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40–431 CC 1997

AGENCY OVERSIGHT: MISSION, MANAGEMENT,

AND PERFORMANCE

HEARINGS

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

MARCH 6, 18, AND 20, 1997

Serial No. 105–10

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

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

J. DENNIS HASTERT, Illinois

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

STEVEN SCHIFF, New Mexico

CHRISTOPHER COX, California

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

JOHN SHADEGG, Arizona

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

JOHN E. SUNUNU, New Hampshire

PETE SESSIONS, Texas

MIKE PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas

BOB BARR, Georgia

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

CAROLYN B. MALONEY, New York

THOMAS M. BARRETT, Wisconsin

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

TIM HOLDEN, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JUDITH MCCOY, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES

CHRISTOPHER SHAYS, Connecticut, Chairman

VINCE SNOWBARGER, Kansas

BENJAMIN A. GILMAN, New York

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

MIKE PAPPAS, New Jersey

STEVEN SCHIFF, New Mexico

EDOLPHUS TOWNS, New York

DENNIS KUCINICH, Ohio

THOMAS H. ALLEN, Maine

TOM LANTOS, California

BERNARD SANDERS, Vermont (Ind.)

THOMAS M. BARRETT, Wisconsin

EX OFFICIO

DAN BURTON, Indiana, HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

CHRISTOPHER ALLRED, Professional Staff Member

ROBERT NEWMAN, Professional Staff Member

R. JARED CARPENTER, Clerk

RON STROMAN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on: ......................................................................................................

March 6, 1997 ................................................................................................... 01

March 18, 1997 ................................................................................................. 119

March 20, 1997 ................................................................................................. 313

Statement of:

Bloom, Thomas R., Inspector General, U.S. Department of Education,

accompanied by Steve McNamara, Assistant Inspector General for

Audit; Dianne Van Riper, Assistant Inspector General for Investigations; and Cornelia M. Blanchette, Associate Director, Education and

Employment Issues, U.S. General Accounting Office, accompanied by

Eleanor Johnson, Assistant Director, Education and Employment

Issues; Harriet Ganson, Assistant Director; and Jay Eglin, Assistant

Director .......................................................................................................... 315

Brown, June Gibbs, Inspector General, Department of Health and Human

Services, accompanied by Michael F. Mangano, principal Deputy Inspector General, Department of Health and Human Services; Richard

L. Hembra, Assistant Comptroller General for Health, Education and

Human Services, General Accounting Office, accompanied by Marsha

Lillie-Blanton, Associate Director for Health Services, Quality and Public Health Issues, General Accounting Office; and Thomas G. Dowdal,

Assistant Director for Health Financing and Public Health Issues, General Accounting Office .................................................................................. 121

Dyckman, Larry, Associate Director, Housing and Community Development Issues, General Accounting Office, accompanied by Richard Hale,

Associate Director; and Larry Goldsmith, Senior Evaluator ..................... 28

Gaffney, Susan, Inspector General, Department of Housing and Urban

Development .................................................................................................. 17

Masten, Charles C., Inspector General, Department of Labor, accompanied by John Getek, Assistant Inspector General for Audit; and

Carlotta C. Joyner, Director, Education and Employment Issues, General Accounting Office, accompanied by Harriet C. Ganson, Assistant

Director, Education and Employment Issues, General Accounting Office .................................................................................................................. 67

Merriman, William, Deputy Inspector General, Department of Veterans

Affairs, accompanied by Michael Sullivan, Assistant Inspector General,

Department of Veterans Affairs; David P. Baine, Director of Federal

Health Care Delivery Issues, General Accounting Office, accompanied

by Jim Linz, Assistant Director, Federal Health Care Delivery Issues,

General Accounting Office ............................................................................ 229

Sgro, Beverly, secretary of education, Commonwealth of Virginia; and

Paul Steidler, director of education reform project, the Alexis de

Tocqueville Institution .................................................................................. 377

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

Baine, David P., Director of Federal Health Care Delivery Issues, General

Accounting Office, prepared statement of ................................................... 262

Barrett, Hon. Thomas M., a Representative in Congress from the State

of Wisconsin, prepared statement of ........................................................... 6

Blanchette, Cornelia M., Associate Director, Education and Employment

Issues, U.S. General Accounting Office, prepared statement of ............... 347

Bloom, Thomas R., Inspector General, U.S. Department of Education,

prepared statement of ................................................................................... 317

Brown, June Gibbs, Inspector General, Department of Health and Human

Services, prepared statement of ................................................................... 124

Page

IV

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

Dyckman, Larry, Associate Director, Housing and Community Development Issues, General Accounting Office, prepared statement of .............. 31

Gaffney, Susan, Inspector General, Department of Housing and Urban

Development, prepared statement of .......................................................... 20

Hembra, Richard L. Assistant Comptroller General for Health, Education

and Human Services, General Accounting Office, prepared statement

of ..................................................................................................................... 138

Joyner, Carlotta C., Director, Education and Employment Issues, General

Accounting Office, prepared statement of ................................................... 83

Masten, Charles C., Inspector General, Department of Labor, prepared

statement of ................................................................................................... 69

Merriman, William, Deputy Inspector General, Department of Veterans

Affairs, prepared statement of ..................................................................... 232

Pappas, Hon. Michael, a Representative in Congress from the State of

New Jersey, prepared statement of ............................................................. 5

Sgro, Beverly, secretary of education, Commonwealth of Virginia, prepared statement of ........................................................................................ 381

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, report entitled, ‘‘The National Vaccine Injury Compensation Program: A Program Review’’ ..................................................... 178

Steidler, Paul, director of education reform project, the Alexis de

Tocqueville Institution, prepared statement of .......................................... 387

(1)

OVERSIGHT OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND THE

DEPARTMENT OF LABOR: MISSION, MANAGEMENT, AND PERFORMANCE

THURSDAY, MARCH 6, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

The subcommittee met, pursuant to notice, at 1:45 p.m., in room

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Snowbarger, Pappas, Towns,

Kucinich, Allen, and Barrett.

Staff present: Lawrence J. Halloran, staff director/counsel; Christopher Allred and Robert A. Newman, professional staff members;

and R. Jared Carpenter, clerk.

Mr. SHAYS. I would like to call this hearing to order. This is the

Subcommittee on Human Resources of the Committee on Government Reform and Oversight.

The dictionary defines ‘‘oversight’’ as ‘‘watchful and responsible

care.’’ By this definition, constructive oversight should be vigilant,

objective, and careful. It is not an episodic game of ‘‘Gotcha’’ but

the methodical examination of program goals and agency performance.

Last week, we began that systematic review of Federal human

service departments with testimony from Housing and Urban Development—HUD—Secretary Andrew Cuomo. Today, and in the

weeks ahead, we will hear from the General Accounting Office— GAO—and the Inspectors General—IG—of the five Cabinet Departments under the subcommittee’s jurisdiction. Their views on program vulnerabilities and opportunities for improvement mark an

indispensable starting point for our work throughout this Congress.

We cast our net broadly to match the scope of Federal human

service programs. For fiscal year 1998, the five Departments within

our purview account for more than $500 billion, or 30 percent of

total budget authority and outlays. The two Departments under

discussion today, HUD and the Department of Labor, will make

total outlays of almost $70 billion next year.

Broad oversight perspective is also essential as each Department

faces fundamental questions about its overall mission. In complying with the Government Performance and Results Act—the

GPRA. For the first time, Federal agencies must adopt strategic

2

plans and meet measurable performance standards. The deficiencies, inefficiencies, lapses, or losses described today will tell us

where to place our emphasis in consulting with the Departments

on GPRA compliance, and where to look for measurable progress

and improved performance.

Our oversight mission is to safeguard scarce Government resources from waste, fraud, and abuse, and make sure Federal programs perform as Congress intended to meet human needs. In that

effort, we rely heavily on the experience and dedication of our oversight partners, the General Accounting Office and the Inspectors

General. To those who are here, we welcome your testimony today

and look forward to your continued help in the subcommittee’s

work.

At this time, I would call Susan Gaffney, the Inspector General

of the Department of Housing and Urban Development, and Larry

Dyckman, associate director of housing and community development issues, General Accounting Office. And he is accompanied by

Richard Hale and Larry Goldsmith.

Ms. Gaffney, are you accompanied by anyone?

Ms. GAFFNEY. No, not at the table.

Mr. SHAYS. I welcome you to sit at the table here and I am going

to swear you in, and then I am going to have Mr. Towns make a

statement. So I will take care of business and then I will call on

you, Mr. Towns.

If you would all raise your right hand.

[Witnesses sworn.]

Mr. SHAYS. For the record, the witnesses all have answered in

the affirmative.

Mr. Towns, I am sorry.

Mr. TOWNS. Thank you, Mr. Chairman. Let me thank you again

for having this hearing today. I think you are right on target.

Last week, Secretary Cuomo testified before this subcommittee

that his first two priorities will be resolving the Section 8 crisis and

improving the management of HUD. The one point I made to the

Secretary was that we should not solve the financial problems of

HUD on the backs of the poor. We must find a way to pay for Section 8 contracts, reform our public housing system, and pay market

rents, without causing homelessness and massive default of HUD’s

insured property. This will be a difficult balance to achieve, but it

must be done.

Mr. Chairman, both HUD and the Department of Labor have

many difficult policy choices to make in the near future. The Inspectors General for these agencies, along with the General Accounting Office, will have an important role to play in helping to

make these choices.

I look forward to hearing the testimony, and I yield back the balance of my time.

Mr. SHAYS. I thank the gentlemen.

Mr. Snowbarger, the vice chairman of the subcommittee.

Mr. SNOWBARGER. Nothing, thank you.

Mr. SHAYS. Mr. Kucinich.

Mr. KUCINICH. No.

Mr. SHAYS. Mr. Barrett.

Mr. BARRETT. If I could?

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Mr. SHAYS. You are more than welcome to.

Mr. BARRETT. I usually don’t have an opening statement, but I

have one that I will summarize. I just want to make sure that I

get this issue in the record. I want to thank you for holding these

timely hearings.

Although HUD’s programs continue to pose a risk in terms of

their vulnerability to waste, fraud, abuse, and mismanagement,

many actions the agency has taken to deal with these problems

have had a positive effect. It is clear, however, that additional steps

must be taken to improve HUD’s mission, management, and performance.

I am especially concerned about the existing internal control

weaknesses involved in the sale of federally financed homes HUD

acquires through foreclosure. In my hometown of Milwaukee, we

are witnessing scams in which investors are purchasing HUD

homes under the guise that they will live in the home. According

to an article that appeared in the Milwaukee Journal Centennial

in August 1996, 40 percent of the people buying foreclosed houses

in Milwaukee from HUD falsely claimed they would be owner-occupant.

The article cites city records showing that 88 houses sold in Milwaukee by HUD to self-described owner-occupants between the period January 1, 1995, and March 1, 1996, were not being lived in

by the buyers in April 1996. I am convinced that these scams are

not unique to Milwaukee.

When bidders misrepresent their intent to live in a home bought

from HUD, they unfairly skip over honest investor-bidders and possibly over genuine owner-occupants. These investors are defrauding

our Government and are abusing a system that was designed to

build healthy neighborhoods and revitalize neighborhoods. I plan to

introduce a bill in the near future that would help prevent these

scams from occurring in Milwaukee and in other communities

around our country.

I won’t go into the particulars of the bill, but I urge the members

of this committee and every Member of the House of Representatives to join me in working to prevent these abuses. I look forward

to hearing the testimony today.

I do have the articles from the paper, and I would ask unanimous consent to have them entered into the record.

I also would note that I have responses from—that I have had

with HUD on this issue, and part of the response I have gotten is,

this did not cause any loss of funds to HUD, which is probably

true. I am not concerned about that as much as I am concerned

about these neighborhoods.

Ms. GAFFNEY. I understand.

Mr. BARRETT. That is something that during the course of my 5

minutes I will want to discuss with you.

So I would yield back the balance of my time.

Mr. SHAYS. Thank you, Mr. Barrett.

Mr. BARRETT. I ask unanimous consent to have the articles put

in the record.

Mr. SHAYS. Let me take care of that business and ask unanimous

consent that all members of the subcommittee be permitted to

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make any opening statement. The record will remain open for 3

days for that purpose, and, without objection, so ordered.

And I also ask unanimous consent that all witnesses be permitted to include their written statements in the record. And without objection, so ordered.

And Mr. Barrett, you have requested that information be put in

the record?

Mr. BARRETT. Yes.

Mr. SHAYS. Then that will be done, without objection.

[The prepared statements of Hon. Michael Pappas and Hon.

Thomas M. Barrett, and the information referred to follow:]

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Mr. SHAYS. Mr. Allen, nice to have you here. Do you have any

comments?

Mr. ALLEN. No comments.

Mr. SHAYS. We are going to start with you, Ms. Gaffney, and ask

you to provide your statement.

And then we will go to you, Mr. Dyckman.

STATEMENT OF SUSAN GAFFNEY, INSPECTOR GENERAL,

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Ms. GAFFNEY. Mr. Chairman, Mr. Towns, members of the subcommittee, I would like to run down with you quickly how I see

the major categories of problems at HUD. First of all, we currently

have a mission statement that has grown over the years to the

point that it is quite vague and very broad.

The last statement that I have heard is that HUD exists to create communities of opportunity. As the mission statement has expanded, broadened, so have the number of HUD programs increased.

At our last count—and we are updating this now, but 2 years ago

when we counted, we counted 240 discrete HUD programs and activities. During this same period of time, HUD’s staffing has been

decreasing dramatically and is projected to continue decreasing. So

in my statement I tell you that we had 16,000 employees in 1980,

and by the year 2000 we will have 7,500. These two things have

happened without any apparent concern in the Congress or at

HUD for how they relate.

A third type of problem is that HUD staff really don’t know what

they are supposed to be doing these days. We had a regional structure a few years ago. We changed that, eliminated the regional

structure, said we would now organize along programmatic lines

from headquarters assistant secretaries straight through program

staff in the field, and, shortly after we did that, we announced that

HUD’s new approach was going to be place based, seamless delivery at the locality.

In the face of these kinds of changes, HUD staff are just unable

to define what precisely they are supposed to be doing.

Within HUD, we have a culture that has typically differentiated

program and policy from management. GPRA, that kind of initiative, that’s management; that has nothing to do with our programs,

with our programmatic assistant secretaries. And what this means,

for instance, is, as we downsize, the downsizing isn’t done in conjunction with programmatic changes, it happens over there, and

the programs continue over here. So we do it on a pro rata share.

We just keep cutting them on a pro rata basis.

We also, to be very blunt about this, have a situation at HUD

where we are surrounded—every one of our programs is surrounded by very powerful interest groups, and some of these interest groups have huge amounts of money at stake, and they hire

very high priced lawyers and other representatives.

We also have a situation, Mr. Chairman, as you alluded to,

where decisions—the fiscal consequences of decisions made in the

1970’s and 1980’s, when a balanced budget was not a primary concern, are now upon us, and the consequences are quite extreme.

18

We also have a series of management problems. For instance, we

have wholly inadequate financial systems and information systems.

I don’t want to go on. There’s a litany of such management problems.

What I would like you to understand is, if you look at this list

of problems, that it would be impossible for HUD to perform excellently under these circumstances; nobody could. And I would also

like you to understand that they are all intertwined, all these different levels of problems.

The good news is what you heard from Andrew Cuomo last year.

I think the good news is, he understands these problems.

Mr. SHAYS. You mean last week?

Ms. GAFFNEY. What did I say, last year? I am sorry. Last week.

I am sorry.

He understands these problems, and he is dedicated to do something about them. He also heard about these problems in his confirmation hearings, which was good news, that the Senate cared

enough to discuss them.

He is developing an integrated policy program management plan

to address these areas of vulnerability that would amount to a

massive overhaul of HUD, because it goes to all of—it goes to the

mission, it goes to the programs, it goes to the policies, it goes to

the people, it goes to the internal systems; all of that has to be

overhauled.

The important thing that you need to know is, much as HUD is

always blamed for this situation, we didn’t get there alone, the

Congress was right there with us, and we can’t solve these problems without congressional action. And over the past 2 years, despite the fact that legislation has been put forward to reform some

of these areas, only one of those pieces of authorizing legislation

has been enacted: a consolidation of Indian housing programs.

To the extent HUD has moved forward, for instance, in changing

public housing, it has done so through authorizing provisions in appropriations acts. So, if Congress doesn’t step to the plate, HUD’s

ability to change the situation is slight. If Congress steps to the

plate and HUD doesn’t take it seriously, we are not going to move

either.

Two final quick things I would like to say. If Congress and HUD

did step to the plate, then we would have to start worrying about

two things. One is—and I know this is a concern of yours, Mr.

Chairman; I have heard you talk about it before. In this area of

program streamlining, consolidation, and devolution, we’d better

figure out how we are going to have stewardship, accountability,

and oversight.

We keep talking about performance, meaningful performance

measures, and we don’t have them, and I don’t think it’s just at

HUD. And the illustration I want to give you of that is, under

GPRA, people often talk about the PHMAP—the Public Housing

Management Assessment Program—at HUD. This is the system we

use to score public housing authorities, and then, based on those

scores, we call them troubled or not.

That system doesn’t consider the quality of housing that people

are living in. So we have situations like Camden, NJ, or Memphis,

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TN, where people are living in absolute squalor and the public

housing authorities are deemed to be good performers.

So my point is, performance measurement counts a whole lot,

and we are not near there.

The second point is, we have got to get serious. If we are going

to do devolution, we have got to get over this kind of naive belief

that the Feds are bad and the States and localities are full of wisdom and integrity in all cases. We still have an obligation for stewardship and accountability, and if they don’t meet their obligations,

we need to be able to act, take unpleasant actions, against them,

and we have not, at HUD, been historically willing to do that.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Gaffney follows:]

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Mr. SHAYS. Thank you, Ms. Gaffney.

Mr. Dyckman.

STATEMENTS OF LARRY DYCKMAN, ASSOCIATE DIRECTOR,

HOUSING AND COMMUNITY DEVELOPMENT ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY RICHARD

HALE, ASSOCIATE DIRECTOR; AND LARRY GOLDSMITH, SENIOR EVALUATOR

Mr. DYCKMAN. Thank you, Mr. Chairman.

Again, I just want to introduce my colleagues. To my far left is

Larry Goldsmith. He has done a lot of our high-risk work. And to

my left is Rick Hale, who is the assistant director in charge of our

multifamily housing work.

As you know, 2 years ago before this subcommittee we discussed

the most important management and budgetary problems facing

HUD. Unfortunately, a lot still remains undone, and, as Ms.

Gaffney says, there are serious problems.

For example, HUD has made progress improving its internal controls, but major problems still persist. HUD has implemented a

new management planning and control program intended to identify and rank the major risks in each program and develop strategies to evade these risks. However, we and the Inspector General

question the effectiveness of this program.

Furthermore, even though HUD has reported it has significantly

reduced the number of material internal control weaknesses, those

that remain are very significant and actually encompass most of

the Department. For example, the remaining weaknesses affect

more than $18 billion in housing subsidy funds that HUD disburses annually.

Much work also remains for HUD to improve its information and

financial management systems. For example, major improvements

to HUD systems will not be completed before the year 2000. Furthermore, HUD reported in March 1996, that 93 of 116 of its information and financial management systems did not meet the requirements of the Federal Managers’ Financial Integrity Act and

therefore could not be relied on to provide timely, accurate, and reliable information and reports to management.

I was encouraged last week, when Secretary Cuomo spoke before

you, that he is going to be putting together a plan and he feels that

within 18 months he will see significant improvement. We will follow and monitor that program and those plans very closely.

Now, in addition to wrestling with critical agencywide management weaknesses, HUD faces a daunting task in managing the

costs associated with, one, renewing Section 8 contracts for assisted

housing; two, re-engineering the assisted multifamily projects that

FHA had insured; and, three, insuring the soundness of public

housing.

Overall, the price of renewing Section 8 contracts is high and will

increase over the next several years. As you can see on the chart

next to you, HUD estimated that it will need over $9 billion in

budget authority for fiscal year 1998, to renew contracts covering

1.8 million housing units. The figure to my right shows how the escalating needs for Section 8 budget authority will soon surpass

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funding levels for all of HUD’s other programs and that Section 8

may grow to over $21 billion slightly past the year 2000.

Now let me turn to portfolio re-engineering. That’s the subject of

HUD’s re-engineering proposal, which consists of more than 8,600

properties containing about 860,000 apartments. The properties

provide housing for a diverse population, including families and

single adults, as well as those with special needs such as the elderly and the disabled.

Last year, I think, when we testified before the subcommittee, we

showed a video which showed the variation in the quality of housing of some of those multifamily projects. These properties have

FHA insurance, loans with unpaid principal balances of nearly $18

billion, and receive project-based Section 8 assistance provided

under long-term contracts that HUD executed in the 1970’s. Over

time, Section 8 subsidies for these properties have increased dramatically, and today many of the Section 8 contracts are reaching

their expiration.

However, for many properties, reducing the Section 8 subsidies

without reducing the outstanding mortgage balances of these properties would lead to default and billions of dollars in claims against

FHA’s multifamily insurance fund.

HUD’s fiscal year 1997 appropriation includes a demonstration

program to restructure some of these FHA-insured mortgages and

bring income and expenses in line so that it can operate at market

rents. These types of proposals recognize the reality that has existed for some time; namely, that the value of many of the properties in the insured Section 8 portfolio are far lower than the

mortgages on the properties suggest.

A third major program challenge facing HUD is ensuring the

soundness of public housing. About 3 million low-income people,

many of whom are elderly, disabled, live in public housing, which

is run on a day-to-day basis by about 3,300 local housing authorities. HUD currently provides housing authorities with $5.4 billion

a year to help them operate and modernize their projects. However,

over time, the authorities’ expenses have begun to exceed their

funding sources. These are primarily from HUD’s operating subsidies and tenants’ rents.

Also, as you know, welfare reform could further reduce many

tenants’ ability to pay rent. With funding for housing authorities

increasingly tight, it is crucial for HUD to accurately identify housing authorities having management or budgetary problems and do

all that it can to help them address the problems before they become unmanageable.

Last, I would like to comment on something that Ms. Gaffney

said, and it’s concerning reaching consensus on HUD’s mission.

Since it was created in 1965, HUD has grown to include some 240

programs and activities and hundreds of billions of dollars in financial commitments.

Over the years, we and others have criticized the inefficiencies

in HUD’s organization and the deficiencies in its management.

Leaders in the administration and in the Congress agree that HUD

must, at a minimum, be restructured to better meet the Nation’s

housing and community development needs.

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HUD has proposed major changes, including consolidating programs and devolving responsibility for program design and implementation to States and localities. While some limited yet significant improvements to HUD’s existing program structure have been

made, a comprehensive re-evaluation of HUD’s overall mission and

how it delivers its programs has not yet occurred.

This is even more crucial because, as you know, HUD is going

through a significant downsizing. It used to have about 13,500 employees not too long ago. Its goal now is to go down to 7,500 employees, and there’s a significant question about HUD’s capability

to manage the myriad of programs it now operates with such a

small staff.

What is needed now is for the administration and Congress to

agree on the future direction of Federal housing and community development policy and the best organizational and program delivery

structures to carry that out. This will involve inherent tradeoffs between the needs of those seeking HUD’s assistance and other demands on the Federal budget.

That concludes my remarks, and we would be happy to answer

any questions.

[The prepared statement of Mr. Dyckman follows:]

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Mr. SHAYS. I thank you very much.

Before calling on Mr. Towns, I just have to comment that obviously both of your testimonies seem to work in complement with

each other, but for you to say HUD’s high-risk problems involve

weak internal controls, inadequate information and financial systems, ineffective organizational structure, and insufficient mix of

staff with the proper skills, it makes you wonder why anyone

would want to be Secretary of HUD.

That’s the background in which we have to solve the Section 8

problem, the background on which we have to make our local housing authorities more viable and more efficient. It just makes you

wonder if we are going to be able to do it no matter who is at the

helm.

Mr. Towns, you have the floor.

Mr. TOWNS. Thank you very much, Mr. Chairman. I would like

to yield to Mr. Barrett, who has to leave.

Mr. SHAYS. Fine. In fact, we can just call on Mr. Barrett.

Mr. BARRETT. Thank you, Mr. Chairman and Mr. Towns.

I look at the graph up there in terms of the Section 8 pressures

and how it is going to conflict and cause us some difficult decisions

here, so I certainly don’t envy the task that you face, and, frankly,

I envy even less the task that we as Congress face in resolving

those things.

But I would like to spend my time on my parochial issue, if I

may, please, and I apologize to the committee for doing that, but

I need some assistance from you on this.

If I could, the letter that I had sent over to the Department in

part reads, ‘‘While it might be true that these cases resulted in a

minimal financial loss to the Federal Government, the inspector

general’s decision fails to recognize that owner-occupancy misrepresentations can result in real damage to neighborhoods.’’ And, unfortunately, it sends a message that there is nothing wrong with swindling the Government and abusing a system created to build

healthy neighborhoods as long as the Government doesn’t have to

pick up the tab.

And, again, to sort of put this in a framework for you, we had

a situation where it was clear that there was an individual that

was representing that he was going to live in these homes. The decision both at the national level and the local level was, well, we

got our money.

And I am hearing, of course, from the people in the neighborhoods who say, we are trying to rebuild this neighborhood and the

response we get from the Federal Government is, well, we don’t

care, we have gotten our money. And I would like your insight or

your thoughts on what we can do to address that problem.

Mr. SHAYS. Could I just ask that, first, is this a problem that

both of you are aware of? I mean, it seems to be a pretty serious

problem.

Ms. GAFFNEY. I am certainly aware of it.

Mr. DYCKMAN. We haven’t done any work directly on that

problem—— Mr. SHAYS. OK.

Mr. DYCKMAN [continuing]. Although I have read articles on it.

Mr. BARRETT. I don’t mean to——

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Mr. SHAYS. No; you misunderstand the purpose for my question.

You seem to feel that this is a parochial issue, and I don’t view it

as that. I view it as a very serious issue and am happy that you

are raising it because there are a whole host of reasons why this

would be wrong.

We are trying to encourage home ownership, we are trying to encourage neighborhoods to have people own the homes so they care

for it, and so I was wondering if you could just give us a general

overview before you answered the specific question.

Ms. GAFFNEY. First of all, I have no reason to believe that it is

parochial to your part of the country. I would assume that it is all

over the property disposition program that this is happening.

I would just like to clarify, and I know, Mr. Barrett, you understand this in our correspondence back and forth. What has happened is, we in fact did look into this. We did an investigation, and

we found that the situation was exactly as Mr. Barrett has related,

and that is, people were representing that they were going to—they

were going to be owner-occupants when, in fact, they had no intention of doing so, and they were causing dysfunctional situations.

We took our investigative results to a U.S. attorney, who declined prosecution on the basis that the Federal Government had

not lost any money, and also, I think—to be fair and blunt about

this—on the basis that HUD doesn’t seem to care a lot about this

practice.

We then, when the U.S. attorney declined prosecution, went back

to HUD and asked them to take administrative action against the

person, and, to tell you the truth, I don’t know where that stands.

I think you had proposed perhaps criminal sanctions, some kind of

increased penalties, for people who engage in this practice.

What I don’t know how to do is, first of all, we need to get HUD

concerned about this, because if you try to prosecute and you don’t

have the program people saying they agree it’s a problem, it’s hard

to get prosecutors involved.

But second, unless we can get the prosecutors to accept the

cases, it doesn’t matter what the penalty is. And I am perfectly

willing to work with you to get there.

Mr. BARRETT. And clearly, I don’t want to put people in prison

for doing this. What I want to do is, I want the problem to stop,

because, again, what I hear from the residents of neighborhoods

who are trying to rebuild the neighborhood is, it can break the spirit of a neighborhood if you have people who are putting money—

and, frankly, if you have someone who is going to lie on a form,

like to the Government, chances, I think, are going to be greater

they are going to be a lousy landlord. If this is how they treat the

system, this is probably how they are going to treat tenants as

well.

I recognize where the U.S. attorney’s office has bigger fish to fry

and there is no financial loss to the Government, but then to have

HUD say, well, it’s a minimal loss, yes, it’s a minimal loss in dollar

terms, but it makes me question what the aims and the goals of

HUD are. Is it just to run a balance sheet, or is it to try to encourage homeownership, as the chairman said?

Ms. GAFFNEY. Well, of course, it’s the latter.

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Mr. BARRETT. But I would like to see the Department far more

engaged on this issue than it has been. And it’s with mixed feelings

that I hear it’s not a parochial problem. I am sorry that it exists

in places other than my community, but maybe that’s what we

need to have in order to get the Department to pay some more attention to the problem.

Ms. GAFFNEY. Mr. Barrett, I will help, but I am not the Department. You know, we are going to have to try to do this and get

their attention together.

Mr. BARRETT. I am looking for allies anywhere.

Ms. GAFFNEY. You’ve got it.

Mr. BARRETT. I am happy to hear you are going to help.

Ms. GAFFNEY. OK.

Mr. BARRETT. Again, I will yield back the balance of my time.

Thank you, Mr. Chairman.

Mr. SHAYS. Mr. Pappas.

Mr. PAPPAS. Thank you, ladies and gentlemen, thank you.

I have a couple of questions, really, that have been conveyed to

me from some of the county governments in the five-county area

that I represent in central New Jersey, and each of them has experience in dealing with HUD and HUD programs, specifically the

Home Program and the Community Development Block Grant Program. I am hoping that you could shed some light on responding

to some of their concerns.

There are many nonprofit agencies that, besides fund-raising

from the private sector, really depend upon some of the funds

through both programs for capital improvements, and I know that

there are some percentages that I believe—and correct me if I am

wrong—that there are Federal restrictions as to the percentage of

the overall amount that is given that can be allocated for facilities

or broad categories. You can correct me if I am wrong in regard to

that.

But I think more importantly is the difficulty that some of these

nonprofit agencies have. Many of them are operating with mostly

volunteers, maybe some who are part-time staff people, who are

providing some very critical service to—fulfilling service needs for

populations in my counties and throughout the country.

A couple of weeks ago, when Secretary Cuomo was here, I did

compliment him that I thought that those two programs worked

well, but at the same time I do know, and it has been reiterated

to me, that some of the paperwork or some of the reporting that

some of these organizations have to follow can become burdensome.

How can we address that while realizing that there has to be

some accountability for these public funds that are being used, balance the need to have accountability but also realize that there’s

a target or target populations that we are trying to assist? And

many of these community-based nonprofit agencies play an important role in that social safety net.

How can we better do that?

Ms. GAFFNEY. I am surprised, you know. The two programs that

get the highest marks in HUD for being flexible and not burdened

with paperwork are Home and CDBG. So I am going to—I am

going to have to look into, or maybe you could, after the hearing,

tell me specifically what paperwork is bothering people. But it

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seems to me that the paperwork in HUD traditionally has surrounded compliance with endless rules and regulations.

I think we need to have two kinds, paperwork and monitoring.

One, there has to be some financial accountability; that’s clear. And

we need audits; I think we can all agree on that.

I think apart from that, we just need to focus on what is the purpose, what is the outcome, what are they supposed to be accomplishing. And I think pretty much if we can verify that they are

accomplishing what they are supposed to be accomplishing, we

could ignore some of the processes that got them there.

I think to date we tended to concentrate on the processes and

often ignore whether they actually got to where they were supposed

to.

I don’t know if that’s helpful.

Mr. PAPPAS. I know, and, again, I am a cheerleader as far as

both programs are concerned. I think they are both very effective,

but I know over the years, as I have dealt with them in my own

county government, that there are those organizations that, for

maybe a variety of reasons, are not able—they get awarded the

grants but they are not able to actually utilize the funds, and then

it gets reverted back, and then it is distributed elsewhere.

And if the need wasn’t there, then they wouldn’t have applied;

and if the entities that were approving or did approve the grant for

that particular purpose, they evidently felt it was an important

purpose to be filled as well. So then there probably have been a

dozen instances that I can think of over the years of programs that

have not been completed or projects have not been completed.

I don’t know what the answer is. I am not just saying the blame

is all on HUD, but I know that there have been situations out in

New Jersey that we haven’t been able to go from point A to point

B, and I am just wondering whether you, through your offices,

might try to learn if there is some consistent problem that seems

to be causing that more than one place.

Ms. GAFFNEY. I don’t think we have ever looked at it that way,

but if you could give me some of those instances, we will certainly

followup and see if we can find some kind of systemic problem.

Mr. PAPPAS. Thank you.

Mr. SHAYS. Mr. Towns.

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

Let me begin by saying, if Congress provides additional budget

authority to renew the Section 8 contract, what regulatory or statutory changes would each of you recommend to improve Section 8?

Or would you recommend getting rid of it?

Ms. GAFFNEY. You talked before about caring about the people

who need help. With this program of these insured—the multifamily projects that are both insured and assisted through Section

8, we have a situation that isn’t, it seems to me, designed to benefit

the poor people who need housing. This is a situation where HUD

takes all the risk through insurance. The owners put in little equity. The rents are highly above market. There’s no incentive for

the owners to maintain these properties. So at least 66 percent—

two-thirds of them are above market rents. At least 25 percent of

them are in extremely distressed situations.

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It seems to me that if we are going to go forward with this program of project-based assistance, Mr. Towns, everybody seems to

think of the multifamily housing program as a private sector housing program, but we have insulated the owners from every private

sector motivation that exists. If we are going to go forward with

this type of housing that is tied to particular owners and particular

projects, I think we’d better introduce some market incentives, because otherwise we are going to be right back in the same position

in another 5, 10, 20 years. That’s what I think.

Mr. TOWNS. Thank you, Ms. Gaffney.

Mr. DYCKMAN. I just want to say something general, and then I

will turn it over to Mr. Hale.

In the past, we have looked at the cost of Section 8 versus, say,

public housing, to see whether or not it’s advantageous to go to a

vouchering-out system. And there are all kinds of implications of

doing that. Cost, of course, is one of them, but you really have to

look at each project separately. Some public housing turns out it

is cheaper than Section 8. In different parts of the country, depending on housing availabilities and prices of rents, in some cases, Section 8 is less expensive than public housing, so you really have to

look at it on a case-by-case, city-by-city basis.

Mr. HALE. Mr. Towns, just to add to that and to pick up on what

Ms. Gaffney said, in terms of this whole mark-to-market portfolio

re-engineering initiative where we are proposing to reduce the Section 8 subsidies on multifamily properties by writing down mortgages on those properties and then also perhaps providing some

sort of tax relief to owners, I think when we are doing that we need

to make sure that we are looking at not only the interest of the

owners but the interests of the residents and the Federal Government as part of that.

Two things in particular I think that ought to be looked at very

closely are: One, when we are going to do that, we should not be

offering those kinds of advantages to owners and property managers who have not done an adequate job of supporting the housing

that they own and maintain; and, second, I think we ought to look

at what kind of commitment we are going to get out of owners

when we do that in terms of maintaining the long-term affordability of that housing for the residents. If we are offering something to the owners, we also should get something that makes

sense in terms of the Government and the residents out of that

deal.

Mr. TOWNS. OK. Thank you very much.

So it is really a problem that you would have to address sort of

almost on a regional basis?

Mr. DYCKMAN. Well, the——

Mr. TOWNS. I am really trying to understand how we save some

money and at the same time provide quality kind of housing.

Mr. DYCKMAN. It depends on what Section 8 issue we are talking

about. If it is a project-based mark-to-market issue, then the issues

are a little bit more focused. But if it is concerning taking people

from public housing and vouchering them out into Section 8 tenant-based, that might be a different set of issues, and that’s what

I was addressing in my comment.

Mr. TOWNS. Right.

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Ms. GAFFNEY. Can I try to tell you how I see this?

Mr. TOWNS. Sure.

Ms. GAFFNEY. The proposal, in very general terms, for portfolio

re-engineering and the way they want to save Section 8 money is,

they want to—the HUD wants to mark these mortgages down to

the point where the projects can operate at market rents. That

means that the Federal Government is going to have to pay a very

substantial amount of money. And then, as I understand it, the

owners are going to be able to come back and get HUD insurance

for their projects, and they will continue to get Section 8 for their

projects, and we will start all over again.

Now, how did we get where we are today? We got to where we

are because the rents kept increasing. HUD kept raising the rents

above market every year. It would seem to me, we still haven’t

heard how HUD intends to stop doing that.

The more important thing is, we are looking at a situation where

the owners had no particular motivation to maintain these properties. They had no equity. They are still not going to have any equity. So we have got to change the design if we are going to save

money and if we are going to have affordable housing that is decent; we can’t just do it again.

Mr. TOWNS. Right.

One more question, Mr. Chairman?

Mr. SHAYS. Yes.

Mr. TOWNS. I notice the light is on.

Ms. Gaffney, on your written testimony you indicated that HUD

does not have efficient and effective financial management systems.

Is that because HUD lacks the expertise to design these systems

or because HUD lacks the money to purchase them? That’s not

clear to me.

Ms. GAFFNEY. I think the answer, the basic answer, is that HUD

has lacked the will to have such systems because it has not attached priority to having such systems. And that goes back to, the

people who have been concerned about having integrated financial

systems are kind of the management people in HUD. You know,

that’s the accountants and the IG and the administrative people.

But the program people have had more important things to do. And

so there has been a disconnect in getting those people together and

making it a Departmental priority. I think that’s what Mr. Cuomo

plans to change.

Mr. DYCKMAN. If I could just add, I agree completely with the answer Ms. Gaffney gave. As a matter of fact, in 1984 we issued a

management review of HUD in which we identified a lack of commitment even then leading up to, I guess, the current day in terms

of the problems with and the causes for inadequate financial management systems.

But also I think part of it is also trying to identify your needs

and matching your needs with the systems that the people—that

the managers need to manage their programs. I think there hasn’t

been a commitment actually to do that until possibly recently.

Ms. GAFFNEY. We have spent huge amounts of money on systems, huge.

Mr. DYCKMAN. It hasn’t been the lack of resources, I don’t believe.

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Mr. TOWNS. The resources are not the problem?

Ms. GAFFNEY. No.

Mr. DYCKMAN. I mean, surely you could always use more resources, but I don’t think that’s the crux of the problem.

Mr. TOWNS. The reason I am really sort of staying with this is

that the Secretary indicated that he was going to, I think, eliminate, I think, 7,500 employees—or, no, the level would be 7,500 by

the year 2000.

Ms. GAFFNEY. Correct.

Mr. TOWNS. And then I am listening to all of these problems.

Ms. GAFFNEY. Right.

Mr. TOWNS. And then I am thinking about the fact that half of

the people that are there now will be gone, and for some reason

I am beginning to think there would be more problems if you eliminated half of the people that are there.

Or do you feel that you just have a lot of people around who don’t

know what they are doing, so it doesn’t matter?

Ms. GAFFNEY. Not at all. Not at all. That’s what I was trying to

say to you before. What has happened is, the staff cuts have been

made in a totally arbitrary fashion, unrelated to any idea of what

that would mean programmatically.

I would say to you, though, that in the systems area, clearly

there’s going to be a whole big movement to contracting out. I

would think, and that’s going to raise a whole other set of difficulties because you almost need more highly skilled people to contract

out than you need to do it in house, and I don’t know if that has

been addressed.

But of all the areas that are amenable to contracting out, systems development and implementation is one of the better ones, because that is an area where HUD has difficulty keeping top-flight

expertise on staff.

Mr. TOWNS. I am going to close. I wasn’t much of a baseball player. When I came to the plate, I used to strike out all the time. I

want to know what you mean by, ‘‘Congress and HUD both need

to step up to the plate’’? What do you really mean by that?

Ms. GAFFNEY. What I mean is, I don’t think to date that the Congress has accepted responsibility that it has to solve its—it has to

do its part to solve these problems. It has been—there have been

arguments between the House and the Senate. There has been a

lot of negotiating.

But no one has said, this is out of control; we are going to enact

legislation to solve this; nor has HUD, for its part, said, until Secretary Cuomo said it, this is out of control; we are going to do our

part to solve it. It simply hasn’t happened.

Mr. TOWNS. Thank you, Mr. Chairman, for your generosity.

Thank you.

Mr. SHAYS. Thank you.

Mr. Snowbarger.

Mr. SNOWBARGER. Thank you, Mr. Chairman. It’s nice being a

freshman when Congress is being attacked for your past activities.

Mr. SHAYS. You only get to enjoy that experience once.

Mr. SNOWBARGER. I understand that. I understand that.

And so that I can figure out to you how to get us out of this mess

and not be caught with the same accusations, I want to followup.

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It seems to me—and the question, I think, is two parts for both Ms.

Gaffney and Mr. Dyckman.

You have mentioned two areas where Congress needs to step up

to the plate, not just to this general, overall, it is out of control

thing, but one thing I think that Ms. Gaffney mentioned was, in

the area of mission, that Congress needs to be a part of that answer, and the other part of it is questioning the will of HUD to

carry out the mission once it has been given one.

I would like to hear your comments about what you think Congress’ role needs to be at this point in time in addressing both the

mission and HUD’s will. We have talked about more incentives for

the landlords. What are the incentives for HUD that we ought to

be looking at to carry out the will—that we might address its mission?

Ms. GAFFNEY. The type of legislation that I am talking about is,

there have been bills introduced in the Congress now for the past

2 years to—I don’t have this number, but we are now in the business in public housing of providing grants, discretionary grants.

And I have no idea; there must be 50 different types of programs

under public housing under which we are giving grants. They are

little things. It’s like the Tenant Opportunity Program, and they

are—people call them boutique programs.

And typically, what we do is, we provide all these different types

of programs and funds, and then we regulate how the housing authorities administer those funds by the 50 different categories.

There have been bills over the last 2 years that would essentially

consolidate those streams of funding, give more flexibility to the

housing authority in terms of how they spend the funds and then

exact more accountability at the end for the results they achieve.

Now, I find it very difficult to understand why legislation like

that. Why—we desperately need that? We can’t, with the dwindling

staff, administer all of those.

The other big area where we must have congressional action,

which is clear from that chart, is in this whole Section 8 area. Legislation has been introduced in that area also, I think, for 2 years,

and the Congress has not acted.

I would tell you, this Section 8 business has lots of—what shall

I call it—interest. I mean, there are a lot of interested parties.

Mr. SNOWBARGER. Yes, I have heard from them.

Mr. DYCKMAN. You know, I took a look—in preparing for this

hearing, I read over HUD’s fiscal year 1998 budget justification. I

have to tell you, if you read that budget justification, it looks like

it is an expanding agency. It doesn’t look like it’s an agency that’s

trying to focus in on its core missions.

Now, I recognize that it’s a policy decision to be made by Congress with assistance from the administration in terms of what is

HUD’s mission: How many programs do you need to provide homeownership opportunities? How many programs are necessary to

provide tenant opportunities programs?

Those are all good programs, but the issue is, when you have an

agency that has internal control programs, when they are

downsizing, when they have management systems that can’t help

managers make key decisions, when they cannot get a—not only a

clean opinion but any opinion on their financial statements—Ms.

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Gaffney can attest to that because she audited them—I think you

have an agency that really has to examine its mission, and I think

the Congress has a role in doing that.

Now, GPRA, the Government Performance and Results Act, one

of its objectives was to help Congress in a consultation process with

the agencies when the agencies start to define their missions to

come up with strategic plans in how to measure outcomes. I think

that would be a very good opportunity in addition to the normal

type of oversight hearings that should be held and are being held.

I think there’s ample opportunity.

Now, of course, on a case-by-case basis, you have different programs that need oversight, but I think in a general nature there

is an opportunity for Congress to be part of the solution.

Mr. SNOWBARGER. First of all, I don’t know that either one of you

addressed the incentives that Congress might be able to use to sort

of reinforce the agency’s will to carry out the mission. And you are

welcome to do that in the next question. Since you avoided it the

first time around, you may want to avoid it the second time

around, too. One mention was of 50 different programs, and earlier,

I think, both of you indicated there were 240 separate programs.

Mr. DYCKMAN. Or activities.

Mr. SNOWBARGER. Is Congress the source of each one of those?

Ms. GAFFNEY. No. Most of them, but not all of them.

Mr. SNOWBARGER. And so what you are suggesting is that Congress should be taking a look, as we have in other areas, at combining those to see if we can’t make them more efficient through

adding flexibility or granting flexibility?

Ms. GAFFNEY. Yes, yes. And I think there are instances where

the Congress—and this is a bitter pill to swallow—should also be

considering whether we should terminate some of these programs.

And let me give you a couple of examples of the kind of business

HUD is in that you might not know about.

HUD insures mortgages for hospitals and for nursing homes, and

hospital mortgages in these days of major changes in health care

have become increasingly risky. But, listen, someone has to insure

hospital mortgages.

I am not opposed to insuring hospital mortgages. I think it is legitimate to ask, is that HUD’s role? Maybe HHS should be doing

that, or maybe the private sector should be doing that. So, apart

from just consolidating, there are questions about terminating, one

would think, too.

Mr. SNOWBARGER. Mr. Chairman, if I can ask one more question?

Mr. SHAYS. Sure.

Mr. SNOWBARGER. It goes back more specifically to the Section 8

question, or the issue. Last week, when Secretary Cuomo was in,

he mentioned—and I believe maybe, Ms. Gaffney, in your testimony you mentioned that there are places where we are paying

200 percent of fair market value on rents, which I found just amazing. I couldn’t figure out how in the world we ever got into that,

but apparently it was fairly—the Secretary indicated it is fairly

common that we be paying much higher than market rents.

He indicated that the reason for those were basically the contracts that HUD entered into in the first place, at least provisions

62

in those contracts that provided for some kind of escalator, an automatic escalator.

Why didn’t we catch all of these things sooner? How did we end

up at a point where we are paying 200 percent on rents?

And frankly, if we are getting ready to renew some of those contracts, are we going to be able to back out of the situation where

we are paying 200 percent, or are we going to be stuck? because

someone will say, if you pay me 200 percent, you can have the

property back; we don’t necessarily want the property.

Ms. GAFFNEY. You are absolutely right. You know, this situation

is no surprise. People have known about the increasing rents,

above market rate, for years. They knew it when they were doing

it.

Mr. SNOWBARGER. They understood when we entered into the

contracts that they were likely to escalate beyond fair market

value?

Ms. GAFFNEY. It is not clear to me that HUD was locked into

doing precisely what it did by the original contracts. The reason I

question that—I am going to have to find out—is because we, the

Office of Inspector General, and HUD for some years now have

been trying to get the Office of Housing to change the way it does

annual rent adjustments, because the annual rent adjustments are

like an escalator. And they have been unwilling to work with us

to come up with a new approach.

What bothers me is that HUD is now doing a mark-to-mark demonstration, and we said to them, now is the time to define a new

way of setting the annual rents. They still do not have the methodology. So that is what scares me about the future. We still do not

have a different way of doing business, and I am afraid we are

going to get into this same situation again.

Mr. SNOWBARGER. Mr. Chairman, could we allow Mr. Dyckman

some time to respond to that as well?

Mr. SHAYS. Sure. Definitely.

Mr. DYCKMAN. Yes. Again, it is my understanding that these

rents were legally arranged and came about simply through incentives in the contracts. Mr. Hale is going to explain it a little.

Mr. HALE. Mr. Snowbarger, most of the problem with this comes

under a program that was called New Construction and Substantial Rehabilitation. As you probably know, it started in the 1970’s

and lasted up until 1983, and when that program was underway,

people knew going in that the rents on these properties were, to

a large extent, higher than market rents, and that was done for a

couple of reasons. One, it was to try stimulate the housing industry; and, two, it was done so that you could build high-quality

housing in neighborhoods that were not so good. As one of my colleagues has termed it, you would build an $800-a-month apartment

in a $500-a-month neighborhood.

The second thing that has compounded this is that the annual

adjustment factors that are used to mark up the rents over time,

as Ms. Gaffney pointed out, also were very generous, and they

made the problem even worse, so that now we do end up with the

problem that over 70 percent of the properties have rents that are

more than 120 percent of the market rents that those properties

could actually support.

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In terms of legal obligations to renew those, it is not so much a

legal obligation as the concern is that if you renew them at substantially lower rents, that a great many of those properties would

default.

Now, as you also know, in the fiscal year 1997 HUD appropriations bill, those rents were capped at 120 percent of fair market

rents, and properties were given the choice of either one of two

things. If you were an owner, you could try to get down and make

that property work at 120 percent of the FMRs; or, second, you

could enter into this voluntary portfolio re-engineering demonstration program, where if you entered into that, then they would reduce your rents down to market rents, but also then make an adjustment in your mortgage to try to allow the property to survive

at those lower rents.

Ms. GAFFNEY. But, Rick, could I just say something?

Mr. HALE. Sure.

Ms. GAFFNEY. That is at a point in time, that is when you do the

market to market, that is the portfolio re-engineering. What you

need to be concerned about is what happens in the 20 years that

follow in terms of how rent increases are going to be set, and that

has not been refined.

Mr. HALE. No, and Susan is absolutely right. I mean, if we are

going to do that, we should not leave everything else the same so

that we still have owners that are not caring about their properties, we have HUD with no ability to enforce these properties, to

maintain them as decent, safe, and affordable housing and to make

sure that the rents remain affordable, that they do not constantly

continue to creep upward over the next 20 years, or, as she said,

we will be back in the same boat that we are in now, only we will

have gone through a massive effort to get there.

Mr. SNOWBARGER. Well, frankly, the thing that concerns me

more about what you have said than anything else, Ms. Gaffney,

is that you have not been getting cooperation in terms of trying to

deal with that problem, and it goes back to the whole question of

the role of those within HUD to either cooperate with you or cooperate with us when and if we are able to change the programs.

Thank you, Mr. Chairman.

Mr. SHAYS. Thank you. They were very helpful questions and

helpful answers.

I have a number of questions that I do not think will be long answers; then I want to get into some detail on a few issues.

My sense is, from hearing the Secretary and listening to both of

you, that taking management structure aside and systems aside,

our two main focuses need to be—maybe three—Section 8, the Public Housing Authorities, the troubled public housing authorities;

and, third, I might add, but it is related to management, obviously,

too many programs with too few resources. Would you add anything to that list? I realize that there are a lot of other issues that

you could look at.

Ms. GAFFNEY. There are, but I think you are correct that those

are the major——

Mr. SHAYS. Mr. Dyckman.

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Mr. DYCKMAN. There are other problems at HUD. We have

issued many reports and recommendations concerning many of the

other programs, but those are the key problems, in my estimation.

Mr. SHAYS. Well, since there are many others, I am going to ask

each of you to add one to the list that I have given you. The Section

8, the Public Housing Authority, and too many programs with too

few resources. What would you add?

Mr. DYCKMAN. I would probably add that restructuring of

FHA——

Mr. SHAYS. OK.

Mr. DYCKMAN [continuing]. Whether or not the Government has

to ensure 100 percent of the mortgages for single-family homes,

and also FHA’s multi-family insurance program, whether it is necessary.

We are doing a review, I might add. I have a parochial interest

in saying that.

Mr. SHAYS. The bottom line is FHA.

Mr. DYCKMAN. The bottom line is, yes, whether FHA needs to be

streamlined or should the status quo remain or made into a different government organization?

Mr. SHAYS. Separated from HUD.

Ms. GAFFNEY. Indian housing programs.

Mr. SHAYS. Secretary Cuomo talked about farming out the responsibility for dealing with the Section 8. While I did not share

it with him at the time, I was thinking, my gosh, the danger is that

we will be back in the whole Section 8 problem of friends who will

get these wonderful contracts to do that negotiation. Would that be

a concern?

Ms. GAFFNEY. What was the——

Mr. SHAYS. I want to make sure that I am describing it correctly,

but basically one of his suggestions as a possibility is they bring

in outside consultants to deal with this problem in various areas

around the country, and we know what outside consultants sometimes mean at HUD. Do you have that similar concern?

Ms. GAFFNEY. Oh, contracting out is a major concern to me, because it is clear to me that generally people think contracting out

is an easy way out. We are just going to get other folks to do our

work for us, you know.

Mr. SHAYS. Right.

Ms. GAFFNEY. But, clearly, the oversight and the amount of work

involved in defining the work to be done and overseeing it is incredibly important, or you are just going to be taken for a ride.

Mr. SHAYS. Just try to imagine. I did not mean facetiously if I

were Secretary, I cannot imagine why someone would be Secretary,

because I know that Mr. Cuomo, Secretary Cuomo enjoys the challenge, but it is almost massive because of what Joe Hale has talked

about, the high-risk problems in terms of what I consider the structure and management of HUD. Mr. Dyckman, when you said 240

programs, I forgot, Ms. Gaffney, if you agreed to the 240.

There is a very strong argument that HUD has to look at interdisciplinary problems—crime, security, recreation for kids. They all

interact, because kids who are not going to have activities may end

up just playing on the elevators and wrecking them in the process.

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So I understand why there needs to be an interdisciplinary approach, but that notwithstanding, I tend to sense that maybe one

of our recommendations is going to have to be that based on your

comments you all have made with your years of experience, that

HUD may have to just totally refocus on the core programs, deal

with the public housing, deal with the Section 8, and ship out a lot

of these other programs, and maybe block grant it, which becomes

somewhat controversial to some on your side of the aisle more than

mine.

Now, is your sense that in focusing on the core programs, that

they are going to have to drop some programs, consolidate?

Ms. GAFFNEY. Yes. Absolutely, yes.

Mr. SHAYS. Would you agree with that?

Mr. DYCKMAN. Yes. Well, yes, it is not so much that they have

so many programs, but they seem to have so many programs doing

the same thing or very similar things, so I am not suggesting that

HUD get out of the business of public housing or vouchers, but why

do you need vouchers and certificates? Why do you need so many

different mechanisms to deliver the same thing?

So, in a sense, it is consolidation, but it may not necessarily take

them out of the basic services that they are providing right now

but just to focus better.

Mr. SHAYS. But what I get is a sense that Congress has provided

a few new programs over the past few years, but we have not really provided a critical mass of funds, so we have a lot of programs

but not really truly well funded.

Mr. DYCKMAN. Well, if a small program requires resources by the

agency to oversee it if they are going to do a good job, sometimes

it does not cost any more money to oversee a large program versus

a small program. I think that is part of their management problems.

Now, in terms of whether they have enough budgetary authority

to solve the problems of the cities, of course, they do not, but are

we wealthy enough to put all our resources in solving one set of

social problems? That is another issue that Congress has to face,

obviously.

Mr. SHAYS. We are going to get to the next panel, but the purpose of today’s hearing is to just kind of give us an overview; and

clearly with HUD, we could focus on a lot of other issues, but we

are just trying to—we want you to do exactly what you are doing,

and that is put the emphasis on the biggest problems.

But I do not understand about the Section 8, and I do not know

if this is the budgetary language that is screwing me up, but obviously if you are paying a certain subsidy right now to the Section

8, I do not understand why it costs us more money, my mind says,

to renew. Why more money to renew? Why can’t it cost less?

Ms. GAFFNEY. I am going to try, because this is the budget-authority-versus-outlay discussion. I think that is what it is.

Mr. SHAYS. All right.

Ms. GAFFNEY. The crisis is in budget authority, and budget authority is essentially expended at the time of obligation.

Mr. SHAYS. So the authority is ending, and, therefore, from a

baseline it is down to zero. In terms of actual outlays——

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Ms. GAFFNEY. Actual outlays are not changing at the same

rate—there is not a crisis in outlays. They are much too high, and

they are increasing steadily. It is the budget authority, because the

budget authority for some of these contracts was provided 20 years

ago——

Mr. SHAYS. I understand.

Ms. GAFFNEY [continuing]. Thirty years ago in time. Right? So,

now, it is all having—— Mr. SHAYS. Let me ask one other question in regard to this.

While I am not looking to increase the amount of public housing,

but in one sense, if you have a landlord who owns property, particularly in a community, we are paying him twice the true market

rate to carry the property. Why does not HUD just say, ‘‘Goodbye;

you can foreclose; we will just take it over as public housing,’’ and

then over time recondition it as their property and hopefully get

better benefit? I do not understand why we would reduce the mortgage requirements of the owners of these buildings, give them the

benefit, and then just—— Mr. DYCKMAN. It is a tradeoff, because you have—if you do not

do something, you may have a foreclosed property, and the Government is afraid that they will take a bigger hit.

Mr. SHAYS. OK. I guess it is the bigger hit issue. Yes?

Ms. GAFFNEY. I think there are two answers. One, HUD has traditionally been reluctant to pay insurance claims, and that

means—— Mr. SHAYS. It is an up-front sum, is the problem.

Ms. GAFFNEY [continuing]. That the driving concern has been the

financial situation of the insurance fund. But there is another consideration, and that is HUD has not been eager over the years to

take enforcement actions of any type against these owners. That is

a clear record.

Mr. SHAYS. Let me just make sure that you all feel comfortable

or are assured that we are going to focus a good deal of our time

on the Section 8 issue, very up front, and hopefully make some recommendations. In our report we will talk about some of our concerns as well of what we do not want to see HUD do. We are going

to need both of your help in that regard.

Mr. Towns, are you all set?

Mr. TOWNS. No further questions. I would like to thank the panel

for your help.

Ms. GAFFNEY. Thank you, Mr. Towns.

Mr. SHAYS. Well, we enjoy working with——

Ms. GAFFNEY. Nice to see you.

Mr. SHAYS. I would just add as well that both of your organizations, the people in them have been tremendous to work with, and

we have appreciated the cooperation we always get from you and

feel that we truly are partners in this effort, and it is nice to have

such good partners.

Ms. GAFFNEY. Thank you.

Mr. SHAYS. At this time, we will call on Charles Masten, the Inspector General of the Department of Labor, as well as Carlotta

Joyner, who is the Director of Educational Planning Issues, General Accounting Office. You both are accompanied by one other individual each, John Getek——

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Mr. GETEK. Getek.

Mr. SHAYS [continuing]. And Dr. Harriet C. Ganson. So we will

swear all of you in, if you would remain standing. Raise your right

hand.

[Witnesses sworn.]

Mr. SHAYS. Thank you. For the record, we will note that all four

have responded in the affirmative. This now is the focus on the Department of Labor, and we really appreciate all of you being here.

I am sorry we have kept you waiting a bit, and I think we will do

it as I called. We will start with the Inspector General, and then

we will go to the General Accounting Office.

I am going to leave here for about 5 to 10 minutes, and then I

will be back; but what I think I will do is hear your statements and

then go. So, Mr. Masten.

STATEMENTS OF CHARLES C. MASTEN, INSPECTOR GENERAL,

DEPARTMENT OF LABOR, ACCOMPANIED BY JOHN GETEK,

ASSISTANT INSPECTOR GENERAL FOR AUDIT; AND

CARLOTTA C. JOYNER, DIRECTOR, EDUCATION AND EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY HARRIET C. GANSON, ASSISTANT DIRECTOR,

EDUCATION AND EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE

Mr. MASTEN. Thank you, Mr. Chairman and members of the subcommittee. Thank you for inviting the Office of the Inspector General to discuss management and programmatic issues facing the

Department of Labor. I now possess a different role in my capacity

as IG, so my views will be my views and not necessarily the official

views of the Department or the official views of the IG.

Mr. SHAYS. OK. That is what I thought. I just wanted to make

sure they are not your personnel views.

Mr. MASTEN. The views of the IG. I will summarize the four

issues that I have detailed in my statement and ask that my entire

statement be submitted for the record.

Mr. Chairman, one of the most important issues facing the Department is improving the effectiveness and efficiency of job training programs. While programmatic and legislative improvements

have been implemented over the years, our audits of these programs continue to identify recurring problems, especially with respect to program performance and grant management.

Our most significant findings continue to be those programs generally result in short-term, low-wage jobs. It is my opinion that job

training service will not be maximized, nor costs minimized, without adequate performance accountability and oversight of grants by

the Department.

The second issue that continues to require major departmental

and congressional attention is that of ensuring the safety of pension assets, which now total close to $31⁄2 trillion. Specifically, the

Department must be effective in ensuring that pension funds are

deposited fully to the worker’s account in a prompt manner and

that these funds are safe while being held in trust by the plan administrators, service providers, or trustees.

Our main recommendations are, No. 1, repeal the ERISA’s limited-scope audit provision, which results in inadequate auditing of

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almost half of the $2 trillion in pension assets that are subject to

the ERISA audit requirements; and, two, that the public accountants and plan administrators be required to report serious ERISA

violations directly to the Department in order to ensure that these

violations are reported promptly.

It is my understanding that the administration is once again

working on introducing a proposal that will address both of these

recommendations.

From an investigative perspective, the OIG continues to focus on

identifying abuses by service providers, administrators, and others,

with respect to union pension funds and investment activities. In

fact, my office is currently conducting investigations of more than

$200 million in pension assets that are suspected of being abused

or defrauded.

The third issue facing the Department would be implementing

two major statutory mandates, the Government Performance and

Results Act (GPRA), and the Health Insurance Portability and Accountability Act (HIPAA). The main challenge for the Department

with respect to GPRA will be ensuring that program agencies develop outcomes-based performance measures needed to assess program impact and that its financial systems are adequate to generate the needed financial and cost information of DOL programs.

With respect to HIPAA, DOL was given significant additional

regulatory disclosure and enforcement responsibility related to its

administration of ERISA, as well as enhanced authority in the

Government’s effort to combat health care fraud.

The challenge the Department will be the rapid implementation

of its provisions while educating the public on the many requirements and protections, and then enforcing compliance with its requirements. And as the primary criminal investigative entity in

DOL with respect to HIPAA fraud, my office will be faced with

meeting our statutory responsibilities while providing adequate

coverage to other priority areas as our resources continue to erode.

Finally, as far as the Unemployment Insurance System, we have

three major concerns. The level of fraud activity related to this program, particularly as a result of fictitious employee schemes; two,

the Department’s ability to ensure that SESAs convert their computer systems to be ready for the year 2000—not to do this could

create inaccuracies in calculating the length and amount of benefits, worker eligibility, and employee tax rates—and three, DOL’s

recent policies that essentially permit the States to provide electronic access, for a fee, to State UI wage record information for the

purpose of consumer credit verification.

That concludes the summary of the four areas in my written

statement, and we are prepared to answer any questions any of

you may have.

[The prepared statement of Mr. Masten follows:]

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Mr. SHAYS. Thank you very much. Ms. Joyner.

Ms. JOYNER. Yes. Mr. Chairman, members of the subcommittee,

we, too, are pleased to be here with you today to talk about the

challenges facing the Department of Labor in carrying out its mission. There are two major challenges that I will summarize briefly

and, I have a longer statement, which you have received already.

The first of these is the challenge to provide effective employment training programs that meet the needs of the diverse target

populations and to do so in a cost-efficient manner; and the second

is to ensure worker protection in a way that is in a flexible, regulatory structure.

I would also like to talk about how we believe Labor’s ability to

meet these challenges will be enhanced by the improved management initiatives that are envisioned by recent legislation. With about $34 billion and 16,000 staff in fiscal 1997, Labor’s

programs touch the lives of nearly every American because of their

breadth, from job training to helping people get jobs, income security when unemployed, and working conditions when employed. We

have provided a chart over here that gives some information about

this.

Just as an overview, as a reminder, there are 24 different units

into which the Department is organized. The chart over here does

not show the over 1,000 field offices around the country, which, in

addition, carry out the mission of the Department. It also does not

show, as a chart could not, the extent to which these activities are

decentralized in nature.

For example, assuming the information one might want to have,

such as the non-billable Fed offices, where they are on the staff,

that kind of information is available only from the individual units,

not from the central office.

As you can see, on the chart—I do not know if you can see that

well—would it be helpful to tip that a little bit?

Mr. SHAYS. The chart is a little small, if we just lift it up right

over here, Chris. Maybe somebody could help you.

Ms. JOYNER. OK. Good. What I will be talking about is the yellow marks around the middle of the chart, so I can direct your attention there, if that helps, to the program activities.

Well, you see, that is the problem. There are so many units that

the text has to be so small that you cannot see it.

Mr. SHAYS. OK. Flip the bottom down there. You can slide it

down a little bit, and then we will be all set. Good. Thank you for

asking.

Ms. JOYNER. All right. We would hate to spend the money and

make the chart and have you not be able to see it.

Mr. SHAYS. That is all right. I am happy you are doing this.

Ms. JOYNER. OK. If you look at the middle level, on ‘‘Program Activities,’’ the Bureau of Labor Statistics is the one to the far left.

Obviously, that has an important role in gathering information on

labor statistics, including the CPI. Of course, there is a major issue

now as to how to revise that. But we will be focusing more on the

other program offices to the right of that.

The two offices responsible for the work force development activities are the Employment and Training Administration, the second

box and—all the way to the right—the Veteran’s Employment and

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Training Service. The charge that these two offices within Labor

face in mainly the work force development mission is that they are

doing this in the context of many more programs than just the ones

for which they are responsible.

If you will recall, the last time we testified here, we pointed out

the 163 different employment training programs under 15 agencies.

All 37 of these at that time were not even in the Department of

Labor. We have not gone back to recount those or to recalculate the

$20 billion estimated for those programs at that time, but what we

do know is that a problem remains that instead of there being a

coherent work force development system to meet the needs of people in this country, we have a fragmented system with some of

those overlapping target groups and questionable outcomes. This

has been said before as well.

Now, as you know, consolidation legislation was considered in

the last Congress, and you would have had some interest in that.

The Congress was unable to reach agreement on how to consolidate

the programs.

The Labor Department has moved ahead with this to try to help

the States, who themselves have tried on their own to integrate

these programs. The Labor Department has used initiatives, for example, one-stop career centers, and has tried to the extent that it

is possible without the legislative change, to try to overcome this

kind of fragmentation. But that has not been enough to fix the

problem. It has also implemented consumer initiatives to get more

information about the outcomes of some of the programs.

But as you are aware, too, with the recent welfare reform legislation, even more people will be needing assistance in getting jobs

and being trained for jobs, and the system really is not there to

help them. In the Washington Post this morning, there is an article

about the difficulty that employers face in trying to bring people off

the welfare rolls into jobs, and the biggest problem—and it is not

a surprise to us—is it is not so much the skills, it is employability.

That is something that we have addressed in one of our reports,

and, in fact, I have testified on that matter once before this subcommittee on the need to focus on employability skills as well as

specific job skills.

Another major challenge has to do with worker protection issues;

that is accounted for by the other four agencies on that row of program agencies on the chart: Employment Standards Administration, Mine Safety and Health, Occupational Safety and Health, and

Pension and Welfare Benefits Administration. The major challenge

here is to provide this regulatory oversight in a way that is less

burdensome and at the same time more effective.

The Department, again, has made some progress in this direction, and OSHA, for example, illustrates some of that, with much

more partnership initiatives with companies to supplement their

tradition enforcement approach. But that has not been without criticism and without some difficulties there as well.

We have also pointed out some opportunities for them to leverage

their resources through sharing information with contracting agencies. What we found was over $38 billion in Federal contracts were

going to 261 companies that nevertheless had been cited for significant penalties for safety and health violations. And so we have

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made some recommendations to extend, if you will, their opportunities in that way.

In worker protection as well, congressional action poses some

new challenges and some new activities for them. The Congress

awarded them additional funds last year to examine ways to substantially improve their wage determination process under DavisBacon, a controversial law. They are now launched into a major effort to try to find better ways to do that, and while this has been

previously mentioned, they have new responsibility under the

health insurance portability law to establish some regulations and

subsequently to enforce them.

I really do think that some improved management practices will

help them meet both of these challenges. The Government Performance and Results Act, as has been mentioned, is really the centerpiece for that, for moving Labor, as other departments, to a more

results-focused, results-oriented management.

And there are other pieces of legislation that have been employed

in parts of that. The CFO Act, the Chief Financial Officers Act; the

Paperwork Reduction Act, and Clinger-Cohen. Together these will

put them in a position as they move to full implementation with

these, to do several things that are crucial: to have some integrated

information about their mission and strategic priorities, the performance data to evaluate their performance toward those goals, to

relate their information and resources and technology to those

goals, and then to have some accurate and audited financial information about how they are spending their resources toward those

goals.

Labor is taking some action in these directions. We feel that this

mission is an urgent one. I am sure you share that concern about

people when they are unemployed, when they are injured in the

work place, about employers trying to find competent workers and

understand the regulations that they are having to deal with, and

then the potential of wasted money that we really cannot afford to

waste. So we are very encouraged and hope that these management approaches will help them do better.

[The prepared statement of Ms. Joyner follows:]

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Mr. SHAYS. Thank you for your comments, and we will begin

with Mr. Towns.

Mr. TOWNS. Thank you, Mr. Chairman. Let me begin with you,

Ms. Joyner. You have had the opportunity to evaluate a lot of

training programs during your tenure. What would you consider

one of the best programs? Could you give, say, like some programs

that you think are doing well that you have evaluated?

Ms. JOYNER. Well, there are several ways to look at the data. I

think that the more or less recent studies that we have issued,

what we did was look at not a fundings-free program, that is not

to say whether it is JTPA, Title II(a) or Job Corps or anyone of

those, but what we tried to do was to look at individual programs

onsite and to see where they seem to be successful and what really

made them successful, and we think that kind of critique is useful,

particularly more so than trying to see whether all the programs

funded in a certain way are useful—are really working.

And as I mentioned before, in our work on strategies used by

successful programs, we identified four key characteristics that

seem to be common to them. The Labor Department tells us that

they are now using that information, trying to distribute that message through the JTPA programs, and then States are using it as

they are trying to integrate their work force development activities.

I mentioned one of those, which was that the successful programs seem to be those that focus on employability skills, not just

training them to be a welder, but how can they learn to get to work

on time and why that is important; to identify the kind of barriers

that face them, and to alleviate those barriers, whether it is child

care or transportation, that sort of thing; and also to make sure

that there is motivation to succeed, either to bring into their program the priorities to those people who are ready to change or help

them develop that; or when you are doing discreet-skills development, to tie it to the local labor market needs rather than just

train them in construction even if there are no construction opportunities where they have been trained.

Mr. TOWNS. Thank you. Youth programs have the same problem

that many of the other agencies have, training programs. They are

all over the lot. You have Veteran’s Administration and they are

everywhere. Isn’t that part of our problem, that we cannot centralize them?

Ms. JOYNER. Well, it is. You are referring probably to the Table

2 in our testimony——

Mr. TOWNS. That is correct.

Ms. JOYNER [continuing]. Where we talk about, at least at that

time, in 1995, the fact that there were 19 training programs that

targeted youth—not just that youth could be in them, but really

targeted toward youth; that seven of those programs were in Labor

and that there were five different agencies——

Mr. TOWNS. In Veterans——

Ms. JOYNER. A total of five. Right. And the same thing with all

of these. We think that is a problem. We think there are a couple

of reasons why the multiple programs is a multiple series of problems. Again, although we cannot quantify the amount, we are certain that there are administrative—we are losing some money here

administratively by running so many different programs.

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It also is very frustrating for the young person. Let’s say you

want some job training. Where do you go? Which place do you go

to? And you may go to one, and it is not the right one, so you have

to start all over and go somewhere else, and so the service quality

is not going to be as good as if you had a more integrated approach

to work with this enrollment.

Mr. TOWNS. And I also think that in terms of duplication

problems——

Ms. JOYNER. Oh, absolutely.

Mr. TOWNS. I think that is a real issue, and I think that is something that we cannot afford the luxury of that anymore.

Ms. JOYNER. That is right. To give you an example, one instance

that the one-stop centers are trying to avoid is in the past when

someone would go into one location, they might be given a test to

find out what their interests and their skills were. They would fill

in an application form, and then they would be sent somewhere

else to get one piece of their service and do the whole thing over

again.

And then if they need another service, another piece of the total

package of what they need, they would have to go to another location, take another set of tests, fill in another application form.

There was cost involved as well as the frustration to the person

trying to get a service.

Mr. TOWNS. Based on the information that you have been able

to collect and that you say, in terms of what you feel makes up an

effective program, how do we get that information out to job-training programs in the State?

Ms. JOYNER. Well, we have been told by the Labor Department

that they have—well, they asked for many copies of our report. I

know that. I had their number at one time. And, in fact, when I

testified before this committee as a result of that study——

Mr. TOWNS. I remember.

Ms. JOYNER [continuing]. The Assistant Secretary was here, and

he said he made a commitment to get it out, at least through the

JTPA system, and I believe he has, to the service-delivery areas.

They have more recently told us that as they are working with

States that are trying to approach job training in a more coordinated way, that they are supplying that information, and also what

the Labor Department learned; they also issued a report a couple

of years ago and what works and what does not in employment

training, in education as well as in the employment training programs. I hope that they have been trying to make copies of that

available throughout the country as well.

Mr. TOWNS. Good. Let me just switch over to you, Mr. Masten.

Under the new welfare reform law, what will be the Department’s

role in ensuring that welfare recipients get effective employment

counseling and training?

Mr. MASTEN. Mr. Towns, do you want to ask that question again?

I want to make sure I understand exactly——

Mr. TOWNS. In the new welfare reform law, what is the Department’s role in ensuring that welfare recipients get effective employment counseling and training? They would have a role in this,

wouldn’t they?

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Mr. MASTEN. They would have a role in it. The number of training programs in the Department of Labor will play a major part

in the strategy of getting a lot of the recipients off of the welfare

rolls, but as far as the specific function of the Department of Labor

the welfare reform legislation itself, I cannot give you the various

specifics of it. All of the training programs in the Department of

Labor will be part of the overall strategy to reduce the number of

recipients on welfare.

Mr. TOWNS. Yes. But I would think they would be involved in

counseling and training. I hope so.

Mr. MASTEN. That is right, but I am of the opinion that the

GPRA-mandated legislation that is on the books that is forcing the

Department of Labor, as well as the federally run agencies, to come

up with outcome performance measurements, which sadly are the

problems.

When I look at a training program as it involves welfare recipients and any other group, the bottom line, these individuals should

be able to get jobs that will pay them a salary that will get them

off of welfare and put them into a job which they have been trained

for. It has been my experience that that has not been the case in

most of the programs.

Mr. TOWNS. Right. Well, let me close it by saying that I think

that your Department—the Labor Department, I should say—will

play a major role in making certain that counseling, the kind of

support of services, and whatever that needs to be done has to happen in order for this thing to be—for it to be successful or effective,

and that I would just point it out that I am sure it is not your responsibility totally, but I think that you have a role, and I am

happy to know at least that something is being discussed.

Mr. MASTEN. It is one of the problem areas. As I say, what I look

at, I look at the bottom line of those training programs to get someone off of welfare. I grant you, in teaching them the skills to get

them to work on time, to be able to conduct an interview, that is

fine; but they should also be able to leave that area and get a job

that is going to pay them a living salary. They should get a job in

the area in which they have been trained for, and I think that is

what the GPRA will demand that the Department of Labor and all

the other agencies put on the table in the future.

Mr. TOWNS. Thank you.

Mr. SNOWBARGER. Let me followup. We have talked a lot about

outcome-based performance measures. Other than the fact that you

are now required to do this by law, what value is there in using

the outcomes-based performance measures?

Mr. MASTEN. Well, for example, JTPA training; if you are trained

to be an accountant or a junior bookkeeper, you are training to be

a junior bookkeeper and you spend 18 months in that training, if

you set the outcome measurement as being how many people get

jobs as a bookkeeper as a result of the training, you will be able

to determine if that program is working.

By the same token, if you add on the training and the return on

the investment if that person was a recipient of welfare prior to

going into that training program, is likely to get a job, and as a

result of the training, get off of welfare, it is another measurement

that would be in keeping with the GPRA.

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Mr. SNOWBARGER. Prior to GPRA, what measures were being

used?

Mr. MASTEN. The measurement was to get the person in any job,

not particularly in the job for which they were trained.

Mr. GETEK. I would say entered employment; sometimes it was

the number of hours worked. Some programs—for example, the Job

Corps is 20 hours per week, would be one of the criteria. Some

would measure the amount of dollars that were earned in a particular hour.

Mr. SNOWBARGER. And we are saying at this point that those are

appropriate measures?

Mr. GETEK. Those are beginning measures. Those are more output measures. We think that over a period of time, someone needs

to measure what the total outcome is and what the result is of

those outcomes. And, again, somebody getting a livable wage over

some period of time and holding a job for some period of time other

than say, 20 hours a week, would give you some measure of the

return on investment.

Mr. SNOWBARGER. How long have you been providing these kinds

of programs?

Mr. GETEK. These programs go back to, I believe, the MDTA program, which was in the late 1960’s.

Mr. SNOWBARGER. My final question is: why has it taken so long

to figure out that we have not been measuring programs in the

right way? Do you want me to make that rhetorical? I would be

happy to.

Ms. JOYNER. Could I comment? I take your question to be a general one about result/outcome-oriented measurement, which is very

important for job training, as it is important for all of Labor’s activities, really. And I guess what I would say is that it is much

easier to measure the short-term effects. It is much easier to measure what you are doing and the immediate output or what happens, how many got in a job, than it is to really know 2 years later

whether they are self-sufficient.

That takes a greater expenditure of resources. Someone has to be

willing to collect the data over that period of time, and ultimately,

if you want to know if it was the program that was responsible, you

might even need to do some sort of impact evaluations, which

raises the cost up even higher. You might need to deny the program to someone in order to compare it, as is being done now with

Job Corps.

If we need definitively to know the outcome, the impact, of Job

Corps, you are going to have to compare it with a group that did

not get Job Corps. That gets into issues of political acceptability,

of your son cannot get into Job Corps because this is an experimental study.

Mr. SNOWBARGER. You mean that Job Corps may not do for their

son what they have been told it would do.

Ms. JOYNER. Absolutely, because these people—programs are run

by people who believe they are doing a good job, and I think, by

and large, want to do a good job; so there is always a difficulty in

convincing people that it will be better to forego giving this believed good to everyone for the sake of really knowing what works

and what does not.

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So I think absent a real, clear message, in fact, even from the

Congress, that we believe it is worth spending some money to track

these participants and get outcome measures and do the studies,

but it has been a hard thing to do.

And I guess what I wanted to add is while we are on the issue

of outcomes, is to look over some of the worker protection programs. Take OSHA as an example. OSHA has always been required in approving State-operated programs in which the States

have the option to run their own programs, that the States had to

have a program as effective as that of OSHA.

We did a lot of studies in the late 1980’s and early 1990’s on

OSHA, and repeated: what is the issue? The OSHA had no idea

how effective it was, so how was it going to know whether the

States were as effective? And what was classically done was if you

do things our way and the process measures match, we will believe

the results are good. And in that area as well, we recommended

and they agreed to, and are now moving toward actually establishing some results in that area, too. So that they are now holding

inspectors accountable to cite people and to find violations. They

are holding programs accountable to conduct special emphasis, let’s

say, on trenching or in construction that actually reduce injuries in

construction.

So it is a focus on the results, not on some interim measure like

citing them for violations.

Mr. SNOWBARGER. Well, then, a question to both of you is, is

GPRA a sufficient message from Congress that we want to know

the effectiveness of these programs, or do we need to be saying

something more?

Mr. MASTEN. Well, I think it is very sufficient, and as I said earlier, not only just for the Department of Labor, but for the entire

Government, because when you get the basic outcome, and then

you know the return on your investment, the taxpayer will know

whether or not it is worth putting the money out to have the program in the first place. And if it is not, then the decision comes

back on Congress to do away with the program.

Mr. SNOWBARGER. Let me ask one final question, Mr. Chairman.

You talked about 163 different programs in 15 different agencies,

only 37 of them in the Department of Labor. Why did you let these

guys do that?

Mr. MASTEN. I like your style.

Mr. SNOWBARGER. Like you say, I only have 1 year to do this,

so I am going to take advantage of it.

But in all seriousness, here we have a Department of Labor who,

I presume that your mission is, you know, employment and training administration, and yet you have only captured 37 out of 163

programs for your own little bailiwick here, I would think, just in

terms of empire-building, you would want all of them in your department. But beyond that, I mean, it seems to me that somebody

should have been telling us at some point that, wait a minute. You

have that program; it is just over here, and you are duplicating if

you are not on this program, or that particular concern can be accommodated with this program with just a little bit of flexibility.

Ms. JOYNER. I would say this is actually a point where your two

panels today have something in common——

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Mr. SNOWBARGER. Yes.

Ms. JOYNER [continuing]. Which is, here is a problem; let’s create

a new program to fix it, and then one ends up ultimately with lots

of programs addressing the same general issue.

Mr. SNOWBARGER. Well, the thing that concerns me is not only

duplication of programs, but the fact that we have got them spread

over 15 agencies.

Ms. JOYNER. Right. In this case, you have the added factor. That

is right.

Mr. SNOWBARGER. That means you have absolutely no coordination of those things. Again, I think your point is well taken with

HUD. Why did they develop 240 without telling us, ‘‘We can do

that already,’’ or ‘‘Give us just a little bit more authority in this

program, and we can do it there’’?

Thank you, Mr. Chairman.

Mr. TOWNS. Let me just say this to Mr. Masten. You know, you

have been before this committee on several occasions and I am impressed by you and I know that you are a knowledgeable person,

and I just want to go back to something. I cannot leave it. I tried

to go back to New York without raising it.

The form is a big thing. Let’s face it, and everybody has to get

up for it. You mentioned about the fact that if something is not

working, then Congress needs to get rid of it.

But there are a lot of things that go into that process that we

have to know in terms of information, in terms of being able to

monitor it, so my question is basically this. Does the Department

of Labor have the necessary personnel, computer system to monitor

the employment counseling and training programs for welfare recipients throughout the country? Because it seems to me that that

would fall under that department. I mean, that is my thinking, and

I must admit, I cannot say. I have only been here a year.

Mr. MASTEN. OK. First of all, Congressman Towns, let me state

for the record, when I said get rid of the program, I said, if the return on the investment was not sufficient. I gave the two comparisons of outcomes; I said, if it is not sufficient—then a decision will

have to be made on whether or not to get rid of it. OK?

Not just get rid of it if it is not working, because we make recommendations on most of our audits as to what we believe will

make a program better. We make those recommendations to give

the program managers an opportunity to make them better. So if

you can make it better, do it; but if you cannot make it better and

the return is not adequate, then I am saying that their responsibility is to make a decision to get rid of it.

To answer your next question on whether or not the Department

of Labor has a management information system——

Mr. TOWNS. In place.

Mr. MASTEN [continuing]. In place, the answer is no.

Mr. GETEK. It could be better because the role of the Federal

Government, I do not believe, in the past few years has been what

it ought to be. There is not enough monitoring out there of the

things that you have just spoken about, the counseling and the

other areas that affect people who are coming into the program. It

is left, at least for JTPA, up to the Governors to institute systems.

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The Employment and Training Administration has general oversight, but over the prior few years, there have not been a lot of

Federal folks down there looking at whether people are getting

counseling and education and those kinds of things, and I believe

those were policy decisions. And for the program to work, I truly

believe that you have to have an increased amount of Federal oversight. It has to work certainly in conjunction with the people at the

local level, but it also has to be that level.

Mr. SNOWBARGER. Yes, Ms. Joyner?

Ms. JOYNER. If I could go back to the first part of your question

and the previous one related, it is the comment about the relationship between the Department of Labor, its employment and training programs, and welfare reform. The point is to recognize, of

course, that under welfare reform each State will be in control of

what each State chooses to do, how they choose to implement their

requirements for work.

They have some flexibility, not as much as they had in the past,

as to what kind of training would meet the work requirement, and

how in that State they are going to integrate their getting people

on welfare into jobs with the existing job-training structure. So we

have some interests in knowing and some concern that that may

not operate as well as it might at the State level.

Basically, there have been different bureaucracies in each State.

I mean, there are the people who do employment training, and

there are the people who handle the welfare programs, and they

had a job training program, as you know, specifically for welfare

recipients. There have been several, most recently the Jobs Program, which now is—it is gone as an official program.

So there is the pot of money for the States to use, and our sense

is that one of the things the Department of Labor, the Federal Department of Labor can do is a part of a more informal attempting,

as we touched on before, more States are trying to do more integration, working with them.

It is not so much a matter of the Department of Labor telling

them what they have to do—that is not a role that is envisioned

for them in this—but it is more a matter, I think, of getting information out, making Department of Labor resources available. Also,

from the standpoint of Labor-operated programs, dealing with potentially more people coming in and how to balance the needs of

more former welfare recipients who now are needing job training—

expanding even beyond the substantial number of welfare recipients who are already being aided by Labor programs.

Mr. TOWNS. Let me just say this. I understand the way we process and I understand flexibility and I understand one region might

help find something to be successful and another region might—I

understand all of that, believe me. Trust me, I do, but I think that

somewhere along the line, you need to come up with a pilot project

of some of the five States to be able to feed information in so we

will know what we are doing. That is my concern.

This is a major effort we are going through here, and I think that

we should have some data someplace, and I do not think we should

just leave it to the States because, after all, it is still Federal

money, that they are using, and that is my concern. And they are

probably going to come back and back and back and back, and I

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just would like to know what we are doing and what they are doing

with that money, and then maybe we can learn something. That

is all.

Maybe pick five States, seven States, or nine States, but I think

that it has to be done in order for all of us to feel comfortable. I

really do.

Ms. JOYNER. We have several studies under way. Some of them

are in a group other than my own—our income security group—but

we are also working with them trying to do some studies. As you

suggest, we believe they need to be done to see what is happening

in States and how the job-training needs and job-placement needs

of welfare recipients are being met in different States and what can

we learn from that.

Mr. TOWNS. Thank you, Mr. Chairman.

Mr. SHAYS. I thank the gentleman. One of the reasons why I believe we have lots of different programs and similar programs in

different departments is that each chairman of the standing committee wanted a little piece of the action, and they did it through

their committee. It never ceases to amaze me. My first surprise

when I was a freshman was, why did the Department of Agriculture get into housing? But we have rural housing that goes

through them. That was always a surprise to me.

But the way HUD views its responsibilities, they view their need

as interdisciplinary, so they are going to focus in on recreation, and

they are focusing in on job training, and Labor is going to focus in

on that. One of the big things that we tried to do, in the Republican Congress last time around was we tried to use some task

force, so we would start to use three committees that we deal with.

We have one committee dealing with one department and another

committee dealing with another department and another committee dealing with another department, but they all dealt with the

same issue, and we tried to bring it all together.

Our problem is that we tried to overreach. I do not think we are

going to significantly reorganize the Department of Labor, but I

wonder if, like with HUD, if there should not be some reorganization. So my first question is going to deal with the program agencies.

I want each of you to tell me the program agency that you think

is run the most efficiently and the one that has the most challenges.

Mr. MASTEN. I could really take a stab and say the OIG is definitely in—[laughter.]

There is no question about that.

Mr. SHAYS. Now, where do I see that on program agencies up

there?

Mr. MASTEN. I have a small program within the OIG. I will tell

them about it.

Mr. SHAYS. OK.

Mr. MASTEN. First of all, Mr. Chairman, we have not done an

audit to discern—— Mr. SHAYS. And I do not want this to come back and haunt you

in the Department, and they say, ‘‘What do you mean?’’ I will put

it this way: Which are you the least concerned about, and which

do you have the greatest concern?

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Mr. MASTEN. At this point, I am least concerned about BLS.

Mr. SHAYS. OK. I am going to ask you to——

Mr. MASTEN. OK.

Mr. SHAYS [continuing]. Basically because they have had an ongoing mission, it is pretty consistent year to year and so on.

Mr. MASTEN. Exactly.

Mr. SHAYS. OK.

Mr. MASTEN. And I would have—so I would like to say I have

more concern with the Employment and Training

Administration——

Mr. SHAYS. OK.

Mr. MASTEN [continuing]. Because it encompasses most of the

training programs that are part of the strategy of the new welfare

reform and getting the welfare recipients off the rolls. So that

would be a major concern, because they have the programs that are

going to arrange a part of that strategy.

Mr. SHAYS. Now, you are going to tell us the relationship that

you have with your subordinates, whether they feel they can be totally up front and honest without having any judgment on your

part.

Mr. MASTEN. That is really the position that I am in now, because they are totally up front. [Laughter.]

Mr. SHAYS. So where would be——

Mr. GETEK. You have to go where the money is, and that is the

Employment and Training Administration——

Mr. SHAYS. OK.

Mr. GETEK [continuing]. And they have an impact on a whole lot

of things, and the proposals that are coming out for welfare reform

certainly are going to affect the Employment and Training Administration.

Mr. SHAYS. OK. Well, Ms. Joyner?

Ms. JOYNER. Well, first of all, your question about most efficiently managed, I would not have a basis to answer that at all.

Mr. SHAYS. OK.

Ms. JOYNER. We have not—we did——

Mr. SHAYS. What shows up on your radar screen the least?

Ms. JOYNER. We also have organizationally that another unit,

and I have to admit, within GAO rather than my own that does

more work with the pension and welfare benefits.

Mr. SHAYS. OK.

Ms. JOYNER. But I know that they have had some concerns in the

past, which are less so now, about some of the pension issues and

enforcement issues there. I would share my colleague’s concern.

We, too, try to follow the dollar, and if you are looking at things

that you have gotten in the Employment and Training Administration with a large flow through of money there, that would certainly

be one that is on the screen. Let me put it that way.

Mr. SHAYS. OK. Which is the one that shows up the least in matters, you hear about the least, the least criticism?

Ms. JOYNER. I really am uncomfortable with that.

Ms. GANSON. I would echo that I do not have a basis for taking

an opinion on which is the most efficient. I would say that the Employment and Training Administration definitely has the challenge

114

of dealing with all these different employment and training programs.

I would also say that the Occupational Safety and Health Administration has a real challenge in terms of changing the way it

operates—— Mr. SHAYS. Yes.

Ms. GANSON [continuing]. Which it has over time, and I think is

really in the spirit of GPRA in terms of becoming more customeroriented.

Mr. SHAYS. The bottom line there is we know that if they had

to inspect every facility, they would do it about once every hundred

years.

Ms. GANSON. Yes.

Mr. SHAYS. So they have to—the main project and—— Ms. GANSON. Right. So I do think that they are, in terms really

taking that challenge head on.

Mr. SHAYS. Now, we have not talked much about—first, when

you talked about employment, is it fair for me to think of the Veterans’ Employment and Training Services faced some of the same

challenges as the Employment and Training Administration? Do

you have some of the same challenges?

Mr. GETEK. The programs are similar, except you are targeting

the veterans’ groups certainly, and—— Mr. SHAYS. But it surprised me when I was in the State of Connecticut as a Member of Congress, that I was talking about how

we did not have any veterans’ assistance in our land, and then I

found out the Department of Labor did. You know, the VA did not,

but the Department of Labor did, and that was just surprising to

me how we were—— Ms. JOYNER. Well, it is somewhat different, too, in that the major

activities under the Veterans’ Employment Training Services are

the people that they find at employment service centers—employment offices around the country. The LVERs and the DVOPs—we’ll

have to think what all this stands for—but there are people who

are designated to work with disabled veterans and other veterans

in general.

They are federally funded, but they are working under the direction of the State programs, so that when an unemployed person

goes into the Employment Service and says, ‘‘I am looking for

work,’’ if you are a vet, then you immediately are provided with assistance from these people onsite. What, in fact, we are doing is,

starting now, is responding to a request from the House Veterans’

Affairs Committee to try to find out more about how that is working. But it is quite different from, say, funding a JTPA program for

youth. That is a different kind of activity program.

Mr. SHAYS. When the private sector looks to Government, they

use as their guideline basically three people at the most should

make a decision on one issue. Then there is some sense of ownership and some sense of worth on the part of the employee. In the

Federal level sometimes I hear numbers of 9 or 10 people make a

decision; therefore, no one feels they have made a decision.

And I am wondering when we talk about—I am leading this to

HUD, but you all could respond to it—I am just wondering if in the

whole process of downsizing, if we are able to restructure so less

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people have to pass judgment, when they are, in fact, gone, we

might not have enough people to do the job.

Ms. JOYNER. It might have an increased sense of accountability

on the part of each person.

Mr. SHAYS. Well, that would be one obvious benefit, but I guess

what I am saying to you is, if we continue the same structure

where everyone has to pass judgment, then you may need a lot

more people; but if we are willing to have less people make the decision, I am wondering if then we would not be able to develop

enough.

I think the big challenge for Government is our pay scale, particularly in terms of Social Security, but I could say it for the Department of Labor and HUD as well. The most that we pay that

employee as a Federal employee might be $120,000, where if they

were in the private sector, they would be making hundreds of thousands of dollars, and this, in some cases, forces us to hire outside

consultants because we cannot get the top-skilled person always.

We have a lot of skilled people, but they take a significant reduction, particularly on the systems side.

Another question: Let me just end with this issue. I asked you

in terms of the administration within the program agencies, and

you were in some cases telling me about the program as well and

weighing that in your decision of which might be the one with the

biggest challenge. When I look at the pension and welfare benefits

and wonder if that is not a gigantic potential problem for us, based

on some of your comments, what is the biggest problem as it relates to pensions?

Mr. MASTEN. First of all, Mr. Chairman, understand that the

pension system involves so much money, it provides the opportunity for a lot of fraud and abuse. It also draws very sophisticated

and very intelligent people into that system who can mask fraud

and abuse at certain levels and so timely to determine this.

Mr. SHAYS. OK.

Mr. MASTEN. Because of some of the controls that are in place

now, fraud could be taking place in any number of areas many,

many years prior to it ever coming to light——

Mr. SHAYS. Interesting.

Mr. MASTEN [continuing]. Because we simply do not have control

procedures in place to catch it. The audit was—excuse me—John

can go into more detail on it, but that is one of the biggest things.

There is so much money there and so much opportunity for fraud

and abuse, it is so timely to detect.

Mr. SHAYS. OK.

Mr. GETEK. Repealing the limited-scope audit provision, we believe, will go a long way because then you will have the public accounting firms that are doing the audits now giving an opinion on

all of the dollars.

Mr. SHAYS. Why do we have a limited-scope audit? What was the

basis for that?

Mr. GETEK. I believe when the ERISA laws were passed, institutions like savings and loans and regulated insurance companies

were exempt because they believed they were reviewed enough, but

obviously the savings-and-loan crisis that we are aware of causes

some questions in that area.

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When an accountant gives an opinion, it certainly shows the

amount of work that they have done. When they do not give an

opinion, there is no review of the assets that are in the plan. Removing the limited scope provision certainly goes a long way to ensure that the control environment is there and if there is something wrong, that people, who are in positions of authority, will be

alerted.

Mr. SHAYS. OK. Now, and the political restraint is just that the

organizations would be fighting us to not have the kind of—— Mr. GETEK. Well, we believe—AICPA is in favor of this now, I

believe, as well as the GAO.

Mr. SHAYS. OK. Any other comment about the pensions? OK. I

am going to end, unless my colleagues have any questions, just

asking each of you to tell me the one question that you wish we

had asked.

Mr. MASTEN. One of the questions, obviously enough, is how my

office can continue to do more with less when the program agencies

are given more responsibility and more money to initiate programs

for which I am going to have oversight responsibility. With my financial resources, how am I going to be able to take on the additional responsibility and carry out my mission?

Mr. SHAYS. And just briefly tell me what were your resources 2

years ago versus now. Are they about the same, or they have gone

down?

Mr. MASTEN. Down. They have definitely gone down, Mr. Chairman. In fact, I recall that I had to go to the Secretary in this last

go-round and ask for $500,000 so that I would not have to lay off

anyone.

Mr. SHAYS. OK. But is your personnel still pretty static, or is it

actually—— Mr. MASTEN. My personnel has gone down as well because it was

mandated that we get down to a certain FTE every year to the year

ninety—— Mr. SHAYS. Nine.

Mr. MASTEN [continuing]. 1999, and we have not met that. In addition to the need for resources, we have the oversight responsibility. We have had to rearrange our entire priorities in order to

address certain things. We do not have money, for example, to conduct national audits. We have to go to small audits and change our

priorities, and that leaves the big problem that you had focused on.

Mr. SHAYS. Well, we have five departments to oversee, and I

think that we made a decision that we were going to focus on HHS,

and basically in Labor I feel that we focus the least amount on, and

there I think that we have to do a lot more this year. The advantage is that we have staff now who have worked for 2 years, so I

feel like we are going to be able to accomplish a little bit more, and

I really look forward to seeing if we can provide a little more oversight on our side, and we might be more sympathetic for your position, too, as well. We will not ask you to do more, though.

OK. Ms. Joyner, a question that you wish we had asked or—— Ms. JOYNER. Yes. It is a matter of following up on the amount

of inquiry that you were following earlier, when you talked about

the different departments and which ones faced the most challenges and which were most efficiently run and so forth, and trying

117

to work across the different program agencies. I was hoping that

you would then go ahead and ask what could be done to integrate

the activities and really focusing on a smaller number of issues instead of focusing on the broader issue—— Mr. SHAYS. I would like to ask you to respond to that question.

I mean, we get involved in reorganization. The committee gets involved in establishing the price, but the whole issue of reorganization is an issue that we did not spend any time on in the last years,

and it is something I am eager to get into.

Ms. JOYNER. OK.

Mr. SHAYS. So do you want to just give me a taste of what you

might suggest?

Ms. JOYNER. OK. Yes. But what I think will play—will help in

this regard is not necessarily the boxes on the chart—— Mr. SHAYS. Yes.

Ms. JOYNER [continuing]. But it is, in fact, your consultation role

with the agencies, as required by the Government Performance and

Results Act. They are expected to come up with agency-wide mission statements and goal statements and measures that they will

use to track performance toward that. I would encourage you to

ask them to talk with you about their worker protection activities

as a whole rather than what is OSHA doing, you know, what are

each of the other agencies doing, too. How are you pulling together

all of your resources in the whole department toward that particular part of your mission, and how might you improve that, and

how will you tell me next year what result, what progress you

made toward it, and, similarly, in any other mission.

Mr. SHAYS. The individual we would call I would think would

have a primary responsibility to the under secretaries in each of

the departments.

Ms. JOYNER. I am not sure how the departments are handling

their consultation with—— Mr. SHAYS. The under secretary in Labor is really the management person whose prime responsibility is——

Mr. MASTEN. The deputy secretary.

Mr. SHAYS. I am sorry. I call it the ‘‘under secretary,’’ and you

call it the ‘‘deputy secretary’’?

Mr. MASTEN. Right. The under secretary, I believe, was in the

good old days.

Mr. SHAYS. OK. The No. 2 person in the department is the one

who is usually in charge of the administrative function.

Mr. MASTEN. That is correct.

Mr. SHAYS. OK. Well, you have whetted our appetite, and this is

really the purpose for these hearings, and I thank you very much,

and we look forward again to working with you. And it is something that I just think we have a lot of opportunities, so I look forward to that.

I will say to you, my sense is that this Republican Congress—

it tends to not focus a lot of time and attention in a favorable way

on the Department of Labor—is going to be a little more receptive

to making some significant changes without feeling like we have to

totally reinvent the Department of Labor. And I think if that is the

case, then we might see some real progress.

Do you have any comment you want to make?

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Mr. TOWNS. No. Thank you, Mr. Chairman.

Mr. SHAYS. Do you feel a lot better having asked that one question that you were considering waiting and going home and not

asking? Do you feel better now?

Mr. TOWNS. I feel much better, Mr. Chairman.

Mr. SHAYS. Thank you very much. This is a partnership, if you

do not know, among all of us. Thank you. I will now close this

hearing.

[Whereupon, at 4 p.m., the subcommittee was adjourned.]

(119)

OVERSIGHT OF THE DEPARTMENT OF

HEALTH AND HUMAN SERVICES, AND THE

DEPARTMENT OF VETERANS AFFAIRS: MISSION, MANAGEMENT, AND PERFORMANCE

TUESDAY, MARCH 18, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m., in room

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Snowbarger, Gilman, Pappas,

and Kucinich.

Staff present: Lawrence J. Halloran, staff director and counsel;

Robert Newman, and Marcia Sayer, professional staff members; R.

Jared Carpenter, clerk; Ron Stroman, minority professional staff;

and Jean Gosa, minority administrative clerk.

Mr. SHAYS. I’d like to call this hearing to order and to welcome

our witnesses and our guests, as well. This hearing continues the

subcommittee’s review of the cabinet departments within our oversight jurisdiction. We asked the Inspectors General, the IGs, and

the General Accounting Office, or GAO, to comment on the mission,

management, and performance of the Department of Health and

Human Services and the Department of Veterans Affairs. Together, these two Departments will spend $417 billion next fiscal year—fully one-quarter of total Federal outlays. Seventy-seven percent of those outlays, or $320 billion, will be spent purchasing

or providing health care.

In the last Congress, this subcommittee held eight hearings examining ways to improve the Federal effort against health care

fraud. Our persistence, particularly that of our subcommittee colleague, Mr. Schiff, was rewarded when these proposals were included in the Kennedy-Kassebaum Health Care Bill signed by the

President.

The most significant of those proposals made fraud against all

health care providers a Federal criminal offense. Consistent with

legislative proposals offered by the subcommittee’s ranking member, Mr. Towns, the new law also gives the Department of Justice,

the HHS—Health and Human Services—IG, and others increased

stable funding to wage the fight against health care fraud.

So some progress has been made to improve the performance and

protect the integrity of Federal health care programs. But, as we

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will hear in today’s testimony, HHS and VA programs remain vulnerable to waste, mismanagement, and fraud.

Our subsequent oversight hearings and the focus of our consultations with the departments on the implementation of the Government Performance and Results Act will be guided to a great extent

by the views expressed today by our capable oversight partners, the

Inspectors General of the General Accounting Office.

And so, again, I’d like to welcome our guests and recognize our

two members, Mr. Snowbarger, who is the vice chairman of the

subcommittee. Do you have any opening comments?

Mr. SNOWBARGER. No. Thanks, Mr. Chairman.

Mr. SHAYS. Our gentleman from New Jersey, would you like to

make a comment?

Mr. PAPPAS. No, thank you.

Mr. SHAYS. OK. Now, I would note that presently we have no

member from the minority side here. Mr. Towns, who has been a

very faithful partner, is still in New York. But this is the kind of

hearing that, frankly, we work on a bipartisan basis, and sometimes I’ve left this committee and given the gavel to Mr. Towns.

So we’re equal partners in this process. And I’ll invite the minority

counsel to ask questions if there’s something the minority feels that

we need to get on the record.

So we’ll do that. And at this time, we have before us Ms. June

Gibbs Brown, the Inspector General of the Department of Health

and Human Services, and Michael Mangano is accompanying her;

he will not have a statement, but will respond.

And then Richard Hembra, Assistant Comptroller General for

Health, Education and Human Services, General Accounting Office,

accompanied by Marsha Lillie-Blanton, and also Thomas G.

Dowdal.

Mr. DOWDAL. Dowdal. Right.

Mr. SHAYS. Did I say it right?

Mr. DOWDAL. Yes.

Mr. SHAYS. OK. What I need to do, as you know, we swear in

Members of Congress, we swear everybody who comes before the

committee, and that way we don’t have to get into a value judgment. So we’re just going to do what we always do.

[Witnesses sworn.]

Mr. SHAYS. OK. For the record, all our witnesses have responded

in the affirmative, and we will start with you, Ms. Brown.

Ms. BROWN. Thank you, Mr. Chairman.

Mr. SHAYS. And I’m going to ask that you turn that mike on.

We’re going to use the clock only as a basis of knowing how long

you’ve spoken. But we want your statement on the record. And actually, if I could, two housekeeping things before we begin. I would

ask unanimous consent that all members of the subcommittee be

permitted to place any opening statement in the record and that

the record remain open for 3 days for that purpose. Without objection, so ordered.

And I ask further unanimous consent that all witnesses be permitted to include their written statements in the record. And without objection, so ordered. We’re going to have the clock on for 5

minutes and then we’ll roll it over again. OK? And just do it autoVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00124 Fmt 6601 Sfmt 6601 W:\DISC\40431 pfrm11 PsN: 40431
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matically. Leave it on red for a second, just so we keep track. And

then flip it again.

Is the other mike not working? Seriously? You know, before we

begin, I’d just like to see if it’s plugged in here, Jared, so—— Ms. BROWN. I think it’s the switch.

Mr. SHAYS. And then if you could just check. Yes. That is on.

STATEMENTS OF JUNE GIBBS BROWN, INSPECTOR GENERAL,

DEPARTMENT OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY MICHAEL F. MANGANO, PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN

SERVICES; RICHARD L. HEMBRA, ASSISTANT COMPTROLLER

GENERAL FOR HEALTH, EDUCATION AND HUMAN SERVICES,

GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY MARSHA

LILLIE-BLANTON, ASSOCIATE DIRECTOR FOR HEALTH SERVICES, QUALITY AND PUBLIC HEALTH ISSUES, GENERAL ACCOUNTING OFFICE; AND THOMAS G. DOWDAL, ASSISTANT

DIRECTOR FOR HEALTH FINANCING AND PUBLIC HEALTH

ISSUES, GENERAL ACCOUNTING OFFICE

Ms. BROWN. Thank you, Mr. Chairman, for the opportunity to

present this panel what we think are some of the greatest challenges to the HHS program outlays.

Mr. SHAYS. OK.

Ms. BROWN. I would like to single out for your consideration

three program areas in Medicare, home health, hospice, and durable medical equipment.

Far and away, the home health benefit is one, of the most vulnerable components of the Medicare program. Expenditures have

increased five-fold. The number of visits has more than doubled

over the past 6 years, from $3.5 billion, for approximately 2 million

beneficiaries, in 1990, to $16.9 billion for 3.7 million beneficiaries,

in 1996.

By comparison, spending in the Medicare program as a whole

grew 84 percent over that same period. Unfortunately, fraud and

abuse significantly impact the high growth rates of home health.

We have now completed audits of eight home health agencies in

Florida, Pennsylvania, and California. These audits revealed error

rates for these agencies ranging from 19 to 64 percent. We found

visits that were not reasonable or necessary, patients that were not

home-bound, services not properly authorized by a physician, and

bills for services not rendered.

Preliminary data from additional audits underway in the other

States indicate similarly high error rates. We also found extreme

and seemingly unjustifiable variation in services rendered by home

health agencies, with an average of 33 visits per episode for lower

cost providers and 102 for higher cost agencies. We have recommended more effective reviews of home health agencies, case

management, adequate funding of fiscal intermediaries, and more

involvement of beneficiaries through explanation of benefits and

their own certification for home bound status.

However, the problems are so pervasive that a legislative restructuring of Medicare’s payment system is called for. Options include prospective payment, capitation payments, beneficiary costsharing, and benefit targeting. We are also concerned about the

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substantial growth in Medicare payments for the lengths of stays

for patients in hospice care.

Our 1994 review of Medicare hospice eligibility in Puerto Rico

disclosed large numbers of hospice beneficiaries who were not terminally ill and, therefore, not eligible for the benefit. Twenty million dollars was inappropriately paid for services rendered to them.

In audits of 12 large hospices located in Illinois, Florida, Texas and

California, we found that 65 percent of the patients who were in

hospice over 210 days, or 7 months, did not qualify for the benefit.

These audits identified $83 million in overpayments.

A particular vulnerability exists with regard to hospice services

provided to nursing home residents. We will continue to investigate

hospice providers who are blatantly enrolling Medicare beneficiaries that do not qualify for the benefit. HCFA took strong action to resolve the problem in Puerto Rico, including decertification

of problem providers. So we know that strong management action

can go a long way to solving this problem.

However, we believe that congressional action is also warranted.

We recommend legislation to reduce Medicare payments after 210

days. This would provide appropriate incentives to the hospices to

enroll only those beneficiaries who meet Medicare guidelines, while

still affording them some financial protection and resources to care

for patients who live longer than expected. We also recommend reducing hospice payments for patients living in nursing homes to

more accurately reflect the increment of additional services provided by the hospices to them.

More progress has been made in dealing with this problematic

area. Particularly, HCFA established four durable medical equipment regional carriers, or DMERCs, who specialize in making

Medicare payments for these items. Unfortunately, we continue to

see problems in the durable medical equipment. Our studies have

found overutilization of wound care supplies, overutilization and

false billing of incontinence supplies, fraudulent billing for body

jackets, and excessive payments for oxygen services, nebulizer

drugs and interim nutrition therapy. Like the hospice program,

problems are particularly pronounced in a nursing home setting.

I am happy to report that in addition to discovering problems, we

are also developing new and effective ways to deal with them. One

good example of this is the problem with incontinence supplies.

And I have a chart here which I would like to call your attention

to. Our exposure of these billing abuses couple with a coordinated

national investigation involving more than 20 separate cases in a

concentrated effort by the Health Care Financing Administration’s

durable medical equipment carriers, has turned the escalated reimbursements downward. By the end of fiscal year 1995, the abusive

practices we identified had all but disappeared, and Medicare is

now saving more than $104 million per year as a result.

While such administrative remedies can be effective, we believe

that fundamental reforms are also needed. We recommend legislation to authorize competitive bidding, to make it easier for the

Health Care Financing Administration to reduce inherently unreasonable payment levels, and to fold payments for some supplies

into the payments made to nursing homes.

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Home health, hospice and medical equipment and supplies are

serious vulnerabilities. We have other concerns, as well, and we

continue to find false bills for lab services, excessive prices for prescription drugs, and inappropriate billing of hospital outpatient

services, for example. Once again, I appreciate the opportunity to

appear before you today and share with you some of our concerns

related to waste, fraud and abuse in HHS programs.

I’d be happy to respond to any questions.

[The prepared statement of Ms. Brown follows:]

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Mr. SHAYS. Thank you, Ms. Brown. Mr. Hembra.

Mr. HEMBRA. For many years, GAO, the IG, and others have

looked at individual HHS programs. In fact, I think it would be

pretty clear that you could structure a given hearing and spend

hours speaking to any particular program. Instead, today, I’d like

to elevate the discussion and focus on three interrelated challenges

that we believe face HHS. These are issues that get at the core of

how HHS manages its programs, and they transcend any individual agency within HHS or its programs. We also believe that if

HHS can successfully meet these challenges, it’s going to go a long

way to improve its efficiency and effectiveness.

Let me begin with the first challenge that we see, and that I

would put under the ‘‘umbrella’’ of program results. Like many

other Federal organizations, HHS has a long history of having

problems with accountability, the effectiveness of its coordination,

how it provides effective oversight.

I don’t find this surprising. If you look at the Department, it’s

one of the largest in the Federal Government. Last year, its budget

was about $320 billion. Next year it could climb to $375 billion. It

has 11 key operating divisions. It has 300 programs. It has 60,000

employees. It has numerous contractors it relies on. It has tens of

thousands of grantees it looks to. And, it has partnerships it has

formed with other Federal Government agencies, with the State

governments and local jurisdictions.

Expressing the frustration that the Congress has had with management, in general, a few years ago, Congress put into place a

number of pieces of legislation, such as the Government Performance and Results Act, the Government Management Review Act,

the Chief Financial Officer’s Act. And all of these had one thing in

common. They all focused the spotlight on instilling discipline in

how Federal departments and agencies managed their set of responsibilities.

With GPRA, we’ve got an opportunity now, for HHS to define a

cohesive mission, develop a 5-year strategic plan, set into place specific performance goals, and identify ways in which to adequately

and accurately measure how the department is carrying out its responsibilities. With regard to GPRA, I think we would share the

view that the next 6 months are quite critical.

By the end of this fiscal year, HHS, along with other Federal

Government agencies, have to put together that 5-year strategic

plan, and it has to begin to position itself to determine whether or

not its programs are doing what they were intended to do. So we

have a very challenging period ahead of us with regard to this Department. The second issue has to do with having timely and reliable information. The Paperwork Reduction Act, the Clinger-Cohen

Act all set in place an information framework that would support

a performance-based work environment.

This is very appropriate, because, once again, HHS has long

managed with incomplete and unreliable information. And not to

mention the fact that they have had to rely, because of the size and

the way that it carries out its responsibilities, on numerous other

partners to provide it with information on how its programs are

working.

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I think welfare reform is a classic example. It brings with it a

new set of requirements for HHS. It demands accurate and timely

information from the States on how they’re carrying out their welfare reform responsibilities. And we’re talking about, in recent

years, one of the most major social paradigm shifts in how we deal

with supporting low income families.

The last issue, which ties back to the Inspector General’s comments, focus on vulnerable programs. I think it is unfair for a department like HHS to look to others such as GAO, the Inspector

General, the Office of Management and Budget, to identify for it

where its program vulnerabilities lie. And this is certainly the case

with Medicare. It’s a classic example, that, even though HHS and

HCFA have known for decades of problems within the Medicare

program, it wasn’t until several years ago that GAO and others

identified Medicare as very high-risk, and began to put in place a

set of actions to get HHS and HCFA better focused on how to deal

with the problems associated with Medicare.

With regard to vulnerable programs, we can’t just simply look at

something like Medicare, that consumes a large part of HHS’ budget, and say, ‘‘That is the vulnerable program.’’ I think this is a department that has an opportunity to constantly look at its programs, be proactive, be vigilant in saying to itself, ‘‘Where do our

vulnerabilities lie and what do we need to do about them?’’ And I think this all ties back to the tools that are now available

through GPRA, through GMPA, through CFO and the CIO legislation, to give—— Mr. SHAYS. You speak in tongues, sir.

Mr. HEMBRA. Yes. I do. To give this Department an opportunity

to begin to live up to the American public’s expectation and function in a more efficient and effective manner. And with that, I

would be happy to respond to any questions.

[The prepared statement of Mr. Hembra follows:]

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Mr. SHAYS. Thank you. We’ve been joined by Mr. Gilman, the

chairman of the International Relations Committee, as well as Mr.

Kucinich. And what I’m going to do—I’m going to yield my time to

Mr. Gilman, because I know he has other places to go. I’m particularly nice to this gentleman, because when I was first elected, he

was, even then, a seasoned veteran, and he was very nice to me.

So——

Mr. GILMAN. Thank you, Mr. Chairman. You’ve been very nice to

all of us, to take care of all of our problems. And I want to commend you, Chairman Shays, for your diligent work, and for the opportunity to review, learn, and discuss the important issues confronting a number of our Government agencies.

And I thank our panelists for being here today, to help us better

understand where we’re going and why. We are all concerned, of

course, as we try to reduce and eliminate unneeded Federal programs, to try to reduce the Federal bureaucracy and Federal spending, and cutting regulatory red tape, and returning some common

sense to the numerous Government regulations out there.

I particularly welcome the opportunity for this committee to hear

testimony from the General Accounting Office and the Office of the

Inspector General concerning the budget and operations of the Veterans Administration. And I realize that panel hasn’t testified yet.

And I regret I’m not going to be able to stand by, but my assistant, Todd Berger, will be here, and will be taking some notes. And

I look forward to reading your testimony. Like many other Government agencies, the VA is reacting to efforts to balance the budget

by finding new ways to improve efficiency.

And as many of you are aware, the VA has been involved in a

Nation-wide relocation of its resources. And that’s being done, supposedly, to make certain that health care funds are going to be distributed in the most equitable manner between the various regions.

However, under the plan, VA facilities in the Northeast are being

particularly hard hit.

VA officials have assured me that no veteran is going to be denied future care despite reductions in funding. However, many of

us, particularly those of us in the Northeast, remain skeptical with

regard to that claim. And while we welcome the goal of greater efficiency, I have concerns that the veterans’ needs are going to fall

victim to the goal, particularly in the area of veterans’ health care.

And at a time when our veterans population is growing older, efficiency is an administrative, not a medical concept, and it is my

chief concern that in the future, under this evolving VERA plan,

a decision to refuse treatment to a veteran will be a medical judgment, not an efficiency decision.

It’s a simple fact that many of our veterans in the Northeast fall

into special categories: the mentally ill, the homeless, alcoholics,

drug abusers, and spinal cord injured. These veterans clearly have

conditions which are neither easily treated on an outpatient basis

nor more efficient to treat in such outpatient conditions.

However, they are still deserving of basic triage rights. And I

hope that in the future, these veterans are going to be allowed to

have their status and place in our VA health system be determined

by a physician, through a medical examination, and not through

any administrative evaluation of their application before such an

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examination. Medical judgment on treating these future cases

should never be superseded by the goal of efficiency. To do so

would be nothing short of the beginning of the breakdown in the

relationship between our national Government and our veterans.

So Mr. Chairman, I look forward to further testimony and working with you on this serious problem. And with your permission,

I’m going to leave several questions to be answered as part of the

record. Thank you, Mr. Chairman.

Mr. SHAYS. I thank the gentleman. Mr. Snowbarger.

Mr. SNOWBARGER. Thank you, Mr. Chairman. I think my questions are for Mr. Hembra. You were referring to vulnerable programs. I presume you mean programs that are vulnerable to fraud

and abuse. Is that an accurate statement? Or——

Mr. HEMBRA. I think the common definition that we’ve used in

the Government has to do with fraud, waste, and abuse. I’m not

sure that we should necessarily hold ourselves to that definition.

It’s one thing to identify a key program and put it on a high risk

list and say we’re going to focus a lot of attention on that. But

within the Department of HHS, I think there are other——

Mr. SHAYS. Excuse me. Can I have you put the mike a little closer to you? Yes.

Mr. HEMBRA. I think within HHS, there are clearly other programs worth looking at for different reasons. And I think you have

to extend that to the beneficiaries of the programs. And a couple

that come to my mind—one is Head Start. Head Start, right now,

is about a $3.5 billion program. It has over 1,400 grantees that it

looks to to administer the program. It provides benefits to young

children around 4 years of age. It’s serving a population, I think,

of over 800,000. GAO and the Inspector General have found problems with that program. To me, that’s one that warrants closer

scrutiny by HHS and the Administration of Children and Families.

I think another area that offers vulnerability is——

Mr. SNOWBARGER. Can I interrupt?

Mr. HEMBRA. Yes.

Mr. SNOWBARGER. I’m not quite sure I understand why you were

suggesting that Head Start be looked at, and for what reason.

Mr. HEMBRA. Well, I think because of the amount of money that’s

going into the program, because of the number of grantees that the

money is flowing into to provide services. I think because of the

vulnerable population served, that being a young children population, and past problems that HHS and ACF have had with how

the grantees have administered those programs, problems that

have surfaced in the day-to-day operation of the Head Start centers, and what has been historically problems with getting corrective action taken.

Mr. SNOWBARGER. Are these accounting problems? I mean, the

ability of the agency to determine whether or not the money has

been spent properly, maybe not in a fraudulent way, but——

Mr. HEMBRA. I think it goes beyond just how the money is being

spent, although it certainly ties to that. But when you look at—

you’re looking at problems that could affect the health and safety

of children—the adequacy of the facilities and things of that nature. And it’s for those reasons that I would suggest that you can’t

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just simply look to a large dollar program and say, ‘‘That’s the one

that, perhaps, is most vulnerable.’’

Mr. SNOWBARGER. Could you identify for us, maybe, specific

vulnerabilities that would lead you to focus on home health, nursing homes, medical equipment, supplies, hospice, the programs that

we’ve been talking about this morning?

Mr. HEMBRA. Yes. I think we can certainly do that. In fact,

maybe I’ll ask Mr. Dowdal if he could respond to that.

Mr. DOWDAL. There’s been a lot of growth in the number of suppliers of services in that area. There’s been lots of identified problems by both the Inspector General’s office and our office related

to medical supplies being billed by the agencies. There’s been tremendous growth in the number of visits per person who receives

home health care. And the growth in the number of home health

agencies has been very high.

There are a lot of questions about whether the services that are

being provided are covered by Medicare. There’s many other issues

like that surrounding all three of those areas—home health, SNFs,

and durable medical equipment.

Mr. SNOWBARGER. To what do you attribute the growing number

of suppliers, growing number of visits per patient? Why do we see

all those things going up so much?

Mr. DOWDAL. Some of the reason is that once people figure out

there’s a way they can get a lot of money out of a program, then

other people find out about it and want to get into that same action. And you end up with a lot more agencies or suppliers. And

a lot of them are not as legitimate as they’re supposed to be. Now,

there’s been some steps made to try to identify ways of making

sure that the suppliers that get into the program are legitimate

and have a real business and are not just some fly by night. But

there’s still that problem going on.

Mr. SNOWBARGER. Has the growth in this field maybe outstripped the agency’s ability to control and account for how they’re

spending——

Mr. DOWDAL. There was a combination of factors, that was part

of the problem, too. In fact, over the period from 1989 to 1996, the

money available to do the reviews and the checking on that actually decreased. And that led to less ability to review claims. For example, home health agencies in 1987—they were looking at approximately 60 percent of the claims that came in to make sure

that they were valid.

Today, they’re looking at less than 3 percent. Well, last year they

were. Now, the Kassebaum-Kennedy bill did get us some additional

money, so we expect that the percentage will go up again, but not

anywhere near as high as it was back in the mid eighties.

Mr. SNOWBARGER. Are these contracts for services and supplies

currently competitively bid? I think one of you mentioned maybe a

need to see it goes to competitive bid—or, suggested that.

Mr. DOWDAL. Currently, their Medicare doesn’t competitively bid

for that. There is some demonstration programs that they’re getting started—one of them in the durable medical equipment area

down in—I believe it’s South Carolina. We have discussed in the

past the issues related to getting competitive bids, at least on some

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kinds of items where there—you know, you don’t have to worry

about the big difference in quality.

You know, where you get your Depends—it’s not going to matter

which company, because they’re all going to be giving you the same

thing. Items like that. We think there’s opportunities for at least

trying competitive bidding.

Mr. SNOWBARGER. Ms. Brown. I saw you reaching for the microphone.

Ms. BROWN. Yes.

Mr. SNOWBARGER. OK. Mike.

Mr. MANGANO. Actually, the only one of these three industries

that would be subject to—that potentially could be subject to competitive bidding, would be the durable medical equipment industry,

itself. Right now, the Health Care Financing Administration does

not have the opportunity to wholesale competitively bid. Nor do

they have the opportunity to reduce prices when they’re inherently

unreasonable.

HCFA is required to go through a regulatory process, which can

take 2 to 4 years, to reduce those prices. In the meantime, they’re

losing millions of dollars. These are two kinds of abilities that any

insurance company in this business has. We think it’s particularly

a difficult problem when you get into nursing homes. Durable medical equipment companies basically market their goods to nursing

homes because there are a lot of patients there.

When Ms. Brown was showing you that chart on incontinence supplies, all of that $100 million that was lost each year was because of things that were billed that should never have been billed.

These were incontinence supplies that were billed when they

weren’t really in connection with a prosthetic device as is required

by the regulations on medical equipment.

Most of these billings were in areas of nursing homes, where

they could go in and sell things. Mr. Chairman you may remember

about a year ago when Ms. Brown came in and showed a female

urinary collection pouch. This was an incontinence supply that was

being billed, when actually what was being delivered to the nursing

homes were adult diapers. That’s the kind of abuse that occurs

here.

We think that HCFA ought to have the ability to competitively

bid, reduce inherently unreasonable costs and, in the case of nursing homes, consolidate the billing for supplies. The nursing home

is going to bill for supplies, not the individual DME suppliers who

are billing for each individual beneficiary.

Mr. SNOWBARGER. What’s been the success of HHS in following

up on things that are improperly billed in terms of getting return

of the money and that type of thing?

Mr. MANGANO. Well, I think we’ve got a real good record in capturing people when they do bill that way. But you have to understand that we’re dealing on an exception basis. That is, we go out

there and find out when somebody tells us that somebody is inappropriately billing, or prospectively, when we go in and we see billings having an extraordinary increase in one particular year.

But just to give you an idea, the Medicare program last year had

800 million claims for Medicare Part B, of which durable medical

equipment would be a part of. It’s impossible for us to try and

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catch all of these abuses. Once we do catch them, though, we do

get good cooperation from the U.S. attorneys to apply damages to

these cases. But I also want to give you the other side of that.

Many of these companies are small, and the money is gone by

the time we get around to court cases. One particular case would

be a typical example of a home health agency in which we found

that 70 percent of the claims were erroneous. But they were basically a holding company for a lot of subcontractors. By the time we

caught up with them, they went Chapter 11 and there was no more

money to be gotten back for Uncle Sam.

Mr. SNOWBARGER. Thank you, Mr. Chairman.

Mr. SHAYS. I thank the gentleman. Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chairman and members of the committee. I appreciate this opportunity to ask some

questions. And there’s an area that I’d like to focus in on. As a

member of the Ohio Senate before I came to Congress, I was responsible for helping to promote a rather wide-ranging inspection

of the Government’s policies with respect to Medicare HMOs.

And our State Senate Health Committee actually held a dozen

hearings on the policies of HMOs in the State of Ohio. And those

hearings produced substantial evidence of HMOs attempting to

deny care merely to promote their own profits at the expense of the

health of their patients. I see in today’s front page of the New York

Times that we have a national problem which relates to HMOs

not—or constructively denying the appeal rights of millions of elderly Americans.

We understand. I mean, all of us in politics understand. There’s

only one reason that they would do it, because the way the system

is set up, the less money the HMOs spend, the more money they

make.

Now, that being the case, I have just a few questions. First of

all, the Department, I understand, has been looking at this, but

have you done—to Ms. Brown—have you done any investigation of

the number of appeals that have been required, the number of appeals that have been denied, and have you come to a conclusion

about how many people may have tried to appeal, but couldn’t because of the way the system is set up?

Ms. BROWN. Yes, sir. We just finished four reports of different aspects of the—of this particular area—and found some of the things

that were reported in the morning paper, including the fact that

most people didn’t realize they had appeal rights; therefore, didn’t

exercise them, or they found that it was very difficult to exercise

those rights.

These weren’t investigations which are, again, into criminal or

civil matters. But we have done a lot of background work to let us

know what that environment is so we could continue working in

there.

Mr. KUCINICH. How would you, Mr. Chairman—how would the

Department let the millions of Americans that are in this program

know about their appeal rights? Do you send them notices? What

do you do?

Mr. MANGANO. Yes. The primary way that the Medicare program

lets its beneficiaries know about that, is through the medical handbook that they issue each year. When we had completed these reVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00167 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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views that Ms. Brown just mentioned, we had recommended that

the Health Care Financing Administration take a more vigorous

approach to letting the beneficiaries know about their appeal

rights.

They have agreed to make changes in their handbook, as well as

to put bulletins out to beneficiaries to let them know what their appeal rights are. One of the difficulties here is that, in an HMO,

they get one fee to provide all the health care needs for the Medicare beneficiaries. And a lot of this is the responsibility of the HMO

to do it. So HCFA’s role should be two fold. One, to let its beneficiaries know what its rights are. And when those rights have

been violated, to intervene at that point.

Mr. KUCINICH. Mr. Chairman, I would suggest that the Department has more of a responsibility than what has been taken here.

Because this is—these are taxpayers’ moneys. That money does not

belong to the HMOs, I will suggest. These are Federal tax dollars.

And my question to you is: what are you doing to make sure people

are aware of their rights to appeal?

Because, my background is also in committees, and I can tell you

that a single shot theory of committee, like putting it into a handbook is not adequate. And it seems to me that you ought to have

some structured series of messages to communicate to this national

population of elderly so that they will know, so that it’s common

knowledge that if you are not sure of what your rights are, that

you can refer to—that you can be repeatedly advised as to what

your rights are so they can be exercised.

Mr. MANGANO. Yes.

Mr. KUCINICH. Now, I mean, what are you—you mentioned the

handbook. You mentioned some bulletins. But what—— Mr. MANGANO. Yes. We’re doing even more than that. One of the

alliances that we formed in our office was in working with the Administration on Aging, which has a network of ombudsmen across

the country that deal with all matters relating to senior citizens,

particularly in nursing homes.

One of the things we’re doing is passing on to them the kinds of

things we’re finding out as problems is our reviews. They’re putting

forth forums in a variety of parts of the country to let the public

know about that.

We’re also working with the AARP. Ms. Brown was interviewed

for an article for their publication that will be coming up very soon.

We’re going to be supplying that publication with a lot of do’s and

don’t’s, things that beneficiaries ought to be careful about. And

when you see this problem, let our office know about it or let the

Medicare program know about it, as well.

Mr. KUCINICH. Are you prepared to cancel the contracts of any

HMOs that are aggressively refusing the appeal rights of the elderly who are in this program?

Mr. MANGANO. OK. Of course, we don’t have any program responsibility over the Medicare program. But if we found that an individual HMO was denying a person’s rights, we would take action

against them. We would recommend that the Medicare program

take actions in terms of disallowances and excluding them from the

program.

Mr. KUCINICH. One final question, Mr. Chairman. Have you——

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Mr. SHAYS. The gentleman has 10 minutes, so if you—— Mr. KUCINICH. OK. Great. Well, thank you, Mr. Chairman. Have

you any information of a single HMO in America which has been— whose contract has been canceled because of their practices in dealing with their elderly patients?

Mr. MANGANO. I am aware of several that have been canceled.

In fact, I can think of one or two that the OIG got involved in in

which we did initial audits and investigations in the Medicare program and canceled them from their program.

Mr. KUCINICH. Are you going—will the Department followup— and maybe the Inspector would say this—will the Department followup on the court order that was issued by Judge Marquez, setting the July 1st deadline? He gave certain—a certain prescription,

if you will, for remedying what he felt were some defects in the administration of the program. Are you intending to followup on that

or are you going to appeal the Judge’s ruling?

Ms. BROWN. Well, we have had several meetings with the Department regarding our findings. Managed care in Medicare is a

fairly new area. All of the incentives are quite different than the

incentives were for people who had basically—too much money was

being paid out. Because of the nature of HMOs, we have a whole

new set of incentives here for people to take advantage of. We have

the authority for any kind of patient abuse or neglect, which could

be one of the concerns here—in neglect—to have them eliminated

from the program.

We’ve had quite a few meetings, but, I don’t know exactly what

they’re going to do on the Judge’s decision yet. But the Department

is very concerned about it. We have done quite a bit of work in the

area so we can bring the Secretary up to date on what’s actually

happening out there. I’d be glad to supply that for the record when

I find out more about that particular decision.

Mr. KUCINICH. I think it would be helpful for at least this Member. And perhaps the others would agree.

Ms. BROWN. OK.

Mr. KUCINICH. For us to get some information about what the

Department intends to do to—in a comprehensive way—to be certain that anyone whose—finds their services denied, reduced or terminated, is able to appeal that, that we would be fully informed as

to what’s being done to make sure that all the participants, the

millions of participants in this program, will have their rights defended.

Because what’s happening, Mr. Chairman, is that there is an active marketing campaign to draw millions and millions more of elderly Americans into this program. And the people who are doing

the marketing could care less about providing care to the elderly.

There’s a transition from health as a right in a democratic society

to health as a market driven commodity.

And what I believe is we need the Department to be more than

just a casual observer in this, we need you to be the umpires. And

if somebody does something and they’re out, they ought to be out.

And you’re the only ones who can do that for the American people.

And if we are going to continue to see this transit to managed care

paradigm, where HMO Medicare has more and more patients—and

they’re predicting that the growth may triple within the next 10

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years—then, you know, the responses that we receive in committees like this have to be more substantial and definitive about the

rights which patients have.

Because it’s the articulation of those rights which will make the

programs that you are involved in real. And I suggest that perhaps

it’s time for a patients’ bill of rights codified, so that we are not

in a position where we have to learn of elderly people who have

every right to decent health care being denied it or being refused

the information which would enable them to get better care. This

is the other side of the issue the President raised about the gag

order.

Mr. SHAYS. Yes.

Mr. KUCINICH. It’s one thing for a physician to be told that he

cannot give the information to his patient so that his or her patient

could proceed to get better health care and exercise more options,

and it’s another thing—and it’s still another thing to constructively

deny that person an opportunity to get good health care because

they don’t even know what their appeal rights are. Thank you.

Mr. SHAYS. I thank the gentleman. Mr. Pappas.

Mr. PAPPAS. Thank you, Mr. Chairman. Thank you folks for

being here. I have two unrelated questions—unrelated to each

other and unrelated to what we’ve been hearing you folks talk

about so far. But I read an article in the February 27, 1997, issue

of the Washington Times in which the point was made that the

U.S. Health Care Financing Administration, which is a part of the

Department of Health and Human Services, will pay some $400

million to 41 New York hospitals simply to train 2,000 fewer medical residents, which would be a 20 percent decrease. Is that true?

Mr. MANGANO. Yes, it is.

Ms. BROWN. Yes.

Mr. PAPPAS. Why are we doing that when market forces, I think,

should be the ones to dictate how many people enter a particular

field?

Mr. MANGANO. Of course, that was not our decision. That was

the decision of the Health Care Financing Administration. Basically what they were responding to is the growing notion, as people

are aware, that there is a glut of physicians in this country, and

there are too many in training to meet the market needs. So what

HCFA basically did was said, ‘‘We’ll help downsize the number of

physicians by paying teaching hospitals not to train them.’’

So I believe that particular program will last—it’s either 4 to 6

years in which they’ll be reducing the number of physicians by 20

percent in New York. And they’re giving an incentive to the hospital to reduce the number of residents and interns in training by

paying the hospital as though they were there.

Mr. PAPPAS. How long has this been going on?

Mr. MANGANO. This was just announced in February.

Mr. PAPPAS. OK. And the figure is approximately $400 million?

Mr. MANGANO. That is correct.

Mr. PAPPAS. Is that just for 41 New York hospitals?

Mr. MANGANO. That is correct.

Mr. PAPPAS. And is the $400 million just for 1 year or is it for

that 4- to 6-year period?

Mr. MANGANO. I believe it is for the entire period.

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Mr. PAPPAS. And what about other hospitals in other parts of the

country?

Mr. MANGANO. Of course, as soon as they announced this program, hospitals in other parts of the country have asked to get in

on this. HCFA has—this is under their demonstration authority.

They’re demonstrating whether this is a good approach or not a

good approach. So the position of HCFA is they have one State that

they’re working with. And that’s the State of New York. And usually under these demonstration projects, if it works out well there,

they may decide to expand it to other States. But they may not.

Mr. PAPPAS. Mr. Chairman, I would just say that I would question whether this is an advisable expenditure for us to be making.

I certainly would like your comments. I was—— Mr. SHAYS. Well, if the gentleman would yield?

Mr. PAPPAS. Sure.

Mr. SHAYS. I mean, the purpose of this hearing is not to delve

too deeply into any particular issue, but to just kind of whet our

appetite and yours and know where you’re coming from, and for us

to then decide how we want to allocate our very scarce resources.

And this may be an area that we need to look at.

Mr. PAPPAS. OK.

Mr. HEMBRA. Mr. Pappas, I might add something. We need to

understand—for years and years and years, teaching hospitals

were basically reimbursed with additional payments—both Medicare and Medicaid—to teach physicians as part of their set of responsibilities relative to the Medicare/Medicaid population that

were treated in those facilities. And I think that amount of money

is—off the top of my head—something like about $6 billion a year

that go toward graduate medical education payments.

And this begins to completely move back, recognizing what is an

overabundance of physicians. And from what we have read—we

have not looked closely at it, because it’s a new policy change—but

the way in which the media has covered it, it’s not very clear

whether this has been well-thought-through by HHS and HCFA.

Mr. PAPPAS. I would—— Ms. LILLIE-BLANTON. Could I also respond?

Mr. PAPPAS. Yes. Sure.

Ms. LILLIE-BLANTON. Because I think what’s important, as you’ve

mentioned, is that we really are faced with an oversupply of physicians in this country. And in all fairness to HCFA, I would say the

attempt was, how do you begin to reduce that supply? But we’ve

got a broader issue, I would say, to look at. And that is the training

of foreign physicians, which, in many cases, have benefited from

those resources and the dollars.

We also have to realize that many of those foreign physicians

who have trained to those dollars have been providing care to

medically underserved areas. So as we cut the supply of physicians

in one area, we’ve got to look at its potential consequences for another area. And then I would say, within HHS, we need to look at

the multiple health professions development initiatives, some of

which actually is continuing to provide funding for the training of

new providers.

And so, while on one level we realize we’ve got an oversupply of

providers, on another level we know we have problems in the disVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00171 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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tribution of providers. And so I would say that, on the issue of

human resources development, it is a broader issue from a policy

perspective for us to look at how this Nation should handle its

problems of human resources in health professions.

Mr. PAPPAS. I would appreciate—not here—but some additional

information other than what I have read in the newspaper about

that particular program. So if you could supply that for me—whoever—I would appreciate it. Point other than trying to verify if this

is the case, the point I will just mention and then I’ll move on is,

I question whether this is an appropriate role for HHS and the

cost.

These are comments. The other issue is one that I dealt with in

another meeting of the subcommittee on another subject, where we

have representatives of another department—USDA—and three

agencies that are part of HHS—FDA, the National Institutes of

Health, and the Center for Disease Control. We’re talking about an

issue of—I guess it’s—I’ll just forget the technical term—mad cow

disease. What is the technical term?

Do you remember? OK. It’s easy for you to say. And the question

I asked the three agencies from one department and another department all involved in research—and I guess, just a comment

that I felt it was—I was surprised that there was not one of these

agencies that was designated or agreed upon as the ‘‘lead agency.’’

And I would just encourage you folks to encourage that as just a

policy that, evidently, has not been instituted.

Because, if we’re looking for greater accountability, as, I think,

the taxpayers require, and, certainly, we want, and I’m sure you

want, as well. I think that as a matter of course, there should be

a lead agency involved in any kind of a joint research project or

joint project, because if something goes wrong, there’s going to be

a lot of finger pointing. And it doesn’t make it easier for folks like

yourselves, in particular. Thank you, Mr. Chairman.

Mr. SHAYS. Thank the gentleman. For someone who likes to get

at waste, fraud, and abuse, HHS is a candy store. And for just a

variety of reasons. And it’s not a Republican-Democrat issue. I’m

just looking and thinking how we could use our entire committee

staff just to look at one area. You have the Administration for Children and Families. You have the Administration on Aging. And you

have the Health Care Financing Administration (HCFA), Agency

for Health Care Policy and Research, Center for Disease Control,

Agency for Toxic Substances, Disease Registry, Food and Drug Administration (FDA), Health Resource and Service Administration,

Indian Health Services—I mean, I’m just thinking how we could

spend so much time dealing with the pathetic success of health

care in Indian reservations—National Institutes of Health, Substance Abuse and Mental Health Service Administration.

I’m just wondering, when you look at a department so large I

think when you added Social Security in with it there, the budget

was larger than the gross domestic product of Canada. I’m not

quite sure that’s right, now that I’ve said it, but close to it. I’m just

curious how you all decide which wrongdoing, what area of fraud

you’re going to get at, what area of waste you’re going to get at,

given that you could almost just close your eyes and do that? Is

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that what you do—close your eyes and just kind of put your finger

down, and say, ‘‘OK. This is it?’’ Ms. BROWN. No, sir. And it’s a pretty complicated process. Of

course, we’re constantly doing various research to see where there

are anomalies in the payment schemes that are going on. And that

often points, as it did in the incontinence supplies chart where we

have a sudden spurt, and it isn’t accountable because of some new

disease or increase in patient population or something of that nature.

We’re constantly looking at all of those to see whether or not

there is some new scheme that has emerged that has allowed people to over bill certain programs. We look at all of the HHS programs, actually. But now that the new health legislation has

passed, we do have a limitation we didn’t have before. We have increased resources as a result of that, all of those resources that

were voted in for health care have to be used just on health care.

Mr. SHAYS. Right.

Ms. BROWN. And that’s about 70 percent of our budget. It’s about

30 percent, then, that is used for all the other programs. So for the

first year, we’re having to track very carefully exactly how much

goes into each area. So that’s one constraint.

Mr. HEMBRA. From GAO’s standpoint, we have a pretty disciplined approach to planning strategically and in a more tactical

fashion. As you’re well aware, Mr. Chairman, a good part of that

is working with the committees on both the House and Senate, to

ensure that the work that we do best fits the needs of the authorization, the appropriations, the budget, and the oversight committees.

Mr. SHAYS. Does GAO—is it more legislatively directed in that

sense? Let me ask it this way: does the Inspector General’s office

have a little freer hand in what it looks at? And is the GAO a little

more guided by congressional areas of focus?

Mr. HEMBRA. I’d like to let June speak first to this.

Ms. BROWN. Yes. We have independence that has been provided

to us under the IG Act. So that, the Department or Congress—nobody can really tell us how to use our resources. And I have the

responsibility, then. We have a long planning process. We have a

strategic plan we go through. We look at all the emerging areas

like home health and some of the new effects on nursing homes

and hospice, when laws change and so forth.

Mr. SHAYS. But you’re open to suggestions as well as requests?

Ms. BROWN. Absolutely.

Mr. SHAYS. And sometimes you do work that’s just in response

to requests you, obviously, then, had to have deemed were necessary areas.

Ms. BROWN. Yes. But we encourage both Department officials

and Members of Congress, if they are aware of any problem area,

to let us know. There have been a few cases where we’ve had to

turn that down because the priority was lower.

Mr. SHAYS. Right.

Ms. BROWN. And we have that authority. But of course, that’s

where we get a lot of the good leads that would show us where

problems——

Mr. SHAYS. Does the GAO?

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Mr. HEMBRA. Yes. From a GAO standpoint, I think currently, if

you look across GAO, probably about 85 percent of our work is

what we call congressionally directed.

Mr. SHAYS. Gotcha.

Mr. HEMBRA. Either through legislative mandates or through

specific requests that come in from committees or even individual

Members.

Mr. SHAYS. And some of those legislative mandates are continual, ad infinitum? They are annual requirements that you have

to look at?

Mr. HEMBRA. They are. But they’re much less today than they

were in the past. We’ve worked pretty successfully with the leadership on both the House and Senate side to eliminate a number of

those. Of course, our resource base has dropped considerably over

the last couple years. But we do have flexibility. I don’t want to

suggest that we sit back and wait for someone from the Hill to ask

us to do a job.

Mr. SHAYS. No. If you see an area that you want to look at, you

can look at it?

Mr. HEMBRA. Yes. Within the resource constraints. Absolutely.

Mr. SHAYS. Right.

Mr. HEMBRA. And we do that quite a lot.

Mr. SHAYS. OK. In terms of the presentation of the Inspector

General focus on home care, medical equipment and supplies and

hospice benefits, let me just get a sense of this. We had fascinating

hearings on the whole issue of medical supplies and pricing. And

let me just say, I made a reference to it in my opening statement.

This committee takes tremendous pride in Title II of the health

care reform bill, which had three titles. Title II was the whole issue

of getting at health care fraud, making health care fraud a Federal

offense for all payers, private and public. And that was the work

of both Jay Owens, the Inspector General, as well as the administration.

But that was a big plus. What we didn’t do was see any movement toward legislation that we developed based on our hearings,

dealing with the repricing of durable goods. I want to just understand if the system is still as crazy as I recall it, that, basically,

we have rules and regulations that we the Government and we the

buyers have to follow, that basically outline what we will pay for

a good and service, and that if it is underpriced, we end up with

no sellers.

In other words, there’s no law that requires a seller to buy if we

aren’t paying a market rate. If we pay an above-market rate, we

obviously have a lot of sellers, but we don’t have—but we have the

requirement that we have to buy at that price unless we go

through a process to refigure the pricing mechanism. Now, this is

what I want to go through.

Now, basically, we follow section 1842BA of the Social Security

Act, and we have to determine that it’s grossly excessive or grossly

deficient—our pricing. Is that correct?

Ms. BROWN. Yes, sir.

Mr. DOWDAL. Yes.

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Mr. SHAYS. So if it’s very excessive or very deficient, technically,

we don’t meet the test. We can overpay if its very excessive and

very deficient, but we can’t reprice unless it’s grossly deficient?

Ms. BROWN. Yes. And there’s a long process that you have to go

through.

Mr. SHAYS. Yes.

Ms. BROWN. The same as changing any regulatory matters,

which takes 2 to 3 years. So I know you’ve held hearings in the

past where we’ve presented some of this data and have brought the

public’s attention to it, which I certainly applaud. Because we need

some mechanisms for adjusting prices in such a fast changing market as this. We need the authority to do competitive bidding when

that’s appropriate as well.

Mr. SHAYS. Yes. My recollection was confirmed, that we did issue

a report on this, but we need to followup. Does GAO want to respond to this? Did you all get into this?

Mr. DOWDAL. Yes. We’ve done a number of jobs where we’ve recommended that more authority be given to the agency to reduce

prices when they’re obviously out of whack with what the market

is paying for them. We’ve been issuing reports on that since the

late eighties, in fact.

Mr. SHAYS. OK. Well, this is one thing that I, certainly, am going

to spend some of my time on, because the only thing gross about

the system is that we allow it to continue. If it’s excessive, we

should change the price. So that will be one thing. And I appreciate

you highlighting that. Did you want to respond in any way?

Ms. BROWN. Well, I only mentioned that there are things like oxygen concentrators, which we have reported on. And we’re paying

twice what the VA is paying. And they’re able to competitively bid,

where HHS is not.

Mr. SHAYS. Now, twice is astounding. The explanation on the

other side would be that VA buys in bulk and it—Medicare and

Medicaid would be buying in—is it both Medicare and Medicaid

that we’re talking about?

Mr. MANGANO. Our reviews were in the Medicare area.

Mr. SHAYS. Right.

Mr. MANGANO. And just to give you the specific figures, VA pays about $128 a month for an oxygen concentrator, Medicare pays

$345 for one.

Mr. SHAYS. I mean, it just boggles my mind.

Mr. MANGANO. That is correct.

Mr. SHAYS. Now, the other thing that boggled my mind—I’d just

like both of you to respond, both GAO and Inspector General. We

have a system where if doctors submit bills, we—my recollection is

that we review 1 percent of the bills and about 4 percent of the billing charges, and that we pay it and then have to go back and try

to capture it. It’s only in those bills that we check. Is that process

still continued? Has HCFA changed that system at all?

Mr. MANGANO. The process is really driven by some pieces of legislation that require Medicare to pay its bills within a time limit,

I believe it’s within 30 days.

Mr. SHAYS. Right.

Mr. MANGANO. And they must pay those bills within that timeframe. As a result, what the Medicare program does, primarily—

172

is does a lot of post-payment review. But as we’ve mentioned earlier, only about 2 percent of the claims ever go through that postpayment review. The only way they can catch it prospectively is

through what they call ADITs.

Mr. SHAYS. Is that the auto-adjudicated system that we’re

talking——

Mr. MANGANO. Yes. There’s—that’s correct. There are ADITs

that the contractors—the Medicare contractors, the insurance company which runs the program—have in their system. So, if a bill

looks grossly out of whack, it rings a bell on and ADIT. They can

go in and look at the particular bill.

Mr. SHAYS. But the fact is that if someone broke their ankle and

had a chest x-ray, that bill would get through the system.

Mr. HEMBRA. That is correct.

Mr. SHAYS. Because we don’t have an auto-adjudicated system

that would get that disconnect.

Mr. HEMBRA. Right.

Mr. SHAYS. And have we seen any process since our hearings last

year on that?

Mr. HEMBRA. Not really.

Mr. SHAYS. OK. You almost feel overwhelmed. Both those two

areas just strike me as being such absurdities. So I’m going to continue a little bit and then—do you have any more questions for this

panel? You can just turn the clock off. That’s the one power of a

chairman: I control the clock.

I love it. In terms of the whole information systems, we’re learning that the IRS may have wasted $3 billion. When I look at it, I

find that the details don’t support $3 billion, but support hundreds

of millions if not billions. Are we in the same danger with HHS,

with its information systems?

But the problem is that if a business had such an important element of its business—information systems—they would spend $1

million or $2 million to hire the best and the brightest. And they

would pay them and they would get their money back ten fold.

Here, we’re limited, I gather, by what a civil servant can make. Is

part of the problem that we don’t have the expertise? First, I want

to know, do we have a problem with information systems? I’d like

for you to expand a little bit more, since the Comptroller General,

you introduced it. And are we in danger of coming to concluding

that we, too, have wasted hundreds of million, if not billions of dollars in information systems, and don’t presently have a good system or systems?

Mr. HEMBRA. If you look back, Mr. Chairman, what you find is,

as information needs would surface, you would see agencies pretty

much creating stand alone, stove pipe systems to deal with a specific information need. And of course, with the advancement of

technology, clearly the capability has expanded tremendously.

If you look at HHS—and you could go down specifically and look

at Medicare, because there is a multi-million dollar system’s investment that’s being made now with regard to the Medicare transaction system, which will ultimately replace about nine different

information systems that HCFA and its contractors use in processing claims.

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Is HHS vulnerable with regard to information systems? GAO has

a lot of work across the Government that says, ‘‘Of course.’’ And

there has been millions and hundreds of millions of dollars wasted.

Fortunately, I think—— Mr. SHAYS. And you’re working with Mr. Horn’s committee on

this area—management systems?

Mr. HEMBRA. Yes. That is correct. That is correct. Fortunately,

there’s a couple of things happening. In general, and if—take you

back to my statement—the Paperwork Reduction Act, the ClingerCohen Act and the creation of Chief Information Officers, were all

geared toward bringing some sense of order to how agencies went

about determining what its information management needs were

and how they were going to go about phasing those in.

We had looked early at HCFA’s Medicare transaction system,

found some problems that they were having, and have been working pretty closely with HCFA on MTS. And so I think there’s less

likelihood of seeing something similar to IRS happening within

HCFA and its Medicare program. I think one thing that HHS has

to do to make sure that it doesn’t get out of hand, is make sure

that it integrates its information management needs as part of it

overall GPRA process of developing a strategic plan.

You can’t do that outside of the process. It’s an integral part of

what’s going on. The second thing HHS, I believe, HHS needs to

take a look at is, with regard to the Chief Information Officer as

well as the Chief Financial Officer—the Secretary has chosen to

triple hat an individual within the Department, the Assistant Secretary for Management and Budget, giving that individual also the

title of Chief Information Officer and Chief Financial Officer.

Clearly, with regard to the Chief Information Officer, we don’t

believe that that’s consistent with the legislation. And it certainly

calls into question whether one individual has the capacity at a

senior management level to carry that wide range of responsibilities.

Mr. SHAYS. Have you conveyed that concern?

Mr. HEMBRA. That information has been discussed, but there’s

been no change within HHS.

Mr. SHAYS. OK.

Ms. LILLIE-BLANTON. Could I respond to that also?

Mr. SHAYS. Sure. Sure.

Ms. LILLIE-BLANTON. I think there is a particular challenge in

developing information systems for HHS. And that’s, in part, because HHS works so closely with States. And I think welfare reform is an example of that, but Medicaid is also an example, where

you are relying on data and information systems which are collected at the State and local level.

And we now have a major restructuring in our system of welfare.

The Federal Government, HHS in particular, is to monitor compliance with that, but it’s got to monitor compliance based on information that is supplied by the States. And you have, in many

cases, States with very limited data information capacity, management information systems.

And it just presents, I would say, a major challenge for HHS to

assistant, to develop, to monitor, with the information that will

come from different States, sometimes which may not be comVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00177 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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parably collected, sometimes which may not have the same kind of

control system, sometimes sexual harassment just may very well be

different types of information.

So I would say that there is a particular challenge. We have

seen, with the experience of Medicaid, that even when there is

some Federal oversight in trying to assist with—because the Federal Government does collect—has two different data systems for

the Medicaid program that it collects. But even with those, we have

some very serious problems in the data that is collected through

HHS data information systems. So it is a very serious problem.

Mr. SHAYS. Now, as you talk, I’m thinking that in my home town

we have two companies that, 10 years ago, didn’t exist. And today

they’re billion dollar companies. And yet they realize in 10 years

they may not exist again. The change is so rapid. And I’ve been

wondering for a while if one of the best arguments for why we need

to try to have government do a little less, and then do everything

else better, is that it just may not be able to keep up with the

change.

One of my concerns in Government is that too many people make

the decision before it finally comes to fruition, whereas in the private sector now, they’ve empowered two or three people in that

chain to ultimately make very big decisions. Do you want to comment?

Let me just tell you my plan. I’m going to invite either staffs to

ask a few questions if they want, only because really what we’re

just trying to do is flush out where we want to focus our time. And

so, it’s really, I think, appropriate to have our staff weigh in here

if they want. But did you want to say something first?

Ms. BROWN. Well, I wanted to comment on the new system that

they’re developing, that—— Mr. SHAYS. They being—and for which system?

Ms. BROWN. I’m sorry. HCFA is developing——

Mr. SHAYS. OK.

Ms. BROWN [continuing]. For Medicare.

Mr. SHAYS. Right.

Ms. BROWN. And this will be a gigantic system that is far larger

than any insurance company, of course, would have.

Mr. SHAYS. This is MTS or—— Ms. BROWN. MTS. Yes. We are able to bring a lot of things to

their attention, particularly through doing the financial system audits. We have identified a lot of problem areas and a lot of areas

that have to be treated differently in the system. So we have a

process for working with them on that, which I think will help a

great deal. I did want to point out that there is not requirement,

not even the capability for them—being HCFA—demanding the Social Security number of the providers until this latest legislation

passed—Kassebaum-Kennedy.

HCFA didn’t have unique provider numbers, either. And both of

those are going to seriously undermine the effectiveness of a system. So I think they do need Social Security numbers. Even when

we exclude somebody from the program, there’s no way of tracking

how many other areas they might be billing in.

Mr. SHAYS. Let me just say—I’m going to call on the majority

counsel—but my purpose is to ask if there was a question that you

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wish we had asked, if you want to respond to the question we

never asked you, but wished we did. And also, I find that those

who come and testify who say the least sometimes have more time

to think about something they want to say. So with the power invested in me, I’m going to provide the three of you who didn’t make

opening statements to get some closing words and see if you’re willing to risk saying a comment that your boss may not like.

Mr. DOWDAL. Well, that’s never stopped me before.

Mr. SHAYS. Good. Well, we’ll come to you in a second. OK. Do you

have a question you want to——

Mr. HALLORAN. Yes. I just would ask each of you to comment on

block grants in general and the kinds of accountability systems you

see that the Department should use in maintaining the flexibility

that are built in the block grants and, yet, being able to provide

the accountability that you want and we want in terms of the

money that’s spent. It’s a difficult balance. You talked about data

problems, which is one area. But where have you seen in the block

grant programs we have, where has it worked, and what kind of

emerging problems might you see as we roll out bigger block grants

such as the welfare reform?

Ms. LILLIE-BLANTON. Well, actually, let me just give you something that I would say HHS is doing now that might be an approach to use, because I think we have had problems with block

grants in the past. HHS has begun to develop what is called performance partnership grants. And they’ve used that approach with

SAMHSA, the Substance Abuse and Mental Health Services Administration, and CDC. In the process of the performance partnership grants, there is negotiation with States on the goals and outcomes that they want to see achieved. And so, rather than holding

a State——

Mr. HALLORAN. And the form of the data that will prove it? Is

that part of the deal?

Ms. LILLIE-BLANTON. The process has varied, but certainly—I’d

have to look back to find out how specific and how prescriptive they

are in the data goals, the data elements that would be used to document outcomes. But certainly, along with the broad objectives—

the broad goals are objectives, which are measurable objectives. At

least with that process you have a way of working with an entity—

a State or, in some cases, it could be a local community—in trying

to negotiate what you want to achieve, even if you didn’t look at

all the details of how it’s achieved.

So certainly, I would say the goals and the outcomes would be

an approach that we could use that still give States some decent

flexibility in how they design their programs, but at least the accountability system, from the point of the Federal Government, can

be monitored because you have defined what you wanted to

achieve. That’s a part of the pilot efforts that are now underway.

It’s still not certain how well that can work with the broad array

of what—of programs that HHS has. Welfare reform, for example,

is an example where that is a little different. And when I talked

about the demands on welfare reform—just to take a couple of

them—one are the time limits and the work force participation requirements.

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In that case, Congress has to set some goals, measurable goals.

But the data systems, at this point, are not in place to document

and monitor them. So it is a balancing act. With the performance

partnership grants, I think, are a way that we could try to work

on some level. When you move to goals that are so broad, that cut

across all the States, such as welfare reform, it means we’ve got

to talk about more uniform data collection systems that can help

guide and develop.

And you know, it could mean resources to assist in developing

those infrastructures. But otherwise, I think that we will be comparing apples and oranges even as we give out performance bonuses—for example, for declines in out of wedlock births. I think

that that just becomes problematic, but yet, the intent is a desirable goal.

Ms. BROWN. If I could comment. The President’s council on integrity and efficiency, which is a group of all the Presidential appointed Inspectors General, did a study on just this. It isn’t recommending one way or another, but it explains what vehicles could

be included in any legislation or other provisions of a grant, and

what the results might be. If the grant doesn’t provide for oversight, there would be no way, in spite of any efforts and whatever

data we had, we would not be able to go in and audit against anything.

So that would be one extreme. This report goes on and explains

some of the possible vehicles for gaining some level of oversight. I’d

be glad to provide that report so you could get a balance of all the

IGs’ views.

Mr. SHAYS. Ms. Brown or Mr. Hembra. Is there any question you

wished we had asked that—I mean, there’s a lot of things we could

have—but—so nothing—Mr. Mangano, do you have any comment

you wanted to—?

Mr. MANGANO. No. I don’t think so.

Mr. SHAYS. Ms. Brown, any comment? Mr. Dowdal.

Mr. DOWDAL. Yes. I think I’d like to re-emphasize that the GPRA

process provides a real good opportunity for everyone to take a look

at the processes and everything that the agency has, to meet the

goals that have been given to it under the laws. And by using that

opportunity to better design their systems for controlling costs, I

think HCFA can get around a lot of the problems that currently

are evident in the waste and abuse and fraud and mismanagement

area. So I think—I hope that the GPRA process works as well as

it should.

Mr. SHAYS. Knowing what your mission is and how you’re going

to carry it out is obviously very important. I find that it also—we

try to do it—obviously, the task is much easier in our own offices.

But knowing your mission, your strategy, your projects, and your

tactics, and getting your staff to talk about it is very energizing.

So it can be a tremendous tool if it’s used well.

And I know that you both are expressing concern. You know, I

guess this year is the moment of truth of whether the departments

take it seriously or not and take advantage of it. Let me say that

we’re going to go to our next panel, but the dialog, obviously, continues. You know that you can pick up the phone any time and we

feel that we can do the same.

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So I’ll just emphasize, again, my interest in making sure that we

look at the worst of the worst or look at the areas where we can

have the greatest impact and change, given that there is so much

that we can look at. And given that we have this problem on this

side, we also understand that you have that same challenge. So

we’re very patient when we see something that doesn’t work, and

say, ‘‘My gosh, why didn’t you all get at it?’’ Because you’ve got

more than enough to do. So thank you very much.

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Mr. SHAYS. Our next panel is going to focus on the Department

of Veterans Affairs: William Merriman, Deputy Inspector General,

Department of Veterans Affairs, accompanied by Michael Sullivan,

Assistant Inspector General, Department of Veterans Affairs, and

David Baine, Director of Federal Health Care Delivery Issues, General Accounting Office. Mr. Baine, do you have anyone else accompanying you? Could you, in the mike, tell us who will be accompanying you? How many? One or two? OK. Would you state the

name for us so our transcriber can—— Mr. BAINE. Sure, Mr. Chairman. This is Mr. Jim Linz, an assistant director in our group, who has been involved in veterans programs for more than 15 years.

Mr. SHAYS. Well, it’s great to have him accompany you, and we’ll

swear all—now, do we have anyone else? Do we have—good, OK.

We’re all set there, then. I’m going to ask you to stand at this time

so I can swear you in.

[Witnesses sworn.]

Mr. SHAYS. Thank you. For the record, all four have responded

in the affirmative. And we’re going to start first with Mr.

Merriman, who is the Inspector General. And then we’ll go to you,

Mr. Baine.

Mr. MERRIMAN. Mr. Chairman and members of the subcommittee.

Mr. SHAYS. Excuse me. If we could just switch these names

around up front here, just to make sure we’ve got them matching

here. Thank you. All set? I’m sorry. Thank you.

STATEMENTS OF WILLIAM MERRIMAN, DEPUTY INSPECTOR

GENERAL, DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL SULLIVAN, ASSISTANT INSPECTOR

GENERAL, DEPARTMENT OF VETERANS AFFAIRS; DAVID P.

BAINE, DIRECTOR OF FEDERAL HEALTH CARE DELIVERY

ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY

JIM LINZ, ASSISTANT DIRECTOR, FEDERAL HEALTH CARE

DELIVERY ISSUES, GENERAL ACCOUNTING OFFICE

Mr. MERRIMAN. Mr. Chairman and members of the subcommittee, I’m pleased to be here today to discuss the Department

of Veterans Affairs. With your permission, I’d like to enter my prepared statement for the record and use this opportunity to summarize some of the key issues facing the VA. When the IG testified

before the subcommittee 2 years ago, VA was at the crossroads of

change.

Since then, VA has made notable progress. While VA works continuously at improvement, it remains faced with what appears to

be overwhelming challenges for the 21st century. Amongst these

challenges include responding to the changing health care needs of

veterans and providing more accurate and timely benefits. While

VA has made progress, there remains much to be done. Also, since

many of the changes implemented by VA are in the early stages,

it will take some time before we are able to evaluate the results.

Regardless, the IG remains focused on working with Congress

and VA in efforts to constantly improve VA’s programs and activities. To this end, I would like to briefly elaborate on three areas.

Collectively, these areas embrace matters critical to the accomVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00233 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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plishment of VA’s mission and reflect major themes pursued by the

IG. In the area of health care, a VA goal is to move from an inpatient to an out-patient based system.

In recent years, the IG has conducted a series of audits and evaluations which address this goal. For example, we’ve determined

that the lack of reasonable staffing methodologies resulted in unexplained disparities in the allocation of resources. While VHA developed the veterans equitable resource allocation model to address

resources based on work load, the use of this model will require

close management attention and monitoring.

VHA initiated a reorganization in 1995. While this represents a

major milestone in the reform of VA’s health care system, it is too

early to determine whether it will produce the intended results. Although the IG is optimistic, the scope and pace of reorganization

presents special challenges for VHA to ensure the continuation of

high quality health care.

Another important challenge facing the VA involves reducing the

backlog in claims and appeals. VHA has about 327,000 claims currently pending and an average processing time of about 5 months

per claim. IG efforts are focusing on ways to help VA reduce processing times and improve the accuracy of benefits. We are nearing

completion of a series of related reviews. We will issue a summary

report later this year. On management accountability, the enactment of several pieces of legislation in recent years, such as the

Chief Financial Officer’s Act and the Government Performance and

Results Act, have provided a statutory framework for enhancing

the performance and improving accountability.

In regard to our audits of VA’s consolidated financial statements,

significant improvements in financial report reliability have been

achieved. While VA’s efforts over the last 5 years have enabled us

to provide this year’s unqualified opinion, work remains to be done

to assure control weaknesses are continually addressed. Our early

reviews of the implementation of GPRA show that VA was a long

way from achieving the ultimate goal using performance measures

as a tool for improving VA operations.

However, VA has made significant progress in the area as the

Chief Financial Officer has been working with all VA activities to

shift VA’s focus to overall program results. Before closing, I’d like

to address two additional matters important to cost effective management of both VA and the Federal Government. First, continuation of our authority to conduct post-award audits of Federal Supply Schedule contracts for medical supplies and equipment and for

pharmaceuticals is at risk.

Proposed regulatory changes would severely limit our ability to

conduct such audits. Our work in this area combined with the benefits already realized has convinced us that the elimination of the

right to conduct post-award audits of FSS contracts will result in

higher health care costs for the VA.

Mr. SHAYS. Before you continue, who is advocating that change?

Mr. MERRIMAN. There’s a proposed change for the Federal FAR,

Federal Acquisition Regulations, that we’re negotiating with GSA

at the current time. Industry is advocating a change to the Federal

Acquisitions Regulations which would remove our right to conduct

post-award contract audits.

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Mr. SHAYS. That’s for all departments or just the VA?

Mr. MERRIMAN. That would be for GSA and the VA for those

Federal Supply Schedules that are managed by the two departments. The General Services Administration has a responsibility

for managing the Federal Supply Schedules. They delegate the responsibilities for pharmaceuticals and for medical supplies and

equipment to the VA to manage. So if a rule were to be passed that

eliminated the right to contract audits, we would not be able to do

it in medical supplies and equipment.

There’s separate legislation that might allow us to still audit

pharmaceuticals. But the proponents of this rule would say that

the IG still has the authority under the IG Act. We do if fraud is

suspected. We could conduct an investigation. We could do an

audit. But we have a program with the department where we do

the contract auditing for them on a reimbursable basis. And we’ve

delivered, in the last 3—a little over 3 years—about $50 million

have been returned to the Government based upon our efforts.

Mr. SHAYS. Now, is this a proposed rule that you’re having to

comment on? Is this already in process?

Mr. MERRIMAN. The rule has been proposed. It’s still in the comment stage. The comments are being considered by GSA at this

time. We are working with them.

Mr. SHAYS. Yes. I’m going to just come back in a second on that.

Why don’t you finish your statement?

Mr. MERRIMAN. OK. Second, the IG audited VA’s OWC program,

the workman’s compensation program, in 1993 as a part of a governmentwide review. To address the report’s findings, VA moved

accountability and responsibility for these costs from the central office to facility level. Each facility is required to monitor its OWC

program and return employees to duty as soon as possible in order

to reduce costs.

We initiated a pilot investigative project with selected VA medical centers to help them identify individuals receiving OWC payments under fraudulent circumstances. I believe there is a potential for significant savings to the Government in this area. This

concludes my statement, Mr. Chairman. I’d be pleased to respond

to any questions you might have.

[The prepared statement of Mr. Merriman follows:]

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Mr. SHAYS. Thank you. Mr. Baine.

Mr. BAINE. Thank you, Mr. Chairman. Good morning.

Mr. SHAYS. Good morning.

Mr. BAINE. As you know, the effectiveness of VA’s programs and

activities has a profound effect on the welfare of our Nation’s 26

million veterans. In fiscal year 1996, VA’s approximately 222,000

workers delivered a wide array of medical, disability, pension,

housing, insurance, education, and burial services at a cost of nearly $38 billion. Two years ago, we testified before this subcommittee

on some of the challenges facing, specifically, the VA health care

system.

Today, I would like to discuss VA’s progress in addressing those

challenges. In addition, I would like to touch briefly on some issues

facing the Veterans Benefits Administration, VA’s efforts to implement the Government Performance and Results Act and other recent legislation to improve the management of Government programs and changes that could be made in veterans benefits and in

the operation of VA programs to help reduce the budget deficit.

Mr. SHAYS. I don’t think you have enough time to do all that.

Mr. BAINE. I probably don’t. But I’m going to try. We believe significant improvements have occurred in the efficiency of the VA

health care system. VA’s new veterans integrated service network

structure clearly values efficiency and customer service. This reorganization contains several elements that we believe hold promise

for providing the management framework needed to realize the system’s full potential.

Consistent with the requirements of GPRA, the Veterans Health

Administration established five basic goals for its health care system. And under each goal, it has established objectives and performance measures for gauging the progress toward meeting those

goals. Under its new structure, VA has consolidated management

of nearby hospitals to reduce administrative costs, increased the

use of ambulatory surgery, and reduced the average lengths of

stay.

Under Dr. Kizer’s leadership, the VA has a new emphasis on

both efficiency and customer service. A few years ago, Mr. Chairman, we testified that VA could reduce inconsistencies in veterans’

access to care by better matching medical centers’ resources to the

volumes and demographic makeup of veterans requesting services

at the VA meld centers. Next month, VA plans to implement a new

resource allocation system.

Under this system, the networks that have the highest costs per

veteran user will lose funds while networks with the lowest cost

per veteran user will gain funds. We applaud VA’s effort to try to

develop a straightforward, simple method for allocating resources.

We don’t believe, however, that VA has determined the right

amount of dollars that need to be shifted to ensure equity of access,

primarily because it has not ascertained the reasons for differences

between the costs per veterans in each of the networks.

VA recognizes that its allocation system is not perfect and is continuing to explore ways to improve it. For example, both VA and

we are currently trying to develop the data to more fully explore

the potential effects of population-based allocations.

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In our testimony 2 years ago, we focused on several major challenges facing VA, the first of which was uneven access to health

care. During the last 2 years, VA has made a lot of progress in this

area. First, eligibility for VA health care was expanded. Now all

veterans are eligible for comprehensive in-patient and out-patient

care subject to the availability of resources. Second, VA has begun

to establish community-based out-patient clinics to improve veterans’ access to out-patient care. Third, VA’s contracting authority

was revised last year by the Congress to make it easier for VA to

buy services from private providers.

A second major challenge was the decline in use of VA hospitals.

As VA’s effort to increase the efficiency of its health care system

have gained momentum during the last 2 years, the decline in VA

hospital use has accelerated. As work loads continue to decline at

the hospitals, VA’s investment in its hospital’s infrastructure increasingly detracts for its ability to shift resources to other needs.

A third major challenge was identifying and addressing unmet

health care needs of veterans. We suggested that the health care

system retarget resources to provide care for higher income veterans with non-service connected conditions toward lower income

veterans and those without adequate health care insurance. VA,

however, through its current legislative proposals, appears to be

going in the other direction.

Like VHA, VBA also faces several important challenges in administering its comp and pen programs. First, the disability rating

schedule has not been economically validated for the last 45 years.

Second, VA could be unable to issue compensation and pension

checks at the beginning of the year 2000.

Mr. SHAYS. Let me just—I don’t quite—since I’m the only Member here right now.

Mr. BAINE. OK.

Mr. SHAYS. And so we can be a little more informal here.

Mr. BAINE. Sure.

Mr. SHAYS. I don’t understand what you just said about the 45

years, not being validated. What do you mean? What hasn’t been

validated?

Mr. BAINE. The disability rating schedule is made up of two primary components—there’s a medical component and an economic

component. The economic component hasn’t been validated by VA

for the last 45 years. And what that means, Mr. Chairman, is those

diseases or compensatable diseases for which compensation was

paid 45 years ago—for example, somebody lost an arm and got X

number of dollars.

As time has gone on in the last 45 years, mental illness, for example, has taken on more of an important role, but the economics

of this condition have not been looked at for 45 years.

Mr. SHAYS. I understand.

Mr. BAINE. Third, veterans frequently wait over 2 years for resolution of disability compensation and pensions claims. And fourth,

hundreds of millions of dollars in overpayments of compensation

and pension benefits are made because VBA so far hasn’t focused

much on the prevention of such payments.

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Let me turn now real briefly to VA’s implementation of the Government Performance and Results Act, the Chief Financial Officer

Act and information management legislation.

While VA has not completed its GPRA strategic plan, its budget

submission includes many of the elements that will be included in

that plan in September. The budget submissions for both the major

administrations also included strategic planning documents. Similarly, VA has established a sound financial management structure,

as Mr. Merriman has pointed out, and is in the process of trying

to appoint a Chief Information Officer. However, OMB has some

concerns about whether VA’s appointment of its Chief Financial Officer as the information officer will comply with the Clinger-Cohen

legislation.

Mr. Chairman, we periodically report to the Congress on options

for reducing the budget deficit, and issued a report last week in

which 10 specific suggestions, or 10 specific options were included

for the VA. And I won’t dwell on that. But those are included in

our statement, and we’d be glad to talk about any one of them.

Thank you very much.

[The prepared statement of Mr. Baine follows:]

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Mr. SHAYS. Thank you. Let me just say that a lot of your statement was not given orally but is on the record for our staff. And

when Members of Congress say they’re going to read your statement, that’s a stretch. But I do know that the staffs will read them

in preparation for our hearings. I’m trying to develop a theory that

may just fall flat on its face. I’m just going to focus now on Gulf

war illnesses and so on, just as a means at looking at the mission

of the VA. So it has greater implications.

You, Mr. Baine, drew on it in the fact that you said that compensation hasn’t been really looked at in 45 years for disability. I

have a general theory that clearly, first off, the VA and the DOD

and the CIA all want, in my judgment, that any of our soldiers who

fought in the Persian Gulf to be justly diagnosed, treated, and compensated. But I don’t think the system is allowing that to happen.

And one of my general theories is that the VA has just not responded to the whole issue of biological or chemical exposure. In

other words, that they don’t have the expertise, so they have a doctor that has no health care expertise in chemical exposure. And

what I’ve learned since I’ve basically questioned the VA’s ability to

look at chemical exposure, is that the medical science, in general,

doesn’t know how to diagnose or treat chemical exposure. And

there are very few people in the country who have any expertise

in it.

My point is, when I look at the VA, do I see a dynamic organization that is quick to change or do I see an organization that is very

slow to change? And more specifically, have either of you looked at

the issue of the skills of the doctor versus the kinds of challenges

that our soldiers faced, not just in the Persian Gulf but earlier.

Mr. BAINE. I might—go ahead.

Mr. MERRIMAN. I’d say that it might be looked at as an organization that is slow to change because of its size and how it’s developed over the years. But when you think about the skills that are

available to the VA, you have to look in terms of the VA physicians, themselves, and the employees of the affiliations that they’ve

developed over the years. So at least theoretically, they have access

to medical expertise that goes beyond the VA’s employed VA physicians.

Mr. SHAYS. In other words, the Westhaven Hospital in Connecticut draws on Yale University?

Mr. MERRIMAN. Many of them have dual appointments.

Mr. SHAYS. Right.

Mr. MERRIMAN. OK. So there is that to be considered. I’m sorry.

The second part?

Mr. SHAYS. Just the issue of its ability to respond to change. And

then the second is, do you feel that the expertise—the health expertise—matches the health needs of our veterans?

Mr. MERRIMAN. I would say——

Mr. SHAYS. And I gave, as an analogy, the whole issue of chemical exposure.

Mr. MERRIMAN. Right. I would look at it differently. I’d look at

the needs of the veterans might be more toward not necessarily

what happened to them in war time, but diseases now that they’ve

grown older. We would have taken issue in the past with the focus

on specialty care in the VA, some of which, perhaps, was driven

299

with affiliation relationships. And we would have said that there

needed to be more of an emphasis on primary care.

They are moving toward that. They are using some of their leverage now to ensure that more of the residents or trainees that come

into the VA system, are trained in primary care to meet the overall

multi-system problems of an aging veterans population.

Mr. SHAYS. You’re making an argument that the large population

are aging veterans that may have illnesses that aren’t directly related to their service.

Mr. MERRIMAN. Well, interrelated.

Mr. SHAYS. Interrelated. OK. It doesn’t really address the potential warfare of the eighties and beyond, the issue of—if it’s not an

area you focused in on, I don’t want to push you on it.

Mr. MERRIMAN. We haven’t. That’s about as far as I can go on

it.

Mr. SHAYS. OK.

Mr. BAINE. Mr. Chairman, could—— Mr. SHAYS. Your response was helpful. Yes. Thank you.

Mr. BAINE. Could I just make one comment?

Mr. SHAYS. Sure, you can make as many comments as you want.

Mr. BAINE. I agree with Mr. Merriman in terms of the VA having

traditionally been fairly slow to change because it’s a large organization and it’s a big boat to turn around. In the last 2, 3 years,

however, Dr. Kizer has attempted to turn the boat around in many

respects. With regard to your specific question, I think that is a

concern that we have, too. When folks from the Persian Gulf conflict get into the VA system are they treated in the same way as

everybody else that goes in the VA, or are there special things that

the VA is doing.

And that’s something that we’re trying to look at right now.

We’ve just started some work to see whether there’s any difference

between somebody who perhaps has been exposed to chemical and

biological agents, how they’re treated vis-a-vis how anybody else is

treated in the VA hospital.

Mr. SHAYS. Well, you raised the question of the associations of

universities. Westhaven had in its protocol for questioning Persian

Gulf veterans early on, questions about chemical exposure and so

on, because the doctor who was responsible was a doctor who focused in on work place illnesses. So there was this—but that was

almost by luck, that they got into that issue a little sooner.

Mr. BAINE. That’s what we’re trying to explore, is see the extent

to which those kinds of things are happening in the VA system.

Mr. SHAYS. Now, Dr. Kizer’s name has come up more than once

today. Do you think he’s been relatively successful in trying to

bring about change in the VA?

Mr. BAINE. My own personal belief is that he has. You have

to——

Mr. SHAYS. First off, let me just ask—do you give him credit for

trying to start with? Do both of you feel that he’s trying to make

major changes?

Mr. MERRIMAN. Oh, yes.

Mr. BAINE. Yes, sir.

Mr. SHAYS. So both of you are on record as saying that he’s making major effort here?

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Mr. BAINE. Right.

Mr. MERRIMAN. That is correct.

Mr. SHAYS. And your sense is he’s having an impact, that the Department is responding.

Mr. BAINE. I don’t think there’s any question that he’s having an

impact.

Mr. MERRIMAN. I agree.

Mr. BAINE. I mean, if you go out into the field, to the networks

and to the medical centers, you will, I think, come away with the

appreciation that he is having an impact.

Mr. SHAYS. Mr. Merriman.

Mr. BAINE. People have various views of that.

Mr. SHAYS. Right. They may not agree with the change, but— yes. Mr. Merriman, do you feel—— Mr. MERRIMAN. I agree. And his relationship with our office is

a whole different world than what we have been used to in the

past, even in the planning process.

Mr. SHAYS. What? Trying to respond to your concerns and criticisms? In other words, what is different about that relationship?

Mr. MERRIMAN. First of all, his willingness to participate in the

development of our projects.

Mr. SHAYS. OK.

Mr. MERRIMAN. He, personally, will give us suggestions to include in our plan, which we will discuss with him, and put in or

not in as we see fit. But his willingness to discuss our recommendations, to sit down and have a good thorough discussion of

it, and take action on problems that we’re finding.

If he agrees with us early on in our audit, he won’t wait until

we conclude the process. He will initiate action when he sees it. On

the other hand, if he questions our methodology, he’ll demand proof

that we’re right. But we have a very good working relationship

with him. And I think he does deserve a lot of credit for the

changes that are happening in VHA.

Mr. SHAYS. What would the VA disagree most with your written

testimony? Not what you said, because you were both pretty positive about the VA. Where would you have your biggest disagreement with the VA? I’ll start with Mr. Baine.

Mr. BAINE. My—— Mr. SHAYS. Yes.

Mr. BAINE. My sense is that VA would probably disagree most

with our characterization of its intention to target higher income

non-service connected veterans to enhance its patient base.

Mr. SHAYS. OK.

Mr. BAINE. That’s my——

Mr. SHAYS. I’m going to come back to that. What would you say

that your biggest disagreement with——

Mr. MERRIMAN. Other than perhaps not identifying more positive

aspects of their work, I don’t know the——

Mr. SHAYS. They just want you to talk about the positive.

Mr. MERRIMAN. We tried to provide a balance.

Mr. SHAYS. So we know they’re normal. OK.

Mr. BAINE. It’s always interesting, because one of the things that

we’ve tried to do over the last several years, as a courtesy to VA,

when we prepare a testimony like this, is go talk to the proVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00304 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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grammatic people. And Jim and I had that experience a few days

ago. And there were 40 people in the room and it was fair to say

that most—somebody disagreed with almost everything.

Mr. SHAYS. Let the record reflect the sarcasm. OK. I still want

you all to be son of a bitches a little bit. Otherwise——

Mr. MERRIMAN. We’re allowed to do that.

Mr. SHAYS. Sons of bitches? The district I represent, the 4th Congressional District in Connecticut, has 10 towns and a number of

hospitals. Four of those hospitals are concentrated in about a fivetown area. And studies show that we may only need one of them

to provide acute care. Some of the hospitals could refocus and provide other care, but acute care we only need one hospital the size—

one-fourth of what we have now, basically.

When I look at a VA hospital, I would think that you have the

same challenges in some areas. What’s wrong, though, with the VA

trying to expand its client base for economies of scale? Otherwise,

there may be no hospital if it can’t become more efficient. So what

would be wrong with the VA focusing in on increasing its enrollment?

Mr. BAINE. There’s nothing specifically wrong, Mr. Shays, with

the VA trying to expand its patient base. Our concern is that there

are a fair number of veterans that have special care needs.

Mr. SHAYS. Right.

Mr. BAINE. And you pointed out some of them—spinal cord injury, PTSD, chemical and biological injuries or illnesses—those

kinds of things that VA is specifically tasked and expected to provide care for. As it moves toward a re-engineered health care system it seems to us, at the present time, that VA is targeting folks

who can provide an income stream to VA to supplement the appropriation that it gets.

Mr. SHAYS. Yes.

Mr. BAINE. And they has been a concern of ours for several

years. It’s one where Dr. Kizer doesn’t necessarily agree with us.

But we believe that it’s a valid concern. And with regard to your

comment about—in your district there are four or five hospitals in

five towns—VA is facing essentially the same thing.

It’s taken about 50,000 beds out of service or converted those

beds to other uses over the last 20 years or so. And it is facing the

same kinds of things that those hospitals in your district are facing. Now, the question actually becomes—and it’s a question for

both the Congress and the administration, it seems to me—what

portion of the $17 billion health care budget should go for the

maintenance of the infrastructure.

There’s a choice to be made. Are you going to maintain the infrastructure at the current level, or are you going to change the mix

and try to provide veterans benefit in maybe a different way?

Mr. SHAYS. Which the veterans are looking at out-patient clinics

and expanding them, obviously. But that can potentially take away

its client base from its acute care or it sometimes can feed into the

system.

Mr. BAINE. Yes.

Mr. SHAYS. But there are some of us that take the unpopular

view, but hold it quite dearly, that I would like a veteran to be able

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to have a veterans’ card that enabled them to go to any hospital

in the world—in the country, rather.

Mr. BAINE. Right.

Mr. SHAYS. And be able to get a care that would be special to

that veteran, not necessarily in a VA facility. Have either of you

looked at the economics of that issue? Not the political viability.

Maybe the political viability tells you don’t want to look at the economic viability.

Mr. MERRIMAN. We have not. No.

Mr. SHAYS. OK.

Mr. BAINE. No. We haven’t looked specifically at the economics

of the thing. We have, however, looked at VA’s initiative to establish these community-based out-patient clinics.

Mr. SHAYS. What—— Mr. BAINE. The first batch of 12, I think it was, or 15, perhaps— and, basically, what we found was that a large portion of the population that was going to be served by those community-based outpatient clinics or access points, as VA was calling them then, were

veterans who were non-service connected and higher income. So

the outreach effort reached the population who, perhaps, could either pay some portion of the cost of their care through copays or,

as in some of the VA legislative proposals, they were Medicare eligible.

Mr. SHAYS. Let me just get into one other area that—in the

President’s budget, it says the Veterans Health Administration is

the Nation’s largest trainer of health care professionals. About

108,000 students a year get some or all of their training in VA facilities through affiliations with over 1,000 educational institutions.

The program provides training to medical, dental, nursing and

associated health care professional student to support VA and national work force needs. Have you looked into this—in other words,

we’re looking at training hospitals in Medicare and Medicaid and

how we pay for it. But the VA, evidently, is the largest trainer of

doctors. Is that through the VA funded system that we have this?

Mr. BAINE. Yes. It’s through the VA funded system. As Bill said,

with the affiliated institutions.

Mr. SHAYS. Right.

Mr. BAINE. With the—VA has affiliation agreements with—I’ve

forgotten exactly how many universities and medical schools. And

VA sees it as part of its mission, the mission to train residents and

other health care providers. We’ve done some work with regard to

the affiliation agreements. Bill’s group has done a fair amount of

work with regard to the affiliation agreements and found some

problems.

Mr. SHAYS. Yes. Let me ask him. Mr. Merriman, I’m going to

have you respond. But I’ll introduce this question. Is it almost the

sense that the tail is wagging the dog? Is the VA saying what they

want or is it the affiliates saying what they want?

Mr. MERRIMAN. We had problems in the past that we thought

that the VA wasn’t using the leverage it had to direct the affiliations along the lines that would be more appropriate for the department. It’s another area that Dr. Kizer came to us on, asking

for what we had found in the past with respect to affiliation problems. And he had a major initiative to go out and restructure the

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agreements with the affiliations and the Department. I guess I’d

ask Mr. Sullivan to elaborate a little bit more on some of our work

in that area.

Mr. SULLIVAN. Yes. In regard to the number of affiliations, the

VA—in their 173 hospitals—120 of them are affiliated with major

universities around the country. Dr. Kizer, in one of his initiatives

in which we also participated, has addressed the resident issue, the

issue you brought up earlier—or Mr. Pappas, I believe, brought up

about the schools being paid not to train residents and so forth.

Mr. SHAYS. Yes.

Mr. SULLIVAN. Dr. Kizer’s study has resulted in a decrease in the

number of residents that are being trained by VA. I think his program calls for a 3-year process where the number of residents decrease by X percent each year.

Mr. SHAYS. Does it represent a cost to the VA or a benefit? In

other words, sometimes you get the residents and they stay up 30,

40 hours before getting any rest and do a lot of the yeoman work.

So how does the VA view this, as more of a benefit or a cost?

Mr. SULLIVAN. I think it becomes a benefit. We had problems in

the past about overuse of the residents in place of the attending

physicians that VA would expect to have caring for their patients.

But I think the decrease in cost is also vital. I think that has

helped, and will help in the future as they have a decrease in the

number of residents.

Mr. BAINE. One other of the tensions, I think, in the business

with the affiliations agreements and the residents and so forth is

that historically and traditionally, many of the specialties and subspecialties have been trained in VA facilities. As VA moves to a

more primary care type model, that’s creating some tension with

the affiliated institutions as to whether we’re going to have primary care doctors or whether we’re going to have specialists and

subspecialists.

Mr. SHAYS. When I was in the Peace Corps, they were constantly

doing tests on—trying to determine what volunteer—let me back

up. They had a high rate of volunteers not finishing their assignments—in some cases more than 50 percent. So they’d invest

money. They’d send a volunteer to a country. The village would be

excited. And the next thing, the volunteer leaves and the village is

very unhappy.

And we made more enemies than friends sometimes. So there

was a study to decide—a lot of studies to decide who would make

it and who wouldn’t. And I began to think that, in some cases, they

were playing with our minds. I mean, they took married couples

and would say some things to one select group. And they would

take another group—in the experience that I had—and say something quite different, and see how we would react.

Then when I got my MBA, I read some of the studies that they

had done on us, which, having been in Government a long time, I

get the feeling sometimes the Government is quite willing to do

things that in the private sector we wouldn’t condone in terms of

using the Army, in a sense, as guinea pigs for seeing where we’re

headed here and what would be the outcome.

And I’m raising, maybe, a sensitive question: do you have information that would make us want to look at this? Is there a tendVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00307 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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ency to use the veteran population as an opportunity to do certain

tests—psychological or physical—that we might not see happen in

the private sector? Do they represent a control group that becomes

a real temptation for the associate hospitals?

Mr. MERRIMAN. That was a long introduction to a question. I

don’t think that it’s any different than any normal teaching hospital. In other words, the residents are there for training. And an

individual patient may be looked at by more—more physicians in

training than normally would be the case. But I think it’s a——

Mr. SHAYS. OK. I’m looking at the issue of a company culture,

in a sense. We know that the military much less sensitive than the

private sector to the USAFE chemicals. You can have a soldier in

the Persian Gulf spraying lindane on Iraqi soldiers as a disinfect,

et cetera, in an enclosed tent without ventilation and without any

effort to accommodate temperature.

And they can do it all day long, day in and day out, whereas in

this country we would never, ever allow that to happen. We can

have chemicals on military bases that are exposed to the environment that we would not allow in the private sector. We aren’t closing down some military bases because of chemical abuse and cleanup costs. I’m just talking about a culture. Is there a culture in the

VA that is more similar to the DOD model than the private sector

model?

Mr. BAINE. My experience, and, I think, that of Jim would indicate that that, perhaps, was more of a problem 20 years ago than

it is now.

Mr. SHAYS. OK.

Mr. BAINE. In terms of experimentation and those kinds of

things, there have been some instances where VA was doing research on atomically exposed veterans and so forth. And there were

some stories and tales that came out of those experiences. My

sense is that there is much less of that now, although we haven’t

done any specific work about that.

Mr. SHAYS. Let me say this—if either of you have a sense that

that may not be accurate, I would want the committee to be notified.

Mr. BAINE. We’ll do that.

Mr. SHAYS. I realize that it would be foolish to comment on something you don’t have any—your point is that you don’t have the

concern I have. But if you find that there may be in a certain area,

I would want you to contact the committee and then we could pursue it quietly and see if there’s any substance to it.

Mr. BAINE. We’d be glad to.

Mr. SHAYS. Any closing comments that any of the four of you

want to make before we adjourn? Mr. Sullivan.

Mr. SULLIVAN. I just might mention two issues: benchmarking

and broadcasting. I think what we’re finding in a system as large

as VA is, that there’s a number of good things that go on around

the country that we found in our audits.

We like to report those things. And what we tell the Department

is, they should broadcast those things. And we found a number of

those things along those lines. I think that’s something we have to

bring forward to the committee: the good and the bad.

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Mr. SHAYS. OK. Mr. Linz, do you have any comment you want

to make?

Mr. LINZ. Yes. One of the things I’d like to go back to is——

Mr. SHAYS. Just put the mike a little closer and push it down

a little bit.

Mr. LINZ. One of the things I’d like to go back to is a comment

you made earlier about having four hospitals in your district and

maybe only needing one.

Mr. SHAYS. Right.

Mr. LINZ. And also the question of, well, what’s wrong with VA

attracting additional users. It creates a difficult policy decision because every patient VA attracts is one more patient taken away

from a private sector hospital. So that’s kind of the problem.

Mr. SHAYS. Yes.

Mr. LINZ. If you’ve got a community that has one private sector

hospital and one VA hospital, which one do you want to save?

Mr. SHAYS. Yes. But the bottom line is, we delude ourselves if

we think we’re going to save a VA facility that is totally underutilized. I mean, the bottom line is, let’s be up front and make a decision now rather than let it be strangled to death by underutilization.

Mr. BAINE. The issue, Mr. Chairman, of the VA infrastructure for

health care, I believe is going to be an issue for some time. And

it’s an issue which the Members of Congress are going to have to

face.

Mr. SHAYS. Yes.

Mr. BAINE. And it’s a real, real tough one, because it involves

employees. You know, there are 220,000 employees in VA. And

when you close a facility, that affects a lot of employees.

Mr. SHAYS. It does. But if we can make the veterans, themselves,

players in this process—if they know what the alternative is—what

this country needs is some brave people who look at their own

areas and say, ‘‘Hey, listen. We’ve got to deal with this now.’’

Mr. LINZ. Mr. Chairman, the work we did several years ago on

the veterans’ health programs in other countries basically showed

that as veterans in those countries were given greater access to

community hospitals, that demand for care in their veterans hospitals further declined, and eventually both Australia, Canada, the

United Kingdom ended up closing their veterans facilities. They

now provide all of the veterans care essentially through public hospitals and——

Mr. SHAYS. The model that I particularly like is for a veteran to

be able—I think the veterans obviously feel that—a variety of

things. One, if they are dependent on the local hospital, that this

so-called card that I make reference to could disappear overnight

because there’s not an infrastructure and a lobby group that could

keep it, necessarily.

So that’s one legitimate concern. But my view is that the veterans hospital should be those hospitals that carve out particular

expertise, and that we give the very best service to those veterans

who have those particular needs. Transportation costs are so much

less now that even moving people from one State to another, providing they get really great care, there’s an acceptance level there.

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So let me just do one last thing that I wish I had done before

I had asked what I thought was the last question. On the postaward audits: I was trying to think, well, why would the Government want to allow people to cheat the system either intentionally

or not intentionally, but, ultimately, short change the taxpayers by

denying a post-audit. And I gather the post-audit can be expensive

for the private sector? Is that the argument?

Mr. MERRIMAN. Can be expensive in the private sector?

Mr. SHAYS. In other words, that they have to, then, respond after

the fact?

Mr. MERRIMAN. They would argue that there’s cost involved to

the post-award audit. Obviously there’s some. But in today’s modern environment, what we do is pull their automated sales tapes

and compare them. What we’re really looking for—they come to us,

and we say—we strike a contract with them and say that we want

the best price that you give for a comparable customer.

We may not always be the comparable customer for what we’re

buying. So we may not get the lowest price. But we want the best

price for a comparable customer. And that if there’s been adjustments to these prices over time, that we’d like to know about it and

realize the benefits from it. That’s what we’re checking for. And basically, we can do that fairly quickly by pulling their automated

sales tapes and taking a look at what their sales are.

Mr. SHAYS. So there’s not as big a cost to them other than to defend their actions, but there could be a big cost to them if, in fact,

they had not followed the law the way they’re supposed to and then

had to adjust their price, which would be a legitimate reason to

want the post-audit?

Mr. MERRIMAN. Yes.

Mr. SHAYS. I’m trying to think logically why the people who defend the taxpayers would even honor this process. I’m trying to be

a little sympathetic to why I’m surprised that this is already in the

stage where we’re in comment, and wondering who would have

wanted to promote it. So we’re going to obviously do some checking

on this.

Mr. MERRIMAN. You’ll find it comes under the mantle of procurement reform. And there’s many good things being done to streamline procurement and to reform it. This is an area that, I think,

we’ve demonstrated, needs to have the oversight that we’re providing to it.

Mr. SHAYS. Yes.

Mr. MERRIMAN. And it can’t be done on a pre-award basis, which

is what some people would say.

Mr. SHAYS. A pre-award basis means once the price is there,

you’ve got to live with it?

Mr. MERRIMAN. That’s right. They’d say that when the contractor

comes in, we have the opportunity to audit his proposal at that

time. But the kinds of contracts we’re dealing with in pharmaceuticals and medical supplies and equipment deal with hundreds

of contractors coming in for contracts that stretch over years with

thousands of items on them. We cannot catch all the problems at

that point.

Mr. SHAYS. And I think I have sympathy for their view. Their

view might be that if you told them that they had to sell for less,

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they wouldn’t have sold. So in other words, if they were selling a particular good at $100, and you determine they had sold it to

someone else for $90, you could then go back and say, ‘‘For all of

those, we want the $90 price instead of the $100 price.’’ They would have to take that hit of $10.

Whereas, if you did it up front, they might say, ‘‘We may have sold it for $10 somewhere else, but we made a mistake. We’re not

going to sell it to the Government for $10, so we’ll just lose out on

the sale.’’ In other words, the advantage of doing it up front is they

say, ‘‘Fine, we won’t sell.’’ Whereas, doing it after the fact, they’ve

already sold it and then have to make up the dollars. I’m trying

to think of the most logical argument for why it’s gotten this far.

That seems logical to me.

Mr. MERRIMAN. All we would say is, either up front or afterwards, abide by your contract.

Mr. SHAYS. OK.

Mr. MERRIMAN. And commercial contracts aren’t immune to

these same things.

Mr. SHAYS. OK.

Mr. MERRIMAN. We’ve seen commercial contracts where one commercial firm will put in a provision that they have a right to audit

the contracts of their suppliers, or that they have a right to price

reductions.

Mr. SHAYS. Right. Well, that’s a very strong argument. Well, this

will be something we’ll take a look at in the committee, and then

maybe do even more on it. But we have a comment period that’s

ending pretty quickly?

Mr. MERRIMAN. I believe the comment period has ended. Comments are being considered by GSA at this time.

Mr. SHAYS. OK. I thank you. Any other additional comment before we adjourn? With that, thank you for all your good work. I

look forward to working with you all again. This hearing is adjourned.

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

[Additional information submitted for the record follows:]

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OVERSIGHT OF THE DEPARTMENT OF EDUCATION: MISSION, MANAGEMENT, AND PERFORMANCE

THURSDAY, MARCH 20, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

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

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Snowbarger, Towns, and

Kucinich.

Staff present: Lawrence J. Halloran, staff director and counsel;

Doris F. Jacobs, associate counsel; Robert Newman, professional

staff member; R. Jared Carpenter, clerk; Ronald Stroman, minority

professional staff member; and Ellen Rayner, minority chief clerk.

Mr. SHAYS. I would like to call this hearing to order, and welcome our witnesses and our guests.

According to the President’s 1998 budget, the Federal Government plays a crucial, if limited, role in providing education for a

lifetime, from pre-school to adult career training. Leading that effort, the Department of Education will spend $32 billion next year

on programs touching almost every aspect of American learning,

from helping States teach disadvantaged elementary school students to providing college tuition assistance.

Our witnesses today will help the subcommittee understand how

well the Department of Education meets its crucial mission, and

how well the Department limits its role in deference to the primary

responsibility of State and local educators. Both are important

measures of the Department’s performance.

Last year, both the Inspector General and the General Accounting Office told the subcommittee of serious problems with the Department’s management and oversight of student aid programs. Of

particular concern was virtually unregulated access to Federal tuition funds by private, for-profit institutions, or proprietary schools,

without regard to the quality of their programs. Again this year

GAO, the General Accounting Office, concluded complicated procedures, flawed structures, and weak management of student aid programs pose a high risk of waste and abuse of Federal funds.

Today, the IG and GAO will review what progress has been

made, and what problems remain, in the effort to maximize the efVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00317 Fmt 6601 Sfmt 6601 W:\DISC\40431 pfrm11 PsN: 40431
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fectiveness and maintain the integrity of Federal tuition assistance

programs.

Our second panel will comment on the Department’s performance

as an intergovernmental partner with the States, counties, cities,

towns, and villages in the crucial task of educating Americans,

young and old.

This is a very interesting hearing for us. We appreciate the witnesses who will appear before us, and at this time I would like to

invite vice chairman of the subcommittee, Vince Snowbarger, if he

has any comments.

Mr. SNOWBARGER. I will pass, Mr. Chairman. Thank you.

Mr. SHAYS. Thank you.

We have two panels. Our first panel is Thomas R. Bloom, Inspector General of the Department of Education, accompanied by Steven McNamara, Assistant Inspector General for Audit and Dianne

Van Riper, Assistant Inspector General for Investigations. We also

have Ms. Cornelia Blanchette, Associate Director of Education and

Employment Issues, U.S. General Accounting Office, accompanied

by Eleanor Johnson, Assistant Director of Education and Employment Issues.

Would there be anyone else who might be responding to a question?

Ms. JOHNSON. Yes.

Mr. SHAYS. We have Harriet Ganson and Jay Eglin, if you both

would stand as well when we swear witnesses. That way we won’t

have to swear you in later. We swear in all our witnesses, including Members of Congress, when they testify; so if you would stand

we will administer the oath. Raise your right hand.

[Witnesses sworn.]

Mr. SHAYS. For the record, all of our witnesses have responded

in the affirmative. I guess we will start with Mr. Bloom. Is that the

way you want to start?

What I want to do, we are going to turn on the light. It is 5 minutes and then we will leave the red on a little bit, and then we will

turn the green on again just to give you a sense of how long you

are talking. Your testimony is important so you should feel to give

it as you choose.

I might at this time, even though the minority isn’t here, but this

is pretty standard practice, just do two housekeeping orders, I ask

unanimous consent that all members of the subcommittee be permitted to place any opening statement in the record and that the

record remain open for 3 days for that purpose, and without objection, so ordered.

I also ask further unanimous consent that all witnesses be permitted to include their written statements in the record. And without objection, so ordered.

So you can kind of ad-lib a bit if you want, but your full statement will be put in the record. Mr. Bloom.

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STATEMENTS OF THOMAS R. BLOOM, INSPECTOR GENERAL,

U.S. DEPARTMENT OF EDUCATION, ACCOMPANIED BY STEVE

MCNAMARA, ASSISTANT INSPECTOR GENERAL FOR AUDIT;

DIANNE VAN RIPER, ASSISTANT INSPECTOR GENERAL FOR

INVESTIGATIONS; AND CORNELIA M. BLANCHETTE, ASSOCIATE DIRECTOR, EDUCATION AND EMPLOYMENT ISSUES,

U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY ELEANOR JOHNSON, ASSISTANT DIRECTOR, EDUCATION AND

EMPLOYMENT ISSUES; HARRIET GANSON, ASSISTANT DIRECTOR; AND JAY EGLIN, ASSISTANT DIRECTOR

Mr. BLOOM. Thank you, Mr. Chairman, Mr. Snowbarger. I do

have Steve McNamara, who is the Assistant Inspector General for

Audits, and Dianne Van Riper, Assistant Inspector General for Investigations to help me answer some more detailed questions.

You have asked us to address management and programmatic

issues at the Department of Education. We have submitted to you

a quite lengthy written testimony that we would like submitted for

the record. We believe we have highlighted a lot of important

issues in that testimony. But I would like to take a few minutes

to highlight three or four of those issues that we think are the most

important.

The first issue would be I guess under the umbrella of systems

and data integrity and personnel in the systems area.

In the area of student financial assistance programs, we really

have many of the characteristics of a good commercial bank. We

make a lot of loans or we guarantee a lot of loans. In fact, our portfolio each year increases about $40 billion, for a current total portfolio of about $110 billion that we either own through the direct

loan program or guaranteed through the FFEL program, so we are

very much like a bank.

As a former private sector bank consultant, I know a little bit

about the banking industry, and banks are becoming more and

more like technology companies. And the more—the better a bank

is in technology in dealing with data and dealing with information,

the more successful they are.

So I’d like to kind of draw an analogy. If the Department of Education in some instances is a lot like a bank and a successful bank

is a good technology company, the Department of Education, to be

the most efficient and effective, should have a lot of characteristics

of a good technology company. We should have well-integrated,

well-designed systems to provide timely, accurate, and complete

data. And you need the people power to make that happen. And

that would start with a strong chief information officer.

This will come as no surprise to anyone, but the Department has

a long way to go before they would be recognized as an outstanding

technology company. And we believe there is a lot of effort that

needs to be put in that area. It is a formidable task, though.

I was reading an article just a couple of weeks ago that said in

the Washington, DC, area there is a shortage of over 18,000 technical people, systems people. There is a huge shortage in the Washington, DC, area, and being in the Government sector, that shortage is probably even more acute.

So it is a formidable task that the Department has to get us up

to strength in the human resource effort but one that we really

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need to have a concerted effort to make sure that we have the best

technology people that we could possibly have. So systems is a very

important area, and we spend a lot of time in our written testimony talking about the importance of that.

The last time I was here, you may recall, I addressed the vocational school situation, and I just want to highlight two things I

highlighted last time. One is we believe that differentiation should

be made between the way that trade schools, non-degree granting

schools are regulated and the way a 4-year institution is regulated,

and we just wanted to emphasize that again. We also want to emphasize the fact that we believe that non-degree granting programs

need to have performance measures. We believe that there ought

to be regulated performance measures.

We have emphasized what we call the 70/70 where we believe at

least 70 percent of the folks that start a trade school should graduate and 70 percent of those ought to have jobs. And I think those

ought to graduate with jobs, and we believe those ought to be the

minimum standards, and you have heard us talk about that before.

Another important area has to do with a report that we have

issued very recently. It has to do with matching income levels on

the applications for student financial aid to what people put on

their tax returns and the information that the IRS has. Currently,

we do not and cannot verify the student loan application information with the IRS.

We did do an aggregate audit within the last year and we found

that in 4 percent of the instances, there was an understatement of

income if you compared what the IRS has and what is on the application. In 4 percent of the cases our students said their income was

less than what they reported to the IRS. And I am a strong believer in privacy. I am a CPA and a strong believer in income privacy. But I do believe that if you are getting Federal money, that

the Department, with all the safeguards that are necessary, ought

to be able to match an individual’s adjusted gross income on their

tax return to what was submitted in application.

The law here, I guess, is fairly complicated, but I believe there

probably needs to be a legislative fix to get the IRS on top of that.

The last thing I want to mention is the year 2000 problem. You

have probably heard others talk about it. I don’t think the Department of Education is in any worse shape than any of the private

sector companies or the other Government Departments, but it is

important. It is something we need to focus on. It is something that

the Department needs to focus on and it is something that we will

be keeping our eyes on. Those are my comments for the oral testimony.

Mr. SHAYS. Thank you very much.

[The prepared statement of Mr. Bloom follows:]

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Mr. SHAYS. Ms. Blanchette.

Ms. BLANCHETTE. We are pleased to be here today to discuss

challenges the Department of Education faces in carrying out its

mission.

To begin, I’d like to focus your attention on two charts that we

have brought to set the context for our comments.

Mr. SHAYS. Can you hold on 1 second? Might I interrupt your

statement, I am deciding whether we quickly vote now. We have

10 minutes. Is your statement about 10 minutes?

Ms. BLANCHETTE. It is shorter than 10 minutes.

The SHAYS. Then we will hear you out and go vote.

Ms. BLANCHETTE. As shown in the first chart to my right, more than $500 billion a year is spent on education in the United States,

with the Department and other Federal agencies contributing

about 9 percent of the total. The 9 percent does not include Federal

student financial aid. That aid is in the ‘‘all other’’ category.

The importance of education to the well-being of the Nation is reflected in the second chart to my right. It shows the link between

education and employment. The higher the level of education, the

lower the unemployment rate.

This morning I will discuss two major challenges the Department

faces in striving to achieve its mission. First, ensuring access to

postsecondary institutions while protecting the financial interests

of the Federal Government; and second, promoting access to and

excellence in elementary, secondary, and adult education. My discussion is based on work we have done over several years.

The postsecondary student aid programs make available billions

of dollars in loans and grants to promote access. However, access

is becoming more and more problematic, particularly for low-income students as the cost of attending college increases.

For example, a public college education has become less affordable in the last 15 years, a period during which tuition has risen

nearly three times as fast as household income. Students and their

families have responded to this affordability gap by drawing more

heavily on their own resources and greatly increasing their borrowing.

A growing proportion of Federal student aid for postsecondary

education has been through loans rather than grants. Policymakers

have expressed concern that this trend in financial aid patterns

has diminished college access for low-income students. Work we

have done on the relative effectiveness of grants and loans in helping students stay in college until graduation indicates that this

concern may be valid.

While the Department’s student aid programs have provided millions of students access to postsecondary education, the Department has been less successful in protecting the financial interest

of U.S. taxpayers. Student aid programs still suffer from complex

processes, structural limitations, and management weaknesses. In

fiscal year 1996, for example, while the Department made more

than $40 billion available in student aid, the Federal Government

paid out over $2.5 billion to make good its guarantee on defaulted

student loans. Student aid programs have many participants and

each program has its own complicated, cumbersome processes. Further, with both the FFEL and direct loan programs, the DepartVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00349 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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ment has two programs that are similar in purpose but operate differently.

Structural limitations are twofold. First, the Federal Government

bears almost all the risk for loan losses, and, second, the loan programs now have more high-risk students who are from low-income

families who attend proprietary schools than in the past. While

both circumstances increase access, they also jeopardize the Federal investment.

Management weaknesses include: (1), not adequately overseeing

schools that participate in the program, thereby allowing extensive

fraud, abuse, and mismanagement; (2), managing each program

through a separate administrative instruct with poor or little communication among programs; and (3), using inadequate management information systems that contain unreliable data. Both the

Congress and the Department have made changes that have likely

resulted in some improvements; however, these changes have not

been sufficient to resolve the Department’s difficulties in managing

the student aid programs.

In promoting access and excellence in elementary, secondary, and adult education programs, the Department provides over $11 billion. The challenge for the Department in this arena is ensuring

that these programs are providing the intended outcomes. To do

this, the Department must make sure the programs have clearly

defined objectives and that it has complete, accurate, and timely information about the programs’s operations. In some circumstances,

the Department doesn’t have these prerequisites.

The possible second challenge involves the proposed partnership

to Rebuild America’s Schools Act, which if enacted would be administered by the Department. If this proposed solution to the Nation’s

school facilities problem is enacted into law, the Department’s challenge will be to ensure that the Department has qualified staff to

administer the program and financial and information management systems to provide complete, accurate, and timely operational

data.

To meet its challenges, the Department must adopt improved

management practices, the Results Act, the expanded CFO Act, the

Paperwork Reduction Act, and the Clinger-Cohen Act provide powerful tools in the form of a statutory framework for improving

agency operations and accountability. The Department has made

progress in implementing these laws but work remains to be done.

Mr. Chairman, this concludes my statement. I will be happy to

answer any questions you or any members of the subcommittee

have.

Mr. SHAYS. Thank you.

[The prepared statement of Ms. Blanchette follows:]

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Mr. SHAYS. This is a challenge. I have a feeling that this is going

to be a weird day because this is a motion to adjourn. I think this

may be the only vote but there may be other motions to adjourn,

so I am hoping we will be back in 15 minutes, but if we are not,

we will try to call up and give you an idea. We are in temporary

recess.

[Brief Recess.]

Mr. SHAYS. Sorry for the delay. I thought there was going to be

a second vote. What do I know? We will start with the vice chairman.

Mr. SNOWBARGER. Thank you, Mr. Chairman. I am hoping that

I can formulate this question correctly.

I have always had some concern about the heavy involvement of

the Federal Government in these student loans, particularly in direct student loans. And that concern has been on two fronts. No.

1, can we do it efficiently? No. 2, are we interfering, perhaps, with

the private sector; are we competing with the private sector?

I was just able to read the beginning section, the overview of this

report, and glanced through the testimony that you provided in

writing, and very frankly, my questions have not been answered.

In fact, my questions have been heightened. And my concern is,

can the Federal Government be effectively involved in these programs given the fact that it requires a massive amount of data

gathering, analysis? Sooner or later we have to get into probably

collection efforts, on and on. I mean, can we do this efficiently? Are

there better ways to do it?

Ms. BLANCHETTE. I guess we can both take a stab at it. I’ll make

a couple of points and then turn it over to the IG and then perhaps

Mr. Eglin, our Assistant Director, who handles most of our higher

education work would have some further comments.

A couple of observations, the Department spent a lot of effort,

dollars and staff years, I’m sure, in terms of giving special focus to

the direct loan program. And one of the comments and observations

we made earlier in testimony was that perhaps it was to the detriment of the guaranteed student loan program. Because of that

focus, the Department has actually done a pretty good job to date.

Second observation: A lot of the activity involved with direct

lending is actually done by servicers under contract, not directly by

the Department: Servicers collect loans; service the loans while the

student is in school; and do other activities that you would think

the Department does because of the nature of the program but it

is done under contract to the Department. And so that makes up

for some of the perhaps shortfalls of the Department if it had to

do those things.

Mr. BLOOM. I would certainly agree with those comments. But let

me start and say that the FFEL program, which is a guaranteed

student loan program, was severely broke 5 years ago, 6 years ago.

And so something dramatic needed to be done.

The good news about the direct student loan program is that it

has focused the FFEL program to become a much, much better program. It concerns me that it took kind of what I think of as a dramatic move to get this old legislative program, which at the last

hearing I think I showed you how it worked. It is a very cumbersome program. But they have come a long way. The FFEL proVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00370 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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gram has come a long way with the added competition of direct

loans.

The GAO is right. There was a lot of emphasis placed on the direct loan program and it has come up reasonably well and reasonably efficient, but not as efficient as it could be if this was a technology company.

So I guess we are better off now than we were 5 years ago, and

I think most people would agree to that. Whether that’s ideal or

not, that’s a good and fair question, one that could be debated on

a lot of different fronts.

Mr. SNOWBARGER. Well, both of you said in one way or another,

we are doing a good job or we are doing a much better job. Who

is ‘‘we’’? What are we referring to? Are we talking about both loan

programs? Are we talking about the direct loan program versus the

guaranteed loan program? Who is doing a good job?

Mr. BLOOM. Well, let me take a stab at it first. The guarantee

loan program, particularly the guarantee agencies and the lenders,

have really started to clean up their act. Let me back up and say

that for a 1995 audit, the audit of the Department’s 1995 financial

statements, we got a disclaimer of opinion. We, the Department of

Education, got a disclaimer of opinion because of how bad the data

was in the FFEL program, the old program.

Now, remember that’s old information, that’s 1995. But that is

pretty dramatic. And those weren’t the only problems in the FFEL

program, but I think that it is kind of indicative of the data gathering problem that the guarantee agencies had and that the Department had to get that information.

Things have gotten much, much better. Competition is a wonderful thing sometimes, and in this case, the direct loan program has

been a wake-up call for the banks and a wake-up call for the guarantee agencies. And part of that—because of that competition, I believe the programs are better today. Now, whether that’s the best

way to do it going forward, interesting debate.

Ms. BLANCHETTE. I would concur, and I will allow Mr. Eglin to

add.

Mr. EGLIN. I think that I agree that the competition, I think, has

been good because it has allowed the guaranteed program and the

participants, the lenders and the agencies, to be much more efficient.

Also, as you know, the Congress has kind of tweaked some of the

subsidies that were provided to the lenders and the guaranty agencies under the FFEL program, and what that has done, I think, is

kind of more of a consolidation within that program to make it

more efficient.

The question still remaining is which is the best, and I think

there’s a lot of interest in that. There are some studies under way.

The Department has a major study under way that is looking at

many elements of the direct program in comparison to the FFEL

program to see which one is delivering—which have been more efficient.

Mr. SNOWBARGER. Again, I don’t doubt the benefit of competition

and what it’s going to do. I just question who the competitor ought

to be.

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The other question I have is about the inefficiencies of the guarantee programs: do you have some feel for the reasons for the inefficiencies? Was it the regulations that were placed on either the

lenders, the schools, whatever? Or did it come from the Department not being able to follow through and followup on compliance?

Mr. EGLIN. It’s probably a little of both. As we point out in the

high-risk report, part of it is the structure in which the program

was established. And it was established almost 30 years ago and

things are a lot different than they were then. And there is a lot

more electronic information that can be processed much quicker.

We don’t need to have lenders as close to schools and students and

parents as we did 30 years ago, so there are a lot of things that

have changed.

And the fact that we depend on lenders and guaranty agencies

to keep our books contributes to some of the problems with the financial statements. By the time it gets to the Department there is

a lot of validation that needs to be done. Some of the agencies and

some of the lenders, not necessarily deliberately, the information is

tough to be validated and that has contributed to a lot of our problems.

So with that structure with thousands of lenders and 50 guaranty agencies, plus all the schools and students, that’s a lot of folks

participating in the FFEL program. There is a lot of money involved, and a lot of small transactions. A lot of $2- and $3,000

loans. It is not like $100- and $200,000 mortgages.

Ms. BLANCHETTE. To add to that, in that environment, as Mr.

Bloom indicated and as we reported in our high-risk report and as

I mentioned this morning, the data systems are horrendous. Not

only do the different systems not communicate with each other or

allow the Department to communicate across programs, in many

instances there is no way to detect errors. And so with the many

players and small-dollar transactions with different systems for different programs not communicating with one another, it just adds

to the problem.

Mr. SNOWBARGER. Are there things that we need to do legislatively to change the way that the system operates or are those internal within the Department?

Mr. EGLIN. Well, it is probably a little of both. I think the Congress has provided a lot of guidance and made a lot of changes to

the statute, almost annually. And it’s—it probably has contributed

to some of the structure that the Department operates within. And

conversely, as I think we also point out in the high-risk report, the

Department in how it manages it, the data systems, as Ms.

Blanchette mentioned, as well as some of the other problems, contribute to this. So it is not an easy fix. And I think what the competition between the two programs has done has allowed efficiencies to surface because of the fact that they were competing

with another program.

Ms. BLANCHETTE. And to add to that, with improvements in financial systems and the information systems, some of the problems

would be reduced, if not eliminated. Now that’s not an easy effort

and it takes a long time.

Also, as we said in our statement for this hearing, with adherence to legislative mandates such as the CFO Act and the ClingerVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00372 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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Cohen Act with respect to technology, and the Results Act, if the

Department can garner the discipline that those acts require, and

do the things that they should be doing under those acts, then it

should be able to improve the financial aid program substantially.

Mr. BLOOM. Again, I agree with just about everything said there.

You asked what you all might do, what Congress might do. I think

we need to look at the role of the guaranty agencies. And I guess

to draw the picture, you have thousands of financial institutions

and banks making loans and they work through I think it is 37 or

39 guaranty agencies. And all the guaranty agencies have different

systems, different ways to format the data. I think we have to look

at what guaranty agencies do, whether we need so many of them.

Again, I’m a big believer in competition, but you know there are

37 of them. They don’t really compete against each other. Maybe

we need significantly fewer guaranty agencies. It is a pretty hot political issue, though.

And then you asked has the Department—could the Department

have done a better job? I think the Department could have rode

hard on the guaranty agencies much more than they have, particularly I think in the last 10 or 15 years to get the data, to force

them to get the data. The interesting thing about the 1995 audit

is that it really was a catalyst to get the guaranty agencies to work

with the Department, and their association, NCHELP, has been

very interested in working with us to make the data better because

they now see that it is in their better interest. There hasn’t been

enough pressure put on by the administration and we do have

somewhat of a flawed design that you in Congress could take care

of.

Mr. SNOWBARGER. Let me follow up. Specific suggestions for legislation? You said that there are plenty of things that we could do,

and that is nice, but I still haven’t heard anything specific that we

can do that you are proposing.

Mr. BLOOM. Well, I’ll—I’ll give you—there are three specific

things in my testimony. They don’t all relate directly to direct lending, but I’d like to get them to the record again. One is the IRS

match. Give us the ability to get in and check our records with the

IRS records. Very important to us.

The other is performance measures for schools. There are bad

schools out there that aren’t educating these kids. Let’s legislate

mandated performance measures. Seventy percent graduation rate.

Seventy percent placement rate.

And the third thing would be separate regulations for the trade

schools. The nondegree granting schools ought to be regulated differently than a 4-year university. Harvard shouldn’t be regulated

the same way as the Steve McNamara School of Beauty. They are

different entities. I made that up. There is not——

Ms. BLANCHETTE. We were going to look into that, Steve.

Mr. SNOWBARGER. Let me go back to the IRS match. We have

gone through the process of applying for student loans for a child.

Mr. SHAYS. You personally?

Mr. SNOWBARGER. Me, personally. Yes. Me personally on the line

for these things, too. I know I had to give an awful lot of information, including at least 1 year’s tax returns, if not two.

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Are we assuming that people are giving fraudulent tax returns?

I find it hard enough to fill out a form once, much less going back

to fill out an IRS form the second time to defraud someone.

Mr. BLOOM. Well, they have. There are many people who have

come up with fake 1040’s. In fact, there have been ‘‘marketing companies out there that have been in the business of producing fraudulent tax returns.’’ So that’s a big issue.

The other thing is, and I don’t know whether it’s the regulations

or the statute, we only ask for verification—it is a sample. It’s 30

percent of the students actually have to bring their tax returns in

for verification. It would just be so much easier if we could, we the

Department, could send over the list with the adjusted gross income number, the social security number, and the name over to the

IRS and the IRS could kick back those that don’t match within a

certain tolerance. We wouldn’t want all the ones that are $1 off or

$10 off, but they could send back the nonmatches so that the population that we would be looking at would be relatively small and

there would be good reason for looking at it.

As I said in my oral testimony, I am a big believer in privacy,

and the Privacy Act, and privacy of our tax returns. But I think

it is different when you are asking for Federal money. We ought

to take whatever steps we can to ensure as much privacy as possible. But I do believe that match ought to be made.

Mr. SNOWBARGER. Is that perhaps just as simple as having them

sign a release?

Mr. BLOOM. This ends up being a fairly complicated question

with the IRS. There are some folks that believe that the IRS could

now do it, but there are folks at the IRS that believe that maybe

they can’t. It is a real tickling legal question. Steve.

Mr. MCNAMARA. We currently have a program called the Income

Contingent Repayment Program in Direct Loans which makes people make payments on their loans according to their income and

their ability to repay. To get into that program now you have to

sign a waiver so that the IRS can tell us your income. So it would

be probably something similar to what we currently have under

ICR.

What we found was that a lot of people lied. We had several people, four or five or six, who made somewhere between $300,000 and

$1.6 million and they said that they didn’t file a tax return. And

so in our audit we turned up a lot of folks that made a lot of money

that said they didn’t file or didn’t make any money. This would

protect us from that.

Mr. SNOWBARGER. Well, I hear you saying that at least for some

programs you ask for that waiver to be signed, and the IRS is not

cooperating with that? Or——

Mr. MCNAMARA. No, they are cooperating with the Income Contingent Repayment match. But that’s only for that program. We

don’t have the authority—IRS is very reluctant to give anybody any

information.

Mr. SNOWBARGER. They may become a little more compliant here

in a little bit if they’re still around.

Thank you, Mr. Chairman.

Mr. SHAYS. I thank the gentleman.

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I have a number of questions and I just want to preface it by saying that the purpose of this hearing really is to educate the staff

and your testimonies give a lot more detail and we are going to followup on it. But I am just wrestling in general with a number of

different issues. I would like both of you to tell me where the Department is most vulnerable to waste, fraud, and abuse.

Ms. BLANCHETTE. Where in terms of which programs?

Mr. SHAYS. Yes. Just emphasize again where you think it is most

vulnerable to waste, fraud, and abuse.

Ms. BLANCHETTE. Well, of course the postsecondary financial aid

programs as a general category.

Mr. SHAYS. That was the one that I really highlighted in my

opening statement, because it seems to me, one, it is both in terms

of process, but also in terms of the amount of dollars involved.

Would you agree with that, Mr. Bloom?

Mr. BLOOM. Yes, absolutely. That’s where we spend almost 75

percent of our time in the IG’s office looking at student financial

assistance.

Mr. SHAYS. How much of the total amount of the Department of

Education’s budget is in higher education loans and grants?

Mr. BLOOM. Well—half. Plus remember we have the guarantee

portion—the guaranteed financial loans that are kind of above and

beyond. That’s a contingent liability and $40 billion a year goes out in that program, but of course we only pay out $2 billion a year

in guarantees.

Mr. SHAYS. $2 billion, is that covering losses?

Mr. BLOOM. That’s the losses. Not net of recoveries, but the gross

loss number.

Mr. SHAYS. And then we recover some?

Mr. BLOOM. Yes. In fact, recently we have been recovering almost

as much as we have been losing. But that’s—remember, we are

collecting—— Mr. SHAYS. You have a big pile.

Mr. BLOOM. You have a big pile from which you are collecting

from and at some point that pile is going to dwindle.

Mr. SHAYS. Let’s just take higher ed, loans and grants aside, and

then tell me where the biggest area of potential waste, fraud, and

abuse is.

Mr. BLOOM. I guess this probably relates to student financial aid

to a certain extent but it really is the systems area. The other programs tend to be pretty straightforward grants out with pretty

good controls in a lot of instances.

Mr. SHAYS. I will get back to the chief information officer, because I want to pursue that a second.

Ms. Blanchette.

Ms. BLANCHETTE. I’m hard pressed to identify a particular program, but I will say—and there are certainly lots of probably programs that we haven’t looked at in detail but for the few that we

have over the course of a number of years, the problem with accountability is the nature of the beast. So to speak, education. We

have the Federal Government supporting education in this country,

but the responsibility lies with States and the control is at a local

level. So even when Federal funds are used to help disadvantaged

populations——

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Mr. SHAYS. You are not always sure how it is spent.

Ms. BLANCHETTE. We are not sure how it is spent and that is by

design.

Mr. SHAYS. So what I am hearing you say is that if there is a

grant application, you look at the grant, the grant makes sense,

but there is a lot of flexibility in how the grant is spent and not

necessarily tremendous oversight.

Ms. BLANCHETTE. Right, absolutely.

Mr. SHAYS. Isn’t there another problem in the Department that

you have a lot of small grants without any critical mass?

Ms. BLANCHETTE. That’s right.

Mr. SHAYS. There are some grant programs that are not funded

that are on the books. I remember we eliminated a number of

them, and I remember the political heat that we took for it and

they hadn’t been funded for years. But it didn’t matter because

they had some great sounding names and it sounded like I had lost

my mind in not wanting these programs to continue. So one would

be a concept of critical mass, a lot of little programs and a lot of

oversight.

Have we ever taken a look at some of these smaller programs

and figured out the administrative costs versus how much actually

gets out into the field?

Ms. BLANCHETTE. We looked in general in terms of the money

that goes to SEAs, and I’ll let Eleanor Johnson talk about that because she led that effort.

Mr. SHAYS. She is looking at you like she doesn’t want to.

Ms. JOHNSON. I have my magic pin.

We did look on some very small studies at Chapter 1 several

years ago and we looked how the money was spent on the local

level. Seventy-three percent went right to the classroom directly.

There was another, I believe, 18 percent that went for support

services of various sorts and only 10 percent went to administration.

Generally, there is a specific amount, a specific percentage of the

grant which is set aside for administrative purposes. To our knowledge, there has not been a case where more than that amount has

actually been spent on administrative things and not gone to the

classroom.

Mr. SHAYS. The Chief Financial Officer has been around for how

long now?

Mr. BLOOM. The Chief Financial Officer Act was a 1990 act.

Mr. SHAYS. Right. But how long have we had a Chief Financial

Officer?

Mr. BLOOM. Since 1991.

Mr. SHAYS. Some departments took a heck of a long time. Have

you seen a positive impact of having a Chief Financial Officer?

Mr. BLOOM. Absolutely. Of course, I was a Chief Financial Officer at a department.

Mr. SHAYS. Well, you are disqualified.

Mr. BLOOM. I think it has been a tremendous impact. I think everyone would say the Chief Financial Officer Act has been a tremendous success.

Mr. SHAYS. Ms. Blanchette, would you say tremendous or just a

success?

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Ms. BLANCHETTE. Well, I am not within the group at GAO that

looks at implication of the Chief Financial Officer Act, so I don’t

know that I would want to distinguish between the successful and

tremendously successful.

Mr. SHAYS. Wouldn’t you come in contact with the Chief Financial Officer in your work?

Ms. BLANCHETTE. GAO does, yes, and I would imagine—Mr.

Eglin is over here saying yes.

Mr. SHAYS. And do you have any opinion whether it has been a

good positive or strong positive?

Ms. BLANCHETTE. I will let Jay answer this, but of course it has

been positive because you have someone focusing on the financial.

Mr. SHAYS. Not necessarily. I don’t make that assumption nor do

you actually, right? I mean, the intent is good and so on, and so

it would be logical, but I don’t know if it is really working.

Ms. BLANCHETTE. Right.

Mr. EGLIN. I think that in the student financial aid area it has

made a significant impact on making some improvements. As we

have talked, there were a lot of problems with data integrity and

accuracy in the data systems, and I think the Office of the Chief

Financial Officer has done a lot to build that organization up and

build up the systems to complement that.

And as Mr. Bloom mentioned earlier, the Department has a set

of financial statements together and however they may not have

been able to get a clean opinion, that was pulled together. It has

come a long way in the last couple of years, and I think we have

seen the CFO has had a lot to do with that.

Mr. SHAYS. The Chief Information Officer does not yet exist in

the Department of Education, correct?

Mr. BLOOM. Actually, there is an Office of Chief Information Officer. They had named an acting chief information officer. I think he

took that position in July 1996. Now Leo Kornfeld was the fellow

who occupied that chair. Leo left earlier this month. He resigned.

He retired. That position is now vacant. It is a very important position.

Mr. SHAYS. We had one of the other departments that combined

the CFO and the CIO, and I think that goes contrary to the intent

of our legislation. I am not sure but I suspect that someone in that

position in the private sector would be making a quarter of a million dollars.

Mr. BLOOM. At least.

Mr. SHAYS. And just imagine how amazing it is to think in terms

of the Department, the Social Security Department, the incredible

information systems they have there, and their inability to compensate someone in a way that would be commensurate with the

kind of benefit they could provide to the entire Nation.

So I guess I am going to ask this question: Do you think that the

Department is taking seriously the intent of our legislation that we

really want a chief information officer and we want someone who

is full time and who is going to be there a while?

Mr. BLOOM. Well, I believe they are certainly interested. I’d like

to see them——

Mr. SHAYS. Interested? Everybody is interested.

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Mr. BLOOM. I’d like to see that level of interest heightened on

that part. I would like to see them—and it may cost a few dollars— to hire a recruiting firm or whatever circumstances you need to

find that person who wants to do some good government service.

Many of us have taken pay cuts to serve in these positions, and I’d

like to see a concerted effort to find that chief scientist from IBM

or someone from Apple that would see this as a challenge.

But you really have to have heightened interest to make it happen, and I think it takes secretarial involvement. When a secretary

of a Department of Education calls you up and asks to you take

a job, it’s kind of hard to say no.

Mr. SHAYS. The Government Performance and Results Act? Is it

being taken seriously by the Department of Education?

Mr. BLOOM. I think the short answer is yes. In certain parts,

they are doing a really good job on that, particularly the strategic

plan side. They came up with a strategic plan earlier than was

called for in the legislation. Actually, they were one of the first to

have a strategic plan.

They are in the process of completing their performance measures. They’ve asked us to take a look at them, and they’ve asked

us to use a critical eye to make sure they’re measuring the right

things and they are going to measure them in the right way.

You know, I think they’ve got a good start. Again, it is one of

those things, we need to keep their interest, and we need to keep

focused on it, and I think the Congress ought to continue to ask

those questions and put the pressure on them. We are going to continue to ask those questions because, again, you have heard me say

what you measure you get, and I really believe that we need to

measure.

Mr. SHAYS. Now, I basically have a few more questions. Do you

have any more, Vince? OK.

Getting to higher education loans—excuse me, let me just ask

you about Head Start. There was a concern on the part of Congress

that we were putting more money into the Head Start program

than the communities were able to absorb. Did you have any sense

that that was happening or a concern that that might be?

Mr. BLOOM. That’s not anything that—I don’t know the answer.

Mr. SHAYS. It is actually HHS. I’m sorry. It’s HHS. Head Start

is an HHS program, and you would not—even though I view it as

education, this would not—you would not interface with this in any

way.

Mr. BLOOM. We haven’t in the past. It is a good question, whether we should or not.

Mr. SHAYS. One of the things we learned which was really shocking to us is that 49 percent of all the education programs in the

Federal Government are outside the Department of Education.

Which tells you that various chairmen of various committees wanted that education program and since they didn’t oversee the Department of Education they just put it in their own department.

But if we were really intending to have a Department of Education

it would strike me that we would bring some of these education

programs all in one area.

Let me conclude on this last point, and that is we had an amazing hearing—I thought it was amazing. But we had a hearing that

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basically left me dumbfounded that we would have spent $750 million in 1 year for a school of cosmetology program. Are we finding

that the money just goes where the proprietary schools manage to

get students? If you told me we should be putting $750 million in

student loans in cosmetology or to help fill the void of high-tech

needs in the greater DC area, there is no contest to me. Considering that half the students in cosmetology never end up doing cosmetology.

Mr. BLOOM. That’s an excellent point that really supports our

saying if you put measurements on these schools for graduation

rates and placement rates, then the job marketplace would determine where the students are.

Right now, it is whoever is out there—whoever has got the best

rope to rope in the students. Stay home some afternoon and watch

what’s on TV. Who’s got the commercials on TV? It’s the proprietary schools. It’s the trade schools, the cosmetology schools.

Mr. SHAYS. Your point to the committee is that if we want ultimately for it to go to where we might consider there are great national interests, that the mere fact requires that a certain percent

have jobs will begin to kind of focus some money in those areas.

Mr. BLOOM. We believe that strongly.

Mr. SHAYS. Mr. McNamara, did you want to comment?

Mr. MCNAMARA. Absolutely. Mr. Chairman, we testified a couple

of years ago when we put out what we call the Hair MIR or the

Cosmetology MIR; and basically what that said is what Mr. Bloom

just said. That, right now, we make money available to students to

go wherever they want to go; and unscrupulous schools that don’t

offer an education can get them in their program, leave them with

no education and no way to pay back their loan; and millions and

millions of dollars can be going to places where it doesn’t do any

good.

What we recommended then is by simply putting measures on

that that will require them, in effect, to be real schools, it should

radically change the student aid program.

Mr. SHAYS. Is there a question that you wish we had asked?

And some of those who have accompanied the Inspector General

and GAO, if you all would like to just make closing comment. I

learn a lot from those who just sit and listen.

Ms. Johnson, do you have any closing comment you would want

to make?

Ms. JOHNSON. We have been spending the last 3 or 4 years not

really looking a lot, as far as elementary and secondary education

is concerned, at the Department programs. We have spent most of

our resources gathering basic information about some of the needs

in education finance around the country.

The question that really comes to my mind, do we know that the

programs are getting the money to the place where we intended it

to go? When I looked at some of the very excellent strategic plans

that the Department has put out and also what they’re looking at

in terms of analysis, they’re looking at a lot of program effectiveness, but they aren’t necessarily looking at the financial management that goes along with that, except in very specific instances

like bad data. And because I am with GAO and, therefore, financial

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management is close to my heart, that is one of the questions that

I would ask.

Mr. EGLIN. I think most of the issues on the student financial aid

side have pretty well been documented by the high-risk report that

we issued, and that speaks for itself. I think those are issues that

are still dear to our heart, also.

Ms. VAN RIPER. We say in investigations that our work begins

when other people’s work ends, and the majority of our work in investigation is centering on the trade and the technical schools with

the short-term programs.

I would also second what has already been said about performance measures. We have a case inventory of about 325 major complex investigations, 67 percent of which are of the larger entities

like banks, guaranty agencies and schools. All of the school investigations are trade and technical short-term programs. Performance measures would go a long way in handling some of the fraud

and abuse that we are seeing in student aid programs.

Mr. MCNAMARA. I don’t have anything. Thank you, Mr. Chairman.

Mr. SHAYS. Mr. Bloom or Ms. Blanchette, do you have any closing comments?

Ms. BLANCHETTE. I would just emphasize a point we made— great time for my voice to go out; right? I would like to emphasize

a point we made in our statement and that I made in my summary

of the statement.

The problems that the Department has in terms of its managing

not only its higher ed programs but some of its elementary and secondary programs as well stem from I think a lack of discipline in

management. It’s not because there are people there necessarily

who don’t want to do a good job or who want to defraud anyone,

but they come to work every day, and they probably spend their

time putting out fires and taking care of problems rather than having systems in place that allow them to make sound, rational management decisions.

And with improved technology, as Mr. Bloom indicated, and with

some of the processes that have come into place because of recent

legislation that we have mentioned here today, that discipline is

going to be imposed on the Department as well as other Federal

agencies. And if those systems remain in place and if oversight continues and, therefore, gives the officials an incentive to keep things

in place, then I think things will improve. But in the absence of

processes and systems that allow competent people to do their jobs,

things aren’t going to get a whole lot better.

Harriet.

Ms. GANSON. Yes, just in terms of what you were saying about

what the committee could do, I think that what you have done in

terms of the Results Act and the Clinger-Cohen Act has provided

the framework for improvement. Part of the GPRA is to have consultations with Congress.

This is a good opportunity for the committee to talk with the Department of Education about the strategic plan, about their performance measures, and about the financial management issues

that Ms. Johnson talked about. I know that the Department has

started the process of meeting with the committees and subcommitVerDate 11-MAY-2000 10:51 Jun 27, 2002 Jkt 010199 PO 00000 Frm 00380 Fmt 6601 Sfmt 6602 W:\DISC\40431 pfrm11 PsN: 40431
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tees about their performance plans and getting input in terms of

what those measures should be.

Mr. SHAYS. You just really triggered something that I was thinking that this committee should do and a number of us should go

and meet, Mr. Towns, with the Secretary in an informal way, in

their offices, and have them tell us where they’re headed and get

a sense that way of what they’re doing, and then have a more formal hearing later on. I think that would be really interesting.

I thank you for your contribution, and I would say to you that

the Department of Education did not get as much attention from

our committee in the past years as I think it will get in the next

2, so we look forward to our paths crossing a little more often.

At this time, I am going to call our next and last panel. It is Beverly Sgro, secretary of education, Commonwealth of Virginia— please remain standing, and we will swear you in—and Paul

Steidler, director of education reform project, the Alexis de

Tocqueville Institution.

Do you have anyone accompanying you or are all on your own

here?

Mr. STEIDLER. No, I do not.

Ms. SGRO. No, I am on my own also.

[Witnesses sworn.]

Mr. SHAYS. Thank you very much.

STATEMENTS OF BEVERLY SGRO, SECRETARY OF EDUCATION,

COMMONWEALTH OF VIRGINIA; AND PAUL STEIDLER, DIRECTOR OF EDUCATION REFORM PROJECT, THE ALEXIS dE

TOCQUEVILLE INSTITUTION

Mr. SHAYS. Why don’t you, Mr. Steidler, just tell me what your

institution is and where you’re based; and then we will go with Ms.

Sgro.

Mr. STEIDLER. Yes. We are a think-tank based in Arlington, VA,

that focuses on a number of issues; but education is one of the largest.

Mr. SHAYS. OK. Welcome.

Ms. SGRO. Thank you.

Mr. SHAYS. You didn’t have far to come, did you?

Ms. SGRO. No, I didn’t. I came from Richmond and did a little

other business while I was here this morning. No moss grows

under our feet, sir.

It is a pleasure for me to be here with you, Mr. Chairman and

members of the subcommittee. I want to start with giving you a little brief introduction of Virginia, because I think it is very pertinent to what you are attempting to do today.

In Virginia, we have seriously addressed the issue of educational

reform to meet the needs of all of our students in the Commonwealth. We accomplished a great deal with the support of our citizens and without the interference of the Federal Government.

We believe, as do the citizens of this great country, that education is primarily a State function. The March 14, 1997, Wall

Street Journal/NBC news poll reinforces this position. The poll indicates that almost half of Americans believe that the primary responsibility for education still rests with the States and local governments, a quarter see State government as having the primary

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responsibility for education reform, and only 13 percent think the

Federal Government should play a major role.

Virginia has established high academic standards that are measurable and understandable; Statewide tests that assess student

performance on those standards; a system of accountability that

ties school accreditation to student performance; and a system of

public reporting that will provide the public with information on

how we are progressing toward those standards at the school,

school division, and Statewide level.

The American Federation of Teachers recently reported that Virginia, and Virginia alone, received an exemplary rating for its

standards in the four academic subjects of English, math, science

and history. We involved over 5,000 citizens representing teachers,

school administrators, parents, business persons, the State Board

of Education and educational experts in this community effort by

civic-minded individuals who volunteered their time. This process

is in stark contrast to the failed efforts of the Federal Government

that contracted with revisionist historians at the University of

California at Los Angeles to produce a set of national history

standards at a cost of $2.2 million.

Virginia has accomplished these important educational reforms

in 31⁄2 years with no Federal funding. Governor George Allen and

the citizens of Virginia believe that education is one of the most important responsibilities of State government, and we believe that

we can continue to make progress without the excessive and sometimes inappropriate involvement of the Federal Government.

I believe the role of the Federal Government should be limited

primarily to two areas.

The first is funding and coordinating the collection and dissemination of useful data that can be used by State policymakers to

compare their State relative to other States. The U.S. Department

of Education and other Federal agencies are in a unique position

to collect, collate and distribute data relative to education and demographics that are helpful to policymakers. While this is an important function of the U.S. Department of Education, often the

data is not published in a timely manner. Its usefulness is greatly

decreased. If the Department were not attempting so many other

programs, it could produce these reports in a more timely fashion.

Second issue I think is important for the Federal Government is

one that’s kind of interesting since you have just had a very

lengthy discussion on student financial aid. But I am still going to

say that thing is a role that the Federal Government should be

playing. However, I will add the caveat that I think it can be done

much more efficiently and certainly in a more effective manner as

well.

College student financial aid has been relatively successful for

students because these programs are established to provide loans

and grants directly to students. In fact, these programs should be

and probably are a good example of vouchers to students. It is important to have these programs administered from the Federal

level since it gives students greater flexibility and greater choice.

Attending out-of-State institutions is possible because the money

can follow the student. In fact, it would be advantageous if Federal

aid to public education were distributed in much the same way for

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students—a specific amount per student could be allocated to each

State. And the money would follow the student no matter where

the student attended school—be it a charter school, a public school,

or other type of facility.

But all of us know, the reach of the Federal Government extends

well beyond these two functions. Its role extends well beyond its

contribution.

Since inception, the budget of the U.S. Department of Education

has doubled; and, at the present time, there are 760 Federal education programs in 39 different departments and agencies.

A compelling example of the disproportionate role of the U.S. Department of Education is illustrated by its involvement in special

education programs. When the Education of the Handicapped Act—

now the Individuals with Disabilities Education Act—was passed

initially, the Federal Government indicated that it intended to fund

40 percent of the costs associated with the legislation. Currently,

however, Federal funding covers only 8 to 9 percent of the mandates in special education. States and local governments cover

more than 90 percent of those costs. In Virginia, the State contributed $158 million to its special education requirements. Localities

spend another $520 million. The Federal Government contributes

only $57 million. Yet the regulations that are forced on local school

systems by the U.S. Department of Education for special education

programs are the most intrusive, pervasive and time consuming

that school administrators face in any school year.

Just recently, the Fourth Circuit Court ruled in favor of Virginia

and against the U.S. Department of Education which argued that

students in special education could not be suspended from school

or expelled even when their dangerous or egregiously inappropriate

behavior was in no way related to their disability. The U.S. Department of Education position defies logic and common sense.

According to the U.S. Department of Education, a student with

a minor reading disability could not be disciplined for striking a

teacher, for bringing a loaded handgun to school or for selling

drugs. Imagine the message this policy sent to our students. One

student bragged to teachers and students that he could do anything he wanted because school administrators could not discipline

him for any reason.

Despite our best efforts to reason with the U.S. Department of

Education, this agency threatened to withhold Virginia’s allocation

for special education even after our policy of disciplining special

education students only when it could be established that their behavior was not related to their disability had been in existence for

years.

This type of interference in the rights of States to develop and

administer policies is an usurpation of the State’s role in education

by the Federal Government. This particular case has been in litigation for more than 3 years.

The role of the Federal Government should be reduced substantially, and the block granting of funds should be implemented.

Similar to the model that Congress adopted in welfare reform, education matters should be turned over to the States so that each

State can establish its own model for education reform.

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Some programs will be emulated by others, much like our own

academic standards in English, math, science and history. Our

standards of learning are being studied, and in some cases adopted,

by more than 30 States at this time. Other programs that are less

successful will be discarded. Thus, national success in educational

reform will grow out of individual State efforts. Adopting this

model will result in the decrease of the hundreds of programs at

the U.S. DOE that are ineffective. The money saved by reducing

the Federal bureaucracy should be returned to the States and sent

directly to the classroom, where students will benefit from these

tax dollars.

I hope that you will act now to strengthen and increase the flexibility that is presently purported and which was originally claimed.

If you set general priorities, give us ‘‘true’’ block grants and the

room to work, States will produce results.

There will always be a local, State and Federal partnership in

education. However, in a true partnership, everyone has something

to give, and none of the partners are perceived as intruders.

Thank you very much for allowing me to address, and I would

be glad to answer any questions.

[The prepared statement of Ms. Sgro follows:]

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Mr. STEIDLER. Mr. Shays, Congressman Towns, thank you for

the opportunity to testify today about the U.S. Department of Education’s mission, management and purpose.

One of the most critical education problems we face today is the

quality of elementary and secondary schools in the inner cities. Yet,

there are a plethora of Department of Education programs that are

of questionable value to students in these schools as the programs

in large part benefit bureaucracies, teachers, and students that are

not poor.

The array of these trickle-down programs include a literacy program for prisoners, Goals 2000, professional development assistance for teachers, and even something called parent training.

It is, however, the primary Federal education program for the

poor, Title I, that should be examined most closely. Title I has a

mixed history at best.

Since its inception in 1965, Title I has been reauthorized eight

times, most recently in 1994. The program, which has spent roughly $100 billion, was envisioned as a way to help disadvantaged children. Many studies have questioned its effectiveness. For example:

In 1980, noted education scholar Jonathan Kozol observed, ‘‘If Title

I were not a mere expanded version of the errors of the past, we

would not have more illiterate adults today than in the year in

which that legislation took effect.’’

A 1987 Phi Delta Kappan report found, ‘‘The children who are

tutored under Chapter 1—now Title I—do somewhat better on the

average in the basic skills in the early grades than similarly disadvantaged pupils who have not been tutored. But by the middle

grades this advantage disappears.’’

In 1992, the Commission on Chapter 1, a group of 28 education

leaders, criticized the $6.1 billion program—then in 52,000

schools—particularly for its practice of pulling out students from

regular classes for extra help, thus stigmatizing them.

The U.S. Department of Education’s Final Report on the National Assessment of the Title I Program, released in February

1993, stated, ‘‘The program today does not appear to be helping to

close the learning gap.’’

Is Title I now meeting its purpose of improving educational opportunities for low-achieving children living in low-income areas?

Currently, an area is eligible to receive Title I funds if it has at

least 10 low-income children and these children represent just 2

percent of the student population. At the risk of stating the obvious, many areas that are not poor now can and do receive significant amounts of Title I funds.

Title I funds are now increasingly being used for school-wide programs which allow schools to, ‘‘upgrade the entire educational program in the school to support systemic reform.’’ As a result, this

may lead Title I grants to serve 10 million children in 1998 versus

approximately 7 million in 1996. This raises questions about the dilution of Title I aid to the neediest children.

Indeed, there are other indications that the aid is not going to

those who need it most. Research by the Alexis de Tocqueville Institution found that the 15 wealthiest counties in the U.S. received

$56 million in Title I aid in fiscal year 1996.

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Education Week, a highly respected publication in the education

field, has also found disturbing signs about the program. It recently

noted that Marin County, America’s wealthiest county, will have 20 school districts sharing $1.2 million in Title I money in the current

fiscal year. In nearby San Francisco, Jefferson Elementary School,

in a neighborhood with a 14 percent poverty rate, receives no Title

I money.

At a time of continued deterioration among inner-city schools and

concern about the focus and effectiveness of Department of Education programs, there are three steps that Congress can take to

bring education decisionmaking closer to the people who need assistance.

First, Title I money could be provided in the form of a block

grant so that States will direct the funds to the areas that need

them most.

Another alternative would be to allow States to use Title I and

other Federal education funds in combination with State, local and

private money to provide scholarship/voucher opportunities for students in problem-plagued schools. Here, low-income parents would

have an opportunity to decide what is best for their children. The

scholarship/voucher plans would immediately enable many of our

most disadvantaged children to obtain a much better education.

Third, Congress could reduce or eliminate many trickle-down programs to finance scholarships/vouchers. Modest savings of $500

million, for example, would provide enough money for over 165,000

poor children to have a $3,000 voucher to attend a private or parochial school of their choice. Bolder measures, of course, would have

more of an impact.

I thank you for your time and look forward to your questions.

Mr. SHAYS. Thank you very much.

[The prepared statement of Mr. Steidler follows:]

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Mr. SHAYS. Basically, two messages are coming through loud and

clear. Some of it gets more into an ideological debate than a debate

on, say, financial or data information.

The general message I’m hearing from the Education Secretary

of Virginia is that you believe that the Government’s role should

be limited and primarily in two areas. The message I’m getting

from you, Mr. Steidler, is that you believe that the money is misdirected to wealthier areas primarily—and what?

Mr. STEIDLER. I believe that we are not getting the maximum

bang for the buck of money that’s going out there. There are a lot

of places that are getting money that clearly do not need it as

much as other areas do.

Mr. SHAYS. The report—no one can accuse me of self-interest,

since Fairfield County, which I represent, is one of your targeted

15 communities. But what would be helpful is to, say, take Bridgeport, which is one of those communities in Fairfield which is 1 of

the 10 poorest in terms of the number of students who are poor per

capita in the country. So you have a Fairfield, CT—not the county,

the town of Fairfield—which has a 3-percent minority population

and a very wealthy community next door to Bridgeport, CT, which

has an 85-percent minority population.

I would generally agree with you that, for instance, one reason

why we tried to change the school lunch program was that we subsidize all children 30 cents for school lunches—all students. And

given my congressional salary of $133,000 and my wife’s salary as a teacher, we make approximately $200,000. I am dumbfounded to

know why my daughter should be subsidized.

What we allowed in our bill last year, 2 years now, was to allow

State and local governments to direct money away from New

Canaan, CT, for students who could afford lunches and direct it to

the Bridgeports and the Stanfords in my district that couldn’t.

Which really leads me to a question: Isn’t the real issue with the

State departments, local departments, that they would just like a

little more flexibility on how they spend the money? Could you

elaborate on that?

Ms. SGRO. Yes, that is one of the most difficult things for us, is

that we have the opportunity to acquire Federal money, so to

speak, and then it comes with so many regulations with it that it

becomes, in some cases, very, very difficult for us to manage the

money and to put it exactly where we want it, which is in the desk

with those little children in the classroom. We want to get all of

that money there, but sometimes we don’t have the flexibility, and

a program that might be wonderful for California might not be very

advantageous for Virginia.

So the greater flexibility that we can have, the less tentacles that

come with the dollars, the more likely we are to have real education reform and to have children who really are learning and are

prepared for the work force.

Mr. SHAYS. Mr. Towns.

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

Madam Secretary, what are your views on vouchers?

Ms. SGRO. Virginia has not discussed vouchers in any formal setting at all. We have attempted for the last 4 years in the general

assembly to institute—implement—get a bill passed for charter

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schools. We were unsuccessful in this last general assembly session. But Virginia, at this point, is not interested in vouchers per

se.

Mr. TOWNS. Thank you. Why do you think that vouchers are the

solution? What happens to those children that are not lucky

enough to get a voucher?

Mr. STEIDLER. The first thing I would say, Congressman, is that

providing vouchers and looking for systemic public school reform

are by no means mutually exclusive issues. And I think one of the

unfortunate things about the debate that has gone on is that, by

saying that you support vouchers, you are somehow deemed not to

support those changes that are going to affect public school reform.

Again, I would just make that point that those two issues are by

no means mutually exclusive; and whether one favors or opposes

vouchers, that this should be recognized.

I think another thing that is quite telling about the need for

vouchers is that while hopefully the education system as a whole

in many troubled areas will be fixed in the next couple of years,

that is often scant comfort for the mother of a 7th or 8th grade

child who is looking for an immediate way in which their child’s

education can be improved. And by providing a voucher or scholarship program to them, they are immediately able to get into a

much better school and out of a school that might be chronically

troubled and take a number of years to get fixed.

I would also add that I think it’s the option aspect that should

be very important here for States and localities. By giving them the

flexibility about how to deploy these funds, that that is something

where they are going to be able to make the decisions that will be

most appropriate for their communities.

Mr. TOWNS. If the State does not assume, say, a certain academic

level of excellence, then the Federal Government should not be involved in that at all?

Mr. STEIDLER. I think——

Mr. TOWNS. I want to make it very clear. And, of course, block

grants do the kind of things that you are saying and then all of

a sudden we realize that nothing is really happening. What role

should the Federal Government play? After all, that is our money?

Mr. STEIDLER. I’m not sure what role the Federal Government

should play in that case.

I would make the observation that I think one of the difficult

things that we have now is that many people in communities feel

very frustrated about pushing for education change because they

perceive that there are controls in Washington that are in effect

and that it is much more difficult to effect that change. And I think

that by block granting money, you put the money closer to the people who are affected by it and you give them more possibility to petition those who can make change and who can institute meaningful reforms.

Just getting back to the Title I situation, I would also make the

observation that when Congress reauthorized the measure back in

1994, it has taken a stab at improving the program. Hopefully, the

program will be improved and function much better than it has

over the past 29 years or so since its initial inception.

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But I think that if you allow States and localities to find ways

in which to deploy that money and make it much more effective,

you are going to have more opportunity for getting the right deployment of funds and the right programs in place.

Ms. SGRO. Mr. Towns, may I respond to that also?

Mr. TOWNS. I was going to ask you to.

Ms. SGRO. Thank you. I will jump in first.

In Virginia, one of the aspects of our reform that we believe is

critically important, first step was establishing standards.

The second was to establish a testing assessment program in

which the test is really designed to test the standards, which is

kind of a unique idea and not very prominent idea across our Nation.

The third part is probably the piece that you’re asking for, and

that is a report card. We are going to publicize how each school— how the children perform in each of those schools across the State,

so that parents can actually see how well their children are doing

compared with the other children in the State.

We also have a component in our test that will allow us to compare our students with other students across the United States.

That’s an important mechanism.

I believe that if Congress were to grant block grants to the States

then States can be held accountable by the public, by the taxpayers, the people who are sending the money up here. They will

have every opportunity to vote in, vote out those local school boards

and influence the people who are running their schools; and I think

people will be very intolerant if they see that one school is not performing well and another school is performing well.

We have several measures on that report card, not just a single

test. Let me assure you of that.

I would not be a proponent of that. But looking at retention

rates, looking at dropout rates, looking at attendance records of

students and teachers and how many special education students

are receiving services, those kinds of measures—what is the behavior of the children? How many serious disciplinary incidences have

occurred in a school? And you want to see a school that is always

improving, and a school that is not should be held accountable.

Mr. TOWNS. Thank you.

On that note, let me go into something else which I am certain

you have heard it and this will not be brand new to you when I

say it.

One of the major criticisms of the Virginia new educational

standards is that you rely too heavily on rote memory and not

enough on critical thinking skills. How would you respond to that?

I know it is not new. You have heard it.

Ms. SGRO. I have heard it a few times, just once or twice in the

last several years. Quite honestly, I would——

Mr. SHAYS. Would you repeat your answer? Because he needs to

hear it twice.

Ms. SGRO. I would be so bold to say, Mr. Towns, that that really

is a specious argument, that in fact our standards provide the academic basic skills, knowledge that a student needs to have in order

to, in fact, do critical thinking, if you want to separate it. I do not

think that you can separate critical thinking from what is taught.

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Clearly, if you don’t know how to—you don’t have the basics of

fixing a car, you don’t have any idea how those pieces go together,

you are not going to be able, as a wonderful car mechanic, be able

to hear it go down the street and do a diagnosis as so many of our

best people do. The same is true in the academic arena as well.

You have to know when certain wars were fought and who are

major leaders for this Nation and be able to create the framework

that goes with that. So I think that really and truly is a specious

argument.

Mr. TOWNS. Well, let me thank you for your comments and to say

to you, Mr. Steidler, I am still concerned about those youngsters

who, for some reason, that will not be able to get a voucher and

be left out there, because something has to be done for them. And

I am not sure I understand what you would do for them. That’s not

clear to me. I just wanted to say that important part.

I understand in terms of—but the point is that those who are not

fortunate enough, what would happen to them, that’s the part that

troubles me. And we might be leaving out somebody who has a

cure for cancer.

Mr. STEIDLER. Yes. I would just emphasize again that I do not

believe that the two issues are mutually exclusive. We should have

high standards and we should be willing to spend what needs to

be spent to improve the quality of education in the public school

system.

I think another thing that is very critically important is that

schools need to be freed up of regulations, but I think they also

need greater flexibility in terms of how they operate. They need

more ability to be able to reward those teachers who are the best

and the brightest to pay them what they need, and they need the

flexibility to get rid of those teachers who are incompetent or who

are just not doing the job. And that involves making some fundamental changes in terms of how the schools interact with the

teacher unions.

You know, I’m not saying that a voucher program for a few children is going to be the silver bullet out there, but it does provide—

it does provide a mechanism for many children to immediately get

a much better education. I think it would also help put pressure

on some systems that have been very unresponsive to change to

undertake those changes that are appropriate.

I would just like to make the final observation that it strikes me

as very mindboggling that right now the administration has proposed what is, in effect, a voucher program for college students

where somebody—someone who is making $95,000 a year can send

their child to Notre Dame and get a substantial tax break on that

or any private and parochial school of their choice; and we are not

providing that same opportunity to those parents of secondary and

elementary schoolchildren that are in areas that are quite troubled

and need to get some immediate help.

Mr. SHAYS. I am going to weigh in a quick second. May I?

Mr. TOWNS. Sure.

Mr. SHAYS. I would love to experiment, say, in the city of DC,

with a voucher system; and I would love then to see its impact.

But, right now, what we have done is we have imprisoned some

students in some schools that are in pathetic conditions.

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Having said that, I haven’t been to some of these schools. I have

read about them. One of the things that may be interesting as a

committee is to use DC, as kind of our testing area and also, just

in terms of our information area, is really see how good or bad the

DC schools are. And then just see what possible alternatives.

I would quickly like to know why charter schools failed, because

they seem to me to be a happy compromise between the voucher.

Why did they fail in Virginia? Was it a partisan debate?

Ms. SGRO. It was a partisan debate. Yes, it failed on a partisan

vote.

Mr. SHAYS. Was the VEA—do you call it the VEA there?

Ms. SGRO. Yes, VEA. They weighed in very heavily against charters. They have been against charters since the outset of this debate.

It was interesting, because Secretary Riley was there at the very

closing week of our general assembly, and I certainly wrote him a

letter. He was the guest speaker at the Democratic Caucus fundraiser, and I personally wrote him a letter and requested that he

speak with the Democratic members of the general assembly to explain the benefits of vouchers, the fact that Virginia would be eligible to compete for additional funding to get them started. I think

he was quite—of course, he is very much in favor of them but was

not able to carry the day for really partisan reasons, unfortunately.

Mr. SHAYS. But the administration here in DC, does it support

the concept of charter schools?

Ms. SGRO. Yes, very much so. It was an interesting week, because the President had just made his very strong endorsement of

charter schools, Secretary Riley had, and just our Democratic Members in Congress were still reticent to pass a charter school law.

And, in honesty, that is probably the very weakest charter school

bill that has been put forward across the United States.

Mr. TOWNS. I thank both of you for your testimony.

Mr. SHAYS. Thank you both for being here. We appreciate you

being here.

Ms. SGRO. Thank you very much. We appreciate the opportunity.

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]

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