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IMPLEMENTING THE IMPROPER PAYMENTS

INFORMATION ACT: ARE WE MAKING PROGRESS?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 20, 2005

Serial No. 109–126

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

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

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

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

NATHANIEL BERRY, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on July 20, 2005 ............................................................................... 1

Statement of:

Combs, Linda, Controller, Office of Federal Financial Management, Office

of Management and Budget; and McCoy Williams, Director, Financial

Management and Assurance, Government Accountability Office ............. 5

Combs, Linda ............................................................................................. 5

Williams, McCoy ........................................................................................ 11

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

Combs, Linda, Controller, Office of Federal Financial Management, Office

of Management and Budget, prepared statement of .................................. 7

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

of Pennsylvania, prepared statement of ...................................................... 3

Williams, McCoy, Director, Financial Management and Assurance, Government Accountability Office, prepared statement of .............................. 12

(1)

IMPLEMENTING THE IMPROPER PAYMENTS

INFORMATION ACT: ARE WE MAKING

PROGRESS?

WEDNESDAY, JULY 20, 2005

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:15 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Towns, and Duncan.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Jessica Friedman, legislative assistant; Nathaniel Berry, clerk; Adam Bordes, minority

professional staff member; and Cecelia Morton, minority staff.

Mr. PLATTS. A quorum being present, this hearing of the Government Reform Committee’s Subcommittee on Government Management, Finance, and Accountability will come to order.

I appreciate everyone’s patience as we begin. We hopefully will

get through today’s hearing without interruption from the floor

votes. We may have some votes in the Education Committee on

which I serve with an ongoing mark up but hopefully not, and we

will have one continuous interaction here.

Congress has a responsibility to ensure that tax dollars are spent

in the most effective manner and for their intended purpose. Unfortunately, as we will hear today, billions of dollars continue to be

lost due to improper payments, that is, payments that should not

have been made.

Just 2 days ago, the New York Times reported that it conducted

a year long investigation into fraud in the Medicaid Program for

the State of New York. The results of the investigation were staggering. Billions of dollars were wasted because of fraud and abuse.

Improper payments are not always fraudulent but can also be the

result of simple mistakes. Whatever the cause, we have the responsibility to do much better in safeguarding taxpayer funds.

The most recent information provided this year by the Office of

Management and Budget tells us that the U.S. Government makes

at least $45 billion in payment errors each year. The Bush administration and Congress have made the reduction of improper payments a top priority. In support of that goal, this subcommittee beVerDate 11-MAY-2000 12:13 Apr 26, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\DOCS\26655.TXT HGOVREF1 PsN: HGOVREF1
2

lieves that taxpayers have a fundamental right to know how their

tax dollars are being spent.

In 2002, my esteemed former colleague, Congressman Steve

Horn, who chaired this subcommittee, was successful in securing

the enactment of the Improper Payments Information Act of 2002.

This law has helped bring to the forefront the need to address this

issue more aggressively. The work of the past few years has

brought us a long way to getting our arms around the extent of the

problem. What we know today is that a primary cause of these mistakes, which occur throughout government, is the lack of adequate,

internal financial controls and business process systems.

Some agencies have employed new technologies such as data

mining and electronic benefits transfer with great success to help

reduce their error rates. More can be done and we will continue to

conduct effective oversight on this important topic.

Today, we will hear from the Honorable Linda Combs, who was

recently confirmed as the Controller in the Office of Federal Financial Management at the Office of Management and Budget. Ms.

Combs, we are delighted to have you with us and look forward to

working with you in your new position.

Ms. COMBS. Thank you.

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

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Mr. PLATTS. We also have with us McCoy Williams from the U.S.

Government Accountability Office. Mr. Williams, you certainly

have been very helpful to this subcommittee and have worked very

closely with me, the ranking member and our staff. We are delighted to have you with us once again.

We will begin in just a moment with your testimonies, but first,

I would like to yield to the ranking member from New York, Mr.

Towns. Before I do so, I do have to point out that you turn 29 tomorrow, so happy early birthday. Usually I am very belated in

birthday wishes, so it is nice to wish someone happy birthday

early. Enjoy that 29th birthday, Mr. Towns.

Mr. TOWNS. Thank you very much. I really appreciate that.

Let me say, too, that I am involved in a mark up in Energy and

Commerce so I might have some votes there and have to run out.

Let me also thank you for holding this hearing on improper payments and the detrimental impact on agency operations. I welcome

our panelists, McCoy Williams and Dr. Combs who is testifying before us for the first time since her appointment to OMB. Welcome.

Ms. COMBS. Thank you.

Mr. TOWNS. In an attempt to enhance the accuracy and integrity

of the payments made by agency programs, our committee played

a leading role in development and passage of the Improper Payments Information Act of 2002. The testimony provided by OMB

and GAO indicates that we still have work to do before considering

these efforts a success.

For fiscal year 2004, the Federal Government reported approximately $45.1 billion in improper payments throughout 41 individual programs, a $10 billion increase over fiscal year 2003 estimates. According to OMB, seven programs alone, including Medicare, Food Stamps and the Earned Income Tax Credit Program accounted for 95 percent of all improper payments during this budget

cycle.

Unfortunately, the short term outlook for stemming the flow of

improper payments remains cloudy. As 12 of our largest Government programs including Medicaid and Title I Education Grants

have yet to provide OMB with adequate estimates for such payments. Complicating matters, many agencies are in the process of

implementing new financial management systems creating additional risks for programs with significant error rates.

This information is especially troubling for programs with escalating future liabilities such as entitlements and Homeland Security priorities. Therefore, Mr. Chairman, it is my hope that we may

continue our joint efforts to root out the wastes and abuses within

such programs so they can remain viable for future generations.

Mr. Chairman, this concludes my statement and on that note, I

yield back the balance of my time.

Mr. PLATTS. Thank you, Mr. Towns.

We will now move to our opening statements. It is the practice

of our committee to have our witnesses be sworn.

[Witnesses sworn.]

Mr. PLATTS. We set a rough framework of 5 minutes but we are

not going to be that tight on that. We are glad to have you here

and appreciate the written testimonies you have provided as well.

Dr. Combs if you would like to begin?

5

STATEMENTS OF LINDA COMBS, CONTROLLER, OFFICE OF

FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET; AND MCCOY WILLIAMS, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GOVERNMENT

ACCOUNTABILITY OFFICE

STATEMENT OF LINDA COMBS

Ms. COMBS. Thank you very much, Chairman Platts, Congressman Towns and members of the committee.

I am certainly pleased to be here today for the first time, as you

mentioned, since being confirmed as the Controller of the Office of

Management and Budget and the Executive Office of the President.

It is quite an honor for a North Carolina farm girl to have that

honor bestowed upon her. I look forward to working with the subcommittee very much.

Having had some meetings with you already about some of the

major and significant financial management issues facing our Government today such as the Federal financial reporting that we have

talked about, making government reporting more transparent to

the consumer, and improving internal processes at various agencies

as well as today’s very important topic of eliminating improper payments.

Let me begin by saying this administration certainly is committed to making the elimination of improper payments one of our

very highest priorities. I think you have seen some evidence already that shows that commitment. There is simply no more important undertaking than the efficient stewardship of taxpayer dollars.

The Federal Government should be accurate and should be transparent in all of our financial reporting. Our citizens deserve to

know that their money is being spent appropriately and for its intended purpose. Please be assured that as I take this position, we

are already hard at work to ensure that good things are happening

in that regard.

Fiscal year 2004 marked the first full year of the implementation

of the Improper Payments Information Act and agencies reported

their improper payment elimination efforts in the November 2004

PAR. Soon after that, OMB issued a report in January 2005 entitled, ‘‘Improving the Accuracy and Integrity of Federal Payments.’’

This served to aggregate the results of these agency specific reports

into a single, comprehensive document. This OMB report provides

the clearest picture to date, we believe, on the extent of governmentwide improper payments, as well as the significant efforts underway to eliminate them.

Some of the report’s key findings include some that have already

been mentioned today. Federal agencies reported the collective

total of $45.1 billion in improper payments in fiscal year 2004 and

that represented a 3.9 percent governmentwide improper payment

rate. Approximately 92 percent of the Federal improper payments

are overpayments, 7 programs alone account for 95 percent of the

improper payments reported in fiscal year 2004 and if agencies

meet the reduction targets, the overall improper payments total

measured reported in fiscal year 2004 is expected to decline significantly when reported in 2005.

6

A new President’s management agenda program initiative is also

increasing and continuing to bring focus to eliminating improper

payments. Beginning in the first quarter of 2005, OMB began

tracking the progress of 15 major agencies with the programs and

activities with the highest risk of improper payments on our quarterly score card. For instance, in order to get to green—or to the

highest level that one can attain in the President’s management

agenda—on status on this initiative, agencies must have taken the

following very important measures.

They must have a risk assessment in place that identifies all programs at significant risk of improper payments. They must have an

OMB approved plan for measuring improper payments and meeting particular milestones. They must actually demonstrate that improper payments are being reduced, consistent with reduction targets.

The effort to eliminate improper payments also extends to the

work of the CFO Council and the Improper Payments Committee.

I have worked on the CFO Council, as many of you know, in this

position and in a couple of other CFO positions in which I served

in the past. I can tell you this level of scrutiny is a very important

element in our ways to help reduce improper payments.

Across government, we assist agencies in efforts to identify and

reduce these improper payments, to comply with the statutory requirements and the OMB Guidance, as well as facilitating the

sharing of best practices among agencies. There certainly is a lot

of work that remains to be done and a lot of discussion needs to

be had relative to how we are assessing our programs to date. But

I believe, Mr. Chairman, we are in a very, very strong position

right now to continue the efforts already identified and eliminate

improper payments throughout agency programs and activities.

With our goal of ensuring that each taxpayer dollar is spent

wisely, effectively, efficiently, and for the purposes for which it was

originally intended, we remain committed to this effort. We look

forward to working with Congress and to seeing that this objective

is accomplished.

Thank you, Mr. Chairman, for the opportunity to speak before

you and the committee today. I am pleased to answer any questions you may have.

[The prepared statement of Ms. Combs follows:]

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Mr. PLATTS. Thank you, Ms. Combs.

Mr. Williams.

STATEMENT OF MCCOY WILLIAMS

Mr. WILLIAMS. Thank you, Mr. Chairman.

I am pleased to be here today to discuss the governmentwide

problem of improper payments in Federal programs and activities.

Fiscal year 2004 marked the first year that Federal agencies governmentwide were required to report improper payment information under the Improper Payments Information Act of 2002. OMB

has continued to provide strong emphasis on the act through the

President’s management agenda and Federal agencies response to

fulfilling the requirements of the act has generally been positive.

My testimony today is based on our March 31, 2005 report that

focused on the extent to which agencies have performed the required assessments to identify programs and activities that are

susceptible to significant improper payments and the amount of improper payments estimated by the reporting agencies for fiscal year

2004.

We found that agencies made progress in identifying programs

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

Mr. Chairman, our findings suggests that even with the enhanced

emphasis on improper payment reporting, certain agencies had not

yet performed risk assessments of all their programs and/or estimated improper payments for their respective programs.

Specifically, 6 of the 29 agencies we reviewed reported they had

not assessed all programs. We also found that 29 agency programs

did not report improper payment estimates and 12 of these programs had prior improper payment reporting requirements under

OMB Circular A–11. I will now focus on the amount of governmentwide improper payments reported for fiscal year 2004.

While 17 agencies reported improper payment estimates totaling

more than $45 billion for 41 programs, the magnitude of governmentwide improper payment problem is still unknown because as

I mentioned earlier some agencies have not yet prepared estimates

of significant improper payments for all of their programs. The $45

billion represents almost a $10 billion or a 27 percent increase in

the amount of improper payments reported by agencies in fiscal

year 2003. This increase was primarily attributable to changes in

the method for estimating and reporting improper payments in the

Medicare Program.

In closing, Mr. Chairman, we recognize that measuring improper

payments and designing and implementing actions to reduce or

eliminate them are not simple tasks and will not be easily solved.

The level of importance each agency, the administration and the

Congress place on the efforts to implement the act will determine

its overall effectiveness in assuring that Federal funds are used efficiently and for their intended purposes.

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

to respond to any questions you may have. Thank you.

[The prepared statement of Mr. Williams follows:]

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Mr. PLATTS. Thank you, Mr. Williams.

Maybe just in a broad sense as you have looked at this issue and

Ms. Combs—I realize you are very new in your current position but

certainly with your background you are very familiar with the importance of the issue and efforts to undertake reduction of improper payments and Mr. Williams, with many years working with

my predecessor and this committee on the issue—is there anything

that jumps out as the core problem that we need to focus on regarding improper payments, under payments or over payments?

Anything that the departments and each of their programs say this

is where we should start and then go from there?

Ms. COMBS. I think the one thing that stands out in my mind

is the leadership element within each and every department in

which I have served and the leadership of the very, very top level

in the department. I know we don’t often hear good news and don’t

often hear specific small examples, but small examples can talk

and say an awful lot. I know even when I was at the Environmental Protection Agency, coming from a banking background I

thought it was very, very important to take on some roles and responsibilities and have program managers understand that financial accountability is not just a financial person’s responsibility, it

is everybody’s responsibility.

That was carried to our top level leadership and very early on

I got commitment from the then Administrator of EPA that we

were going to focus on improper payments and focus on some of

these other internal control elements that you and I have talked

about in private conversations. I share this one example because I

think it says a lot about what is needed.

One of the days a particular matter came to my attention and

it was how an improper payment had been avoided. It was not

avoided by the CFO and it was not avoided by the then Administrator. It was avoided by a GS–7 clerk who was working in our accounting office. This GS–7 clerk happened to look at a document

and say, hmm, I think I may have seen that before because we had

very much sensitized all of our people to the fact that this was important to me and it was important to the Administrator. True

enough, if she had made that payment, it would have been an improper payment and it wasn’t $25 or $2,500, it was several million

dollars.

I say that and yet to sensitize all of us that these responsibilities

can be handled a lot of ways with just top level leadership. That

is a very broad brush example for you, but I think leadership has

an awful lot to do with this, and I think holding people accountable

for corrective actions. Obviously there is a procedure in place in our

internal controls or she would never have picked up on that. I

think it speaks to a very achievable way that we can handle specific targets we have for improper payment reductions and it

speaks to the fact that yes, internal control processes can be owned

by every member of every department.

Mr. PLATTS. Ms. Combs, before we go to Mr. Williams, I share

that sentiment on all the different financial management issues we

have looked at in the last 21⁄2 years, the leadership at the top and

the interaction between the leadership. It sounds like in your previous CFO positions, the communication between you as CFO and

23

the Secretary or the Administrator was very strong and that direct

access was there. We found having leadership and having the direct communication between the Secretary or the Administrator

and the CFO helps to reemphasize across the department or agency the importance of financial management.

Ms. COMBS. And it does. Even taking the next simple step, so

when I heard that, I picked up the phone and called the GS–7 clerk

and said, thank you for avoiding this improper payment. By the

next morning, the Administrator had also placed that same call.

That word permeates throughout an organization and can do an

awful lot. While we think our efforts are very important and they

are, those little things mean an awful lot throughout an organization.

Mr. PLATTS. I share that sentiment exactly.

Mr. Williams.

Mr. WILLIAMS. I can only concur with everything that has been

said so far. The bottom line when it comes to improper payments

as we have noted at GAO, the common theme we have noticed is

you get improper payments when there is a lack of internal controls. You get improper payments when there is a breakdown in internal controls. That is one primary cause.

One thing we focus on is looking at the internal control environment. It starts with the right tone at the top as stated earlier. I

would reinforce the point also that when you’re looking at the internal control environment, while you have to have the right tone

at the top, you have to have the internal control structure in place

throughout the organization from the top person in the organization to every individual. You need that in order to have a good control environment which would be what is needed to start the process of addressing the improper payment issue.

Mr. PLATTS. That kind of goes hand in hand, leadership and the

processes?

Mr. WILLIAMS. That is correct.

Mr. PLATTS. In the findings of the 2004 numbers, the 60 percent

deemed at risk, about 1/7th of that dollar amount was not determinable of how many improper payments and the value of those

improper payments, I guess about $250 million. Do you have what

percentage of the programs have not fully complied, not in dollar

amounts but 80 percent have complied with it fully as we look at

the 2004 numbers?

Ms. COMBS. Can I just say that all 24 of the CFO Act agencies

have complied. I think when we look at it, all the major agencies

have been in compliance. You may have something you want to

add, Mr. Williams?

Mr. WILLIAMS. One of the problems we have had in trying to

identify how many agencies complied is that we have not been able

to locate a central spot where we have been able to identify this

is the universe of programs or activities. Until we are in a position

of saying this is the universe, it is difficult for us at GAO to say

x percentage has complied with the act. I think that is the first

step or the first obstacle that we have to overcome, the basic identification of how many programs are out there, how many activities

are we talking about.

24

There are several problems in trying to come up with that number and we have looked at it in the past. Activities change, there

are regroupings, and so forth, so it makes it very difficult. It would

be difficult for me to say an exact percentage.

Mr. PLATTS. A quick followup and then I want to get to Mr.

Towns with questions.

Of the 24 CFO agencies, within those there are some that have

not been able to provide an estimate for some of their programs,

right?

Ms. COMBS. For the 2004 PAR.

Mr. PLATTS. Right.

Ms. COMBS. But subsequent to that, people have produced those

requirements for this year. I think when we see the 2005 PARs this

year, we will see a lot more comprehensive data much as Mr. Williams just indicated. I think what we know is 80 percent of the risk

susceptible dollars have been identified. That is a very large chunk

of what we know thus far. I think we will know a lot more as we

get into 2005.

Mr. PLATTS. I have a couple followups on those numbers but I

want to yield now to Mr. Towns for questions.

Mr. TOWNS. Thank you, Mr. Chairman.

Let me thank Ms. Combs and Mr. Williams for coming to testify

again.

Ms. Combs, does it appear that with some of these agencies, the

lack of additional resources led to the problem?

Ms. COMBS. I think a lot of the most frequent reasons that improper payments are made—if we go back to that, how could we

avoid making them to begin with—are worthy of looking at. One

of the things I think is very difficult is that many of the eligibility

criteria are pretty complex. So without timely, accurate and verifiable data to inform of benefit or payment amounts or payment eligibility in some of these programs, I think we find some of those

situations.

My reason for bringing that up is sometimes those require some

additional data resources or technology resources within the departments and agencies to help them address those particular

issues.

Mr. TOWNS. Mr. Williams, does this happen mostly with entitlement programs? I am trying to get a handle on this thing.

Mr. WILLIAMS. It is a combination of programs. One of the issues

here is a lot of these improper payments occur in those programs

in which the Federal Government is passing that money on to the

State. We view it as accountability with the Federal Government

until the money makes it all the way to the recipient. You are looking at a process in which there has to be some coordinated effort

between Federal and State agencies to make sure those funds

make it to the intended recipient and for the intended purpose. It

is a combination of programs but there are quite a few that would

fall into the grant program category.

Mr. TOWNS. What you are really saying is where you have a situation where there is a match, then that really sort of exacerbates

the problem?

Mr. WILLIAMS. You have a situation that makes it difficult sometimes for the Federal agencies and it is not the Federal agency just

25

giving the money to the recipient, it has to go through the State

agencies and sometimes other non-profit organizations. You have to

make sure you work with each one of these entities. In some programs, the rules and regulations vary from State to State, so you

have to work with each State to make sure you have proper controls and procedures in place to make sure the money is reaching

the intended purpose and not getting these improper payments.

Mr. TOWNS. Ms. Combs, I feel comfortable asking this because

you have functioned in so many different capacities which I think

is really great for us, that we can draw on all this knowledge. Are

there distinguishing characteristics between programs not at risk

and those that are?

Ms. COMBS. I think the seven programs that comprise that 95

percent we talked about, if you look at what those programs are,

Medicare, Earned Income Tax Credit, for example, the Supplemental Security Income, Food Stamps, Public Housing, Rental Assistance, I think we see some of those are the ones where we need

to concentrate.

Mr. TOWNS. Did you mention Social Security?

Ms. COMBS. I may not have, Unemployment Insurance, Supplemental Security Income which is not. There are only four departments that are represented by those seven top programs.

Mr. TOWNS. I said Social Security because Social Security has

probably the biggest outlay and doesn’t fall into that category.

Ms. COMBS. They have been working very hard over the years.

They are probably ahead of some of the other agencies in doing

some of their assessments. I think one thing we have to keep in

mind is various departments are at various stages of looking at improper payments. I would suggest that Social Security over the last

year has already recaptured something like $100 million in improper payments. They have been at this perhaps a bit longer.

Maybe I am not correct with that but Mr. Williams has been at

this longer than I have, but my assessment is they must have been

at it a while longer.

Mr. WILLIAMS. When it comes to financial management, Social

Security has been one of the model agencies as far as getting audit

reports and addressing internal controls and receiving opinions on

internal controls. They have been ahead of the curve in a lot of the

financial management issues for which we have related legislation.

Mr. TOWNS. Mr. Williams, from a legislative perspective, has the

passage of IPIA given OMB and the agency community enough directive requirements in order to stem the flow of improper payments? Are there additional budget requirements or legislation

needed to assist in these goals?

Mr. WILLIAMS. I think the act itself has laid the groundwork

needed from a congressional standpoint. We have only gone

through 1 year of reporting this information. There are probably

some things that as a result of going through 1 or 2 years, OMB

might identify as we need some assistance. I can recall the Comptroller General testified in the past in this particular area, one additional area the Congress might want to look at is some of the Privacy Acts because a lot of the process we are talking about here

of looking at improper payments, there are different programs in

which recipients might be receiving improper payments in one proVerDate 11-MAY-2000 12:13 Apr 26, 2006 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 D:\DOCS\26655.TXT HGOVREF1 PsN: HGOVREF1
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gram and also might not be eligible for payment in a similar program. If you are not able to cross match some of this information,

you wouldn’t be able to identify some of the improper payments.

There are some things we have already identified such as that

and there will probably be others that will come up as we go along

to look at the process. That is part of the legislation, for OMB to

work with the agencies to try to provide them with the tools they

need to address these problems. That is one example of something

that could come up but as we go through the process, I think there

will be more opportunities to identify areas in which various tools

could be provided by OMB and possibly by the Congress and some

modification of the act if it turns out some changes are needed

along the way to make this even more effective.

Mr. TOWNS. I see my time has expired.

Mr. PLATTS. Thank you, Mr. Towns.

Now I yield to the gentleman from Tennessee, Mr. Duncan.

Mr. DUNCAN. Thank you very much, Mr. Chairman. I am sorry

that I had other meetings and wasn’t able to get here and I am

sorry I didn’t get to hear the testimony although I have read some

of the summary. I understand we are talking about $45.1 billion

worth of improper payments. Someplace I read that it is 92 percent

overpayments and 8 percent underpayments.

A couple of months ago we had David Walker from the GAO here

to testify before the National Security Subcommittee and they

talked about how the Defense Department had made $35 billion

worth of improper payments just in Iraq and another $9 billion for

a total of $44 billion that was just lost and unaccounted for.

We talk about billions up here so often it just becomes meaningless but I heard somebody say recently that $1 billion would be

somebody making $100,000 a year for 10,000 years. I thought surely that is wrong, so I multiplied that and it is true. Another way

you can put it is that 10,000 people making $100,000 a year is just

$1 billion.

Now we are talking about $45 billion, so I think this is a very,

very important thing you are looking into and I commend you for

your diligence and going after this type of thing. I will tell you, it

is just shameful that the Federal Government is not doing better.

When we see estimates like this, usually we are hearing about the

tip of the iceberg. Usually these estimates are very conservative

and there are many other things being missed.

Thank you for holding this hearing and we all need to work on

this and do everything we can to try to cut this down because it

is an unbelievably huge problem apparently in almost every department and agency throughout the whole Federal Government. It

is beyond scandalous and it is hurting a lot of poor people around

this country. There are a lot of poor, lower income, and working

people who are paying these taxes in direct and indirect ways. You

can’t hurt the wealthy people, they will do all right, but there are

a lot of families across the country that even with husband and

wife both working, they are having trouble paying medical bills,

utilities and now their gas bills and other things.

Thank you very much, Mr. Chairman.

Mr. TOWNS. Would the gentleman yield for a second?

Mr. DUNCAN. Yes, sir.

27

Mr. TOWNS. Mr. Chairman wished me a happy 29th birthday, I

would like to take the opportunity to wish my friend a happy 28th

birthday. [Laughter.]

Mr. DUNCAN. Mr. Towns and I have been friends for a long time.

He and I and Jim Clyburn and now Mr. Salazar from Colorado all

share the same birthdays. There were a lot of good men born on

that day. [Laughter.]

Mr. PLATTS. I am honored to be in the presence of two of them.

Thank you, Mr. Duncan.

I want to come back to those programs that were identified and

we come up with 60 percent. And of that 60 percent at risk, we

come up with the $45.1 billion. If we extrapolate that percentage

of 3.9 percent and apply it to what we have not yet identified, that

would generate about another $10 billion in improper payments, a

straight percentage. My concern is that it is actually going to be

significantly higher because one of those programs is Medicaid at

$175 billion.

I referenced in my opening statement the New York Times article on Medicaid fraud in New York. One of the former chief state

investigators for Medicaid fraud said his belief is that outright

fraud of Medicaid is 10 percent in New York and there is some

questionable aspect to as much as 40 percent. Even if we take the

10 percent, just the Federal Government’s amount for just that one

program, we are talking about another $17.5 billion and that is the

Federal Government’s share which is then matched.

We are talking again tens of billions of dollars more that we really don’t have our arms around yet and are still working on. That

comes with the hope we will get in 2005 a greater percentage if not

all of these programs are in compliance.

My understanding from the Senate hearing on Medicaid specifically was when the report was done the projection of 2006 of being

able to put out some legitimate numbers and based on the testimony in the Senate this past week, probably it is at least 2007. Is

that your understanding?

Ms. COMBS. Over the last 3 weeks since I have been involved in

this, you must know I certainly do have some other experience to

base it on as well, I think the strategy that has been embarked

upon thus far is a very good one, to attack the most risky programs, so to speak. I like to think of it in a Phase I and then a

Phase II approach. I think particularly after we get better information with our 2005 PARs this year, we will be able to then sit down

and say, here are the things that seem to be working well, here are

those that probably aren’t working so well.

Between now and then, the PARs are issued in November, so we

will not utilize the time right now to find out as much as we can

as well. One of the things we are doing as a CFO Council, the Improper Payments Subcommittee of the CFO Council, is taking a

look at where we are. We are trying very, very hard to say what

have we learned, what are the best practices we have embarked

upon and where have we made the most progress and why, and

where do we still need to work.

I think in all fairness we have to look at this in a structured,

phased approach. You just talked about Medicaid and I don’t think

the total extent of the errors is known at this time, so it is probably

28

premature to reach a conclusion about the amount of improper payments at this time. I think we have to very much know, yes, this

number could go up in spite of our best efforts to improve our improper payments, yes, we may find more and more. That would not

be a bad thing.

We want to continue to root out all of the improper payments we

can. We already know even during some preliminary discussions

with other CFOs there are some programs that have been identified that were not placed in the other risk susceptible category in

2005, and I don’t discourage that but encourage that. If it is a risk,

let us face up to it and own up to it and put it in there. We also

know there is some additional work we need to do.

Mr. PLATTS. In the breakout with the CFO Council, the subset,

I assume there is a separate effort or focus in programs like Medicaid where it is State administered? I know that is one of the challenges of State administered Federal dollars. How do you get after

their internal controls? Is that part of the dialog with the CFO

Council, how to deal with that special circumstance?

Ms. COMBS. I think that is one of the beauties of having a CFO

Council and particularly having a subcommittee, the like programs,

people in one agency or department can see the similarities between their department and another and learn from those experiences. Certainly my staff and I consider it part of our duty and responsibility to assist Federal CFOs in their best practices to try to

communicate through everybody what the best practices are.

Mr. PLATTS. I had the opportunity to speak to the Association of

Government Accountants last week. One of the things the executive director emphasized in our private conversation at lunch was

trying to have better dialog between the Federal, State and local.

Going after improper payments is critical as Medicaid tells us. I am

glad to hear it is being encouraged and promoted.

Mr. Williams, of the programs that did not report with estimated

timeframes, several in 2005 and 2006, 2007 and 2008 and several

that gave no estimate of when they would be able to report, do you

have any update on those estimates that you want to share with

us?

Mr. WILLIAMS. That is the latest information we have except the

one on Medicaid. We had noted in the January summary report

that OMB put together that the Medicaid Program was estimated

to be able to report the information in 2005. We also noted in looking at the PAR report that information was estimated to be available in 2006. At the hearing you mentioned last week, it was

pushed out to 2008.

I think this highlights the point that we were just discussing,

that this is a complicated process and it is not something that

every agency within the Federal Government is going to be up to

speed at the beginning of this process. It is going to take a lot of

effort, a lot of commitment, and a lot of focus, as I said earlier, in

order to be able to address this issue because there are some complex programs. For some of those complex programs and all the

steps they are required to go through, it is going to take some time.

We had talked a bit about whether the $45 billion represented

the total amount and if the number would go higher. As I stated

earlier, the number is actually unknown at this particular point in

29

time. It wouldn’t surprise me in the next year’s report to see the

numbers stay where they are and it wouldn’t surprise me if they

went down. It wouldn’t surprise me if they went up because you

have so many variables. You have components that didn’t report,

you don’t know how much more that will increase the number next

year compared to agencies improving the process of putting controls in place based on having this information for 2004.

There are just too many variables to tell just where that number

is going. But you know for those programs that did not report,

when they report the first year, that is going to push in the direction of increasing the number. You just don’t know how much better agencies will be in year 2 with identifying improper payments

that could push it up and how many procedures and processes have

been put in place to actually reduce the process. It is just unknown

in this particular point in time.

Mr. PLATTS. I did not hear all the testimony last week on the

Senate side. I understand each program is different and the challenges will be different, especially where it is State administered.

Mr. WILLIAMS. That is correct.

Mr. PLATTS. In a program the size of Medicaid, so I understand

2005 or 2006 but they are saying 2008 now and it is hard for me

as a lay person to understand, using a simple analogy, we do a scientific assessment and usually come up pretty close with what the

final vote is going to be, yet it is going to take us another 3 to 4

years to even be able to say we think the improper payments are

of this magnitude for this one program.

Is it because of not any the complexity but also the manpower

to put out there and gather enough data to make a calculation?

That doesn’t make common sense or seem acceptable that it is

going to take another 3 or 4 years to simply try to identify what

is happening, let alone fix it.

Mr. WILLIAMS. I would concur that while it is complicated, that

is a long ways out. Whether there are revisions to that, I am not

sure. That was the date given at the hearing last week. I took note

of it and looked at it from the standpoint of what was in the PAR.

Mr. PLATTS. The importance of us doing it as quickly as possible

and we talk a lot about fairness or responsibility to the taxpayers,

but it is also to those in need of the services of those programs.

Across the country, Medicaid is really being stretched and Governors and the Federal Government are looking at how to stretch

limited dollars which means some may not get the services they

need because of inability to fund it all. If it is 10 percent that is

fraud, that fraud is denying needy individuals the care they really

need. So it is not just responsibility to the taxpayer, it is actually

service to those in need of the benefit.

Let me address one more area and I will get back to Mr. Towns

and Mr. Duncan.

In the 60 percent deemed at risk, one area that jumped out was

DOD. According to the report, only two programs at DOD, Military

Retiree Benefits, Military Health Benefits, were at risk and $390

billion in programs at DOD are listed as not being at risk.

I would be interested in both of your opinions. Is that a likely

and accurate estimate especially given some of the numbers Mr.

Duncan shared of some of the challenges in Iraq and elsewhere?

30

Mr. WILLIAMS. I looked at the number and actually I went to the

PAR report to get confirmation. I think in the 2004 PAR report, the

conclusion was reached that those two programs were the only two

that DOD would be required to report. Looking at those numbers

in relationship to the outlays, it was being reported because OMB

had put out reporting requirements that all of those programs

under A–11 would still be required to report. For those two programs, it did not meet the 21⁄2 percent criteria that was in the implementation guidance put out by OMB.

Mr. PLATTS. Some would have made the $10 million?

Mr. WILLIAMS. They would have made the $10 million but

wouldn’t have made the 21⁄2 percent, that is correct. But if you look

at some of the reports that GAO has issued that speak to some of

the internal control weaknesses and some of the breakdowns in internal controls at DOD, and look at our high risk series and look

at how many DOD activities including DOD financial management

is included in our high risk series, when you go back to the point

I made earlier, the lack of internal controls or breakdown in internal controls is one of the primary causes of improper payments. It

would make one wonder if there aren’t some other programs out

there that I would find it hard to believe.

But it could be based on our definition of improper payments

that some things might not be classified as an improper payment.

It could be a waste or some other category that we look at. But as

I said earlier, it is difficult to imagine with some of the reports we

have issued that there were only two programs.

Mr. PLATTS. Ms. Combs.

Ms. COMBS. Let me address that a little bit differently. I think

the complexity of programs certainly was already talked about and

I think there are a couple of statutes that deal with that; the Improper Payments Act itself and the Recovery Audit Act.

It is my understanding thus far that the Department of Defense

outlays are a lot related to contractor payments. We have heard

that, we all kind of know that and some of that is being captured

in the recovery audits.

I think one of the things we need to take into consideration and

I know you are interested in us making sure we pull these things

together and we are not double counting and having to do things

more than once to get the same information, one of the things we

have to take into consideration is whether or not some of those

payments are being captured in the recovery audit as well. I would

just add that, yes, I think there are probably a couple ways we can

get at that.

Mr. PLATTS. Those numbers at DOD kind of further my concern.

We raised this with your predecessor at OMB with the guidance

that was put out for the Improper Payments Act that the required

reported programs is the $10 million and 21⁄2 percent which is not

in the law. We have tried to be very restrained on pursuing that

because of commitments to cast a very broad net and not allow that

band requirement of the 21⁄2 percent to miss anything.

When I look at the DOD numbers and it is $400 billion we are

saying is not at risk, to me that probably tells me that and 21⁄2 percent is not allowing that net to be nearly as broad as it needs to

31

be. I would encourage you to continue to look at whether that 21⁄2

percent additional requirement is appropriate.

Ms. COMBS. I hear you and I understand your point on that. Certainly that is one of the things I think we as the CFO Council Subcommittee on Improper Payments look at. It is an appropriate time

to assess what has happened thus far and it is an appropriate time

to take a look at that. I certainly commit to you that I will take

a look at that.

Mr. PLATTS. I appreciate that because if we have that in there

and one way or the other we get to all programs that have significant improper payments, that is great but those numbers seem to

argue that we are not, at least with DOD and perhaps elsewhere

too.

I have some followup on the contract aspect as well but I want

to yield to the ranking member.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Mr. Williams, in some programs such as Medicare and Medicaid,

it is fair to say that maybe the guidance from the agency administering such programs is a significant cause of excessive reimbursement or improper payments, the lack of clarity. Do you think

that has a role in this?

Mr. WILLIAMS. There are a couple things you need to look at

when you talk about some of the causes. First of all, there is an

inherent risk in a program. The example I always use is if you are

looking at a program such as FEMA where you have to get out

emergency supplies and get them out right then, ice is needed

today, it won’t do you any good a week from now, that you have

inherent risk that you might be making some expenditures that

would turn out to be improper down the road.

Then there is the other component which I think you just described and that is that in some programs, you probably have a design issue just basically the way the program is designed that will

result in a higher number of improper payments. Going back to a

previous question, would this be one of the things that should be

coming out as you get a better handle on the dollar amount of improper payments and if you see a program has a very high number.

That is something the Congress and the administration can look at;

why do we have this high number? Have we designed this program

in a way that will result in a huge number of improper payments

or are there just some inherent risks in what we are doing here

in this particular program?

Another concept that I talk about is when you put internal controls in place, you want to put those in place that are cost beneficial. You don’t want to put controls in place that will cost you

more than you would benefit.

In short, yes, there could be just some inherent risk as well as

there could be some design risks in the way the programs are designed that could cause a high number of improper payments.

Mr. TOWNS. A number that really stands out after Congressman

Duncan’s comment about billions, I see here in 2003, I think the

overall number was $35 billion and then in 2004 it is $45 billion.

It seems to me we are moving in the wrong direction. Is it the fact

we are looking harder now and by 2008 we hope to have things in

32

place. I am trying to figure out how we will do that if we are going

in the wrong direction.

Mr. WILLIAMS. Actually the number went up by about $10 billion

and it is due primarily to one program, I believe that is the Medicare Program. It is because the agency came up with a better

methodology in estimating that amount in 2004 than they had in

2003. I think while it is bad news, it is good news because you have

better information out there that is needed for this process of trying to identify and come up with solutions for addressing the improper payments issue. While the number went up, I think the

good news is that the agency has come up with a better way of estimating and you are getting better information than you had in

2003.

Mr. TOWNS. Does enforcement really play a major role? The reason I ask this question is that in my home State, enforcement is

almost nil in terms of Medicare, Medicaid, all the programs. Does

that play a part in this? I am trying to figure out if there is aggressive enforcement? Does it help?

Mr. WILLIAMS. In terms of the number?

Mr. TOWNS. Yes.

Mr. WILLIAMS. The one example I like to use is if you look at the

Food Stamp Program. There are incentives and disincentives for reducing that number if that number continues to go up. For all the

programs that might be a model that other programs can look at

because if my understanding is correct, in that particular program,

if you come in under the national average, there are some incentives or some benefits for doing that. They just changed the rules

a couple years ago, I believe, which is an average of a couple of

years to the best of my memory.

If you come in above that national average, there are some penalties or some accountability that comes into place if you are not

doing as good a job as people are overall. I think that is one of the

things you can do in these particular programs. Look at some of

your best practices and look at what other programs are doing to

address this issue. Anywhere there is a best practice, everybody

should jump on the band wagon if possible.

Mr. TOWNS. Daniel Sisto said its members believe that Federal

officials had used inappropriate tactics to crack down on fraud and

they had fought the whistleblower law out of fear that the State

would follow suit. He said the group’s members faced a wrath of

different requirements from Medicaid, Medicare and numerous private insurance companies and as a result, made billing mistakes

that were wrongly criminalized. He said, what concerns me from

our past experience is that there is overzealousness and the interpretation of any overpayment as fraud and abuse. What is your reaction to that?

Mr. WILLIAMS. Fraud is in the definition of an improper payment. My bottom line opinion on that is Congress has established

a statute and that is the rule. In some cases, they are complicated

but you have to have procedures in place, you have to have internal

controls, be it preventive or be it detective, to hold people accountable for carrying out the programs that is basically the intent of

the Congress.

33

I have never had a problem with the audit community carrying

out its role of making sure that money appropriated by the Congress has been spent for the purpose Congress intended.

Mr. TOWNS. Thank you, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Towns.

A followup on the incentive when you talked about the Food

Stamp Program, you were with us in Tennessee when we did the

hearing. I know there is funding provided for the fraud units in the

States. Is there any incentive in the form of a kind of finder’s fee

if States find $1 million in fraud and save $1 million by their efforts getting to keep 10 percent?

Mr. WILLIAMS. Yes.

Mr. PLATTS. Is that out there?

Mr. WILLIAMS. I am not sure. I don’t know the details of that.

Mr. PLATTS. That carrot as opposed to the stick approach of getting the States to get on board. They are all looking for money.

Help us find it and save it and we will share the proceeds.

Mr. WILLIAMS. I can’t speak to it. I am not for sure but things

like that you have to look at as far as what are best practices and

what can we do to make sure the program is carried out the way

Congress intended.

Mr. PLATTS. It relates to DOD but it is across the Government

on contracts, of the $900 billion deemed not at risk, there are six

main areas, one of which was identified as contracts administration. Am I understanding correctly that we are saying Federal contracts in a broad sense are somewhat deemed as not at risk, paying

contracts? Can we expand on what that is?

Mr. WILLIAMS. The Recovery Act basically stated any program

that had contracts over $500 million annually would be required to

do recovery auditing. In my review of a listing of the various agencies, DOD was No. 1 if I remember correctly. I have the schedule

here for DOD. In fiscal year 2004, DOD states that it identified for

recovery $6.3 million. It actually recovered $6.3 million in 2004,

that is 1 year under this particular program.

Mr. PLATTS. Through the recovery audit process?

Mr. WILLIAMS. Through the recovery audit process. This is a letter that GAO, the Comptroller General actually received from the

Deputy Director for Management, Mr. Clay Johnson on the 2004

Recovery Act audit reports for the various agencies. I have a list

of all of them. Looking at the various ones, DOD was $6.3 million

that was recovered.

Mr. PLATTS. Are you saying million or billion?

Mr. WILLIAMS. Million.

Mr. PLATTS. What dollar sum was reviewed? Do we know that?

Mr. WILLIAMS. I don’t know.

Ms. COMBS. I think it was somewhere around $15 billion that

was actually reviewed.

Mr. PLATTS. That is $15 billion that generates $6.3 million?

Ms. COMBS. Correct.

Mr. PLATTS. Seems pretty low.

Ms. COMBS. Yes, I agree.

Mr. PLATTS. Again applying those across the board percentages?

Ms. COMBS. It would be wonderful if the rate were that good.

34

Mr. PLATTS. That comes back to our previous discussion that we

set out the law and then the initial guidance but this is a work in

progress and we look at how to tighten the law if necessary. We

would welcome any recommendations if we think it is statutory or

if it is more regulatory in the guidance given where we need to refine that 21⁄2 percent being one example.

How common is the recovery audit process? Is that pretty standard in all departments with their contracts?

Ms. COMBS. I can answer from my personal experience as CFO

at both the Department of Transportation and EPA, most recently.

I know recovery audits even though many of the programs were not

in the highest risk susceptibility, recovery audits were a common

practice for us in those agencies and departments. I know that the

improper payments rate within particularly EPA was less than 1

percent. That is part of all your internal controls processes. We

talked earlier about consolidating and streamlining some of the

ways you look at internal controls and look at risk within your various departments and agencies.

I think we have to apply several of those different ways of looking at risk within the various departments and agencies. This is

what we are trying to do but I think there are some excellent practices out there. There are some we still need to work on.

Mr. WILLIAMS. Mr. Chairman, in looking at that in total as I stated earlier, I think the $500 million was the criteria and the

total amount for all of the major agencies I see in this report is

about $52.7 million across Government that was recovered.

One of the things I would like to point out is OMB has taken

steps to increase accountability over this area and in the 2005 PAR

reports this information will be required in a separate section so

that will give it some visibility that is needed in that first step in

trying to identify the problem, making sure that the information is

out there so people know what is actually taking place.

Mr. PLATTS. The total sum for recovery was $50 million?

Mr. WILLIAMS. That was $52.7 million.

Mr. PLATTS. DOD was $6.3?

Mr. WILLIAMS. DOD was $6.3 million; Agriculture was $2 mil- lion; DOD, $6.3 million.

Mr. PLATTS. I am extrapolating from a percentage standpoint, but off the top of my head, I think DOD, $400 billion budget and

out of a little over $2 trillion, so about one-fifth of our expenditures

are DOD?

Mr. WILLIAMS. That is correct.

Mr. PLATTS. So you would have thought that DOD would have

been in at least the $10-$15 million range, just extrapolating

straight percentages or reverse if they got $6.3 million, our total

would have only been about $30 billion instead of $50 billion?

Mr. WILLIAMS. Right.

Mr. PLATTS. It seems like DOD again is off on the low end. I

would like to believe that is accurate but given some of our past

hearings and their challenges with internal controls, my worry is

that it is not.

Mr. WILLIAMS. I would just add that the larger ones, VA had $27.3 million; GSA had $11.1 million and Energy and Defense were

in the $6 million range.

35

Mr. PLATTS. Ms. Combs, maybe a caveat to my request that we

look at the 21⁄2 percent additional requirement the guidance placed

on the improper payments, what is required to be reported, and

perhaps looking at it in a piecemeal approach meaning that for

DOD, perhaps that 21⁄2 percent should not be out there because of

the way they operate, the size of their contracts, the amount of contracts and things. I just come back to that $397 billion not being required to be addressed, that perhaps it is not across the board and maybe the 21⁄2

percent is a good approach for most departments and agencies but

maybe we can encourage you perhaps to revisit just DOD in the

short term.

One of the statements that I really appreciated in your testimony, something we have talked about often here, is the issue of

consequences. In your testimony in talking about the importance of

senior leadership, setting the example, you said agency management must prioritize resources, properly set target reduction rates

and be held accountable for improving reductions if we are to see

governmentwide results.

I was reading your testimony about midnight last night, my

homework for the evening I took home with me.

Ms. COMBS. I am honored.

Mr. PLATTS. I am a night owl who doesn’t get a lot of sleep but

I underlined it and put a question next to it, how to be accountable

in not just the agency management personnel but agencies in total.

Is it a budgetary issue that you are going to lose money if you don’t

comply with the Improper Payments Act instead of the carrot that

you get to keep what you find, you are going to lose if you don’t

comply. Could you expand on what you envision with that statement?

Ms. COMBS. I think there are a couple of ways we have to look

at accountability. One is individual accountability, holding individual managers and senior people, even junior people, responsible for

doing their job and doing it correctly.

Mr. PLATTS. That is a very welcome statement by this committee

because it is one of the challenges, the belief that public servants,

all of us need to be held accountable, the same as in the private

sector where we clearly hold private employees accountable when

it comes to businesses.

Ms. COMBS. Thus the reason I led off with the story I gave earlier. I think that brings it down to the lowest level accountability

that you can have in an organization, the person who actually inputs the documents in order to not make an improper payment, but

it goes all the way up through the individual accountability of

every supervisor all the way through the manager, all the way

through the CFO and on to in this case the Administrator.

I think management leadership is a very discreet and important

part of that accountability process. It would be really good if we

could work together from an administration perspective as well as

with Congress to identify what some of those carrots and some of

those sticks actually are because until people see the consequences

not just individually but collectively of their successes as well as

their failures, we won’t stem the tide of some of this or do it as

quickly as we could possibly do it. People may still continue to

36

work on improper payments, but I think we have to continue to

look for ways to put the carrot and the stick into the process and

to put real teeth into our efforts.

Mr. PLATTS. Both approaches I think are critical. The example

you gave with the GS–7, the thank you call from you and the Administrator probably more than anything spurred that person to be

even that much more diligent, the fact they got a reward, an acknowledgment of their good work.

I think I said this at a previous hearing. I have on my desk here

in the Capitol from my late father when he was a mechanical engineer a clear pyramid that was a cost improvement award that I

think he got in 1983 or an idea he submitted on trying to reduce

cost for his company and taking responsibility. I don’t think he got

anything other than that, this little recognition but it was something he held on to. I am reminded of the approach he took in his

private work in that company. So that carrot and stick approach

I think is important.

We certainly will be glad to work with you and all the members

of the CFO Council on how to do it in a way that is effective and

responsible but fair as well.

Ms. COMBS. I think that is one reason I very much appreciate the

personal meetings we have already had and look forward to others

because when we talk about prioritizing resources which is basically what that 21⁄2 percent is about, it has more to do with

prioritizing the resources for the higher risk areas than anything

else, but it also helps us to work together to set and meet those

most appropriate and right now the largest target risk as well.

I think the healthy partnership that we can have both between

the administration and Congress, between the States, between the

contractors with our partners who don’t like to be called our partners but I do it all the time anyway, GAO, I think if we can work

together to come up with some of these incentives, that will go a

long way in furthering our collective efforts in making improper

payments almost disappear in the Federal Government.

We shouldn’t be reticent to say we expect a zero percent improper payment. We should be brave enough to stand up and say

that.

Mr. PLATTS. I think it is leading by example because in a wholly

different area, we as a Government said to our schools, teachers,

administrators, students, parents, 100 percent efficiency in the test

under No Child Left Behind. Reality is, getting 100 percent, if that

is what we set as our goal and we will keep working toward it as

best we can, showing leadership and leading by example when it

comes to how we spend the money, I think that needs to be our

goal and we just keep chipping away at it.

I do want to turn specifically to the Department of Homeland Security. Certainly this reorganization is staggering, 22 different

agencies into one department and inheriting from those 22 agencies

lots of material weaknesses in financial accountability, they project

they will be able to comply with the act again estimating 2005, not

able to do it for 2004, but estimating 2005.

First, one that specific estimate, again Ms. Combs I recognize

you are 3 weeks in the position and whether you can give an estiVerDate 11-MAY-2000 12:13 Apr 26, 2006 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 D:\DOCS\26655.TXT HGOVREF1 PsN: HGOVREF1
37

mate, but where do you think they are? Is that still realistic or is

it going to be later?

Ms. COMBS. They actually completed their risk assessment in

June 2005, so they are making substantial progress. We expect

they will be reporting in the 2005 PAR.

Mr. PLATTS. Do they use the recovery audit process across the

board? A specific example was FEMA and the report that came out

with the IG that there was about $31 million in improper payments made following the hurricanes in Florida last year. Some of

the examples were $125,000 for three funerals for people who died

with no connection to the storm but we paid that amount related

to their deaths. It is one thing after another. TVs supposedly damaged, but the total was about $31 million. Would recovery audits

apply to those type of payments effectively and in general, what is

the Department of Homeland Security’s approach as best you know

it?

Ms. COMBS. I can’t speak to the Department of Homeland Security’s approach to that but I can tell you that CFOs responsibility

when they realize something like that has happened, whether they

learn it from Congress, through GAO, through an audit or their

own internal auditors, where and whenever they learn of it, you

can do a recovery audit on any particular element of any program

you so desire.

I would suggest that if one has not been done and there are concerns, that there probably is an expectation within that department

that a recovery audit take place on something like that anyway.

Mr. PLATTS. Mr. Williams, I don’t know if you have any specific

familiarity with DHS?

Mr. WILLIAMS. Yes. That is one of the agencies I have responsibility for in the financial management arena.

I would say first of all that if you go back to the statute, if they

have contracts that exceed that half a billion dollars, then the law

basically states they are supposed to do it. In my opinion, that is

just the minimum. If you have scenarios in which you know you

have some disbursements that have been made and you don’t meet

the $500,000 threshold, I think most audit organizations would still

go after that money anyway.

I have been involved, and I am quite sure you are aware because

I testified before this subcommittee in the past on the whole issue

of placing the Department of Homeland Security under the Chief

Financial Officer’s Act. There have been extensive discussions

about requesting management to be in a position to assert on its

internal controls in fiscal year 2005 and the agency being in a position by fiscal year 2006 to get an opinion on internal controls.

I have been involved, have attended some of the meetings in

which the CFO, the Under Secretary for Management and other financial management leaders have begun the process of documenting and getting an understanding of the internal control environment so they can be in a position to issue an assertion on internal

controls in fiscal year 2005. That project is well underway.

I have seen some of the documents. I attended the kickoff conference. As a matter of fact, the Comptroller General was one of

the keynote speakers at the kickoff conference and he stressed the

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importance of the act that placed them under the CFO Act as well

as the importance of having good internal controls in place.

I know that is well underway. That should help the agency some.

Having said that, there are still a lot of issues that, based on what

I have seen and based on the opinions the auditors issued in the

previous year and based on the fact the agency’s auditor did not

agree with DHS’ assertion last year as far as its compliance with

the act, it would automatically make you think there is still work

to be done there.

There are some good efforts underway at Homeland Security to

address the requirements of the legislation that came out of this

subcommittee to make sure the controls were put in place in the

internal control area.

Mr. PLATTS. We will be having a hearing next week specifically

on DHS and getting into some of those issues, their 2004 audit, including their compliance with the legislation last year regrading

CFO Act and the internal control audit and where they stand. We

will get into more detail next week.

Ms. Combs, could you expand on the industry day you held and

efforts with the private sector regarding improper payments?

Ms. COMBS. Actually, it was OMB.

Mr. WILLIAMS. Actually, we did attend and I could speak to it but

I will let the host.

Ms. COMBS. He is probably actually better to speak to it.

Mr. PLATTS. Give a perspective as a participant, not the organizer.

Ms. COMBS. It was a great opportunity to do what we just talked

about earlier, to share some of those best practices. There have actually been a couple of those. One was from the perspective of the

industry coming in and showing what kinds of recovery audit tools

are available and the second industry day was from the perspective

of the agencies and departments saying here are some of the requirements we have, here are some things we know we need.

It was very well received and I think it is the kind of thing we

need to do more often.

Mr. PLATTS. I was going to ask, I guess there is not a set timeframe but it is something you will look at periodically, kind of revisiting?

Ms. COMBS. Certainly.

Mr. PLATTS. Mr. Williams, as a participant, do you want to add

anything?

Mr. WILLIAMS. Here is a publication, Mr. Chairman, from the

first one that was held called ‘‘Improper and Erroneous Payments,

Sharing Workable Approaches.’’ It has some good information in

there. I think the most recent one is online if my memory serves

me correct but it is basically an additional tool looking at best practices and gives people a chance to get together and exchange ideas

and come up with ways in which this problem can be addressed.

We strongly support it at GAO.

Mr. PLATTS. We have touched on all the main issues I wanted

to get into and in closing, I would thank you both again for your

efforts today in helping to enlighten the committee, members and

staff. We certainly do look to continue and build on the relationship

between OMB, GAO and this committee in that partnering effort

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of getting after these dollars because Mr. Towns’ question about

the number going from $35 billion to $45 billion may sound unusual but that is a good sign to me because we know the money

is out there.

When we said $35 billion last year, we said it should be $75 bil- lion to $80 billion. I really look at that $45 billion number as we

are finding more of what is wrong and we are capturing more of

those improper payments. When the 2005 number comes out and we are at $60 billion, it

is a scary sum that we have but it will say to me we are making

great progress in getting our hands around this huge problem and

are going to be much more effective in protecting taxpayer funds.

While it is unfortunate that those dollars are going up, in the end

it will be a good result long term that we are being more effective.

I do commend the administration because the statute is one part

of this effort and the administration’s efforts through executive action is a very important and equal part of this effort. This interaction as we go forward will allow us to be that much more responsible in protecting taxpayer funds and by doing so better ensure

those who need the services of Federal Government programs get

those services because money is not going to fraud, to those who

shouldn’t get but to those who really are deserving and needing the

assistance.

We will keep the record open for 2 weeks for any additional information you would like to share. Again, thank you for your testimonies and we look forward to continuing to work with you.

This hearing stands adjourned.

[Whereupon, at 3:45 p.m., the subcommittee was adjourned.]

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