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41–449 PDF 2008

S. Hrg. 110–501 

ELIMINATING AGENCY PAYMENT ERRORS 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JANUARY 31, 2008 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 

FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TOM COBURN, Oklahoma 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

PETE V. DOMENICI, New Mexico 

JOHN E. SUNUNU, New Hampshire 

JOHN KILVINGTON, Staff Director 

KATY FRENCH, Minority Staff Director 

MONISHA SMITH, Chief Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator Coburn ................................................................................................. 4 

Senator Levin .................................................................................................... 20 

WITNESSES 

THURSDAY, JANUARY 31, 2008 

Daniel I. Werfel, Acting Controller, Office of Management and Budget ............ 6 

McCoy Williams, Managing Director, Financial Management and Assurance 

Team, U.S. Government Accountability Office .................................................. 8 

Hon. Charles R. Christopherson, Jr., Chief Financial Officer, U.S. Department 

of Agriculture ........................................................................................................ 25 

Anthony J. Dale, Managing Director, Federal Communications Commission ... 26 

Charles E. Johnson, Assistant Secretary for Resources and Technology and 

Chief Financial Officer, U.S. Department of Health and Human Services ..... 28 

David A. Rust, Acting Deputy Commissioner for Disability and Income Security Programs, U.S. Social Security Administration ......................................... 31 

ALPHABETICAL LIST OF WITNESSES

Christopherson, Hon. Charles R., Jr.: 

Testimony .......................................................................................................... 25 

Prepared statement .......................................................................................... 88 

Dale, Anthony J.: 

Testimony .......................................................................................................... 26 

Prepared statement .......................................................................................... 96 

Johnson, Charles E.: 

Testimony .......................................................................................................... 28 

Prepared statement with attachments ........................................................... 102 

Rust, David A.: 

Testimony .......................................................................................................... 31 

Prepared statement .......................................................................................... 121 

Werfel, Daniel I.: 

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

Prepared statement .......................................................................................... 47 

Williams, McCoy: 

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

Prepared statement .......................................................................................... 53 

APPENDIX 

Question and Responses for the Record from: 

Mr. Werfel ......................................................................................................... 129 

Mr. Dale ............................................................................................................ 137 

Mr. Johnson ...................................................................................................... 140 

Mr. Rust ............................................................................................................ 145 

Charts submitted for the Record from Senator Carper ........................................ 154 

(1) 

ELIMINATING AGENCY PAYMENT ERRORS 

THURSDAY, JANUARY 31, 2008 

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICE,

AND INTERNATIONAL SECURITY,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:34 p.m., in Room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Levin, and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. All right. The hearing will now come to order. 

Welcome, one and all, and to McCoy Williams and the real Danny 

Werfel. Thank you for joining us today. 

And to our second panel of witnesses and others—some of our 

colleagues will be coming in and out, and we look forward to their 

joining us. 

When is Ground Hog Day? Is it in February? 

Senator COBURN. It is a movie. 

Senator CARPER. I know it is a movie. But when it comes to this 

issue of improper payments, I feel a little bit like Ground Hog Day. 

This is something we have continued to visit and revisit, and we 

should. 

I think the President, this current Administration, decided early 

on in their first term to make the issue of improper payments part 

of the President’s Management Initiative, and, as I recall, the Improper Payments Information Act was enacted—I want to say 

around 2004? Does that sound right? Or was it a little before that? 

Mr. WERFEL. 2002. 

Senator CARPER. Maybe we came online in 2004 in terms of folks 

actually having to comply with it or beginning to comply with it. 

And although we made a lot of progress in those last several 

years, there is still a whole lot of progress to be made, and I know 

that, and I think we all realize that. 

We spend a whole lot of time around here talking about num- bers. We are talking about a stimulus package that might be $140 

billion, $150 billion, $160 billion, so, after a while, numbers like 

that begin to lose their meaning or impact. 

But I want to take just a moment to put in perspective the number of $55 billion. And $55 billion is what we believe for 2007 was 

2 

1The charts referred to appears in the Appendix on page 00. 

the amount of improper payments made by agencies, some of it 

overpayments, some of it underpayments, but mostly I think overpayments. 

But when we try to say, well, what does it actually mean, it is 

about one-third of what we are discussing for a stimulus package. 

And over here, on these charts,1 an improper payment imbalance 

of about $55 billion would be—it looks like it is more than the GDP 

of Croatia, more than the GDP of Slovakia, and about the GDP of 

Vietnam. 

And if you actually look at the second chart closest to Dr. Coburn 

and me, you can see that $55 billion would be the combined GDP 

of 44 countries, some of them pretty small countries. But Delaware 

is a pretty small State. So they are still countries, and they count. 

But in any event, $55 billion is real money, and it is real money 

that we are concerned about, and ought to be concerned about. 

I think, Dr. Coburn, when we were here about a year ago, we 

had a similar kind of hearing. We were looking at improper payments of closer to $40 billion. And we expected—I expected it 

might be bumped up a little bit because we are covering in 2007 

some other major programs like Medicaid, the school lunch program, and the school breakfast program are reporting for the first 

time, so there is more that is really coming under the microscope 

here of improper payments, and so we should not be surprised that 

it has bounced up a little bit. 

But again, it is a lot of money involved, and it is money that we 

have to be concerned about, and I am. Dr. Coburn is, and we know 

the Administration is, and we want to make sure that we continue 

to focus on it and be vigilant on it so that we continue to ratchet 

this number down as time goes by. 

I think there are some major programs that we have yet to bring 

under the umbrella of scrutiny under improper payments. I believe 

Temporary Assistance for Needy Families might still be out there. 

I want to say that the State Children’s Health Insurance Program 

is still outside their surveillance, if you will, and Medicare Prescription Drug Program, which is about a $50 billion a year program. These are all actually very substantial programs that are 

still outside of the improper payments surveillance. And as they 

come on board, I think next year, I would not be surprised to see 

the $55 billion bump up again a little bit, but my hope as to what 

happens as we go on beyond that is that programs start actually 

reducing improper payments. And some of those programs that 

have been under the gun since 2004 actually are seeing the incidence of improper payments come down. 

So we know that some progress is being made, and we are mindful of that and grateful for that. It is positive, but there is a whole 

lot more that needs to be done. 

Earlier today, I have introduced legislation, legislation that Senator Coburn and I and our staffs have worked on. We are calling 

it the Improper Payments Elimination and Recovery Act. I wish we 

could think of a good acronym for that, Senator. I bet if we put our 

hands to it, we could. I–P–E–R–A. I do not know what we call that, 

3 

but we could probably come up with some acronym. We have them 

for everything else. 

But it is legislation that is designed to make what I think are 

some dramatic improvements to the way that agencies identify and 

root out their improper payments problems. And it really comes 

after a couple of years, maybe 3 years, of our focusing on these 

issues as a Subcommittee under Dr. Coburn’s leadership and mine. 

It is the stuff we both care about and have worked on together, and 

we will continue to do that going forward. 

Our bill starts by improving transparency. OMB, right now, has 

set the reporting threshold for improper payments too low, meaning that millions of errors go unreported and potentially unaddressed each year. 

Let us take for example, if we would, the Medicare Part D Program. If we use the rubric $10 million or 2.5 percent—it has to be 

both—in order for us to be analyzing a program for improper payments. And 2.5 percent of $50 billion is—what would that be, $1.25 

billion dollars. That is a lot of money. 

And under the current guideline, we do not trigger improper payments reporting threshold unless we exceed $10 billion and 2.5 percent. Then unless we are talking about something in excess of 

$1.25 billion dollars of improper payments, Medicare Part D would 

not be reporting or taking remedial action. 

And I do not think that is too smart, and maybe some of the rest 

of you do not either. That is about half of the budget of the State 

of Delaware on an annual basis for a reference point. 

But I think we need to lower the reporting threshold so that Congress and the general public have a better picture of the problem 

that we face. 

This bill would also help to prevent improper payments from 

happening in the first place by requiring that agencies come up 

with detailed corrective action plans and error reduction targets. It 

would also implement a recent recommendation from GAO—and I 

just want to say our thanks to McCoy Williams and others at GAO 

who have given us good input as we try to craft this legislation. 

But we want to implement a recent recommendation from GAO 

that calls on OMB to develop a process whereby agencies would receive regular audit opinions on the financial controls used to prevent improper payments before they happen. 

This bill would also force agencies to be more aggressive in recovering improper payments that they make. I think in an ideal world, 

we would like to have no improper payments. We know that we all 

are human. We make mistakes, including Federal agencies. So the 

goal should be to figure out how we can make fewer improper payments. 

But as long as we are improperly spending $45 billion, $50 billion, $55 billion, we need to be able to go out and do the recoveries, 

too. 

Some agencies and most private sector firms regularly go over 

their books to identify payment errors and to get back overpayments made to contractors and others that they do business with. 

I do not think we have done enough of that in the Federal Government, and as you can see from the charts, where we have improper 

4 

payments, which shows that we have bounced between $45 billion 

and, say, $55 billion since Fiscal Year 2004. 

The chart that reflects overpayments that have been recovered. 

And I think we can probably do better than that. 

And eventually, we want to do a whole lot better by taking the 

top line there and bringing it back down, heading back down towards zero. And in the meantime, while there are these improper 

payments, we want to take overpayments recovered and we want 

to send that up a little bit higher on the chart. 

So there is work to do there. But even as agencies report greater 

improper payments, we are seeing actually fewer improper payments recovered. 

And what we propose to do in the legislation is to change this 

by requiring that all agencies with outlays of $1 million or more 

perform recovery audits on all of their programs and activities, if 

doing so is cost effective. I will say that again, if doing so is cost 

effective. 

If it is not cost effective, then we are not going to insist on that, 

and we should not. 

Finally, and perhaps more importantly, this bill would hold agencies accountable. Today, as I mentioned, some agencies do not appear to be taking the responsibility to deal with their improper 

payments problems as seriously as we would like to see happen. I 

want us to compel agencies to hold top managers accountable for 

their progress or the lack of progress and doing something to take 

better care of the tax dollars we entrust to them. 

I look forward to working with my partner, Dr. Coburn, on this 

issue, and we are going to continue to focus on it, and we look forward to working with our witnesses here and the agencies that all 

of you represent. 

It is not acceptable for us to know the amount of improper payments that we make every year and then to sit around watching 

the payments, improper payments, grow and know that we are not 

actually recovering more of those dollars. That is not acceptable. 

As I like to say, if it is imperfect, make it better. This is imperfect. We can make it better, and, with the efforts of all of us, we 

will. Thank you. Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Senator Carper, for having this 

hearing. You all are not the enemy. I understand that. 

So as we discuss this, please take our comments in the light that 

we are trying to solve this problem. I have a statement for the 

record—I would like to have put into the record, if I could. 

Senator CARPER. Without objection. 

[The prepared statement of Senator Coburn follows:] ??? 

Senator COBURN. First of all, I do not believe the number that 

we have, I think it is about twice that. I sat and looked at Medicare and then I looked at what was just recently been documented 

in the State of Florida. Just by capturing one ring of people in 

Medicare, we dropped the billings $1.4 billion, $1.4 billion just by 

breaking up one ring of false billing. 

5 

I do not think our numbers are accurate. We say Medicaid im- proper payments are $13 billion. I think it is that in New York 

State alone based on what I am looking at and what I am seeing. 

Do we really have a handle? And what we really know is we really do not, especially in the bigger programs. And there is some 

things we are going to talk about with OMB in terms of, with the 

direction that has been given, we allow NASA to use anything 

under $500 million is not to be looked at. Well, that cannot be 

right. And that certainly is not what we intended. 

The impending financial crisis that we are seeing a little peak 

right now, as the world looks at the value of our dollar and whether or not we can repay the borrowings under which we are trying 

to operate for the next generation, it is really going to become important that you all in all your areas of expertise cut no slack in 

this area. 

And I know each of you are dedicated to that, but I think the 

biggest problem is that we do not really yet know how big the problem is. We still have lots of agencies that are not even about doing 

the first things to develop how big the problem is. 

So when we look at the number, what we know is the number 

is not right. And, the one thing as an accounting major is it is the 

old computer adage, if the numbers we are putting in are not right, 

the numbers we are going to get out are not going to be right as 

well. 

So, when we are looking at a portion of the pie, granted we are 

looking at a bigger portion of what we did, and that is to all of you, 

you should be complimented in terms of we are making progress, 

but it is not near to the level that we need to be, and it is not to 

the degree we need to be. 

And I compliment Senator Carper in working with us on this 

new bill. We are not quite comfortable yet, I am not, in terms of 

how aggressive I want it to be, and how, because of what we have 

seen, how we limit some of the flexibility in this. 

But nevertheless, I think it is a very important that we are moving in that direction, and I thank him for it. And I will redirect 

most of my questions and my statement as we get into the questions. Thank you. 

Senator CARPER. Thank you, Dr. Coburn. 

Our first witness is Daniel I. Werfel, the Acting Controller of the 

Office of Management and Budget. And in that position, I understand that you lead OMB’s efforts to improve government-wide financial management improvements and oversee work in priority 

management areas such as property management, one that we are 

very much interested in, and thank you for your help, and in improper payments, too. 

I understand you hold a master’s degree in public policy from 

Duke and a J.D. from the University of North Carolina. That is an 

interesting juxtaposition—I think I have mentioned that before— 

and you were a starting quarterback at the University of Florida. 

That is quite a triumph for a guy—— 

Mr. WERFEL. I get around. 

Senator CARPER. You do. You get around—spread pretty thin. 

But we are happy you are here. Thank you for being here again 

today, and it is nice to see you again. 

6 

1The prepared statement of Mr. Werfel appears in the Appendix on page 47. 

And we also are pleased to welcome back McCoy Williams. It is 

a good thing you do not charge us by appearance before this Subcommittee. We would be broke. 

But we are happy that you are back, and we appreciate very 

much the work that you and your colleagues at GAO do with us 

in this effort and others, but I am told you are the Managing Director of the Financial Management and Assurance Team in the U.S. 

Government Accountability Office. This team is GAO’s largest unit 

with oversight of financial management and audits across the Federal Government. 

Mr. Williams has over 27 years of experience on these issues, 

and he has received numerous GAO awards, including the Distinguished Service Award for Exemplary Leadership. He holds an 

M.S. in Accounting from Virginia Commonwealth and is a CPA. 

And with that said, gentlemen, we see you not as the enemy, but 

as our colleagues on this initiative, an important initiative, and we 

are delighted to have you here today. 

I am going to ask Mr. Werfel to be the lead-off hitter, and then 

we will turn it over to Mr. Williams. 

And your entire statements will be made part of the record. Feel 

free to summarize as you wish. Thank you. 

STATEMENT OF DANIEL I. WERFEL,1 ACTING CONTROLLER, 

OFFICE OF MANAGEMENT AND BUDGET 

Mr. WERFEL. Thank you. I would like to begin by thanking 

Chairman Carper and Ranking Member Coburn for having this 

hearing today and inviting me to speak. 

Four years ago, the President and Congress charged Federal 

agencies to identify, measure, and eliminate improper payments 

across government. In each of these areas—identification, measurement, and in elimination of improper payments—significant results 

have been achieved. 

Today, OMB issued our annual report on improper payments 

that summarizes results from Fiscal Year 2004 and outlines a path 

forward for addressing ongoing challenges and building on the results achieved to date. 

I would like to begin by briefly going over the results for 2007. 

First, in terms of identifying improper payments, under the current legislative and regulatory framework, Federal agencies are expanding the universe of high-risk programs that are measured and 

are audited each year. 

Agencies identified $1.9 trillion in program outlays to be measured for improper payments and subjected an additional $330 billion in high-risk contract payments for recovery auditing. 

This means that 80 percent of all Federal outlays are being actively measured and/or reviewed for improper payments. 

Second, in terms of measuring improper payments, the Federal 

Government is making steady progress toward closing all reporting 

gaps so that the full extent of government-wide improper payments 

will be available in the next few years. 

7 

Agencies are reporting measurements on 85 percent of all program dollars deemed high risk for improper payments, including 14 

programs reporting error measurements for the first time this year. 

Third, in terms of eliminating improper payments, once an agency has identified and reported improper payments, it has demonstrated the ability to implement corrective actions and reduce 

those errors in subsequent years. 

The error rate for the group of programs that first began reporting in Fiscal Year 2004 has declined from an original high of 4.4 

percent to 3.1 percent today. This represents a $7.9 billion reduction in improper payments. 

Similarly, programs that first reported in Fiscal Years 2005 and 

2006 have seen improper payments cut in half, representing a $2.3 

billion reduction. 

Now, we must look forward to Fiscal Year 2008 and beyond. We 

believe that we are well positioned to sustain current progress on 

the identification and measurement of improper payments. However, to eliminate the $55 billion in improper payments reported in 

Fiscal Year 2007, Federal agencies need additional tools. 

Our top priority going forward is to obtain those tools through 

these following strategies. 

We must start by maximizing the impact of our program integrity efforts. Nine programs account for 90 percent of the government-wide improper payment total. We must ensure that agencies 

are implementing effective improvement plans in these programs 

before initiating additional activities in lower-risk areas. 

Within these nine programs, agencies must target the largest 

causes of error and utilize return on investment analyses to inform 

on the best uses of program integrity resources. 

Where are the largest sources of improper payments? Today’s 

OMB report concludes that the largest source of error is the inability of programs to verify eligibility information. In fact, program 

eligibility errors account for approximately 80 percent of government-wide improper payments and are a primary cause of error in 

our largest nine programs. 

Our report also identifies, thankfully, the most effective approach 

for addressing this problem and that is through verifying applicant 

data with third-party data sources. 

The President’s budget, therefore, proposes several initiatives 

that will expand agency access to third-party data sources in programs such as unemployment insurance, which is one of the nine 

programs that I mentioned earlier, and we need Congress to support these proposals for expanding access to third-party data 

sources. 

Congressional action is critical, not only for data matching, but 

for other tools that agencies need to eliminate payment errors. 

Specifically, each year since 2003, the President has proposed 

discretionary funding for activities with a proven track record for 

reducing error and generated program savings. 

These proposals are often referred to as cap adjusted funding. 

Despite anticipated savings of nearly $4 billion over 10 years, Congress has enacted only a small portion of these proposals and did 

so only in 2006. 

8 

1The prepared statement of Mr. Williams appears in the Appendix on page 53. 

When the cap adjustments are combined with the President’s 

other proposed legislative reforms for improving payment accuracy, 

the anticipated savings total approximately $18 billion over 10 

years. 

Thus, for every year that these proposals are not enacted, the 

Federal Government and, therefore, the taxpayer loses approximately $1.8 billion in unrealized error reductions and savings. 

The Congress and the Executive Branch must work together to 

expand access to third-party data sources to verify applicant eligibility, to fund and implement program integrity activities with a 

proven track record for eliminating error, and to enact legislative 

reforms that facilitate error reduction in our highest and larger 

dollar programs. 

Initiating these improvements will be essential if we are to meet 

the President and Congress charge to eliminate improper payments. 

Thank you, again, for the opportunity to testify today, and I look 

forward to answering your questions. 

Senator CARPER. Good. Thanks very much, and I look forward to 

coming back and just revisiting, among other things, the things 

that you need for us to do at our end of Capitol Hill. 

OK. Mr. Williams, your whole statement will be made part of the 

record. Feel free to proceed. Thank you. 

STATEMENT OF MCCOY WILLIAMS,1 MANAGING DIRECTOR, 

FINANCIAL MANAGEMENT AND ASSURANCE TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WILLIAMS. Thank you. Mr. Chairman, Dr. Coburn, thank you 

for the opportunity to be here today to discuss agencies’ efforts to 

address key requirements of the Improper Payments Information 

Act of 2002 and the Recovery Auditing Act. 

Since 2000, we have issued a number of reports and testimonies 

aimed at raising the level of attention given to improper payments. 

In addition, OMB has played a key role in the oversight of the 

government-wide improper payments problem. For example, in 

2005, OMB established eliminating improper payments as a new 

initiative under the President’s Management Agenda. 

OMB also continues its commitment to address government-wide 

improper payments by working with the agencies to establish corrective action plans and address their root causes. 

Mr. Chairman, Fiscal Year 2007 is the fourth year that Federal 

agencies were required to report improper payment information. 

Agencies reported improper payment estimates of almost $55 billion in their Fiscal Year 2007 PARs or annual reports, an increase 

from the Fiscal Year 2006 estimate of about $41 billion. 

The reported increase was primarily attributable to the Medicaid 

program reporting improper payments for the first time. 

We view this as a positive step to improve transparency over the 

full magnitude of improper payments. The $55 billion estimate consists of 78 programs in 21 agencies and represents about 2 percent 

of total Fiscal Year 2007 Federal Executive Branch agencies’ government outlays of almost $2.8 trillion. 

9 

In addition, the $55 billion largely consists of improper payments 

made in eight large programs, such as Medicaid and Supplemental 

Security Income. Collectively, the eight programs account for about 

88 percent of the total estimate. 

Mr. Chairman, while showing progress, major challenges remain 

in meeting the goals of the Act and ultimately improving the integrity of payments. 

For example, not all the agencies reported conducting risk assessments of all of their programs or activities as required by Improper Payments Information Act (IPIA). Also, for risk assessments 

conducted, we and selected OIGs have raised concerns regarding 

the quality of the risk assessments performed. Further, the total 

improper payment estimate does not yet reflect the full scope of improper payments, as agencies have not estimated for 14 risk susceptible programs with outlays totaling about $170 billion. 

Additionally, non-compliance issues continue to exist. For example, some agencies did not measure improper payments for a 12- 

month period, as generally required by OMB’s implementing guidance, nor did the estimates reflect improper payments for the entire program. 

Agencies also reported that statutory or regulatory barriers may 

limit corrective actions to reduce improper payments. 

Mr. Chairman, with regards to recovery auditing, 21 agencies re- ported identifying about $121 million in improper payments for recovery and actually recovering about $87 million, a decrease of 

about $217 million when compared to the reported amount identified for recovery in the prior year. 

Most of the decrease can be attributed to DOD’s decision to stop 

reporting voluntary refunds received from contractors. 

Mr. Chairman, I would like to emphasize that effective internal 

control calls for a sound ongoing invoice review and approval process as the first line of defense in preventing unallowable contract 

costs. Prevention is always preferred to detection and collection. 

In closing, we recognize that measuring improper payments and 

designing and implementing actions to reduce them are not simple 

tasks. Further, while internal control should be maintained as the 

front line of defense against improper payments, recovery auditing 

holds promise as a cost effective means of identifying contractor 

overpayments. 

We are pleased that agencies are identifying and reporting on 

more risk susceptible programs and have reported that overall program error rates have decreased since IPIA implementation. Yet 

we also note that both we and agency auditors continue to identify 

deficiencies in agencies’ efforts to comply with IPIA. 

Successfully meeting the requirements of IPIA and the Recovery 

Auditing Act will require sustained attention to implementation 

and oversight to monitor whether desired results are being 

achieved. 

Mr. Chairman, this concludes my statement. I would be pleased 

to respond to any questions that you or other Members of the Subcommittee may have. Thank you. 

Senator CARPER. Thank you very much, Mr. Williams. 

Mr. Werfel, I think you said in your testimony that about 80 per- cent of the outlays are now covered. What was—$1.7 trillion? 

10 

Mr. WERFEL. One point nine trillion dollars in outlays are currently identified as high risk on the program side. And on the contract side, we are reviewing an additional $330 billion in contracts 

each year. 

Senator CARPER. OK. So under the law, do you have to look at 

high-risk program sources, is that the way it works? 

Mr. WERFEL. Yes. The law basically establishes a requirement 

that agencies break up their outlays into two buckets. One are the 

low risk and the other are the high risk. And, as you mentioned 

in your opening remarks, OMB in our guidance indicates that the 

definition of a high-risk program is one that has a 2.5 percent error 

rate and $10 million in error each year. That is the assessment 

that the agency makes, and if they make that assessment, then all 

the requirements of the law trigger, going out and statistically 

sampling and measuring those programs, implementing corrective 

actions, etc. And under that framework, even with the $10 million 

and the 2.5 percent, we are still seeing agencies identify a tremendous amount of programs and outlays and activities as high risk, 

as I mentioned $1.9 trillion out of the $2.8 trillion in total Federal 

outlays. 

Senator CARPER. All right. What is still out there that we have 

not covered? You said 80 percent of our high-risk outlays are now 

covered? Just describe for us the ones that are not. I seem to recall 

it is Temporary Assistance for Needy Families (TANF) and—— 

Mr. WERFEL. Yes. Well, those programs have been identified as high risk. The $1.9 trillion figure that I provided are all those programs that are in a universe of programs that need to be measured. 

Now, we have not measured all of them. We have measured 85 

percent of all those outlays. And the remaining programs that still 

need to be measured are the programs that you mentioned. There 

is TANF. There is the Child Care Development Fund. There is the 

non fee for service components of Medicaid. There is Medicare Part 

D Prescription Drug and a couple of other programs. 

The Department of Homeland Security identified 12 new programs this year as being high risk and because this was the first 

year they have been identified, we do not have measurements for 

them yet, but will in the coming years. 

Senator CARPER. So when we say—I want to make sure I have got this right—$2.8 trillion of overlays overall? 

Mr. WERFEL. That is correct; $2.8 trillion. 

Senator CARPER. And they are not all high risk? 

Mr. WERFEL. Not all of them are. 

Senator CARPER. Of that $2.8 trillion, how much would be high 

risk? 

Mr. WERFEL. One point nine trillion dollars in program dollars; 

$330 billion in contract payments. 

Senator CARPER. So a little over $2.2 trillion would be high risk? 

Mr. WERFEL. That is correct. 

Senator CARPER. Of that $2.2 trillion, 85 percent agencies are actually beginning to measure? 

Mr. WERFEL. They are actively measurement. We are reporting 

a measurement for 85 percent of all the programs that have been 

determine high risk, and—— 

11 

Senator CARPER. And out of that 85 percent of the $1.9 trillion, we have determined that in 2007, there is $55 billion worth of improper payments; is that right? 

Mr. WERFEL. That is correct. 

Senator CARPER. All right. And what additional programs come 

on line in 2008? 

Mr. WERFEL. The 12 programs for the Department of Homeland 

Security will be coming online next year. And—let me see—Temporary Assistance for Needy Families will be coming online, Child 

Care Development, and then the Managed Care and Eligibility portions of Medicaid and State Children’s Health Insurance Program 

(SCHIP). 

So a significant chunk of the remaining programs will be on. The 

only remaining programs after next year that will be left to measure and report on will be Medicare Advantage Part C and Medicare 

Prescription Drug Part D. And those we are targeting a Fiscal Year 

2010 report date. So as I mentioned, right now, of the $1.9 trillion, 85 percent we have an active measurement on, and that is the $55 billion. By 

next year, we will have over 90 percent of that $1.9 trillion measured and reported on. 

Senator CARPER. I think I understand. Good. You mention in 

your testimony, you talked about a couple of the largest sources of 

error, and I think you mentioned that ID benefit eligibility. Just 

give us a couple of examples of that. 

Mr. WERFEL. Well, many of the programs that I—remember I 

said that there were nine programs that make up 90 percent, and 

those programs, just to rattle off some of them, Food Stamps, public housing, Medicaid—those programs are what we call—or Social 

Security—those are means tested programs where the program has 

to make a determination of whether certain eligibility criteria are 

met. 

And typically, the way those programs are designed, a person is 

eligible based on their income status, their work status, their 

household status, and it is verifying that information is being reported to the Federal agency accurately is our number one challenge. 

So an individual comes to apply for a benefit, and let us say the 

eligibility criteria are that the adjusted gross income for that individual’s household has to be $50,000 a year or less. And that individual reports a $45,000 adjusted gross income for their household. 

Well, when we sample these payments and we go down and we 

find whether we made mistakes or not, we often find that individuals are underreporting their income, or, if they are not underreporting income, we are taking in the income information wrong, 

however the mistake happens. We do not have an accurate assessment of what that individual’s income is, and there are methods 

that we can use to validate that information that we are not currently utilizing today. 

I think one of the simple-to-understand examples is with the unemployment insurance program. When individuals go back to work, 

we need to stop paying them unemployment insurance. And often, 

they get back to work. The Department of Labor does not realize 

in time that they are back to work, and we are still issuing them 

12 

unemployment checks. And how do you fix that? And that is one 

of our challenges, and we believe that these types of third-party 

data sources, where we can go out and validate that John Smith 

on December 15, was he working or not, before we make that payment, that is the type of things we need to do. And as an example, 

one of the President’s Budget legislative reforms is to enhance a 

current database that is out there right now to improve the Department of Labor’s ability to go out and get that information on accurately determining someone’s work status. 

Senator CARPER. In my last term in the House, in 1991 or 1992, 

one of the things that we worked on was trying to make sure that 

folks who were applying for affordable housing, public supported 

housing, to make sure that they were eligible by income. We had 

some folks that did not report their employment status and their 

income. We wanted to try to make sure that a benefit that was 

scarce and that is affordable housing, public housing, was made 

available to people who were truly needy. 

And what we ended up doing was to try to go through the Department of Labor to find out who is working and to get information that as timely so that when people went to work we could get 

the information quickly for program verification. 

I think that is the kind of third-party initiative that you are interested in getting some help on. 

But my time has expired for this round. I want to come back and 

just go back to that point, particularly to focus on how can we be 

helpful with respect to the Administration’s initiatives in this regard and other related ways. How can we be helpful in making 

sure that the agencies have the tools to do their jobs, including the 

benefit eligibility piece? 

All right. Thank you. Dr. Coburn. 

Senator COBURN. Thank you. The last thing we want is makework for the agencies, and the OMB cited the change that actually—you changed the annual review. 

What statute or regulation do you use to cite the authority to deviate from that was required by this law for an annual review? 

What did you all use to give you the authority to change what the 

Congress has said about annual reviews? 

Mr. WERFEL. Dr. Coburn, let me first clarify that I have the right 

deviation in mind. Are you referring to—— 

Senator COBURN. From the risk assessment. 

Mr. WERFEL. From the risk assessment. OK. 

We look at the Improper Payments Information Act as establishing at its outset a risk management framework. It requires 

agencies to not look at every dollar across the board and trigger all 

these activities, but to do a risk assessment and break things up 

into low risk and high risk. 

Once a program is identified as low risk, the agency looks at it 

and says we have information available to us based on the complexity of the program, based on the number of times Federal funds 

change hands, etc., whatever process they go through. They have 

identified as low risk, and then we had a question to ask ourselves 

in terms of how to implement the bill. 

13 

Once it has been designated as low risk, what should we require 

the agencies to do each year in order to continue to validate its 

low-risk status. 

Senator COBURN. I do not have any problem with that. Where 

did you get the authority to change what we told you to do? What 

did you use to say—what we said in the law is we require you to 

make a risk assessment yearly, not every 3 years, regardless of 

what you have done, that is what the law said? 

All I am asking is where did the authority come to change that? 

What do you cite as an authority? I am not saying it is not common 

sense. I am not disagreeing with it. I am just saying where did you 

get the authority to do that? 

Mr. WERFEL. We believe that the authority is in the Improper 

Payments Information Act. It is the provision that requires a risk 

assessment generally, and our interpretation of that provision and 

we may have differing interpretations. Our interpretation of that 

provision is that once a program is designated low risk, we are not 

telling agencies to ignore that program and to put it out of their 

minds completely. 

We require in our guidance that agencies have to reevaluate that 

program if exigent factors or new factors emerge, like the program 

changes or there is an influx of money into that program or conditions change, and it is the fact that the agencies have to keep apprised of potential changes, because they have done a baseline risk 

assessment and found it low risk. 

Senator COBURN. Yes. But let me use a specific example. We had 

a hearing about CDBG block grants. We had a great look at it. 

This is somebody that is low risk, and yet in our hearing, the Inspector General found $100 million in fraud and abuse and only 35 

of the 1,080 grantees. That is just at the first 35 they looked at— 

$100 million in fraud. 

And yet, under your program, it is low risk. They do not have 

to do another risk assessment. 

So where do we catch this so that this falls back in? I am not 

critical that you say people. We do not want them to keep doing 

the same thing. But here you got CDBG block grants, with $100 

million out of the first 35 programs that they looked at of fraud 

and documented fraud, and yet, they fall outside of what your guidance is to say that they do not need to do a risk assessment. And 

yet, it is $100 million going out the door every year. 

How do you firm that up? You are trying to accomplish something on the front side to not give anybody make-work, but how do 

we catch it on the backside when it obviously missed it, and we 

want to pick it up? 

Mr. WERFEL. That is a good question. The way we would focus 

on this problem going forward is the risk assessment that initially 

designates a program as low risk needs to have been sound; otherwise the framework that I just outlined does not really work that 

well. 

Senator COBURN. So where does HUD fall back in this, because 

under your guidance right now HUD is not under. They do not 

have to do a risk assessment even though they had $100 million 

run out the door? 

14 

Mr. WERFEL. There is flexibility in the guidance, and we have 

implemented that flexibility to target certain programs that, even 

though they are designated for low risk, that we require the agency 

to go back annually and we do not provide them this type of ability 

to do the full-scope risk assessment each year. And CDBG is one 

of those programs. 

Senator COBURN. So it is not going to fly under the radar? It is 

coming back in. It is going to be relooked at? 

Mr. WERFEL. Yes. Absolutely. And really what we need is a partnership between OMB, GAO, and the inspectors general to identify 

the CDBGs in the world, where there are questions about that initial risk assessment. 

Senator COBURN. Yes. 

Mr. WERFEL. If an agency made a good initial risk assessment 

and then no environmental factors changed and the IG, GAO, 

OMB, and Congress were all not seeing things that need to be 

extra focused on, we are comfortable generally in allowing the 

agency to move forward, and a full-scope risk assessment every 3 

years. 

But programs like CDBG, where in partnership, we can pinpoint 

and say I know you risk assessed it low, but it does not add up 

when you look at other factors that we consider at play; risk assess 

it again. 

Senator COBURN. Yes. 

Mr. WERFEL. And that is what is going on with CDBG right now. 

Senator COBURN. Yes. But you would admit you could, under the 

way you all do it, you could get low risk, but there could still be 

fraud? 

Mr. WERFEL. Yes. 

Senator COBURN. OK. So, for example, it is really important that 

Congress do oversight; is it not? I mean, had somebody not asked 

for this IG look, had we not had the Subcommittee look, would we 

have found this? The real question is would we have seen this $100 

million going out the door had somebody not said IG do a look at 

this and let us have a hearing on it. 

And so, which is the point I try to make to my fellow Senators 

all the time. The reason that we have as many problems as we 

have is we are not doing enough oversight to look at to see where 

the problems are; asking the right questions. 

Let me go to one other area. I still have a little problem with 

your risk assessment threshold, this 2.5 percent, and I think that 

is going to be identified in what Senator Carper is planning in 

terms of legislation, but is there not areas where we are missing 

things when we have the threshold that you all have designed, and 

I know we have been over this, but kind of help me with that, if 

you would? 

Mr. WERFEL. Certainly. There is a couple of factors at play. So, 

as I described, we have a current framework, where we have this 

2.5 percent and $10 million. 

OMB’s guidance goes beyond that and says if we know about a 

program that has a low error rate, but high improper payment dollars, then we are not going to let the agencies off the hook for those 

programs. 

15 

So it is not an automatic exemption if you hit those two categories. And the way the results have played out, back in 2004, 

under this framework, agencies were identifying $1.4 trillion in 

high risk. And that was at about 60 percent of all outlays. 

That was quite stunning in and of itself; that even with this framework, you had $1.4 trillion being caught and saying yes, this 

is a problem. This is high risk. 

Since 2004, now we will flash forward to 2007, now we are at 

$1.9 trillion, and what you see, as I had mentioned earlier, DHS 

and the Department of Justice designated 12 programs high risk. 

And other agencies are coming forward with additional high risk 

programs. 

We look at those numbers and those trends, and we say the framework is working, because $1.4 trillion right off the bat was 

quite impressive in terms of a net to cast, but since then, and over 

time, the process is still generating more and more looks. And I 

have to compliment the Government Accountability Office, and 

when I talked about partnership, they were the ones who shook 

their head at DHS and said something is not adding up. 

You are risk assessing these things as low. Go back again. And 

that was all GAO. 

Senator COBURN. Well, the one that comes to mind to me is 

NASA. Do we really feel comfortable that NASA has no payment 

problems? I mean, does anybody in the room want to stand up and 

say NASA has no payment problems and, yet, that is what they 

have reported? They have no high-risk programs? I mean, can we 

really accept that with the amount of money they spend? There is 

no fraud in contracting. There is no significant improper payments 

made by NASA. Can we really say that and can we believe it? 

Do we believe it? I mean, does OMB believe it? 

Mr. WERFEL. No, we do not. But we would categorize NASA as, 

in looking at NASA’s expenditures, they are spending a predominant amount of their money on contracts. So distinguished from 

the earlier programs—food stamps, public housing—— 

Senator COBURN. Yes. 

Mr. WERFEL [continuing]. The benefit payment world, which we 

believe is that is the sweet spot for the IPIA, where NASA’s expenditures are it is in all the contracts that they expend on, and 

that is really the Recovery Auditing Act. 

And under the Recovery Auditing Act, NASA absolutely is re- sponsible under the threshold in the current bill, which is $500 

million a year in contract payment, they are absolutely on the hook 

to be doing a thorough review and to be implementing Recovery 

Auditing Act procedures, and the unfortunate thing that occurred 

this year was that NASA did not get off the dime quick enough and 

start up their Recovery Auditing Act process. And it was too late 

by the end of the year to get the process started, and so for 2007, 

they had a significant gap in their reporting. 

Believe me, that did not go undetected by OMB. We are very concerned about that. We are putting a lot of focus with NASA on getting back on track, and we anticipate that in 2009 we will see a 

very thorough review of the contract dollars. 

Senator COBURN. My time has expired. I just want to make the 

last point, and then I will not ask a second round on this. 

16 

The President in his wisdom put in CFOs everywhere; right? Everywhere. That is their job. Somebody ought to be hanging if there 

was no recovery audit at NASA. 

Senator CARPER. Well, I do not know that it was the President 

in his wisdom. 

Senator COBURN. Somebody did. 

Senator CARPER. It might have been Senator Bill Roth, my predecessor, who I think might have been the lead sponsor of that in 

the Senate. 

Senator COBURN. It happened. Let me just say that. 

Senator CARPER. A Congressman, one of his colleagues from 

Delaware might have been working on it with him over in the 

House. I do not know. 

The President was at least smart enough to go along, and we 

sort of worked together. One hand washes the other in this stuff. 

I want to come back, Mr. Williams. Let me just sort of telegraph 

my pitch, so you will have a chance to think about this, but I want 

to come back and ask you to give us some thoughts on the recovery 

of some of these monies that have been improperly paid. And just 

some things that we ought to be doing that we are not doing well; 

some things that we can do better on that front. 

But while you think about that, let me just go back to Mr. Werfel 

and ask you to return with me, if you will, to the discussion we 

were having about benefit eligibility and that sort of thing. 

And apparently, there are a number of things that the Administration has asked the Congress to do in this regard, and it sounds 

like you are getting a little bit of help, but not as much as you 

would like to have. 

What are some things you all have been asking for that you have 

gotten that we have done a decent job in supporting. What are 

some things you are asking us to do where you have not gotten the 

kind of support that you would like to have? 

Mr. WERFEL. Well, as I mentioned earlier, we are looking at the 

data and trying to make smart strategic decisions about how to 

tackle the $55 billion, and the nine programs, as I mentioned, 

make up the $55 billion. 

And so what we have asked agencies to do is to help us figure 

out the root causes of error in those programs and what kind of 

tools they need to be most effective in rooting out error. 

And what the President’s budget does is it encapsulates and 

OMB’s Improper Payments Report encapsulates what we believe 

are the critical tools that we do not have now. 

Let me walk through some of them. The first, as I mentioned in 

my opening remarks, are what we call cap adjustments, which is 

not plain language and nobody outside the Beltway knows what 

that means. 

But what essentially it is is it is program integrity dollars to do 

activities that we have looked at, and we said if we spend this 

money, it is going to have a positive return on investment for taxpayers. A dollar spent will return more than a dollar in terms of 

error reduction and savings. 

So we have asked agencies to explore—do you have things that 

you could be doing that you are not doing today that would have 

this type of return? 

17 

And the Social Security Administration, who is going to testify 

today, is a best practice model agency at this. Their return on investment analysis for the Supplemental Security Income Program, 

which is one of the big nine programs, is based on an actual past 

experience. It is very rigorous. 

We have briefed many members of the Hill and staff on it, and 

everyone has been impressed by the level of rigor in the analysis. 

Some of those activities are upwards of one dollar invested on an 

$11 return. 

And what it is, in going back to that primary cause of error in 

terms of eligibility, what Social Security needs to be able to do that 

they are not doing today enough of are things like continuing disability reviews and redeterminations, because as people are receiving benefits, because they were initially found eligible, they do not 

always stay eligible. They get healthy. They get more money, whatever happens. 

But if they stay on those rolls, those are improper payments, and 

Social Security currently does not have the funding that they need 

to do all the continuing disability reviews and redeterminations to 

capture all that. 

And the President’s budget proposes a level of funding that is 

going to get Social Security up and running to do those things. And 

the result is for Social Security alone, you are looking at approximately $2.6 billion in savings over 10 years. 

Similarly, we have similar types of program integrity funding requests for HHS, Health Care Fraud and Abuse; for IRS Tax Enforcement; and for the Unemployment Insurance Program. And 

that is where—and these requests have been in the President’s 

budget since 2003, and again, they seem to fall out somewhere 

along the line during the appropriations process. 

And what we have tried to do—the reason why it is called cap 

adjusted is because we have tried to put a protected fence around 

it so that it does not really impact spending limits or what are 

known I guess as 302(b) allocations in the appropriations process. 

And if we can get that commitment from Congress up-front that 

money is protected and is not going to be negotiated around come 

appropriations time, that is the kind of thing we are looking for, 

because again, it has that return on investment. 

We have additional legislative proposals beyond just these activities. I mentioned one of them earlier, and that is enhancing our 

third-party data sources in the UI Program, Unemployment Insurance. We want to be able to know immediately or as soon as possible when people are going back to work so we can stop those unemployment checks from going forward. 

So we have a legislative reform to do that. That, if we can get 

that one going, is $3.6 billion over 10 years. The Earned Income 

Tax Credit—— 

Senator CARPER. How much over 10 years was the last one? 

Mr. WERFEL. The Unemployment Insurance? 

Senator CARPER. The last one. Three point—— 

Mr. WERFEL. $3.6 billion over 10 years. 

Senator CARPER. Over 10 years; right. Give us some idea, Mr. 

Werfel. That is how much? Is that a net number or is that costs 

after investment? 

18 

Mr. WERFEL. No, there is no up-front. To distinguish it from the 

program integrity cap adjustments, those required up-front investment of dollars. They just have a return on investment. 

The reforms that I am going to go through now, and I will try 

to do it quickly, are no up-front investment. It is just a change to 

the law. It is creating a new data element and database. It is 

changing the way the eligibility formula works, sort of simplify it, 

different approaches like that—tools to give to the agencies. No additional funding. 

Senator CARPER. Would you describe this as low-hanging fruit? 

Mr. WERFEL. I would definitely describe it as low-hanging fruit. 

It is our first major cut at what we think we need to do to impact 

the $55 billion in a big way. 

Senator CARPER. Why do you suppose the Congress has not 

picked up on it? I guess it is the appropriators? It sounds like it 

is the appropriators. Why do you suppose we have not picked up 

on it to date? 

Mr. WERFEL. I think we have gotten—with respect, the appropriators certainly are the responsible authority for the cap adjustments, and we have done a lot of work with the staff up there, and 

have had briefings, and really pushed it and tried to make it a significant priority. 

It seems to fall out at the end. It seems to not survive those lastminute negotiations on things like the Omnibus. 

So, for example, last year’s budget resolution, it was in there, 

and we were doing a celebration back at OMB, because we figured 

if it was in the budget resolution, it was a pretty good chance that 

it was going to be in the final appropriations bill. But again, the 

way the appropriations process played out this year, always is a 

unique and challenging situation and it fell out at the end. 

So I think there is interest. I think it is just we have not been 

able to get across the end zone line so to speak. 

Senator CARPER. Yes. Well, the President will be submitting his 

budget I guess in a couple of weeks? Sometime in April or so I expect that Congress will try to grapple and come up with a budget 

resolution. It sounds like that we included in the budget resolution 

roughly 8, 9, 10 months ago for 2008, these initiatives, the authorization, the expectation that we do this, and then when the actual 

money has maybe been appropriated, we did not follow through? 

Mr. WERFEL. That is correct. It did not—— 

Senator CARPER. Is that right? 

Mr. WERFEL [continuing]. Make it into the final bill. 

Senator CARPER. I would just say to my friend, Dr. Coburn, we 

may have a great opportunity here to follow up. 

Senator COBURN. I like amending the Appropriations Bill. 

Senator CARPER. I know it is something that is hard for you to 

do, but all right. 

Well, that is real helpful. Let me go back to Dr. Coburn. I know 

you said you did not have anymore questions for this panel. Anything else, because I want to ask Mr. Williams a couple of questions. 

Senator COBURN. Actually, I have some questions, but I will submit them because of our time. 

Senator CARPER. OK. 

19 

Senator COBURN. And I have a Judiciary hearing starting at 4 

p.m. 

Senator CARPER. OK. I understand Senator Levin is on his way, 

and he would like to ask a couple of questions. I think his quote 

was I would want to grill these two witnesses. Do not let them get 

out of the room. 

No, he did not say that, but it gives me the chance to ask Mr. 

Williams to visit with us again this issue of recovery and somewhere in my prepared questions I have a question on this, and if 

I have enough time, I will dig into it. 

But what are we doing well on recovery and what are we not 

doing well on recovery? 

Mr. WILLIAMS. Well, Mr. Chairman, if you remember, the first 

year that I testified and talked about recovery auditing, the numbers were very small relative to the amount of contracting activity 

in the Federal Government. 

Over the years, while the number is down this year, we have 

seen the amount identified and actually recovered to be going up 

this year with the point that we make about money that is automatically returned has been excluded in the DOD component of the 

number. 

Senator CARPER. Explain that change in DOD. Just explain that 

to me. I do not understand. 

Mr. WILLIAMS. Basically, if I am a contractor and you owed me 

$10, you paid me $20, and I returned the $10 to you before being 

asked, just voluntarily returned that $10 to you, then it is not reported as being recovered is the difference according to my understanding. 

Senator CARPER. OK. God bless those contractors, those defense 

people. 

Mr. WILLIAMS. And may I add to that is that even though it 

might not be reported as a component under the Recovery Audit 

Act, there was still an improper payment made in that case. In 

GAO’s views amounts collected and identified under the Recovery 

Auditing Act, they are improper payments also. 

You asked for some general thoughts about the program and basically if you have got a recovery auditing program and if it is free, 

then my statement to that is let us implement it everywhere. It is 

not going to be free. There are some costs associated with setting 

up the program, etc. But we believe that it should be utilized to 

the greatest extent possible, and it should follow the concept that 

was mentioned earlier during the discussion, and that is you need 

to look at it from a cost benefit standpoint. 

And as I have always stated before this Subcommittee with regards to this particular issue is that you should never spend a dollar and one cent to collect a dollar. So it should be cost effective. 

So those are a few thoughts that I have on the program. 

Senator CARPER. All right. 

Senator COBURN. I have a question. 

Senator CARPER. Go right ahead, please. 

Senator COBURN. What happens, if anything, for an agency that 

does not comply with the law or OMB guidance right now on improper payments? 

20 

1The chart referred to by Senator Levin appears in Appendix II of GAO’s prepared statement 

that appears in the Appendix on page 81. 

Mr. WERFEL. Currently, there are two particular implications 

that come to mind. First, the independent auditor would include in 

the audit report a finding of indicating non-compliance with that 

particular law or regulation. 

And second, the impact from an OMB standpoint is we would 

downgrade their score in the President’s Management Agenda—— 

Senator COBURN. All right. 

Mr. WERFEL [continuing]. And make that public. 

Senator COBURN. OK. All right. Thank you. 

Senator CARPER. We have been joined by Senator Levin, and we 

are glad to recognize you at this time. Thanks for joining us. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you, Mr. Chairman. Let me add my welcome to our witnesses. Many of the overpayments that were targeted in the GAO report involved payments of relatively small 

amounts to individuals such as payments for school lunches, Social 

Security checks, and payments under the Earned Income Tax Credit Program. And that is well and good. 

But there is another whole category of improper payments involving hundreds of millions of taxpayer dollars that receive very 

little attention, and those are the overpayments, double payments, 

and other type of mistaken payments that are made by Federal 

agencies using taxpayer dollars to vendors and contractors. 

Those type of payments happen all the time, but the information 

on the extent of that problem and what is being done to recover 

those payments that do not receive as much attention in the GAO 

report or the OMB testimony is apparently—and I am sorry I 

missed it—for instance, take a look at Appendix II of the GAO’s 

prepared statement, item four, involving the Department of Defense.1

The chart shows that in 2006, the DOD identified $550 million 

in improper payments under the category of commercial pay, which 

means payments made to vendors or contractors. 

So that is half a billion dollars in improper payments. In 2007, 

however, the figure disappears. And the category for commercial 

payments shows zero and my staff has been told that the Department of Defense did not report any figure in 2007 for this category 

because at least as a possibility the Department was advised that 

vendor and contractor payments are not covered by the Improper 

Payments Information Act. 

Now, that is not my understanding of the Act, and I am just 

wondering, GAO, what is your interpretation of the Improper Payments Information Act? Should Federal agencies be reporting improper payments to vendors and contractors as well as improper 

payments to employees or program beneficiaries? 

Mr. WILLIAMS. Senator Levin, as I stated just before you came 

in, it is GAO’s opinion that those categories of activities that you 

just described, we call those improper payments also, and they 

should be included under the requirements of IPIA. 

21 

Senator LEVIN. All right. Now, if this territory has been covered, 

I am not going to repeat it. 

Senator COBURN. Go ahead. We covered it on recovery audits, 

but we did not talk about it at this point. 

Senator LEVIN. OK. All right. 

Now, why did the Department of Defense decide to stop reporting 

a category of improper payments last year, which was about half 

a billion dollars? Mr. Werfel, do you know? 

Mr. WERFEL. Well, I think that we might have a numbers question here, but let me tell you what I do know, and that is that 

under the Improper Payments Information Act, which came out 

and was enacted about the same time as the Recovery Audit Act. 

The Improper Payments bill requires agencies to do an estimate of 

their improper payments, and we interpret that to go out and pull 

a sample of payments and then extrapolate that sample to a universe and say what your payment error is; whereas the Recovery 

Auditing Act requires more of a targeted review—every risk payment and figure out whether their errors were. 

And we look at that and say that makes sense to us. 

For contracts, where have that type of control and direct knowledge of the specific things going on with those payments, we should 

be doing more universal look at every payment versus a Social Security or a food stamp situation where sampling makes more sense. 

Senator LEVIN. Was that interpretation in effect in 2006? 

Mr. WERFEL. It has been in effect, from OMB’s standpoint and 

the way we have structured our guidance, since Fiscal Year 2004. 

Senator LEVIN. So that there was zero in 2007 and half a billion 

in 2006? 

Mr. WERFEL. According to, again, and I hope we do not have a 

numbers problem here, but according to my data that I have from 

the Defense Department, they subjected under Recovery Auditing 

Act $189 billion—— 

Senator LEVIN. No, I am talking about the Improper Payments 

Information Act. It was half a billion dollars in 2006 and zero in 

2007; is that correct? 

Mr. WERFEL. I am not aware of that. My information indicates 

that the Department of Defense did, in fact, report improper payments in their non-contract payments, such as military health and 

military pay, in Fiscal Year 2007, and I can get you those numbers. 

Senator LEVIN. No, that is not what I am referring to, though. 

I am talking about vendor and contractor payments. According to 

my staff, in 2006 there was $550 million in improper payments 

under that category in 2006 and zero in 2007; is that what your 

data showed? 

Mr. WERFEL. I do not have that information. 

Senator LEVIN. Well, let’s find out from Mr. Williams. 

Mr. WERFEL. Yes. 

Mr. WILLIAMS. Senator Levin, that is the information that we 

have pulled from the PAR Report, and I am just asking the staff 

right now if we can bring that up here, so we can take—— 

Senator LEVIN. All right. Assuming that my staff is right, and 

they have got a thousand percent—— 

Mr. WILLIAMS. OK. 

22 

Senator LEVIN [continuing]. Except when they do not, assuming 

that is true, what is the explanation, Mr. Werfel? 

Mr. WERFEL. Well I would say, first of all, that I would hope that 

OMB in putting together our report that was issued today would 

pick on an outlier like that. 

Our approach has been, and we have asked agencies to comply 

with, that for benefit and individual payments that they report 

under the Improper Payments Information Act and for vendor payments they report under Recovery Auditing. And for both—— 

Senator LEVIN. But you said that was true in 2006, too? 

Mr. WERFEL. It has been true since Fiscal Year 2004. 

Senator LEVIN. OK. Take a look at page 28 if you would then of 

this report? 

Mr. WERFEL. I will. 

Senator LEVIN. I am sorry—the GAO testimony. 

Senator COBURN. Can I interject here for a second? 

Senator LEVIN. Of course. 

Senator COBURN. The guidance that OMB gives is 2.5 percent or $10 million. Well, $500 million is two-tenths of a percent. Therefore, they do not have to report, which is nuts. 

Senator LEVIN. It is not only nuts. It is inconsistent. 

Senator COBURN. Well, the footnote for that zero says that the 

Defense Department did not report. 

Senator LEVIN. Yes, but my question is why. What changed? 

Senator COBURN. I suspect it is because they do not fall under the 2.5 percent or $10 million rule. 

Senator LEVIN. But did they not fall under the same thing in 

2006? 

Senator COBURN. Well, but once—again it is the 2.5 percent because it is such a small percentage even though it is $500 million, 

they have 2 years—they are not required under the—— 

We covered this before you came in. 

Senator LEVIN. OK. 

Senator COBURN. Under the interpretation, OMB’s guidance to 

them. I don’t know if that is right or not. 

Senator LEVIN. No, I think I got it, but that may explain zero in 

2007 that it is wrong guidance I think—I will not speak for anyone 

else in terms of the purpose of the Act. But that is not my question. 

My question is the same guidance you said was in effect in 2006? 

Mr. WERFEL. Yes, and I need to—I think I am going to ask you 

to indulge me and let me get back to you on that, because I do not 

have that information at my fingertips in terms of why that number appeared in 2006 and did not in 2007. 

Senator LEVIN. Right. And I understand what Senator Coburn is 

saying, and that is not an acceptable—— 

Senator COBURN. It is not an acceptable—— 

Senator LEVIN [continuing]. Interpretation for me, either, and I 

will not speak for our Chairman, but I agree with that. That is not 

acceptable, but it also seems to be a change in guidance of some 

kind between those 2 years, and I want to know if that is true, 

and, if not, what explains the zero. That is my question for the 

record. Thank you. And thank you for letting me buzz in this way. 

Senator CARPER. No, not at all. Just before you arrived, we were 

in some back and forth with Mr. Werfel. He had mentioned in his 

23 

testimony that the Administration has asked the Congress to do a 

number of things through appropriations legislation and others to 

enable us to reduce improper payments and do a better job on recovery. 

And it sounds to Senator Coburn and me as if we may have, we 

the Congress, may have used some of those initiatives in our budget resolution for pay fors, to reduce outlays over 5 years, over 10 

years, to enable us to pay for other things. 

But then, when it came time to actually do the appropriation, to 

follow up and make those pay fors possible, we may not have done 

that. And that is I think—that is fertile ground for us to work together and work with the Administration to make sure if that is 

indeed what happened, that we do not make that mistake again. 

Senator LEVIN. Thank you, both. 

Senator CARPER. Yes. Good to see you. Thanks so much for joining us. I have got a couple more questions for the record, Mr. Williams—— 

Mr. WILLIAMS. OK. 

Senator CARPER [continuing]. And Mr. Werfel. Anything else, Dr. 

Coburn? All right. Gentlemen, again we appreciate your being back 

with us today. Mr. Williams, I understand you can stay a bit longer 

for the second panel. If you could do that, we would be most appreciative. 

Mr. WILLIAMS. OK. 

Senator CARPER. But thank you so much. 

Mr. WILLIAMS. Thank you. 

Mr. WERFEL. Thank you. 

Senator COBURN. While you all are being seated, I have to go to 

a Judiciary Committee mark up. 

I just wanted to express my appreciation for the work that you 

do. It is often not appreciated. The importance of it is often not recognized. This Subcommittee recognizes it, and although I will not 

be here to hear your testimony or ask questions I wanted you to 

know how much I appreciate it, and I think I am speaking for Senator Carper as well—the fine work that you do. And we have noticed progress in the last 3 years. I think you all have as well, and 

I think that should be noted. Thank you. 

Senator CARPER. Dr. Coburn, keep them straight on that Judiciary Committee. 

Mr. COBURN. I will do my best. 

Senator CARPER. I know you will. Well, let me take a moment 

here to introduce our second panel. The first we have Charles 

Christopherson, Chief Financial Officer and Chief Information Officer of the U.S. Department of Agriculture. Who is the Secretary of 

Agriculture now? 

Mr. CHRISTOPHERSON. The Secretary is now Ed Schafer. 

Senator CARPER. How is he doing? 

Mr. CHRISTOPHERSON. He is doing wonderful. 

Senator CARPER. Not bad for an old governor, huh? Give him my 

best. 

Mr. CHRISTOPHERSON. Great for a governor. He is a great guy. 

Senator CARPER. Good. Well, we had a couple of governors there. 

Mr. CHRISTOPHERSON. We have. 

24 

Senator CARPER. Yes. Prior to your confirmation by the Senate 

in 2005, you were a co-founder of a consulting firm that specializes 

in company turnarounds and cash management, and you hold an 

MBA from Oregon Executive MBA Program, and you are also a 

CPA. Welcome. 

Next is Anthony Dale, Managing Director of the Federal Communications Commission and he has served in that position I am told 

for about 2 years? 

Mr. DALE. Yes, sir. 

Senator CARPER. All right. In that position, we are told you are 

responsible for the agency’s operations and management functions, 

including the FCC’s financial and accounting activities and that 

you worked at the FCC in a variety of management and staff attorney positions for about a decade? 

Mr. DALE. Yes, sir. 

Senator CARPER. Charlie Johnson is the Assistant Secretary and 

Chief Financial Officer for Resources and Technology at the U.S. 

Department of Health and Human Services. 

Mr. Johnson previously served as a CFO of APA. He was also 

previously the president of the Huntsman Cancer Foundation and 

served as a member and as chair of the Utah State Board of Regents, which oversees all public institutions of higher education in 

the State. 

He was also a chief of staff to the Governor of Utah. Which governor? 

Mr. JOHNSON. Governor Leavitt, now Secretary Leavitt. 

Senator CARPER. I have heard that name. I was with him on 

Monday night, though for the state of the States. Always good to 

see him. Served as chief of staff to Governor Mike Leavitt and 

served as Director of the Governor’s Office of Planning and Budget 

for 2 years. In total, Mr. Johnson has spent 31 years in the practice 

of public accounting, having started at the age of 14. 

Mr. JOHNSON. Exactly. 

Senator CARPER. Finally, we have David Rust, the Acting Deputy 

Commissioner for Disability and Income Security Programs at the 

Social Security Administration, and formerly the Executive Secretary of the Social Security Administration. 

When were you the Executive Secretary, Mr. Rust? 

Mr. RUST. Actually, I still am. 

Senator CARPER. OK. But you are not former. You are currently? 

Mr. RUST. Correct. 

Senator CARPER. All right. Mr. Rust has previously held a number of leadership positions in the Federal Government, including 

the Department of Health and Human Service and the Department 

of Agriculture. Who was the Secretary when you were at Agriculture? 

Mr. RUST. Several of them. Secretary Espy, Secretary—get two 

or three of them in there. 

Senator CARPER. OK. I am going to invite you all to proceed with 

your testimony, and, Mr. Christopherson, since I introduced you 

first, we will ask you to go first. 

Your whole statement will be made a part of the record, and you 

can summarize as you see fit. 

25 

1The prepared statement of Mr. Christopherson appears in the Appendix on page 88. 

STATEMENT OF THE HON. CHARLES R. CHRISTOPHERSON, 

JR.,1 CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF AGRICULTURE 

Mr. CHRISTOPHERSON. Thank you, Mr. Chairman. Mr. Chairman 

and Ranking Member Coburn, and Members of the Subcommittee, 

thank you for your invitation to appear before you today to provide 

the Subcommittee with the status of the U.S. Department of Agriculture’s progress on the President’s goal to eliminate improper 

payments. 

I am Charles Christopherson, the Chief Financial Officer and 

Chief Information Officer at the USDA. And my role as the Chief 

Financial Officer is to lead the Department’s efforts in eliminating 

improper payments. 

At USDA, we believe that eliminating improper payments is not 

only important but it is essential. The Department obligates about 

$100 billion of taxpayer’s money annually through more than 300 

programs worldwide. 

Many of USDA programs operate through an extensive network 

of Federal, State, and local cooperators. We have a complex tapestry of systems. Many date back to the 1970s and 1980s. These 

old systems often require our employees to complete manual reviews of qualifying paperwork for USDA programs. 

While we still face many challenges, USDA has made progress 

in identifying programs that are susceptible to significant improper 

payments. 

In Fiscal Year 2006, we increased the number of programs measured and we clarified the measurement and reporting criteria for 

improper payments. Then in Fiscal Year 2007, USDA achieved a 

major milestone by measuring all programs with significant risks 

for improper payments. 

This includes 16 programs with total outlays of over $72 billion. 

The measurement of these programs estimated that for Fiscal Year 

2007 improper payments totaled $4.4 billion, an error rate of 6.1 

percent. This is a decrease from Fiscal Year 2006 with improper 

payments of $4.6 billion and an error rate of 7 percent. 

I believe it is important to note that this reduction occurred even 

though two additional nutrition assistance programs were measured and reported for the first time in Fiscal Year 2007. 

In Fiscal Year 2006, we were transparent with both the Congress 

and our employees on the improper payment rates in the Farm 

Service Agency. This transparency, along with dedication of FSA’s 

employees, helped us to decrease the rate of improper payments in 

their seven high risk areas in Fiscal Year 2007. 

This progress was made through reinforcement of administrative 

procedures, implementation of checklists, and the implementation 

of data matching process with the Social Security Administration’s 

Death Master File. 

In Fiscal Year 2007, USDA’s Food and Nutrition Service measured for the first time the National School Lunch Program and the 

School Breakfast Program. The estimated amounts of improper 

payments, including under and overpayments for the School Lunch 

Program, were $1.4 billion, an error rate of 16.3 percent. The estiVerDate Aug 31 2005 10:26 Sep 25, 2008 Jkt 041449 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 P:\DOCS\41449.TXT SAFFAIRS PsN: PAT
26 

1The prepared statement of Mr. Dale appears in the Appendix on page 96. 

mated amount of improper payments, including under and overpayments for Breakfast, were $520 million and an error rate of 24.9 

percent. 

FNS has worked closely with OMB, Congress, the States, schools 

and advocacy group for two decades to better understand the improper payments in the Food Assistance Programs and to find ways 

to reduce them. 

In an effort to reduce the number of improper payments, FNS 

has developed and requires annual training for schools on certification and accountability issues. FNS employees provide technical 

assistance to States and to schools to help: First, reduce the payments of the administrative errors; second, improve program integrity; third, improve compliance with program nutrition; fourth, improve compliance with menu planning standards; and, last, increase the accuracy of meal counts. 

Through this same type of proactive partnership, FNS has seen 

improvements in food stamp program error rates that bring it to 

5.99 percent. This improved performance reflects the effective partnerships with States administering—or the State administering 

agencies. Twenty-five States now have an error—or have payment 

accuracy rate greater than 94 percent. 

USDA agencies often work together to reduce improper payments. The Natural Resources Conservation Service, the Farm 

Service Agency, Rural Development, and the Agricultural Marketing Service staffs meet monthly to discuss and resolve overlapping issues. 

The result of this interagency communication and the program 

integration has reduced improper payments related to the conservation easements and farm subsidies. 

We also continue to improve our processes and systems. As an 

example, the Department is currently in the midst of implementing 

a paperless invoice tracking and processing system that will improve the accuracy and efficiency, and thus reducing the risk of 

making improper payments. 

Prompt pay interest should be dramatically reduced when this 

system is fully implemented. 

In closing, I would like to thank the Subcommittee for this opportunity to share the status and progress of USDA on this important 

subject. We feel that in this last couple of years that we have seen 

some very dramatic changes at USDA as we have included additional programs and as we have also adjusted our guidance as a 

management team at USDA. So thank you, sir. 

Senator CARPER. Thank you, Mr. Christopherson, and I look forward to coming back and asking you a couple of questions. Mr. 

Dale, you are recognized. 

STATEMENT OF ANTHONY J. DALE,1 MANAGING DIRECTOR, 

FEDERAL COMMUNICATIONS COMMISSION 

Mr. DALE. Good afternoon, Mr. Chairman. Thank you for the opportunity to appear before you today. 

In November 2007, the FCC reported for the first time an estimate of improper payments affecting one of our programs, the UniVerDate Aug 31 2005 10:26 Sep 25, 2008 Jkt 041449 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 P:\DOCS\41449.TXT SAFFAIRS PsN: PAT
27 

versal Service Fund. This afternoon, I will provide a summary of 

the steps we have taken to assess, measure, and address improper 

payments. 

The Universal Service Fund (USF) helps to ensure access to telecommunications services for consumers in high cost and rural 

areas, and promotes access to advanced services for schools, libraries, and health care service providers in rural areas. 

It consists of four programs: The High Cost Program, the Schools 

and Libraries Program, the Low-Income Program, and the Rural 

Health Care Program. The total annual size of the program is 

about $7 billion a year. 

The Fund is administered by a non-profit corporation, the Universal Service Administrative Company, that receives and reviews 

applications for benefits, disburses funds to beneficiaries, and collects funds from service providers, and performs certain oversight 

functions under the oversight of the Inspector General. 

In March 2004, the Commission performed a risk assessment 

and concluded that two USF programs, the High Cost Program and 

the Schools and Libraries Program, were at risk for improper payments. 

To estimate improper payments, the Commission relied on the 

expert audit oversight of the Inspector General. 

The Inspector General oversaw the completion of a statistically 

valid sample of audits of program beneficiaries and contributors. 

The IG’s audits examined more than $825 million in disbursements 

and more than $450 million in contributions. This was the largest, 

most comprehensive examination of Universal Service Fund beneficiaries and contributors done to date. 

The Inspector General concluded that, in general, the audits indicated compliance with the Commission’s rules, although erroneous 

payment rates exceeded 9 percent in most USF programs. 

The specific erroneous payment rates the IG identified were: 16.6 

for the High Cost Program, 12.9 percent for the Schools and Libraries Program, 9.5 percent for the Low Income Program, 20.6 percent 

for the Rural Health Care Program, and 5.5 percent for Contributor payments. 

The IG reported that improper payments to USF beneficiaries 

could be more than $900 million and incorrect payments from USF 

contributors could be more than $350 million. 

The Inspector General plans to significantly expand the audit 

program in order to provide a more precise estimate of the error 

rate. 

We expect that these upcoming audits would be used to determine the baseline of improper payments in the program. The IG 

identified several causes for improper payments, including inadequate document retention, inadequate accounting systems, weak 

internal controls, a lack of compliance with Commission rules, 

problems with the application review process, incorrect interpretation of program rules, data entry errors, and inadequate supervision of consultants. 

We are concerned about the error rates the Inspector General 

identified. Our primary goal is to safeguard the Universal Service 

Fund so as to ensure the program works as Congress intended. 

28 

1The prepared statement of Mr. Johnson appears in the Appendix on page 102. 

We are working hard to address the problem identified by the Inspector General. 

First, we are working to recover any improperly disbursed funds. 

After the IG released his initial analysis of the audit results, we 

instructed the non-profit administrator to start recovering funds, 

and this process is currently underway. 

Second, the Commission adopted rules that address many of the 

IG’s problems that he had identified in the audits. 

The Commission’s new rules establish tighter document retention 

requirements, provide for a uniform standard for recovering improperly disbursed funds, provide for better oversight of the administrator, and provide stricter penalties for contributors who fail to 

make timely payments. 

In addition, the Commission’s new rules also allow the Commission to debar any party from continuing to participate in the program if they had defrauded any of the programs. 

Third, we directed the administrator to carefully review the IG’s 

audit results and recommend additional steps the administrator 

should take to prevent and reduce potential improper payments. 

We also directed the administrator to identify any additional resources that may be needed to further safeguard the Fund. We are 

currently reviewing the administrator’s reports to determine what 

additional actions may be required. 

Fourth, the Commission tightened oversight of the administrator 

by establishing a Memorandum of Understanding to ensure the administrator performs its functions in an efficient, effective manner. 

Fifth, program participants that violated the FCC’s rules could 

be subjected to potential enforcement action. 

And finally, we sought $21.38 million of additional funding for 

the Inspector General to enhance oversight of the Universal Service 

Fund. We recently received authorization for this funding level, 

and the IG is ramping up his oversight accordingly. 

Thank you for this opportunity to report on the Commission’s efforts in this area. I will be happy to answer any questions you may 

have. 

Senator CARPER. Good. And I will have some. Thank you very 

much for that statement. Mr. Johnson, Governor Johnson. 

STATEMENT OF CHARLES E. JOHNSON,1 ASSISTANT SECRETARY FOR RESOURCES AND TECHNOLOGY AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Mr. JOHNSON. Thank you. Thank you, Chairman Carper, for your 

leadership, along with Dr. Coburn. It is very important to have 

that kind of leadership over this program. 

I would like to start with some good news. For the very first 

time—— 

Senator CARPER. Let us go to the next witness. We do not have 

time for that good news, Mr. Johnson. Well, in your case, we will 

make an exception. 

29 

1The charts referred to appear at the end of the prepared statement of Mr. Johnson and appears in the Appendix on page 118. 

Mr. JOHNSON. OK. We have had a winding road, a stop and 

start, but for the first time for 2008, we will report on all seven 

of our high-risk programs. So you will have numbers on all seven. 

It has been a long time coming. 

Senator CARPER. So that is for 2008? 

Mr. JOHNSON. Yes. We will report for—— 

Senator CARPER. All right. For 2007, how many of the high-risk 

programs did you have? 

Mr. JOHNSON. Well, we had three and then partials on others. 

And so we will have the full national error rates for 2008. 

Senator CARPER. My guy Leavitt is pretty good, yes? 

Mr. JOHNSON. Yes. 

Senator CARPER. We should keep him on. 

Mr. JOHNSON. I think we should. 

Senator CARPER. All right. Maybe we should keep you on. 

Thanks. Go ahead. Thanks for the good news. 

Mr. JOHNSON. Further good news is that for those mature programs, that is, Medicare, Head Start, and Foster Care, we have 

shown that the rates have dropped considerably since 2004. 

Senator CARPER. Just explain those charts, if you will.1

Mr. JOHNSON. OK. On the far left, it is Medicare and it shows 

the rate in 2004 around 10 percent and then a drop to around 4 

percent for the current year. That is Medicare. On Foster Care, 

about the same, a little over 10 percent and drop below 4 percent. 

And then on Head Start, it was about 4 percent, down to something less than 2 percent. 

So that is the mature programs. And so I wanted to start with 

that good news and also that our recoveries are up, and I will get 

to that later. 

Senator CARPER. All right. 

Mr. JOHNSON. But for the first time then this year, we reported 

a partial disclosure of our Medicaid rate. That will be rather startling, an 18.5 percent error rate, which, as you indicated, translates 

to $13 billion, and if you add the State share, it is $22 billion. 

Now, that number will go down because most of it was with the 

documentation. If you put that other chart up? I would like to just 

compare that so—yes, the third chart, please. 

I would like to compare it because it reflects where we were with 

documentation when we started with Medicare in 2004. And you 

can see that the blue—— 

Senator CARPER. Just explain them for us. 

Mr. JOHNSON. Yes. 

Senator CARPER. They are a little hard to see from this distance. 

Mr. JOHNSON. Yes. I am just going to give you—— 

Senator CARPER. I can tell they are charts. I can tell that. 

Mr. JOHNSON. Good. And that is blue, and that shows 70 percent 

in Medicare, which would be the documentation error rates. 

For Medicaid, it is 82 percent. So we start very high with documentation errors, and then we work it down. And so as you get the 

documentation in, then you start to find more errors in the things 

30 

you really care about—medically necessary, coding errors, and that 

sort of thing. 

So, I think we are basically on the right track. 

Our four other programs depend almost entirely on eligibility, 

and eligibility is really where you get recoveries. If you have a person that is eligible, they are entitled to all of the benefits and 

ought to be. If you have someone that is not, they ought to be cut 

off. And it is pretty black and white in eligibility. 

In general, we have eligibility on individuals or we have it on 

providers. And so we are working that eligibility side very hard. 

But this is all about results. I mean, it is fine to measure error 

rates and it is fine to get percentages, but a statistical sample is 

taken and then applied to the whole. But you cannot recover from 

a statistical sample. You can only recover from a case-by-case one 

at a time, find out who is a violator, who is not. 

And so we use some of the things that Mr. Werfel talked about— 

the data matching systems, public assistance data matching systems between us and various Federal agencies and State agencies. 

We use the National Directory of hires. Just a couple examples, 

if I may. 

In New York, by using the public assistance databases, since— 

from 2003 to 2007, they removed 26,000 individuals from the active 

rolls at a savings of $192 million. Now, Pennsylvania, 7 years, 

13,000 removed, a savings of $73 million. On the National Directory of hires, we have about 82 percent of our States that are now 

using that—82 percent of the TANF covered population. 

So we are making good progress there. 

The other big thing that happened this year was our recovery 

audit contracts on Medicare. We had three pilot States. We gave 

them $239 billion in claims. That is billion dollars in claims. So you 

can see the size of our program. They recovered—— 

Senator CARPER. Say that again? You gave them how much in 

claims? 

Mr. JOHNSON. We gave them in claims to examine $239 billion 

between three States. And they have recovered to date on that 

mass, $432 million. So we are starting to generate some genuine 

money. 

That program is not without some controversy, but we have been 

working with Congress and others, and we are going to expand it 

to all 50 States, because it has proven to be a very lucrative source 

of recoveries. 

Senator CARPER. And the monies that are recovered, what do we 

do with these? What do you all do with those? 

Mr. JOHNSON. Well, that is an interesting thing. First, these are 

contingency-based contracts, so the contractor does get a piece of 

the recoveries. And then the remainder goes to Treasury or into the 

Trust Funds, depending on the nature of it. 

Senator CARPER. All right. Thank you. 

Mr. JOHNSON. On our fraud and abuse efforts, that is, as has 

been pointed out from Dr. Coburn, we have had over $12 billion in 

10 years on that portion of it. And then our Medicaid Integrity Program is $13 for every $1 spent. The last number I saw it was something like a recovery of $82 billion. 

31 

1The prepared statement of Mr. Rust appears in the Appendix on page 121. 

Senator CARPER. You mentioned that you have been working 

with contractors in three States for Medicare recovery? 

Mr. JOHNSON. Right. 

Senator CARPER. And you hope to extend that to the other 47 

States? 

Mr. JOHNSON. Correct. 

Senator CARPER. I saw somewhere in testimony I thought you 

might be able to do that by Fiscal Year 2010? Is that correct? 

Mr. JOHNSON. We are moving onto it this year. I do not know 

how quickly we will get all States onto it, but we are moving very 

rapidly. We have had a lot of negotiations to take the pilot program 

and adapt it to something that is more acceptable to both the Congress and the States. 

I cannot tell you exactly the timeline, but we are expanding it 

to all 50 States. 

Senator CARPER. Could you let me know that for the record? 

Mr. JOHNSON. Yes, we will get to you. 

Senator CARPER. If somebody would just let me know for the 

record. Thanks very much. 

Mr. JOHNSON. Yes. Finally, I would like to talk about this resources issue and the ability to sustain these programs on recovery. 

I mentioned if you have a recovery audit, and you give a contractor a percent of their findings, that is covered. 

But we had on our fraud and abuse, we had $383 million in the 

Senate past appropriations bill; in the Omnibus bill, zero. We had 

about $6.2 million for TANF, Foster Care, and Child Care in the 

bill. When we received the Omnibus back, zero. And so these numbers are being stripped out at the end, as Congress finally passes 

these bills. So we could use a little help in that area. 

Senator CARPER. Great. Could I just ask you to be a squeaky 

wheel on that point, will you? 

Mr. JOHNSON. Well, we will, and we will continue. 

Senator CARPER. Be real squeaky. 

Mr. JOHNSON. And Secretary Leavitt talks about this a lot. 

Senator CARPER. Good. Well, make sure he talks some more to 

me, too. Thanks. 

Mr. JOHNSON. Thank you. 

Senator CARPER. All right. Thank you, sir. Mr. Rust. 

STATEMENT OF DAVID RUST,1 ACTING DEPUTY COMMISSIONER FOR DISABILITY AND INCOME SECURITY PROGRAMS, U.S. SOCIAL SECURITY ADMINISTRATION 

Mr. RUST. Mr. Chairman, before I begin, my aging memory has 

recovered and the five Secretaries I worked for were Madigan, 

Espy, Glickman, Veneman, and Johanns. So it was a long run over 

there. 

Senator CARPER. Some pretty good names there. 

Mr. RUST. I would also like to just take a second before I begin 

to thank Mr. Werfel for his kind remarks about Social Security Administration’s (SSA’s) attempts to address the improper payments 

issue. 

32 

Senator CARPER. I do not think he is still here. Is he? OK. Do 

you hear that? 

Mr. WERFEL. You are welcome. 

Senator CARPER. A shout out for you, Mr. Werfel. There you go. 

We don’t get those everyday. 

Mr. RUST. Thank you for the opportunity to discuss several of the 

efforts that the Social Security Administration is undertaking to 

strengthen and maintain the integrity of its programs. 

As you said in the introduction, I am David Rust. I am currently 

the Executive Secretary of the Agency and since August I have 

been the Acting Deputy Commissioner for Disability and Income 

Security Programs. My responsibilities include oversight and coordination of policy and operations for a wide range of programmatic issues for the Old Age and Survivors Insurance (OASI), 

Disability Insurance (DI), and Supplemental Security Income (SSI) 

Programs. 

I would like to just make an aside and say that both Commissioner Astrue and I were saddened to learn of the death of former 

Social Security Commissioner Robert Ball this week. He left an indelible mark on the Social Security Administration, and his programs and his leadership will be long remembered. 

Senator CARPER. Wait. He died this week? Do you know? 

Mr. RUST. Yes, he did, sir. 

Senator CARPER. Oh, he was a giant, was he not? 

Mr. RUST. A giant and at the age of 93. 

Senator CARPER. I came to the Congress in January 1983, and 

we were grappling at the time with the Social Security Trust Fund. 

It was about to go under, and my recollection is the Commission 

that was chaired by Alan Greenspan included a bunch of people, 

among them Senators Dole and Moynihan and Congressman Pepper, and others. My recollection was that Mr. Ball was a big part 

of that. 

Mr. RUST. And he remained active well until his recent illness 

on issues related to social insurance. So he was a towering figure 

at Social Security, our longest serving Commissioner, as a matter 

of fact. 

I would like to take this opportunity to thank the Members of the 

Subcommittee for your support on behalf of SSA in the appropriations process. The $148 million appropriated above the President’s 

request will make a real difference in our ability to meet the needs 

of the American people. 

Last year, the Social Security Administration paid $576 billion in 

retirement, survivor, and disability benefits to nearly 50 million Social Security beneficiaries and nearly $40 billion to 7.3 million Supplemental Security Income beneficiaries. 

Our beneficiary rolls continue to grow. However, it is important 

to note that while our workloads are increasing with the benefit 

population, our resources have been dwindling. We have had to reduce some of our stewardship activities in order to devote necessary resources to basic service delivery, and our payment accuracy has suffered as a result. 

Let me give you an example: In Fiscal Year 2006, our payment 

accuracy with respect to overpayments in the Supplemental SecuVerDate Aug 31 2005 10:26 Sep 25, 2008 Jkt 041449 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 P:\DOCS\41449.TXT SAFFAIRS PsN: PAT
33 

rity Income Program was 92.1 percent, a significant decline from 

the Fiscal Year 2005 rate of 93.6 percent. 

We directly attribute the decrease to the reduction in the number 

of Supplemental Security Income redeterminations that we were 

able to conduct. The redeterminations are periodic reviews of nonmedical SSI eligibility requirements. 

In Fiscal Year 2004, we processed over 2.2 million redeterminations. In Fiscal Year 2005, that number dropped to 1.7 million, and 

in Fiscal Year 2006 and Fiscal Year 2007, we conducted just over 

1 million of redeterminations. 

We would like to explain that these and other program integrity 

issues also need additional resources. The President’s Fiscal Year 

2009 budget includes a proposal similar to the one submitted last 

year for Congress to provide SSA with funding outside the spending caps in the budget, specifically for program integrity activities. 

This funding would support additional SSI redeterminations and 

the continuing disability reviews (CDRs), our most important tools 

in maintaining and improving program stewardship. 

CDRs are periodic reviews of the medical eligibility for SSI and 

disability benefits. CDRs are estimated to save about 10 program 

dollars for every dollar spent conducting them, while the additional 

SSI redeterminations are estimated to save about $7 for every program dollar spent. 

Another effective debt reduction tool is the Access to Financial 

Information Project, which automates access to financial data. Unreported bank accounts and account balances that are in excess of 

the prescribed limits are one of the leading causes of overpayments 

in the SSI Program. 

The resources available for this project constrains us to only 

using it in a few States. Additional funding would help us to eliminate many of the SSI overpayments. 

We also have comprehensive debt collection programs that use 

both internal and external tools to collect what we are owed. Internal debt collection methods include benefit withholding and crossprogram recovery. External methods include tax refund offsets, administrative wage garnishment, and Federal salary offset. 

In conclusion, Mr. Chairman, I want to assure you that SSA is 

committed to ensuring that the public receives the benefits they 

are due and assuring taxpayers that the Trust Funds and general 

revenue funds are accurately and efficiently spent. We are responsible for over $610 billion in OASI and SSI benefit payments annually, and we take seriously our stewardship responsibility. 

We focus our program integrity efforts on those activities that 

yield significant returns on investment, and we believe that our efforts have yielded significant results so far. 

We know that if Congress provides SSA with sufficient administrative funding, we will be able to do even more. 

Again, I want to thank the Subcommittee for giving me this opportunity to discuss our program integrity activities. As always, we 

welcome this opportunity to work with you and to provide any additional information you may need. And I will be happy to answer 

any questions you may have. 

34 

Senator CARPER. Mr. Rust, thank you very much, and thanks for 

the work that you all are doing, the good work that you are doing 

on this front. 

I want us to start off by focusing on this issue of what more the 

Congress could be doing to support you in your efforts. I think you 

call it program integrity activities. It sounds like there is more that 

we ought to be doing, could be doing, or that you could be asking 

us to do on program integrity activities. 

Where are we falling short, we, collectively, the Congress? It 

sounds like the President is asking for resources in his budget to 

do these various things, these activities, and it sounds like we are 

not providing those to the extent that maybe we should. 

Mr. RUST. Until the current year, as I stated, with a concerted 

effort on the part of the Congress, we received the President’s 

budget plus a little bit more, $148 million over the President’s 

budget. 

But for the previous six budget requests, we were almost a billion dollars under the President’s budget in terms of the actual appropriations, about $919 million cumulatively over those 6 Fiscal 

Years. 

Senator CARPER. I am sorry. Say that again. I lost that thought. 

Mr. RUST. In Fiscal Year 2008, the Congress appropriated the 

President’s budget plus a little bit more. In the six preceding years, 

we were under in every one of those years, and the aggregate for 

those 6 years was almost a billion dollars, $919 million below the 

President’s budget request. 

Senator CARPER. So in 2008, the current Fiscal Year, we actually 

appropriated the President’s budget request to support these activities? 

Mr. RUST. The first time was Fiscal Year 2008, the current year. 

Senator CARPER. Well, that makes me still—— 

Mr. RUST. In fact, if you go back to 1975—I want to double check 

this—I believe we have only received the President’s budget request five times in the last 33 years. 

Senator CARPER. Yes. 

Mr. RUST. Part of our problem is that we are an agency under 

stress because we have the baby boomers beginning to retire. We 

have a smaller workforce. In the 1970s and 1980s we had about 

85,000 to 87,000 employees, and now we are down to about 60,000, 

a number that matches where we were in 1973. So in terms of 

human resources and other resources, we are an agency under 

stress. 

Senator CARPER. OK. Earlier, when I think Mr. Werfel was up 

here, I was suspecting that the President asked for certain resources to support these program integrity activities; was asking 

for them in his budget. We were putting language in the budget 

resolution at least paying lip service to supporting those requests, 

but then when we were actually appropriating the money at the 

end of the line, we were not necessarily providing the dollars that 

were reflected either in the request or in the budget resolution. 

And now, it sounds to me like we actually, at least with respect 

to the Social Security Administration, that we actually did our job 

with the fiscal stewards and the partner that you had been looking 

for, at least for this current Fiscal Year. 

35 

Mr. RUST. In the current Fiscal Year, yes, sir. 

Senator CARPER. Well, that is good. Mr. Johnson, can you share 

with us your perspectives from your department in the same regard and that is us being a fiscal steward and a partner with the 

Administration on these activities? 

Mr. JOHNSON. Yes. Well, again, sticking with the resources side 

of it for just a moment, as I indicated, Congress did at least beginning—it was more than lip service. I mean, you took those—that 

$383 million on fraud and abuse right to the very end, but on the 

very last night that was stripped, and I guess we need more people 

looking out for that on that very last night. 

But the other thing I was thinking of on these recovery auditors, 

where we do—— 

Senator CARPER. You may recall—just let me interrupt you 

again. 

Mr. JOHNSON. Yes. 

Senator CARPER. We had, as you recall, a disagreement with the 

Administration. The Administration was asking for a lot of extra 

money, a lot of it to go for the War in Iraq. But he was asking for 

about $190 billion more in this Fiscal Year for the War in Iraq and 

Afghanistan, and we had proposed spending $22 billion more than 

he had asked for in domestic discretionary spending. 

And at the end, he said—basically, the President said if any appropriations bills exceed that $22 billion difference, I am going to 

veto those. 

Mr. JOHNSON. Yes. 

Senator CARPER. And I think my recollection is at the 11th hour, 

we made some tough choices as to where to trim back in order to 

stay within the President’s parameters. And that is where the 

money I think—— 

Mr. JOHNSON. I know. We were caught in the tough choices problem, and I understand. 

The other thing, though, is on recovery audit contracts, and this 

issue of whether or not you can pay contingent payments. I mean, 

there is a lot of controversy about that. You have—Congress now 

has been allowing that in some cases, and this Medicare breakthrough is very large for us. It does not mean that there will not 

be a lot of pushback on that whole issue. 

But that actually works. It gives us our resources paid for as a 

result of the construction of the contract itself, contingent payments. 

But I suspect that it will be—— 

Senator CARPER. Sort of like lawyers working on a contingency 

basis; is that right? 

Mr. JOHNSON. Well, yes, and we are not doing it—— 

Senator CARPER. Yes. 

Mr. JOHNSON [continuing]. But they are. 

Senator CARPER. Yes. 

Mr. JOHNSON. Yes. 

Senator CARPER. But what is happening with these contractors? 

Mr. JOHNSON. Well, I am just saying there is a lot of pushback 

on that, I mean, both from those who say it is an abusive tactic— 

if you start to pay them on a contingency basis, they will be rather 

abusive. It certainly has to be controlled, but I do not think elimiVerDate Aug 31 2005 10:26 Sep 25, 2008 Jkt 041449 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 P:\DOCS\41449.TXT SAFFAIRS PsN: PAT
36 

nating that, which some are suggesting that we should eliminate 

that type of contract, I would just say that it is one that works for 

us. I think it works for the taxpayer; and after all that we ought 

to be working for the taxpayer. 

Senator CARPER. Oh, for sure. How can we work for the taxpayers, but eliminate the abuse or safeguard against the abuse 

that some have cautioned against? 

Mr. JOHNSON. Yes. Well, again, we have looked at this on other 

fraud and abuse cases. Right now, the fraud and abuse cases are— 

we get the money appropriated and then they go out and find and 

abuse. 

But that is another case where it is potential to use contingency 

contractors. I am just saying there is a potential for expanding that 

concept. 

Senator CARPER. OK. All right. Let me come back to Mr. Dale. 

I am not sure I really understand the history of how these improper payments were identified within the FCC. 

Mr. DALE. Yes, sir. 

Senator CARPER. I think I understand the nature of the program, 

the Trust Fund, if you will, and how it is created, but when was 

the Trust Fund first created? Do you recall? 

Mr. DALE. After the Telecommunications Act of 1996. 

Senator CARPER. So about a decade ago? 

Mr. DALE. Yes, sir. 

Senator CARPER. And from the Trust Fund, monies began being 

disbursed roughly when? 

Mr. DALE. About 1998, 1999—that timeframe. 

Senator CARPER. And when did somebody start looking to determine whether or not there were improper payments being made? 

Mr. DALE. Well, there were audits of various aspects of the program that started as early as about 1999. I think between the period 1999 and before this most comprehensive set of audits that the 

Inspector General did, there were about 500 or it might have been 

about 600 audits that have been done of different beneficiaries of 

the program, typically of the Schools and Libraries Program, but 

some of the other programs as well as part of the USF. 

So over about a 6-year period, there were about 600 audits that 

were done. 

Senator CARPER. OK. How much was identified in the IG’s work 

in terms of—you mentioned this, but I just do not recall, in terms 

of improper payments—— 

Mr. DALE. Sure. 

Senator CARPER [continuing]. And for what year? 

Mr. DALE. The Inspector General did his audit work for the year 

2005. 

Senator CARPER. Remind me again what was discovered in improper payments in that year? 

Mr. DALE. Sure. Well, there are sort of two data points here. 

There were direct improper payments to beneficiaries that were audited, and then his projection to the universe, his extrapolation of 

those results. 

The first data point, which are direct improper payments that he 

had identified, is in the vicinity of about $46 million of beneficiaries 

of the program that were found to have various problems of one 

37 

sort or another. And then extrapolated to the universe of program 

participants, the Inspector General estimates more than $900 million could be at risk for improper payments. 

Senator CARPER. All right. Now, that was for 2005? 

Mr. DALE. Yes, sir. We reported it in our PAR for 2007 at—he 

used data for the period 2005—— 

Senator CARPER. PAR stands for President’s—what is it? 

Mr. DALE. Oh, I am sorry—Performance and Accountability Report. I have trouble keeping these—— 

Senator CARPER. So do I. 

Mr. DALE [continuing]. In my head sometimes. 

Senator CARPER. You only have one agency to worry about. 

Mr. DALE. Sure. The Inspector General started his audits in the 

summer of 2006, did about 460 audits total of program participants, both beneficiaries of the program and also contributors in 

the program, and then, from getting the audits started, auditors up 

and running, working with independent accounting firms to actually conduct these government auditing standard audits of beneficiaries and their compliance with Commission rules, between that 

time, summer of 2006 and about 14 months later, he delivered the 

report to us with the estimate and the projections across the entire 

program. 

Senator CARPER. All right. So, if I understand, the program was 

created in 1997 by the Telecom Act. Monies began flowing by 

1999—— 

Mr. DALE. Yes, sir. 

Senator CARPER. The hundreds of audits it sounds like were done 

between 1999 and 2005—— 

Mr. DALE. Yes, sir. 

Senator CARPER. And then the IG did his work. Was it before 

2005? 

Mr. DALE. It did the work; started in 2006, but the data he was 

using was 2005. 

Senator CARPER. Yes. And it sounds like the IG found a whole 

lot of improper payments? 

Mr. DALE. Yes, sir. He found error rates above 9 percent and 

most of—actually in all the programs except the Contributor Program. 

Senator CARPER. Now is that consistent with what was found for 

the earlier audits done between say, 1999 and 2004? 

Mr. DALE. No, it is not. It is higher error rates than were 

found—— 

Senator CARPER. A lot higher? 

Mr. DALE [continuing]. In error rates. It is hard to do an applesto-apples comparison because the audits that were done beforehand 

were not a statistically valid set of audits and some of the programs were not audited with the sort of rigor that the Inspector 

General did this time. 

Senator CARPER. Was there anything in the audits that were 

done between 1999 and 2004 that would suggest improper payments of this magnitude? 

Mr. DALE. No, and, from my understanding, the Inspector General relied on the earlier audit results and using the statistical formula from the Office of Management and Budget determined that 

38 

the number of auditees that would be—or audits that would be taking place in this program, and so the error rates that he was looking at beforehand informed his decisions about the number and 

type of audits to do this go around. 

And looking at these error rates, there is also an associated margin of error that is outside the Office of Management and Budget’s 

guidance on what the margin of error should be. And so the Inspector General is expanding the number of audits that he is going to 

do going forward so that we can get a more precise estimate of the 

baseline of improper payments in the program. 

Senator CARPER. OK. I think you maybe just answered this, but 

let me just ask it anyway. 

Mr. DALE. OK. 

Senator CARPER. When Mr. Werfel and Mr. Williams were up 

here, I understood them to say that the programs that we have 

been looking at for improper payments since 2004 we have actually 

seen the level, for the most part, of the improper payments diminish over that period of time, because we are focusing on the agencies; we are focusing on them, and they are getting better at doing 

their job. 

Is there reason to believe that you can now drive these numbers 

down? 

Mr. DALE. We certainly hope so. 

Senator CARPER. I hope so, too. 

Mr. DALE. We have been working hard really to exceed the 

standards that you had established about the type of work that we 

need to do. So, when we had identified with our risk assessment 

two programs, and I think this is part of the benefit of having the 

Inspector General do this work, the Inspector General wanted to do 

not just the two programs, but to evaluate compliance with all four 

of the USF programs. 

It has turned out that one of the programs that we thought was 

not at risk, the Low Income Program, had a higher error rate than 

we anticipated. 

So, now, we are at the stage where this year, the Inspector General should complete this expanded audit program for all these 

funds that we have here. 

Senator CARPER. For what years? 

Mr. DALE. I believe he will be auditing for the 2006 period and 

so we plan to get—he has informed me that he expects to get these 

results completed by the end of this Fiscal Year. So we would get 

that in our PAR for 2008, the financial statements that we report 

in 2008. 

Senator CARPER. Now, for the monies that have been identified 

as improper payments in 2005, how do you go about recovering 

those? 

Mr. DALE. Right. There is an administrative process that is established under the Commission’s rules. We work with this nonprofit company that basically issues a letter to those parties who 

have been found to have not complied with the FCC’s rules, and 

we start to take the money back. In some of these previous audits 

that I had mentioned that took place recoveries have been underway. I think we have recovered out of those previous rounds of audits, I think there is about $38 million or $40 million that we have 

39 

already recovered from the earlier set of audits. I had mentioned 

earlier there is something on the order of $60 million to $70 million 

total that is identified for potential recovery out of the Inspector 

General’s audits this time. 

Those recovery efforts are underway. A very small amount has 

been recovered right now just because we are early in the process. 

Senator CARPER. What happens again to the monies that are recovered? How do you dispose of them? 

Mr. DALE. The administrator is supposed to recover the money, 

and they effectively issue a letter and then the parties, the program participants, could appeal the decision or not and so sometimes it falls into litigation. 

So we have some millions of dollars that we have tried to recover 

from various program participants in the past that is currently 

caught up in litigation. 

Senator CARPER. Have any dollars been recovered? 

Mr. DALE. Yes, sir. At least $38 million have been recovered. 

Senator CARPER. And what has happened to that $38 million? 

Mr. DALE. That has gone back into the fund so it can be used 

for the program. And then for the Inspector General’s audits that 

he just completed that are used to estimate our error rates for improper payments, it is a little less than a million dollars has been 

recovered in the past 3 months. And I believe there have been 

something on the order of $5 million or $6 million that has been 

really at the start of the pipeline of recovery and then we are working to recover the remaining. It is about $60 million or $70 million. 

Senator CARPER. OK. Thanks. Mr. Christopherson, I think you 

told us that the School Lunch and School Breakfast Programs are 

now being examined or have been examined for the first time. 

And what we found is that monies were improperly spent—not 

a big surprise. We have a son who is still a senior in high school, 

so I have got some idea what the challenge that schools have to try 

to identify who is eligible for the School Lunch and School Breakfast Programs. 

We were talking earlier, I think it was with Mr. Werfel and Mr. 

Williams about how one of the challenges is to have access to some 

kind of third-party data to be able to verify that folks are eligible 

or not eligible. 

Let me use that as a way to ask how are we identifying? What 

kind of difficulty are we having in identifying folks who are eligible 

or not eligible for these programs, considering they are in thousands of schools across America? What kind of difficulty are we 

having in getting the third-party data to be able to verify whether 

folks are or are not eligible? It has got to be difficult. 

And then, when you identify them, how do you go back and recover? 

Mr. CHRISTOPHERSON. I think you know that these programs are 

fairly complex, and we serve somewhere close to about 100,000 

schools per day. And as we are looking at our first year in measuring these programs and pretty tough on our agencies as we go 

through this, but we have put it into two separate buckets, which 

is kind of qualifying paperwork, which is about half, and then the 

count and the certification, so it comes back to menu items and 

things like that. 

40 

So, did you get your vegetable or your fruit, because there is a 

specific menu that has to be an approved menu, and if it is not an 

approved menu, then you fail. If a child goes through and they pick 

up one vegetable and they get to the end of the line and they are 

supposed to have a vegetable and a fruit, based on the requirements under the program, that is a failure. If they have been qualified as a partial subsidy when they should be a full subsidy under 

the program, that is a failure. 

So there is a lot of different areas where this has a very complex 

tapestry in the way that it operates and, obviously, Food and Nutrition Service has been very heavily involved in that. 

But as you were saying, we have, under the last WIC authorization, we are allowed to actually go in and have a mandatory direct 

certification into the food stamp system. That is being deployed out 

to the schools. It will probably take several years to actually put 

that in. 

And what will happen is those children that are—or those families that are in the system they will not have to go through the 

qualifying paperwork, which will be exceptional. 

The other ones that are not in the food stamp program—— 

Senator CARPER. Just let me interrupt you. Just explain in real 

simple terms for me, if you will. How does the system work now? 

How is it going to be made more effective or more cost effective? 

Mr. CHRISTOPHERSON. OK. In the simplest terms, the program 

now works—— 

Senator CARPER. Feel free to give me some examples. That helps 

me. 

Mr. CHRISTOPHERSON. That if you came in and you requested—— 

Senator CARPER. You being? 

Mr. CHRISTOPHERSON [continuing]. Food assistance, being a citizen and in the school district, you came in and requested food assistance under the School Lunch Program and the Breakfast Program, you would be handed a form. You would go out and fill out 

that form. Under the current legislation requirements, a school 

would then go through and they would take about 3 percent of that 

pooling of forms and then request additional information based on 

that and that additional information would be a qualifying pay 

stub or some sort of information that would say that you truly 

qualified for that program. 

So that is the simplest approach that I can give you, which is 

pretty close to the way it is. 

Under the new program—in the new methodology what will happen is that if you are already on food assistance, then you will not 

have to go through the qualifying paperwork. 

Senator CARPER. And for food assistance, what we used to call 

food stamps? 

Mr. CHRISTOPHERSON. Right. The Food Stamp Program. 

Senator CARPER. So going forward, for families that are eligible 

for food stamps, they will automatically be eligible for free and reduced price lunches or breakfasts? 

Mr. CHRISTOPHERSON. Both. If you qualify under the Food Stamp 

Program, then you would qualify and then you would have the ability—the schools will have the ability actually to queue that record 

to see if that family is in there, which obviously will shrink the 

41 

pool of risk then, both on the two different aspects of this, those 

that have at risk that they appear that they only qualify for a partial payment when they should qualify for a full or vice versa. And 

so we will eliminate a lot of that risk. 

So the pool will shrink and then we will have the people that 

come in and request if, that they are not in the food assistance program. 

And so, therefore, when we get into the 3 percent, we will have 

a smaller pool that we are judging as well. 

Senator CARPER. OK. 

Mr. CHRISTOPHERSON. So I should be very helpful. 

Senator CARPER. OK. Good. We are right about at the end of 

where I hope to wrap up. 

One of the things I would like to ask this last question. Other 

questions we will simply submit for follow up from you. 

But one of the things, and I like to do this a lot when we have 

a panel like this, just to remind me of our takeaways. For those 

of us who serve on this panel and on this Subcommittee, what 

should our takeaways be from the testimony that we have heard 

to date to enable you to really ensure that your agencies and other 

agencies—some out there are doing a good job on this stuff, and 

some that are not. But what are the takeaways for us. 

And, Mr. Rust, if you would like to lead it off. If you do not, then 

we will ask Mr. Johnson to. 

Mr. RUST. No, I think there are several legislative proposals in 

the President’s budget that will be coming up next week. I think 

that if you would consider those seriously, they would help us to, 

for instance, greatly simplify our program. Part of the problem we 

have, the same problem that many of our colleagues on this panel 

have, and that is a very complicated program. For example, when 

you have individual eligibility, a person could be eligible at the 

time we grant the benefit and then that person could lose that eligibility for some reason in the coming months or years. 

In order to address these types of issues, we have several proposals to simplify the program. For instance, one of the things that 

we will be asking the Congress to look at would be a change in the 

offset for the Workmen’s Compensation benefits that would greatly 

simplify the program. I think it would make it easier for us to administer the provision and reduce the overpayments and underpayments. That proposal will be in the President’s budget. 

Senator CARPER. OK. 

Mr. RUST. That is certainly one of the things that I would mention. There are several other provisions that we will be sending to 

Congress during the course of the year that will help us with program simplication. 

Senator CARPER. When will you send those up, Mr. Rust? Are 

they part of the budget? Are they part of some other request? How 

do they come to us? 

Mr. RUST. Well, they will come in different ways. But two or 

three of them are contained in the President’s budget and have 

been for the last couple of years. They have not been enacted, and 

it would be helpful to the agency if the Congress would consider 

them. 

42 

Senator CARPER. And what committee in the Senate would have 

jurisdiction? Any idea? Would it be the Finance Committee? Would 

it be the Health Committee? 

Mr. RUST. Probably the Finance Committee would be the committee of jurisdiction. 

Senator CARPER. All right. 

Mr. RUST. If it would be helpful, we would be glad to advise you 

and your staff. 

Senator CARPER. Yes. I have learned after 7 years in the Senate 

that sometimes it is helpful to convene not a hearing, but what I 

call a roundtable, where it is just less formal, less structured and 

it is an opportunity for a lot of give and take, and maybe we could 

have a roundtable that would focus on what we can be doing and 

ought to be doing on the legislative side to support what you all 

are trying to get done in the Executive Branch in this regard. 

Mr. RUST. We would be glad to participate. 

Senator CARPER. Good. That would be good. Thank you. Mr. 

Johnson. 

Mr. JOHNSON. I am quite interested in your new legislation and 

you made a statement. 

Senator CARPER. You want to be a co-sponsor? 

Mr. JOHNSON. Well, for parts of it. You made a statement, if 

doing so is cost effective. And I like that statement because—— 

Senator CARPER. I said it twice. 

Mr. JOHNSON. Yes, you did, and I wrote it down because it is an 

important statement, and as you consider new legislation, it is important that we make sure that we do have this risk based approach, which we should have, but that we also then make sure 

that we are not spreading resources too thin 

And one of the things that happens to us is we spend administrative money, but the recoveries generally go directly to the Treasury 

or to a Trust Fund. 

So we keep no part of those recoveries to expand the program 

itself. 

Senator CARPER. So what incentive do you have other than doing 

what you are supposed to do? 

Mr. JOHNSON. Yes, we are doing what we are supposed to do, and 

we have to account for you. And that is my big incentive is to—— 

Senator CARPER. Well. 

Mr. JOHNSON. Knowing that I am going to be—— 

Senator CARPER. Can there be some other incentive for the agency? 

Mr. JOHNSON. Well, yes, I think there could be if there were 

some allowance that we could use part of those recoveries to help 

the program or to use in the program. That would be a great assist. 

Senator CARPER. Yes, we are working on a similar approach— 

John Kilvington, our staff director, and our friends on the Republican side, our minority staff, are working on surplus property recovery—— 

Mr. JOHNSON. Yes. 

Senator CARPER [continuing]. To ensure that if an agency simply 

finally moves on, sells, unloads surplus property that they get to 

keep part of the proceeds to provide an incentive for them. OtherVerDate Aug 31 2005 10:26 Sep 25, 2008 Jkt 041449 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 P:\DOCS\41449.TXT SAFFAIRS PsN: PAT
43 

wise, there is not much of an incentive for them to move those 

properties. 

Mr. JOHNSON. And that does worry me, because if we are going 

to expand now the number of risk programs, and even when we 

talk about some of these legislative changes that are no cost, there 

are internal costs. I mean, you just do not carry things out without 

internal costs. So if we can get a nexus between recoveries and 

some assist on program integrity, that would be wonderful. 

Senator CARPER. OK. Well, I hope you will participate in a 

roundtable, and I hope you will make that point again and again. 

That is a good point. 

Mr. JOHNSON. Thank you. 

Senator CARPER. Mr. Dale, any takeaways for us? 

Mr. DALE. I just think from our perspective it would be acting 

on the Inspector General’s request for resources that we can maintain an effective oversight of the program. I know we are very appreciative of the $21.48 million we received this year, and we are 

going to be looking to ask for additional resources to keep this 

strong oversight going. 

Senator CARPER. How much, $21 million? 

Mr. DALE. We received $21.48 million for—— 

Senator CARPER. For 2008? 

Mr. DALE [continuing]. For Fiscal Year 2008; yes, sir. 

Senator CARPER. Do you recall what you asked for? 

Mr. DALE. That was what we asked for. And we are putting our 

request in next week for additional resources as well. 

Senator CARPER. All right. Thank you. Mr. Christopherson, 

takeaway for us, please? 

Mr. CHRISTOPHERSON. Yes, a couple of things. I would go ahead 

and echo the same thing with the group and add one more, echoing, of course, that as we do the President’s budget we do it with 

a very sharp pencil, and we are very exact how we do it in order 

to be very conservative in those, and as we go through and as discretionary funds and stuff are cut out of them, it makes this difficult often to continue to operate in these programs and things like 

that as we start looking at priorities. 

And I say that very respectfully because I know that you guys 

also have priorities in the Senate and the House. 

But I would also like to point out that we do risk assessments 

on all of our programs at USDA, and I know in many other departments as well they do the same thing as they do a preliminary risk 

assessment, and we are very pointed in those. And it has taken us 

a couple of years to actually get those to more of an exact level, 

so as management looks in, they say this does not make sense. 

This looks like medium risk. Therefore, we need to fine tune our 

risk assessment inside the agency, and we finally feel like we have 

gotten there are USDA and I know that other departments are actually going through that same process. 

So this is becoming a very fine tuned initiative as we go forward. 

And the third point is that one of the things that we found at 

USDA and realized that we have a myriad of programs versus just 

a single mission, we have a myriad of programs and very different 

missions, so between Forest Service and Food and Nutrition and 

44 

the Farm Service Agency. But the point that I would like to make 

on this is that there is not one solution to correcting this issue. 

We found as we sit down and we go through the creativity with 

each one of the agencies what is good for Food and Nutrition to fix 

this issue is very different for the Farm Service Agency to fix a 

problem there that we dealt with last year, and we very quickly 

found a resolution and they very quickly moved a correction process forward. 

So that is the other point that I would make is that there is just 

not a broad brush that would fix this problem. It is very detailed, 

and you really have to go in and look at that detailed analysis and 

analyze that out. 

Senator CARPER. All right. Thank you. 

Mr. RUST. Mr. Chairman, may I make just one other comment 

real quick? 

Senator CARPER. Sure. 

Mr. RUST. When you asked about things that Congress could 

help us with—— 

Senator CARPER. Yes, sir. 

Mr. RUST [continuing]. We had a budget request for Fiscal Year 

2008 of $213 million above the cap—solely for integrity programs. 

That disappeared in the final appropriations process. 

So while our base budget reached the President’s request, we lost 

that couple hundred million dollars above the cap that we would 

have been able to use for integrity programs. I do not know why, 

but that is something that Congress could keep an eye on for us. 

Senator CARPER. Remind us of that at a roundtable, please. 

Well, I know some people do not think this improper payments 

stuff is all that interesting. There is the press table over there, it 

is not overflowing with representatives from the press. But it is important stuff, and, as we saw from our charts over here earlier, the 

amount of money here that is involved in improper payments I 

guess last year was about the size of the GDP for the country of 

Vietnam, a country I know a little bit about as a Vietnam war veteran. And they did not have much of a GDP to brag about, but they 

do now. They are a bustling country. 

So that is a fair amount of money that is in question here for 

us, and one of the things I am encouraged about as we look to prepare to leave is that the programs that we have been actually focusing on since 2004, it sounds like our agencies generally are driving down improper payments. That is good. I am pleased to hear 

that we continue to expand the number of programs that are being 

examined and that we are scrutinizing each year. That is encouraging. 

I am pleased, on the one hand, to hear some ways that we have 

actually funded the President’s budget request in some regards to 

give you the ability to work on these program integrity activities. 

But it sounds like a couple of areas we did not, and we want to 

make sure that we are doing a better job there. 

The other area, recovery. Mr. Johnson talks to us about some 

things that are going on in Health and Human Services on program recovery that are very encouraging, and I think the potential 

for doing that nationally is extraordinary. And we want to encourage that. 

45 

We want to find a way, if we can, to incentivizeagencies to go out 

to do this work, not just as you explain it as the law. You have to 

do it. But to say not only do you have to do it, but if you do, you 

will have the ability to keep some of these resources to run your 

programs better and to better do your job. 

This our sixth hearing on this subject in 3 years, which is a lot 

of hearings. But I think we are understanding things better; got 

our arms around it better than we did when we started. It sounds 

like you all do, too, and we will keep doing our share and you do 

your share, and maybe some day, by the time I leave here, we will 

have a improper payments estimate that is the size of one of those 

little bitty countries that we had gathered here under the rubric 

of 44 countries whose collective GDP was about $55 billion. 

We will leave the hearing record open for a while for my colleagues to ask questions. I know others have questions. I have a 

few more I want to submit for the record. We just ask that you respond to those in a timely way. We appreciate your being here 

today, the good work that is reflected, and for those that you know 

and are working with and are not doing their best, tell them to be 

more diligent because we are not going away on this issue. 

My hope is that by us not going away, it will sort of give the Executive Branch the better ability to reach out to the agencies within the Executive Branch and say look; these Senators, Coburn, Carper, and Levin, they are breathing down our necks. They are not 

going to let us go until we do this right, so we will do our jobs and 

be diligent and we know that you will, too. 

With that having been said, this hearing is adjourned. Thank 

you, all. 

[Whereupon, at 4:46 p.m., the Subcommittee was adjourned.] 

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