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90–112 PDF 2003

CUTTING OUT WASTE, FRAUD, MISMANAGEMENT,

OVERLAP, AND DUPLICATION: EXPLORING

IDEAS FOR IMPROVING FEDERAL ORGANIZATION, MANAGEMENT AND SPENDING

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JULY 16, 2003

Serial No. 108–69

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

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

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

CHRIS BELL, Texas

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 16, 2003 ............................................................................... 1

Statement of:

McFarland, Patrick E., Inspector General, Office of Personnel Management, accompanied by Dennis K. Black, Deputy Assistant Inspector

General for Audits, Office of Personnel Management; and Norbert Vint,

Assistant Inspector General for Investigations, Office of Personnel

Management .................................................................................................. 21

Posner, Paul L., Managing Director for Federal Budget and Intergovernmental Issues, Strategic Issues, General Accounting Office, accompanied by Ralph Block, Tax Group, General Accounting Office ............... 46

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

Davis, Chairman Tom, a Representative in Congress from the State of

Virginia, prepared statement of ................................................................... 5

Davis, Hon. Jo Ann, a Representative in Congress from the State of

Virginia, March 20, 2003 Congressional Record insert ............................. 3

McFarland, Patrick E., Inspector General, Office of Personnel Management, prepared statement of ........................................................................ 24

Posner, Paul L., Managing Director for Federal Budget and Intergovernmental Issues, Strategic Issues, General Accounting Office:

Information concerning demonstrations .................................................. 101

Prepared statement of ............................................................................... 50

Putnam, Adam H., a Representative in Congress from the State of Florida, prepared statement of ........................................................................... 19

Ruppersberger, Hon. C.A. Dutch, a Representative in Congress from the

State of Maryland, prepared statement of .................................................. 16

Waxman, Hon. Henry A., a Representative in Congress from the State

of California, prepared statement of ........................................................... 10

(1)

CUTTING OUT WASTE, FRAUD, MISMANAGEMENT, OVERLAP, AND DUPLICATION: EXPLORING IDEAS FOR IMPROVING FEDERAL

ORGANIZATION, MANAGEMENT AND SPENDING

WEDNESDAY, JULY 16, 2003

HOUSE OF REPRESENTATIVES, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The committee met, pursuant to notice, at 10:10 a.m., in room

2154, Rayburn House Office Building, Hon. Tom Davis (chairman

of the committee) presiding.

Present: Representatives Tom Davis of Virginia, Ose, Lewis, Jo

Ann Davis of Virginia, Putnam, Blackburn, Waxman, Kucinich,

Tierney, Ruppersberger and Norton.

Staff present: Peter Sirh, staff director; Melissa Wojciak, deputy

staff director; Keith Ausbrook, chief counsel; John Hunter and

David Young, counsels; Robert Borden, counsel/parliamentarian;

David Marin, director of communications; Scott Kopple, deputy director of communications; Teresa Austin, chief clerk; Joshua E. Gillespie, deputy clerk; Phil Barnett, minority chief counsel; Michelle

Ash and Althea Gregory, minority counsels; Earley Green, minority

chief clerk; Jean Gosa, minority assistant clerk; and Cecelia Morton, minority office manager.

Mrs. DAVIS OF VIRGINIA [presiding]. The committee will come to

order. I apologize for the delay. The chairman has been delayed in

another meeting. I am going to go ahead and start the hearing and

I will read his opening statement.

The fiscal year 2004 budget resolution requires each congressional committee to identify waste, fraud and mismanagement in

mandatory spending programs within its jurisdiction and report

their findings to the Committee on the Budget.

Unlike discretionary programs, where each Federal agency must

justify its spending each year for the Appropriations Committee,

mandatory spending proceeds on autopilot unless the Congress

takes an active role in overseeing these programs and intervening

where appropriate. The purpose of this hearing is to examine the

mandatory programs for which this committee is responsible and

identify where these programs are vulnerable to waste, fraud and

mismanagement.

The Budget Committee, pursuant to the budget resolution, has

directed this committee to find savings of $827 million in fiscal

year 2004, $4.5 billion over the next 5 years, and $9.9 billion over

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the next 10 years. We have been directed to find these savings in

waste, fraud and mismanagement, not through changes in policy.

This will prove to be a challenging task. This is the third highest

total that any committee in the House has been asked to find.

Nearly all of the mandatory spending under this committee’s direct jurisdiction consists of payments to Federal retirees—pensions,

disability and health benefits—which are administered by the Office of Personnel Management.

We have asked the Inspector General of OPM, the Honorable

Patrick McFarland, to testify today about the ongoing effort to combat waste, fraud and mismanagement in these programs and to

recommend legislative changes that might further his efforts.

The Federal Employees Health Benefits Program, the retirement

programs, and the Federal Employees Group Life Insurance Program represent OPM’s three largest programs that are within the

mandatory spending jurisdiction of this committee.

In the administration of the Health Benefits Program, the Inspector General has identified potential savings by ending improper payments by the government to carriers for claims made by

health care providers and suppliers. According to the Inspector

General, these improper payments include false claims for services

not rendered, falsified billing codes that result in higher rates of

reimbursement, illegal or unnecessary procedures for patients, and

defective pricing.

Savings in the retirement programs can be achieved by preventing erroneous payments of benefits after an annuitant’s death and

by reducing computation errors.

Chairman Davis also looks forward to hearing about the OPM Inspector General’s initiative to utilize computer technology to develop effective data warehouse and data mining techniques to more

effectively recover funds diverted through waste, fraud and mismanagement. Implementation of these applications should lead to

a more comprehensive claims auditing process, which should in

turn result in increased discovery and recovery of fraudulent overpayments.

I believe, however, that we will have to look beyond erroneous

payments to Federal retirees in order to meet the savings target

set in the budget. This committee has a unique legislative jurisdiction that allows us to look at the overall management and efficiency of government operations and activities, as well as efforts to

reorganize government agencies.

We are the only committee in the House that has the jurisdiction

to address management and reorganization issues on a governmentwide basis. When the budget resolution was considered in the

House, Chairman Davis received assurance from Chairman Nussle

of the Budget Committee that we would receive full credit for addressing these issues that are within our governmentwide legislative jurisdiction. Without objection, I will submit that colloquy for

the record.

[The information referred to follows:]

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Mrs. DAVIS OF VIRGINIA. We have invited the General Accounting

Office to testify about both the savings that might be achievable in

the committee’s mandatory spending and on the broader issues

where this committee may be able to play an important role. I have

asked GAO to draw from its ongoing work in its High-Risk Series

and from the work on its annual Budgetary Implications report to

address these areas.

In the case of payments to ineligible individuals that waste taxpayer dollars and undermine benefit programs, I am hopeful that

today’s testimony will help us continue our efforts to promote governmentwide solutions that address improper payments in government benefit programs.

GAO will also highlight for us programs where streamlining and

consolidation can save the taxpayer money, while continuing to

provide the same Federal services. GAO Managing Director Paul

Posner will enlighten the committee on these subjects.

We will also question the witnesses about potential solutions. For

example, can we reduce posthumous payments to annuitants by requiring prompt reporting of deaths, or will providing more resources for the OPM Inspector General yield substantial reductions

in improper payments?

Rooting out waste, fraud and mismanagement is neither a Republican nor a Democratic issue. I hope that we will work together

to identify and address areas that can reduce spending while maintaining the benefits that our Federal employees and retirees have

earned. I welcome today’s witnesses, and I thank them for their

willingness to testify on such short notice.

[The prepared statement of Chairman Tom Davis follows:]

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Mrs. DAVIS OF VIRGINIA. I now recognize the distinguished ranking member, Mr. Waxman, for his opening statement.

Mr. WAXMAN. Thank you very much, Madam Chair, for this opportunity to make an opening statement and for holding this hearing on waste, fraud and abuse in the mandatory spending programs in the jurisdiction of the Committee on Government Reform.

Unfortunately, this hearing may be barking up the wrong tree.

I support eliminating fraud in programs like the FEHBP and the

pensions of Federal retirees, but the amount of funds that can be

saved in these mandatory programs is relatively small. The only

way to save large amounts from these programs is to cut people’s

health and retirement benefits, which I hope is something we will

all resist.

But there is real waste, fraud and abuse in the Federal Government, particularly in the discretionary spending of agencies that

rely heavily on private contractors. The Inspector General of the

Department of Defense says that the Department of Defense, which

contracts out more work than any other agency, cannot account for

$1 trillion of the taxpayers’ money. Let me just repeat that statement, because it is astounding. It cannot account for $1 trillion of

taxpayers’ money.

The DOD appropriation for fiscal year 2002 represents 18 percent of the U.S. total budget and 48 percent of discretionary funds.

Simply linking the Department’s appropriations to the requirement

that it receive a clean audit could literally save billions.

Federal contracting is increasing at a dramatic rate. In the 6-

year period from fiscal year 1997 to 2001, contracting increased

from $213 billion to $335 billion, an increase of over 15 percent.

This administration’s focus on outsourcing Federal jobs is driving

these numbers even higher.

The Federal Government’s increasing reliance on private contractors coincides with the increasing use of abuse-prone contracting

vehicles and diminishing government oversight. These contract vehicles are a confusing alphabet soup of acronyms—ID/IQ, GWACS,

and multiple award contracts—but they often spell lucrative solesource awards for large corporations in the Defense Department,

whose contracting budget is more than double the next nine largest

Federal agencies combined. Let me repeat that. The contracting

budget for DOD is more than double the next nine largest Federal

agencies combined.

Billions are awarded in noncompetitive contracting, most often to

companies that are favored campaign contributors, like Halliburton

and Lockheed Martin. To illustrate the problem, in 1999 the DOD

IG audited 124 randomly chosen multiple-award contracts. The IG

found that nearly half were sole-sourced. Of those that were soulsourced, only eight had a valid justification.

In 2001, the Inspector General’s office updated its work and

found that 72 percent were awarded on a sole-source or directedsource basis. Injecting competition, ensuring that multiple contractors were eligible to bid on specific task orders, could cut costs to

the taxpayers by up to one-third. So if we simply allowed competition, some kind of market forces, in the awarding of these contracts, we could save billions of dollars rather than choose special

companies for special contracts on a sole-source basis.

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In essence, companies like Bechtel and Halliburton are getting

sweetheart deals while we review retirement benefits of little old

ladies and that is just not right. In addition, contract oversight is

abysmal. In 43 out of the 67 cases of so-called performance-based

contracts reviewed by the DOD IG, contract offices failed to provide

adequate oversight of payments.

This would be a recipe for waste, fraud and abuse even if we had

a robust acquisition work force and adequate procurement oversight, but we don’t. The Federal Government’s acquisition work

force has declined 22 percent in the decade between 1991 and 2001.

External oversight is also disappearing. For example, the Department of Defense’s Deputy Inspector General testified before this

committee in 2000, ‘‘in recent years our oversight of Defense acquisitions has been severely constrained by resource shortfalls and

conflicting priorities.’’

He added, ‘‘[a]udit coverage has been inadequate in nearly all defense management sectors that we and the General Accounting Office have identified as high-risk areas.’’

Madam Chairman, if we are serious about curbing waste, fraud

and abuse in the Federal Government, we have to stick to the old

adage, ‘‘follow the money.’’ Under this administration, we are pouring billions into the pockets of large corporations in the name of

privatizing government. That is where we should be focusing our

resources on reducing government waste, fraud and abuse.

I yield back the balance of my time.

Mrs. DAVIS OF VIRGINIA. Thank you, Henry.

[The prepared statement of Hon. Henry A. Waxman follows:]

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Mrs. DAVIS OF VIRGINIA. I know I can speak for Chairman Davis

and myself that we absolutely have no intention of doing anything

to eliminate the benefits for anything for our Federal workers. I

think that was in the first part of your opening statement. And, as

you know, we are concentrating today on our mandatory spending.

And maybe Chairman Davis will be happy to do—you can talk to

him about doing a hearing on discretionary spending at another

time.

But, Mr. Ruppersberger, do you have a statement?

Mr. RUPPERSBERGER. Thank you, Madam Chairman, for calling

the hearing. The purpose of this hearing, as we know, is to produce

a report that will outline areas where the committee believes we

can save some Federal taxpayer dollars.

Today we are going to look at ways of saving Federal taxpayer

dollars, while today we are going to look mainly at mandatory

spending, and I hope that the discussion can go further and look

into waste, fraud and abuse. And I also hope that we can discuss

innovative programs and ways to save dollars, such as a program

called Gain Sharing.

I was a former Baltimore County executive. I understand how

and why government needs to reshape its thinking, its ways of

spending dollars, and how to reform its workers to get everyone involved in order to make government more efficient and more costeffective.

Now, we have to look at ways to increase the efficiency in government. As county executive, we implemented this gain-sharing

program, which is an employee program, a group program, based

on frontline workers coming together and finding ways to improve

efficiency. If efficiency goes—and productivity goes up, costs goes

down, some of the employees receive remuneration. But, more importantly, the frontline workers involved in the process, they become shareholders. They look together at ways to make things better. Of course, whenever there is change, people and employees, especially, especially in a big Federal Government like this where

there is a lot of distrust of administration, are concerned when you

hear reforming government.

Reforming government doesn’t always mean you have to

downsize. Prior to implementing the gain-sharing program in Baltimore County, we ensured our county employees that if there was

going to be any outsourcing, they would have the opportunity to

compete; and second, they would be given the tools and the resources, which a lot of times is not done in big bureaucracies, to

compete against a private company’s proposal.

And with that goal in place, and to save taxpayers dollars—our

employees went to work and, you know, our employees always beat

out the private companies. They were innovative. They were energetic, and they became a part of the team. Management and employee relationships improved. But everyone has to remember that

in order for government to save dollars, everyone needs to be involved from top to bottom, including frontline workers. Everyone

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needs a goal, and most importantly, they need the tools and the

equipment to reach these goals.

I look forward to hearing your testimony.

Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Ruppersberger.

[The prepared statement of Hon. C.A. Dutch Ruppersberger follows:]

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Mrs. DAVIS OF VIRGINIA. Are there any other Members who have

an opening statement?

Members may have 5 legislative days to submit opening statements for the record.

[The prepared statement of Hon. Adam H. Putnam follows:]

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Mrs. DAVIS OF VIRGINIA. Our witnesses today are, and I appreciate the patience from all four of you, the Honorable Patrick E.

McFarland, Inspector General, Office of Personnel Management.

Accompanying Mr. McFarland are Dennis K. Black, Deputy Assistant Inspector General for Audits; and Norbert E. Vint, Assistant

Inspector General for Investigations; Paul L. Posner, Managing Director for Federal Budget and Intergovernmental Relation Issues,

Strategic Issues, from the General Accounting Office.

It is the policy of this committee that all witnesses be sworn in

before they testify, so if you would please rise and raise your right

hands.

[Witnesses sworn.]

Mrs. DAVIS OF VIRGINIA. Please be seated. And we are now joined

by the Chair. We will go ahead and start.

I would like to thank our witnesses for taking the time from

their busy schedules to appear before us today. I would like to recognize—first we will start with you, Mr. McFarland.

STATEMENT OF PATRICK E. McFARLAND, INSPECTOR GENERAL, OFFICE OF PERSONNEL MANAGEMENT, ACCOMPANIED BY DENNIS K. BLACK, DEPUTY ASSISTANT INSPECTOR GENERAL FOR AUDITS, OFFICE OF PERSONNEL MANAGEMENT; AND NORBERT VINT, ASSISTANT INSPECTOR

GENERAL FOR INVESTIGATIONS, OFFICE OF PERSONNEL

MANAGEMENT

Mr. MCFARLAND. Chairman Davis and members of the committee, thank you for giving me the opportunity to testify on our successes in fighting waste, fraud and abuse in mandatory programs

of the U.S. Office of Personnel Management, and our strategy to increase our effectiveness in the future.

As you noted in your invitation for my testimony, your committee’s mandatory spending jurisdiction includes payments for civil

service employees’ annuities for health benefits, retirement and life

insurance. Accordingly, my testimony will highlight our recent efforts and future plans to achieve cost savings and initiate new

ways to attack waste, fraud and abuse, particularly with regard to

the Federal Employees Health Benefits Program [FEHBP].

We recognize that oversight of the retirement and insurance

trust funds administered by OPM is, and will remain, our most significant challenge. These trust funds are among the largest held by

the U.S. Government. Their assets totaled $619 billion in fiscal

year 2002. Their revenue was $79 billion, and their annual program and operating expenses were $104 billion. The amounts of

their balances are material to the integrity of the government’s financial position. I continue to allocate the vast majority of my office’s efforts and resources to trust fund oversight and to apply new

technology and strategies to recover fund losses.

Audits and criminal investigations of the OPM-administered

trust fund programs and commitments by program management to

recover funds have resulted in significant financial recovery to the

trust funds. In fiscal year 2002, these recoveries and commitments

totaled approximately $116 million. This equates to approximately

$12 of positive financial impact for each direct OIG program dollar

spent. In addition, my office’s audits and criminal investigations

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provide a significant deterrent against future instances of waste,

fraud and abuse.

Our success is best illustrated by a recent, high-profile settlement of a case negotiated by the Department of Justice, which was

dependent on the work of our auditors and criminal investigators

amounting to almost $64 million. In this case against PacifiCare

Health Systems, the government alleged health plans owned by

PacifiCare overcharged the FEHBP by charging premiums substantially higher than it charged to employee groups in the private sector similar in size to the FEHBP, contrary to OPM rating instructions.

Starting in early 1999, our auditors’ and criminal investigators’

involvement in this case intensified after a former plan employee

brought a qui tam suit, and we performed five additional audits of

PacifiCare. The process required a relentless focus on detail, involving analysis of highly complex information provided by PacifiCare

over an extended period of time. The Government and PacifiCare settled the case last year for $87 million, with approximately $64 million being returned to the

FEHBP. This was the largest settlement amount ever paid by a

carrier in the FEHBP.

We have made significant recoveries through our responsibility

under the FEHBP to audit the carriers for the purpose of identifying funds improperly paid to them under their contracts with OPM.

In dealing at the insurance carrier level, I would classify these improper payments primarily as waste of government funds rather

than as fraud or abuse. Such improper payments occur from poor

coordination of benefits with Medicare, duplicate payments, and

paying amounts larger than the covered benefit permits.

OPM is justifiably proud of operating the FEHBP programs with

relatively small amounts of waste. While we estimated improper

payments amounting to about $160 million in fiscal year 2002, not

an insignificant figure, this constitutes less than 1 percent of

FEHBP premiums paid.

Another serious area of waste as well as fraud and abuse within

the FEHBP is in the rate-setting process for community-rated

health benefit carriers. This occurs when the FEHBP does not receive the same discount that a carrier gives to other large groups

similar in size to the FEHBP.

We have developed a new approach referred to as a rate reconciliation audit, which differs in that these audits are performed

prior to the settlement of the final rates with OPM. These rate reconciliation audits have resulted in significant dollar savings to the

FEHBP. Since inception in 1986, we have completed a total of 119

rate reconciliation audits that identified over $64 million in overcharges to the FEHBP. I am pleased to say that in the last couple

of years the noncompliance rate has dropped from 70 percent to approximately 40 percent of the carriers.

The largest amount of FEHBP fraud and abuse occurs at the

health care provider or supplier level. Adding to our difficulty in

estimating the extent of provider fraud is the indirect nature of

OPM’s contractual relationship with health care providers. They

are not government contractors or subcontractors, and only have

such relationships with the carriers. Therefore, my criminal invesVerDate 11-MAY-2000 09:33 Nov 07, 2003 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 D:\DOCS\90112.TXT HGOVREF1 PsN: HGOVREF1
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tigators respond to allegations of provider fraud or abuse or irregularities detected through our audits or through criminal investigative sources. I do not have authority to audit health care providers

generally. However, OPM is seeking contractual changes to provide

audit authority for the very largest providers, such as pharmacy

benefit managers, to better detect what I believe is significant and

substantial waste, fraud and abuse in the FEHBP.

While my office focuses primarily on waste, fraud and abuse in

the FEHBP, we also guard against it in the retirement programs,

including both the Civil Service Retirement System, and the Federal Employees Retirement System. The retirement program has

an erroneous payment rate of less than one-half of 1 percent of

payments made, or about $100 million in fiscal year 2002. Most of

the erroneous payments are the result of computation errors identified and corrected by the agency itself. However, there is other

waste, fraud and abuse within the retirement program, notably the

failure of next of kin to notify OPM of any annuitant or survivor’s

death, resulting in improper continuation of retirement program

payments.

OPM has tried to eliminate the erroneous payments by routinely

performing computer matches using OPM’s annuity rolls and the

Social Security Administration death records.

We assist the agency by proactively reviewing retirement program annuity records for any type of irregularity, such as reaching

an excessive age. If we discover an irregularity, we conduct independent queries with other data bases to determine if annuitants

are deceased. We will continue as necessary and as our resources

permit to verify annuitant status, including onsite visits.

My office has embarked on an initiative to greatly improve the

efficiency and effectiveness of our audits relating to the FEHBP,

combining the use of affordable computer technology with our expertise in health benefit analysis. The goal is to develop a data

warehouse, employ programwide review strategies and ultimately

implement sophisticated data mining techniques to thoroughly analyze FEHBP health benefit payments. We envision that this data

warehouse/data mining project will significantly increase our ability to highlight trends of potential health care fraud in the FEHBP.

The project will also provide our criminal investigative staff with

the ability to react quickly to investigative leads.

Using the data warehouse concept, we are able to analyze claims

on a global rather than on a plan-by-plan basis. These user-friendly, computer-assisted audit techniques have standardized the audit

process, while allowing our auditors the necessary flexibility to adjust the applications to the specific requirements of their assignment. By empowering our auditors to complete more routine computer analyses, our computer specialists in turn are free to concentrate on more complex issues.

This completes my opening statement, and we are certainly

pleased to respond to any and all questions.

Chairman TOM DAVIS [presiding]. Thank you very much.

[The prepared statement of Mr. McFarland follows:]

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Chairman TOM DAVIS. Mr. Posner.

STATEMENT OF PAUL L. POSNER, MANAGING DIRECTOR FOR

FEDERAL BUDGET AND INTERGOVERNMENTAL ISSUES,

STRATEGIC ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY RALPH BLOCK, TAX GROUP, GENERAL ACCOUNTING OFFICE

Mr. POSNER. Thank you, Mr. Chairman. It is a pleasure to be

here today with the committee. My role at the hearing, and my

statement, move beyond the specific OPM programs that are in the

committee’s jurisdiction to discuss opportunities for savings and

oversight through the committee’s broader role in overseeing the

broad range of Federal programs, management operations and

tools.

As you know, the Budget Resolution mandates savings targets

for the committee and, in addition, it mandated that GAO do a report that can be useful for the committee to be released in 2 weeks,

highlighting options based on all of our work over the past several

years for congressional requestors. We culled through that to find

options that potentially yield savings and we worked with CBO to

screen the options.

For perspective, savings obviously is important in itself in a time

of deficit, but it is always difficult to reach these savings targets

as our deficit reduction efforts of the 1990’s have shown. If there

is a silver living, it is the opportunity to use savings targets to address longstanding performance problems in government programs

and services.

I consider GAO’s options, many of which are included in my

statement, as well as those in our forthcoming report, to constitute

‘‘weak claims;’’ programs, operations, tools, and activities that really don’t stand up to audit and evaluation that have significant

problems in fraud, waste, abuse, efficiency, effectiveness, and ultimately relevance to today’s and tomorrow’s world. And that is what

I want to highlight.

I am going to talk about three basic areas that are in the statement. One addresses risks that drain resources and undermine program integrity. Two addresses significant opportunities for us to

improve economy and efficiency. And three is reassessing priorities

and effectiveness.

Again, one of the things I want to try to highlight in my oral

statement is that while many of the examples are program-specific,

effective action to address each of these areas requires the kind of

governmentwide, cross-agency, cross-cutting initiatives that this

committee could lead and prompt. And so those are the kinds of

things I am going to try to address.

In the high-risk area, as you know, GAO has been doing a highrisk list and identifying areas particularly vulnerable since 1990.

Our examples and targets range from Medicare and Medicaid to

unpaid taxes, Federal real property and a variety of other weaknesses in financial and contract management.

The size of improper payments is unknown. We issued a report

last year just, based on the financial statements, saying there is

about $20 billion. OMB thinks it is about $35 billion. We think that

is a work in progress. Addressing improper payments calls for perVerDate 11-MAY-2000 09:33 Nov 07, 2003 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 D:\DOCS\90112.TXT HGOVREF1 PsN: HGOVREF1
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sistence, leadership, design changes, providing better incentives,

and risk-sharing on the part of agency staff and third parties, and

a variety of tools and even investments.

I want to illustrate by talking about tax compliance. The IRS no

longer keeps systematic data on what we used to call the tax gap,

but we do know that there are significant problems in certain sectors of the economy with Tax Code compliance. IRS has been challenged to reach these areas by not only a rising workload but declining staff resources and greater complexity in the Tax Code

itself. Audit rates for corporations and individuals have been declining significantly over the past 10 years. The ability of the IRS

to collect taxes that is ultimately assessed, the so-called accounts

receivable, has declined, so that they now have a substantial inventory of over $100 billion of collectible taxes that people owe and

have not paid.

The solution to this involves partly staffing and partly reengineering and modernization of IRS’s systems. What I want to

highlight is how important other agencies are to IRS achieving this

mission. For example, 1 million people who owe $26 billion in tax

debt receive Federal salaries, grants, contracts, and loan payments.

IRS has recently attempted to recoup some of this by levying some

of those payments, but these efforts are far from complete. IRS has

blocks on too many actions that agencies could take. There are no

levies, for example, applied to Medicare and Medicaid payments.

Concerned about the workload, IRS is not fully implementing this

levy program the way that we think that they should.

Federal loan payments is another area where progress can be

made. Although OMB Circular A–129 requires loan agencies to

check whether recipients have tax debt, in fact, work we have done

shows that significant numbers of loan recipients have accounts receivable with IRS that are not routinely checked by agencies. So

this is definitely a work in progress.

Another multiagency issue involving the tax system is, how we

can use IRS as a lever to control improper payments in other agencies. We have already done this through the Treasury Offset Program so that when there is an outstanding nontax debt from a payment from a Federal program, we can go after the refund owed to

that person.

Another key is data-sharing to permit more agencies and State

and local administrators of Federal programs to gain access not

only to tax data but new-hire data kept by the child support program to control improper payments at the front end rather than

chasing people once they get in debt. Let’s control this at the front

end by having quality information so agencies and staff can tell, up

front, what the underlying incomes and assets of people are who

are claiming their program.

In one study the Inspector General of the Education Department

reported that over $100 million in Pell Grant overpayments could

have been avoided if the Education Department had access to this

tool and many other agencies need this tool as well. SSA, for example, needs to know, but does not have, data routinely on State and

local government pension recipients and whether they are entitled

to Social Security payments or not.

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Non-tax debt is another area where agencies are not doing

enough in a coordinated way to apply wage garnishing, which they

are authorized to do through the Treasury.

So these are areas where greater enforcement requires greater

coordination, greater leadership on the part of central agencies and

in the Congress.

Another area is improving economy and efficiency and I have

outlined some issues in the written statement. We have many examples of longstanding problems with the targeting of Federal programs; with the fragmentation that seems rife across many areas

that we really care about, but have multiple players across multiple agencies; with the fact that we are not recovering costs like

we should from users of Federal programs, from corporations that

are inspected by Federal agencies; and often with outdated organizational models as we go forward into the 21st century.

In the area of targeting, for example, just as poor controls can

convert scarce money from needy recipients, so can poorly targeted

programs. Our Federal grant system gives over $300 billion of

scarce funds through really poorly-designed formulas. As a result,

States and local governments with less relative need and greater

fiscal capacity get more money than places that need it more.

The current formulas we use are not well-designed. The Medicaid

formula, for example, goes back to the 1940’s, uses per capita income and has not been updated to reflect better measures of poverty and fiscal capacity. As a result, some States get too much

while other States get too little compared to their capacity.

Community development block grants are another example.

While we use housing and poverty as a factor, the formula does not

reflect the relevant wealth and fiscal capacity of the jurisdiction to

provide services on its own. So, as a result, Greenwich, CT, in the

study we did several years ago, get over five times the amount of

per person-in-poverty under CDBG than Camden, NJ. Broadly, a

review of the grant system is really in order.

In other words, we look at procurement reform as a system, and

we think of multiple opportunities to address savings opportunities.

The grant system is an equally rich target because there are fundamental flaws in the design of these programs, not only in the

targeting area, but in widespread substitution of Federal for State

and local dollars that could be controlled if we took a more systematic look at what we are trying to do and how we are doing it.

Targeting is important for benefit programs as well. For example, the Federal Employees Compensation Act—the workers compensation for Federal employees injured on the job—said 30 percent of the recipients receive 100 percent of their previous replacement income and another 40 percent receive over 90 percent, well

in excess of standard replacement rates for compensation in disability programs. This is based on a flaw in the formula that we

have identified that needs to subtract taxes from gross wages as

the basis for making payments.

Fragmentation is another area that we can talk about. Food safety is an area we have highlighted with multiple players: the Agriculture Department, the Federal Food and Drug Administration

and others, which we can talk about more in Q and A. Moreover,

substantial reorganization opportunities exist. For example, the loVerDate 11-MAY-2000 09:33 Nov 07, 2003 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 D:\DOCS\90112.TXT HGOVREF1 PsN: HGOVREF1
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cation of Veterans Health hospitals, Coast Guard facilities and

USDA’s county services all need to be fundamentally reexamined

as these agencies go forward in a modern technological environment with an infrastructure that is largely inherited.

Finally, one other opportunity I want to mention is a governmentwide opportunity that I know your committee has addressed:

real property reform. We have teed this up as a high-risk issue for

the first time. Excess costs and opportunity costs are carried by

Federal agencies with thousands of acres and facilities that are unused, that are either condemned or simply unusable. Deferred

maintenance is a substantial problem in the National Park Service

and other areas.

We are not using sound capital planning to identify which places

and facilities should be sold and how to best acquire state-of-theart facilities for Federal workers and agencies. We know legislation

has been proposed to provide better incentives to agencies, and to

improve the state of what is known in agencies about their inventory. Many agencies don’t even keep an inventory of their assets

like they should.

This is an area where we think greater leadership on the part

of OMB, through the scorecard approach or possibly a commission,

could best help us ferret out what properties are truly excess and

unneeded and how can we best motivate agencies to start turning

these things over.

Ultimately, what we need to do is to reexamine the base of programs. We spend a lot of time debating new programs and we don’t

spend nearly the time we should on new programs on the base

going forward. This is not an easy thing to do but we have legacies

of programs that have been carried for years that need to be reexamined.

I have mentioned disability in my statement. The disability criteria, notwithstanding advances in medicine and workplaces, have

not been updated. VA still uses a schedule going back to 1945 to

compute the share of replacement that people receive for different

service-connected disabilities.

So these are areas where we need to have a fundamental reexamination and that can best be done on a governmentwide basis

by a committee like this that cuts across agencies. Disability, for

example, cuts across agencies and committees. So what we want to

try and suggest is, the need to think about tools and approaches

that are more governmentwide in nature, like the governmentwide

performance plan under GPRA that has never really been implemented, that could become a vehicle to tee up all of the different

players, tools and agencies that attempt to achieve common outcomes, and see how your committee and OMB and others can work

together to really highlight those areas that are most promising

and those areas that are in need of fundamental change.

That concludes my statement.

Chairman TOM DAVIS. Thank you very much.

[The prepared statement of Mr. Posner follows:]

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Chairman TOM DAVIS. Let me start. Mr. Posner, you have raised

some issues on tax collections and going back and forth with this.

Were we to put more resources into collecting back taxes at IRS,

that could have a significant impact, couldn’t it?

Mr. POSNER. Potentially it could. What has often happened is

that, when we have done these various revenue initiatives, either

for collections or examiners, the mandatory costs IRS faces for additional energy, postage, employee benefits, and salary increases

are not covered. And so often, just to keep the lights on, what has

happened is they have used the funds that we have provided for

the additional agents to keep the lights on because they have these

large mandatory costs they carry.

But when we are able to finally get some new hires on the other

end, we do get some results, there is no question about it. They

have experienced an attrition of staff over time that could be reversed with some real benefit.

Chairman TOM DAVIS. Here is the concern: Each year you have

people that are eligible to pay taxes, and after a certain number

of years, it goes off and becomes uncollectible. What if you went

after that on a contingency basis outside? Is there money to be

gained in that situation if it costs so much to do it inside, or is

that——

Mr. POSNER. Well, I don’t know. I brought with me Ralph Block.

Ralph is with our tax group.

Mr. BLOCK. I know that is a pilot that IRS has been trying. I

think that the main problem with IRS is its own staff has undergone so much attrition that I think they are just not able to get

to the kind of mainline business.

So your point is very well taken, that if you don’t work cases,

they get so old that they do become uncollectible. It is absolutely

an important point.

Chairman TOM DAVIS. It looks to me as though this is some lowhanging fruit for us if we would go after it, and if we can do it inhouse so much the better. But if there are obstacles that we need

to know about there—in the meantime this fruit shrivels up, and

it is gone, and you can’t harvest it.

Mr. BLOCK. The sooner you go after a delinquent taxpayer, the

better your chances are of collecting the money. But right now

there is over $112 billion in delinquent taxes. Some of it could be

collected, but we are only doing one out of every three cases that

is associated with that. So obviously, if they had more staff and

more computer capability, they could definitely get at these delinquent taxpayers a lot faster.

Chairman TOM DAVIS. And would it be easier to do that in-house

where we have this set up?

Mr. BLOCK. Well, right now IRS is starting a program where

they are going to have some private debt collectors try to go after

some of these taxpayers, but there is a lot that IRS can do in-house

based on the knowledge and skills that the revenue officers have

to collect these taxes.

Chairman TOM DAVIS. And additional officers would help in that

regard?

Mr. BLOCK. Definitely.

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Chairman TOM DAVIS. How about rewriting rules and giving

them more flexibility? That is a tough political issue, isn’t it?

Mr. BLOCK. Yes.

Chairman TOM DAVIS. And I understand there are rules that say

you can’t call after certain hours.

Mr. BLOCK. Well, you have to balance any enforcement activity

with the burden you might place on a taxpayer. I think we have

testified in the past on the IRS Reform Act of 1998, which placed

some additional restrictions on IRS. We didn’t think that those restrictions were harmful enough to prevent IRS from going out and

doing the job.

Chairman TOM DAVIS. OK. I might want to get some more on

this because obviously this is a key issue. To the extent that we

are not collecting revenue, and everybody is conscious of the big

bad tax collector coming after people, we have to sell bonds, many

of them held by foreigners, and pay the interest on that.

If you have any additional thoughts on that, we would be happy

to hear them.

Mr. POSNER. I would just add that I think it is not just staff but

data-sharing, as I said. To the extent which IRS, for example, can

get State data on small business licenses and other assets owned

by taxpayers they are going to be more effective.

Chairman TOM DAVIS. Can we do that statutorily from here?

Mr. POSNER. I think you could. I think there are some things

that IRS can do. We would have to look into what more they need

from you.

Chairman TOM DAVIS. OK. Mr. McFarland, you noted that the IG’s office recovers approximately $12 for every $1 that we spend.

Is that fair?

Mr. MCFARLAND. Yes, sir, that is correct.

Chairman TOM DAVIS. Now, at what point, if we add more people

there, does it come down? Or is it still going to be 12 to 1 if we

keep adding people? Do you think we would get more value back?

Mr. MCFARLAND. No. I think clearly the more people we add, to

a certain point, obviously, we would absolutely collect more.

Chairman TOM DAVIS. OK. I think that is good. Thank you very

much.

First questioner over here. Mr. Ruppersberger.

Mr. RUPPERSBERGER. Reading your testimony, Mr. Posner, the

issue of reassessing what government does, I think you were right

on as far as where we need to look. We need to look at our program, what we might call program review, and decide why are we

doing this. Can we afford to do this? Is this in the best interest of

our government, our employees and our citizens?

Then, you referred to the issue, as an example, of the disability

criteria. As we know, we have a lot of veterans and it takes a long

time to even see a doctor right now. Are we using antiquated programs, things that we have always been involved with and we are

afraid to make the change? That is a statement that I think that

you were right on target as far as program review.

The issue of the fraud and the mismanagement. How would you

relate those issues to your program review? What would you see

that we could do, just as an example in the disability area, as it

relates to fraud, mismanagement and also service to clients, and,

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say, as an example, the veterans that are an issue that we are

dealing with right now?

Mr. POSNER. I think there is a relationship. In disability we actually took the SSI program off of our high-risk list, because they

have actually done some proactive things to encourage people to go

back to work and reduced improper payments.

Mr. RUPPERSBERGER. What were they, though? Why aren’t they

being done in other areas?

Mr. POSNER. They got access to this new-hire data base that the

Office of Child Support Enforcement, one of three agencies that has

access to that, which has real-time data on who is employed and

who is not, so they can identify ineligibles right there on a realtime basis. They provided greater incentives for people to go to

work, for example, by letting them keep eligibility for Medicare,

with a legislative change.

So part of this, how you get people back to work is providing the

incentives, and part of it is, again, reassessing the definition of who

is able to work. And one of the things we found about the administrative procedures in some of these agencies is they assess disability status based on the current condition, not how the condition

could change if the person got appropriate medical treatment and

intervention. And so if they thought about it that way, we think

the rolls could be reduced. There would be more people who are

going to have more incentives to go to work and be encouraged to

go to work. But that requires a different mindset on the part of the

disability administrators.

Mr. RUPPERSBERGER. Almost a change in culture.

Mr. POSNER. A change in culture.

Mr. RUPPERSBERGER. How would you recommend that we implement that in that specific area?

Mr. POSNER. Well, that is the kind of thing that warrant congressional oversight. I am not sure how legislation could actually affect

that, but I think that we have already seen some positive examples

from the Ticket to Work Act and the Foster Care Independence

Act, for example, that have really enabled SSI to get off our highrisk list.

So I think that further legislation would help to give agencies

guidance on what they should consider to be disability in the first

place. These are fundamental statutory issues.

Mr. RUPPERSBERGER. Now, there was an issue about how we

have a tremendous amount of money that is out there. I think the

chairman referred to it as low-hanging fruit that we might be able

to grab. But in order to do that, what I am hearing is, we have to

reinvest in staff and computer technology.

Mr. POSNER. That is absolutely right. Some of the savings that

we get requires up-front investment. That is true across the board,

whether it is Medicare overpayments, and we know that, just as

with the OPM, if Medicare gets more money for contractor oversight, they realize $10 in savings for every $1 they spend on those

salaries.

Mr. RUPPERSBERGER. Do you feel that the technology is out there

to move forward to receive the gains that we are looking for? If we

can put in more money, can we get more resources in the area of

technology? Do you feel the software, the programs are in place to

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do it, or can’t we afford it? Are they not implemented, or have we

not trained people to use it?

Mr. POSNER. I am not the best person to answer that. Our technology experts are probably better suited. I will tell you that our

work has found that the primary barriers to doing this data-sharing are not technology, they are legislative. It is the fact that IRS

data is not readily available to many agencies, that the new-hires

data base that the Office of Child Support Enforcement keeps is

only available to three agencies, that State and local governments

and universities that administer student aid and low-income housing do not have access to any of this data. Those are the barriers

more than technology.

Mr. RUPPERSBERGER. Do we have any idea on the costs to implement this? I mean, is the cost just so large that we can’t take a

step forward?

Mr. POSNER. I think the costs are not so much—I mean, the costs

are partially an investment in people, as we said. There is a concern about privacy that we have to be very cautious about, how we

do this, how we share this data. For example, IRS has section

6103, which is a very strong statute that guarantees the privacy

of taxpayer data. So when we provide that data to administrators

at the Federal or State and local level, we have to have assurances

that they have proper security in place.

So that is a cost. That is probably the most significant cost that

people are concerned about.

Mr. RUPPERSBERGER. OK. Thank you.

Chairman TOM DAVIS. Thank you very much.

Mrs. Davis.

Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman.

Before I ask Mr. McFarland a question, I just was curious, how

many employees do we have in IRS right now?

Mr. POSNER. About 100,000. I think that is down from—I used

to be involved in leading our work on IRS about 15 years ago, so

I have a before/after comparison. In the late 1980’s it was 120,000.

And if I might add in response to the chairman’s question, in the

late 1980’s when I looked at accounts receivable, the collectible

amount was $25 billion and now it is $112 billion, a fourfold increase.

Mrs. DAVIS OF VIRGINIA. Thank you.

Mr. McFarland, could there be changes made to the False Claims

Act that would result in better recoveries for the government? Is

there something legislatively that we could do there?

Mr. MCFARLAND. I don’t think that there is anything specific

that we can do right now with false claims. It seems to me that

false claims, when handled aggressively, is rather successful.

Mrs. DAVIS OF VIRGINIA. When you handled them aggressively.

Are you still handling them aggressively?

Mr. MCFARLAND. Yes. I am saying when the False Claims Act is

utilized as aggressively as possible, by as many agencies as possible, then I think there is an abundance of success and monetary

reward from that.

Mrs. DAVIS OF VIRGINIA. In your testimony, you said that health

care providers, including pharmacy benefit managers, are the

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gram, but that such abuse is difficult to detect. And complicating

your efforts is the fact that you don’t have the authority to audit

them. If IG were given that authority, would it significantly help

you in recovery?

Mr. MCFARLAND. Yes, it absolutely would, especially in the case

of the larger providers, such as the pharmacies as opposed to just

individual doctors. But by the same token, the more we can do,

then obviously the more resources we need. At what point you cut

that off, I don’t know; where you say you know you have reached

a point of no return because of the additional cost of bringing people on board. I would say clearly that the more people that we have

to move in that direction would definitely be advantageous and

very successful for the most part. But there would be a point where

you would have to decide how many more.

Mrs. DAVIS OF VIRGINIA. So what I think I’m hearing from both

of you is that you can collect more and you can stop the false

claims and the waste, but it’s going to cost us up front to do it, and

that might be a gamble.

Mr. MCFARLAND. Yes, it will. And I think in our particular situation, we have used as best as possible the technology that’s available for our computer work. We’ve trained auditors to be information systems people; they have the expertise there. We are ready

and able as the technology evolves to move forward, but there is

an absolute upfront cost.

Mr. POSNER. If I could just add to that. It’s really applying an

investment criteria rate of return analysis to these things. One of

the complications is, at least in the old budget process, you could

save money on the mandatory side, but you had to spend money

on the discretionary side to do it. And those are two different walls

that, you know, generally you don’t cross. So we’ve had to develop

very complicated arrangements, and IRS and disability determinations, and Medicare contracting hires to try to permit Congress to

cross those walls and get credit for increasing discretionary spending when we know the savings from this will vastly outweigh that

in the long term.

Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you very much.

Mr. Tierney.

Mr. TIERNEY. Thank you. Mr. Chairman, I have to tell you, I

came to this hearing today expecting to be bored stiff. And I have

to tell you, it may be dry, but it is certainly interesting. And I

would think, Mr. Chairman, that somewhere in here there is a

great bipartisan project. We shouldn’t have to tussle over programs

and policies; we should be able to come together on this. And I

would ask the chairman at the next business meeting of this committee that we consider bringing forth the proposition of having a

working group established of just a couple of Members on each side

and the chairman perhaps and the chairman’s designee and our

friends from GAO to identify what needs to be done in terms of

oversight, rules and regulation, legislation in the areas where we

could make some substantial savings, identify also what the return

of the investment would be so that we could make a case for how

we might go about it, and then recommend back to this committee

so that we might have some bipartisan legislation or whatever it

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takes to move that forward. I see some substantial savings here,

and I know that the people are getting the feel that the system just

isn’t fair. And one of the reasons people feel that is that we’re probably not always doing all that we can do to make sure that these

types of things are done. It’s not a Republican issue or a Democratic issue; it’s just straight up business.

Mr. Posner, I am looking at your recommendation on the OMB

Circular A–129. There are recommendations there I would suspect

that could be made ensuring that the IRS modernizes its business

systems. I think that is one area that obviously should be done.

You made recommendations with respect to that in the past.

They’ve not been followed or they haven’t been effective or what’s

happened there?

Mr. POSNER. Well, this IRS modernization is a long-term project

that’s been under way in various incarnations for maybe 20 years.

They seem to be getting closer to achieving it. What we had in

mind on that particular point was that the OMB circular says that

agencies have to check to see if a loan recipient that they’re considering is delinquent in their tax debt, but we go in and do studies

and find they are not doing it. And whether it’s the Small Business

Administration—several years ago we did a study. And so we feel

that some kind of legislative impetus might be required to get

agencies to do that.

Mr. TIERNEY. So that would be a great example.

Mr. POSNER. Exactly.

Mr. TIERNEY. I look again at the outpatient drug—Medicare paying list prices. I can’t think of anything more absurd. You know,

with all the debate that we have about the overpayment of pharmaceutical companies or whatever, they’re paying $1 billion more

than other purchasers. You have the buying power that they have.

Might that not be some area where we could get together and come

up with some recommendations on how to stop that absurdity?

Mr. POSNER. We’ve had recommendations on that, yes.

Mr. TIERNEY. First of all, what were some of the recommendations? And what happened to them?

Mr. POSNER. Well, one of them was to get—to have Medicare be

able to charge what the going rate is on some of these things instead of retail to permit Medicare to realize the savings that other

insurers were realizing. And there have been some demonstrations

that Congress has done that. It’s something that is still, I guess

you could say, a work in progress. There are some areas where

some of this may be going forward but basically Medicare does

have a long way to go.

As to the resistance, I just don’t think I could speak to that.

That’s not my area. But I do know it’s been an uphill struggle.

Mr. TIERNEY. Can you identify for me where some of those demonstrations have taken place and the nature of them?

Mr. POSNER. I can do that for the record.

Mr. TIERNEY. Would you do that for me, please?

Mr. POSNER. Absolutely.

[The information referred to follows:]

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Mr. TIERNEY. And I would very much like to see what those have

been and what the progress has been on them and see whether or

not we can bring them up to spec a little bit and move forward on

that basis.

Mr. POSNER. Right.

Mr. TIERNEY. I’m also interested to see here an acknowledgment

that States are scamming the system on Medicaid, apparently to

a significant degree. I would think that this might also be something that a working group could get together with your office on

and come up with either some rules and regulations or some government oversight prospects or some legislation that would eliminate that or hopefully diminish that. I look at the examples here,

and they are just crazy.

Mr. POSNER. You know, this is an area, if I could say, that is,

again, one of those—all these areas that are large are in some ways

long-term propositions. And we have been at this since the early

1990’s and it seems like they keep one step ahead of us. When we

shunt off one way that they can gain more reimbursement, they

find another way. Right now, the way is to funnel payments

through local government health entities. And we do think that legislation could help there. No question. And we would be glad to

work with you on these things.

Mr. TIERNEY. I can go on and on. I think you have put forth an

excellent brief here, and that will be a good guide for us.

Mr. Chairman, I will yield back my time, just asking if you

would be amenable to considering that type of a prospect at our

next business meeting, probably just two and two and your leadership?

Chairman TOM DAVIS. I will talk to you. I think that’s appropriate to get some of our members who are interested in this to try

to work on it and use our staff available. That’s a good suggestion.

Thank you very much.

The gentlelady from Tennessee.

Mrs. BLACKBURN. Thank you, Mr. Chairman. And thank you to

all of you. I’m one of those that enjoys reading every single word

that you have to say about government efficiency. And we have had

a wonderful hearing this week in Tennessee. I see Mr. Williams

there. He did a wonderful job as we talked about Medicaid erroneous payments and the TennCare program in Tennessee and some

of the problems that exist there with waste, fraud, and abuse. And

just reading through your statements and looking at some of the

things that are before us, I wanted to see if possibly you all were

amenable to looking at some outcome-based scrutiny or a project

similar to what the Mercedes Institute is doing, where you would

actually go in and place some statistical calculations on the expenditures and the outcomes and see where the greatest efficiencies are being achieved?

And I will offer this question to the panel, and whomever would

like to respond, I certainly would be interested in hearing your response, because I believe that it is time that we have a discussion

on what the priorities of government ought to be. I think it is time

that we have a discussion on where our emphasis should be and

what 21st century government ought to look like and how it ought

to perform and the business model that should be followed. And

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this should be systemwide. I think many of the problems that we

have with process and procedure are systemic. We find them in

every single department. We hear them time and again from individuals that come before us. I’m simply asking a question as to

what your thoughts would be on some kind of outcome-based scrutiny. And, to whomever. Thank you, sir.

Mr. POSNER. I can just start the discussion, because I think it’s

a very important area that you are talking about now. As you

know, the Government Performance and Results Act for 10 years

has been pushing us in this direction. We are getting a better infrastructure of data. Where agencies were 10 years ago, GAO

would go in and often have to create our own data sets to answer

some very simple questions about what the program was accomplishing because the data simply wasn’t there. We are seeing much

better data now being kept, agencies holding themselves accountable and performance plans for at least outputs. Outcomes are a

little more difficult sometimes, because often with what we do at

the Federal level, we don’t have direct influence on those when we

are working through States and local governments and things like

that. So we have to develop more sophisticated measures to gauge

our impact.

I think what we have to start doing is not only improve the

measures and the data, like Mercedes has been doing and like the

agencies are doing, but really reach the second stage, which is integrating what we are getting into the decisionmaking process. Not

only in the budget process, but in the personnel assessment process, in the way the agencies manage their States, you know, the

relationships with the States, implementing things that EPA has

called performance-based partnerships, where a State and the

agency would agree on a set of goals, outcome goals. And if there’s

a shortfall and you can’t explain it, there would be some funding

consequence.

That’s the way you not only, as you say, create outcome-based

measures, but also create outcome-based government that uses

those measures as a basis for making decisions and implementing

programs. And I think it is a very important area that you are addressing here, and one that—we are on the right track, but we

have a long way to go.

Mrs. BLACKBURN. OK.

Mr. MCFARLAND. I might suggest that the President’s Council on

Integrity and Efficiency, which, as you know, is the flagship for the

IG’s. It’s an advisory group. Part of the charter for the PCIE is that

we do governmentwide projects in addition to our own specific

agencies. So possibly that would be a forum whereby such a study

or a concept could be looked at.

Mrs. BLACKBURN. OK. I appreciate those thoughts and comments. I’m one of those that feels that, possibly, if we did, if we

placed a greater emphasis on a project such as outcome-based scrutiny, if we spent a little bit more time with the data that has been

input and doing some statistical calculations as to where we are arriving at some efficiencies and what is beginning to yield some benefits, that it may go a long way in helping to achieve what would

be the goals of the President’s Management Agenda or of GPRA.

Sometimes it takes an action to fast-start a process. And for those

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of us who feel like GPRA is far enough down the road that it

should be beginning to yield some results, not just yielding information that can be integrated into other information that we have,

that we should be beginning to see some results. And I think that

the taxpayers of this country are growing weary of not having some

quantifiables to which we can point.

And I see my time has expired, and I thank you all very much.

Thank you, Mr. Chairman.

Chairman TOM DAVIS. Thank you very much.

Mr. McFarland, what changes could we make in the False

Claims Act that could, in your opinion, result in better recoveries

for the government?

Mr. MCFARLAND. As I mentioned before, Mr. Davis, I don’t think

that there are any particular changes that are necessary in the

False Claims Act. I think the aggressive pursuit of that in the different agencies would be very beneficial. I know we certainly deal

with that all the time in our office. And we find that it’s a successful tool for our purposes. But I don’t know of any additional suggestions to enhance that. I think it’s sufficient the way it is.

Chairman TOM DAVIS. OK. So no statutory changes? The law is

there, it’s just that we need to do a better job of enforcing it?

Mr. MCFARLAND. Exactly, sir.

Chairman TOM DAVIS. In your testimony, you indicated that

health care providers, including pharmacy benefit managers, are

the source of the greatest amount of abuse in the health benefits

program, but that such abuse is very difficult to detect. Complicating the IG’s efforts to investigate claims of abuse against health

care providers is the fact that you don’t have the authority to audit

them.

Mr. MCFARLAND. That’s correct.

Chairman TOM DAVIS. If the IG were given such authority, could

that significantly affect the recovery of fraudulent claims in that

area?

Mr. MCFARLAND. Yes, no question that it would.

Chairman TOM DAVIS. OK. Mr. Posner, data sharing could help

programs ensure that only legitimate beneficiaries receive Federal

benefits. Are there any legislative changes that come there? Is this

basically an executive branch——

Mr. POSNER. No. I think there are legislative changes that, as I

said, there are a number of agencies that by law are not allowed

to have taxpayer data or the Office of Child and Support Enforcement New Hires Registry, which is a relatively new data source

from the Child Support Enforcement changes under TANF. And

that, in particular, is a prized data set that Federal agency benefit

administrators would like to be able to access. That will require

law changes as well; access, for example, by the Department of

Education to the IRS data will require changes in laws. And as

well the opportunity for more leadership at the central level.

Chairman TOM DAVIS. One of your recommendations for eliminating disbursement of Federal payments to individuals and businesses owing delinquent taxes is for Congress to enact the provisions of OMB Circular A–129, which precludes agencies from allowing individuals or businesses to participate in Federal credit proVerDate 11-MAY-2000 09:33 Nov 07, 2003 Jkt 000000 PO 00000 Frm 00108 Fmt 6633 Sfmt 6633 D:\DOCS\90112.TXT HGOVREF1 PsN: HGOVREF1
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grams if they owe money to the Federal Government; that makes

sense.

If we were to enact this measure, any estimate of what this could

save the Federal Government?

Mr. POSNER. Not right at this point. I don’t know if we could generate that. I know that we did a sample back several years ago

identifying 1,700 recipients from SBA’s loan programs that were

tax delinquent that nonetheless got their loans. But, no, we don’t

have that information at this point.

Chairman TOM DAVIS. OK. Any other ideas where Congress can

play the more vital role in identifying opportunities for reducing

the overlap and duplication?

Mr. POSNER. Well——

Chairman TOM DAVIS. You talked about Congressional Performance Resolutions.

Mr. POSNER. Yes. The Congressional Performance Resolutions

are the notion we have come up with which really builds on the

governmentwide performance plan where we think most of the key

issues are governmentwide or multi-agency in nature and no one

is addressing them. PART doesn’t address them, PART is programspecific. The GPRA is agency-specific. So the perspective of this

committee needs to be institutionalized in this process. One notion

we had, just like in 1974 when the President was the one who proposed the budget and Congress just abrogated it, we developed a

budget process to consider the whole. And we’re talking about that

for Congress on performance. Particularly with the PART process,

as the OMB continues to look at these programs, they are looking

at the programs and making their own judgments. They’re selecting the programs based on their criteria, and we are doing a study

for Mr. Platts’s subcommittee on this very program.

But Congress needs to get in the act of identifying its oversight

and performance priorities and concerns, possibly on an annual

basis. We saw a little bit of this process play out in Arizona when

they went to a biennial budget. One of the things they did is they

developed a leadership-driven process to identify the major performance concerns they wanted to address in a given year of a legislative session. And all the committees who had jurisdiction were

required to work on those priorities. And that was based on performance data from the agencies and reports from auditors. This is

one of those things that I think we need to talk more about and

work on, but it seemed to us that one of the things missing from

the performance management approach was this cross-cutting perspective.

Chairman TOM DAVIS. If you could do two or three things where

we could quickly try to get some money in, what would you

prioritize?

Mr. POSNER. Oh, boy.

Chairman TOM DAVIS. Tax revenue?

Mr. POSNER. I think the tax side would be one that would really

be quite productive in terms of that investment that we were talking about. I think data sharing, putting more information in the

hands of more program administrators with proper controls for privacy, would be another, including the loan area. Those are two, certainly, that come to mind. And also I think the bigger dollars and

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the more important activities are really the slower ones to rule out.

Reorganization, consolidation, those are things obviously you are

not going to get the quick hit on, but those are areas where—the

Federal Employee Compensation Program is another one—where a

formula change was scored by CBO when we did this last year as

saving funds fairly quickly.

Chairman TOM DAVIS. OK. Mr. McFarland, do you have an answer to that question? Three quick things you’d try to get?

Mr. MCFARLAND. Well, I believe that data sharing, for us, has

been very successful. I think a primary example of this is the coordination of benefits that we’re doing with our office and the

health field. We have been able to identify on a global basis recently $20 million that we did in 6 months; otherwise, if we’d have

gone our normal way over the years, it would have been closer to

3 years before we accomplished that. So I think that in itself is

very important. Along with that, of course, is extreme protection of

that information.

Chairman TOM DAVIS. OK. Those are my questions. Any other

questions, Mr. Ruppersberger?

Mr. RUPPERSBERGER. No.

Chairman TOM DAVIS. Well, if not, let me just say to this panel,

thank you very much for taking time from your busy schedules to

appear today. You have given us a lot of food for thought. We are

under a mandate from the Budget Committee and the leadership

to look at savings and this has been very, very helpful in terms of

identifying some of them so we thank you very much. Thank you.

The committee stands adjourned.

[Whereupon, at 11:24 a.m., the committee was adjourned.]

[Additional information submitted for the hearing record follows:]

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