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73–679 PDF 2012

S. Hrg. 112–557 

ASSESSING EFFORTS TO COMBAT WASTE AND 

FRAUD IN FEDERAL PROGRAMS 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 28, 2012 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

MARK BEGICH, Alaska 

SCOTT P. BROWN, Massachusetts 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

JOHN KILVINGTON, Staff Director 

WILLIAM WRIGHT, Minority Staff Director 

DEIRDRE G. ARMSTRONG, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statements: Page 

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

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

Senator Brown .................................................................................................. 5 

Prepared statements: 

Senator Carper ................................................................................................. 41 

Senator Brown .................................................................................................. 45 

WITNESSES 

WEDNESDAY MARCH 28, 2012 

Hon. Daniel I. Werfel, Controller, Office of Federal Financial Management, 

Office of Management and Budget ..................................................................... 8 

Sheila O. Conley, Deputy Assistant Secretary for Finance and Deputy Chief 

Financial Officer, U.S. Department of Health and Human Services ............... 10 

Beryl H. Davis, Director, Financial Management and Assurance, U.S. Government Accountability Office .................................................................................. 12 

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

Pennsylvania ........................................................................................................ 14 

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

York ....................................................................................................................... 17 

ALPHABETICAL LIST OF WITNESSES

Conley, Sheila O.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 54 

Davis, Beryl H.: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 61 

Platts, Hon. Todd Russell: 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 93 

Towns, Hon. Edolphus: 

Testimony .......................................................................................................... 17 

Prepared statement .......................................................................................... 95 

Werfel, Hon. Daniel I.: 

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

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

APPENDIX 

Questions and responses for the Record from: 

Mr. Werfel ......................................................................................................... 97 

Ms. Conley ......................................................................................................... 107 

Ms. Davis ........................................................................................................... 108 

Chart referenced by Senator Carper ...................................................................... 111 

Chart referenced by Senator Brown ....................................................................... 112 

Chart referenced by Senator Carper ...................................................................... 113 

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(1) 

ASSESSING EFFORTS TO COMBAT WASTE AND 

FRAUD IN FEDERAL PROGRAMS 

WEDNESDAY, MARCH 28, 2012 

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:35 p.m., in Room 

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

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Brown and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The hearing will come to order. 

I understand that there are votes going on in the House, and 

they are about to wrap those up and Representatives Platts and 

Towns will be joining us shortly. I suggest Senator Coburn will go 

ahead and make some opening statements, and then we will yield 

to our witnesses once they have arrived. 

Today’s hearing will focus on the very high levels of improper 

payments that are made by Federal agencies as well on our efforts 

to curb these wasteful and sometimes fraudulent payments. 

As everyone in the room knows, we have faced record budget 

deficits in recent years. Our national debt today stands at about 

$15.4 trillion, well over double what it was just 10 years ago. I do 

not think we have had a debt situation like this since World War 

II. It was not sustainable then, and we know it is not sustainable 

now. 

In order to address the burden that this debt places on our country, I think we need a new kind of culture here in Washington, DC, 

Senator Coburn, God knows, he is for it, and I have tried to be a 

reasonably good partner with him, in trying to replace a culture of 

thrift with a culture of spendthrift. And we have a lot of folks, including some people in this room, that have been great partners 

with us in this. 

We need to look in every nook and cranny in the Federal Government, find out what works, do more of that; find out what does not 

work and do less of that. One of the things that work in terms of 

reining in inappropriate spending is to do a better job with improper payments. We are pleased that we are making some 

progress, and we have a lot more to do. 

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2 

1The chart referenced by Senator Carper appears in the appendix on page 111. 

Before I go any further, I think it is important to maybe explain 

what it means for a Federal agency to make improper payments. 

An improper payment, for those who are not familiar with it, occurs when an agency pays a vendor for something they did not receive or maybe even pays a vendor twice for something they do receive. It can occur when a recipient has died and is no longer eligible for payment or when a vendor owes the government money and 

should not be getting a payment until that is repaid. And of course, 

sometimes people or companies receive payments that are actually 

fraudulent. 

According to the Government Accountability Office (GAO), the Federal Government made an estimated $121 billion in improper 

payments in fiscal year (FY) 2010. That was a record high. I was 

encouraged to learn recently that the early data for fiscal year 2011 

shows a drop in the level of improper payments to about $115 billion. That is down from $121 billion, to about $115 billion, even 

though more agencies are now reporting their improper payments. 

For example, the 2011 estimate includes improper payments for 

the Medicare prescription drug program for the first time. 

And this drop is welcome news and suggests that the years of 

collective efforts, bipartisan efforts here in the Legislative Branch 

and works of a couple of Administrations—the Bush Administration, the Obama Administration—and a bunch of other folks are 

beginning to bear some fruit. 

I think we probably have a chart1 right here. $115 billion—who 

would have ever thought that would be good news, but it is better 

than $125 or $130 or $135. 

So we are heading in the right direction. We just have to keep 

going that way and try to get going that way even faster. 

Despite some progress that has been made, error rates and the 

amount of money lost to avoidable errors still clearly remains at 

unacceptably high levels. What disturbs me most about this problem is that we seem to make these kinds of mistakes at a rate 

much higher than a business or the average family would tolerate, 

or could afford, and we keep making some of them over and over 

again. 

As you recall in 2010, Congress passed, and President Obama 

signed into law, the Improper Payments Elimination and Recovery 

Act which Senator Coburn, Senator Lieberman and I and others 

had worked on. And this new law aims to make agencies and agency leadership far more accountable for the expensive mistakes that 

they sometimes make, and it represents a bipartisan and bicameral 

success in trying to prevent waste and fraud. 

The 2010 law does essentially four things: First, it compels Federal agencies to make a more honest accounting of the errors that 

they do make. Second, it requires agencies to take steps to stop 

making errors. And, it requires agencies to try and recover improper payments when they are made. And finally, it directs that 

top managers be evaluated in part by how well their agencies comply with the new law. 

I like to say there are four things that the law does. One, it says, 

we want you to not only report improper payments; we want you 

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3 

to stop making them. We want you to go out and recover the monies that have been improperly paid, and we want to make sure that 

the folks that are running those agencies, that somehow their evaluations, their performance is measured by their compliance with 

that legislation. 

Today, I want us to focus on an important new measure that 

would help all Federal agencies prevent, detect and recover improper payments—bipartisan legislation that Senator Collins, 

Brown, Lieberman and I co-authored, S. 1409, the Improper Payments Elimination and Recovery Improvement Act, and it is now 

making its way through the Senate. This measure builds upon the 

2010 improper payments law. 

Our new bill recently passed by Unanimous Consent in the 

Homeland Security and Government Affairs Committee (HSGAC). 

Last month, the bill was introduced in the House, led by our first 

panel’s witnesses who are going to arrive shortly—Representatives 

Todd Platts and Edolphus Towns. And let me just take a moment 

and talk about some of the provisions of our bill. 

Too often, Federal agencies make improper payments to individuals who could easily be identified as ineligible. Some of these individuals are applying for benefits using a false address. Others may 

not meet the criteria for eligibility. 

And to their credit, the Obama Administration represented here 

today, through executive action, is establishing a Do Not Pay Initiative, and this effort involves screening recipients of Federal 

funds against a list of those ineligible to receive those funds before 

we cut the check. For example, before an agency could award a contract to a company, the agency would have to cross-check against 

the Do Not Pay database which will include a central, comprehensive database of companies and entities that are no longer allowed 

to do work with the Federal Government because of a fraud conviction or for some other reason. 

And S. 1409 would establish the Do Not Pay Initiative in the law 

throughout the Federal Government and make several important 

improvements to the initiative and add tools and procedures to 

help agencies access data. 

Finally, the bill would establish a series of recovery audit contracts to ensure that agencies actually recover overpayments. Recovery Audit Contracting has proven very successful in the private 

sector as well as in several Federal agencies. It worked in the State 

of Delaware where we used it in concert with our State Division 

of Revenue to collect revenues that we were finding difficult to collect. 

So it has worked in the private sector. It has worked in States, 

in the local governments and a number of Federal agencies, including with the Medicare program. There, we have witnessed recovery 

of improperly spent Federal taxpayer dollars approaching, I think, 

$2 billion in recent years, and we expect those recoveries to continue to grow. They need to. 

There are additional initiatives that agencies are undertaking 

that the witnesses will describe. I am especially interested in initiatives that we will hear about today that address improper payments by Federal programs that are run by State agencies such as 

Medicaid and Unemployment Insurance. 

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4 

Let me conclude by noting that we are here today in large part 

because we believe that we have a moral imperative to ensure that 

the scarce resources we put into Federal programs are well spent. 

We must use every tool available to put our fiscal house back in 

order and give the American people the government that they expect and that they deserve. It is the right thing to do on behalf of 

the taxpayers of this country, who entrust us with their hardearned money. And by working together on this latest in a series 

of common sense initiatives, we can take another important step 

forward in earning their trust once again. 

And with that having been said, let me turn to Senator Coburn 

with my special thanks for all that he has done and continues to 

do on these funds. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Well, thank you, Mr. Chairman. I appreciate 

your being here, and I am looking forward to our witnesses’ testimony. 

I note out of the $115 billion up there the vast majority of that 

is Medicare and Medicaid fraud, but it is still a significant amount 

of money. 

We put out a report in October 2010 on the billion dollars that 

we pay to dead people from the Federal Government in the 10 

years before that, and that is an underestimate. 

The thing that frustrates me and should frustrate every American that pays taxes is it is not hard to compare to the Death Master File of the Social Security Administration (SSA). I mean, that 

is a computer program that says before we pay anything we are 

checking these Social Security numbers. It still does not happen. 

That is inexcusable that it is not happening. 

And maybe it is $100 million a year. Maybe it is $500 million a 

year. But that is one of the easy things we could do to eliminate 

improper payments—is just mandate starting tomorrow that 

against the Death Master File every payment will be made. 

The other thing is looking at the IRS, people who owe taxes. We 

are not doing anything. 

We have a report coming out that is going to outline the number 

of contracts that have been paid and made to people who are in arrears, not under judgment, not under question but under arrears 

to payments that are duly owed the Federal Government. We continue to contract with them. We continue to pay money to people 

who have not fulfilled their obligations to pay their taxes. 

So there are a lot of things we can do. I know that everybody is 

working on it. I know it is hard. But the point is we do not have 

$115 billion to make in improper payments. 

And to be fair, all improper payments are not overpayments. 

They are underpayments, a portion of them. But the vast majority 

is overpayments. 

So I am thankful that we are having the hearing. I appreciate 

your leadership, Senator Carper. 

Nobody in America can figure out why we continue to pay dead 

people money—LIHEAP payments, Medicaid payments. We have 

dead doctors writing prescriptions that we are paying for. We have 

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5 

medical supplies going to people who are dead, and it goes on and 

on again. 

The last thing I would say, there is an act—bipartisan—I think 

37 Senators now co-sponsoring, bipartisan, on the FAST Act which 

helps Centers for Medicare and Medicaid Services (CMS) eliminate 

this vast majority of improper payments and fraud, and yet, we 

cannot get it to the Senate floor. There is something wrong when 

37 percent of the Senate would like to have a discussion about an 

issue and the Majority Leader will not bring it to the floor, and it 

is something that will actually save us billions and billions of dollars every year. 

With that, I yield back. 

Senator CARPER. Thanks, Senator Coburn. 

And Scott Brown has joined us. 

We welcome you and you are recognized. 

OPENING STATEMENT OF SENATOR BROWN 

Senator BROWN. Well, thank you, Mr. Chairman. Good to be back 

in the hearing status. I am actually at another hearing, then going 

to another one and then this one. So I will be bouncing back and 

forth, so please no disrespect to you or any of the panel members 

or any of our folks watching. 

Senator Coburn sounded a little exasperated, and rightly so, with 

the fact that we are dealing with improper payments of approximately $115 billion. 

When I got here, $11.95 trillion national debt. It is over 15, what, 

3 and rising, no end in sight. It continues to grow at unsustainable 

levels never seen before, and as the government becomes bigger 

and bigger players in our lives. 

Now I have concerns about if we are having all this fraud, waste 

and abuse now, what happens if the President’s health care plan 

stays in effect and you have all these new people coming onto the 

program. What does that say to that effort in terms of the fraud 

that potentially could be perpetuated against the government in a 

lot of the plans and services that are available? So that deeply concerns me. 

The government’s role has increased, so has its inability to handle the basic functions such as making proper payments, as we 

have referenced—$104 billion. 

And as I have many times before, I am concerned about, as I 

said, the health care bill and how that is going to exacerbate the 

problem. 

And Washington is not paying its current bills, let alone paying 

future bills. I have to say that it is depressing sometimes that 

Washington is not getting on a fiscal path that would make sense 

for the average household or average business even though these 

improper payments are about $1.3 billion. 

Well, in getting back—I am sorry. We are only getting back $1.3 

billion out of the $104 billion recoverable. It does not make any 

sense to me. 

And while the government’s improper payment problem is depressing, I continue to be encouraged, quite frankly, and I speak 

often. You probably hear about it because you have so many tentaH605-41331-79W7 with DISTILLER

6 

cles throughout the country about how I commend you for your efforts. 

And me being on this Subcommittee has been enjoyable, that we 

have identified a lot of that fraud, waste and abuse and really 

brought some good panels in here to discuss those challenges. And 

I know for a fact that they have actually gotten their act together 

more, which has resulted in great savings to the people of this 

country. 

And I am willing to continue to work with you not only as a 

friend but as a Senator, to try to get these things done. So I look 

forward to the panels getting here and moving on. Thank you. 

Senator CARPER. Thanks for your kind words and for being part 

of, I think, a bipartisan team on these important issues. 

While we are waiting for Congressman Platts and Congressman 

Towns to arrive, I do not know if there is anybody here from their 

staffs. Is there? 

If someone could give us an idea what their estimated time of arrival (ETA) might be, that would be helpful, and while you are 

doing that I will tell a quick story. 

I get up in the morning pretty early, work out at the Young 

Men’s Christian Association (YMCA) in Wilmington, Delaware and 

head on to the train station where I catch the early train to come 

on down here and go to work. And a couple of months ago I was 

listening to the National Public Radio (NPR), and listening to the 

news. I catch the news right at 7 on my way to the train station. 

One day back in the fall they were reporting on a news story, 

and it involved an international study that had been conducted. 

And the international study was focused on what is it about people’s work or their jobs that they like, what is it that makes people 

say oh, I like this about my job or I like that about my job. 

Some people said the thing they liked about their job was getting 

paid. They like the paycheck. Some people said, oh, they like vacation or they like having health care; they like having a pension. 

Some people said they like the people they work with or maybe the 

conditions and the environment in which they worked. 

But you know what most people said? Most people said that the 

thing they like most about their job was the fact that the work that 

they were doing was important and they felt that they were making progress. That is what most people said. 

As Senator Brown suggests, we do a whole series of hearings. We 

think they are important. And they all focus, for the most part, on 

how to get better results for less money. 

In a day and age when our deficits are as large—even though 

they are coming down, they are still frightening large—we need to 

get, in almost everything we do, better results for less money. 

So I think what we are doing is important. And even though 

$115 billion is a lot in improper payments, it is better than $121 

billion, and it is especially better than $121 billion when you consider that we have added a number of new programs for parts of 

our Federal Government that are being reported on, including the 

Medicare Prescription Part D Program. 

So a lot of betting people would have said that when we were at 

$121 billion a year or so ago, that maybe this year instead of seeing 

the number drop it would have actually gone up even higher, but 

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7 

it did not go up higher. It came down. So for that we are grateful, 

and for the efforts of everybody who is helping to make that possible, we are especially grateful. 

So with that having been said, my inclination is to, rather than 

go to the second panel, is to ask Peter Tyler who is sitting over my 

left shoulder to let me know what is the ETA for Congressman 

Platts and Congressman Towns, and then we will decide. If we do 

not have a good answer here, or the right answer here, like right 

now, then we are going to recess. What do you think, Peter? 

Peter suggested that we just adjourn and go the Dubliner. 

[Laughter.] 

It is a nice afternoon. He says we are making progress here. Why 

do we need to have another hearing? 

Senator Brown says, let’s have some crabs. 

No, I think, why do we not just go ahead and invite the second 

panel up? 

What will happen when our members of the House are able to 

join us, we might just stop what we are doing and call on them to 

make whatever statements they want and then we will go back to 

our second panel. But we will just ask, Deirdre, if we could, just 

bring the second panel to the floor. 

And we thank you all for rolling with the punches here. Thank 

you very much. 

And I would just say to staff of either of the Congressmen, if you 

have a sighting or you have an update on an ETA, if you could give 

that to Peter, that would be just great. 

All right, let me give a brief introduction if I can, of Panel 2. 

Daniel Werfel, Controller, Office of Management and Budget 

(OMB), and he probably has testified before us more times than he 

wants to remember. 

We are just delighted that you could be here today, and we welcome you. I am going to truncate the introductions—but we are 

grateful for you and for your service. From the Department of 

Health and Human Services (HHS), Sheila Conley. 

Sheila, nice to see you. One of my favorite names, I may have 

told you this before—my sister, Sheila; a former legislative director, 

Sheila; a former cat named Sheila. It is a big name in our family, 

so we welcome the Sheilas. 

Now serving as Deputy Assistant Secretary for Finance and Deputy Chief Financial Officer—that is a big job over there. 

And finally, Beryl Davis of the GAO. Beryl, thank you. Director 

of Financial Management and Assurance, GAO. We love working 

with GAO and thank you all and your colleagues for the great work 

that you do for our country. 

All right, Mr. Werfel, you are the lead-off hitter. Please proceed. 

Thank you for coming and for your efforts. 

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8 

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

TESTIMONY OF HON. DANIEL I. WERFEL,1 CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF 

MANAGEMENT AND BUDGET 

Mr. WERFEL. Thank you, Chairman Carper, Ranking Member 

Brown and distinguished Members of the Subcommittee, for inviting me to discuss the Federal Government’s efforts in preventing, 

reducing and recapturing improper payments. I appreciate the opportunity to speak before the Subcommittee again about this important topic. 

In 2011, the government made $115 billion in improper payments. We can all agree that improper payments degrade the integrity of programs and compromise taxpayers’ trust in their government. That is why combating improper payments has been a 

leading priority of the Administration’s Campaign to Cut Waste. 

Our intensive efforts to reduce improper payments are guided by 

the President’s bold goals and by key ingredients such as transparency, accountability, collaboration, and innovation. 

These efforts are producing real results. We are on track to meet 

or exceed the bold goals set by the President, having decreased the 

governmentwide error rate sharply, from 5.4 percent in 2009 to 4.7 

percent in 2011. 

Senator CARPER. When I read your testimony, the question of 5.4 

percent of 4.7, that was of what? I think I know, but just go ahead 

and tell us. 

Mr. WERFEL. So 5.4 percent of all the dollars out there. If there 

were $100, then a 5.4 percent error rate would mean that we have 

made $5.40. 

Senator CARPER. No, it is not all the dollars out there. 

Mr. WERFEL. It is not all the dollars out there. It is all the dollars that are under the law, under the Improper Payments Elimination and Recovery Act, have been identified as being a significant enough risk for error that the law requires that we measure 

them, so that there is a whole class of programs that we do not 

measure because under the framework in the law we have designated them as low risk. So our denominator in this case are the 

programs that we are actually measuring. 

Senator CARPER. All right. Thanks. 

Mr. WERFEL. So as I was mentioning, the error rate fell from 5.4 

percent in 2009 to 4.7 percent in 2011. I used a base of $100, but 

when you use a base of what we are talking about in Federal outlays, that is a significant amount of money that makes up that reduction. 

In fact, if we did not take the bold steps necessary to drive this 

decrease, if the error rate had remained at 5.4 percent, the government would have made tens of billions of dollars in additional payment errors that we did not make. 

We have also nearly met the President’s goal to recapture $2 billion in overpayments to contractors, and that is over a year ahead 

of time from our original plan. 

Today, I would like to highlight three important initiatives that 

are driving our progress in this area. 

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9 

First, the 2009 Executive Order (EO) on Reducing Improper Payments, which we believe represents a fresh approach to addressing 

this issue. We have made great strides in implementing the Executive Order by identifying agencies with high error programs that 

account for the majority of improper payments, establishing supplemental measures to provide more frequent and current measurement for high error programs, and selecting accountable officials 

responsible for reducing erroneous payments. And all of this information is readily available to the public at PaymentAccuracy.gov, 

another required element of the Executive Order. 

The second key initiative is the enactment and implementation 

of the Improper Payments Elimination and Recovery Act (IPERA) 

of 2010. Last year, OMB released guidance to agencies on implementing IPERA to ensure that they, the agencies, are properly assessing risk in their programs, measuring and reporting on improper payments, and establishing corrective action plans and reduction targets. IPERA also expands agencies’ authorities and requirements for recapturing overpayments and creating sanctions 

for agencies that are found noncompliant with the law by their Inspector General (IG). 

The third key initiative is our implementation of the President’s 

Do Not Pay solution. In June 2010, the President issued a Memorandum on Enhancing Payment Accuracy through a ‘‘Do Not Pay 

List,’’ directing the establishment of a single point of entry where 

agencies could access relevant data before determining the eligibility for a payment or an award, thereby avoiding paying ineligible 

recipients. 

The Treasury Department is currently in the process of implementing the Do Not Pay solution for the rest of government, which 

will provide a robust tool that agencies can access to determine eligibility information prior to making an award or payment. I want 

to emphasize that recent congressional support of the Administration’s proposal to fund this effort at Treasury is a significant contribution to our ability to prevent improper payments, and I want 

to thank this Subcommittee in particular for your leadership in 

this area. 

Finally, I would like to highlight the important steps outlined in 

the President’s Fiscal Year 2013 budget that will help reduce improper payments. The budget includes a suite of proposals that will 

increase program integrity across a number of agencies. If enacted, 

these policies would result in $102 billion in savings between 2012 

and 2022. 

When the President took office, improper payments were on the 

rise. But through decisive action by both the Administration and 

Congress, working together, we have successfully reversed this 

trend. This year, we saw error rate reductions in almost every 

major program with a history of significant errors, including Medicare, Medicaid, the Supplemental Nutrition Assistance Program 

(SNAP), rental housing, the Earned Income Tax Credit (EITC), Pell 

Grants and supplemental security income at SSA. 

Yet, despite our successes, we still have a lot of work to do. We 

have to work diligently to reinforce our collective commitment to 

responsibility and accountability for all taxpayer dollars and make 

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10 

1The prepared statement of Ms. Conley appears in the appendix on page 54. 

clear that no amount of waste in our Federal programs is acceptable. 

Thank you again for inviting me to testify. I look forward to answering your questions. 

Senator CARPER. Thank you so much, Mr. Werfel. 

And Sheila Conley is next and please proceed. 

Your whole statement will be made part of the record. Please 

summarize as you see fit. If you run much over 5 minutes, I may 

rein you in, but if it is not a lot we will just let you go. 

TESTIMONY OF SHEILA O. CONLEY,1 DEPUTY ASSISTANT SECRETARY FOR FINANCE AND DEPUTY CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Ms. CONLEY. Good afternoon, Chairman Carper and Ranking 

Member Brown. Thank you for the opportunity to testify about the 

U.S. Department of Health and Human Services’s continuing efforts to reduce improper payments, a responsibility we take very 

seriously and are committed to fulfilling. 

I would like to begin my remarks by thanking the Subcommittee 

for its sustained leadership in this area. I understand the Subcommittee has had many hearings on improper payments, helping 

to shine a light on this very important financial accountability 

issue. 

As the largest department in the Federal Government, with outlays approaching $900 billion, strengthening program integrity is a 

top priority for Secretary Sebelius, which extends to every member 

of HHS senior leadership and throughout all of our offices and programs. Given the size, complexity and diversity of the programs we 

operate, we must remain committed to the highest standards of 

program integrity and financial accountability to fulfill our mission. 

While we have made significant progress over time, we recognize 

that this is a continuous effort and more work remains to further 

prevent and reduce errors in our programs. 

Today, I would like to provide information from a departmentwide perspective about how we are fostering communication, and 

collaboration across our programs, and identifying solutions and 

best practices, to prevent and recover improper payments. 

What are improper payments? Simply stated, improper payments 

can be payments made to the wrong person, in the wrong amount, 

or for the wrong benefit or purpose. They also include payments 

that lack documentation. 

Improper payments provide a measure for assessing the adequacy of our internal controls and estimating the extent of improper payments in our program. They are not measures of fraud 

although the term is often used interchangeably. 

As far as our progress and results, HHS has been focusing on improper payments since 1996 when our Office of Inspector General 

(OIG) established the first error rate for the Medicare Fee-for-Service Program. Since then, we have developed error rate measurements for our other programs and continue to strengthen those 

H605-41331-79W7 with DISTILLER

11 

programs by identifying root causes, implementing corrective actions and reducing improper payments. 

For fiscal year 2011, the error rate declined for 5 of our 6 programs that reported rates in fiscal year 2010, including 2 of the 

government’s largest programs—Medicare and Medicaid. While we 

have made substantial improvements since we first started measuring errors, we know that our efforts to prevent and reduce improper payments require continuous, ongoing vigilance. 

As we implement program-specific corrective actions, HHS also 

continues to identify and share best practices in several promising 

areas that could have a significant positive impact on our programs. 

First, we are leveraging technology. HHS, with the support of 

this Subcommittee and others in Congress, has been a leader in 

using technology to prevent, detect and reduce errors. For example, 

HHS leads the Public Assistance Reporting Information System 

(PARIS), a Federal-State partnership that provides data matching 

capabilities to all 50 States, Washington, DC, and Puerto Rico, to 

assist them in detecting errors in State-administered programs 

such as Medicaid, the Temporary Assistance for Needy Families 

(TANF) and child care. 

The second focus is breaking down barriers between agencies and 

strengthening partnerships. One partnership in particular is an ongoing relationship with Federal and State agencies. Each year, we 

work with State officials to strengthen the relationship with them 

and the programs that they administer on our behalf. 

The third area is exploring innovative ways to further improve 

our integrity efforts. Last fall, HHS announced three new demonstration projects in the Medicare Fee-for-Service Program that 

aim to reduce improper payments by focusing on error-prone areas. 

What are our efforts to recover improper payments? 

Well, our priority is to make payments correctly. HHS is also aggressively recovering improper payments when they do occur. 

The Medicare Fee-for-Service Recovery Audit Program has been 

very successful to date. In fiscal year 2011, the program recovered 

close to $800 million in overpayments to providers and suppliers, 

with another $400 million recovered in the first quarter of fiscal 

year 2012. 

Moreover, the Affordable Care Act expanded the Recovery Audit 

program to include Medicare Part C, D and Medicaid. When fully 

implemented, HHS Recovery Audit programs will cover more than 

85 percent of the department’s annual outlays. 

As to our future efforts, HHS has demonstrated a longstanding 

commitment to measuring, reducing and preventing improper payments, and I want to assure you that this area is, and will continue 

to be, a priority for the department. We look forward to working 

with this Subcommittee, and our Federal and State partners, to ensure that we continue to be responsible stewards of taxpayer funds. 

Thank you for the opportunity to testify today. I would be happy 

to answer any questions. 

Senator CARPER. Great. Thanks so much for your testimony. 

Beryl Davis, please proceed. 

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1The prepared statement of Ms. Davis appears in the appendix on page 61. 

TESTIMONY OF BERYL H. DAVIS,1 DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. DAVIS. Chairman Carper, Ranking Member Brown and Dr. 

Coburn, thank you for the opportunity to be here today to discuss 

the issue of improper payments in Federal programs. My testimony 

will address progress reported by agencies in estimating and reducing improper payments, challenges in meeting current requirements to estimate and evaluate improper payments, including the 

results from our review of the Department of Health and Human 

Services Foster Care Program, and possible strategies needed to 

enhance the government’s efforts to reduce improper payments. 

Progress is being reported by Federal agencies in estimating and 

reducing improper payments. In fiscal year 2011, Federal agencies 

reported estimated improper payments of $115.3 billion, a decrease 

of $5.3 billion from the previous year. This figure is about 4.7 percent of the total $2.5 trillion on related program outlays. 

The estimate was attributable to 79 programs spread among 17 

agencies. The 10 programs with the highest dollar amounts of improper payments counted for about $107 billion, or 93 percent, of 

the total outlays. The 10 programs with the highest improper payment rates had rates that ranged from 11 percent to 28 percent. 

While progress is being reported, the Federal Government continues to face challenges in determining the full extent of improper 

payments. Some agencies have not yet reported estimates for all 

risk-susceptible programs. In addition, some estimating methodologies may need to be developed or further refined. 

For example, GAO’s recently completed study of Foster Care improper payments shows that the Administration for Children and 

Families had established a process to calculate a national improper 

payment estimate for the Foster Care Program which totaled about 

$73 million in fiscal year 2010, the year that was covered by GAO’s 

review. We found, however, deficiencies in all three phases of the 

program’s estimating methodology—planning, selection and evaluation. 

In planning, the methodology was exclusively limited to maintenance payments. However, such payments represent only one-third 

of the total Federal share of Foster Care expenditures. 

Regarding selection, a high percentage of replacement cases were 

used in the sample of cases selected due to inaccurate information 

in the population data. 

And in evaluating results, procedures were lacking on how to 

identify payment errors related to underpayments and duplicate, or 

excessive, payments. 

GAO determined that the improper payments estimate was not 

based on a statistically valid methodology and, consequently, did 

not provide a reasonably accurate estimate of the extent of Foster 

Care improper payments. Further, GAO found that the program 

could not reliably assess the extent to which corrective actions reduced Foster Care improper payments. 

Given the amount of Federal dollars flowing into risk-susceptible 

programs, continuing activities are needed to move forward in the 

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13 

following three improper payments reduction strategies: First, 

identifying and analyzing root causes of improper payments; second, implementing effective prevention controls to avoid improper 

payments in the first place; and third, implementing effective detective controls to identify and recover overpayments. 

Regarding root causes, identifying and analyzing the root causes 

of improper payments is key to developing effective preventive and 

corrective action plans. 

We found that only about half of the 79 programs with improper 

payment estimates in 2011 reported this information using the 

three root causes categories established by the Office of Management and Budget. Without detailed and specific information on root 

causes, agencies are hampered in their ability to take actions needed to prevent and reduce improper payments. 

Regarding preventive controls, strong preventive controls serve 

as the front-line defense against improper payments, and many 

agencies are in the process of implementing such controls. Preventive controls involve a variety of activities such as up-front validation of eligibility through data sharing among agencies and predictive analytic tests to identify patterns of high risk for fraud. 

Addressing program design issues is another preventive strategy. 

For instance, improper payments may actually be reduced by 

streamlining or changing complex and inconsistent program eligibility requirements. 

Finally, regarding detective controls, agencies need effective detection activities to quickly identify and recover those improper 

payments that represent losses to the government. Recovery auditing, such as that used in the Medicare program, is a means of identifying contractor overpayments. Detection activities can also provide information as to why improper payments were made, thus 

highlighting areas that need better preventive controls. 

Chairman Carper, Ranking Member Brown and Dr. Coburn, this 

completes my prepared statement. I would be happy to answer any 

questions you may have. 

Senator CARPER. Well, that is perfect timing because as you were 

wrapping up, our two representatives just walked in. I am going 

to ask if you all just will retain your seats, and I am going to ask 

Chairman Platts to come up and Ranking Member Towns to come 

up and just to sit. 

You all just stay in your seats. 

And, Deirdre, if you will just put their name tags on. 

And Congressman Todd, you could sit on the first seat here, right 

there, and I would ask Congressman Towns to come up and sit 

over here next to Beryl Davis from GAO, please. 

I understand you guys have been voting, and we were told that 

you took up and passed the Senate’s Transportation Bill by unanimous consent. Well, that is great news, and we applaud you for 

that. I am just kidding. 

Mr. PLATTS. Mr. Chairman, I thought I made all the votes, but 

apparently, I missed that one. 

Senator CARPER. Well, we are delighted that—— 

Mr. PLATTS. I wish you were accurate. 

Senator CARPER. So do I. 

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1The prepared statement of Mr. Platts appears in the appendix on page 93. 

I am not going to spend a whole lot of time on introduction. We 

have two good guys here, one of whom I have served with back 

starting in 1983 in the House of Representatives—Congressman 

Towns. My neighbor over in Pennsylvania is Todd Platts, and he 

is the kind of guy who likes to work across the aisle and just is 

very common sense, good ideas, just a very solid legislator, a good 

human being. 

And I am going to ask you just to make whatever comments you 

want. 

And thank you very much for letting me come over and testify 

before your committee about the works that Senator Coburn and 

I and others have done on improper payments, and if you are willing, you and Congressman Towns, to co-sponsor our updated 

version of improper payments legislation. We are on the right 

track. We are making some progress. We are going to make a lot 

more with your help. 

So, please proceed. Thank you. 

TESTIMONY OF HON. TODD RUSSELL PLATTS,1 A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA 

Mr. PLATTS. Thank you, Mr. Chairman, Ranking Member Brown, 

Senator Coburn. Certainly an honor to be here with each of you 

and to be joined by my Ranking Member, Mr. Towns. I appreciate 

your holding this hearing on the very important issue of waste and 

fraud in Federal programs and especially allowing Edolphus and I 

to have the opportunity to come over. And apologize for our delay 

with the floor votes. 

Senator CARPER. That worked out just fine. Thank you. 

Mr. PLATTS. Thank you. 

As Chairman, along with Ed as Ranking Member, of the House 

Committee on Oversight and the Subcommittee on Government Organization, Efficiency and Financial Management, we certainly 

share your commitment to improving financial management 

throughout the Federal Government and to reducing improper payments by all departments and agencies. Improper payments are the 

most observable result of poor financial management, and the costs 

associated with these improper payments are very clear and translatable to the American taxpayer. 

In fiscal year 2011, as each of you I know well appreciate and 

understand this number, $115 billion in improper payments. As we 

struggle with fiscal sanity here in Washington, that number is 

staggering. 

While this estimate gives us a general idea about the amount of 

improper payments made each year, it certainly does not take into 

account all those that go undetected. In fact, many departments 

and agencies, and especially the Department of Defense (DOD), are 

not able to accurately determine what their improper payments 

are. 

The Department of Defense cannot pass an audit, and we certainly are hopeful that by 2017 they will be able to, and the interim goal of 2014 with the budget, their budgetary resources audit 

that Secretary Panetta is pushing. Both the Government AccountH605-41331-79W7 with DISTILLER

15 

ability Office and the DOD’s Inspector General have said that the 

Department of Defense is at a high risk of making significant improper payments. 

Thus far, in the 112th Congress, Ranking Member Towns and I 

have had several subcommittee hearings focused on improving financial management at the Department of Defense, and we are focusing especially on the DOD’s statutory mandate to be audit-ready 

by 2017. 

Our subcommittee is also focused on improper payments within 

Medicare and Medicaid programs. And this year, most recent 

year—2011—these two programs accounted for almost $65 billion 

in improper payments, over 56 percent of all identified improper 

payments in the Federal Government. While the Centers for Medicare and Medicaid Services have made steps to prevent and recover 

improper payments, there remains to be much additional work for 

us to do right by the American taxpayers, to ensure that their 

money is properly spent and these important social programs are 

implemented more efficiently and cost effectively. 

During the 111th session of Congress, I was pleased to support 

your legislation, the Improper Payments Elimination and Recovery 

Act of 2010, Senate Bill 1508. This Act certainly is an important 

step in the right direction to strengthening agency financial management and incorporating more stringent risk and performance 

management tools. It also focused on recovering improper payments through business analytics and recovery audit contractors. 

I am encouraged that as we now are in the 112th session and 

more than halfway through, that again, House and Senate members, Republicans and Democrats alike, are working together to 

enact legislation to further strengthen financial management and 

prevent improper payments. 

The Improper Payments Elimination and Recovery Improvement 

Act of 2011, which you and Ranking Member Brown, along with 

my home State Senator, Senator Casey, have introduced, is another 

important step forward for improved financial management. I am 

pleased to be the Republican lead sponsor of the companion legislation in the House which, as you referenced, Ranking Member 

Towns introduced earlier this year. 

This legislation seeks to focus on high priority programs and 

high dollar overpayments. Additionally, for the first time, agencies 

would have to identify the recipients of improper payments. Hopefully, these provisions will be even more effective in helping government to recover improper payments. 

Maybe most importantly, in this new legislation, is that it proposes a Do Not Pay Initiative. And I know that is something, Mr. 

Chairman, that you have championed as a key part of our efforts 

if we are going to be successful here. 

Under the proposed legislation, agencies will be responsible for 

checking Federal databases such as the Social Security Administration Death Master File, the General Service Administration’s Excluded Parties List Systems and the Department of Health and 

Human Services’ Office of Inspector General’s List of Excluded Individuals and Entities prior to making any payments. This Do Not 

Pay Initiative would make it easier for agencies to identify frauduH605-41331-79W7 with DISTILLER

16 

lent recipients and prevent payments to deceased individuals, 

thereby stopping improper payments before they occur. 

Prevention of improper payments is far more effective than a 

pay-and-chase approach which has been the approach up to now, 

and certainly, this will put much greater accountability in all Federal Government spending. 

The American people deserve a government that is responsible 

and accountable. However, our Nation’s citizens all too often see a 

trend of waste and mismanagement. 

Over the past decade, the Bush Administration and the Obama 

Administration have made reducing improper payments a governmentwide priority. And as evidenced by today’s hearing, this is a 

priority shared by Republicans and Democrats, Senators and Representatives alike, here in Congress. 

Mr. Chairman, Ranking Member Brown and Senator Coburn, I 

certainly look forward to continuing to work with you and your 

Subcommittee, along with my Ranking Member as one year before 

us. 

As I referenced today, I am the Chairman; Ed is the Ranking 

Member. In the past, he has been the Chairman; I have been the 

Ranking Member. I know I will not be the Chairman next year as 

I retire at the end of this year from Congress, and Mr. Towns, I 

am sure, would claim the chairmanship again when given the opportunity. 

But we look forward to continued work with you and to have this 

bicameral, bipartisan approach to doing right by the American people. 

One of the most important fiduciary responsibilities we have is 

how we handle the hard-earned tax dollars of every American citizen. We do that well in some departments and agencies. We do it 

poorly in others. And because of your efforts and legislation you 

sponsored in the past and again this session, working together, we 

can do better and we can make sure that every dollar that is sent 

to Washington is used in an efficient, effective manner and a responsible manner. 

Certainly, honored to be here today and appreciate the opportunity to share my sentiments with you. 

Senator CARPER. Thank you very much for testifying, for your 

kind words about really collective efforts. This is a team here, and 

we work that way as you know. And, so do you. 

And it is just great to see my friend, Ed Towns and to welcome 

him back. Whether he is the Chairman or the Ranking Member, 

we are just delighted to see him. 

Looking over his background and bio, I noted he and his wife 

have now been married over 50 years. That is, as Joe Biden likes 

to say in situations like this, for her, no purgatory, straight to 

heaven. And he says the same thing about my wife as well. But 

that is extraordinary in this day and age. We are delighted that 

you are still at it. 

He and I started together in 1983 in the House of Representatives, Class of 1982. He was, I think, about 18 at the time, and now 

he is all grown up and just continues to do a great job. 

It is great to see you, Ed. Please proceed. 

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1The prepared statement of Mr. Towns appears in the appendix on page 95. 

TESTIMONY OF HON. EDOLPHUS TOWNS,1 A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF NEW YORK 

Mr. TOWNS. Thank you very much, Mr. Chairman. If I had 

known you were going to say all those nice things, I would have 

brought my wife along. [Laughter.] 

Chairman Carper and Ranking Member Brown and Dr. Coburn, 

this is a subject that is critical to all of us charged with the oversight of Federal financial management, especially in this time of 

economic uncertainty. 

The Federal Government has been in a long struggle to cut out 

the wasteful spending that can occur when improper payments are 

made. In fiscal year 2009, the improper level stood at $125 billion. 

By fiscal year 2011, Federal agencies have reduced the improper 

payment level to $115 billion, and the trend appears to continue 

downward. Reversing the trend is a very significant achievement. 

Still, the level of improper payments remains unacceptably high. 

On November 20, 2009, the President signed an Executive Order 

on Reducing Improper Payments. The Order resulted in the establishment of PaymentAccuracy.gov, a Web site which keeps the 

American public up to date on how government agencies are reporting on and addressing improper payments. The Order also resulted in the identification of those government programs with a 

high dollar value of improper payments as high priority programs, 

so we could focus on broad-based solutions to the issues. 

In 2010, President Obama issued a Memorandum on Enhancing 

Payment Accuracy through a ‘‘Do Not Pay List,’’ and Finding 

and Recapturing Improper Payments. As a result, the 

VerifyPayment.gov Web site was created to prevent ineligible recipients from being paid repeatedly. 

Additionally, using payment recapture audits, the agencies have 

recovered nearly $1.9 billion in improper payments for the Treasury as called for in the President’s memorandum. This puts the 

government well on track to achieve $2 billion recovered improper 

payments by the end of the fiscal year. 

In July 2010, President Obama signed one of the most important 

recent pieces of legislation into law, the Improper Payments Elimination and Recovery Act of 2010 authored by you, Senator Carper. 

And, I want to salute you for that. 

Senator CARPER. Just for the record, authored by the two T.C.’s 

over here—Senator Coburn and myself. 

Mr. TOWNS. Oh, fantastic. 

Senator CARPER. It is a very good partnership. 

Mr. TOWNS. Fantastic. And that is why I have joined you, Senator Carper and Senator Coburn, and sponsored in the House 

chamber the Improper Payments Elimination and Recovery Improvement Act of 2012. 

The legislation gives agencies tools to identify and report improper payments accurately. 

It also makes agencies more accountable to the public by including the requirement that high dollar improper payments be reported to the agency Inspector General as well as on the 

PaymentAccuracy.gov Web site. 

H605-41331-79W7 with DISTILLER

18 

Another critical element of the legislation would be to require 

Federal agencies to verify payee eligibility before making payments 

and screen potential vendors before awarding government contracts 

by mandatorily checking off the Do Not Pay List, checking it. 

Finally, the legislation would increase the number of payment recapture audit programs to more than 10 so that the government 

could maximize the recovery of improperly made overpayments. 

The financial future of the United States requires sustained attention from more than one source. I firmly believe that the President’s focus on the elimination of improper payments, coupled with 

the tools that have been included in the proposed legislation, will 

go a long way in reaching the goal of efficient financial management and a strong financial future for our country. 

And I want to thank you again, Mr. Chairman. Working together, I really think that we can curtail this problem. 

I regret that my colleague and partner over the years, that we 

have sort of ping-ponged back and forth in terms of being Chair 

and Ranking, he is not going to be with us in the next Congress, 

but I want to assure him that we will continue to work on this and 

that the work he has done in the past that is going to set us on 

the right path also will not be forgotten. 

So I look forward to working with you and the Members of your 

Subcommittee to make certain that we put an end to this. I think 

that we can do a whole lot better, but it requires working as a 

team to be able to do it. 

Senator CARPER. Great. Our thanks to both of you, not just for 

being here and testifying but for the sense of partnership that you 

bring to these issues. 

Senator Coburn and I were talking earlier this week about 

whether or not we might want to package together some legislation 

like this, the Improper Payments Improvement Act (IPIA), our 

FAST Act that deals with trying to really go after a lot of the problems we have with waste in Medicaid and Medicare, and maybe 

package that together with some of the stuff that several of us 

worked on—Senator Brown as well, Senator Coburn—on surplus 

properties, what to do about surplus properties. And maybe about 

three or four bills like that, put them all together and try to move 

them as a package. 

And we have problems with scoring from CBO, but we think we 

have a way maybe to deal with that and could maybe move something that would be offset and save in the long term, we are convinced, lots and lots of money, which is what we are interested in 

doing. And if we are able to move that, we will certainly want to 

work with you toward that end. 

In the meantime, we are just delighted that you have taken this 

bull by the horn and are working it from your angle. Thank you. 

Any questions for our witnesses. 

Mr. BROWN. No. Thank them for coming over. Thank you. 

Senator CARPER. OK. Again, so much for all you are doing over 

there and thank you so much for coming. 

Mr. PLATTS. Mr. Chairman, if I may. 

Senator CARPER. Please. 

Mr. PLATTS. I certainly appreciate, as I said earlier, the bicameral and bipartisan approach here. In the American public 

H605-41331-79W7 with DISTILLER

19 

1The chart referenced by Senator Brown appears in the appendix on page 112. 

today, there is certainly a lack of confidence in the ability of Republicans and Democrats to work together in Washington. And I think 

this is an important message that probably from a fiscal standpoint, no more better example of a bipartisan, bicameral approach 

because it is about protecting their money, that we are willing and 

excited to work together across the aisle, across the Capitol Building, and get the job done on their behalf. 

And again, honored to be with you today. 

Senator CARPER. You bet. Thank you both so much. 

Mr. TOWNS. Same here. I also want to thank these other witnesses who have been so valuable over the years in terms of giving 

us information and working with us. I want to thank them also for 

their testimony as well. 

Senator CARPER. I second that. 

All right, thank you, gentlemen. We look forward to seeing you 

soon. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Thank you, Congressmen—collectively, men. We are all focused 

on the witnesses here today. 

First of all, thank you, Mr. Werfel. I appreciate your coming, obviously, other witnesses as well. 

I just want to refer to the chart1 here, if I could for a minute. 

You have $104 billion of improper payments, and yet, we are only 

recovering 1 percent. I would rather have it be the other way 

around, but we are recovering this and we are wasting this. 

The problem is when we are talking about bold goals of recapturing 1 percent I have to tell you it does not quite make sense to 

me. It does not add up. And you even referenced—and let me just 

backtrack. 

Whenever I am out speaking about this issue, which I do regularly at home, I think of you and your efforts. This is no reflection 

on you at all. So let’s just start with that. I am very complimentary 

of you personally when I am out there talking about it. But you did reference just now $2 billion in contractor recovery. 

You referenced that in your opening statement. Is that right? 

Mr. WERFEL. That is the goal, $2 billion, and we are at about $1.9 billion. 

Senator BROWN. OK that is over 3 years though. 

Mr. WERFEL. That is correct. 

Senator BROWN. And that is out of how much over that 3-year 

period that you would be collecting? 

And if you are collecting, hopefully, $2 billion over 3 years, how 

much are we actually losing in 3 years? 

Mr. WERFEL. That is the key question. If you would allow me, 

Senator, I would like to provide a little bit of an explanation of that 

metric and why we picked that goal. 

Senator BROWN. Well, let me just start with a basic question so 

the people listening—so on 1 year of overpayments on contractors, 

how much is that per year, approximately, give or take a billion? 

Mr. WERFEL. I am not exactly sure that we have the exact number. The way it works is we take all of the payments that go out 

to contractors, which is roughly half a trillion dollars a year. 

H605-41331-79W7 with DISTILLER

20 

Senator BROWN. Well, this is $104 billion per year just in improper payments and inadequate recovery. 

Senator CARPER. Over. 

Senator BROWN. Yes, and overpayments. 

Mr. WERFEL. Right. 

Senator BROWN. Just in overpayments. I was a little confused when you said we are getting $2 billion in contractor; we are hoping to get $2 billion. You did not reference 

that is over 3 years, first of all, because the average listener would 

have said, well, in a year, they are collecting $2 billion. But is it $2 billion out of $4 billion? Is it $2 billion over 3 years out of $300 billion? 

I think it is important to know because, first of all, I do not understand why we are paying out all this money. I understand the 

checks and balances and you say, we have a check list and we have 

to do this. It makes absolutely no sense to me. 

It is like one of the things when I have people say to me we have 

to raise taxes. We have to take the money. We have the Buffett 

Rule coming up. We have all these things that we are working on. 

Yet, the first thing that I think we should do, quite frankly, is fix 

this stuff. 

So I wanted to just see what actions are actually being taken to achieve real significant results, not just 1 percent of the $104 billion. 

Mr. WERFEL. Absolutely. Senator Brown, I think it is important 

first for me to just make one statement about the way in which improper payments are measured and where that $104 billion comes 

from because there is a really important nuance here that dictates 

why we cannot recover the full $104 billion, and that is the statute 

that we are operating under does not have us taking a universe of 

every payment and assessing whether it is an error. We work on 

a statistical sample. 

So let’s say we take 100 payments and we audit them and figure 

out whether they were right or wrong, and then based on what we 

find out of that 100 payments we extrapolate that conclusion to the 

total. 

So if I knock on John Smith’s door and say, I am auditing your 

payment, I found an error, that tells me in the sample about a 

broader error rate. And I can go to John Smith, and I can pull that 

money back and recover it. 

But I cannot go down the block, in many cases, to Jane Smith 

who was not part of the audit and say, because John Smith had 

an error and because I am expanding that to a universe, I am 

going to now think that your payment or a part of your payment 

is in error. 

So we have limits. 

Senator BROWN. Right. 

Mr. WERFEL [continuing]. In the amount of recovery we can set 

because the estimate that the $104 billion is representing is the 

statistical amount. 

Senator BROWN. Well, that may be. That is great. But certainly, 

it is billions. 

Let’s just say, OK, for what your argument, it is not $104 billion. Let’s cut it in half and have it be $50 billion. 

H605-41331-79W7 with DISTILLER

21 

You look at, for example, the Earned Income Tax Credit, has the 

highest error rate, an estimate error rate of almost 25 percent, 1 

in 4 payments being improper, and yet, the Treasury Department 

Inspector General’s report pursuant to IPERA states that the 

Treasury has no targets to reduce these improper payments until 

2014, and during that time, the Internal Revenue Service (IRS) estimates the government will make another $43 billion in improper 

payments for the EITC. 

I just do not understand when we are giving away money, hardearned taxpayer money, when we are cutting military by a half a 

trillion dollars potentially, we are cutting LIHEAP and other types 

of programs that people need, and yet, we are giving away money 

just through laziness sometimes. It just does not make sense. 

Am I wrong, or what? Just tell me if I am right or wrong because 

it is just not computing. 

Mr. WERFEL. There is a lot in your statement that you are right 

about. These are staggering problems and issues that we have not 

solved. 

Senator BROWN. Then how do you solve it? I tell you when I miss 

my cable bill I get like bill after bill after bill. Pretty soon, they 

are chasing— 

Senator COBURN. Causes you to do bad things. 

Senator BROWN. Yes. First of all, just for the record because it 

will be on the front page, I am not behind on my cable bill. [Laughter.] 

OK. I am not behind in any bills. I pay them the day I get them. 

But that being said, I think you know what I am trying to say. 

With the average bill, we get them over and over and over and 

over. Yet, we are talking about billions, and we cannot seem to get 

our handle on it. I do not get it. 

Mr. WERFEL. Well, these are tough questions. Let me start, and 

if I can have a minute, attack some of them from the perspective—— 

Senator BROWN. I am not trying to mess you up because I know 

you are working hard. 

Mr. WERFEL. Oh, no. 

Senator BROWN. I have enjoyed—what I would like you to say to 

me sometime is these are tough questions and this is what we have 

done. 

We have recognized that, for example, in the EITC program. In 

1975, it was started, and right from the beginning it had a problem. We passed 1994 legislation making it more difficult for prisoners to save EITC funds. 

In 2005, they said that prisoners are getting $300 million in these funds, and in 2010, the OIG reported that $78.5 million of 

that money is still going. And we voted for enhanced penalties for 

tax preparers who do not exercise due diligence. 

But I mean, how do we stop something as simple as that? You 

have a prisoner getting these funds—once again, simple things like 

that. 

It would be great if someone could come before—and we have 

had a couple of these hearings. People could come and say well, we 

stopped that prisoner problem. They are getting zero. That is what 

I want to hear. 

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22 

Mr. WERFEL. So let me make a few comments. First of all, as a 

general matter, most of our key indicators under improper payments are trending in the right direction. 

Senator BROWN. Agree. 

Mr. WERFEL. In major programs, the error rates are going 

down—— 

Senator BROWN. Agree. 

Mr. WERFEL [continuing]. And our recoveries are increasing. 

Can they increase more? Yes. 

Can we identify a larger universe of improper payments to recover? We can, and that is really what IPERA was driving at. 

If you go back just to fiscal year 2011, just on contracts, and 

there is about a half a trillion dollars out there in contracts. Agencies, as required by the law, reviewed every one of their contract 

dollars and came up with $408 million in improper payments—that 

is million, not billion—$408 million in 2011 and recovered $377 

million of it. And we ran over the past 10 years about an 80 percent recovery rate for where we have identified. 

I look at those numbers, and I think two things. 

I think, one, is that $408 million the full amount of improper 

payments within the universe of a half a trillion? Probably not, and 

so the expansion of our efforts to detect errors within our contracting base has to be a focal point, and it is. 

Then I look at the 80 percent recovery rate. I say, that is good. 

It is about a—B. But it is not good enough. And so how do we close 

the gap between 80 percent and 100 percent? 

And the answer to both questions, in my opinion, really revolves 

around leveraging technology, cutting-edge technologies that are 

starting to come into the forefront. 

If you look at agencies’ corrective action plans on their errors 

over the last 10 years, what you will see is a very important, stable 

and foundational set of corrective actions—training, clarifying policies, starting to build some modest data matching. 

What you do not see enough of, and this is where our emphasis 

point is on, is doing the types of things your cable company is 

doing—or your credit card company. So as soon as there is some 

type of anomaly in the data, as soon as something looks out of 

whack from their perspective, they have a broad network of information that triggers that error and feeds into a robust and cost effective risk management program that enables them to deploy resources smartly and effectively to go after the error and not deploy 

resources where this is not worth it from a business perspective. 

Those are the types of things we are focusing on, but sure, within 

the numbers, you will absolutely be able to point out—and within 

these programs—areas where we have massive disconnects and 

issues to close. 

And then, you will also be able to find areas where we are hitting 

home runs and really connecting. Just within EITC alone, I could 

recount for you, successes that would make you feel patriotic in 

terms of what we are doing to crack down on fraud, sir, and in the 

next breath I could talk to you about things that would get you 

very upset. 

And so, it is about closing the gap on the things that are making 

us upset. 

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23 

Senator BROWN. It is about consistency. 

And I want to thank you for your efforts, and I want to thank 

you for your progress. These are just things that I do not have the 

answers for. It is just killing me, but thank you. 

And I have to head to another hearing, Mr. Chairman. 

Senator CARPER. All right. Thank you so much. Dr. Coburn. 

Senator COBURN. Well, I want to try to answer Senator Brown’s 

question. 

Senator BROWN. I will be listening. 

Senator COBURN. It is not a priority everywhere, and that is a 

matter of leadership. 

I applaud what the GAO has done in terms of raising some of 

the questions, and Danny, I think you have done a wonderful job. 

I am hard on you at every one of these hearings. 

But the real question is when is it going to become a priority for 

everybody in a leadership position in the Executive Branch at 

every agency, at every level, that we are not going to send money 

out. 

We are going to be releasing a report here pretty soon that is 

going to show about 40 percent of the SDI payments are fraudulent. Now that is about $40 billion a year. No, it is not. It is about $30 billion a year. And that is not even 

on your all’s radar screen, nowhere close. GAO has seen it, but it 

is not even on your radar screen. 

So the first question I would have to you is when we get an estimate, and that is what it is—it is a statistical estimate—it is really 

a far undershoot of what is really going on. Would you agree with 

that? 

You do not have Defense Department significantly in there. You 

do not have Social Security Administration in there, significantly. 

Their numbers are way undershot. I can prove that their numbers 

are way undershot. So we are really probably closer to $200 billion, 

if you were just guessing, in terms of improper payments. 

The question I would have to you is, in your opinion, how far 

under are we since nobody knows in the Defense Department because they do not even know what is going on. How far under are 

we? 

Mr. WERFEL. I think your premise is correct, that we are under. 

The first time you introduced legislation was back in 2002—Improper Payments Information Act—and we had no inventory. And 

at that time and probably from 2002 to 2010, we were chasing a 

lot of programs that GAO had pointed out you still do not have a 

measurement for. And we had a very long list, 20 plus programs 

that we were trying to push the agencies as hard as we could to 

get those measurements in place so we would know what that 

number is. 

We are down to a few, and I think Ms. Davis, in her testimony, 

highlighted a few of them. So that list has shrunk immensely. 

I have been a big advocate of making sure that we are duly 

tracking in terms of making sure we are measuring every program, 

but not just focus on measurement, that we have enough that we 

need to attack the problem at its core as well. 

There are additional programs out there that we have not measured. DOD is an interesting one. 

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24 

Prior to IPERA, the way the legislation was structured in our understanding was that you did not need a statistical estimate for 

contract payments. You just needed to go out and surgically and 

forensically find the errors and where you found them, recover 

them. 

IPERA comes into play, and now it says you have to do more 

than that. I want to know the systemwide amount of error within 

DOD programs. And they have started down this process of measuring, but like the programs before them, it is taking them a year 

or two to get their sea legs under them and get that measurement. 

But to give you a more direct answer, I do not know the total. 

I would only be guessing, and I do not want to do that. But you 

are right, the number is an underreporting. Within the frame of 

programs that we do know about and we have measured, the numbers are trending in the right direction, in particular, Medicare and 

Medicaid, which is where I would be really concerned. 

As you mentioned in your opening, most of the dollars of that $115 billion, or half the balance sheet, are tied up in Medicare and 

Medicaid. And I am very thankful, and it is not just from praying— 

it is from a lot of hard work—that HHS has turned the tide on 

those numbers and every single major program in Medicare and 

Medicaid is trending downward. 

Senator COBURN. But they still do not have the tools, all the 

tools, that they need. 

Mr. WERFEL. Absolutely. There is still a corpus of improper payments there, that when you look at it, you have to be concerned. 

And we are, but there is progress. 

Senator COBURN. Is there any directive from the OMB to force 

the agencies to compare to the IRS Master Death File? 

Mr. WERFEL. I am glad you asked that question. There are a couple of issues there. 

And again, when I explain the complexities, I never mean them 

as an excuse. It is just a question of making sure we understand 

the raw materials that we are given and figuring out how to drive 

solutions to them. 

So there are two things with the Social Security Death Master 

File. There is a public file, and then there is a nonpublic file. And 

right now, we have seamless access to the public file, but it is incomplete because there is a timing issue and we do not always get 

the information from the States or whoever is required to report on 

the death information into our database. 

Senator COBURN. Where is that problem? Is that at Social Security turning the information around and giving it to you? 

Mr. WERFEL. It is. There are two elements to it. 

We have about 30 or so States that have signed on to do automated death reporting; 20 have not. We need to get to a point 

where everyone is doing automated death reporting. And even 

where the States are on, they have to be held accountable to get 

us that information so our database is complete. 

The other thing is that Social Security, because of legal issues 

surrounding the Privacy Act and other requirements, cannot give 

us the nonpublic file seamlessly. There is a lot of paperwork that 

needs to be done. 

So we need to get a complete file and get it to the agencies. 

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25 

Senator COBURN. Well, let me ask you; first of all, you do not 

have to have that. You can send numbers to Social Security, and 

they can say yea or nay without them ever exposing that list to 

you. 

So there are ways technically to get around that bump if you 

want to get around the bump. The problem is you do not have cooperation from the agency. That is the problem. 

Mr. WERFEL. I think that would be an operational solution that 

we have thought about it. I do not think we have considered it. We 

want to get all the information into the central Do Not Pay List 

and do it that way, but I think we are open to different suggestions. 

But you are right; when we first issued the Do Not Pay Memorandum in 2010, our conclusion based on IG reports, GAO reports 

and discussions with the agencies is there were a lot of lapsed controls in place in terms of are you checking these basic databases, 

whether they be the Death Master File, whether they be the Excluded Parties List before you are going out and making these 

awards and payments. 

And as a result of that, we issued the Do Not Pay Memorandum 

and two things happened. One, we called attention to every agency. 

We wanted to do know baseline, what are you doing. And if we 

heard back that they were not currently having robust matching, 

even with these disparate databases, we pushed them to move in 

that direction. The second piece is let’s bring all the data together 

and make it even less of an excuse because it would be much easier 

to access this information. 

Based on these steps and putting the Presidential signature to 

the policy, we do the very thing that you are calling for, which is 

creating an incented priority at senior levels because people care 

about this. If the President cares about it, the agencies will care 

about it. And there has been more attention to this type of data 

matching than before that memo came out, and we are making 

progress. 

We are not where we need to be. You are going to still see payments to dead people, but less payments to dead people than you 

did before. 

Senator COBURN. One final question if I may, is there any directive coming out of OMB for us to not be paying people who in arrears on their taxes? 

Mr. WERFEL. Yes, there is actually legislation that was enacted, 

I think in the 2011 Appropriations Bill, which requires us to essentially trigger and accelerate suspension and debarment proceedings 

for those entities that are in arrears. 

The big challenge we have here—again, I do not mean to push 

it back on Congress. The big challenge here we have is we do not 

have the ability to share the IRS data in terms of who is delinquent with the agencies so they know. We rely, believe it or not, 

on the contractors to tell us if they are tax-delinquent. 

Senator COBURN. I know. Anybody in here think that is stupid? 

Yes, it is crazy. 

So you do not have the ability, but you do have the ability to 

send a taxpayer identification number to the IRS and say, is this 

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taxpayer identification number in arrears? You do have that ability. There is nothing in the law that precludes you from doing that. 

And if it is in arrears, why in the world would we be sending 

somebody a check that owes us money? 

So the question—these are all just punching a button on a computer. I know it takes time to get that set up, but the IRS can handle that. I mean, that is just one punch over to the IRS and say, 

here is a taxpayer identification we need clearance to pay. 

And if there is a problem, then it should go to a specialist within 

the agency and say, call the contractor and say, hey, by the way, 

you are past due on your taxes or you have a problem that is not 

in dispute. 

I am not talking about stuff that is in dispute. I am talking 

about people who have had adjudication, that owe the money. We 

are not going to pay you until you pay that. 

And I will guarantee you, you would increase our payments to the IRS really fast when we are spending $500 billion a year on 

contractors and we have billions owed to the IRS, in arrears, for 

the very people we are doing business with. 

So is something like that possible to come out of OMB to direct 

that? 

Mr. WERFEL. I think we would have to look into it. I am not exactly sure, Senator, actually, whether the fact of a delinquency 

might be protected under Section 6103 of the Tax Code. It might 

not just be the amount of the delinquency. It might be the identity. 

So if we say here is ABC Corp. and they come back and they say 

they are delinquent, the very fact of them reporting to that I think 

may be protected by 6103. 

Senator COBURN. Well, if it is, will you get back to us because 

that is something Tom Carper and I can write a piece of legislation 

on that surely would fly through Congress, even in spite of our dysfunction right now, because nobody would agree we should be paying people who are not paying their fair share of taxes in this country, when they owe money and then we are paying it and they are 

pocketing it and not making the payments. 

Mr. WERFEL. I will do that. 

I just want to add one more point, which is where there are legal 

gaps in our ability to do things we are trying to go to the places 

where there are not. So there is a database that is maintained by 

Treasury called Debt Check, and it has a lot for the nontax debt. 

So when people owe us money through fees or loans or whatever 

and it is in arrears, we do have access to that and it is a big part 

of the Do Not Pay solution. 

This principle that people who owe money to the government 

should not be paid or not be paid their full amount or offset that 

payment in the amount they owe is central to our efforts. And 

where we can do it legally today, we are pushing as hard as we 

can. And when we cannot do it legally today, we have to partner, 

as you are saying, to surface that and get it out there so people 

know exactly what is going on with the law that is preventing 

these things from happening. 

Senator COBURN. Thank you, Mr. Chairman. 

Senator CARPER. We are going to followup in writing to go down 

the same path that Dr. Coburn is going, to find out what we need 

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27 

to do, not just the two of us but the House and Senate, what we 

need to do to enable us to go after the money that is owed and stop 

sending money to folks that owe us money or owe the taxpayers 

money. 

You said a couple of times in your response to him, we do not 

have the ability to do X or Y; we do not have the ability. Can we 

go back to that for just a moment and let’s drill down on that? 

In the legislation, the IPERA Improvement Act that we have introduced and reported out of Committee, do we address some of 

those ‘‘we do not have the abilities’’ ? And if there are some that 

we still need to do, you need to let us know. Go ahead. 

Mr. WERFEL. Yes, not as robustly the way it is—I think you have 

hit the right umbrella issue which is in order to do a better job in 

having agencies have real-time information on death, on delinquency, on all these issues, prisoner status, we need a better solution both legally and administratively. 

And what I mean by that is in some cases there are just barriers 

to the data coming over, with legitimate reason. It is not like those 

barriers are set up and people are scratching their head as to why. 

It is almost always a privacy and a data security issue that prevent 

us from getting that information. 

Our position is that you can balance that. You can find ways to 

protect privacy, protect data security, narrow the purpose for which 

the information is shared, and we think there is a high purpose in 

preventing error that should win the day in terms of that balance. 

What I have said about administratively is there are places today 

where we can legally access the data, but it is a tremendous 

amount of paperwork and all types of Federal Register notices that 

have to be published. And it can take months, unfortunately, to establish these very intricate agreements that are required under the 

Privacy Act or other laws. 

And again, we want to protect privacy. We want to protect data 

security. The question is, Is there a better way of functionally 

doing that so you do not have these months of delays as we work 

out all the paperwork? 

So in those two areas, I think the legislation can be a huge help 

if we can find that right language that achieves that balance and 

has everyone nodding their head in the same direction. This is 

good. It opens up the data for this very specific purpose of program 

integrity but, in doing so, protects privacy, protects data security 

and does so in a way that limits the amount of paperwork involved. 

I think that is the sweet spot. If we can get there, it will have 

a major impact. 

Senator CARPER. Yes. If our IPERA Improvement Act does not 

scratch all these itches, before we bring it up for a vote on the 

floor, maybe as part of this package that we are talking about 

doing we just need to make sure we have got to as many of those 

itches as we can, and we need your help to do that. 

Let me just ask Ms. Davis. You have heard this back and forth 

between Dr. Coburn and Mr. Werfel and myself. I would just welcome your thoughts, your advice, your counsel as our spokesperson 

from GAO on these issues. 

Ms. DAVIS. Thank you. 

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28 

Well, we do recognize that much progress is being reported by 

the agencies, and that is included in the testimony, and OMB has 

been a very key part of that process to enhance reduction in improper payments. 

There is no silver bullet. There is no easy solution to this. And, 

it is really multiple solutions or multiple strategies that are needed 

to really be effective, as talked about in the testimony. We need 

preventive controls. We need detective controls. Recovery auditing 

is an excellent vehicle and can help us in many situations, in many 

programs, to identify and recover improper payments. 

But we also need to look at preventive controls to prevent them 

from happening in the first place, and we need to look at the root 

causes of improper payments. Unless we know what the root 

causes are, we are going to continue to make those improper payments. So if we identify the root causes, we will be able to help in 

that regard. 

One of the examples that we gave in our testimony has to do 

with the number of programs that are reporting root causes within 

those three categories that have been established by the Office of 

Management and Budget, and only about half of the 79 programs 

are actually using those categories to identify root causes. 

But even those root causes may not be detailed enough or we 

need to drill down actually into some more specifics, again, to identify what the causes are in order to establish some preventive 

plans, internal controls and then also corrective action plans. 

And so, one other point I would like to make too in our testimony 

is the difficulties that agencies are having in actually estimating 

improper payments. As Mr. Werfel said, it is a statistical sample 

and hopefully, in most cases, a valid statistical sample. 

When we looked at the Foster Care Program, we found some 

issues there that were very challenging and needed to be corrected. 

For example, administrative costs, which are approximately 44 percent of the Foster Care Program, are not even included in the estimate of improper payments. 

So we have made a lot of progress, but we also have a long way 

to go. 

And a point too, of course, when you are working with programs 

that are a partnership with the Federal and the State governments 

your challenges become even more so. So Foster Care is an example; Medicaid is another example, of that. 

But progress is being made, and it is going to be—it is going to 

take many different strategies and a lot of hard work on the part 

of many agencies and individuals within those agencies in order to 

actually come up with a good solution. 

Senator CARPER. I will ask you this for the record too, but in 

terms of further changes that we should make in the legislation we 

are focusing on here today, we really need your input before we 

bring the bill to the floor, if we need to perfect it. I like to say if 

it is not perfect, make it better. If there are some ways that we can 

make this better and go after more of the money that is being lost 

to the Treasury, we need your help to do that, and we appreciate 

what you have done so far. OK? Thank you. 

If I could, another followup question to you, Ms. Davis. Again, we 

appreciate your being here this afternoon and the work that you 

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and your folks—is there anybody there behind you that works on 

this? Who is here with you today? 

Ms. DAVIS. It is number of staff members. Carla Lewis is the Assistant Director, and she is right behind me. 

Senator CARPER. Carla, would you raise your hand? 

All right. Anybody else? 

Ms. DAVIS. We have Gabbi Fagan. We have a number of people. 

Do you want me to have them all stand? 

Senator CARPER. Just raise your hands if you are a part of this 

team. OK. Good work. Thanks. 

Your testimony, obviously, makes some key points, a number of 

key points, about improper payments. I think we agree that with 

the improper payments, we—we still have a big problem. 

And one of the big problems—Dr. Coburn has referenced it—is 

the Department of Defense. Just help us figure this out. 

Leon Panetta, the new Secretary over there, he said, to his credit, that they are going to get their financials in shape. They are 

going to be auditable not just by 2017; he wants to beat that date. 

And when you have a guy who used to be Budget Committee 

Chairman in the House and OMB Director, Chief of Staff for the 

President—put somebody like that in as Secretary of Defense, and 

they care about these issues. And we have already seen a change 

of heart and attitude at the Department of Defense on other financial and auditing issues. 

Help us drill down a little bit on the Department of Defense. 

What do we need to do to get them to report more completely and 

to be part of this game? 

Ms. DAVIS. There were two very large programs, or one very 

large, but two programs under the commercial pay area in the Department of Defense that were not included in the governmentwide 

estimate this past year of the $115.3 billion, and one of them in 

particular is very significant. 

The estimating methodology, again going back to that key area 

of making sure you have a good methodology for identifying a good 

estimate of improper payments, is really key. 

One of the things that they are looking at is trying to develop 

a statistically valid methodology. To be specific, they have done 

prepayment reviews, they have done postpayment reviews, but 

they have not actually done a statistical sample that could be considered valid. And Mr. Werfel may be able to talk more specifically 

to that. 

They do, as you mentioned, have issues with their financial management systems. Obviously, there are a combination of issues. In 

order to identify, though, the amount of improper payments in 

their risk-susceptible programs, they are going to need to better define and better refine their estimating methodologies. 

Senator CARPER. What do we need to do—this would be for Mr. 

Werfel or for you, Ms. Davis. What do we need to be doing in the 

legislation that is out of Committee, that will come before the full 

Senate and, hopefully, the House later this year? What do we need 

to do to address the problems with the Department of Defense in 

underreporting improper payments? 

H605-41331-79W7 with DISTILLER

30 

Is there something that we can do in this legislation so we do not 

kick the can down the road or we do not just bemoan the fact that 

they are not fully reporting? What can we do? 

And I am going to ask you to respond on the record as well, but 

if you have any initial thoughts, please share those with us. 

Mr. WERFEL. I think, Senator, it is a similar question when I 

have sat before you and you have asked me this about their efforts 

to close their books and get us an audit opinion. 

I think the issue is about setting interim accountable milestones 

for DOD that are helping driving us, driving them to success. 

And it may be—and I think we need to sit down and look at 

this—that the original IPERA legislation did not get detailed 

enough with respect to that agency because, and to their credit, 

IPERA required each IG to evaluate compliance, as part of this 

framework of accountability. I think that is going to be a huge— 

and I can already see it being a huge—success in terms of making 

sure people are paying attention because now you have every IG 

evaluating agency compliance. 

Well, for DOD, the first time those reports were due were March 

15th. So they are hot off the presses, so March 15, 2012. 

And DOD’s IG came in with compliance. They found the Department of Defense to be compliant with the Improper Payments 

Elimination and Recovery Act, which is good. It demonstrates that 

DOD is taking these seriously. It demonstrates that they are taking on a more comprehensive approach. 

We have talked about the fact that they do not have yet a bona 

fide, statistically significant estimate for their contract payments, 

but I think the IG basically found that they are on a path and they 

made a first attempt this year, which is the typical way in which 

agencies do this. 

But the question then becomes—because I know this keeps coming up—there are pockets of areas within the Defense Department, 

and Senator Coburn was mentioning it, that there is a sense that 

they are not doing enough robust measurement, that they are not 

surfacing enough of these issues and studying them because the 

Congress believes that there is return on investment there, that 

there is efficiencies to be gained in doing so. 

We have to figure that out, but right now, the footprint of requirements that are in place under IPERA—right now, the Defense 

Department, according to their IG, is on track. 

And again, just like I mentioned to Senator Brown, there are examples within the Defense Department in which they are recovering improper payments and doing a good job that would make 

you feel good about where things are, and then there are issues 

and incidences and where there are frustrating areas of waste. We 

have to figure out where those frustrating areas are, highlight 

them and build a statutory framework that raises the profile of 

that as well. 

Senator CARPER. OK, Ms. Davis, do you want to respond any further on this subject? 

Ms. DAVIS. Just one point too, that we know that there have 

been a number of hearings on the DOD’s financial management 

issues, and we would encourage those hearings continue. We think 

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1The chart referenced by Senator Carper appears in the appendix on page 113. 

that is a good opportunity to get out on the table, some of these 

issues and how best to solve them. 

Senator CARPER. Good. We plan to do that. Thank you. 

Mr. Werfel no, I will tell you, Ms. Conley, if I could—let me just 

ask a general question about some Federal programs that are managed by State governments, a lot of which you, I think, have a 

whole lot of involvement in. 

State agencies run many large and important programs. I know, 

as a recovering Governor—Medicaid, Unemployment Insurance 

(UI) Fund, Temporary Assistance for Needy Families. My staff 

added together the improper payments for these State-run programs, and then prepared a chart.1 I do not know if we have it 

here today. I think the total was $40 billion, and this is out of a 

Federal-wide figure of 115, or so, billion dollars. 

Just looking at the year, fiscal year just concluded, but together, 

that total of $40 billion in improper payments, we have $22 billion 

for Medicaid, about $14 billion for Unemployment Insurance, a couple billion from School Lunch and a couple billion from the Supplemental Nutrition Assistance Program. 

I like saying that word. I do not know who came up with that. 

That is a good one. 

But if you would, talk with us about how we are doing in each 

of these four categories. First of all, just take them one at a time, 

from Medicaid to Unemployment Insurance, School Lunch, Supplemental Nutrition Assistance Program. Are they going up? Are they 

coming down? How are we doing? 

Ms. CONLEY. Senator, I would be happy to talk about Medicaid. 

We, at HHS, have many State-administered programs. Medicaid is 

among them. 

Senator CARPER. Yes. 

Senator COBURN. Also, there is the Children’s Health Insurance 

Program (CHIP), TANF, Temporary Assistance for Needy Families, 

Foster Care and Child Care. And perhaps, Mr. Werfel might want 

to speak about the other agencies’ programs. 

But with regard to the State-administered programs, what is 

really coming to light—and I think is a very important recognition 

that your Subcommittee has helped to reinforce with both the IPIA 

in 2002 and IPERA in 2010—is that we have a shared responsibility for improper payments and that it is not just one organization that is responsible for them. 

I think early on there was a sense that IPEA was a Federal law 

and Federal agencies were responsible for compliance. As we know, 

with the multitude of hundreds of programs that we administer at 

HHS, the real critical aspect about financial integrity, it may start 

at the Federal level, but the States are key partners as are many 

in the grantee community—nonprofit organizations, local governments, and the commercial sector. Many people, and many organizations from different perspectives are involved in carrying out 

these programs to the final point at which that Federal dollar is 

provided to the beneficiary it was intended to serve or provides a 

service that was intended. 

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So I think this notion of shared responsibility is a key one that 

has been recognized over the course of the last decade. 

I think the whole notion about interdependencies that we have 

is very critical because what we do at the Federal level affects 

what is going on at the State level and, again, all the way down 

through the entire apparatus that we deliver our services through. 

We have seen a lot of progress in the States. We are working 

with them closely. They are partners of ours. 

With regard to the many programs that we have, we see a common theme as we have gone into the error measurement process 

whereby once the rates are developed, and methodologies, we work 

with the States. They are a good indicator about how well the program is being carried out in that particular State. It is typically the 

50 States, Washington, DC, and Puerto Rico. 

And then, through education and outreach and conferences, better understanding about the payment processes, what is allowable 

under the programs, funding to assist with different eligibility determinations—that seems to be a key area for means-tested programs like Medicaid and Child Care, and you have SNAP up there. 

So it is very important that we are looking at things like integrated eligibility that will assist in terms of looking at the applicants’ eligibility. And typically, if they are eligible for one program, 

it is not too much different than the eligibility for one of the other 

State-administered programs that we have. 

Senator CARPER. Mr. Werfel, did you want to jump in here? 

Mr. WERFEL. Yes. 

Senator CARPER. But before we move too far, I want to come back 

to Ms. Conley and ask you to describe, if you will, some of the challenges and the opportunities for helping State agencies to check 

with each for finding duplicate enrollees in some of these Federal 

programs. I want to especially hear about the so-called PARIS program. I do not know if this would be a good time to ask you that, 

and then we will move over to Mr. Werfel, or not. 

But if we could, Mr. Werfel, let me just ask Ms. Conley to just 

give us some information about the PARIS program. 

I understand it is a good tool. It is designed for this purpose and 

not yet fully utilized by the States. If you could take a few minutes 

on that, that would be great. 

Ms. CONLEY. Sure. Yes, you referred to PARIS, and PARIS 

stands for the Public Assistance Reporting Information System, 

and that is run by one of HHS’s operating divisions which is the 

Administration for Children and Families (ACF). 

It is a data match system whereby information from five different programs are sent to—actually the Defense Department, 

serves as a provider of computer services for this purpose of running this data match, but it is overseen by ACF. 

It assists with providing interstate data matches so that States 

can see. It is sorted by Social Security number of folks receiving 

benefits in five programs. Those are TANF, Medicaid, Child Care, 

Worker’s Comp, and SNAP I believe is the fifth one. 

And so, the States can then see—if they are paying benefits to 

individuals in their State, they can see if those same individuals 

are receiving benefits under the same programs in different States, 

thereby being able to make a determination about where is the apH605-41331-79W7 with DISTILLER

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propriate State that should cover those costs. So it has been very 

promising there. 

In addition, PARIS also matches up information that they receive 

from the Office of Personnel Management and the Defense Department about Federal employees and retirees and also folks in the 

military as well as files from the Veterans Administration (VA). 

And so, this information, bumped against those same Social Security numbers, has proven to be very helpful to States to assist 

with figuring out that the beneficiaries are indeed receiving the 

right kind of benefits that they are entitled to. For instance, many 

folks in States, low income veterans, may be receiving Medicaid in 

States whereas they had served honorably and are entitled to 

health care benefits from the VA. So through this process, individuals have been discovered who should actually be receiving benefits 

through another provider and, in this case, the benefits that would 

be appropriate for a veteran. 

So it is a tremendously useful tool to States. It is free. There is 

no charge. There is no charge for the data matches. However, the 

cost in terms of resources is that the States would then need to research the various matches. And if there are problems with data 

integrity, then that can increase the amount of workload on the 

States to try to run down and see if those hits were indeed indicators of someone that was being paid on their rolls inappropriately. 

Senator CARPER. I hear from my Governor in Delaware and I 

hear from other Governors around the country that their budgets 

are being squeezed by the growth of Medicaid costs and they expect 

that to continue as the Affordable Care Act and some other provisions of the Affordable Care Act are implemented. It would seem 

to me if I were Governor I would be looking for every tool I can 

find to help me save money in the Medicaid program. 

Just think out loud, any of you—Mr. Werfel, Ms. Davis—just 

think out loud about how we could—light a fire is the wrong word 

to say under some of the States, but to make sure they are fully 

aware of the opportunity here that is really been foregone. What 

would be your counsel, any of you? 

Come and take advantage of this. 

Mr. WERFEL. Yes, just going to this chart, just a quick reflection, 

all of these programs except for UI are trending downward in the 

data, but most State-administered, if you look at what is the governmentwide error rate? It is 4.69 percent. OK. So let’s use that 

as the average. 

Every State-administered program on that list except for SNAP 

is above the governmentwide average, and in some cases, significantly above. School Lunch, for example, 16 percent error rate 

which is obviously significant. I think Medicaid is at 8 percent, and 

Unemployment Insurance is above 10 percent. 

So this is not just a blip. There is a trend, and the trend has to 

do with the fact that is very difficult to manage State-administered 

programs because you have 50 different approaches. 

And just to use one example because Senator Coburn is not here 

anymore, but I think this is a pretty good example of how complex 

the issue with the Death Master File can be. Let’s say—in some 

cases this is the case—that as part of determining eligibility it is 

household size. How many people are in your home or in your 

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household dictates how much money you get from the government 

for this benefit. 

Well, if someone in the household has died and that has impacted the size of the household, if we do not have that information 

and the applicant reports that same household size as they did the 

year before and we audit it, we are going to find an improper payment because the household size is actually smaller. 

So the issue becomes why is the Federal agency not looking at 

that death information, why are they not linking up with the Social 

Security Death Master File, to validate that household size. 

It is really the States’ responsibility. They are administering the 

program. Many of these programs are not set up such that the Federal Government is doing these eligibility checks. It is the State. 

So now you are working with 50 different States to figure out 

their game plan and their road map, to get more access into information. 

I mention this because I think that is a good example of the challenge that is involved from the Federal level, of managing Stateadministered programs toward this issue. 

How do we light a fire? I think that there are a bunch of different things we can do. 

When I testified before Chairman Platts and Congressman 

Towns a month ago, I mentioned that one thing that could be done 

is that you could have another panel here of State representatives, 

State controllers, State finance directors and State auditors to talk 

about, from their perspective, what is it about these opportunities 

that we can leverage that can make it the right business decision 

for them to invest more resources and invest more attention. 

There has never been a more important time to make sure that 

these dollars are going out smartly, given the tight budgets that we 

are in, and I think that we are trying to partner as much as possible. 

The last point I will make is that in the Do Not Pay we have 

had interest from States in joining the Do Not Pay effort, and we 

have a couple of different State agencies that we are working with, 

California being one, D.C. being another, that are looking to leverage the Do Not Pay solution this fiscal year. And so, we are starting not just with getting Federal agencies on this thing; we are 

open to States too. And that is going to be part of a global framework where the Federal Government and the State governments 

are working together to use this information, to reduce error. 

Senator CARPER. Good. Thank you. 

Maybe one more and this one would be for you, Mr. Werfel, if I 

could. One of the key provisions of the 2010 improper payments 

legislation was the establishment of recovery audit contractors. 

Companies are hired by agencies to scour the financial books and 

payments, looking for errors. This is a tool that has proven very 

effective in the private sector. We have used this some, as I said 

earlier, in State government, in Delaware and also, apparently, 

with some real success in the Medicare Fee-for-Service programs. 

Could you just comment for us on how agencies are doing as far 

as implementing recovery audit contracts? 

And of course, Medicare and Medicaid have established their own 

programs. But how about other agencies and programs, please? 

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35 

Mr. WERFEL. It has been a challenge. We are, I think, where we 

need to be. We have our sea legs under us and know how to do well 

in the contracting realm. 

The reason that recovery auditing or payment recapture auditing 

works well there are a couple different reasons. First of all, we 

have privity; we have a relationship, direct relationship with these 

contractors. And, we have an established rhythm with our contractors in terms of showing up at their door, wanting to review their 

books. There is less of a push-back generally from contractors than 

from grantees in terms of having greater Federal presence to oversee and review transactions, which is really what these recovery 

auditors do. 

And so, on that, I mean, there is more work to be done. We can 

do smarter recovery auditing. We can look at the dollars differently, and there are more efficiencies to be gained. But we are 

on a good path. 

As we talk about expanding to grants—and IPERA for the first 

time did that—it has been much more challenging for a variety of 

different reasons. One, the agencies are still struggling to figure 

out exactly how to operationalize deploying recovery auditors into 

the field to grantees—the States, the local governments, the universities. Exactly how to look at the data and deploy these resources effectively is not something that we have a lot of experience 

with. So there is a learning curve there. 

In addition, in the grantee community, this is not part of a deal 

that they have bargained for in terms of having this additional 

audit layer. That does not mean we cannot get it done and work 

in partnership to achieve these types of connections and have these 

reviews done, but it is something that is requiring some legwork 

and some calibration to figure out exactly how to do it. 

I will say the good news here is that we have a lead blocker, so 

to speak, which is HHS and Medicaid. Because this provision—and 

I think you had something to do with this—was in the Affordable 

Care Act, expanding recovery auditing to—— 

Senator CARPER. I did have something to do with it. 

Mr. WERFEL. Yes, I know. That gave us a head start because the 

Affordable Care Act was enacted prior to IPERA. 

And so, HHS—and I am sure Sheila could talk more to this—has 

gone out and done some of that relationship building, that legwork 

and that logistics planning through regulation, notice of proposed 

rulemaking, working with the Medicaid community which obviously is State and more on the grantee side, figuring out how to 

expand recovery auditing in this way. 

And we are going to be looking to the Medicaid program, which 

just started after all that outreach and all that regulatory work, 

just started in January of this year. They are just now doing recovery audits in that sphere, for us to figure out how they are doing, 

what their road map is. 

And the good news, Senator, is that if you are going to start 

somewhere, start at Medicaid because that is where the big dollars 

are. 

So if I were coming up and saying we are starting and we are 

starting small, in these tiny grant programs, and going to figure 

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36 

cause you are not going to get those efficiencies early on. Here, we 

are saying our big starting point, our big opening is in Medicaid, 

and there are a lot of dollars there. 

And so, the rest, I am hoping comes more fluidly. In particular, 

while we are getting early work done, we are doing something in 

the end of the spectrum where there is a lot of potential for return. 

Senator CARPER. Thank you. 

Sometimes, I like to conclude a hearing by offering the witnesses 

who have given an opening statement, who responded to our questions, just give you a minute or so to make a closing statement and 

to reflect back on what you heard, what you have been asked, the 

answers and the responses and the testimony of the other witnesses. And I would just ask if you would just take maybe a 

minute apiece and give us a closing statement, maybe with a good 

takeaway. 

And Ms. Davis, if you would like to go first, please do. 

Ms. DAVIS. Thank you, Senator Carper. 

I would like to just state that we need to look at this in a very 

comprehensive manner, reducing improper payments. There are 

many opportunities and many different types of solutions that we 

need to consider. 

And as mentioned in the testimony, we need to examine our root 

causes. We need to look at the preventive controls such as data 

matching, such as predictive analytic tests. We need to look at detective controls such as data mining, recovery auditing. And of 

course, the benefits of those detective controls can enable us to also 

determine where we have problems and why the problems exist 

and then go ahead and institute some preventive controls. 

But we need to look at this from a multifaceted viewpoint in seeing how best to resolve the issues of improper payments, and remembering too that our estimating methodologies are very key to 

ensuring that the estimates that we produce and the public sees 

are really an accurate statement of what improper payments really 

exist. 

Senator CARPER. All right. Thanks for those comments. Ms. 

Conley. 

Ms. CONLEY. Thank you, Chairman. 

I would just like to conclude by making just some very broad 

comments. 

I think the work in this whole arena has been very helpful to underpin the need for accountability of public funds, and it has gone 

a long way in an era of declining resources and increased expectations for accountability. Measuring the extent of improper payments, identifying root causes and then focusing on corrective actions that make sense are critical. 

There are many different stakeholders, many different folks involved in these areas, and so, the interdependency. Oftentimes, we 

will need legislative authorities to move out on things. But working 

thoughtfully and smartly moving forward I think we can continue 

to see the kind of progress that we have seen certainly at HHS 

with our programs. 

The rates are going down. We have been at this for a long time. 

We have a long way to go still, and it is just going to be a continuous need but critically important because now, as we are learning, 

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37 

and I think everybody appreciates, this kind of accountability is not 

an afterthought or something accountants do or auditors do or statisticians do. This kind of work is really integral to how we carry 

out our programs. 

And so, as we move forward, we appreciate the efforts of the Executive Branch, GAO, and this Subcommittee, to recognize that 

there is no one silver bullet. This does not get fixed overnight. But 

I think together we can continue to make the kinds of improvements that will improve all of our programs in the Executive 

Branch. Thank you. 

Senator CARPER. I like to say no silver bullet but a lot of silver 

BBs, and some of them are pretty big. 

Mr. Werfel, a closing thought. 

Mr. WERFEL. Thank you. Let me just do something administrative first. 

When I was speaking in response to Senator Brown, I looked 

down at my notes and I accidentally cited the DOD numbers for 

contracts reviewed and contract errors recovered when I meant to 

cite the governmentwide numbers, and you can see how I could 

make that mistake because DOD is such a big portion of the total. 

What I would like to do is just say for the record that I will get 

both information to you so we can have those numbers clarified. 

Senator CARPER. Thank you. 

Mr. WERFEL. My reflection—I have a few reflections to close 

with. 

First of all, I think it is important to recognize what a priority 

this is for the Administration. The President has issued three separate directives, signed legislation, appointed, all around improper 

payments. He asked the Vice President to lead a campaign to cut 

waste, which has enabled remarkable things to happen for me in 

my lifelong battle on improper payments, such as calling together 

Cabinet meetings where improper payments are discussed. 

I have been able to talk with Secretary Sebelius directly, Secretary Solis directly, on these issues. In fact, when the Unemployment Insurance numbers came out and they were an uptick they 

were one of the few programs that were higher—we were able to 

meet directly with Secretary Solis on the issue and get her directly 

involved. 

There is definitely senior level attention to this issue in ways 

that I have not seen in my career, and I think that is correlational 

with some of the results we are seeing across the board. 

I know I often talk about the Federal CFO community burning 

the midnight oil, there the late hours, trying to solve and tackle 

our problems. Ms. Conley is the classic example of that. I think we 

have the exact right team at HHS—Sheila, Ellen Murray, her boss, 

the CFO and the entire leadership at HHS. 

When you call over there and it is almost time for the improper 

payment numbers to be reported, there is an enormous amount of 

stress and activity and excitement. Believe me, these numbers 

come out, and they do not just kind of wash over. There is an enormous amount of attention to them, and people really do care passionately about what is happening with these programs and what 

is happening with the dollars. And I think that is a really good 

sign. 

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38 

I would say that I will reflect that Sheila and I used to work together at OMB and were both in OMB when the Improper Payments Information Act was first enacted. I think there is a possibility that someone could get dulled to all of these big numbers, or 

desensitized, but we are not. 

I think we continue together—Sheila looking at the Medicare and 

Medicaid numbers, me and my team at OMB looking at the governmentwide numbers. And we never are desensitized to the enormity 

of this challenge and how important it is, and we are not in any 

way desensitized to the notion of how it gains importance as our 

budget climate becomes more challenging and as the economic climate becomes more challenging. And so, I do not think there is any 

risk that we are going to stop fighting on this issue. 

And I actually think because of the President’s leadership on 

this, because the Vice President cares about this and is bringing 

senior Cabinet officials together to talk about this and drive accountability toward it and because technology is at a place right 

now where we can do some game-changing things and change the 

way government does business, I think we stand and are very well 

positioned to continue these trends in improper payments. 

Senator CARPER. OK. I began this hearing by sharing with folks 

in the room the results report on NPR several months ago about 

this international study about what made people like their job. As 

it turned out, most people, what they liked about their job was they 

felt like they were doing something important and they felt that 

they were making progress. 

Well, I am encouraged. I think everybody in the room and everybody who has followed these issues at all knows this is important. 

A country that is running deficits of over a trillion dollars can ill 

afford improper payments or fraud losses that are this large. 

But having said that, we are making progress, and we are making progress by virtue of the efforts of a lot of people—people at 

this table, folks who are seated behind you and a lot of people who 

are not in this room. 

And I applaud the efforts of the President and the Vice President 

on this, giving it the kind of attention that it deserves. And frankly, the previous administration. 

It is a little bit like in the Navy. We used to say when we were 

trying to do something really hard, it is like turning an aircraft 

carrier, kind of like trying to change the culture of our government 

to an extent. And it does not happen overnight. 

Having said that, we have to be just dogged in our pursuit of effecting the kind of changes that are needed. And for as long as I 

have the privilege of sitting here—and I think the same is true for 

the two fellows who are sitting to my right and other colleagues as 

well—we are on these issues and we are going to continue to be 

on these issues, not just to criticize or, as we like to say in Delaware, to carp, but to try to be constructive in our carping and to 

be constructive in making sure we are bringing the resources in a 

positive way to this battle. 

It is an important battle. It is one we need to win, and I think 

we are making some progress. I know you feel that way as well. 

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39 

With that being said, we look forward to providing some questions in writing, and we will appreciate very much your responding 

to those in a timely way. 

You have 2 weeks to submit questions. If you could respond 

promptly, we would appreciate it. 

Again, thank you all. 

And with that, this hearing is adjourned. Thanks so much. 

[Whereupon, at 4:32 p.m., the Subcommittee was adjourned.] 

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