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68–047 PDF 2011

WASTE AND ABUSE: THE REFUSE OF THE

FEDERAL SPENDING BINGE

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

FEBRUARY 17, 2011

Serial No. 112–30

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on February 17, 2011 ....................................................................... 1

Statement of:

Dodaro, Gene L., Comptroller General of the United States, U.S. Government Accountability Office; Debra Cammer, vice president and partner,

IBM Global Business Services, Bethesda, MD; Vincent L. Frakes, Federal policy manager, Center for Health Transformation, Washington,

DC; and Veronique de Rugy, senior research fellow, Mercatus Center

at George Mason University, Arlington, VA ............................................... 9

Cammer, Debra ......................................................................................... 31

de Rugy, Veronique ................................................................................... 47

Dodaro, Gene L. ......................................................................................... 9

Frakes, Vincent L. ..................................................................................... 37

McCaskill, Hon. Claire, a U.S. Senator from the State of Missouri ............. 4

Schatz, Thomas A., president, Citizens Against Government Waste,

Washington, DC; Andrew Moylan, vice president of government affairs,

National Taxpayers Union, Alexandria, VA; and Gary Kalman, director,

Federal Legislative Office, U.S. PIRG, Washington, DC ........................... 94

Kalman, Gary ............................................................................................ 133

Moylan, Andrew ........................................................................................ 109

Schatz, Thomas A. ..................................................................................... 94

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

Amash, Hon. Justin, a Representative in Congress from the State of

Michigan, prepared statement of ................................................................. 153

Braley, Hon. Bruce L., a Representative in Congress from the State

of Iowa, prepared statement of .................................................................... 158

Cammer, Debra, vice president and partner, IBM Global Business Services, Bethesda, MD, prepared statement of ................................................ 33

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 156

de Rugy, Veronique, senior research fellow, Mercatus Center at George

Mason University, Arlington, VA, prepared statement of ......................... 49

Dodaro, Gene L., Comptroller General of the United States, U.S. Government Accountability Office, prepared statement of .................................... 12

Frakes, Vincent L., Federal policy manager, Center for Health Transformation, Washington, DC, prepared statement of .................................. 39

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, information concerning real gross private domestic investment ............................................................................................................... 150

Kalman, Gary, director, Federal Legislative Office, U.S. PIRG, Washington, DC, prepared statement of .............................................................. 135

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, letter dated November 19, 2010 .................................................... 69

Moylan, Andrew, vice president of government affairs, National Taxpayers Union, Alexandria, VA, prepared statement of .............................. 111

Schatz, Thomas A., president, Citizens Against Government Waste,

Washington, DC:

Cover of the Citizens Against Government Waste report entitled,

‘‘Critical Waste Issues for the 112th Congress’’ .................................. 98

Cover of the Citizens Against Government Waste report entitled,

‘‘Prime Cuts 2010, A Commonsense Guide to Leaner Government’’ . 96

Prepared statement of ............................................................................... 101

Tierney, Hon. John F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 82

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 154

(1)

WASTE AND ABUSE: THE REFUSE OF THE

FEDERAL SPENDING BINGE

THURSDAY, FEBRUARY 17, 2011

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 9:31 a.m., in room

HVC–210, The Capitol Visitor Center, Hon. Darrell E. Issa (chairman of the committee) presiding.

Present: Representatives Issa, Platts, McHenry, Jordan, Walberg,

Lankford, Amash, Gosar, Labrador, Meehan, DesJarlais, Gowdy,

Ross, Guinta, Farenthold, Kelly, Cummings, Towns, Maloney, Norton, Kucinich, Tierney, Lynch, Connolly, Quigley, Welch, Yarmuth

and Speier.

Staff present: Kurt Bardella, deputy communications director

and spokesman; Michael R. Bebeau and Gwen D’Luzansky, assistant clerks; Robert Borden, general counsel; Molly Boyl, parliamentarian; Lawrence J. Brady, staff director; Sharon Casey, senior assistant clerk; Steve Castor, chief counsel, investigations; Benjamin

Stroud Cole, policy advisor and investigative analyst; Drew

Colliatie, staff assistant; John Cuaderes, deputy staff director;

Adam P. Fromm, director of Member liaison and floor operations;

Linda Good, chief clerk; Tyler Grimm and Tabetha C. Mueller, professional staff members; Christopher Hixon, deputy chief counsel,

oversight; Sery E. Kim, counsel; Justin LoFranco, press assistant;

Mark D. Marin, senior professional staff member; Laura L. Rush,

deputy chief clerk; Jeff Wease, deputy CIO; Ronald Allen, minority

staff assistant; Beverly Britton Fraser, minority counsel; Craig

Fischer and Deborah Mack, minority professional staff members;

Carla Hultberg, minority chief clerk; Lucinda Lessley, minority policy director; Scott Lindsay, minority counsel; Dave Rapallo, minority staff director; Suzanne Sachsman Grooms, minority chief counsel; Mark Stephenson, minority senior policy advisor/legislative director; Eddie Walker, minority technology director; and Zeita Merchant, minority fellow.

Chairman ISSA. A little housekeeping for everyone. Senator

McCaskill is going to be here shortly. This is an unfortunate but

inevitable situation in which we’re going to have votes clearly get

in the middle of this morning’s hearing. So what we’re going to do

is we’re going to start immediately.

When the Senator comes in, she will be on a panel by herself.

She will speak, and, by agreement, she will not be able to remain.

She doesn’t have enough time for all the Members to question her.

2

What I would like to do, with the ranking member’s approval, is

allow the ranking member to make his opening statement now

even before she arrives so it’s covered. I’ll withhold mine until the

main panel. What we’re hoping to do is get as much read into the

record, but we will break for the Senator as soon as she arrives to

ensure we get her before the vote.

With that, a quorum being present, this hearing has come to

order, and I recognize the ranking member for his opening statement.

Mr. CUMMINGS. Mr. Chairman, I want to thank you very much,

and I want to thank all the witnesses today for being a part of this

hearing.

In particular, I would like to extend a special welcome to Senator

Claire McCaskill, who has taken time out of her busy schedule to

be with us today. As many of you know, Senator McCaskill is the

chair of the Subcommittee on Contracting Oversight on the Senate

Committee on Homeland Security and Governmental Affairs. And

it’s safe to say that no single Member of Congress has been more

active than Senator McCaskill at rooting out waste, fraud and

abuse in contracting across the Federal Government.

I am also thankful that Senator McCaskill could be here today

because the committee made plans to review the 2011 High-Risk

Report issued by the Government Accountability Office. This report

has become a critical tool in focusing Congress’ oversight efforts. It

lists 30 government programs and spending areas most susceptible

to waste, fraud or abuse.

I had the opportunity yesterday to join the Comptroller General

Gene Dodaro and Chairman Issa when GAO issued this year’s report. As in previous years, the massive issues surrounding Federal

procurement are featured prominently.

Over the past decade, government contracting costs have escalated dramatically. In 2000, the Federal Government spent about

$209 billion on procurement. That number has now grown to more

than $500 billion in annual expenditures. During this same period,

the number of sole-source and noncompetitive contracts have also

expanded.

In this year’s High-Risk Report, 6 of the 30 programs on the

GAO list relate directly to Federal contracting. They involve contracting at the Department of Defense, the Department of Energy,

NASA, and across multiple Federal agencies. Several other entries

on the GAO list also have significant contracting components, such

as transforming the Department of Homeland Security. When you

examine all of these together, they have a massive impact, accounting for hundreds of billions of taxpayer dollars every year.

It’s a real challenge to fully evaluate the extent of this problem.

For example, during an interview last year, Defense Secretary Robert Gates offered what he called ‘‘a terrible confession.’’ He stated,

‘‘I cannot get a number on how many contractors work for the Office of the Secretary of Defense.’’

In many cases congressional oversight of government contracting

has led to meaningful reform. In 2007, when I became chairman

of the Subcommittee on the Coast Guard and Maritime Transportation, I launched a series of hearings to examine the Coast

Guard’s multibillion-dollar acquisition program to modernize its

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ships and aircraft. We found that the Coast Guard had little inhouse capability to manage a major procurement effort when it initiated the Deepwater program. As a result, it outsourced many of

its oversight responsibilities to private contractors doing the work.

Based on these results, I introduced legislation to make comprehensive reforms in the Coast Guard’s acquisition program, and

this legislation passed the House unanimously.

In addition, Representative Tierney led an investigation in the

last Congress into Defense Department contracts for supply chain

trucking in Afghanistan. As a result of that investigation, General

David Petraeus issued new contracting guidelines, created a task

force to review contracting in Afghanistan, and moved to debar a

major Federal contractor.

To its credit the Obama administration has made significant

strides to improve government contracting. In 2009, the President

directed Federal agencies to streamline their acquisition processes,

and last year the amount of Federal contracting declined for the

first time since 1997. The administration’s initiative also resulted

in a reduction of no-bid and other noncompetitive contracts last

year.

Finally, moving forward, we have to continue this progress by

conducting our oversight efforts in a sustained, dedicated and bipartisan way, and I know that the chairman is committed to that.

So I see that Senator McCaskill has arrived. And I want to thank

you, Senator, again for coming. I know that you have a hearing

with Secretary Gates this morning, so we really appreciate you

coming over. And if you have time for one or two questions after

your prepared remarks, I’d appreciate it if you would give us any

thoughts about how we can keep this oversight effort going on the

contracting front; what steps can we take maybe even together to

try to avoid sitting here again in 2 years with the problems worse

and not going anywhere fast.

Again, we thank you.

And Mr. Chairman, I really thank you for your courtesy.

Chairman ISSA. I thank the ranking member.

Chairman ISSA. And I am going to do my opening statement

after the Senator has given her views on this.

Two things for all the Members. It is the rule of the committee

that all witnesses be sworn. That rule is, by policy, not applicable

to active Members of the House and the Senate—although if you

want to be sworn for any reason, we would be happy to, Senator.

Senator MCCASKILL. I’ll swear, but probably not that way.

Chairman ISSA. Then we will forego that.

One other policy of the committee—and I’ll brief—as I said, I

won’t do my opening statement yet, but we do read our mission

statement at the beginning of every one. And in case you are considering your subcommittee having one, I’ll read this one for you

today.

Oversight Committee Mission Statement: ‘‘We exist to secure two

fundamental principles: First, Americans have a right to know that

the money Washington takes from them is well spent. And second,

Americans deserve an efficient, effective government that works for

them. Our duty on the Oversight and Government Reform Committee is to protect these rights.

4

‘‘Our solemn responsibility is to hold government accountable to

taxpayers because taxpayers have a right to know what they get

from their government. We will work tirelessly, in partnership with

citizen watchdogs, to deliver the facts to the American people that

bring genuine reform to the Federal bureaucracy.’’ This is the mission statement of the Oversight and Government Reform.

And with that, Senator, we are delighted to have you here. We

realize that, second only to our 25 or so amendments coming up in

about 15 minutes, you probably have the busiest schedule on the

Hill.

And I now recognize the gentlelady.

STATEMENT OF HON. CLAIRE McCASKILL, A U.S. SENATOR

FROM THE STATE OF MISSOURI

Senator MCCASKILL. Thank you very much.

Thank you, Mr. Chairman. I want to thank both you and the

ranking member for this invitation. I am honored to be here. In

fact, I would hope that we would develop a strong working relationship. I think there are a lot of things we don’t do right around here;

one of them is we probably don’t work together often enough across

the hall, so to speak. And I would enjoy the opportunity of working

very closely with this committee as we tackle the incredibly challenging job of contract oversight.

I think if there is one thing we can agree on, it’s that we have

to be smarter and better about the way we spend the public’s

money. And we can’t have an honest conversation about restoring

sanity to Federal spending if we don’t take a hard look at Federal

contracting.

There is a dirty little secret about Federal contracting; that is,

there have been times that there has been some bragging going on

about how we have shrunk the size of government. Well, when that

bragging was going on, they weren’t really being honest with the

American people that the reason the government was shrinking in

terms of government employees was not because we were spending

less money, it was because we were contracting.

In many Federal agencies across this government, you can walk

into a large office building and go down, and one cubicle is a Federal employee; the very next cubicle doing the exact same job is a

contractor. Employee, employee, contractor, contractor, employee,

contractor, contractor.

One of the challenges we have is to look at whether or not the

contracting that has occurred in many agencies, whether we’re getting value, whether or not we actually are saving money by the privatization that has occurred, and, most importantly, whether we’re

gaining any efficiencies by that contracting. And that is just in the

area of personal services. I am not even getting to the huge, huge,

mammoth problem of contracting for goods, which—whether it’s in

the Defense Department or any other department, we have a long,

long list of problems that need to be addressed.

Of the 30 areas of government that the GAO Office identified

being most vulnerable to waste, fraud and abuse, 5 have to do with

the management of government contracts in weapons system acquisition management; the Defense Department; contract management

at the Department of Energy’s National Nuclear Security AdminisVerDate 17-JUN-2003 11:52 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68047.TXT KATIE PsN: KATIE
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tration; acquisition management at NASA; and the management of

interagency contracting.

Contracting is also a huge part of at least 10 more areas on the

list, on the High-Risk List, including financial management and

supply chain management at Department of Defense, implementing

and transforming the Department of Homeland Security, and the

Medicare and Medicaid programs. In total, at least half of the most

wasteful, most mismanaged and most inefficient areas of government today involve major levels of contracting.

It will be impossible to have a real impact on wasteful spending

without focusing on the Defense Department. The Defense Department alone is responsible for almost a quarter of the high-risk

areas in GAO’s list. DOD is also responsible for more than twothirds of the government spending contracts. Holding government

contractors and the Defense Department accountable for the way

they spend money will help save the taxpayers real money, and actually will eliminate waste, fraud and abuse, and provide the men

and women in uniform with the resources they need in a fiscally

responsible way.

I would also like to take the opportunity to acknowledge the extraordinary contributions that GAO makes to our efforts through

the High-Risk List and through the thousands of reports they release every year. GAO, along with the many agency inspectors general who work so hard to identify waste, fraud and abuse, are the

best weapons Congress has against wasteful spending. They save

the government more through identifying savings and recovering

money than they cost us. They save us more than they cost us. We

need to make sure they have the resources and tools they need.

In fact, we have a lot of discussions going on, which I think is

very appropriate, about cutting the legislative budget. I support

cutting the legislative budget, particularly when it comes to our offices and our committees. I think we need to be trimming our sails,

just like most of America is trimming where they need to trim. But

we must be careful that we do not trim those agencies that have

the real opportunity of showing us the way to save even more

money.

So I hope that through your influence, Mr. Chairman, and the

influence of the ranking member and all the members of this committee, that we keep a watchful eye out for the resources that we

dedicate to our government’s auditors and, most importantly, to the

Government Accountability Office. GAO’s work should be our road

map for places we need to cut spending and improve the efficiency

of the Federal Government.

The time has come to be honest, to feel the pain and suffer the

political consequences of making hard choices about when and

where the government should spend taxpayer dollars. We should

start with the programs on the GAO’s High-Risk List. That is

where we need to begin because that is where we know things are

not being run well.

GAO acknowledged in their report that the Federal Government

has made progress in many of the areas that they have identified.

Part of that progress can be traced to the congressional actions

taken in the last few years, including the Weapon Systems Acquisition Reform Act and other major pieces of contracting legislation

6

passed in the past few years, some of which originated from the

members of this committee.

Some of the credit should also go to the increase in contracting

oversight from this committee and others, which has helped drive

substantial changes at Federal agencies. In fact, the Obama administration recently announced that for the first time in 13 years,

overall contract spending actually declined last year, but this

achievement cannot be sustained without ongoing aggressive oversight from Congress. It is one of our core responsibilities, which I

know the members of this committee take very seriously.

And when it comes to oversight of government contracting, this

is a bipartisan issue. Many of the agencies and programs on GAO’s

list have been there for decades under administrations of both parties. In the Senate, I have been fortunate to work with true leaders

on this issue on both sides of the aisle, including Senator McCain,

Senator Levin, Senator Lieberman, Senator Collins, and, more recently, the former ranking member on the subcommittee that I

chair. Senator Scott Brown and I were able, through oversight

hearings, to make, I think, a real difference in legislation that you

helped us pass that are going to clean up the disgraceful problems

in contracting that resulted in broken hearts at Arlington National

Cemetery.

I look forward to my new ranking member. Senator Rob Portman

will be the new ranking member of the Contracting Oversight Committee. He is an expert on government. He knows where there’s a

lot of problems that we need to be focusing on, and I am looking

forward to a strong working relationship with him as we move forward on aggressive contract oversight.

In fewer than 2 years, the Subcommittee on Contracting Oversight in the Senate has held more than 15 hearings on government

contracting. These hearings have addressed everything from improvements needed in Federal contract auditing, to Medicare contracts, to, as I mentioned, Arlington National Cemetery. We have

questioned no-bid contracts and loopholes that cost the government

literally billions of dollars. We plan to continue to hold regular

hearings in subcommittee throughout this Congress and fight for

legislation to address the abuses that we find.

But we could hold hearings once a week, every week, for the next

5 years and, frankly, still have plenty of fish in the barrel that we

could shoot. That is why I am so encouraged that this committee

will be continuing your important work in this area. I look forward

to working with you and coordinating with you so that we can be

very efficient in the way that we move forward on contracting oversight. If your committee has a good idea and doesn’t have time on

the hearing schedule, we would love to hear from you. Vice versa;

we will track your work, and if there is something we’re doing that

we think would fit in nicely to some of the hearings that you are

having, I would look forward to that kind of cooperation also.

We have a lot we can do here, and this really ought to be an area

that we don’t need to play political games. This shouldn’t be about

elections. This should be about how good can we make this government, how responsible can we make this government to the people

who pay the bills. And most importantly, we can do better in terms

7

of how we run this government if we actually hold government officials more accountable for the way they’re contracting.

I could tell you horror story after horror story—and I am sure,

Mr. Chairman and ranking member, you could tell horror stories,

too. I will tell you one anecdote that got me fired up, which is why

this subcommittee was created. I went to Iraq on a government

contracting oversight trip. My trip was only to look at the way they

were contracting. I was a brand new Senator; I had come right out

of a government auditing office. I had been the auditor in Missouri.

So I was used to there being processes and procedures in government that made some kind of sense in terms of tracking the money.

I am in an office outside the outskirts of Baghdad, and I am asking about the LOGCAP contract. And any of you who have been involved in oversight of government knows that is the huge contract

that did all the logistical support for our military in Iraq.

The estimate for the first year of the LOGCAP contract when it was let was $700 million. It was a no-bid contract. It was a costplus contract. The first year that they estimated it was going to

cost $700 million, it actually cost $20 billion. They put a

PowerPoint up on the wall, and this poor woman in the room—she

was the only one that didn’t have a uniform on. I knew that she

was the civilian that was in charge of doing all this. They looked

to her to explain what had happened with this contract. And I was

asking, as you might imagine, pretty aggressive questions. So the first year was $20 billion. The second year of spending on the contract went down, I want to say, $16 or $17 billion—and

these figures may not be exactly right, I am trying to remember

them from my memory. And then she went on with her presentation. I was feeling sorry for her, so I wanted to kind of throw her

a bone. So I said, well, can you explain what you did that brought

that level of contract down from $20 billion to $16 or $17 billion?

And with God as my witness, she looked across the table at me and

she said, I don’t know, Senator, it was a fluke. That is when I

knew we had serious and significant problems with contracting,

particularly in the defense space, particularly in contingency contracting.

The Defense Department is doing a little better in Afghanistan

than we did in Iraq. We still have major problems, particularly

when it relates to tracking the corruption issue. But there is plenty

of work for all of us, and I am really honored that you asked me

to come over this morning to be here. And I look forward to any

questions you might have and a strong working relationship in the

future.

Chairman ISSA. Well, thank you, Senator.

We’re going to have very, very little time for questions, because

not only do you have a hearing convening in 10 minutes, but we

have about 6 minutes left on the clock for our own vote.

I would only ask one question—and I think the ranking member

has one also—would you be willing to meet on a bicameral basis

with your ranking member, and other members of your committee,

and members of this committee on a periodic basis if our schedules

can be put together?

Senator MCCASKILL. I think it would be terrific. If we just met

for coffee once a month and talked over what you are doing and

8

what we’re doing and see if we can coordinate, I think it would set

a great example.

Chairman ISSA. We will have coffee, juice, and, if my personal account will settle for it, maybe even a couple of doughnuts.

With that, I’d recognize the ranking member for his question.

Mr. CUMMINGS. Just one quick question.

Senator, do you think the President is doing enough to address

these issues? And what kind of cooperation do you think we will

be able to get from him and his administration?

Senator MCCASKILL. I think Mr. Zients is trying very hard, the

Performance Officer in the White House. He’s really working at it.

I think they’re going to come up with some plans this year that will

surprise people in terms of the way they’re willing to look at organizing government and realizing more efficiencies.

The contracting piece is very hard because it’s so stove-piped.

Part of the problem, as you all know, we don’t have the right data

bases. We have spent so much money on IT and haven’t really gotten a product that allows us to peer into the world of contracting

in an efficient and effective way. I think they’re trying, but I think

they need our oversight to do it better.

Mr. CUMMINGS. Again, I want to thank you.

And, Mr. Chairman, again, I thank you for your courtesy to

make sure that Senator McCaskill was able to testify within her

schedule. But thank you very much.

Chairman ISSA. Well, thank you.

And I apologize to all the other Members, but the Senator has

agreed to come back on an informal basis so that we can really

have the one-on-one that I think will be helpful between the two

bodies.

With fairness to our witnesses, I would swear you in, and then

you would be all by yourself. So why don’t we do this: We’re going

to break. We will come back immediately following the votes. For

all the new Members on either side of the aisle, this is the most

important thing we do every year is to really look at the new HighRisk, which, although cybersecurity is a big one, the $80 billion we

spent in IT and get less than we paid for obviously is important.

We look forward to hearing that.

Senator, once again, thank you for your graciousness.

We stand in recess.

[Recess.]

Chairman ISSA. The hearing will come to order.

Today’s hearing concerns one of the most basic responsibilities of

the Oversight Committee: eliminating wasteful spending and fraud

in the Federal Government. Yesterday’s release of the latest GAO

High-Risk List presents an occasion to renew our focus on this priority.

I look forward to hearing from the U.S. Comptroller Mr. Dodaro

not only about the positive results and developments, but about the

continuing struggle that affects 83 percent of all executive branch

spending.

There really is no celebration for good news possible where we

have a $1.6 trillion deficit, but every dollar saved through elimination of waste, fraud and abuse of any sort that costs the AmerVerDate 17-JUN-2003 11:52 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68047.TXT KATIE PsN: KATIE
9

ican taxpayer money should be applauded, encouraged, and, as

they say in Las Vegas, doubled-down on.

It is my intention to work closely with the GAO and watchdog

groups in the days and weeks to come to ensure that the House

and the Senate do everything possible to have the good news we

will hear about today and the challenges that remain ahead be, in

fact, our highest priority.

With deference to all the other Members who are returning, I

would ask unanimous consent that all Members have 5 legislative

days in order to place their opening statements in the record. Without objection.

The Chair now would like to swear in the first panel. Please

raise your right hands.

[Witnesses sworn.]

Chairman ISSA. Let the record reflect that all members of the

panel answered yes.

Please be seated.

Now, you may feel like the first panel, but my talking points say

I am recognizing the second panel because of the Senator. So it’s

my pleasure to introduce the Honorable Gene Dodaro, who is the

Comptroller of the United States; Ms. Debra Cammer Hines, who

is vice president and partner of IBM Public Sector; Mr. Vincent

Frakes, who is the Federal policy director at the Center for Health

Transformation; and Dr. deRugy is a senior research fellow at

Mercatus Center at George Mason University. Welcome.

And, Comptroller General, you’ve done this so many times, so it

will be for anyone who hasn’t, your entire written statements will

be placed in the record. The goal of your opening statement is not

to read it in its totality, but to use the 5 minutes in a way to enhance or augment. We will not stop you exactly at 5 minutes, but

when it turns red, please find a way to wrap up your oral statements.

With that, we recognize the Comptroller General for 5 minutes.

STATEMENTS OF GENE L. DODARO, COMPTROLLER GENERAL

OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; DEBRA CAMMER, VICE PRESIDENT AND

PARTNER, IBM GLOBAL BUSINESS SERVICES, BETHESDA,

MD; VINCENT L. FRAKES, FEDERAL POLICY MANAGER, CENTER FOR HEALTH TRANSFORMATION, WASHINGTON, DC;

AND VERONIQUE DE RUGY, SENIOR RESEARCH FELLOW,

MERCATUS CENTER AT GEORGE MASON UNIVERSITY, ARLINGTON, VA

STATEMENT OF GENE L. DODARO

Mr. DODARO. Thank you, Mr. Chairman.

Good morning to you, Ranking Member Cummings, all the members of the committee.

I would like to commend you, Mr. Chairman, for holding this

hearing in the committee. It is a good opportunity for us to discuss

our High-Risk List that we keep updated and unveil at the beginning of each new Congress to help set the oversight agenda not

only for the Congress, but also to give the administration a road

map as well as to what areas they should be working diligently on.

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The 30 areas that we have on the High-Risk List right now represent tremendous opportunities to save billions of dollars and, if

actions are taken appropriately, to improve the performance and

accountability of the Federal Government for the benefit of the

American people. So they represent tremendous opportunities. I’ll

highlight a few areas that I think are apropos to this hearing and

will be of interest, and I will be happy to talk about any of the

areas.

First there are the Medicare and Medicaid programs. These are

complex programs that are highly susceptible to billions of dollars

in improper payments. When we first put these programs on the

High-Risk List, there really were no measures of improper payments, and thanks to legislation and administrative initiatives,

now there are estimates of the amount of improper payments. But

the work is just beginning. There is a long way to go to bring these

improper payments and the billions of dollars under control and to

really provide the type of accountability.

A lot will depend on how successful agencies are in implementing

the new Improper Payments Elimination and Recovery Act, which

this committee sponsored and supported. And as you know, that

act introduces a lot more rigor into the statistical nature of the estimates. It lowers the thresholds to make sure more things are reported appropriately. It requires corrective actions and identification of the causes of the improper payments, more rigorous reporting, accountability to be fixed, and it will also require recovery of

those moneys where it’s appropriate and possible to make the recovery. So this legislation has a lot of potential.

I would respectfully recommend that the committee figure out a

way—and I know, I think it’s already in your plans, in your oversight plans—to make sure you followup on how agencies are implementing this improper payments legislation. You know, in some

areas like the Medicare Part D, prescription drug part of Medicare,

there is not even an estimate yet. So the estimates that are being

made to date aren’t yet complete. So this has tremendous potential,

and we would be happy to work with you in doing this. And it also

has potential across government.

The second area has to do with unused Federal property. As we

know, and has been reported, in 2009, the Federal agencies identified over 45,000 buildings, Federal buildings, that are either not

being used or being underutilized. And the government is incurring

an annual operating cost for these buildings of about $1.7 billion

a year. Clearly there is a need to move forward and to dispose of

these buildings properly and eliminate this unnecessary operating

cost. There’s also costly leasing opportunities that could be revisited as well. So that is another target.

Also, DOD weapon systems acquisition. As Senator McCaskill

mentioned, the Congress passed the Weapon Systems Acquisition

Reform Act of 2009, and that included a lot of important reforms

to come up with better cost estimates and also better accountability

in terms of reporting on those areas. But our reviews of the weapon

systems portfolios have shown billions of dollars in cost growth in

those activities and longer periods of time to deliver the weapon

systems. So it’s costing a lot more than was originally expected,

and it’s delaying the implementation of this.

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We made a number of recommendations to better prioritize the

weapon systems portfolio, to put in more diligent business practices

and business cases, technology maturity levels before investments

are made, and also to make sure that there is proper oversight and

control over that whole process.

As Senator McCaskill also mentioned, there are a wide range of

other DOD business practices, whether they be in logistics support,

contract management and other areas, that are also on the HighRisk List, that provide opportunities for more improvement,

streamlining and eliminating the government’s cost.

The bottom line is, Mr. Speaker, there are tremendous opportunities out there for correcting these high-risk problems that we have

identified. Agencies are working on it. I am pleased to report that

we have had a series of meetings with OMB and the agencies on

the High-Risk List and GAO to talk about more specific actions

that need to be taken to come off this list.

Congressional oversight is important. The only areas that we

have taken off the list have been ones where Congress has been

diligent conducting oversight. The two we took off this year, over

a dozen congressional hearings were held on both the census area

and the DOD personnel security clearance area since the time we

put them on the list to them coming off the list.

So it’s a major factor, but you need also top-level agency commitment on the part of the administration. I can assure you that is

going to be a top priority at the GAO to continue to focus on these

activities and to do what we can to try to help be specific, maintain

our independence—we’re not going to take anything off the list

until it’s deserved to be taken off the list. But our goal is to try

to provide as much specificity as we can to how to get these problems fixed and remedied. We can’t afford anymore to have these

problems continue.

So thank you very much, and I look forward to answering questions.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Dodaro follows:]

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Chairman ISSA. Ms. Cammer. Ma’am, is it Cammer?

Ms. CAMMER. It’s Cammer.

Chairman ISSA. Cammer. OK. I will try to keep it correct. Thank

you.

STATEMENT OF DEBRA CAMMER

Ms. CAMMER. Thank you.

Mr. Chairman, Ranking Member Cummings, and members of the

committee, thank you for inviting me to appear before you today

to discuss how the IBM Corp. believes that Federal agencies can

improve their efficiency and reduce costs through the application of

commercial best practices.

My name is Debra Cammer Hines, and I am the public sector

consulting leader for IBM in North America. In that role, I oversee

all of IBM’s consulting activities at the Federal, State and local

level.

Prior to becoming a management consultant, I worked as a Federal credit policy analyst at the Office of Management and Budget.

In this role I performed budgetary, credit, economic and policy

analysis in their review of credit programs across the Federal Government.

We recently authored a report entitled Strategies to Cut Costs

and Improve Performance. The purpose of this report was to help

advance the ongoing national dialog about our Federal fiscal crisis

by offering seven specific initiatives where technology-enabled productivity solutions can make a material difference in the performance of Federal programs.

These seven initiatives include: One, consolidate information

technology infrastructure; two, streamline government supply

chains; three, reduce energy use; four, move to shared services for

mission-support activities; five, apply advanced business analytics

to reduce improper payments; six, reduce field operations footprint

and move to electronic self-service; and seven, monetize the government’s assets.

We estimate that the aggressive implementation of these seven

initiatives can generate $1 trillion in savings over 10 years. These

savings would be generated through improved performance rather

than through program reductions or tax increases.

Federal agencies, and State and local governments for that matter, spend a great deal of energy collecting and disbursing funds.

They collect taxes and fees from citizens and businesses, and they

disburse funds to organizations and individuals through a wide variety of programs. These activities generate large volumes of transactions, and, as a consequence, they are vulnerable to both honest

mistakes in administration as well as intentional efforts to defraud.

The good news for governments at all levels is that these types

of programs lend themselves to what we call predictive analytics.

So to put it simply, predictive analytics is a collection of statistical

techniques that when applied to a large number of transactions

being processed through a standard business process can reveal

patterns that are indications of fraud, abuse, or simply poor management.

Several Federal agencies apply predictive analytics today, most

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ices. However, we believe that deeper investment in these techniques and the broader applications of the lessons that have been

learned in private-sector settings can improve the performance of

these efforts and yield significant new savings.

Let me describe one example of how the application of these

types of tools is already generating real results. The State of New

York hired IBM after the State’s tax department estimated it was

losing $1 billion annually in improper tax refunds. IBM built a predictive model that scores every refund request on the likelihood

that it was valid. The 4 percent of returns deemed the most questionable were rejected outright. Investigators examined others considered high-risk to decide whether or not they were valid. And

over the last 6 years, the State has denied $1.2 billion in improper

refunds, even taking into account the successful appeals. Today the

State continues to run the program on its own. And we have similar programs with other States and local governments that I would

be glad to share.

It is important to note that many Federal agencies are focused

on these issues and are making important strides. OMB, for example, should be applauded for working in partnerships with the

State and Federal agencies and others to identify innovative ways

to reduce improper payments, improve administrative efficiency,

enhance service delivery, and reduce access barriers to federally

funded State-administered benefits programs. More can and should

be done.

Thank you.

Chairman ISSA. Thank you.

[The prepared statement of Ms. Cammer follows:]

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Chairman ISSA. Mr. Frakes.

STATEMENT OF VINCENT L. FRAKES

Mr. FRAKES. Chairman Issa, Congressman Cummings, and members of the committee, thank you for holding this hearing today

and inviting me to participate.

My name is Vincent Frakes, and I am the Federal policy director

at the Center for Health Transformation.

Decreasing—and hopefully eliminating—waste, fraud and abuse

in our health care system is vital to improving the quality of care

and lowering health care costs. The Center for Health Transformation has worked extensively on these issues and with many

of our members to find solutions to this dilemma. Fraud and abuse

places a massive burden on government, and consequently on

American taxpayers.

On Monday, President Obama released his budget for the upcoming year. In his budget, the President noted that the gross Federal

debt will exceed $15 trillion this year, which is equal to the size

of the entire U.S. economy. This is unsustainable.

A recent Thomson Reuters study found that between $600 billion

and $850 billion of health care spending annually is wasted, and

up to $175 billion of that is pure fraud. Fraudulent and wasteful

spending is low-hanging fruit that can and should be used to reduce this debt.

There is broad bipartisan consensus that fraud and abuse within

Medicare and Medicaid must be addressed and can make a significant dent in our Nation’s government spending. Unfortunately, little has been done to curb these harmful practices.

Outright criminality imposes the largest and most high-profile

burden on the system. Crooks have figured out how to game the

system, and they must be stopped. Take, for example, an Orange

County, California, cancer doctor who was charged in April of last

year with fraudulently billing Medicare and health insurance companies close to $1 million for administering injectable cancer medications that were never provided, or the Miami-area clinic consultant who was convicted last May of health care fraud in connection

with a $5.8 million Medicare scheme in which the clinic was falsely

claiming to administer HIV injection and infusion treatments.

Countless examples of these types of fraud exist around the country, and their practice must be eliminated. Doing so could save the

government and the American taxpayers more than $1 trillion over

the next 10 years. Unfortunately, the vast majority of these crimes

go undetected.

Medicare and Medicaid are designated as high-risk programs by

the GAO, and their improper payment rate exceeds 10 percent.

Compare that to the less than one-tenth of 1 percent fraud rate

that exists in the credit card industry, which conducts more than

$2 trillion annually in transactions and has nearly 1 billion credit

cards in circulation. The primary reason for this success is utilizing

real-time technology that prescreens payments before they go out

the door. CMS would be wise to learn from these private-sector successes.

There are three concrete solutions that can be taken immediately

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sis that we find ourselves in with these programs. First, we must

incorporate private-sector solutions to identify, monitor and ultimately prevent fraud and abuse. Companies like Humetrics and

NCN are on the front lines of utilizing data-tracking models to

head off fraud and errors on the front end in order to save the private and public payers significant amounts of money on the back

end. There is no reason that these same systems can’t be utilized

at the Federal level as well.

Second, we must introduce significant changes to the current system of electronic data tracking and data sharing across jurisdictions and departments. That includes utilizing a single, unified depository of information to reduce wasted resources that are expended on cross-referencing potential crooks. Real-time data tracking can identify irregularities at a moment’s notice across State

and provider venues.

Third, we must institute a comprehensive and transparent model

of supplier approval and fraudulent claims administration, as well

as encourage the implementation of more intelligent systems and

schemes to reduce waste and fraud in the system.

There are many more steps that can be taken, as my written testimony explores, but these are first and foremost in terms of importance.

Not only do we need to aggressively attack the roots of fraud and

abuse in the system, but we also need to solve the primary reason

for waste, and that is defensive medicine. One major reason that

providers order unnecessary services is due to the fear of potential

legal action. Predatory litigators cause physicians to practice defensive medicine, ordering far more tests and providing far more services and procedures than are necessary. This drives the cost

through the roof.

Jackson Health Care and Gallup recently released a poll of physicians where physicians said that more than a quarter of all

health care services that they deliver, more than $600 billion a

year, are unnecessary and delivered solely to reduce their liability

risks.

Congressmen Gingrey, Lamar Smith and David Scott recently introduced H.R. 5, the HEALTH Act—which you co-sponsored, Mr.

Chairman, as did other members of this committee—that includes

meaningful medical liability reforms while strengthening the doctor-patient relationship. This reform is a critical step to eliminating

defensive medicine, lowering costs, and expanding access to care.

Waste, fraud and abuse run rampant in our Nation’s health care

system, but with fundamental changes in how government uses

technology, properly screens providers, involves law enforcement

and incorporates legal reform, we can save trillions of dollars and

fundamentally transform our health care system to one that delivers more choices of better quality at a lower cost for every American.

Thank you very much. I look forward to your questions.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Frakes follows:]

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Chairman ISSA. Dr. de Rugy.

STATEMENT OF VERONIQUE DE RUGY

Ms. DE RUGY. Chairman Issa, Ranking Member Cummings, distinguished members of this committee, thank you for the opportunity to come before you today to testify.

My name is Veronique de Rugy. I am a senior research fellow at

the Mercatus Center at George Mason University, where I study

tax and budget issues.

Fraud, waste and abuse are indeed problems worthy of congres- sional attention. However, the $125 billion in overt waste that

comes from improper payment pales in comparison to the waste

that exists in current congressional spending patterns and the economic damaged caused by the misallocation of capital and the creation of perverse incentives.

First, this waste occurs when the Federal Government spends

money on private-sector functions. Having the government run

businesses such as Amtrak and overseeing infrastructures such as

the air traffic control system is not just inefficient, it also hinders

economic growth and costs the taxpayers money while providing

low-quality service to customers.

Second, this waste also occurs when the Federal Government

spends money on functions in the purview of the States. President

Reagan wrote that ‘‘federalism is rooted in the knowledge that our

political liberties are best assured by eliminating the size and scope

of the national government.’’ Sadly, Congress has ignored this advice and is now spending $500 billion in grants to States for activity that it has no legal or practical reason to be involved in, such

as healthy marriage promotion and museum professional training

grants. It is inefficient and creates an unacceptable lack of accountability.

The waste also occurs because when lawmakers are busy running State, local and private affairs, they have less time to oversee

Federal agencies and focus on critical national issues such as defense and security.

But the largest and most recent example of wasteful Federal

spending occurred under the American Recovery and Reinvestment

Act. Much of the money in the bill was spent, and yet unemployment hovers around 9 percent, higher than the 8.8 percent unemployment rate that the administration threatened the country

would face if Congress did not pass the gigantic stimulus bill.

Evidence like this just confirmed what many scholars had predicted all along: Government spending can’t jump-start an economy. As a result, many have concluded that the stimulus package

was a waste. The practical realities witnessed by the American taxpayers bear out the academic truth: The stimulus spending did not

deliver on the promises made, unemployment remains high, and it

has saddled the country with more debt.

What would increase employment and stimulate economic growth

is investment, private investment, not government spending labeled as investment, but the American companies are not investing

their capital, and some $1.8 trillion in capital is sitting on the sideline. Why? Because entrepreneurs and risk takers are acting very

cautiously out of fear of the future.

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Economists and the business community agree, recent policy

changes have hampered business investment, making a bad situation worse. The prospect of endless future debt and deficit raises

the threat of increased taxes and government crowding out capital

markets. Uncertainty prevails. As a result, U.S. companies don’t

build new plants, they don’t conduct research, and they don’t hire

people. People stay unemployed for weeks, months, years.

You are the representatives of the American taxpayers. You are

the stewards of the Nation’s finances. You want the economy to

grow, you want people to be employed, then you must realize that

the Federal Government cannot be and should not be the solution

to every one of our problems.

There are things that only the Federal Government can do, but

when the Federal Government gets involved where it shouldn’t be,

it wastes capital, time and taxpayers’ money. Understanding this

will guide you in making hard decisions about where to cut spending. However, it also means that you must put all spending on the

table. Congress needs to make sure that no area of the budget is

untouchable, not entitlements, not defense spending. All parts of

the budget must be on the table for review and potential cuts.

Finally, you need to put in place now serious, strict and unavoidable budget rules that tie Congress’ hand and restore fiscal discipline. With such reform, the American people will start having

confidence in their future again, and the country will be on the

road to recovery and prosperity.

Thank you for your attention, and I am looking forward to your

questions.

[The prepared statement of Ms. de Rugy follows:]

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Chairman ISSA. I first want to thank all of you for being very,

very close to that 5 minutes.That is pretty close to a record.

I recognize myself for 5 minutes.

You each gave a different perspective. In 5 minutes, it’s going to

be hard to go through all of them, but I am going to start with Mr.

Frakes.

When you gave those numbers, one of the things I found interesting is you went through defensive medicine as a major part, and

that is beyond the scope of, perhaps, this committee—other committees will be dealing with it—but when you looked at the $178

billion in outright payments for either procedures that didn’t occur

or even in some cases to entities that weren’t even what they

claimed to be, what do you believe—or has your organization studied what you believe it would cost the Federal Government to avoid

all or part of that? Where is the sweet spot? Would $1 billion in

a system to attack that kind of waste or that kind of false payments yield far more than $1 billion?

Mr. FRAKES. Certainly. We have seen it through the private sector, through IBM and others, that if you put in money on the front

end, it will yield significant results and much greater results in the

back end.

When I am talking about putting in money at the front to really

curb this idea of stopping suppliers and checking things before they

go out the door, you are going to see a massive increase in the

number of drops in numbers of fraudulent payments, fraudulent

suppliers that exist to the tune of—if anything, if you put in $1 billion, you are going to see a much higher yield. Those numbers are

not insignificant, and they’re going to be incredibly influential in

terms of cutting things off.

There is this thought out there that if you apply to be a Medicare

or Medicaid supplier, that you are automatically granted that, and

that is simply not the case. We need to be doing a much better job

of putting in front-end money that will yield much higher savings

as a result of cutting off fraudulent suppliers and so forth.

Chairman ISSA. Comptroller Dodaro, you are familiar with the

recovery organization’s efforts, their Web site and their data base

management. My understanding is that was a couple of million dollars, and they have found like $80 million in one example only of

what would have been the losses of Medicare fraud in which the

organizations that were doing it had actually stolen doctors’ identification and so on.

Can you comment a little bit on how do we get from you and

other watchdog organizations—how do we get the numbers so that

we can find a way to fund programs similar to Chairman

Devaney’s?

Mr. DODARO. I would be happy to provide some additional details, but what I would say is that I agree completely that an upfront investment targeting certain areas that you know that have

high rates of issues, like home health services, for example, and

other areas, to put controls in up front would be a very appropriate

investment to be made. We have made recommendations along

those lines. We’re looking at prepayment controls right now——

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Chairman ISSA. But prepayment controls are a big step. That is

sort of back to that $80 billion that we can’t seem to get well spent

in IT expenditures.

My real question here and why I picked that 100—there are all

kinds of numbers, in fairness. I’ve seen it as low as $70 billion, you

know, just a rounding here, I guess, all the way up to approaching

$200 billion in payments made in Medicare for services not provided, or in many cases provided to entities that were not even

what they said they were.

How do we attack that in a way—and I am specifically looking

at Earl Devaney’s work, because that wasn’t even in his main target, but because stimulus funds were used there, he was able to

stand up—and I believe it was less than $2 million, and he has already headed off a scam that was just an anecdotal analysis.

How do we get, with GAO’s help hopefully, the ability for this

committee to make a case to Congress at a time in which it seems

like we’re cutting to make—and perhaps that $2 million is

enough—but to make that kind of investment and then score the

savings so that if we spend $5 million to save $500 million, we then

see the opportunity to spend 10 times that to save 10 times that?

Mr. DODARO. No, I understand what you are saying, and I agree

with that. I mean, we can work with Earl. I think that we’re going

to try to use his system in the health care area on an experimental

basis and to try to come up with some proposals for that detection

kind of capability up front with the relationships between different

entities and the screening that was done. So we would be happy

to try to come up with a proposal that we could discuss with you.

Chairman ISSA. Ms. Cammer, if I could just ask you one question

as the private-sector representative here. If we were able to score

it, do you believe the private sector, the way they have in the past

with the IRS, would they—do you believe the private sector would

be interested in working on, if you will, a bounty system, one in

which it costs nothing to the government unless we save many

times that?

Ms. CAMMER. Yes. So what you are talking about is an example

of what we did with the State of North Carolina that we’re operating right now with their Medicare and Medicaid payments. And

so we have implemented that——

Chairman ISSA. My time has expired, so just briefly what have

you saved?

Ms. CAMMER. Yes. So it’s an outcome-based approach. So that

has just started, and we have identified opportunities for them to

go after that. And I don’t have the number right in front of me,

but I believe it’s in my written testimony.

Chairman ISSA. But you only get a small part of whatever they

claim.

Ms. CAMMER. We get 10 percent of what gets identified, yes.

Chairman ISSA. Thank you.

I recognize the gentleman from Maryland.

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

All of your testimony is fascinating and is so very, very important.

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First of all, let me go back, Mr. Dodaro, to something Senator

McCaskill was talking about. You were here when she was testifying?

Mr. DODARO. Yes.

Mr. CUMMINGS. You’ll recall that she said basically, don’t cut

your nose off to spite your face with regard to funding for agencies

like yours. Are you satisfied with the funding that you have to do

your job? You are going to have to answer that quickly, unfortunately, because I’ve got a lot of questions.

Mr. DODARO. Basically I requested, given the fiscal situation in

the country, that our funding level be kept flat at 2010 fiscal year

levels, and I would be satisfied if our funding was kept at that

level.

Mr. CUMMINGS. Thank you.

Another question is during your testimony you talked about the

agencies that you were able to take off the list, and you said that

you saw something very interesting in that they seemed to have

come under the most scrutiny by the Congress. Is that a fair statement?

Mr. DODARO. Yes. There was sustained congressional attention in

both of those areas.

Mr. CUMMINGS. And, Mr. Chairman, what he just said I think is

so crucial. We saw that with regard to the Coast Guard. When we

stayed on top of them, we got it done and got it done in a little

bit of time, saving millions of dollars in a short period of time because it was a sustained effort.

Federal contracting has expanded over the last 10 years to over

$500 billion. According to your report, GAO has included the Defense Department’s contract management on the High-Risk List

since 1992. DOD weapon systems acquisition and supply chain

management have been on the list even longer, since 1990.

Mr. Dodaro, is anyone able to quantify how much of DOD’s contracting budget over these past 20 years has been lost to waste,

fraud or abuse?

Mr. DODARO. I am not aware of any estimate of that nature.

Mr. CUMMINGS. And one of the things that made me realize—and

I said this to the Coast Guard folks—I believe that we were caught

up in a culture, that is, the Coast Guard was caught up in a culture, of mediocrity. And then when I saw a statement by Secretary

Gates, it made me wonder about our Defense Department being

caught up in a culture of mediocrity when it comes to these kinds

of issues, particularly on contracting out. Secretary Gates said, ‘‘I

can’t get a number on how many contractors work for the Office of

the Secretary of Defense.’’

Are you surprised by that statement?

Mr. DODARO. No, I am not.

Mr. CUMMINGS. That is sad, isn’t it?

Mr. DODARO. I think that there is plenty of room for improvement in the Defense Department’s business areas. For example,

they’re one of the few, and the largest, departments that has yet

been able to get a financial audit and an unqualified opinion. I

mean, they are in need of some major reforms and better data in

order to manage by.

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Mr. CUMMINGS. I am going to go back to something Ms. Cammer

said. You know, I was telling my staff you’ve done a great advertisement for IBM, and I am just wondering why, and following up

on what the chairman was asking about, is there any way we can

incorporate, and is there anything that Congress can do, Mr.

Dodaro, to incorporate those kind of things?

One of the things that Devaney has said to our committee, he

said, I want to stop the fraud before it happens. I will never forget

him saying that: I want to stop the mismanagement before it happens. And I think he has probably done that. So is there any way

we can do those kinds of things, the kinds of things that some of

our other witnesses talked about from the very beginning? Are you

following me?

Mr. DODARO. Yes.

Mr. CUMMINGS. And what would it take us to do that? What

would we need?

Mr. DODARO. Well, I think you need to have well-developed plans

with the agencies. Part of this is changing the culture shift from

a pay-and-chase type of an approach. And there was a lot of emphasis on getting the money out the door fast and not always with

screening it up front. So changing that cultural shift, putting some

additional requirements in place, and well-targeted investments

that are developed and tailored to the programs.

Mr. CUMMINGS. Going back to DOD, we have a situation where

we have private contractors—and we saw this in the Coast Guard.

You’ve got private contractors being hired to oversee private contractors, which, again, that goes to that culture of mediocrity. Does

that make any sense? And how can we get around that?

Mr. DODARO. That definitely increases the risk. And part of the

problem is the contracting amounts of funds at DOD have gone like

this. The acquisition workhouse has been relatively flat. They

haven’t adapted to have the right type of oversight. Part of the

problem is you can never contract out the government’s decisions

and what the requirements ought to be and then provide an effective oversight over that area. The lack of definitive requirements

is something we see time and time again, and changing requirements, and not applying a good business practice, and having a

good business case in the beginning before the investments are

made or the contracts are let.

Mr. CUMMINGS. I see my time has expired. Thank you, Mr.

Chairman.

Chairman ISSA. The gentleman from Texas Mr. Farenthold.

Mr. FARENTHOLD. Thank you very much, Mr. Chairman. I had a

couple of questions.

My first question is we’re talking about billions of dollars in

fraud and waste. And I think I know the answer to this question,

but I’ve learned in government it’s better to ask the question.

When you are scoring the amount of waste, let’s say we’re writing a check to somebody for $1 million and 96 cents, and it really

should have been $1 million and 69 cents. We’re counting that as

a 27-cent error and not a million-dollar error in those numbers,

right? I just want to make sure we really are chasing the really big

dollars.

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Mr. DODARO. Well, I think the amounts that we have mentioned

in our report are the right estimate.

Mr. FARENTHOLD. So that is the actual cost to the government

and not the aggregate dollar amounts.

Mr. DODARO. Right.

Mr. FARENTHOLD. There is some error in there.

Mr. DODARO. Yeah, there could be some error in there. And some

of the estimates for the Medicare and Medicaid program, for example, some of the improper payments are based upon incomplete documentation or not having enough documentation, but a lot of it is

for medically unnecessary services, or people receiving money are

not eligible.

Mr. FARENTHOLD. OK. And I think Medicare and Medicaid is

probably a right target. We talked about using software. We have

an abysmal record with IT in the Federal Government. I think that

comes from the fact that we don’t try to use off-the-shelf products;

we come up with our own—I am going to use the word ‘‘ridiculous’’—specifications rather than trying to squeeze something into

an existing product. I realize balancing the Federal budget isn’t

like going out and buying World of Warcraft at Best Buy, but it

seems like, for instance, in Medicare and Medicaid, there ought to

be something already developed out there by the private insurance

carriers who are doing pretty much the same thing.

Do you see some advantage in doing that? And maybe I should

direct this to the lady from IBM. I mean, is there a product? I

mean, can we just go plug this stuff into your Cognos product and

just start working at it?

Ms. CAMMER. Yes. I mean, there is a solution, so I don’t want to

say it’s a product. So it’s a solution that exists that we have been—

like I said, in North Carolina. I also want to let you know that

CMS has recently issued a Request for Proposal to do exactly what

we’re talking about, to do it before it gets paid, leverage analytics

and IT that do predictive analytics around what gets paid.

Mr. FARENTHOLD. All right. And I’ll yield back the remainder of

my time with just the comment that I really think part of what we

need to be doing is looking for off-the-shelf solutions we can plug

into rather than trying to develop something custom for ourselves.

That always tends to be much more expensive.

Thank you.

Chairman ISSA. Would the gentleman yield?

Mr. FARENTHOLD. Sure.

Chairman ISSA. Mr. Dodaro, one quick question. We haven’t

asked you to talk about the cyber threat of both dollar waste and

failure. Could you comment on that for a moment for all of us? A

lot of people are just getting up to speed on that.

Mr. DODARO. Yes. This is a very important issue. I am glad you

asked me that question.

We put computer security across the Federal Government as a

high-risk area in 1997 because of concerns we had. It was the very

first time we designated something across the whole Federal Government as high-risk. And the risks continue to escalate. And the

Federal agencies do not have good, comprehensive systems with access, control, segregation of duties, comprehensive security programs. In 2003, we expanded it to critical infrastructure protection,

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the energy grid and other areas. And the incidents that are occurring and are reported are going higher.

The Federal Government needs to have a better public-private

partnership with the private sector. Since most of the assets are in

the private sector, there needs to be more early warning and detection capabilities. This is a very important area. I was glad to see

that the President commissioned the study, but our review of the

study shows that of the 24 recommendations, only 2 have been

fully implemented to date.

So there is a road map—clear roles and responsibilities, partnership with the private sector. This is a terribly important area, and

we’re concerned about it.

Chairman ISSA. Thank you.

Does the gentleman yield back?

Mr. FARENTHOLD. I do.

Chairman ISSA. The gentleman from New York is recognized Mr.

Yarmuth.

Mr. YARMUTH. You got me in the wrong State, but that is OK.

I am not from New York.

Chairman ISSA. Oh, I am sorry. They write it down, and I read

it. I am sorry, Kentucky.

Mr. YARMUTH. I know everything east of California is all messed

up, but——

Chairman ISSA. You know, Mr. Kucinich often reminds me I was

from Cleveland before I was from California. But the gentleman

from Kentucky.

Mr. YARMUTH. That is quite all right. Thank you, Mr. Chairman.

Thank you all for your testimony.

Mr. Dodaro, I wanted to talk with you about one of the categories

that you’ve added to the High-Risk List, and that is the revenues

from oil and gas leases. According to your report, that is actually

one of the largest income—nontaxed income sources of the government, about $9 billion in 2009. And just a couple days ago you

wrote an op-ed in the New York Times and you wrote, ‘‘In fiscal

years 2006 and 2007, we found that much of the data reported by

oil and gas companies appeared erroneous, resulting in millions in

uncollected fees.’’

Do you have any sense of how long the oil and gas companies

have been misreporting their production?

Mr. DODARO. I am not sure off hand how far back that goes. We

did update that work in 2009 and found still continued data inaccuracies in the system. We also looked at Interior’s efforts recently

to verify the production numbers of oil and gas production and

found problems with that as well.

The other point I would add on this is that the assessment system generally hasn’t been looked at in the last 25 years, and we

have made recommendations there because when the Federal Government was compared to other countries and even some States, it

was relatively low in terms of what it was charging. Interior has

a study under way, and they’re due to produce it this year.

Mr. YARMUTH. Do you have any estimate of how much this may

have cost the taxpayers?

Mr. DODARO. Not off hand.

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Mr. YARMUTH. In your examination of the data from 2006 and

2007, what company did you find to have underreported and underpaid the most?

Mr. DODARO. I am not sure. I would have to provide that for the

record if we have it. I’d be happy to do so.

Mr. YARMUTH. I’d like to make a request that you would do that

and provide a list of the companies that have underreported and

therefore underpaid. I appreciate that.

[The information referred to follows:]

[NOTE.—The information was not provided to the committee.]

Mr. YARMUTH. Mr. Frakes, I want to just ask you a question. You

made a comment about the amount of medical services provided

basically as defensive medicine, and I think you mentioned the

number 25 percent possibly?

Mr. FRAKES. Yes, that is correct.

Mr. YARMUTH. Where does that number come from?

Mr. FRAKES. It came from a study that was conducted between

Jackson Health Care and the Gallup organization.

Mr. YARMUTH. And there are studies that show that number is

considerably lower than that, isn’t it? I mean, I think we all agree

that there’s a lot of service being provided that’s probably unjustified, but attributing it to medical malpractice, there are numbers

that are considerably lower than that, aren’t there?

Mr. FRAKES. I guess what we’re going off is that study. And the

interesting thing about that study was the fact that it was done in

private, it was something that was anonymous, so that the physicians felt compelled to answer under anonymity, and so they were

given that cloak. And so we would like to think that number is the

most accurate number, given that.

Mr. YARMUTH. I’ve had doctors stand up in front of a room full

of people and admit that they practiced defensive medicine, which

also is potentially admitting Medicare fraud as well, but they do it

anyway.

But to pursue that question just a little bit further, would ending

the fee-for-service compensation system deal with that issue of

medically unnecessary procedures and so forth; would that help

contribute to reducing that number as well?

Mr. FRAKES. It certainly would in the sense that providers would

feel the need to move more toward an outcome-based system. I

mean, that is something that we at the center talk a lot about, that

idea of as you increase incentives for outcomes for physicians, not

only does the cost go down, but the care goes up, and physicians

also would not feel the need as much to practice that level of defensive medicine, certainly.

Mr. YARMUTH. One question—and this is just purely informal,

Ms. Cammer—on the issue of the payments going out the door,

stopping the payments before they go out the door, one of the complaints that I hear consistently—I am sure we all do—from medical

providers, doctors, hospitals, and so forth is that they wait a long

time for their money to begin with. And because of—their assessment—their characterization of dealing with very low profit margins anyway, the wait of 90 days or 120 days is already stretching

them, pressuring them. How much more delay, or would there be

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more delay, based on the kind of theory of approaching payments

that you have given us?

Ms. CAMMER. We’re at the point now, through leveraging technology to do predictive analytics, that you can get closer to realtime reviews of those, so you could really speed it up.

Mr. YARMUTH. Could speed it up. OK.

Thank you, Mr. Chairman. I yield back.

Chairman ISSA. I thank the gentleman.

The gentleman from Pennsylvania Mr. Kelly.

Mr. KELLY. Thank you, Mr. Chairman.

Ms. de Rugy—am I saying it right? OK. I was really intrigued

by what you talked about. You seemed to have a really direct response to what is going on.

Now, the President the other day was talking about all this capital that is sitting on the sidelines, and businesses aren’t investing

it, which leads to the premise that the only way to get out of this

situation is for the government to borrow more money and spend

more money. Could you expand a little bit on that? Because there

is a guy right now—I am an automobile dealer, and I’ve been encouraged to build another building. And the point that I have, it’s

very difficult to borrow money from banks right now for small business people.

So while this money is sitting on the sideline, please give me an

idea of this philosophy that the government has to just keep borrowing and borrowing and borrowing money to get us out of this

dilemma. If you could, just expand a little bit on your comments,

because I think you are hitting right where we need to hear this

information.

Ms. DE RUGY. Thank you. It’s a great question.

I think I’d like to remind people that the Federal Government

has already done this, borrow a lot of money and pretended to invest in our economy to jump-start it, and it has not worked.

This money on the sideline is a real direct product of all the uncertainty that is inserted into an economy when the Federal Government spends massive amounts, because individuals and entrepreneurs are pretty rational, and they understand that spending

today or borrowing today means taxes tomorrow. I mean, also there

were a lot of new regulations going in, so it induced a lot of uncertainty. And that is what this money on the sideline is. It’s like why

am I going to actually invest money today, hire people, when I

don’t know what is going to happen? I don’t know whether I am

going to have customers.

So I think, I mean, the uncertainty is the key to everything, and

the more the government does with creating the uncertainty, the

more uncertainty we will have, and the less we will recover.

Mr. KELLY. OK. Let me ask you, this $814 billion stimulus bill—

and we describe it as waste—are there any parts of that you

thought were worthwhile?

Ms. DE RUGY. I think the part about unemployment benefits, I

think, as a society, pretty wealthy, we can afford to help people

who are deeply in need to some extent. However, the economic literature was very clear that this was not going to work because,

while the government invests money, the money has to come from

somewhere. There is no magical source for Federal funds. It has to

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be taken from the economy. And it doesn’t have the return on investment that the administration claimed it was going to have.

Mr. KELLY. The whole drive was to spend this money, because

if we didn’t spend it, we were going to see unemployment rise

above 8 percent. So it goes to 10 percent.

Now, let me ask you, at some point people knew this wasn’t

working. Where could we have said, hey, wait a minute, this is

crazy? What are we doing? We’re throwing a lot of money out

there. We haven’t spent it out all yet, but then there is this mad

rush to spend a lot of money because we said it was going to work.

And we continue to see that it’s not working, and we’re following

this Judas goat and saying, yeah, just spend more, we’re going to

be OK. Borrow more, spend more, at some point it’s going to break

for us.

Now, at some point it’s going to break, but I don’t think it’s going

to break the right way. It’s going to break truly in the sense that

it is going to break.

Ms. DE RUGY. I agree with you. I actually would have argued

that it was a bad idea to do it in the first place. And there was

a lot of evidence. It hasn’t worked in the 1930’s, it hasn’t worked

in the 1970’s, and it hasn’t worked now.

Now, the other thing is that it’s not only spending in the form

of the stimulus bill, it’s all the spending that took place in the last

10 years, in the last 20 years, in the last 30 years. I mean, there

has been a lot of spending. If it worked, we wouldn’t be in this

mess in the first place. And I think we need to change paths.

And we are talking about waste, and we need to realize that

waste doesn’t just come in the form of overpayments and earmarks,

it also comes in the form of the Federal Government putting its finger everywhere in the private sector where it shouldn’t be to prop

companies that are failing, which is a drag on the economy, this

propping up those companies; or to give money to companies who

are actually succeeding, which is totally useless. Like when the

Federal Government gives money to the States when it shouldn’t

be, this creates waste.

We need to change paths and start thinking directly about what

wasting government spending means.

Mr. KELLY. And I appreciate your testimony. I wish we had more

time, but I’ve got to tell you that when you add the Federal Government and then the State and local governments, when we start

to talk about how we’re attacking our GPD and the amount of

money that we’re wasting through government, it’s way over the

top. So thank you for being here today, and I really appreciate your

comments.

And I yield back my time, Mr. Chairman.

Chairman ISSA. Thank you.

We now recognize the gentleman from Cleveland, Ohio, Mr.

Kucinich.

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

Over the past few days, Members of this House have voted on

amendments to the CR which will severely cut or entirely eliminate

government entities or programs which provide critical assistance

to the most vulnerable Americans. Some amendments which have

already passed eliminate funding for research in some of our NaVerDate 17-JUN-2003 11:52 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68047.TXT KATIE PsN: KATIE
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tion’s most consistently pressing social and economic issues. To my

knowledge, none of these existing programs appeared on the GAO’s

list of government programs at high risk of waste, fraud and abuse.

In the meantime, numerous Department of Defense initiatives,

and specifically DOD contracting, ranked prominently in the GAO

High-Risk Report as programs that remain very susceptible to

fraud and abuse. The report states that there are ‘‘significant ongoing problems’’ and ‘‘persistently poor program outcomes’’ in the Department of Defense’s inability to perform detailed audits of major

defense acquisition programs. It notes that for fiscal year 2009, for

example, the DOD obligated $372 billion in contracts for goods and

services, and yet that the contracting is hampered by ‘‘the lack of

well-defined requirements, the use of ill-suited business arrangements, and the lack of an adequate number of trained acquisition

and contract oversight personnel.’’

I have a copy of a letter sent November of last year by eight individuals who represent more than 300 years of experience with the

Defense Department budget, weapons and military operations.

And, Mr. Chairman, I ask unanimous consent that a copy of the

letter be entered into the record.

Chairman ISSA. Without objection, so ordered.

[The information referred to follows:]

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Mr. KUCINICH. Thank you.

This letter was sent to Erskine Bowles, the cochairman of the

President’s National Commission on Fiscal Responsibility and Reform. These eight individuals implore Chairman Bowles to take the

opportunity to make reform of the Defense Department budget a

centerpiece of their effort to create a model for deficit reduction.

‘‘The Pentagon cannot track the money it spends. Routinely,

DOD does not know if it has paid contractors once, twice, or not

at all. We recently learned it does not even know how many contractors it has, how many they employ, and what they’re doing.’’

In sharp contrast to almost every other Federal agency, the Pentagon has failed to comply with the Chief Financial Officers Act of

1990, which sought to solve this problem by requiring the Pentagon

and other Federal agencies to pass annual audits of the links between their expenditures and legally enacted appropriations authorizing these expenditures.

So, Comptroller General Dodaro, can Congress be sure that budget requests from the Pentagon reflect the Department of Defense’s

actual costs?

Mr. DODARO. As you mentioned, there has been an inability to

have the books of the Pentagon, aside from the Army Corps of Engineers and the military——

Mr. KUCINICH. Well, let’s talk about everything else except the

Corps.

Mr. DODARO. Right. They have not been able to pass the test of

an audit, so it’s not clear there is accurate accounting of what the

expenditures——

Mr. KUCINICH. Isn’t it true that you would have to be able to

audit them to know if their costs roughly match up with their requests?

Mr. DODARO. It would be important to have that information as

adequate assurance that the costs were there, yes.

Mr. KUCINICH. Right. So if we don’t have accurate tracking of

DOD payments to its contractors, much less how those contractors

spent those moneys, is it even possible to know if the DOD budget

request is being lost to waste, fraud or other abuse?

Mr. DODARO. Well, there would be a degree of uncertainty that

you wouldn’t necessarily want to have in making those kind of

judgments. But basically the allocations that are made are tracked

through budgetary systems that aren’t audited either.

And I would note that the Department is first now starting to

audit the budget numbers that are allocated against the costs. I

think that is a good step and a step in the right direction and

should eventually provide the type of assurance that you are looking for.

Mr. KUCINICH. When I first came to Congress, I was told that the

Department of Defense had over 1,100 individual accounting systems, and also that they had over $1 trillion in accounts that they

could not track or reconcile. I just am hopeful that those who have

the responsibility for oversight of the auditing part will pay attention to that, and hope that you take that message back as well.

Mr. DODARO. I will do that. In fact, of the main reasons we can’t

provide an opinion on the audited consolidated financial statements

of the U.S. Government is because of the Department of Defense’s

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pervasive financial management practices and procedures. And so

we have been trying to work with them. They’ve got some shortterm priorities now to focus on auditing the budget numbers and

asset accountability issues, which I think is a good starting point,

but they have a long way to go.

Mr. KUCINICH. Well, I am hopeful, Mr. Chairman, that this committee, as part of its oversight responsibilities, will have the opportunity to go deeply into some of these questions related to the Department of Defense’s spending. Thank you.

Chairman ISSA. Would the gentleman yield?

Mr. KUCINICH. I certainly would.

Chairman ISSA. I might share with you when I was in the Army,

during that period of time they decided they would find out how

many rail cars they had, so they did an audit and came up with

about 25 percent of them missing. Then they did a walk-down

audit and found how many had been repainted over the years to

company names because they didn’t have to explain to the Army

or the military that they were missing, but there would be hell to

pay if they lost one belonging to a company. So this is not a new

problem. I look forward to working with you on solving this longterm problem of a lack of accountability at DOD.

Mr. KUCINICH. I want to thank the gentleman and hope that his

remarks do not imply favoring privatization of the Army.

Chairman ISSA. No, but I would like to know if those rail cars

have all been found.

With that, we recognize the gentleman from Florida Mr. Ross for

5 minutes.

Mr. ROSS. Thank you, Mr. Chairman.

Mr. Dodaro, thank you for being here very much.

I note that last year Congress, when they were raising the debt

ceiling, empowered the GAO office for a report as to the duplication

of any activities or efforts of the Federal Government that might

be cost savings, and that report is forthcoming?

Mr. DODARO. Yes.

Mr. ROSS. Can you give us a preliminary, like a little trailer or

a sneak preview of what we might anticipate?

Mr. DODARO. Well, we have identified about 34 different areas of

overlap and duplication for consideration by the Congress, and they

touch several hundred programs and virtually all Federal departments and agencies.

Now, we also, as an added bonus, are including in the report

about another 50 cost-savings opportunities for the Congress to

consider, and also revenue enhancements, where there are abilities

to tackle what is now an estimated tax gap between taxes owed

and collected, about $290 billion.

Mr. ROSS. So could you quantify maybe how much we are looking

at in terms of duplication at this point?

Mr. DODARO. We don’t have, because of—and we will discuss in

the report some limitations, as Congressman Kucinich just talked

about. Some of the cost data and baseline information isn’t really

there, so it’s hard to come up with an overall quantification effort,

but it will be billions. It’s significant.

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Mr. ROSS. I know we have limited time here, so this is going to

be an interesting question I would love for you to answer if you

could in the brief time that I have here.

In your report on High-Risk List, you indicate strengthening the

foundation for efficiency and effectiveness. One of your recommendations is restructuring the U.S. Postal Service to achieve

sustainable financial viability. How?

Mr. DODARO. Basically they have to change their business model,

the business model they have. And we have outlined options in the

report there for the Postal Service to consider and for the Congress

as well.

Mr. ROSS. And in that business model, I mean, you’ve got 150

million households that are being reached every day, 6 days a

week—so far—by the U.S. Postal Service, but you’ve got 80 percent

of their cost is for compensation and benefits. Are you suggesting

that we look at both sides of the equation, not only the revenue

side of the equation, but also the expense side of the equation?

Mr. DODARO. I think everything has to be on the table there to

really restructure it. We’re looking at facilities—we just put out a

report this week talking about how other countries have tackled

this problem and reduced their facilities, changed their retail options, changed personnel structures. So I think all things have to

be considered.

Mr. ROSS. Ms. Cammer—and I’ve got to ask you this question

while I am on the Postal Service because of your background not

only in the public sector, but also in the private sector as a consultant with IBM. Again, you’ve got an understanding of marketing

channels, you’ve got an understanding of public-private relationships. Would you have any recommendations for the U.S. Postal

Service as to how they can be more cost-efficient, cost-effective,

more technologically advanced?

Ms. CAMMER. We have a team of consultants that are working

with the Postal Service today, and I would be happy to get back

to you with some of the recommendations that they have offered.

Mr. ROSS. That would be great. Thank you.

[The information referred to follows:]

[NOTE.—The information was not provided to the committee.]

Mr. ROSS. Dr. de Rugy, a quick question, because I am a firm believer that government shouldn’t be in the business of business; the

essential government functions are what government should provide, and that we don’t need to not only be a competitor in the market, but also be the regulator of that same market. So I’ve got some

concerns that I think run deep with your philosophies in your report, but I want to talk to you specifically about project labor

agreements.

Are you familiar with project labor agreements, PLAs, where any

government contract that is negotiated has to be done at a prevailing wage or union wage? In most cases we have seen a situation where nonunion contractors don’t get the contract because

they’re not capable of paying the union wages, and therefore you

are seeing union jobs being let out when competitively it may be

better to go to the lowest bidder.

Do you have any comments on that? Do you have any experience

in working with project labor agreements?

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Ms. DE RUGY. No, I have not.

Mr. ROSS. Mr. Frakes, how about you?

Mr. FRAKES. No. But I think that it’s something that obviously

is crowding out the market and something that would be a good

thing to investigate.

Mr. ROSS. One last thing, Mr. Dodaro. You talk about the excess

of real property that we have. Do you have any recommendations

for liquidation of those or leasing of those to at least enhance the

revenue side of the U.S. budget?

Mr. DODARO. Not facility by facility. We think the agencies need

to do that. We have pushed OMB to come up with a plan. Also,

there’s rules in the budget process that complicate the lease-versusbuy decision, which we have recommended that those be dealt with

as well. We think this is basically a management responsibility to

decide that, but——

Mr. ROSS. But it should be done.

Mr. DODARO. It should be done.

Mr. ROSS. It’s wasted resources.

Mr. DODARO. Yeah, definitely, definitely.

Mr. ROSS. Thank you. I see my time is up.

Chairman ISSA. I thank the gentleman.

The gentleman from Massachusetts Mr. Tierney for 5 minutes.

Mr. TIERNEY. Thank you, Mr. Chairman.

And I thank the members of the panel very much for your testimony here today.

This committee has conducted a lot of oversight about the Department of Defense’s contingency contracting both in Iraq and Afghanistan, including the use of private security contractors, but not

exclusively them, of course. Last year, in fact, when I was chairing

the Subcommittee on National Security and Foreign Policy, we uncovered evidence of trucking contractors who were paying warlords

and insurgents billions of dollars for so-called ‘‘protection.’’ And we

also talked about a contract where $3 billion in fuel contracts were

going to companies that the State Department and the Department

of Defense knew nothing about.

So my question to you, Mr. Dodaro, is do you think that we have

to have some improvements in the contracting laws that will provide those authorities that may be necessary to meet the challenges

for operating in contingency conflicts?

Mr. DODARO. I definitely think there are lessons learned that

need to be applied both in—potentially in law, but also in practice,

and that there are a lot of lessons learned about putting this type

of responsibility in a theater without appropriate training and support that needs to be done adequately to oversee it. So, yes, I agree

with you that there’s probably lessons learned, and we can provide

some of our thoughts on that to you.

Mr. TIERNEY. That would be excellent if you would. We would appreciable that.

Particularly concerning private security contractors, there has

been a real persistent problem with how they are managed in both

of those areas, Iraq and Afghanistan, of course. And last year

CENTCOM got a task force together to figure out how many private security contractors they actually employed in Afghanistan,

and the number came into tens of thousands on that. In Iraq, the

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State Department is about to take on a lot of the responsibilities

from the Department of Defense, and they are hiring additional

private security contractors on that. So how much confidence

should we have that as DOD transitions to the State Department

in this area, that they’re going to be able to oversee effectively all

of those thousands of private security contractors that they’re

bringing on?

Mr. DODARO. That’s an area that I think needs some focus. I believe we have work under way in that area to assess that, and I

would be happy to provide a briefing to you.

Mr. TIERNEY. How far along are you in that work?

Mr. DODARO. Early on.

Mr. TIERNEY. Well, it’s a pretty immediate situation, so I hope

we’re going to expedite that a bit and be able to move that forward,

because we have had hearings on that regularly throughout, and

we don’t seem to be getting too far along on examining it. And I

say ‘‘we’’—not meaning your agency, but State Department and the

Department of Defense—talk about it, they know there is a problem, but we’re not really there yet. Your work would be very helpful on that.

The other problem that we have, of course, is we don’t seem to

have enough people to really oversee those contractors that we do

put it out to. That has been a real serious problem in USAID, the

State Department, and other places on that. The Wartime Contracting Commission that Jim Leach and I had the legislation on—

they finally got out and started doing their job—they found out

that we were hiring private contractors to oversee other private

contractors on that.

So how do you assess the Department of Defense’s progress in insourcing those critical roles of oversight and management of contracts?

Mr. DODARO. Yeah, our assessment is that contracting decisions

are made much too often on an ad hoc basis. There really isn’t a

systematic assessment of what should be contracted out, what

should be in-sourced, and for what should be in-sourced, how you

build your capabilities and your staffing and expertise to be able

to do that, what expertise do you need to oversee the contractors?

So we have encouraged and recommended systematic assessments

of that. That is the only way you can deal with that issue over

time.

Mr. TIERNEY. We have some serious issues. As we start to analyze that, do you have any ideas for how they might ramp that up

and separate those out so that those inherently governmental functions of oversight of the contractors can actually be brought back

in or in-sourced? Is there an impediment that exists that you can

recognize and do something about, or do you think that this analysis is going to just wind its way out before we get some effective

recourse?

Mr. DODARO. Well, I think it all has to start with what mission

do you want to really achieve there and what’s the best way to be

able to do it. I don’t think there’s going to be a magic solution to

that, that there’s going to be a set of rules on this and that, particularly when you get into environments when you are in contingency operations and planning. You need to have something that’s

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a little bit more robust as a foundation, but then you need to be

able to allow some flexibility to be put into place. But you have to

have proper oversight over it, Congressman, and that’s where I

think things break down.

Mr. TIERNEY. Well, we even saw out of the blue a program with

the Coast Guard, where they had large ships being made. We had

a contractor out there doing components. Then we had a contractor

analyzing the job. We had them managing the job, we had them

overseeing the job, and then when the job got all messed up, we

almost hired the same people to come in and assess how we can

fix it.

Mr. DODARO. Yeah. Government needs—for those areas that you

know you are going to contract out, you need the proper people to

oversee it that are government employees to be able to make sure

you’ve got the duty of loyalty and you have the expertise and continuity to oversee it in the best interests of the government and the

taxpayer.

Mr. TIERNEY. So getting a grip on not outsourcing jobs that

shouldn’t be outsourced, and the ones that should be outsourced,

making sure we can manage them properly, I agree with you, is a

serious issue for us.

Mr. DODARO. Yes, it is.

Mr. TIERNEY. Thank you.

Thank you, Mr. Chairman.

[The prepared statement of Hon. John F. Tierney follows:]

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Chairman ISSA. The gentleman from Michigan Mr. Walberg for

5 minutes.

Mr. WALBERG. Thank you, Mr. Chairman.

And thank you to the panel for being here. It has been enlightening, at least the portions that I’ve been in. I wish I could have

been here for the entire time.

Mr. Dodaro, in your written testimony you state that excess or underutilized buildings cost over $1.6 billion annually to operate.

I guess the question I would flow from Mr. Ross’ earlier is what

has prevented the Federal Government from doing something that

makes so much sense, such as selling the properties? You stated

that you wouldn’t pick the properties, but what has kept us from

doing that?

Mr. DODARO. There are certain barriers that we have recommended that OMB focus on. For example, there are a lot of

stakeholder interests in some of these buildings and properties that

need to be dealt with to be able to do it. There are some legal requirements that are in place. But none of these barriers are insurmountable. And our point is that you need to aggressively identify

them. They’re different for each property, as you might imagine,

but they need to be dealt with on a more concerted, aggressive

basis.

Mr. WALBERG. What is the hesitancy toward this aggressive action, from your perspective?

Mr. DODARO. To be honest with you, I am not quite sure, other

than it takes a lot of hard work and effort to be able to go forward

on these initiatives. We have been pushing for plans to be developed to be able to do that. We are pleased they’re getting better

data, and also what the situation is like, but actually implementing

a lot of these things, it appears to be more difficult. To be honest

with you, I am not quite sure exactly what the reason is, but——

Mr. WALBERG. Any concern about any impropriety in stakeholder

issues that go beyond simply dragging feet, or arguments that we

don’t have the resources or time or energy? I mean, is there anything that would go beyond that to something——

Mr. DODARO. There is nothing—I’ll go back and check with our

team to make sure that my answer is correct on this, and if there

are any things of that nature, we will provide them to you. But in

some cases, like, for example, there are some historic preservation

issues that need to be dealt with with some of these buildings and

other, you know, legal concerns. But I’ll provide a listing to you of

some of the barriers, and also if there are any improprieties, we

will certainly let you know.

[The information referred to follows:]

[NOTE.—The information was not provided to the committee.]

Mr. WALBERG. Thank you.

Dr. de Rugy, I am tempted to just say my question is how would

you expand on your statement already, but I won’t do that. Maybe

the question will allow that to take place. I appreciate what you

had to say.

In your written submission you identify three areas of Federal

spending that should be addressed, one being Federal spending on

functions that should be reserved for the States; two, Federal

spending on functions that should be reserved for the private secVerDate 17-JUN-2003 11:52 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68047.TXT KATIE PsN: KATIE
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tor; and three, Federal spending on items or services that government has no business purchasing in the first place. I would like to

focus my question mostly on this first area.

It is apparent that you strongly believe in the 10th Amendment,

reserving powers to the States not enumerated to the Federal Government.

Ms. DE RUGY. I do.

Mr. WALBERG. Then do you believe a reevaluation, and likely a

limitation, of the grants the Federal Government makes is the best

way to reorganize Federal priorities, or does Congress need to do

something more explicit? And if so, what is it?

Ms. DE RUGY. I mean, I can’t talk to the legal aspect because I

am not a lawyer, I am an economist, so I will go to the money. I

really do think that restructuring the money that goes to the

States, either by cutting it off or actually turning a lot of it into

block grants instead of matching grants, which induce inefficiency,

promote overspending, would be a good way to do it. First, it would

allow States to have time to think about how they are going to be

providing these services.

And one of the problems with the matching system that we have

now, on top of the fact that it induces overspending, as I have said,

is the fact that it’s a one-size-fits-all type of thing. When you have

a grant from the Federal Government, it also comes with strings

attached and things that you have to do in a certain way, and that

doesn’t take under consideration the specificity of the State.

So that would be the first step. I would either cut a lot of this

money off or turn the rest into block grants.

Mr. WALBERG. So cutting it off, you are not concerned that the

job can’t be done then? I say that facetiously.

Ms. DE RUGY. I mean, there is always this understanding, this

belief, that if the Federal Government doesn’t do it, it won’t happen, but it’s just not true. And the States are already—for instance,

education, I mean, most of the spending already comes from the

States. And it is a State function or a private-sector function. And

if the States don’t get this money, then they will be thinking about

what they actually truly need to do. And maybe a lot of these functions that they are providing right now they should turn to the private sector. So, no, I am not concerned.

Mr. WALBERG. Thank you very much.

Chairman ISSA. I thank the gentleman.

We now recognize the gentlelady from the District of Columbia

Ms. Norton for 5 minutes.

Ms. NORTON. Thank you very much, Mr. Chairman.

Mr. Dodaro, I would like to ask you a question that has, I am

sure, perplexed members of this committee and certainly the public. It has to do with very large, sometimes huge, contractors whose

abuses or poor performance is so severe that they are brought before this committee, or there are headlines on them.

I want to describe the response of Federal agencies in awarding

them contracts again. For example, if you did the functional equivalent of what some of these contractors have done as an employee,

you would be out the door. Nobody would ever hire you again in

the field, it would seem. But let me give you a couple of examples.

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KBR, doing work in Iraq for the Department of Defense, was so

faulty on the maintenance of electrical equipment that deaths resulted, including dozens of deaths of American soldiers, but DOD

then awards KBR a $2.8 billion contract to provide support services—additional support services for our troops in Iraq.

Or let’s take the most notorious, perhaps, Blackwater and private

security, because that has been a headliner. The State Department

after those headlines awarded them contracts for protective services in Afghanistan. Now, these people were seen as having themselves committed perhaps—or at least accused of committing what

would amount to in prosecution crimes while they are doing their

work.

Does DOD, and in the case of Blackwater, give contracts again

to such companies because of the difficulty of a startup? Is it too

wasteful? This is, after all, a competitive process. Why in the

world, if a contractor has exposed the agency to such embarrassment and infamy, would the agency want to give that contract

again? There must be some inherent reason for doing so.

Mr. DODARO. Typically what we find when there is a lack of competition, there are either reasons for expediency, they need to move

very quickly in an area—they need to have people who have the

proper background, security clearances, that type of thing—or

there’s limited numbers of companies that could provide that service. But what we have focused on is making sure there is more

competition in the process. It’s a better value to the government.

There needs to be adequate consideration of past contractor performance in the process. There are safeguards built into the process through suspension and debarment that need to be put into

place and then followed adequately through the process.

Ms. NORTON. Is suspension and debarment used?

Mr. DODARO. It’s used, but I think our work has shown that it’s

not always properly checked before some of the awards are made

on a cross-government kind of basis.

Ms. NORTON. Is there a way to structure the contract up front,

for example, so that if waste such as the ORF,or worse, failure to

maintain the electrical system in Iraq occurs, somehow you owe the

government rather than the government continuing to owe you?

Mr. DODARO. Well, you definitely need to have provisions in

there to protect the government from nonperformance on a contract.

Ms. NORTON. What kind of provisions protect them now?

Mr. DODARO. I’d have to go back and look and provide some explanations.

What we did find, though, and this is being addressed, is that

many times there are incentive rewards and fees there that contractors were being paid the incentive fee and really weren’t meeting the standards of performance as what you would think they

should be.

But I’ll go back, I’ll provide to you and this committee the standard provisions that are in there.

[The information referred to follows:]

[NOTE.—The information was not provided to the committee.]

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Ms. NORTON. It does seem to me that a system of rewards—I love

incentives, frankly—of rewards and penalties, carrots and sticks,

have always been thought to work.

Thank you very much.

Mr. DODARO. Just for the record, we are doing work currently on

suspension and debarment practices, which we will be happy to

share with this committee as that work is being completed, and

that we will provide you the Federal acquisition regulations that

protect the government.

Ms. NORTON. Thank you.

Thank you, Mr. Chairman.

Chairman ISSA. I thank the gentlelady.

We now recognize the gentleman from South Carolina Mr.

Gowdy for 5 minutes.

Mr. GOWDY. Thank you, Mr. Chairman.

It is impossible for me to explain to the folks I work for—and I

suspect most of my colleagues would have similar difficulty explaining to the people we work for—the pervasiveness and longevity of government waste, fraud and abuse. And I commend you

for gathering with us today to seek solutions. And I want to start

with the one that I find most compelling, which would be criminal

consequences.

Do you have an estimate—and I’ll throw this open to all four of

you—an estimate, negligence, gross negligence, criminal negligence. Where is the preponderance of the waste, fraud and abuse?

Where does it fall in that paradigm? Not all at once.

Mr. FRAKES. I can tell you from the Medicare and Medicaid side,

a lot of what happens in terms of the prosecution of fraudulent

claims within CMS unfortunately does not occur until it meets a

certain threshold of money. So a lot of these——

Mr. GOWDY. Whose threshold is that?

Mr. FRAKES. I am sorry?

Mr. GOWDY. Who sets the threshold?

Mr. FRAKES. It’s within CMS, and they are the ones who determine, based on their allocation of resources, what claims that they

can go after.

Mr. GOWDY. Well, let me ask you about the allocation of resources, because if my numbers are correct, there are almost 50 different ‘‘investigative agencies’’ that are seeking waste, fraud and

abuse just within health care. That alone is an example of waste

and fraud and abuse. Fifty different agencies?

Mr. FRAKES. And the huge irony that exists within that—and it’s

an excellent point—is that there is waste that’s going on between

all those organizations in the sense that there’s a lack of data sharing that’s going on between them. So, for instance, even within,

let’s say, Medicare Part A and Part D, you are missing data sharing between those two that they would be able to use to identify

who potential crooks are. And so as a result, they are losing out

on being able to cross-reference these individuals, and some of

these people might actually be claiming to be legitimate suppliers

for Medicare Part A when they were already identified as a potential fraudulent supplier for Part D. And so that lack of interaction,

that lack of sharing is leading to a lot of the negligence that you

are speaking of.

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Mr. GOWDY. Well, it’s also inexplicable, it is impossible to understand—to explain to anybody outside this ZIP code how you can

have that.

And with respect to the question asked by my colleague from the

District of Columbia about carrots and sticks, I prefer the sticks.

So tell me what is being done with respect to criminal prosecution

consequences to ameliorate what has been, if my numbers are accurate, a two-decade-long acknowledged problem? How many investigations have been started, how many matters, how many declinations by the U.S. Attorney’s Office?

Mr. DODARO. We can provide that information to you for the

record. There are reports that the IG inspector has put out that

show the matters referred, how many have been investigated, and

the prosecutions that have been prosecuted as well. So we can provide that information to you.

[The information referred to follows:]

[NOTE.—The information was not provided to the committee.]

Mr. DODARO. And the thresholds typically are set by the Justice

Department in terms of how much monetary money would have to

be sort of broached before they would feel it would be efficient and

productive to go through the judicial system and that process. But

those figures are available, and we will provide them to you.

Mr. GOWDY. OK. Thank you.

I would yield back the balance of my time, Mr. Chairman.

Chairman ISSA. Would the gentleman yield for just a moment?

Mr. GOWDY. Sure.

Chairman ISSA. In the case of the question of prosecution, is the

biggest problem the lack of prosecution, from your studies, or is it

the lack of catching in real time these individuals before the money

is taken? Which do you think leads to more of the long-term abuse,

the fact that people can continue stealing again and again in various ways, or the fact that we don’t prosecute them at a low enough

level?

Mr. DODARO. Well, we haven’t studied that issue directly, Mr.

Chairman. I think part of the issue is that there is—it’s not that—

you can continue to abuse the system with low potential of getting

caught. So I think that—just intuitively, just to tell you from that

standpoint. I will go back and take a look and see if we have a

more definitive answer.

Chairman ISSA. OK. And one followup question on an earlier one.

Wouldn’t it be impossible for the government to contract directly

with everyone, meaning at some point the government does have

to rely on government contractors to do jobs; thus it’s inevitable

that you will have a contractor hiring other contractors?

Mr. DODARO. Yes. As long as it’s in a typical prime contractorsubcontractor mode, I think that’s fine. But when the government

contracts out its responsibility to oversee the prime contractor,

then I think you have an issue.

Chairman ISSA. Which we all agree with.

We now recognize the gentlelady from California Ms. Speier for

5 minutes.

Ms. SPEIER. Thank you, Mr. Chairman.

I am very pleased with this hearing and frankly think that if we

spent the rest of this year just dealing with the issues that were

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raised here and actually got some results, we would have done our

job. I have much frustration with the fact that we hold hearings,

we uncover problems, and then nothing happens.

To you, Comptroller, congratulations on your official appointment.

You have a High-Risk List. There are agencies that stay on this

High-Risk List year after year with no penalties, no results, no

changes, and I think that is inexcusable. And if you need to have

more authority to force these agencies to do what you recommend,

then we should introduce legislation to make sure that happens,

because we look foolish, and the American people look at us as if

we are totally ineffective when we cannot deliver once we have uncovered a problem.

Let me move on to an area that you just editorialized in the New

York Times about just 2 days ago. A percentage of the proceeds

from gas and oil companies that drill on Federal lands are supposed to be paid. And evidently, according to your report, there are

substantial funds that could be generated—some $9 billion in fiscal

year 2009—but it appears that it is on your High-Risk List in part

because the oil and gas companies aren’t paying their proper share.

So I guess my question is how long have they been underreporting? Why do we allow them to underreport? Why aren’t the

taxpayers getting the proper payments that they should be receiving because the drilling is going on on Federal lands?

Mr. DODARO. Basically I had agreed, as a result of an earlier

question, to go back and provide a listing of the underreporting

point. What I would say, though, there really are a couple of issues.

One, there is too much reliance on self-reported data that needs to

be checked. Second, we found problems with the verification process that the Interior Department is supposed to use to make sure

that the production figures are correct as well.

Ms. SPEIER. Wait a minute. Excuse me. Are you telling me that

the oil and gas companies are self-reporting, and we’re supposed to

trust them?

Mr. DODARO. Well, there are supposed to be checks that are put

in place as well——

Ms. SPEIER. By whom?

Mr. DODARO. By the Interior Department.

Ms. SPEIER. And are they?

Mr. DODARO. Well, that’s what we found some gaps in in that,

and also the verification of production numbers, which are things

that we believe need to be addressed. And that’s one of the reasons

that we’re highlighting this as a high-risk area.

The other reason is that the Federal Government’s basic system

to assess what the costs would be for Federal leasing hasn’t been

revisited for 25 years, and that when the Federal Government—

what it charges for leasing on Federal lands is compared to what’s

charged in other countries and even some States, it ranks extremely low in its charges to begin with.

Ms. SPEIER. Mr. Chairman, I would recommend that we have a

hearing specifically on this issue. The taxpayers deserve to get fair

market value for the leases that they provide to anyone, be they

the next-door neighbor, or an oil and gas company. And I think we

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should be getting what is justifiably ours. We are the stewards of

the taxpayers’ money, and I think this is a ripe area.

I think this is a ripe area.

I would like to move very quickly to the Alaska Native Corp. I

don’t know if you have looked into it. If you have not, I would request through the committee that you do so. The Washington Post

did a piece on November 26th, which is astonishing to me. Anytime

you allow for sole contracts—sole-source contracts, there is mischief

that is going to take place. And in this case evidently a contract

for $250 million was offered to a subsidiary of the Alaska Native

Corp., a gentleman living in Delaware, whose office was his colonial four-bedroom home, and he was providing sexual assault and

harassment training, except he had no experience doing that, and

his last contract with the government was for $73,000, and it was

for janitorial service.

There has been $29 billion provided to the ANC over the last decade, most of the money not going to the Natives, most of it going

to the non-Natives. It is an absolute abuse of the program, and I

think we should look into that as well.

Mr. DODARO. We issued reports in the past on that with recommendations, and we currently are looking at it again and would

be happy to share.

Ms. SPEIER. That is my problem. You issue reports, nothing happens, and there is another story written because we haven’t done

anything about it. I want to be a part of a committee this year that

actually delivers on results; not just have a bunch of hearings, but

show that we are saving the American taxpayers money.

I yield back.

Mr. PLATTS [presiding]. Chairman Issa had to go to the floor.

There are several amendments that he had to deal with, and so I

am honored to step in as the chair. I am up in the order, so it is

good timing. So I yield myself the 5 minutes.

First I want to thank each of you for your testimony and your

work on these important issues. As the gentlewoman just said, we

could spend the rest of this session just on what you are sharing

with us and still not get everything done that we need to as doing

good oversight. But Chairman Issa has made a priority of just this,

oversight of how the Federal Government is handling the people’s

money, and we are glad to have you here.

While I thank all of you, General Dodaro, I especially want to

thank you. I believe this is your first time testifying before this

committee as the newly sworn-in Comptroller General. Congratulations on your confirmation and your 30-plus years of service at

GAO that brings great leadership to the agency with that experience.

And I am going to start with you, and one is to thank you for

your flexibility in our subcommittee hearing dealing with the consolidated financial reports that we moved back to March 9th. I look

forward to hearing your testimony then, and also to your upcoming

report, I believe March 1st, on duplicative Federal programs. We

are anxious to see that, and I know this is a first-time report, although you have addressed some of those issues in other ways in

the past.

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And as chair of the Subcommittee on Organization, Efficiency

and Financial Management, we look forward very much to working

with you and your staff, because when we think of efficiency, what

duplication of effort certainly is not an efficient use of taxpayer

funds. So is there anything you want to give us a primer on, what

we may see, or should we wait until March 1st?

Mr. DODARO. Well, I think we were charged with doing an annual report. So this will be our first annual report on this. It will

basically summarize the work that we have done and new work

that we have started since the requirement was put in place.

We focus a lot on discretionary spending programs in this first

area, both civilian and defense. We think it is important for defense to be on the table as well. So you will see a number of issues

on that. In subsequent years we will focus on mandatory spending

and also tax expenditures as well.

We have this on a 3-year cycle to cover the entire Federal Government. This first report will identify 34 different areas that touch

hundreds of programs and virtually every major mission and agency in the Federal Government. I think you will find plenty of opportunities to delve into some of these issues very well.

You will also find that there are some limitations on the ability

of us to give definitive answers to the questions about how much

money you actually will save if you consolidate this because of limitations on information that is collected on a reliable basis from the

agencies as well.

We are adding to that another 50 items of cost-savings opportunities beyond the overlap and duplication and revenue enhancements that could be—or additional revenue could be brought into

the Federal Government to help close what is now an estimated

$290 billion tax gap. So both revenue-generating enhancements

and cost-savings opportunities.

So we are looking forward to unveiling the report and providing

appropriate followup support to the Congress.

Mr. PLATTS. And hopefully, given the timing as we are debating

the new CR today, and that still is going to be an ongoing dialog

between us and the Senate no matter what we pass today or tomorrow, this may give us additional information as we try to really

look at how to be most efficient with the taxpayer funds, even in

the immediate term in this current year.

When you look at discretionary—I do agree that you do need to

look at everything, including DOD and the duplication of efforts. I

assume it is more a duplication of programs, but not items such as

the ongoing debate on the duplication of whether we have one or

two engines on the Joint Strike Fighter. I assume that is outside

the scope of this report.

Mr. DODARO. That is correct.

Mr. PLATTS. I am going to run out of time here quick. One I

would add, on the oil and gas royalty, and I apologize because of

trying to multitask here if you have already answered this, is there

even a rough estimate—you know, when we see $9 billion, I think,

in 2009 from these royalties, if they are off by even 10 percent, that

is almost $1 billion, 900 million. Is there an estimate of what you

think may be lost because of the lack of good material—of material

witnesses in their structure?

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Mr. DODARO. Yes. We do not have an estimate at this time.

Mr. PLATTS. And one final quick comment is we look forward to

getting into the financial management at DOD. When we look at

discretionary spending, there is no bigger entity than DOD, and if

they can’t manage their finances—we know that they are the best

in the world in defending us and winning wars, but as I know from

my previous chairmanship of the subcommittee, their financial

management leaves a lot to be desired. So we look forward to working with you on that.

Mr. DODARO. I do as well. I look forward to the upcoming hearing

on the financial audits and to working with you in the subcommittee chair capacity.

Mr. PLATTS. Thank you.

I now yield 5 minutes to Mr. McHenry.

Mr. MCHENRY. Thank you for being here. It has been a long

morning with votes that haven’t agreed with our schedule here.

But, Dr. de Rugy, in your previous answer to Mr. Walberg and

in your testimony, you talk about the flypaper effect, the fact that

these Federal transfers with matching grants at the State and local

level actually increases spending and over the long term increases

taxation.

This is particularly interesting in light of the stimulus which—

$150 billion, roughly, that was in direct Federal transfers to States

and thereby increasing spending.

So, you know, the question is is the Federal Government really

complicit in the State and municipal governments’ financial woes

by these operations?

Ms. DE RUGY. Yes, it is. I mean——

Mr. MCHENRY. Will you elaborate?

Ms. DE RUGY. There is a bit of economic literature that actually

documents this problem, and yet, you know, the system goes on.

One of the things that people always bemoan is the fact that if we

cut Federal spending going to the States, the States are going to

end up with big holes. But this always rests on the assumption

that the Federal Government has deep pockets, and it is not the

case.

For every dollar that the Federal Government spends, whether

it is on the States or the private sector, it has to tax people, taxpayers who live in those 50 States, and they also have to borrow

money. The more the Federal Government does, and this is how it

works, it sends money to the States, because it can borrow also this

money, it actually pushes the Federal Government to a more irresponsible behavior and more debt.

Mr. MCHENRY. So in my subcommittee on this committee, we

have had discussions about the muni and State bond issue, the

lack of real transparency there.

Ms. DE RUGY. There is another issue there, right, is the fact that

the Federal Government has actually been complicit in granting

special treatment to investors who think it is a really good idea to

lend money to a bankrupt city in the form of tax deductions and

Build America Bonds, where actually the Federal Government subsidized lending money, the rates to lend money to bankrupt cities.

That is complicit.

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Mr. MCHENRY. OK. So in terms of this, do you think that the

State and municipal financial position is worse than currently

known?

Ms. DE RUGY. Yes, I think it is. I mean, if you take the economic

approach of actually valuing the pension unfunded liability, instead

of the less than $500 billion that State pensions have on their

books, you come up with the number of at least $3 trillion. So, yes,

the fiscal pictures in the States is much worse than we think.

Mr. MCHENRY. OK. And in terms of—well, here is a separate

question. I don’t know if you would want to answer it. But in terms

of our ability to know or your ability when you are doing research

to see the long-range unfunded liabilities of States, municipalities,

even the Federal Government, is it knowable for the average taxpayer to see where their city or State is in terms of financial liabilities over the long range?

Ms. DE RUGY. I think it is very important. Not everyone might

want to look at it. But I can tell you that I find that it is way easier to look at data at the Federal level. I find it extremely complicated to look at data at the State and municipal level. And more

importantly, there are a lot of accounting standards that apply only

to the government that are different from the accounting standards

that apply to the private sector that makes the size of the liability

of Federal Government, State, and municipal governments much

smaller than it is. And it would be a good thing to not only make

the States transparent, but also to value it at its present value so

that we can see what the true size of this liability is.

Mr. MCHENRY. OK. So this is GASB versus FASB, in essence, to

speak the lingo. But basically the private sector has to value things

differently than governments value things based on accounting

standards?

Ms. DE RUGY. Yes.

Mr. MCHENRY. So you see some flaw from government accounting standards?

Ms. DE RUGY. There are real flaws with accounting standards. I

mean, and it makes—it all points in one direction as making the

size of the liability, and what taxpayers ultimately will have to

pay, and the bill they will have to burden look way smaller, and

that is a real problem.

Mr. MCHENRY. So FASB standards would give you greater transparency and a better ability to understand the true nature of the

liability?

Ms. DE RUGY. Yes, and also value the liability in the future at

its present value so you know actually what you are going to have

to pay in the future and what you need to actually put down right

now with actual realistic rate of return, rather than, you know,

completely optimistic 8 percent rate of return.

Mr. MCHENRY. Thank you.

Ms. DE RUGY. You are welcome.

Mr. PLATTS. Thank you, gentlemen.

Just a follow on that quickly, you are talking a little bit about

accrual method of a more accurate—having the Federal Government be fully disclosing. So when we talk about our $14 trillion of

debt, if we add in all of our unfunded liabilities on Medicare and

Medicaid, we are really in the $50 to $60 trillion.

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Ms. DE RUGY. Actually currently on the financial accounting—the

financial statement of the U.S. unfunded liabilities reach almost

$80 trillion.

Mr. PLATTS. Exactly. And that is really it is not well focused on

because we focus on the publicly held debt, which is just a small

fraction of that whole cost.

Ms. DE RUGY. And one of the things we don’t talk very much

about is the fact that the intragovernmental debt, which is supposed to be actually the already funded part of the promises we

have made to seniors, actually this money is gone. There are IOUs

in those trust funds, but the only way the IOUs are going to be

cashed and paid back to this program is if the Federal Government

taxes people or borrows more money.

Mr. PLATTS. Thank you.

We thank each you again for your testimony and the great resources you have provided today and what we know you will continue to do, and as a committee we look forward to continuing to

partner with you. So thank you.

And we are going to move to our third panel then if our witnesses want to work their way toward the witness table.

Chairman ISSA [presiding]. On the third panel today, I would like

to recognize Thomas Schatz. He is president of Citizens Against

Government Waste. Mr. Andrew Moylan is vice president of government affairs for the National Taxpayers Union, and Mr. Gary

Kalman is director of U.S. PIRG Federal legislative office.

As you saw in the previous panel, pursuant to the rules, all witnesses will be sworn, if you would please rise and raise your right

hands.

[Witnesses sworn.]

Chairman ISSA. Let the record reflect that all witnesses answered in the affirmative.

Thank you. Please be seated.

I will tell you that we prefer to have only one main panel, but

we have saved the best for last. Since it is this committee’s primary

duty to work with watchdog groups and whistleblowers, you are

among the most important people that ever come before us, so we

look forward to your testimony.

Mr. Schatz, please try to stick to 5 minutes, and we will have a

lively round of questions afterwards.

STATEMENTS OF THOMAS A. SCHATZ, PRESIDENT, CITIZENS

AGAINST GOVERNMENT WASTE, WASHINGTON, DC; ANDREW

MOYLAN, VICE PRESIDENT OF GOVERNMENT AFFAIRS, NATIONAL TAXPAYERS UNION, ALEXANDRIA, VA; AND GARY

KALMAN, DIRECTOR, FEDERAL LEGISLATIVE OFFICE, U.S.

PIRG, WASHINGTON, DC

STATEMENT OF THOMAS A. SCHATZ

Mr. SCHATZ. Thank you very much, Mr. Chairman and Ranking

Member Cummings. I appreciate the opportunity to appear before

you today, and I have appeared before this committee, regardless

of who has been chairman, because we hope that we do contribute

nonpartisan information about where the government can become

more efficient.

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I am Thomas A. Schatz, president of Citizens Against Government Waste. CAGW was founded in 1984 to build support for implementation of President Ronald Reagan’s Grace Commission recommendations and other waste-cutting proposals. Since then we

have helped save more than $1.08 trillion through the implementation of those recommendations.

GAO’s High-Risk Series is a valuable contribution to the effort

to eliminate wasteful spending. We have long recognized the importance of this report. Back in 1993, CAGW produced a report called

Risky Business, which summarized the GAO High-Risk Series.

That was the year we also first produced Prime Cuts, a compilation

of recommendations from GAO, CBO, Members of Congress and

other sources. And I ask that the entire Prime Cuts report be entered into the record for this hearing.

Chairman ISSA. Without objection, so ordered.

[The information referred to follows:]

[NOTE.—The cover of the Citizens Against Government Waste report entitled, ‘‘Prime Cuts 2010, A Commonsense Guide to Leaner

Government,’’ is provided as a reference. A complete copy of the report may be found in committee files.]

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Mr. SCHATZ. Thank you, Mr. Chairman.

The most recent report identified 763 recommendations that would save taxpayers $350 billion in 1 year and $2.2 trillion over

5 years.

CAGW has also published this week Critical Waste Issues for the

112th Congress, and there are 10 of our top recommendations in

there. I also ask that this report be entered into the record.

Chairman ISSA. Without objection, so ordered.

[The information referred to follows:]

[NOTE.—The cover of the Citizens Against Government Waste report entitled, ‘‘Critical Waste Issues for the 112th Congress,’’ is provided as a reference. A complete copy of the report may be found

in committee files.]

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Mr. SCHATZ. Thank you.

That list includes reforming or eliminating outdated or inequitable agriculture subsidies, commonsense ideas such as replacing

the $1 bill with the $1 coin, preventing further exposure to hundreds of billions of dollars in taxpayer-funded bailouts by reforming

Fannie Mae and Freddie Mac, and promoting innovations in the

private sector by keeping the government from regulating the

Internet.

There are several recommendations in Prime Cuts that stand out

more than others. The Market Access Program, for example, helps

agricultural producers promote U.S. products overseas. Both President Obama and the Republican Study Committee have identified

this as a source of waste. Simply put, it is corporate welfare when

companies like Sunkist, that reported $860.5 million in revenues in

2009, received $2.1 million from this program to promote its products overseas.

We have been looking closely at the dollar coin, and we understand that the Government Accountability Office will be issuing a

new report next month on how savings can be achieved in that

area. We are not quite sure that Congress will be able to score it

as we think it will save money, and something that really should

be a very simple decision for the United States, which is the only

country that has such a low denomination for its paper currency.

Savings from GAO several years ago were $500 million a year. We

will see what those numbers appear to be in this next report.

As I mentioned, we have looked at other areas: ethanol program,

sugar program, dairy, peanuts, NASA Constellation, and then

there are programs that sound well-intentioned, such as the Prevention and Public Health Fund that will spend $14 billion over

the next 10 years under the health care law on antiobesity and tobacco control. In other words, the government will be using tax dollars to try to modify individual behavior. We have seen this work

not so well in the Office of National Drug Control Policy with antidrug ads, and we hope that the committee will look at this not just

for whether it is effective, but also whether some of the grantees

are using this money to lobby for more regulations and higher

taxes, which don’t usually solve that problem.

And finally, looking at oversight in general, I was very, very

pleased to see, Mr. Chairman, that you said last October that oversight is not and should not be used as a political weapon. We understand that is the most important function of this committee.

Taxpayers deserve to know, as you said in your mission statement,

how their money is being spent. When this committee or any other

committee decides that a program is not being effective, taxpayers

want to know why so that when action is taken to reform or terminate the expenditure of their money, they want to know why it is

being done. And if something is being expanded, they want to know

why it is being effective.

We have often suggested that constituents ask their Members of

Congress for the 10 most effective and 10 least effective programs.

Unfortunately, the answer often is the 10 programs on which Congress spends the most money and the 10 programs on which they

spend the least money. That is never the right answer, and we

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hope that every Member becomes more educated and spends a lot

more time reviewing which programs truly are effective.

Thank you for allowing me to testify today.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Schatz follows:]

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Chairman ISSA. Mr. Moylan.

STATEMENT OF ANDREW MOYLAN

Mr. MOYLAN. Thank you, Chairman Issa and Ranking Member

Cummings, for allowing me to testify today on behalf of the American taxpayer. My name is Andrew Moylan, and I am the vice

president of government affairs for the National Taxpayers Union.

We are a nonpartisan citizens group founded in 1969 to work for

lower taxes and smaller government at all levels. We are the oldest

such organization in the world. We have 362,000 members nationwide in every single State, and likely in all of your districts as well.

I will start with an old joke that our budget tells us what we cannot afford, but it sure doesn’t keep us from spending money on it.

Unfortunately, that has been true of Washington for far too long.

Our current situation is bleak, and I wanted to point out just a

couple of nuggets to illustrate that.

First of all, President Obama’s recent budget estimate estimated

our overspending problem this year at roughly $1.6 trillion, which

is equal in inflation-adjusted terms to the entire Federal budget of

1982. To restate that a bit, we will raise through the Tax Code and

spend in real terms roughly the Federal budget of 2003, and on top

of that we will also spend the budget of 1982 in real terms.

Second, in the President’s budget outline, the lowest single-year

deficit is $607 billion, which is a number higher in absolute terms

than every deficit from 1789 to 2008 and roughly equal in real

terms to overspending in war-mobilized 1944.

Finally, while many in Congress have attributed the recent

spending surge to crisis response due to financial meltdown and

the resulting recession, the Federal Government has actually run

a deficit in 51 of the last 60 years, which is something that we

think ought to give pause to even die-hard Keynesians, who believe

that in economic growth cycles surpluses should be a norm.

But instead of just listing a parade of horribles, I wanted to drop

a parade of solutions for you. There is a lot of hard stuff that needs

to be done, and much of that we deal with in the written testimony

that I submitted to the committee. But I wanted to instead focus

my remarks on what we regard as the low-hanging fruit of waste.

It won’t shock anyone in this committee to hear that the NTU

thinks that the Federal Government spends too much money.

Whether or not you agree with that assessment, I hope you can

agree that we can spend that money in a much smarter fashion

than we are today.

That is why we joined with the U.S. Public Interest Research

Group, with whom we have many disagreements, but some agreements as well, to author a report called Toward Common Ground:

Bridging the Political Divide to Reduce Spending. In that report we

identified over 30 specific recommendations to reduce Federal

spending by up to $600 billion by tackling waste by the middle part

of the decade. And incidentally, I would note that NTU and PIRG

were sitting together before the State of the Union made it cool, as

our previous work includes issues like spending transparency.

To steal a joke from Conan O’Brien, I heard that President

Obama took his daughters to see a 3–D version of Avatar, and at

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the end of the film, one of his daughters elbowed him and said:

Now, that is how you spend half a billion dollars.

And unfortunately, the American taxpayers are spending half a

trillion dollars on such things as flood insurance for repeatedly

flooded homes; overpayments to the SSI program; or the National

Drug Intelligence Center, which is located in the heart of the drug

war in Johnstown, Pennsylvania, among many, many other things.

These items have been on watchdog lists for years, and opposition

to these recommendations tends not to be primarily political or ideological, but parochial. Just a couple of the highlights: $62billion in savings we identified from eliminating wasteful subsidies for agricultural products

and corporations; $353 billion in improvements in contracting and

asset acquisition; $77 billion in improvements to program execution; and $107 billion in canceling or modifying ineffective military

programs. I would note that our earlier estimates were closer to $1 trillion

by the middle part of the decade, but we tried as hard as we could

to back up each one of these suggestions with a credible estimate

of the real spending impact as well as an unimpeachable source

like CBO or GAO.

The NTU-PIRG report demonstrates that reducing wasteful

spending is not a question of right or left, but a question of right

or wrong. And I conclude by noting that I believe this hearing is

properly focused on the issue of really what is causing our budget

woes, which is overspending. While revenue is set to return to postwar averages in relatively short order, even if we extend the 2001

and 2003 tax cuts, spending is projected to be well above postwar

averages for the coming decade and will skyrocket after that. That

is why it is important for Congress to eliminate wasteful spending,

tackle entitlement reform, and institute constitutional limits on the

size of government moving forward.

If we fail to seize that opportunity, the result could be a painful

debt crisis that will develop not over the span of 6 months, but over

the span of 6 hours on a Sunday evening as we are sitting with

our families and folks in Asian markets are beginning to stampede

away from American debt.

To modify a line from our President, I hope we can look back together on this time and say that this was the moment when the

rise of red ink began to slow and our budget began to heal.

Thank you, and I look forward to your questions.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Moylan follows:]

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Chairman ISSA. Mr. Kalman.

STATEMENT OF GARY KALMAN

Mr. KALMAN. Chairman Issa, Ranking Member Cummings and

members of the committee, I thank you for inviting me to testify

today on behalf of the U.S. Public Interest Research Group, U.S.

PIRG. U.S. PIRG, the federation of State PIRGs, is a nonprofit,

nonpartisan organization that advocates and educates on matters

to encourage a fair and sustainable economy; protect the public

health; and foster responsive, democratic government.

The level of Federal spending is of great concern to Americans.

A November Pew Research Center poll showed that 70 percent of

Americans believe that Federal spending is an urgent problem.

Other opinion research indicates that the public concerns are focused on waste, whether it is fought for and won by narrow special

interests, programs that have outlived their usefulness, or blatant

inefficiencies that have been allowed to continue for years.

We are proud to have partnered with the National Taxpayers

Union to develop the list of spending reductions detailed in our October 2010 report, Toward Common Ground. The report details

more than $600 billion in specific spending cuts over 5 years. These

spending cuts are a good place to start, but not only because of the

current budget situation. In good fiscal times and bad, during years

of budget surpluses or deficits, taxpayers deserve to know that

their money is being well spent, that it is going to true public priorities, and there is accountability in the system through commonsense reforms.

While there are any number of issues that may divide U.S. PIRG

and NTU and our respective memberships, there are broad areas

where we can come together and support responsible and accountable spending of taxpayer dollars. One message of our joint report

is for Congress to start where there is agreement across the political spectrum.

I would like to share with you U.S. PIRG’s approach to the

spending cuts. We entered our partnership with NTU guided by

four basic principles: First, to oppose subsidies that provide incentives to companies that do direct harm to the public interest or do

more harm than good. An example here, we would say, is subsidies

to ethanol, for which, according to researchers at the University of

Minnesota and elsewhere, there is very little to any truth of the

benefits of ethanol, and there are clearly adverse environmental

impacts.

Second, we oppose subsidies to mature profitable industries that

don’t need the incentives. These companies would engage in the activity regardless of taxpayer support. We would include in this category subsidies, as has been mentioned now by all three of us, the

Market Access Program, which, among other things, effectively pay

for overseas television advertising and other marketing of specific

products to successful multibillion-dollar companies. These companies have both the incentive and the resources to do their own

product promotion without taxpayer handouts.

Third, support commonsense reforms to make the government

more efficient. Examples here include reducing the inventory of unused or underused government buildings, as it was mentioned beVerDate 17-JUN-2003 11:52 Sep 22, 2011 Jkt 000000 PO 00000 Frm 00137 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\68047.TXT KATIE PsN: KATIE
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fore. And as Congresswoman Speier pointed out, we have a lot to

do in contracting, and I would be happy to talk later on about a

report that we did called Forgiving Fraud and Failure, which was

the repeated issuance of contracts and renewing of contracts despite the fact that they didn’t deliver.

Fourth, and finally, we would oppose funding where there is authoritative consensus to do so. This means strong independent

agreement across the political spectrum that a program is wasteful,

and the agency or department receiving the funding has actually

argued against it. A specific example here, again, just to repeat,

the National Drug Intelligence Center, which has been the subject

of numerous unfavorable reports about its impact and effectiveness.

The GAO has concluded that it duplicates existing efforts.

A particular value of the recommendations detailed in the report

is that they are specific. They focus upon agreed-upon wasteful

spending. Along those lines I would just note that U.S. PIRG does

not support across-the-board cuts. Such policies fail to differentiate

between true public priorities and where there is genuine waste

and inefficiencies in the system. Americans certainly prioritize national defense, but if efficiencies can be made in the way in which

we repair military vehicles—the military is often exempt from

across-the-board cuts—that savings is no less important than the

reforms to streamline the costs of Medicare.

While not in the report, U.S. PIRG would also urge the committee to review special-interest carve-outs through tax expenditures and loopholes. These expenditures have the same bottom-line

effect on our Nation’s deficit as direct line-item spending. Regardless of whether spending takes place through the Tax Code or the

appropriations process, it should be part of the conversation and

should be transparent, accountable and serve the public.

Let me end by saying that many of the items on our list challenge longstanding subsidies to narrow special interests. While

these expenditures serve little or no continuing public purpose,

there will no doubt be intense lobbying efforts to preserve the

handouts. We urge you to resist those efforts and take the first, important steps toward addressing our Federal spending problem and

ensuring that any public expenditure is for the public interest. We

applaud the committee for looking anew at these giveaways and

urge you to challenge tradition in the difficult decisions to reform

the budget, decisions that lie ahead. Thank you.

Chairman ISSA. Thank you.

[The prepared statement of Mr. Kalman follows:]

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Chairman ISSA. I recognize myself for the first round of questions

for 5 minutes.

Mr. Schatz, your critical waste issue of the 112th Congress, it

has an area that piqued my interest on page 17. And I would ask

unanimous consent that this entire document be placed in the

record. Without objection. So ordered.

But on page 17, it makes a statement—USA Today is the source

for it—that 83 percent of all public-employee jobs pay greater than

their comparable private-sector counterparts.

When we are looking at trying to figure out waste, would you

categorize paying more than what the private sector pays for comparable work as a waste? And if so, would this be perhaps the largest waste there is in all of government?

Mr. SCHATZ. There are some caveats that went with that proposal. There are some arguments that Federal workers are more

educated on average than the private-sector workers. But looking

at apples to apples, we would like to see a report from the Congress that really details where this lies. I mean, the CATO Institute has looked at this for years, and I think people used to believe

that this was not the case. I think currently, based on both compensation and benefits, that public employees at every level of government are being paid at a higher level.

Now, whether that means there are too many of them, they are

overcompensated, are we getting something out of them that is

worth that compensation, these are all questions that need to be

examined. We don’t want to say—we do actually think that Federal

salaries should be reduced because the private sector, if you have

a job, you are lucky to have one. Most people haven’t had a raise.

I was encouraged that the President has looked at salaries and

said we should freeze them. That is a good first step.

Then we have to determine which programs are worth continuing, and within there what is a fair rate of pay so that we are

really not overpaying. As I said, compensation and benefits in particular, especially the benefits, now are much better than the private sector.

Chairman ISSA. One of the questions I would have following up

on that would be do you believe that the government can come up

with a—and I will use the British word—scheme in which we can

have a dynamic pay schedule similar to the private sector so that

we don’t underpay? Obviously some of the public-sector employees

are underpaid compared to comparable private sector, and this is

it often where we get a drain. So do you believe it is possible at

all for the Federal Government to significantly improve so that we

don’t overpay and underpay? And wouldn’t that be inherently a

complete change in our schedules?

Mr. SCHATZ. Absolutely. We have seen a lot of changes over the

years, or attempts to change, civil service compensation. I recall

when President Carter came in, that was one of the first things he

did, and nobody really talked to him for a while after that. But it

is something that needs to be done. It needs to be done on a bipartisan basis.

There are some very high-level and very well-educated positions

that we do need. Think about security or nuclear weapons. You

can’t just take somebody off the street essentially and have them

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perform that task. So they may be underpaid compared to the private sector. But one of the examples given in here was a cook literally was being paid at a far greater rate than a comparable private-sector individual.

And as I said, I think this committee in particular would be well

served to come up with something that is objective, that looks at

it program by program, and really makes a good determination

about what is the fair level, because we could save a lot of money.

And we do recommend here, by the way, an across-the-board reduction of 10 percent, and we think that is consistent with what needs

to be done to get spending under control in general.

Chairman ISSA. I appreciate that.

I am going to go a little off script because it is important because

I don’t often get such a good panel here to go into another area.

The first panel, and every panel that has been before Congress so

far, has said the only way to get to a reasonably balanced budget

deal—in other words, deal with our overspending—includes waste,

including closing unnecessary programs, includes pay analysis, but

it also includes taking out entitlements.

I am going to ask you the toughest question. Do you believe that

Congress can successfully convince the American people that entitlements, Social Security and Medicare, are not, in fact, an entitlement, an absolute health care program for the aged and absolute

retirement program, but rather part of a social welfare safety net

and thus can be means tested?

Mr. SCHATZ. I think that is one approach certainly. Raising the

retirement age is another. People are living longer. You may not

recall this, but the first individual that received Social Security

was named Ida Mae Fuller. She lived until she was, I believe, 88,

which was far longer than expected, so the actuarial tables are not

accurate.

There was an anomaly in Medicare when it was first enacted

that also looked at how long people lived, because you can’t have

an insurance program or payment program and have it be sustainable financially if they are going to pay out more than they take

in. That is just simple math.

So there are a lot of ways to look at reforming these programs.

We think that it has to be done. We were encouraged by what the

President said.

Chairman ISSA. But I am asking you for the tougher question

here.

Mr. SCHATZ. Whether it is social welfare or——

Chairman ISSA. Can we define it as social welfare safety net—

I will use the entire term—so we can, in fact, means test in some

way both of those programs at least partially? Everybody says

there are only so many solutions. That is the one that is seldom

talked about, which is the only way to say if you are like myself,

and you have enough income outside of Congress, that when I am

70, I actually won’t need my Social Security in order to still be well

to do.

Yes or no, do you believe Congress has the ability to convince the

American people, separate from do they have the will?

Mr. SCHATZ. I think that conversation needs to be started, because if it is started as an entitlement, people don’t want to give

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it up. We have a health care bill where now people think health

care is an entitlement. So I think it is really expanding more than

it is being reduced.

Mr. MOYLAN. Mr. Chairman, if I may, do I think that Congress

has the ability? Yes, I do. Am I convinced that Congress will utilize

that ability? That I am not so convinced of yet. And the way that

I keep talking to people about these programs is whether we like

it or not, they are gutting themselves from the inside right now.

If we do not make serious changes to them, we are going to rapidly

approach the point where Medicare and Medicaid and Social Security take up nearly as large a portion of our economy as a whole

as the entire Federal budget today. And to be able to head that off,

we need to start entitlement reform now.

Chairman ISSA. Mr. Kalman, just a yes or no, if you could. If you

can. I will come back in a second round otherwise. OK. Thank you.

I now recognize the ranking member.

Mr. CUMMINGS. You know, I was just listening to you all’s testimony. It is very interesting. And, you know, when it comes—you

all heard Senator McCaskill. Were you all here for that? And you

heard all the discussion with regard to these contracts that we

are—particularly in defense, we don’t seem to be in control of. I

just wondered what comments did you have on that, Mr. Moylan?

Mr. MOYLAN. Thank you for the question.

Mr. CUMMINGS. If you could be brief, because I have a number

of things.

Mr. MOYLAN. It is an extraordinarily important part of the puzzle in terms of tackling wasteful spending, and that was actually

a big part of the report that we did with U.S. PIRG identifying

some of those reforms that could be made. The bipartisan Defense

Acquisition Panel made some very worthwhile suggestions, and

those were part of our report.

Mr. SCHATZ. Very briefly, we were around when the KlingerCohen Act came around. We have seen a lot of defense procurement. Twenty-five percent of the Grace Commission’s recommendations dealt with defense. And our organization helped publicize the

$436 hammers and the $640 toilet seats. So we are well aware of

what needs to be done in contracting in defense.

Mr. CUMMINGS. I am just wondering, when you look at your organizations, and you are dedicated to effective and efficient use of

taxpayer dollars, and you hear I think it was Ms. Speier, who

talked about how frustrating it is to constantly be going over these

problems over and over and over again, and we end up looking

kind of—it looks as if we can’t get it done, or else we don’t want

to get it done.

And then we look at all the resources that are being put into

these hearings. And don’t get me wrong, I am glad that the chairman held this hearing, and I am glad that we are on the road that

we are on. But I guess what I am trying to get to is that, I mean,

the older I get, the more I value my time, and I am trying to make

sure that the time that we have under our watch, all of ours, is

that we do something to actually make a difference.

And so I appreciate the fact that these two organizations got together. That is great. I think that is a good start. But I am just

trying to figure out, you know, what do you want—I mean, what

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do you see—in other words, I am trying to get to how do we not

be where Ms. Speier talked about, where 2 years from now we are

talking about the same problems and they are getting worse.

You know, we were able to make some difference in the Coast

Guard. That is a smaller organization, but it was through just

sheer pushing and setting deadlines, as the chairman often talks

about. I mean, how do you work yourself out of a job is what I am

trying to get to?

Mr. SCHATZ. Mr. Chairman, I have been at this probably longer

than these gentlemen.

Mr. CUMMINGS. Yes, and I am very serious about this. You do a

great job, but I don’t want you to die still fighting and the problem

is worse.

Mr. SCHATZ. Part of the problem is the priorities in Congress,

that Members traditionally have been happier spending the money,

putting their name on a boat or a building, and taking credit for

doing something, whatever it might be, because they think that

might help them get reelected, to be perfectly frank. If we can get

enough Members that say, I will fix a problem because that is the

right thing to do, they will probably get reelected with an even bigger majority, because they will be able to go home and say, look,

I did something that made the government work better.

We don’t want people to have less faith in the government. And,

yes, we talk a lot about what is wrong because that gets people’s

attention, but fixing it is something that needs to be at the forefront of people’s minds. A lot of times agency heads come in, presidents come in and say, let us fix the problem. There is entrenched

bureaucracy that doesn’t want to change. So it takes—it is a very—

it has to be an effort that is a collaboration between the executive

branch, Congress, among these organizations, and so that when

people look at something, they say, we are going to give you credit

for fixing the problem, not just going around spending money.

Mr. KALMAN. Congressman, it is a great question, and I am glad

you all are focused on this. I would say a couple of things. One is

that it is the fact that we need, I think, to start where we can

agree. And in other words, a lot of these fights end up happening

at the places we disagree. And so the value, and what I said in my

testimony would reiterate, is the value of a group like NTU

partnering with U.S. PIRG gives a you a road map for a few places

where, if the parties got together and said, this is where we can

go, then you would actually have backup from folks who could talk

to their memberships across the country. That is the first thing.

Second thing I would say is there are some places where there

has been progress made. Not, obviously, enough. But last year in

a unanimous—unanimously through the House there was acquisitions reforms that were made to the weapons procurement system.

That took care of about 20 percent of the problem. But if we can

go after weapons systems, which arguably is one of the harder

things to go after, hopefully we can introduce, and you all can pass,

a bill that would take care of the remaining 80 percent. So I think

there are building blocks on which you can focus on to make serious progress.

Over on the Senate side, the last thing I would say, on a number

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essarily something that everybody agrees on, Mr. Grassley and Mr.

Levin are getting together and talking about how to close some of

those abuses and ways to raise some revenues.

So I think there are things and seeds that are out there, but we

need to focus on where we agree.

Mr. MOYLAN. I think that—and I submitted this in my written

testimony—that the amount of the dollars and cents is easy. It is

the political calculus that has been difficult. Just to explain part

of that, President Obama’s recent budget had some suggestions for

terminations, over $1 billion of which were repeated suggestions

from President Bush’s last proposed budget. So there are $1 billion

worth of reductions that both of those very different men agreed

upon that have still not been implemented in terms of reductions.

I think that those are things that we ought to be targeting. That is the low-hanging fruit. We identified $600 billion more that we

think is low-hanging fruit. And after that point, that is when we

can climb up a little higher, fight about what fruit to pick and how

big they ought to be.

And I can say that we as an organization and I as an individual

are committed to making that political calculus easier because that

is the only way we are ever going to get this done.

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

Chairman ISSA. Ms. Speier for 5 minutes.

Ms. SPEIER. Thank you, Mr. Chairman.

I have to say that if there ever was a moment in time when we

can come together and show the American people that Republicans

and Democrats want to save the taxpayers money, and we commit

to do that from this committee. I mean, we can change the world

in a small way, but a very significant way. And I think the fact

that Mr. Moylan and Mr. Kalman have come together from very

different places and have created a list for us of things that they

can agree on, then I would suggest, Mr. Chairman, we should sit

down and see if we can agree on these particular suggested areas.

If, in fact, the suggestion that we can save hundreds of millions of

dollars by just ending the orders for obsolete spare parts for the

military—come on. If we can’t do that, we should get the heck out

of here.

So I would suggest that we take this list, we come together, and

this committee come forward with at the very least a number, if

not all, of these suggested savings.

I want to—if we have buildings—we have 55,000 Federal buildings that are not utilized or underutilized. Let us just take the not

utilized ones and get rid of those.

Or the folks that are living in areas that continue to flood, and

we are spending $891 million on repeat claims, where 1 percent of

the policies are generating 25 to 30 percent of the claims. I would

like to know what that specific number is. We could probably give

them $500,000 apiece to buy homes in other areas and save a lot

of money.

So those are the kinds of things that I would like to see us pursue, Mr. Chairman.

Let me ask about this Market Access Program. This, to me, is

pretty outrageous that we are paying Sunkist and McDonald’s to

advertise in France and other locales around the world. What could

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possibly justify us to continue that program? Will each of you respond to that?

Mr. SCHATZ. We have all been looking at this for quite some

time. NTU and CAGW have been cosigning letters on this program

for probably 10 years. Representative Chabot from Ohio, who was

recently elected, used to bring amendments to the floor every year

on the appropriations bills. And I believe an amendment was being

offered on the continuing resolution. I don’t know what happened

to it.

I do know, by the way, that the National Drug Intelligence Center amendment was adopted, so hopefully that will finally disappear.

But Market Access, it is the power of the companies that get the

money that keeps it going, and we hope that there is now the political will to say this is a huge amount of corporate welfare, should

be eliminated. There has been bipartisan support, but just not a

majority so far. But it is really due to the power of these companies

and their lobbying operations coming in and saying, no, no, we

really need this million dollars. It is going to help increase sales

and jobs. And, by the way, we have a plant in your district.

Mr. MOYLAN. I would say that while it is absolutely key to point

out that there are large corporations that are benefiting from it, it

is not just corporations. There are also large trade associations that

are, of course, comprised of a lot of those that benefit as well, and

they make very high-minded arguments about raising demand for

certain types of products. There was an article recently where a

gentleman was making the argument that we need to raise foreign

demand for cotton so that we have greater demands for products

that the cotton farmers in this country are producing.

The way that we look at it as an organization is that entities like

this that have significant profits on their own ought to be able to

fund their own advertising and promotion techniques. And taxpayers have many more important things to deal with. And whether you know, as Gary said, whether the budget situation is good

or bad, it does not make sense to be subsidizing entities like that.

Mr. KALMAN. I would just quickly add that, you know, there presumably is a debate to be had whether or not the Commerce Department has a role in going out to open up foreign markets for

American businesses.

When you start saying, no, no, no, we’re going to get specific

companies to advertise to sell Big Macs in Paris, the argument

really begins to fall into the absurdity. And so we would argue that

whatever original purpose the program may have had, it’s completely veered off that original purposes and is now not serving any

kind of purpose that promotes any value to the American taxpayer.

Mr. SCHATZ. By the way, very cleverly, they changed the name

from the Market Promotion Program, when it was promoting our

products, to Market Access, meaning we want access to markets

overseas because they may be excluding our products. So even

there it sounds even a little better than what they had in the past.

Ms. SPEIER. My time is almost expired. Just tell me some of the

companies, besides Sunkist and McDonald’s—who are the other

companies receiving money?

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Mr. SCHATZ. Our report notes Nabisco; Fruit of the Loom; Mars,

Inc. There’s a long list of many others where that came from.

Ms. SPEIER. Thank you. I yield back.

Chairman ISSA. Thank you.

We’re going to do a very brief second round.

Mr. Kalman, I kind of cut you off without being able to answer

the question, but I’ll rephrase it, and I’ll do it this way. I had a

prominent bank chairman, somebody with a seven-figure salary

and the large home in a low-tax State, who came in to see me. He’s

a little older than his wife. He has a 10 and a 12-ayear-old, but

he’s over 65. His two children each receive $800 a month because

back in Lyndon Johnson’s day we decided that retirees should have

supplemental funds and death benefits that would go to the children directly over and above.

We talked about corporate welfare. Is there any reason today

that shouldn’t be part of the waste within Social Security? If somebody’s making a six- or seven-figure salary, just because they’re

over 65 and have children under 18, should we automatically continue that? And that’s why, when I said entitlement, everything is

an entitlement once we write it into law. But is it really an entitlement to somebody who doesn’t need the money and for a program

that actually never defined its real purpose; is there a purpose to

give children under 18 $800 simply because one of their parents is

over 65, even if that parent is still working and earning a handsome income?

So I’ll leave it to you, because this is about waste, it’s about government waste, but the two biggest potential rocks in the knapsack

of our country that might take us down are Social Security and

Medicare, in the opposite order. If you would like to respond.

Mr. KALMAN. Sure.

Chairman ISSA. And, by the way, that’s not going to completely

balance the budget if we just do away with the high income over

65 with children under 18.

Mr. KALMAN. I understand and appreciate that.

Let me say two things. One is, just to be quite frank, is that U.S.

PIRG doesn’t take positions on the level of benefits for Social Security or Medicare. That said, we actually do have in our——

Chairman ISSA. And the question wasn’t is that a wrong benefit?

It’s is it the type of benefit that Congress should look at anew relative to recategorizing it in some way for means testing, or at least

not to make it an automatic entitlement?

Mr. KALMAN. And I apologize, we don’t have a specific position

on that. But let me say this, that we do think that, for example,

there are a number of things in Medicare and Medicaid in particular that should be looked at. We’re not against looking at that.

In fact, in Medicaid, for example, there are a number of States in

which name-brand pharmaceuticals have gotten into the States to

adopt actuaries that forbid Medicaid from purchasing generic drug

alternatives. So Medicaid ends up spending a lot more money than

they otherwise would——

Chairman ISSA. They’ve lobbied for built-in monopolies.

Mr. KALMAN. Protections. So people who say, oh, we should leave

entitlements off the table, we think that there are huge efficiencies,

billions and billions of taxpayer dollars, that program that’s not

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just—I mean, obviously we can all agree on the actual fraud in

Medicare, we should go after that——

Chairman ISSA. By guarantee your housing, it shouldn’t have to

be the Ritz Carlton?

Mr. KALMAN. Exactly. So we do believe that there are opportunities to make huge savings in those programs by looking at how

they’re actually being implemented. On that side we can agree.

Chairman ISSA. Any other responses?

Mr. MOYLAN. I would also point out, and you touched on the public opinion portion of it, that I think that there is something of a

structural problem in how these programs are reviewed. People are

well aware of the payments that they make into these systems for

years and decades, and so I think they, to some extent rightly, feel

that when they get to retirement age, that they ought to be able

to draw upon those benefits as they were promised to them.

Chairman ISSA. If they only knew that they only pay into Part

A; B, C and D are not, in fact, paid for out of withholding, but rather through general tax revenue.

Mr. MOYLAN. Well, it’s a more basic problem than that, which is

that when Social Security was first drawn up, it was not something

akin to a forced savings program. We had this pay-as-you-go system. I think that’s a part of the big disconnect that we face here

today, and that’s a part of what makes dealing with these programs more difficult than it might otherwise be.

Chairman ISSA. I’m going to ask one closing question very quickly because this one hits home. In a little while I think we’re going

to have an amendment that we’re going to vote on that would make

an across-the-board cut to the branch, literally to consider further

cutting the budget that the ranking member and I share to try to

go after waste and misuse of government funds, and I’m probably

going to vote no because I don’t believe you cutoff the auditor’s

fund in order to get better running of an enterprise.

But in this report that’s already in, I noticed something. There

is a proposal here that Members of Congress cutoff franking in

election years; in other words, not just 90 days, but cut it off altogether. I’d appreciate a little elaboration because I found it to be

very insightful that although I think we should be able to respond

to inquiries—in other words, our mail should continue—but the

history of franking right up until the eve of the cutoff for the primary or general is certainly something that, if we look at ourselves

through a fair mirror, we’re going to see something we don’t like.

Mr. SCHATZ. Well, first, the Senate does limit franking——

Chairman ISSA. I yield to the gentlelady from California.

Ms. SPEIER. Thank you, Mr. Chairman.

I must say that I have discovered the franking, ‘‘benefit’’ to be

outrageous. And if you want to associate on that issue, I would be

delighted.

Chairman ISSA. I thank the gentlelady.

Ms. SPEIER. And I found that out by happenstance. I was doing

a one-a-year newsletter to my constituents to tell them what I had

done during the year and found out it was going to cost $100,000

to send it out, and I refused to do it. And with the eve of the electronic newsletter and everything else we have at our disposal, I

think that benefit should cease.

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Mr. SCHATZ. As we said in the report, in the days of the Pony

Express, this might have made sense, but it certainly doesn’t now.

There’s so much information—Twitter, Facebook, My Space—I

don’t want to leave anyone out—e-mail, texting, town hall meetings, tele town halls—if a Member of Congress wishes to let their

constituents know what they’re doing, there are so many outlets

now that did not exist before that we believe firmly, and we have

always believed this, that a Member of Congress should only respond to a constituent if they’re asked a question, because that’s

a legitimate function of what Members of Congress do. We’ve got

C–SPAN, we’ve got everything going on. There’s more information

now about the hearings with the new rules.

Chairman ISSA. We are both being advertised here today with

this hearing, I’m sure.

Mr. SCHATZ. Exactly. Exactly. So I think that this is something

whose time has come. And I know NTU in particular has done a

great job on this issue over the years, so I would love to have Andrew make a comment as well.

Mr. MOYLAN. I mean, we’ve done a tremendous amount of work

on abuses of the franking process. But I wanted to touch on sort

of the more general point that you made.

I often make the argument that one of the reasons that I believe

so deeply in limited government is precisely because I don’t think

that we spend enough money on the things that matter. And that’s

why across-the-board cuts ought to be sort of a last resort rather

than a first resort, because, as our organizations jointly have pointed out and many others, there are higher-priority things, and there

are lower-priority things, And we ought to start by eliminating the

lower-priority things first. And so I think that a franking benefit

is among those. As Tom pointed out, there are innumerable ways

that you can communicate with our constituents that don’t require

taxpayers to underwrite it, and I think that we ought to pursue

those.

Chairman ISSA. Thank you. And I know that if I had gotten into

the study of malt liquor and marijuana, in combination, which is

being funded, we might have had another 10 minutes, but I recognize the ranking member for final comments.

Mr. CUMMINGS. Thank you very much. I want to thank you all

for being here.

And I just want to go to you, Mr. Schatz, and make one quick

comment. I was listening to your responses with regard to public

employees. I think we have to be very, very careful when we try

to make these comparisons and contrasts, and I think you’ve been

sensitive to it.

And I know you all speak in a lot of places, and you tell a lot

of stories, but this is what I want you to tell them: Almost every

one of my employees on this committee took a substantial pay cut.

They are here night after night. Many of them—we have Harvard

Law School graduates, I mean, sitting right up here. And I’m sure

that—I don’t know what happened on the other side, but what I’m

saying is we’ve got a lot of great people who do a lot of sacrificing.

And I tell you, it makes me want to scream sometimes when I

hear—and I’m not just talking about Democrats, I’m talking about

Republican staff, too—about public employees and how they’ve got

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these high salaries, and they couldn’t do better in private industry.

I guarantee you, most of them could. But you’ve got a lot of people

who dedicate their lives to just trying to do what is right and make

things better for people. And I get kind of emotional about it because I hear it over and over again, and I think it’s quite unfair

so often.

Then I want to talk about this whole thing of systemic fraud. I’m

doing a speech at Howard University soon, and I’m going to be

talking about the fact that we need to create a new normal. And

that is is that it seems like, when I listen to the thing about contracting, I think it has become normal for certain contractors to expect to fraudulently get money from the government. It has become

a part of the process. And that’s sad, it really is. And so that’s the

normal.

And, I mean, I think it was the chairman maybe was asking

questions about—it was somebody on the Republican side, and it

was a very good question—about is this criminal, is it whatever?

And I think it was Mr. Dodaro who said something about, well,

there’s a certain threshold that we look at and whatever.

But the fact is is that the normal has become ‘‘let’s get something

from the government.’’ And I’m convinced that we can do better

than that, we really can.

And when I think about where we are with regard—and I was

mentioning this to the chairman a few minutes ago—where we are

with regard to technology, you know, the things—we can literally

take GPS and zero in on somebody’s back yard. You mean to tell

me we can’t keep up with contracts, I mean, particularly when

these contracts are costing the American people so much money?

I agree with the chairman with regard to our mission statement.

This is bigger than us, and it’s bigger than one party. It’s bigger

than Democrats and Republicans. It’s about taking the hard-earned

dollars of Americans and trying to make sure that they are spent

effectively and efficiently.

And the two things that I just said are linked, the thing about

employees. We’ve got a lot of great employees, and I think we need

to be careful about beating up on them all the time. And I’m not

just talking about the people up here. They’re the same public employees that collect our trash, the same ones that deliver our mail.

I mean, that’s real. And a lot of these people, I think, probably

most of them, are underpaid.

And at the same time, we also need to use our technology to—

we’ve got the bashing over here, but then we need to move to our

technology and say, OK, how do we use this technology to bring

that effectiveness and efficiency to government to help those employees accomplish the things that they need to accomplish? That’s

what it’s all about.

And so we can spend, spend, spend—and we’ve been concentrating on spending here lately—but we also need to—and I think

the chairman said it in his opening that when we find ways that

we can save money, we need to double-down on that. We need to

do that because if we can save some pennies, that means everybody

benefits. And when government is really doing things effectively

and efficiently, we all benefit. And then that way we bring value,

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more value, to the lives of all Americans, and that’s what it’s all

about.

Thank you very much, Mr. Chairman.

Chairman ISSA. I thank the gentleman, and I thank our witnesses today. I think if there’s ever a time in which points were

scored for the American people and not by one party or the other

here on the dais, today was that day.

Again, I would like to thank all the witnesses for their testimony.

The record will stay open for 7 days. If there are additional comments that you would like to have placed in the record, I would ask

unanimous consent at this time that you would able to do so. And

without objection, so ordered.

[The information referred to follows:]

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Chairman ISSA. And with that, we stand adjourned.

[Whereupon, at 1:56 p.m., the committee was adjourned.]

[The prepared statements of Hon. Justin Amash, Hon. Edolphus

Towns, Hon. Gerald E. Connolly, and Hon. Bruce L. Braley follow:]

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