to those who fail to

live up to their responsibilities.

Mr. PLATTS. And again, I welcome any additional specific suggestions, and my concern is that 11 of the 40 some programs didn’t

comply in 2003, and really nothing happened, other than we identified that they didn’t comply, but there was no significant consequences to the personnel there, and the suggestion that the appropriate agency head or department head in a more public way acknowledging their department’s failure to comply with Federal law,

because as citizens, if we don’t comply with Federal law, there certainly are always consequences to us. I certainly would welcome

any suggestions, and we will do our best as a committee from the

oversight and public scrutiny, and try to use the power of public

disclosure and focus to encourage their compliance. But it does

worry me, given how many did not file the OMB Section 57 requirements.

One other specific department, and Mr. Gerow, you touched on

it with Department of Education, and their challenges in this area.

And it is an area that we look at one, because of, as a person who,

but for student loans and grants and things, wouldn’t have been

able to get through undergrad and law school, and also, who celebrated, less than a year ago my final student loan payment basically, feeling that these programs need to be properly run, and that

people shouldn’t be wrongly compensated, and those who borrow

money should be held accountable and pay their sums back. There

is a number of specific student aid programs that seem to jump out

as problematic, and I don’t know if here today, or again, through

written followup from the organization, if there are some specific

proposals that we should be looking at regarding those Department

of Ed programs, and especially the student aid programs, I would

certainly welcome that. And if that is part of, maybe, that subsequent information, that would be great.

Mr. GEROW. Yeah, Mr. Chairman, and I think the other thing,

I don’t know what the status is of the Inspector General’s recommendation that there be a match with the data submitted to Internal Revenue, and those numbers that are put on applications.

Mr. PLATTS. Right.

Mr. GEROW. But that seems, to me, to be a worthwhile recommendation.

Mr. PLATTS. And that is—I am checking my staff, see, I am trying to pool my memory here. There is some dialog going on with

staff, with—and the hesitancy is IRS, their privacy protections, and

they are appropriately being very protective of their information,

because of the sensitivity of it, but if you want something from the

Federal Government, there needs to be some understanding that

you need to be more disclosing, but that is, and your reminder of

that one is one that is under consideration in how to better match

the systems. Because—and it is not just with student loans we are

seeing it, in the last month or so, with defense contractors, that

contractors continue to get millions of dollars in contracts, yet they

haven’t paid their Federal taxes in years. And we are not matching

the systems. That really goes to our discussion with the first panel,

with internal controls, but then communications within departVerDate 11-MAY-2000 13:15 Aug 19, 2004 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 D:\DOCS\95220.TXT HGOVREF1 PsN: HGOVREF1
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ments and agencies, or between, not just within, but between departments and agencies, that we need to do better with.

Those are the areas I wanted to followup with you on, and your

organizations’ focus on these issues certainly adds much to the

public debate in Washington and throughout the country, and

helps to generate the public’s interest, because I say, as the chairman of this committee, and as thoroughly—as one who is thoroughly enjoying and grateful for this opportunity to be Financial

Management and Oversight and Government Efficiency, but for the

average citizen, it is often not the most exciting issue, when we get

into some of the auditing aspects of it and stuff, and when we put

it into dollar terms, and I think, Mr. Gessing, your testimony

about—or actually, both of your testimony about Medicare being

such a big animal here with improper payments, and we are about

to add a $395 or $530 billion, over 10 years, new program, prescription drug for that average citizen, I say if you think about the average cost, and if you take the CVO estimate for the new prescription

drug program, you take the OMB estimate, and you—somewhere

in between, we are somewhere $35 to $40 billion a year is the cost

of the new program. And then you realize that we are making improper payments of roughly that sum, at least, probably double

that. It really puts it in perspective that if we really get our hands

around this problem, how we help meet the commitments we have

made to seniors and others as well in other programs, but specifically with Medicare.

So, I thank you both for your testimony, and again, your organizations’ efforts year round, and we will look forward to receiving

the additional information. We will keep the record open for about

2 weeks to allow time for that information from you, as well as

from Ms. Springer on the first panel. I want to thank all who are

here today and our staff. I want to highlight, being York County,

that two of our staff members, Amy Laudeman and Sarah D’Orsie

over here, are York County natives, a proud York Catholic High

School grad, and a Dallastown High School grad, who are members

of our full-time staff on the subcommittee, and I know, great to

have them back in the home community for today’s hearing as well.

So I think that concludes the hearing, and we stand adjourned.

Mr. GEROW. Thank you.

[Whereupon, at 4:19 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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