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23–156 PDF 2006

S. Hrg. 109–473

IMPROPER PAYMENTS: WHERE ARE TRUTH AND

TRANSPARENCY IN FEDERAL FINANCIAL REPORTING?

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 12, 2005

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA D. TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

Senator Carper ................................................................................................. 4

WITNESSES 

TUESDAY, JULY 12, 2005

McCoy Williams, Director, Financial Management and Assurance, U.S. Government Accountability Office ............................................................................. 6

Hon. Linda M. Combs, Controller, Office of Federal Financial Management, 

U.S. Office of Management and Budget ............................................................. 7

Timothy Hill, Director, Office of Financial Management, Centers for Medicare 

and Medicaid Services, U.S. Department of Health and Human Services ..... 9

Kate Coler, Deputy Under Secretary, Food, Nutrition, and Consumer Services, U.S. Department of Agriculture ................................................................. 11

ALPHABETICAL LIST OF WITNESSES

Coler, Kate: 

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 60

Combs, Hon. Linda M.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 48

Hill, Timothy: 

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 52

Williams, McCoy: 

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

Prepared statement .......................................................................................... 39

APPENDIX 

Chart entitled ‘‘$45 Billion =,’’ submitted for the Record by Senator Coburn .... 37

Article from The Washington Post, July 12, 2005, entitled ‘‘Medicare’s Spinal 

Tap: A Checkup on Health Care Costs and Coverage’’ ..................................... 38

Questions and responses for the Record from: 

Mr. Williams ..................................................................................................... 64

Ms. Combs ......................................................................................................... 69

Mr. Hill .............................................................................................................. 74

(1)

IMPROPER PAYMENTS: WHERE ARE TRUTH 

AND TRANSPARENCY IN FEDERAL FINANCIAL REPORTING? 

TUESDAY, JULY 12, 2005

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:02 p.m., in room 

SD–562, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF CHAIRMAN COBURN 

Senator COBURN. Good afternoon. The hearing will come to order. 

The Federal Financial Management Subcommittee of the Homeland Security and Government Affairs Committee has been holding 

numerous hearings. I am going to ask unanimous consent that my 

written testimony be put in the record, if that is OK with my friend 

from Delaware, reserving the right to object. 

Senator CARPER. I won’t object. 

Senator COBURN. Would you care to state your reservation? 

Senator CARPER. No, no, I am fine. 

Senator COBURN. And I want to welcome our panelists here. 

I have to tell you, as a grandfather and also someone who spent 

the majority of his time taking care of people in a medical practice, 

most of whom were Medicaid patients, that the findings that this 

Subcommittee has uncovered are atrocious. And I asked my staff 

last night, I said, I want you to go to every accounting firm in the 

country and find out what the proper rate of improper payments 

is. Do you know what we heard? Zero is the amount of improper 

payments. And to think that we have, I believe, 17 of all of the government agencies in compliance in terms of reporting and those at 

3.9 percent improper payments, and if you extrapolate that at all 

across the government, we are talking about $110 to $125 billion 

a year that this government is spending and paying for things improperly, things that we have not received, overpayments, which 

says, in effect, that we are terrible managers. 

The whole purpose for this Subcommittee hearing is to try to establish the transparency and bring it to light. Unfortunately, this 

Subcommittee hearing won’t get the coverage, the press coverage 

2

in Washington and throughout the country that it deserves, and I 

would tell you that if the American people truly understood that 

four to five cents out of every dollar that is spent is paid out for 

something we did not receive, they would be up in arms. And if 

they personalized that with four to five percent of their tax money 

coming back to them because it was wasted and that they could 

spend that four to five percent on their grandchildren or their children, or to make a downpayment on a home, or to buy a car because they don’t have adequate transportation, or to buy just sustenance to live every day in this country, they would ask for that. 

And so I think the tone of the hearing ought to be, how do we 

get out of this mess? How do we start on the track for transparency 

in this government? Transparency—the problems are so great that 

agencies don’t even comply and the standards that have been set, 

that if you don’t spend $2 billion, it doesn’t apply to you. Well, $2 

billion is 40 percent of the State of Oklahoma’s budget, and for us 

to set a standard of $2 billion to me seems ludicrous. 

So I will tell you, I am not going to let go of this issue. I am 

going to be here for 6 years, whether I am in the Majority or Minority. I am going to work to make sure that the transparency and 

the accountability in government agencies comes into line with 

what the American people deserve and expect. 

We must have an environment committed to creating the culture 

of accountability. That is not just in our finances, that is in every 

aspect of our government. Creating the culture starts from the top. 

It starts with the President and some of the great things he has 

done, but more is required. Today, we just went over the numbers. 

Tomorrow, the White House will announce the deficit is $75 billion 

less than what it was going to be. That is a meaningless number. 

The fact is that $460 billion is going to be added to the Federal 

debt this year based on what we spend versus what we get in. And 

if you divide that out, that is about $1,850 per man, woman, and 

child in this country, $1,850 per man, woman, and child that we 

are going to spend more than we have. 

So the obligation is on you as leaders, or those people testifying, 

you testifying before us today, but also on the Senate to start doing 

its job and to do the oversight, to do the accountability, the questioning that is going to be required to get us to the level that we 

expect of every other area. 

The other thing I think is important is Congress passed Sarbanes-Oxley and is requiring every corporation in this country to 

meet a new standard of professional financial accounting, openness, 

and transparency, and to think that the very government that is 

forcing that on the private sector today can’t even come close to the 

same standards themselves, to me this is tremendously ironic and 

should not be in any way acceptable to anybody in the Congress, 

regardless of their political stripe. 

[The prepared statement of Chairman Coburn follows:]

PREPARED STATEMENT OF SENATOR COBURN 

In Fiscal Year 2004, the Federal Government spent $2.5 trillion. At least $45 billion of those dollars were paid improperly, mostly in overpayments—$45 billion. 

This dollar amount could go to pay for much needed resources for Americans. As 

you can see, $45 billion would provide 300,000 up-armored humvees, at $150,000 

per vehicle. This figure equates to two humvees per American Soldier—$45 billion 

3

dollars could also go to pay for seniors world-wide, to get flu vaccinations for the 

next 6 years. As you can see, it’s difficult to even equate $45 billion to things needed 

by Americans. 

Many of these payments were made without adequately supported claims, or for 

services not provided, or provided to ineligible beneficiaries in programs like Medicare, Social Security, Food Stamps, and Medicaid. I am still astounded by the lack 

of reporting for programs in the Department of Defense. So far, they have only reported for the Military Retirement Fund and Military Health Benefits programs. 

In recent years,the Bush Administration and Congress have made the reduction 

of improper payments a priority, both through the President’s Management Agenda, 

and the passage of the Improper Payments Information Act in November 2002. The 

first line of the President’s Management Agenda reads: ‘‘The President’s Management Agenda strives to instill first class financial management practices in departments and agencies throughout the Executive Branch.’’

I applaud the Administration and the Office of Management and Budget for making Eliminating Improper Payments a major focus of the President’s Management 

Agenda. This initiative is a big step in helping to ensure that each taxpayer dollar 

is accounted for, and I look forward today to discussing ways in which agencies can 

continue to improve the integrity of their payments. 

In Comptroller General Walker’s manuscript, ‘‘Saving Our Nation’s Future: An 

Intergovernmental Challenge,’’ he estimates that ‘‘if we do nothing by 2040 we may 

have to cut Federal spending by more than half or raise Federal taxes by more than 

two and a half times to balance the budget.’’ Walker contends that a crucial step 

in turning this dismal outlook around is ‘‘insisting on truth and transparency in government operations, including Federal financial report.’’

I couldn’t agree more with Mr. Walker’s comments, and believe that the Federal 

Government should be able to provide an explanation for each and every dollar it 

spends—this means dollars spent properly and improperly. Today’s reality is that 

we have a current budget deficit of $462 billion. 

According to the Office of Management and Budget, errors made by the Federal 

Government compose a total of at least $45 billion in improper payments for FY 

2004. We must have ‘‘truth,’’ and ‘‘transparency’’ in government operations to combat these billions of dollars in payments that are in no way justifiable. 

The astounding figure—$45 billion—did not even include 12 programs with outlays of about $249 billion that were required to report previously under OMB Circular A–11; and required to report at the end of Fiscal Year 2004 pursuant to 

OMB’s implementation guidance to the Improper Payments Information Act of 2002. 

This amount is just the tip of an iceberg of an unknown size. 

Furthermore, there were three agencies, NASA, DOJ, and DHS, who had reported 

they had performed risk assessments to see whether or not their programs could 

make improper payments. When outside auditors came in to check on this, they 

could not confirm that risk assessments had even been done. This is deplorable that 

agencies have allegedly reported assessments. I will look into this potential deceit 

to uncover the whole story. 

I am also interested to hear why agencies that have been required to report improper payment information for several years are still unable to do so. Medicaid is 

one program that does not report improper payment information, though it has been 

required to do so since July 2001. Some have argued that because Medicaid is a 

state-based program, it is too hard to report improper payments. That argument is 

refuted by the progress the Food Stamp Program has made. 

While the Food Stamp Program made payment errors totaling about $1.4 billion 

in Fiscal Year 2003, the national dollar payment error rate for the program has declined by almost one-third over the last 5 years to a record low rate of 6.63 percent. 

The decline in their error rate has been widespread, and I look forward to examining the reasons for their success, and remaining challenges in eliminating improper payments. An improper payment rate of 6.63 percent is still way too high 

considering any improper payment rate in the private sector would be intolerable. 

Americans will not tolerate one more year where $45 billion of their hard-earned 

money is squandered. This problem is inexcusable, no matter how complex and 

labrynthine the government is. I cannot go back with a number like this to Oklahoma, where my patients and neighbors are struggling to make ends meet, while 

the government takes up to 40 percent of their income. 

I know the witnesses share my outrage and commitment to ending this abuse of 

the taxpayer trust. Thank you for appearing today.

Senator COBURN. I am very happy that our Ranking Member is 

here. We first heard things on improper payments on our first SubVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
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committee hearing. At this time, I would like to recognize him for 

an opening statement. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. During our caucus 

luncheon, I was saying earlier to our witnesses, and we welcome 

each of you today and the folks that are present at the hearing 

today, that we were just wrapping up our respective caucus luncheons, and I don’t know what you guys talked about today, but one 

of the things we focused on was the number for the budget deficit 

and just an update as to how we are doing as we come to threequarters through the year. The good news is that the deficit, as you 

suggest, is going to be a little bit lower this fiscal year than had 

earlier been projected. The bad news is this will still be, I believe, 

the third-largest budget deficit in the history of our country, and 

as you suggest, add over $400 billion to our Nation’s debt. 

In our earlier hearings, one of the things we have learned is that 

about an amount equal to roughly about 10 percent of the anticipated new debt that we will take on this year can be attributed to 

improper payments, and a lot of times, my dealings in the private 

sector have been that the improper payments that are made there 

are oftentimes underpayments as opposed to overpayments. We are 

not very good in the government at making underpayments, but we 

are very good in making overpayments. Maybe we can learn how 

to make those underpayments and that will help a little bit. 

But budget deficits, clearly, if we are overpaying, we ought to do 

something about it and that is our full intent. We are not the first 

people who made this call. If you go back 4 or 5 years, you will find 

that this was something that the Congress and President not just 

talked about, but actually enacted legislation in 2002 and we are 

seeing in 2004 the first fruits of that work. 

It is important for us today not to shoot the messenger. What is 

the old saying, rate the sin, not the sinner? You are not sinners, 

but the message that we are going to hear today, I think, is that 

we recognize and identified a whole lot of areas where we can 

make progress, and that is, I think, the beginning of actually making progress. 

The other thing is while we are concerned about overpayments, 

Mr. Chairman, I am also concerned about taxes that are owed that 

ought to be collected by the Federal Government. Before we think 

about cutting programs, talking about raising taxes for people, we 

want to make sure that the folks who owe money are actually paying the dollars that are owed. 

I have a statement I would also like to enter for the record, Mr. 

Chairman. I am just glad that we are here. I thank you for your 

willingness to have this hearing today. This is valuable for this 

Subcommittee, but even more valuable, I think, for the people of 

this country. Thank you. 

Senator COBURN. Without objection. 

[The prepared statement of Senator Carper follows:]

PREPARED STATEMENT OF SENATOR CARPER 

Thank you, Mr. Chairman, for holding this important and timely hearing. At a 

time when our Federal budget deficit is near historic levels, it’s vital that we do all 

5

1The chart referred to appears in the Appendix on page 37. 

we can to reduce the number of accidental or fraudulent payments agencies made 

each year. As my colleagues are aware, Federal agencies officially make about $45 billion in 

improper payments each year. Most of these are overpayments. We’ll learn today, 

however, that this is likely only the tip of the iceberg. Some agencies are not doing 

all they need to do to determine whether or not programs they administer are at 

risk for improper payments. There are other programs that we know are at risk for 

improper payments but that aren’t figured into the $45 billion tally at all. 

Our predecessors on this subcommittee, Mr. Chairman, worked back in 2002 to 

enact the Improper Payments Information Act—legislation that is clearly helping us 

get a better sense of the magnitude of the improper payments problem. In addition, 

OMB has now made the elimination of improper payments a top management priority. It is my hope that the new attention this problem is seeing now will lead to 

some dramatic improvements in the coming months. 

We’re just embarking on another appropriations season here in Congress where 

we’ll be called on to make some very difficult decisions about what to do with scarce 

Federal dollars. I don’t need to remind anyone here that every time a dollar is spent 

improperly, a worthy program is cheated of much-needed funding that could be use 

to help people. 

Freeing up the tens of billions of dollars wasted every year on improper payments 

wouldn’t solve our nation’s fiscal problems, Mr. Chairman, but it would probably 

make our jobs in that area a lot easier. There will always be mistakes made here 

and there but it seems to me that the key to solving this problem is to find a way 

to get agencies to abide by the basics of sound financial management. 

I think it’s inexcusable that an agency is unable to look at its balance sheet and 

report to OMB on the areas that they think are at risk for improper payments. I 

understand that GAO will testify today, however, that some agencies simply aren’t 

complying with the 2002 legislation and letting us know where they’re vulnerable. 

And it’s shocking to me that many agencies don’t have the ability to detect things 

like double payments or benefits going out to individuals who don’t quality. It’s clear 

however, that too many of these kinds of mistakes are still slipping past agencies’ 

internal controls. 

It sounds like we’re making progress on this issue, Mr. Chairman, but we probably have a long way left to go. I look forward to hearing a progress report from 

our witnesses today and to learning what, if anything, we need to do to help agencies further.

Senator COBURN. I would like for you to put up the poster on the 

$45 billion, if you would.1

We have before us today four very distinguished individuals and 

I will not go into extreme detail on your bios, but I do want to 

thank you for coming. I want to thank you for the work that you 

are doing. 

Ms. Coler, I want to particularly commend you on the work that 

you have done with the Federal Food Stamp Program. It is still 

way too high, but you have demonstrated that if an effort is made, 

things can change, and I think it is a great example of where we 

start. I also think it is great because it is a State-run program and 

people are giving us the statements that, in fact, State-run programs can’t be accountable, and, in fact, they can, and I think you 

have proven that through your efforts at the Department of Agriculture. 

On our witness list today is McCoy Williams, who is Director of 

the Financial Management and Assurance Team of the Government Accountability Office. 

We also have Linda Combs. She has been with us before. We 

thank you for being here. 

Senator CARPER. I think the last time Ms. Combs was before us, 

I think she was here for——

Senator COBURN. Maybe for a hearing on her nomination. 

6

1The prepared statement of Mr. Williams appears in the Appendix on page 39. 

Senator CARPER. She has since been confirmed. 

Senator COBURN. We are very pleased to have you here. 

The bios are about five pages long, so I am going to skip through 

those. Timothy Hill, thank you——

Senator CARPER. Ms. Combs, does it say where she went to undergraduate school? 

Senator COBURN. Yes, it did, and we went through that again, 

but would you care to elaborate? 

Senator CARPER. For the folks in the audience who never heard 

this, her undergraduate math teacher at Appalachian State University was my father-in-law, and he is deceased now, but he would 

be so proud to see——

Senator COBURN. Now you get the connection of why he is on this 

Subcommittee. 

Senator CARPER. He would be so pleased to see one of his students sitting at the table accomplishing all the things that you 

have accomplished. 

Ms. COMBS. Thank you so much. 

Senator COBURN. Timothy Hill is the Centers for Medicare & 

Medicaid Services Chief Financial Officer and Director of the Office 

of Financial Management. 

And Kate Coler was appointed Deputy Under Secretary for Food, 

Nutrition, and Consumer Services on December 1, 2003, and that 

is my comment in relationship to the work that you have done at 

the Department of Agriculture. I appreciate it. 

We would love to have your testimony. Your full testimony will 

be made a part of the record. Would you please limit your comments to 5 minutes. 

Mr. Williams, please begin. 

TESTIMONY OF McCOY WILLIAMS,1 DIRECTOR, FINANCIAL 

MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WILLIAMS. Thank you, Mr. Chairman. Mr. Chairman and 

Senator Carper, I am pleased to be here today to discuss the government-wide problem of improper payments in Federal programs 

and activities. 

Fiscal Year 2004 marked the first year that Federal agencies 

government-wide 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 annual 

amount of improper payments estimated by the reporting agencies 

for Fiscal Year 2004. 

Mr. Chairman, we found that agencies made progress in identifying programs susceptible to the risk of improper payments. At 

the same time, our findings suggest that even with enhanced emVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
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1The prepared statement of Ms. Combs appears in the Appendix on page 48. 

phasis on improper payment reporting, certain agencies had not yet 

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

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

had not assessed all programs. We also found that 29 agency programs did not report improper payment estimates. Mr. Chairman, 

12 of these programs had prior improper payment reporting requirements under OMB Circular A–11. 

I will now focus on the amount of government-wide improper 

payments reported for Fiscal Year 2004. Mr. Chairman, while 17 

agencies reported improper payment estimates totalling more than 

$45 billion for 41 programs, the magnitude of the government-wide 

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 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 that you or other Members of the Subcommittee may have. Thank you. 

Senator COBURN. Thank you. Controller Combs. 

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

OF FEDERAL FINANCIAL MANAGEMENT, U.S. OFFICE OF 

MANAGEMENT AND BUDGET 

Ms. COMBS. Thank you, Dr. Coburn, Senator Carper, and Members of the Subcommittee. I am certainly pleased to be here with 

you today for the first time since being confirmed to the position 

of Controller and I certainly look forward to working with you on 

this very important Subcommittee. 

There are many significant financial issues facing our government today and certainly the financial reporting that we are talking about today and making our reporting more transparent, improving internal controls processes, and the very important topic 

which we are here to discuss today of eliminating improper payments. 

Let me say I stand with you in creating a culture of accountability in the Federal Government and I think this Administration 

is saying by the actions that we have put forward in response to 

the legislation that we continue to make the elimination of improper payments a very high priority. There is simply no more important undertaking than the efficient stewardship of our taxpayer 

8

dollars. The Federal Government should be accurate and transparent, as we have talked about before, in its financial reporting. 

Our citizens deserve to know that their money is being spent appropriately for the purpose that it was intended and legislated. 

Be assured that we are hard at work to ensure that these things 

are happening, continue to happen, and I agree, we have much 

more to do. The bar needs to be set higher and I stand here ready 

to help you set that bar higher. 

When the President’s Management Agenda was first announced 

in 2001, the elimination of improper payments was indeed a key 

part of the improving financial performance initiative, initially focusing on those Federal programs making annual payments in excess of $2 billion, and the 2002 enactment of the Improper Payments Information Act broadened the review of all these programs 

and activities. 

In May 2003, the agencies began to comply with the Act, and in 

2004, last year’s Performance and Accountability Reports that were 

issued on November 15, we saw further evidence of this compliance. 

In Fiscal Year 2004, as we just heard Mr. Williams talk about, 

that marked the first full year of the implementation of the Improper Payments Act by agencies, and agencies reported their improper payment elimination efforts in their November PAR reports. 

It was soon after that, in January 2005, that OMB issued a report 

called ‘‘Improving the Accuracy and Integrity of Federal Programs.’’ 

That served one purpose, and that was to aggregate the results of 

these agency-specific reports into a single comprehensive document. 

This provided the clearest picture that we have to date on the extent of the government-wide improper payments as well as the significant efforts that continue to be underway to eliminate them. 

What we learned from that report was that, indeed, Federal 

agencies reported a collective total at that time of $45.1 billion in 

improper payments in 2004, and that represented a 3.9 government-wide improper payment rate. Approximately 92 percent of the 

Federal improper payments are overpayments. There are seven 

programs alone that account for 95 percent of the improper payments that were reported in Fiscal Year 2004. If the agencies are 

successful in meeting their reduction targets, the overall improper 

payments total measured and reported in Fiscal Year 2004 is expected to decline when the reports come in November 2005, of this 

year. 

A significant and specific PMA program initiative, Eliminating 

Improper Payments initiative, is also adding further agency focus 

on eliminating improper payments. As you recall, under the President’s Management Agenda, agencies are required to meet a 

‘‘green’’ standard, and as agencies continue to move forward toward 

the completion of the necessary steps for the Improving Financial 

Management Initiative, improper payments is definitely one of the 

areas that we track during that. 

I think with the tools of the Improper Payments Information Act, 

and this Administration’s efforts that are currently in place, we are 

building upon our successes. The Federal Government is in a very 

strong position right now to continue the efforts that we have alVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
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1The prepared statement of Mr. Hill appears in the Appendix on page 52. 

ready identified and eliminate improper payments throughout 

agency and program activities. 

With our goal of ensuring that each taxpayer dollar is spent 

wisely, efficiently, and for the purpose of which it was originally intended, we remain committed to eliminating Federal improper payments. We look forward to working with Congress to see that this 

objective is truly accomplished. 

Thank you for the opportunity to speak before you today, and I 

am pleased to answer any questions. 

Senator COBURN. Thank you. Mr. Hill. 

TESTIMONY OF TIMOTHY HILL,1 DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID 

SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN 

SERVICES 

Mr. HILL. Dr. Coburn, Senator Carper, other distinguished Subcommittee Members, thank you for inviting me here to discuss the 

CMS’s initiatives to reduce improper payments in the Medicare and 

the Medicaid programs. 

In Fiscal Year 2005, the Medicare and Medicaid programs will 

spend $658 billion on health care benefits for nearly 85 million 

beneficiaries. By any measure, this is an awesome fiduciary responsibility and one that the agency as a whole and I, in particular, as 

the Chief Financial Officer (CFO), take very seriously. Given the 

staggering size of the expenditures for these programs, even small 

amounts of payment error can represent a significant impact to 

both Federal and State treasuries and taxpayers. I recognize that 

Medicare makes up a significant portion of that $45 billion. 

Thus, CMS, as part of our overall financial management strategy, has a long history of using improper payment calculations as 

a tool to preserve the fiscal integrity of the programs that we administer. As a general matter, we look to our improper payment activities to help us identify improper payments, to identify and 

study their root causes, and to help strengthen internal controls to 

prevent improper payments from occurring in the future. However, 

because Medicare and Medicaid vary in terms of their financing 

and their Administration, our specific approaches to measuring and 

eliminating improper payments for each program are slightly different. 

We began reporting a national improper payment rate for Medicare in Fiscal Year 1996 as part of our annual CFO audit. Beginning in Fiscal Year 2003, we expanded on that process to include 

a national rate, as well as rates that produce data at much lower 

levels of aggregation to allow us better management information 

for our program by assessing how well our claims processors process claims as well as assessing broad categories of providers and 

benefit types. In 2002, when the Improper Payments Information 

Act (IPIA) was enacted, CMS needed to make only minor modifications to our ongoing processes to come into compliance with the 

OMB-issued guidance. 

Calculating the error rates is only one step in the process. Remediation is the key to CMS’s IPIA compliance activities. The corVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00013 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
10

nerstone of our remediation efforts in Medicare is our error rate reduction plan, which includes agency-level strategies to clarify our 

policies and implement new initiatives to reduce improper payments. It also lays out how we use the improper payment information to evaluate the performance of our contractors that process our 

claims and to target billing education for particularly error-prone 

benefit areas or provider types. 

While we have a long way to go, our efforts to date have shown 

promise. Our goal is to lower the national Medicare rate, which 

currently stands at 10.1 percent, to 7.9 percent by November 2005. 

I am happy to report that our preliminary data indicate that we 

are on track to meet this 2005 goal. 

Let me now turn to compliance for Medicaid and SCHIP. CMS, 

along with the States, has a strong interest in strengthening financial management and oversight payment accuracy in the Medicaid 

and SCHIP programs. Thus, our IPIA compliance strategy rests on 

a policy of joint Federal-State cooperation to achieve the intended 

outcomes of the statute. Our strategy has evolved since Fiscal Year 

2000, when we first initiated a payment accuracy measurement 

demonstration project to test various methods and strategies for 

measuring improper payments at the State level. By the end of Fiscal Year 2005, 38 States will have participated in this program. 

Last August, based on our experiences with this program, we 

published a proposed rule that would require States to measure 

and report IPIA compliant payment accuracy rates for Medicaid 

and SCHIP. We hope to finalize this rule later this summer using 

the assessment of our pilots as well as industry and beneficiary 

comments on our proposed rule. Our goal is to have full IPIA compliance in Medicaid and SCHIP in time for reporting in the Fiscal 

Year 2008 Performance and Accountability Report. 

In addition to becoming IPIA compliant for Medicaid, a key challenge facing CMS in the coming years will be assessing IPIA compliance with the new drug benefit and expanded Medicare Advantage programs. We conducted a risk assessment of the Medicare 

Advantage program this year, and we will be outlining a strategy 

for IPIA compliance for Fiscal Year 2006. For the drug benefit, 

which begins in January, we will be conducting a risk assessment 

in the next calendar year, in time to lay out a strategy for compliance in 2007. 

Mr. Chairman, CMS maintains a strong commitment to protecting taxpayer dollars and ensuring the sound financial management of our programs. We have taken significant actions to both 

meet and exceed the IPIA standards in Medicare and we are taking 

a number of proactive steps to become IPIA compliant in Medicaid. 

We have made a great deal of progress, but we look forward to continuing to work with you to move forward. 

I look forward to answering any questions the Subcommittee 

may have. 

Senator COBURN. Thank you very much, Mr. Hill. Secretary 

Coler. 

11

1The prepared statement of Ms. Coler appears in the Appendix on page 60. 

TESTIMONY OF KATE COLER,1 DEPUTY UNDER SECRETARY, 

FOOD, NUTRITION, AND CONSUMER SERVICES, U.S. DEPARTMENT OF AGRICULTURE 

Ms. COLER. Good afternoon, Dr. Coburn and Senator Carper. I 

am pleased to be here to share with you some of what USDA and 

our State partners have been doing over the years to improve the 

payment accuracy rate in the Food Stamp Program. 

The Food Stamp Program ensures access to a nutritious, healthful diet for households through nutrition assistance and nutrition 

education. The Federal Government pays the full cost of the benefits, which is $24.6 billion for Fiscal Year 2004, and funds approximately half of the expenses incurred by the States to administer 

the program. 

The Office of Management and Budget recently completed a Program Assessment Rating Tool, or PART, review of the Food Stamp 

Program in 2003. The review showed that food stamp benefits are 

well targeted to low-income beneficiaries and are virtually always 

spent for their intended purpose. The program achieves its annual 

performance goals to reduce payment error while still keeping the 

program accessible to eligible people. 

Also, in May of this year, the Government Accountability Office 

issued a report on error reduction efforts in the Food Stamp Program. This report noted the significant recent decline in the error 

rates and suggests that continued attention from top USDA leadership as well as continuing efforts of the Food and Nutrition Service 

will likely continue to be important factors in further reductions. 

There has also been an increase in the participation rates of the 

Food Stamp Program over the last 4 years. Increasing caseloads 

can make it quite challenging for State agencies to calculate eligibility with accuracy, and yet I am proud to report that our State 

partners are doing a better job than ever in accurately determining 

benefits. 

Just 3 weeks ago, on June 24, Agriculture Secretary Mike 

Johanns announced that the Food Stamp Program has achieved an 

historic 94.12 percent overall payment accuracy rate, the best performance since the inception of the Food Stamp Program and a 34 

percent improvement from just 5 years ago. The result of the combined error rate reduction from Fiscal Year 2000 to 2004 is an aggregate decrease in erroneous benefits of $1.4 billion. 

The improvement in payment accuracy is a result of strong partnerships with States who administer the program as well as implementation of program changes from the 2002 Farm Bill. The new 

Farm Bill has enabled States to better simplify shelter cost deductions and reporting requirements, align food stamp income and resource policy with State TANF and Medicaid programs, and employ 

other new options to streamline eligibility determinations. 

The food stamp payment accuracy rate is developed from a longstanding process called quality control, a system which is mandated by the Food Stamp Act to ensure program integrity. Each 

State selects and reviews a statistical sample of its participating 

food stamp households each year and reports the findings to the 

Food and Nutrition Service, where those findings are then valiVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00015 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
12

dated. Those results are used to calculate an error rate for each 

State and then weighed to determine a national average. 

Erroneous payments, as I mentioned, are at a record low. Fewer 

than 4.5 percent of payments are overissued and fewer than 1.5 

percent are underissued, for a combined total of 5.88 percent. We 

regard both of these errors, overissuances and underissuances, as 

equally important. It is critical that payments are given in the 

proper amount. We want to make sure people are receiving the 

proper amount to which they are entitled. 

It is also important to note with the Food Stamp Program that 

over 98 percent of the people who participate are, indeed, eligible 

for some level of benefit. What we are measuring is, are we getting 

it exactly right? 

State agencies are required to do corrective action planning 

whenever their payment error rate is at 6 percent or greater. The 

Food and Nutrition Service regional offices work closely with States 

to assist them in developing effective correction strategies as well 

as provide them with technical assistance for data analysis, policy 

interpretation, and training. Additionally, the Food and Nutrition 

Service enters into settlement agreements that require poor performing States subject to liabilities to undertake targeted error reduction actions and to commit to specific improvement goals. 

The Food Stamp Program also has a system in place to recover 

erroneously issued benefits from food stamp recipients. A little over 

12 years ago, FNS approached State agencies and encouraged them 

to participate in the Treasury Offset Program. That partnership 

has grown over the years, and as a result, we have collected more 

than $800 million in delinquent food stamp recipient claims. 

We are very proud of our efforts and the progress that we have 

made to ensure that food stamp benefits provide nutrition assistance and that they are well targeted to the Nation’s needy families. 

I would also like to point out that in the last Farm Bill, the 2002 

Farm Bill, there were legislative changes to the quality control system that may impact our ability to ensure continued improvement 

in payment accuracy. Those changes reduce the penalties associated with payment errors as well as the incentives that we provide 

to States that excel in payment accuracy. However, we are working 

closely with our State partners—from the top all the way through 

the front-line eligibility workers—to ensure that this mutual commitment to reduce the error rate is still in place even with the new 

quality control system. 

We continue to seek opportunities and strategies to share best 

practices and information critical to ensuring that the program is 

administered properly. As we look toward the next Farm Bill in 

2007 which authorizes our program, we are going to be holding listening sessions early this fall across the country to get input from 

our State partners as well as advocates on new ways to improve 

the program. We are committed to maintaining public confidence in 

this nutrition assistance program and ensuring that these Federal 

dollars are used for the purpose for which they were intended. 

With that, I will be happy to answer any questions. 

Senator COBURN. Thank you all. 

I intend on spending quite a bit of time on asking questions. I 

wanted to give you a heads up on that. 

13

1The article appears in the Appendix on page 38. 

I also would like to put into the record an article 1 in The Washington Post 7/12/05, ‘‘Medicare’s Spinal Tap.’’ I don’t know if you 

saw that. One group of providers, the chiropractors, received $285 

million in improper payments in 2001, according to the Inspector 

General’s Office of the Department of Health and Human Services. 

That amounts to two of every three dollars paid to chiropractors. 

Medicare is supposed to cover chiropractic care only when there is 

a reasonable chance of correcting the problem or improving the patient’s ability to function. That is from 2001. We are just now hearing about it, 4 years later. So there is a timeliness problem. 

Let me just start with some questions, and then I will go to Senator Carper. 

Why was 6 percent chosen as an error rate? 

Ms. COLER. That is part of the legislation. Historically, the rate 

that Congress recognized that a State was entitled to enhanced 

funding or a bonus if they were able to achieve 6 percent. This is 

the first time that we have actually had a national error rate below 

that, and so——

Senator COBURN. So it would be your recommendation that the 

next Farm Bill have something significantly lower than that? 

Ms. COLER. Well, we are all working to continue to lower the 

error rate. I think that is something that Congress will consider. 

Senator COBURN. And your net on food stamps, the net overpayment was about 3.3 percent? 

Ms. COLER. It was—yes, just a little bit over. 

Senator COBURN. And 3.3 percent times the total amount spent 

on food stamps is how much? 

Ms. COLER. The net over-issuance is about $1.1 billion. 

Senator COBURN. One-point-one billion dollars——

Ms. COLER. And then the under-issuance is about $350——

Senator COBURN. So it would be $1.4 billion over, and the net 

being $1.1. 

Ms. COLER. Yes. 

Senator COBURN. So there is $1.1 billion right there, just right 

there in one program. 

As you can see on the left side, improper payments reported in 

fiscal 2004, 35 agencies reported improper payments. These programs are considered ‘‘significant’’ to the U.S. consolidated financial statements. 

Mr. Williams, can you explain how the distinction is made on 

‘‘significant’’? What makes an agency significant to the U.S. consolidated financial statements? 

Mr. WILLIAMS. Mr. Chairman, we basically look at the numbers 

as far as assets and liabilities and budgets, etc., and based on those 

numbers, we are looking at the issue from a materiality standpoint. 

There are certain criteria that we use 2 or 3 percent of total assets, 

etc. And when we look at all the agencies and we look at how much 

they contribute, when you are looking at the financial reports, such 

as the balance sheet and the statement of net costs, that is how 

we come up with those agencies that have major contributions and 

consider——

14

Senator COBURN. So if I run an agency that is not significant, I 

don’t have to worry about you? 

Mr. WILLIAMS. That is not true. 

Senator COBURN. OK. Explain that to us. 

Mr. WILLIAMS. If you are running an agency that we have determined at the government level that may not be significant to the 

statements overall, those numbers still could be significant and 

would be significant to the audit report that is being done at that 

particular agency level. 

Senator COBURN. Is that if it meets the $2 billion? 

Mr. WILLIAMS. No. It does not have to meet the $2 billion. It 

would be significant to the auditors that are looking at that particular entity. In other words, we are looking at the government operations as a whole. While we are looking at it as a whole, there 

are other auditors down at the various agency or component levels 

that are looking at government operations, and while it might not 

be significant to the numbers that we are looking at, those numbers that those individual agencies are producing have some significance or are significant to the auditors that are looking at them 

at the lower level. 

Senator COBURN. Where does the criteria come from? Who developed the criteria to say something is significant or not significant 

in terms of this legislation? 

Mr. WILLIAMS. In terms of this legislation, as far as significant, 

we at GAO had an opportunity to comment on the draft in the 

early stages and the issue came up, what should be considered significant when we are talking about an improper payment? I think 

when the legislation was initially drafted, it had a number of about 

$1 million as being the point of significance. In various discussions, 

it was eventually settled on to be $10 million, and the thinking 

there was every dollar that is an overpayment is significant, but 

just looking at it from a practical standpoint, when you are talking 

about an operation that has outlays of over $1 trillion at the 

time——

Senator COBURN. That is the very point I want to get to. 

Mr. WILLIAMS. Right. 

Senator COBURN. If you create a culture that says there is significance and non-significance, what I believe you are doing is undermining those that aren’t within that frame. 

Mr. WILLIAMS. Right. 

Senator COBURN. And the President’s management plan, I believe, was $2 billion. Wasn’t that his criteria, under the President’s 

Management Agenda, was $2 billion? And I guess the question I 

am asking is, why shouldn’t the same standard apply for every 

agency, every functioning agency of the Federal Government, and 

why shouldn’t a zero improper payment rate be the goal for the entire Federal Government? 

Mr. WILLIAMS. That should be the goal——

Senator COBURN. But it is not. That is a point I want to get 

across. That is not the goal for the Federal Government. 

Mr. WILLIAMS. Right. 

Senator COBURN. And a goal something less than, and I know—

Senator Carper, I am not trying to shoot the messenger. I am trying to make the point—expectations of performance are the most 

15

important thing you all can do in your positions. And if it is not 

expected, it won’t happen except in very rare instances. 

So can the average taxpayer decide in their own budget what is 

significant and what is non-significant? Can they waste in a nonsignificant area and not waste in a significant area? It just doesn’t 

fly. 

So the message I want to send back is maybe we need to rethink 

and relook both at the President’s area and the GAO in terms of 

what you are looking at and what you are accepting for, as well as 

OMB, is nobody should be off the radar screen. If they are wasting 

a dollar, they are stealing it from the next generation and we need 

to be asking, how do we get this plan all the way out? How does 

everyone become accountable? It is not just becoming accountable. 

Having the expectation of accountability changes behavior, and 

then the follow-up, the auditing. 

On this placard over here, what you can see is the total number 

of agencies that do not even—this doesn’t even cover all agencies. 

This is 70 agencies. It is clearly stated in the IPIA that all Federal 

agencies must report improper payment information. Where are 

we? Does anybody care to answer that? We just have 70 programs 

considered up there. Does the $45 billion, for example, cover the 

Department of Defense? General Walker testified, I think it was 

$45 billion in overpayments and $5 billion in underpayments just 

for the Department of Defense alone. Is that in this $45 billion that 

you all are reporting, the Department of Defense? 

Mr. WILLIAMS. The $45 billion that we are reporting includes the 

Department of Defense, but it is basically not including those numbers that you just mentioned——

Senator COBURN. So basically, we are really at $94 billion, or $90 

billion? 

Mr. WILLIAMS. Agencies have reported in the PARs for those that 

we have on the board there—$45 billion for those 17 agencies 

under the reporting requirements of the Act. 

Senator COBURN. Can anybody on the panel give me the number 

of total Federal programs? It is in the thousands. That is $45 billion on 70 programs. And if we take and look—if we limit it to significant only—and as you testified—we don’t know what the real 

number is, and we know part of the reason the number of percentage is growing is because we have more accurate reporting. But if 

we have 70—and we have 35 of the agencies out of that 70 programs reporting and we have $45 billion, is the problem not a great 

deal larger? 

Ms. COMBS. Let me just add that the 70 programs that you are 

referring to in the improper payments area here, every department 

and agency is required to work through their internal control 

mechanism and those are reported through the PAR every year. So 

it is not like we are giving some of these other programs a pass, 

so to speak, on these reporting relationships. They are using other 

mechanisms rather than this particular report. They are reporting 

it through the PAR, in essence. So I think maybe that might deserve some thought, as well. 

Senator COBURN. But I believe these are considered. Seventy 

were considered, right? Does that mean they are actually reporting, 

16

out of these 70? The 70 did not report, is that correct? Thirty-five 

reported out of these 70 programs. 

Ms. COMBS. Let me get this right——

Senator COBURN. OK. 

Ms. COMBS [continuing]. So you can be clear. 

Senator COBURN. The IPIA requires every government program 

to report. We all agree on that, right? 

Ms. COMBS. Correct. 

Senator COBURN. What percentage report to Congress? That is 

what it requires. What percentage of the government programs are 

actually compliant with reporting? 

Ms. COMBS. We don’t have that percentage, but we will get that. 

Senator COBURN. If you would. I think that is really important, 

because to get a handle on this $45 billion. We know, for example, 

Medicaid, you don’t have a handle on yet. It is $178 billion, I think, 

this year. We don’t know what that is, but if it is 3 or 4 percent 

of that, you are talking $7, $8, or $10 billion. 

I just think one of the things we have to do is—and I am not demeaning the start. We had to start somewhere. But I think that 

the culture that needs to be created is that everybody is accountable. Everybody has to report under IPIA and everybody ought to 

do that on a timely basis. 

I am going to defer to Senator Carper now and let him ask some 

questions. Senator Carper. 

Senator CARPER. Thanks, Mr. Chairman. 

I want to go back to a question that is a follow-up to what the 

Chairman was asking in referring to the poster over here, the chart 

to my right. It is different than the question he was asking. What 

percentage of Federal spending do the 70 programs that are represented on this chart, what percentage of Federal spending do 

these 70 programs represent? Is it half? Is it less than half? Is it 

more than half? 

Ms. COMBS. It is approximately $2.3 trillion, approximately. 

Senator CARPER. All right. And my follow-up question would be, 

roughly what percentage of spending does that reflect, $2.3 trillion? 

Is it half? Is it more than half? 

Ms. COMBS. The $2.3 trillion I referred to is the outlays. That is 

the corpus that I think you were referring to. But you are referring 

to the 70 programs and what part of that $2.3 trillion that——

Senator CARPER. I guess my point is 70 programs doesn’t sound 

like a lot, but, however, it is possible that those 70 programs represent a whole lot of our spending. 

Ms. COMBS. Well, that is——

Senator CARPER. That is what I am trying to get to. 

Ms. COMBS. We don’t have that. We can supply that for you. 

Senator CARPER. Can anybody give me a feel for that? Mr. Williams. 

Mr. WILLIAMS. We do not have that information. And expanding 

on that, one of the things that we attempted to do was to identify 

the universe of all the Federal programs, and that turns out to be 

a difficult task because of definitional reasons—how do you define 

this program, is this a program, etc.? But as far as the percentage, 

we were not able to get that number. 

17

Senator CARPER. All right. I wrote down as someone was testifying, seven programs alone account for 95 percent of improper 

payments. Who said that? 

Ms. COMBS. I did. 

Senator CARPER. Would you just elaborate on that, please? 

Ms. COMBS. As the assessments were done that Mr. Williams is 

referring to, there were actually seven programs that were identified that represented 95 percent of all the improper payments that 

were identified at that time. That was for the 2004 time period. 

Senator CARPER. Could you just tell us, what were those seven, 

do you recall? 

Ms. COMBS. Medicare, Earned Income Tax Credit, Unemployment Insurance, Supplemental Security Income, Old Age Survivors’ 

and Disability Insurance, Public Housing/Rental Assistance, and 

Food Stamps. And might I just say, while I have the microphone 

here, that those seven programs, I would consider to be the higherrisk areas. And, of course, that is where we wanted to start, with 

the understanding of our partners and the auditing community, as 

well as in the IG community, those were some very large areas 

that we wanted to start with. And so I would consider that those, 

being as high-risk as they were because of the dollar value, gave 

us the best opportunity to get that money back to the American 

people. 

Senator CARPER. Would you call them the low-hanging fruit? 

Ms. COMBS. I would say this is the greatest opportunity we have 

at the present time to bring some additional transparency and to 

bring some additional dollars, in essence, back to the American 

people. 

Senator CARPER. Thank you. A question for anyone on the panel, 

just a really basic question, but why do improper payments, overpayments or underpayments, why are they occurring in such numbers? Why is this happening? 

Mr. WILLIAMS. I will take that. One of the things that we have 

found in our reviews over the years is that if you look for a root 

cause for an improper payment, it is a lack of good internal controls. I think that is a common theme that you can find throughout 

this whole process, is that where you have a breakdown or a lack 

of internal controls, you have a higher risk for having improper 

payments. 

Senator CARPER. Anyone else? 

Ms. COMBS. I would agree with that, and I would also agree that 

there are probably some timing opportunities, as well. In other 

words, some of the payments, because people do not have accurate 

enough financial information at the time that the payment is being 

made in order to make that payment, something may have happened, and my friends who deal with that all the time are probably 

best to answer that, but I would expect that may have a large portion to do with what we are trying to deal with here, as well. 

Senator CARPER. Mr. Hill. 

Mr. HILL. I was also going to suggest that internal control is 

clearly an issue. It is also important to focus on the complexity and 

the nature of the programs themselves. Speaking for Medicare and 

Medicaid, while internal controls are an issue, they are also highly 

complex programs. Health insurance benefits for providers on beVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
18

half of beneficiaries involve a multitude of payment systems and 

coverage criteria that some would say are hard to understand 

and——

Senator COBURN. It is designed to be defrauded. 

Mr. HILL. It is certainly where the money is and there is a certain opportunity that folks take to use the system to try and get 

money to which they are not entitled. 

Senator CARPER. Secretary Coler—well, go ahead and then I 

have a question for you, as well. 

Ms. COLER. I was just going to agree that the complexities of the 

programs do have an impact on the improper payments. One of the 

nice things we saw with the 2002 Farm Bill, where States could 

align some of the income eligibility requirements in the Food 

Stamp Program with other State programs like TANF and Medicaid, it could help because the States could make determinations 

and streamline those programs, and therefore, we have seen a reduction in some——

Senator CARPER. I think that is a good point. Make that point 

again for us. That is a good point. 

Ms. COLER. As the States have been able to streamline the criteria and eligibility requirements of various programs—many 

times, often, the eligibility is determined by the same caseworker—

it has improved the ability of the States to perform in accurately 

determining benefits. 

Senator CARPER. Thank you. In my last job, I was Governor of 

Delaware and I have recollections of working with the U.S. Department of Agriculture to try to reduce our error rates, and all the 

States were trying to do that, as well. One of the things we are trying to do is to go to a paperless system and there was a fair 

amount of encouragement, some financial incentives, some carrots 

and sticks that were involved. But I think you have seen a migration in the last decade in virtually every State now to more of a 

paperless system. Just talk about that transformation, if you will, 

and how it may have had some positive effect on the better results 

that we are seeing today with respect to improper payments. 

Ms. COLER. Well, with the Food Stamp Program moving to electronic benefit payments, or EBT, we have eliminated paper currency and that is a whole different——

Senator CARPER. Explain how it works now. 

Ms. COLER. Sure. It is a debit transaction, just like a commercial 

debit transaction. The card draws money down from the household’s food stamp account to purchase their groceries at an authorized retailer. We have been able to lower the amount of trafficking 

significantly through EBT, because we are able to use it to monitor 

transactions. We can better analyze where there might be some 

suspicious activity and better target our investigative efforts to go 

after that. So we are 100 percent EBT now. There are no stamps 

anymore, or at least they are not being issued. It is an item in the 

President’s budget to possibly rename the program to better reflect 

that it is a nutrition program and to bring it into the 21st Century. 

EBT has provided a tremendous benefit on the trafficking end and 

our abilities to reduce those instances. 

Senator CARPER. What lessons might we learn from what the Department of Agriculture has gone through in managing and really 

19

overhauling this program? And are any of those lessons applicable 

to other agencies, particularly the six or seven which have the 

greatest prospect for reducing improper payments? 

Ms. COLER. Well, we see our ability to interact with our State 

partners, to share the commitment to improve the performance of 

this program from the top leadership at USDA to the top leadership within the States, but then also encouraging and rewarding 

performance through our county offices and with eligibility workers. You really need the entire chain to be committed to this. I 

think program simplifications have helped. We do have a quality 

control system in place under the law. Because we are a federallyfunded program, but State administered, there aren’t the incentives for a State to necessarily watch how they are determining eligibility as much as if they were required to have a match on the 

benefits. So I think that is why we are somewhat unique with this 

legislated quality control system. 

But it has helped. I think efforts to collect liabilities when States 

were not performing and to be serious that we need all levels to 

be committed to this has had a significant impact, and so we are 

pleased with the progress. We recognize that there is always improvement. 

Senator CARPER. Continuous improvement. 

Mr. Chairman, I have another Subcommittee, Clean Air Chaired 

by Senator Voinovich, that I need to slip off to. Before I slip out 

on you, could I just ask two questions of Ms. Combs——

Senator COBURN. Sure, absolutely. 

Senator CARPER [continuing]. And then I will be on my way. 

To Ms. Combs, let me just ask, it seems to me that maybe the 

best strategy for addressing the improper payments problem would 

be to build on agencies’ capacity to prevent erroneous or fraudulent 

payments before they are made. Let me just ask, and I know you 

are new in this particular position, but what has OMB been doing 

that you are aware of to help agencies to build up the internal controls that we talked about here earlier that are necessary to prevent improper payments? 

Ms. COMBS. Thank you for asking that, because I do look on 

what has happened thus far as a phase one approach. We are not 

there yet, but we certainly have come a long way. I think that in 

the phase one approach, we had a lot of attention and added attention being paid to, in essence, 15 departments that encompassed 

about 40-some programs. I know you have 70 on your chart here, 

and that was reflected in the GAO report, and it certainly says how 

much we have to work on. But just concentrating on those top 15 

departments, when we meet with these people on a regular basis 

and the CFOs in each one of these departments know that they are 

responsible for doing the risk assessments, they are responsible for 

coming up with a plan, they are responsible for coming to us and 

showing us how they are progressing along the way of reducing 

their improper payments, and the accountability is there at the top 

levels in each one of these departments and agencies and it does 

go, then, all the way down. 

But it has to start at those top levels. So to answer your question 

more specifically, that is one of the things that we believe at OMB 

we can help departments and agencies with. We can showcase the 

20

Kate Colers of the world and the best practices that have taken 

place in the Food Stamp arena. We can understand better with our 

CFO Council members, where we get together every couple of 

months, and then individually, we will have seven or eight of them 

come in individually and talk about these things. 

So, in essence, being a willing helper, and because I have done 

a CFO job in several departments and agencies, I feel like a lot of 

people will look to me for some leadership in that regard, as well. 

Senator CARPER. One last question, if I could, Mr. Chairman. Ms. 

Combs indicates she has been CFO, as we know, in a couple of 

other agencies, I think EPA and DOT, as I recall, are those agencies. I believe you have also had a chance to work on improper payment issues, not just in the public sector, but I think in the private 

sector, as well. I am wondering what lessons you might share with 

us briefly that the business community can teach those of us in 

Federal agencies about building internal controls and reducing, 

maybe eliminating, improper payments and what efforts, if any, 

has OMB taken, to your knowledge, to help agencies learn from 

businesses or even other agencies that have done a good job in 

those areas, as Ms. Coler has referred to. 

Ms. COMBS. I think one of the other things that we have recently 

done at OMB was to have an industry day where we could bring 

industry in and let them share with us some of the best practices 

that they have, have a basic sit-down meeting to say, here are 

some of our problems. Where have you addressed this in an industry-wide level? 

And I think Dr. Coburn mentioned it earlier, the expectation of 

a zero percent improper payment rate is the right approach. We 

have to put that out there as our ultimate goal, to be zero percent, 

because the best possible internal control that you can possibly 

have is to not let the error occur to begin with. 

Yes, you are right, it was very important in the banking business. It was very important in the private sector where I was. And 

putting the expectation out there, both at the EPA as well as Department of Transportation, certainly helped us to come to the realization that we can do a whole lot better, and we can use some 

newer technology now that we and many of the other CFOs are exploring to see if some of the newer technology will help us to identify the correct payer before we are actually making the payment. 

So I think particularly in Mr. Hill’s area, that they are looking at 

some new ways to do that, and I think that, too, will help. 

Senator CARPER. Mr. Chairman, I am sorry I have to slip out. 

Again, to our witnesses, thank you very much for being here and 

to help us as we try to get our arms around this challenge. I think 

some good work is being done in this area and I think maybe part 

of our job is to put a spotlight on the good work, but also to put 

a spotlight on the areas where we still need a fair amount of work 

to take place. Thanks very much. 

Senator COBURN. Thanks, Senator Carper. 

Let us go back to the chart that is up for a minute. There are 

35 agencies that are considered significant. Twenty-three agencies 

assess some programs, not all their programs, but some programs 

for improper payment, and that is not exactly the same number. 

Agencies that did not even identify problems for all programs, that 

21

is six of them. In other words, they are not compliant at all. And 

then there are another three agencies who said they did an assessment, but when they were audited by GAO, there was found no evidence that they did an assessment. Could you comment on that, 

Mr. Williams? 

Mr. WILLIAMS. Actually, there were three agencies that had previous reporting requirements that we identified in the review that 

did not report. There were also three agencies that did not have 

the previous reporting requirement. But in addition to that, there 

were three agencies—NASA, Homeland Security, and Justice—

whose auditors questioned the overall assessment that had been 

performed, and in their opinion, as they reviewed the process, they 

concluded that the Act had not been complied with. So it was those 

three agencies. 

Senator COBURN. So the demand for internal controls in those 

three agencies needs to be reinstituted and emphasized. 

Mr. WILLIAMS. There needs to be a little bit more emphasis on 

the overall process, based on what the auditors reported for those 

three agencies, to make sure that additional steps, additional procedures are being performed to make sure that the agency is in 

compliance in the eyes of the auditors when they are looking at the 

compliance issue on their annual audit. 

Senator COBURN. Then you go to the other side of this. Seventy 

total programs were considered for improper payments, that is correct, and 41 of them that estimated out of the 70, but 29 didn’t 

even give an estimate of those 70 programs. Is that correct? 

Mr. WILLIAMS. That is the information that we were able to obtain by reviewing the PAR reports for those particular agencies. 

There was no explanation given in some cases as to why the assessment was not done. In some cases, there were explanations as 

far as the complexity of the program, etc., and some additional 

guidelines that we plan to assess these programs in future years. 

I think we put a chart in the testimony that lays out when each 

one of the agencies plan to be in compliance. 

Senator COBURN. Controller Combs, what is the incentive to have 

the CFOs at these agencies who didn’t comply, what is the up-side, 

what is the down-side? How do we get them into compliance? 

Ms. COMBS. Well, one of the things I think we will notice in the 

2005 PARs, which are coming up in just a few months, will be that 

some of these agencies who did not comply last year will be in compliance this year. And I think the carrot and the stick approach 

that you have continued to either talk about or allude to is certainly something we have to continue to look at, because we are 

continuing in our oversight role at OMB to look at the agencies and 

departments who have special situations such as the ones we just 

talked about, and see how we can help them become more compliant. I think they are making significant progress, so I think we will 

see that as we present the November PARs in November 2005. 

Senator COBURN. Let me follow up. What are the carrots that 

you are using, or what are the sticks? You obviously have six programs that didn’t do anything. You have three programs that actually demonstrated that they did the assessment, but when they 

were audited, there was no evidence that they had done this. What 

22

are those carrots and what are the sticks? What are you actually 

doing at OMB to bring them into compliance? 

Ms. COMBS. One of the things that we are doing is to have them 

come in on a quarterly basis and show us their plans, or more frequently, if we feel like the need is there. But we have some dedicated staff. We have some resources that are dedicated specifically 

to working with agencies and departments for their internal controls reviews, and the assessments have to be done, the plan has 

to be laid out very carefully with deadlines and responsibilities. We 

review those with them. We help them. We share some best practices with them to help them through their specific situation. 

Senator COBURN. Should there be any connection between performance and internal controls and what their budget is the next 

year? 

Ms. COMBS. Well, I think that——

Senator COBURN. I mean, that is how the real world works. 

Ms. COMBS [continuing]. There is. There is a lot of that anyway. 

I think that is done through the PART, the Program Assessment 

Rating Tools. You heard Ms. Coler talk about being assessed by the 

Program Assessment Rating Tool. There were many of those programs that were assessed, as you recall, that were recommended 

for sunset. 

Senator COBURN. But what I am talking about is with the CFOs 

of the individual agencies and the programs who don’t come into 

compliance with IPIA or the PART assessment rating or your own 

directions through your own Administration of internal controls. 

Where is the consequences there if there is not performance? 

Ms. COMBS. Well, they don’t get a clean audit, for one thing, because if their internal controls are not sufficient, they would have 

that consequence. 

Senator COBURN. OK. So if I am the CFO of one of these agencies 

and I don’t do that, what happens to me? 

Ms. COMBS. I, fortunately, have never had that happen to me. 

Senator COBURN. I think that is a realistic question that the 

American people ought to be able to ask. Here is the law, here is 

OMB’s directions, and here is nonperformance. Is there no consequence to the person who is responsible for that nonperformance 

in relationship to that? 

Ms. COMBS. That is a good question. 

Senator COBURN. I want the answer. [Laughter.] 

Has there even been an agency that has had its budget cut by 

not getting a clean audit? 

Ms. COMBS. I don’t know. 

Senator COBURN. The answer is no, and that is the question that 

ought to be out there on the minds of the people responsible. 

I don’t have an argument with people who work for our Federal 

Government. They are all committed and want to do the right 

thing. The fact is, we have to put a culture of financial management and transparency into every program, not just those deemed 

‘‘significant.’’ I have real problems with what OMB did in terms of 

their definition of significance because I think it sends the wrong 

signal, even though you may be looking at them. But that culture 

has to be implemented. 

23

The other question I want to ask, where is DOD on all this? I 

mean, you listed seven programs—you correct me if I am wrong—

Social Security, Medicare, Medicaid, then DOD in terms of order of 

expenditures other than interest. Why isn’t DOD on that list? 

Where are we? What are we going to spend, $500 billion, $480 billion on defense this year, and we have already had testimony from 

the GAO that there are real problems over there in improper payments. I mean, they are not sacrosanct. If anywhere today we 

ought to insist that they be more efficient than ever, because every 

dollar they waste is a dollar we can’t use to defend this country. 

Where are we on DOD? 

Ms. COMBS. DOD, I believe, will report this year. I think they 

were probably one of the ones that didn’t report last year. 

Mr. WILLIAMS. I can respond to that. 

Senator COBURN. Sure, please. 

Mr. WILLIAMS. Basically, there were two programs under the old 

Circular A–11 report requirement from OMB. It was the military 

retirement fund and military health benefits. And going through 

the 2004 Performance and Accountability Report for DOD, they basically assessed those two programs and there was a statement in 

the PAR that it was actually reported for those two programs because, in OMB’s implementation guidance, it basically stated that 

for all the programs that were included under Circular A–11 would 

continue to report under the Improper Payments Act. But if you 

looked at those programs, they did not meet the criteria using 

OMB’s guidance of $10 million and 2.5 percent. 

So those were the only two programs that reported, and I looked 

further in the PAR report and DOD’s statement basically said that 

those were the only programs, that they had no other programs 

that were susceptible to significant improper payments. 

Senator COBURN. So that comes back to the definition of ‘‘significant.’’ Here, the Department of Defense has decided that the rest 

of the Department of Defense except those two are not significant, 

except it is the third-leading expenditure in our country, defending 

our country. What is going to happen this next year on DOD as far 

as reporting? 

Ms. COMBS. One of the opportunities we have, I think, is, as we 

have talked about before, we have looked at phase one. That is my 

term for where we are now. I think we have an opportunity to look 

again at where we are with the program itself and see if we have 

got it right. And I know that there is a committee of the CFO 

Council, the CFOs themselves, that is looking at improper payments. After a year’s worth of looking at and seeing how it is shaping up, it is probably an opportunity for the CFO Council to step 

up and take a look and see whether or not we have got it right. 

Senator COBURN. Is the Department of Defense outside the IPIA 

requirements? 

Ms. COMBS. I don’t think so. 

Senator COBURN. So then why would they not be reporting? Why 

can they rely on OMB’s guidance to not report under the PARs assessment but then totally exclude what the IPIA says in terms of 

reporting? How do we explain that? 

Ms. COMBS. They should be accountable and be——

24

Senator COBURN. And they should be reporting, correct? They 

should be reporting the improper payments——

Ms. COMBS. They should be reporting——

Senator COBURN [continuing]. At every level in the Department 

of Defense, isn’t that correct? 

Ms. COMBS. To comply with the law. 

Senator COBURN. With IPIA. So let me ask Mr. Williams this. 

Can you give me, or you don’t have to today, but could you get back 

to me, under the GAO’s guidelines—under the OMB’s guidelines, 

implementation guidelines, what programs do you all consider outside of their implementation guidance, based on the guidelines that 

we have today, nonsignificant, 2.5 percent, $10 million? Can you 

give us a list of the programs that under those guidelines would 

be presumed to be outside of them? 

Mr. WILLIAMS. Yes, we can provide you with that information. 

Senator COBURN. I would like to have that, because I think it 

is—I will go back. I think the guidelines need to be tightened up. 

I also would ask, do we need to change the statute in terms of 

the language? Do we need to have additional Federal legislation 

that changes the statute that will require individuals to have to report improper payments? In other words, I guess the question I am 

astounded at is here is a Federal law that is required, and I understand since 2000, we are starting to get Federal financial accountability and transparency and controls in. But here we have one 

large department that, in essence, is reporting nothing, either 

through IPIA or your guidelines under the PARs program. Do we 

need to change the statute? Is there something that needs to be 

done by Congress to bring that group, or all those groups, not just 

the Defense Department, but all those others that have not complied into compliance? Do you need more legislation or do you just 

need better implementation? 

Ms. COMBS. I think that is one of the things that we, as the CFO 

Council’s Subcommittee on Improper Payments, could look at, to 

see whether or not we feel like we have within our own purview 

of responsibility the strength we need to make that determination 

and make it work, or do we need to look and work with you folks 

to see if there is additional legislation that we need to have required. But I think we have—certainly I have, being as new as I 

am in my position, I know I need a little bit more opportunity to 

look at some of the things you have brought to our attention today, 

and Mr. Williams has agreed to come forward with to see exactly 

where we are with this. 

Senator COBURN. Do you have any comments on that? 

Mr. WILLIAMS. Mr. Chairman, there are two or three points I 

would like to make. I was paraphrasing the PAR report for DOD, 

but I have the specific language here. Basically, when they talk 

about the Improper Payments Information Act, the statement is 

DOD’s Fiscal Year 2004 survey did not identify any programs or 

activities where erroneous payments exceeded the established 

threshold, that is an error rate greater than 2.5 percent and erroneous payments in excess of $10 million, and that is in parentheses, nor were any found to be susceptible to significant risk. So 

that was basically what DOD reported——

Senator COBURN. I just find that almost laughable, as that is——

25

Mr. WILLIAMS [continuing]. For 2004. 

Senator COBURN. They meet the word of the law, but not the intent. 

Mr. WILLIAMS. Now, one of the things that I have had an opportunity to look at is that when the original legislation was drafted, 

I think the Congressional intent was that anything greater than 

$10 million would be reported. In looking at correspondence between the Congress and the Director of OMB, OMB’s position at 

the time was that the legislation did not define the word ‘‘significant’’ and in OMB’s implementation guidelines ‘‘significant’’ was 

defined as this 2.5 percent and $10 million. So the correspondence 

that I saw back from Congress was basically that it was not the 

Congressional intent of the original legislation, that the Congressional intent was basically $10 million and not the 2.5 percent that 

was included in the implementation guidelines. 

I guess one way that it could be addressed, if the Congress is 

concerned about the definition of ‘‘significant,’’ is maybe ‘‘significant’’ could be dropped from the legislation and just basically 

spelled out as $10 million is what we are interested in as being the 

amount they would like to have reports on. 

Senator COBURN. Let me just stop you there for a second. 

Mr. WILLIAMS. OK. 

Senator COBURN. I want you to think about this. If you are a factory worker at Georgia Pacific in Muskogee, Oklahoma, and you 

hear somebody say $10 million isn’t significant, I think about the 

cultural difference of what we are saying with that. So basically, 

we need to clarify that. 

Mr. WILLIAMS. The Congress has interpreted it one way and the 

Administration has interpreted it another way, based on the correspondence that I have seen. Congress basically stated that this 

was our intent. OMB has basically stated that in passing the legislation, you were silent, that you did not define ‘‘significant’’ and we 

define ‘‘significant’’ in our implementation guidelines, so——

Senator COBURN. Is there any hope to see that change, Controller 

Combs? 

Ms. COMBS. As I mentioned a while ago, I am very happy to look 

at where we are right now after the year of——

Senator COBURN. And we get all those programs, the list of the 

programs that don’t fall into this. 

Ms. COMBS. Correct, and we have a mechanism within the CFO 

community through the CFO Council to look at that and to help 

us together assess whether or not that is the appropriate avenue. 

Senator COBURN. I want to touch on another area, and anybody, 

feel free to jump in on this one. There is variability in the options 

on the part of the Administration in terms of OMB, in terms of how 

they implement things. But if you really think about the financial 

controls and operational controls of any organization, whether it be 

a government agency or a private agency or a charitable foundation, those basic principles are the same in terms of being able to 

have an audit track, balancing books, knowing where your assets 

are, knowing what your liabilities are, knowing what your exposure 

is. Those are all the same. 

Should it not be that we fix this so that this doesn’t change as 

administrations change? In other words, Generally Accepted AcVerDate 0ct 09 2002 09:24 Jul 14, 2006 Jkt 023156 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 C:\DOCS\23156.TXT SAFFAIRS PsN: PAT
26

counting Principles ought to be the guide no matter who is in 

charge of the White House. Transparency ought to be the guide no 

matter who is in charge of the White House. Accountability for performance standards based on the internal controls and financial accounting standards ought to be the guide. 

How do we do that as a Congress, because we have seen this Administration has chosen to interpret this one way. If we are going 

to have Sarbanes-Oxley on the business community in terms of 

transparency, accountability, timeliness, etc., then why should we 

not apply those same standards, regardless of the political drift of 

one administration or the other, to all the government agencies? 

Ms. COMBS. Well, I think that is certainly why you have legislation, because that in statute does go from one administration to the 

other. 

Senator COBURN. Well, but it is wide open for interpretation, as 

OMB has already made. What if the next administration comes in 

and says significant is this? That is the point I am making. In 

other words, there shouldn’t be a variability, and again, I will go 

back. We talked to all the major auditing firms in this country and 

their standard is zero improper payments. So why should we have 

anything less than that and why should we implement any standard less than that? The Congress sets it as a goal to start, but why 

shouldn’t the goal be reduced to zero? That is the goal, isn’t it? 

Ms. COMBS. That is my goal. 

Senator COBURN. The farm bill’s goal is 6 percent. Is zero possible? 

Ms. COMBS. Of course, it is possible. If there are departments 

now who have close to that, it is certainly possible. I think that we 

have an opportunity here to, as Mr. Williams mentioned, the original legislation was not as clear, but I think we do have an opportunity to look at it and tell whether or not, after the experience we 

have had, whether we do need to clarify any of the terms of that 

legislation. 

Senator COBURN. So can I have the commitment from you that 

we will do that, that we will come back and do that in terms of 

the communication back to Congress, what do we need to change 

to put this on a financial standard rather than a political standard? 

Ms. COMBS. Yes, and I think that one of the things that Mr. Williams mentioned earlier relative to the materiality is what we are 

probably going to find out, but we are certainly more than happy 

to work with you on that, because materiality for a program, as 

Mr. Williams mentioned, is certainly going to be different than it 

would be for an entire department or certainly government-wide. 

But with those considerations, the CFO Council, I think, is the appropriate group of people to work and gather the information and 

look through our successes and look through where you feel like we 

have some difficulties that we need to work through and see if 

there are ways we can work through those together. 

Senator COBURN. Mr. Hill, let me visit with you for a minute. 

You have a very tough job. I have been on the other side of this. 

The fact is, there is nobody in CMS who understands Medicare. 

Not one person understands every aspect of Medicare, so your job 

is made particularly difficult. The same is true of Medicaid. You 

27

testified that you hope to have this in place by 2008. What are you 

finding from your pilot program and what are you seeing? 

Mr. HILL. The 2008 commitment that we are making is to 

produce reportable rates that are IPIA compliant. That in no way 

means that we are not trying to take action right now. 

Senator COBURN. I understand. 

Mr. HILL. So we have pilots underway and we are doing as much 

as we can. 

In Medicaid, unlike Medicare, where we have had a lot of history, there are four sets of issues that challenge us. One, unlike in 

food stamps, is just the diversity of programs. If you have seen one 

State Medicaid program, you have seen only one State Medicaid 

program. There are 50 different Medicaid programs, and that 

causes both methodological as well as logistical issues in terms of 

determining improper payment rates. 

Also, the needs basis of the program where eligibility can vary 

from State to State, subject to Federal waivers, results in a 

logistical set of issues. 

In adition, a significant portion of the beneficiaries, are in managed care instead of fee-for-service. While the predominance of the 

benefits are paid on a fee-for-service basis, the fact that a huge portion of the beneficiaries are in managed care, again leads to a challenge. 

And the States will tell you as they have told us—that there is 

a cost issue. They believe they have incentives to keep the error 

rates down because it is a shared program. They have skin in the 

game, so to speak, and so they do all that they can to keep their 

error rates down. What we have heard at the State level is that 

IPIA compliance, including key requiring a statically valid sample 

of claims is a Federal requirement, not a State requirement, and 

that the States have trouble bearing the added costs with their current budget situations. 

And so those are the challenges we confront. We think we are 

going to have, as I noted in my testimony, by the end of the summer, a plan that we can roll out much more publicly in response 

to our regulations from last year that will address these issues. But 

those are the issues that we are finding the biggest challenges in 

the Medicaid program. 

Senator COBURN. GAO was kind of critical saying that you 

weren’t putting enough money into your program to develop this. 

Do you have any answer? 

Mr. HILL. One of the GAO criticisms we have heard most recently has to do with our program integrity efforts on Medicaid 

across the board, which are somewhat separate and distinct from 

the financial management IPIA activities. The Department and 

CMS in particular have instituted and implemented a longstanding 

process working with the States and our regional offices to be very 

aggressive in helping the States understand what their program integrity issues are and providing the technical assistance and feedback that they want. 

Again, as a shared Federal-State partnership, our role, the Federal role, is as much guidance and technical assistance as it is 

boots on the ground, if you will, much different than Medicare in 

28

terms of fighting fraud and addressing the issues that the States 

are addressing. 

Senator COBURN. A lot of corporations have to deal with multiple 

State regulatory environments. If, in fact, Federal matching grants 

were dependent on compliance, don’t you think things would turn 

around pretty fast? 

Mr. HILL. I will tell you that coming back from the beach reading 

the report on the Food Stamp Program and the incentive pieces of 

the Food Stamp Program, clearly has a lot of things to tell us about 

not just Medicaid but Medicare in terms of things that we can 

think about to incent States or contractors who process claims to 

do a better job. 

Historically in Medicaid, there was a program on the eligibility 

side where the error rates varied against a set norm, and there 

were penalties assessed on States and we withheld State matching. 

Not surprisingly, much litigation ensued from that activity and the 

benefits of the stick, so to speak, were somewhat limited by getting 

caught up in that litigation. 

So the lesson for us as we go forward is to be very deliberate and 

careful about how we pick the methodologies and how we go about 

creating the incentives or disincentives. 

Senator COBURN. Are a large percentage of the improper payments in Medicare associated with durable medical equipment? 

Mr. HILL. Because it is a weighted average, the vast percentage 

of our overpayments are for Part A hospital inpatient services. 

That is where most of the payments are. I will tell you, we have 

ongoing problems, improper payments, fraud, and the whole range 

of issues in the durable medical equipment (DME) world. The general notion that I have had is whenever we have situations, whether it is DME or unlicensed providers who are providing services for 

our beneficiaries, that seems to be where we can always kick over 

stones and find problems. So DME has always been an issue for 

us. 

Senator COBURN. Is FMAP not a big stick for you to use on 

States in terms of compliance with this? 

Mr. HILL. It certainly could be, to the extent that——

Senator COBURN. Don’t you have broad discretion there? 

Mr. HILL. We do. 

Senator COBURN. Very broad discretion of which to force compliance on Medicaid? 

Mr. HILL. Right. And again, I think that is where we need to be 

deliberate with the States in terms of looking at our history with 

the eligibility quality control program where we imposed FMAP 

disallowances. We held back on FMAP to the extent error rates 

went above or below a mean. And again, the States complained and 

sued and said, the methodologies you used weren’t appropriate or 

weren’t valid and we got ourselves hung up in litigation. I think 

moving forward, to the extent we want to use FMAP or withholding State payments, we need to be sure that the methodologies 

and the approach we use can withstand that test. 

Senator COBURN. Thank you. Well, my hat is off to you. You have 

got a tough job over there. 

Mr. HILL. This is a long hearing. I was kind of hoping I would 

get away without having questions, but I guess——

29

Senator COBURN. You are not going to make it. [Laughter.] 

I actually have about ten more pages of questions——

Mr. HILL. I am sure you do. [Laughter.] 

Senator COBURN. Ms. Combs, the 2001 version of Circular A–11 

included the U.S. Agency for International Development in Section 

57. GAO reports that in June 2002, a revision to the A–11 Circular 

reduced the number of CFO Act agencies required to submit erroneous payment data from 15 to 14, removing the Agency for International Development from this list. Can you explain the reasoning 

for this change, and are they required to report improper payments 

under the IPIA? 

And I would tell you that since we have just had one hearing in 

this Subcommittee on one program in which we were appalled at 

not necessarily improper payments, but the lack of attention by 

this one subpart of U.S. AID, and that is the malaria program, in 

terms of the money not going where it was supposed to go, and I 

would just like to know why that was exempted. Where is their reporting and are they required to report under the IPIA? 

Ms. COMBS. Yes, they are required to report under the IPIA—and 

they report through the PAR, the Performance and Accountability 

Report. 

Senator COBURN. Well, they were exempted in 2002 from the A–

11 Circular, so explain to me why they were in it and why they 

are out all of a sudden. 

Ms. COMBS. Well, I think there was a—what I understand between the correspondence that I have seen from OMB at the time, 

it looks like that there might have been a certain threshold that 

was being looked at at the time and that their annual outlays for 

their grants and their cooperative agreements didn’t meet that 

threshold at the time. But OMB required U.S. AID to reassess its 

program inventory as part of the government-wide IPIA implementation in February 2004 and——

Senator COBURN. So they will report this year? 

Ms. COMBS. Yes. 

Senator COBURN. And they are required to report under the 

PARs this year? 

Ms. COMBS. They are required to report. 

Senator COBURN. One of their quotes was, for Fiscal Year 2004, 

they had assessed all programs and found no risk. Can you explain 

that? 

Ms. COMBS. I believe that—I am not sure I can explain that because I wasn’t there then, but I will be glad to get that information. 

Senator COBURN. Well, a couple of things, if you would get for 

the Subcommittee, I would appreciate. Why were they dropped for 

the 2 years? Why were they not required to report? And why, when 

they reported in 2004, they assessed all programs and found a risk, 

actually, and probably, Mr. Williams, I would like for you all to 

look at that and see if, in fact, they did assess, since we have three 

agencies who supposedly assessed and the audit trail would say 

they didn’t have a good assessment. If you would do that for us, 

I would appreciate it. 

Mr. WILLIAMS. We will be more than glad to take a look at those. 

30

Mr. Chairman, you have raised two or three points that, if it is 

OK——

Senator COBURN. Please feel free to comment. 

Mr. WILLIAMS [continuing]. I would like to make some points on. 

There has been discussion about the progress in bringing down the 

rate in the Food and Nutrition Service, Food Stamp Program. 

I would like to add, I testified on this particular area about five 

times now and I always put a plug in that we at GAO have put 

together a guide that basically talks about best practice strategies 

in addressing improper payments. We had an opportunity to talk 

to the private sector. We had an opportunity to talk to governments 

of a couple other countries. We had a chance to talk to a couple 

of State governments, also, to get their input. I would strongly encourage OMB and the agencies to take a look at that particular 

guideline. There are some pretty good best practices in there as far 

as things that can be done. 

There was also some discussion about the goal of getting improper payments down——

Senator COBURN. Let me stop you for a second. 

Mr. WILLIAMS. OK. 

Senator COBURN. Controller Combs, have you seen those best 

practices? I know you know what best practices are. You have proven that. You have implemented them in a lot of places. Have you 

looked at those, and is that a part of what OMB is doing? 

Ms. COMBS. I have seen and am aware of this—you are talking 

about the report, the recent report? 

Mr. WILLIAMS. No, this is a guide that we put out a few years 

ago. It is called, ‘‘Strategies for Addressing Improper Payments,’’ 

and it is basically a document that goes through various things 

that other countries have done, other States have done, and things 

that have been done at various agencies in the Federal Government that have been classified as best practices——

Senator COBURN. And have been successful——

Mr. WILLIAMS [continuing]. And have been successful in addressing the issue, and it has got all kinds of techniques from where we 

were talking earlier about how the Food Stamp Program has gone 

from one in which you are issuing stamps to all EBT, and there 

are techniques in there where we talk about how you can perform 

various procedures to try to identify where there are areas that you 

might have a high risk or high incident of improper payments and 

just across the gamut. These are just best practices, and I have always encouraged at every hearing that I have participated in that 

this is a guide that we recommend that people take a look at. This 

is just one more tool in the process. 

Senator COBURN. To your knowledge, have the CFOs of all—do 

you call it CFO Roundtable, is that what you call it? 

Ms. COMBS. Council. 

Senator COBURN. Council. Have they looked at this? 

Ms. COMBS. I am sure, individually, they probably have. As a collective group, the subgroup that I mentioned, the CFO Council subgroup that is looking into improper payments, they were actually 

instrumental in helping to set up the industry day. 

Mr. WILLIAMS. Yes, that is correct. 

Ms. COMBS. I think that Mr. Williams or some of your people——

31

Mr. WILLIAMS. Staff. 

Ms. COMBS [continuing]. Actually worked with. But the more of 

those things that we can continue to do together, and we will look 

at this particular one together. 

Senator COBURN. Continue, Mr. Williams. 

Mr. WILLIAMS. The next area that was discussed earlier, you had 

focused in on the issue of making sure that you have requirements 

in statute. I go back to 1990 when I was detailed to the Hill to assist in the drafting of the CFO Act of 1990. The big issue that came 

up at that particular point in time was the current Administration 

had administratively required agencies to have financial statement 

audits, and the issue back then, and that issue continues until 

today, is that the reason why you want to get this financial management in the statute is because administrations change and you 

want to make sure that years from now, that you have these procedures in place and you don’t have another administration to come 

in down the road and say, I don’t think that that is worth the time 

of the day. 

But by having it in statute and having it clear, it gives—it 

should give the taxpayers some comfort that years from now, we 

will still have these procedures in place and there will still be these 

requirements to make sure that things are being done to increase 

and improve accountability throughout the Federal Government. 

The other area that I want to talk a little bit about is internal 

controls. It was mentioned earlier from one aspect, but internal 

controls basically have two components. You have what is called 

preventive internal controls and you have what is called detective 

internal controls. 

Preventive internal controls are those controls that are put in 

place to prevent an improper payment from occurring in the first 

place. Detective internal controls are those controls that are put in 

place to detect after the improper payment has been made. 

We, at GAO, have always pushed for more emphasis on the preventive controls because, as the old saying goes, once the horse gets 

out of the barn, sometimes it is kind of difficult to get it back in. 

A lot of these programs that we talk about, when you look at them, 

if there is an improper payment made, it is usually made to a 

group of our society that cannot afford in a lot of cases to repay 

that money, and we are not talking millions of dollars, we are talking smaller amounts, but just a huge number of people that might 

be involved in this process. So you want to put as many preventive 

controls in place as you possibly can to make sure that the improper payment does not occur in the first place. 

The other point about the improper payment issue and looking 

at it from an internal control standpoint is that it should be the 

goal of every agency to get their improper payments down to zero. 

That should definitely be the goal. And there should be internal 

control procedures put in place to try to make sure that an agency 

is able to attain that goal. 

But from a practical standpoint, you have to look at various programs throughout the Federal Government and there are just some 

inherent risks in certain programs that you will probably end up 

with some improper payments, and I think we might have had an 

example of that over the weekend when you might want to look at 

32

a FEMA program where you are talking about a hurricane coming 

through and people need help right then. In the process of providing that help right then, there is always the inherent risk that 

someone is going to make a duplicate payment or someone is going 

to get a payment that should not receive a payment. 

But what you want to look at in those situations where you have 

those inherent risks is you want to look at the internal controls 

that you have put in place and you want to follow a concept of I 

am going to put an internal control in place. I don’t want to put 

an internal control in place that is going to cost me $1.01 that is 

going to result in me getting back $1. So it should be cost beneficial 

when you are looking at those internal controls. 

Senator COBURN. But I also would tell you that this Subcommittee has had hearings on FEMA, for example, on the last 

hurricane where we paid for four times as many funerals as the 

people that actually died——

Mr. WILLIAMS. Exactly. 

Senator COBURN. So the compassionate side of the argument, I 

understand, and food stamps, we are not ever going to get it to zero 

percent. I understand that, because if we do, we might harm someone, but one percent or half of one percent. Those are all achievable. But in other areas, whether it is defense procurement or——

Mr. WILLIAMS. Yes. 

Senator COBURN [continuing]. Benefit payments on people who 

actually are not due, you are paying for somebody who does not 

have something, we should have a zero error rate——

Mr. WILLIAMS. That is the point that I have made in previous 

testimonies, is that there is no standard number across the government. What might be an error rate of 2 percent at one agency 

might be a real good number. At another agency, it might be that 

is ridiculous. It should be zero. So you have to look at it on a program-by-program basis when you are setting your goals for what 

you think your improper payments rate should be. 

Senator COBURN. Well, I would propose that the improper payment rate for every agency ought to be zero percent, accepting 

something less than that in humanitarian regards. But if you set 

the goal higher than that, you are going to get higher than that. 

Mr. WILLIAMS. Exactly. 

Senator COBURN. Controller Combs, I want to come back to you 

for a minute, and again, you are answering questions when you 

weren’t there, but I want to ask as a position. I also would let the 

panel know—you may not know this—my first degree is I am an 

accountant. I have a degree in accounting and production management from Oklahoma State University and I did a lot of accounting 

for the first 10 years of my business career. So it is not something 

that I am not attuned to, although I will admit auditing was my 

least favorite subject. [Laughter.] 

The second step to comply with IPIA is to develop a statistically 

valid estimate of improper payments for all programs and all activities identified as susceptible to improper payments and the risk 

assessment. In the guidance that OMB issued, the statistical estimate must be based on a sample size sufficient to yield an estimate 

of 90 percent confidence level. Well, I don’t know anything that 

uses a 90 percent confidence level that is worth anything. Every 

33

one that I have ever looked at in statistics, in medicine, in science, 

and in business is a 95 percent confidence interval. 

Why in the world would we choose less than a standard that is 

accepted across industry, across the government, across science, 

across engineering, as an acceptable level of a confidence level that 

is meaningful? Why did the OMB put something in less than something that is—actually, you can’t even use 90 percent statistical 

confidence because what it is saying is 10 percent of the time, it 

is going to happen by chance alone and you don’t know what the 

‘‘R’’ factor is on it and it is probably going to be, like, 0.25, which 

means it doesn’t mean anything. So where did we come up with 90 

percent? 

Ms. COMBS. I don’t know where that came from, but I will be 

glad to——

Senator COBURN. I would love to know that, because the minimum it ought to be is at 95 percent confidence level. Then it is 

statistically meaningful. Less than that, it is not. And I found it 

really ironic in looking that they would set a confidence interval 

that you can’t trust statistically. 

Ms. COMBS. I will be glad to look into that. 

Senator COBURN. All right. We are getting there. 

What happens in the future if CMS doesn’t have a program for 

improper payments developed by 2008? What should Congress do? 

Mr. HILL. This comes back to the issue you were raising earlier 

about accountability, and from HHS’s perspective, we can’t lose 

sight of the President’s Management Agenda and the scorecards 

that are developed there. The agencies are taking these quite seriously. Now, I don’t think in a mandatory program, a benefit program like Medicare, an issue of reducing a budget is a logical outcome of the rate. I mean, you are looking at more management-related actions. 

I can tell you, from the CFO of HHS on down through my boss, 

the Administrator of CMS, to me, the accountability is quite clear 

for achieving the milestones that are set out in the PMA and it includes achieving the error rate by 2008, and so I can be fairly certain that there will be some quite harsh personal consequences of 

not meeting that objective. 

Now, whether or not that leads to the agency being punished, so 

to speak, or consequences therein I cannot tell you, but I can tell 

you from the performance plans and from having to sit before Secretary Levitt and say why we did or did not achieve a yellow or 

a green or what we achieved is a culture of accountability in HHS. 

Senator COBURN. When was CMS first asked to have improper 

payments data on Medicaid? 

Mr. HILL. I believe the first time that it came out was in the Circular A–11 in 2000 or 2001. 

Senator COBURN. OK, and so we are going to have that 7 years 

later? 

Mr. HILL. Well, to be clear, sir, we began collecting that data in 

2002——

Senator COBURN. I understand, but I am looking at this perspective as a citizen, not somebody from inside Washington. 

Mr. HILL. Right. 

34

Senator COBURN. Here is a requirement that comes in 2001, and 

in 2008, we are going to have it. 

Mr. HILL. Correct. 

Senator COBURN. I understand the enormity of the problem that 

you face. If I had my best wish in the world tomorrow, it would 

be to change all of Medicare and Medicaid to a much simpler system that would work and make your job easier and make actually 

the delivery of it better. But the fact is, is 7 years from the time 

a request is made to an agency to become accountable on improper 

payments to the actual implementation of that, what would you tell 

the average common citizen in this country why 7 years is an appropriate amount of time to do that? 

Mr. HILL. Well, 7 years is certainly not an appropriate amount 

of time to do it if we were not making good progress. We have been 

committed and are committed in working with the States. We have 

gone in and calculated individual State-level error rates in 38 

States since 2002. 

As I said in the testimony, the way we approach our improper 

payment calculations is two-fold. First, it is a performance assessment, meeting IPIA requirements, assessing and saying for reporting purposes what our rates are. It is also a management tool, and 

in that respect, the most important piece there then would be to 

tell each individual State, whether it is Oklahoma or whether it is 

Kansas or Delaware, here is your——

Senator COBURN. Oklahoma needs it, by the way. 

Mr. HILL. Right, so I think we could work on that. We have been 

focusing on working with the States to do that. 

Now, it is true for the national Medicaid program, we won’t have 

a rate. this year. That is a meaningful number and one that is important, but it is also as important that each individual State has 

a rate, and far before 2008, we will be there. 

Senator COBURN. Great. Let us just play with the numbers here 

for a minute. Over the last 7 years, including this year, Medicaid 

will spend a trillion and 50 billion dollars. And if their improper 

payment rate was 3.9 percent, or 4 percent, that is $45 billion. And 

the growth is going to grow, to $39 billion over the next 5 years, 

so we are going to be well over $200 billion. So you are talking 

about over the 7 years of having another $9 billion had we had appropriate improper payments, if we assume the average is what the 

nationwide government—and it is probably going to be higher than 

that. 

But if we had it at 4 percent and we saved that money, how 

many more lives would we impact? How many more lives would 

have better care? How many more people would not be caught in 

the crux of making a choice between a pill and supper? I want us 

to bring it down to real people and how it impacts. So if we had 

that $40-some billion that wasn’t improperly paid out through lots 

of things, it is not just that we cut the deficit. It is that we impact 

people’s lives the way the programs were intended. 

Mr. HILL. Dr. Coburn, that is exactly how we think about the improper payments we make in terms of the benefits that are being 

denied to the people we serve. We think just because the measurement won’t be in place on a national basis until 2008, in no way, 

shape, or form are we not doing all we can between now and then 

35

to eliminate improper payments. This is a high-risk program. 

Measurement is important, but I can tell you, even without measuring, it is a high-risk program and we have a robust program and 

both in Medicare and Medicaid, we are working with the States, at 

the Federal level, to do all we can to stop inappropriate payment 

from happening. 

I won’t be able to tell you 7 years from now how much we saved, 

because we are doing it as we go. But just because we haven’t 

measured and assessed doesn’t mean that we are not taking corrective actions because we know that there are risks and we are putting our resources where those risks are. 

Senator COBURN. How often are States’ Medicaid programs audited? 

Mr. HILL. The single-state audit occurs every year. 

Senator COBURN. Every year, every Medicaid program is audited? 

Mr. HILL. There is a single-state audit, yes, sir. 

Senator COBURN. OK. Am I correct in assuming that under IPIA, 

every agency is required to submit improper payments to Congress 

every year? Mr. Williams. 

Mr. WILLIAMS. You are correct in assuming that under IPIA, 

every agency is required to do the assessment and determine if 

they have programs that are significant to or susceptible to improper payments and report that information to the Congress, is 

the way that the statute—so that would be every agency is required to report. 

Senator COBURN. Are they compliant? 

Mr. WILLIAMS. I can’t say every agency because I really don’t 

know every agency. We have reviewed the ones that we identified 

on the board. I do not have the information as to whether those reports have actually made it up to the Congress or not. We have 

talked about it in terms of these particular agencies that we were 

able to look at, and we looked at those because those were the ones 

that had the Performance and Accountability Reports available 

that we could get access to at the particular point in time that we 

were doing this particular job. But whether every agency actually 

complied, I cannot say——

Senator COBURN. OK. 

Mr. WILLIAMS [continuing]. As far as providing that information 

to the Congress. 

Senator COBURN. Well, I want to thank each of you for being 

here. This is a big problem, and it is a problem, if you all solve correctly, you won’t have to solve again. It is one of the few problems 

in government that if you fix the first time, you don’t have to fix 

it again. 

So the hope is great that as we implement good financial controls 

with transparency of those controls—one of the biggest problems 

we have as Members of Congress is getting information from Federal Government agencies. The American public may not believe 

that, but we have to fight, beg, plead, claw to get information. And 

I will tell you, on average, for example, U.S. AID is 4 years behind 

on transparency, just having available their information for the 

Congress. 

36

So what you all are doing is tremendously important in terms of 

improper payments. But the financial controls and the transparency and accountability that goes with those isn’t just about improper payments. It is about making us get through the problems. 

And I know most of you have read this, and if you haven’t, you 

should. David Walker is right on. We are on an unsustainable 

path, and every day that goes by that we don’t correct these problems, the people in this room probably aren’t going to feel, but your 

grandchildren are. 

I thought it ironic a minute ago, I was looking at the iceberg and 

I am thinking about the Titanic. This country is about to hit a bigger iceberg than that. And so I would applaud your efforts. I want 

to thank you for being here. But every minute, every day counts 

in terms of reforming the financial operations of the Federal Government, and what each of you can do, whether it is in your leadership at GAO, leadership in changing the Office of Management and 

Budget—and I will say it again, the worst performing under the 

PAR program is OMB. That needs to be said so we can eventually 

embarrass them to be the best, because they should be the best 

under this program. 

Medicare and Medicaid, the largest percentage of our dollars that 

are going out, the financial management of that is critical, and we 

can see what has happened in terms of 30 percent reduction in 

terms of improper payments at the Department of Agriculture just 

through one program, $1 billion. But it also means that there is another billion we can save there. There is another billion that 

doesn’t have to be spent if we can improve it and refine it better. 

So I would congratulate you on the job you are doing. I think I 

would again just want to say, from Controller Combs, I really want 

a real assessment of what ‘‘significant’’ is and I want you to look 

at that. I really want to know why the U.S. AID is not in that program. I think there is more fraud and waste and abuse in that program as a percentage of the total budget than there is any other 

aspect of the Federal Government in terms of waste, and I am 

going to find it, I promise you that, and I will expose it. 

This will not be the last hearing. I am going to call you back in 

6 months. We are going to talk about it again. We are going to see 

where we are and see what the programs are. We will have had 

2005’s numbers then and we will go from there. Thank you all very 

much for being here. 

The hearing is adjourned. 

[Whereupon, at 3:58 p.m., the Subcommittee was adjourned.] 

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