U.S. GOVERNMENT PUBLISHING OFFICE

30–527 WASHINGTON : 2017

FAILURES OF FISCAL MANAGEMENT: A VIEW 

FROM THE COMPTROLLER GENERAL 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, D.C., MAY 3, 2017 

Serial No. 115–4 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.govinfo.gov 

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COMMITTEE ON THE BUDGET 

DIANE BLACK, Tennessee, Chairman 

TODD ROKITA, Indiana, Vice Chairman 

MARIO DIAZ-BALART, Florida 

TOM COLE, Oklahoma 

TOM MCCLINTOCK, California 

ROB WOODALL, Georgia 

MARK SANFORD, South Carolina 

STEVE WOMACK, Arkansas 

DAVE BRAT, Virginia 

GLENN GROTHMAN, Wisconsin 

GARY J. PALMER, Alabama 

BRUCE WESTERMAN, Arkansas 

JAMES B. RENACCI, Ohio 

BILL JOHNSON, Ohio 

JASON SMITH, Missouri 

JASON LEWIS, Minnesota 

JACK BERGMAN, Michigan 

JOHN J. FASO, New York 

LLOYD SMUCKER, Pennsylvania 

MATT GAETZ, Florida 

JODEY C. ARRINGTON, Texas 

A. DREW FERGUSON IV, Georgia 

JOHN A. YARMUTH, Kentucky, 

Ranking Minority Member 

BARBARA LEE, California 

MICHELLE LUJAN GRISHAM, New Mexico 

SETH MOULTON, Massachusetts 

HAKEEM S. JEFFRIES, New York 

BRIAN HIGGINS, New York 

SUZAN K. DELBENE, Washington 

DEBBIE WASSERMAN SCHULTZ, Florida 

BRENDAN F. BOYLE, Pennsylvania 

RO KHANNA, California 

PRAMILA JAYAPAL, Washington, 

Vice Ranking Minority Member 

SALUD O. CARBAJAL, California 

SHEILA JACKSON LEE, Texas 

JANICE D. SCHAKOWSKY, Illinois 

PROFESSIONAL STAFF

RICHARD E. MAY, Staff Director 

ELLEN BALIS, Minority Staff Director 

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CONTENTS 

Page 

Hearing held in Washington, D.C., May 3, 2017 .................................................. 1 

Hon. Diane Black, Chairman, Committee on the Budget ............................. 1 

Prepared statement of ............................................................................... 3 

Hon. John A. Yarmuth, Ranking Member, Committee on the Budget ........ 5 

Prepared statement of ............................................................................... 7 

Hon. Gene L. Dodaro, Comptroller General of the United States ................ 9 

Prepared statement of ............................................................................... 11 

Hon. Pramila Jayapal, Vice Ranking Minority Member, Committee on 

the Budget, questions submitted for the record ......................................... 106 

Hon. Barbara Lee, Member, Committee on the Budget, questions submitted for the record ..................................................................................... 107 

Hon. Gene L. Dodaro’s response to questions submitted for the record ...... 109 

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FAILURES OF FISCAL MANAGEMENT: A VIEW 

FROM THE COMPTROLLER GENERAL 

WEDNESDAY, MAY 3, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE BUDGET, 

Washington, D.C. 

The Committee met, pursuant to call, at 10:00 a.m., in 1334 

Longworth House Office Building, Hon. Diane Black, [chairman of 

the committee] presiding. 

Present: Representatives Black, McClintock, Grothman, Lewis, 

Bergman, Faso, Smucker, Ferguson, Arrington, Woodall, Johnson, 

Westerman, Smith, Sanford, Renacci, Palmer, Brat, DelBene, 

Jayapal, Carbajal, Schakowsky, Higgins, Jackson Lee, and Lujan 

Grisham. 

Chairman BLACK. The hearing will come to order. I want to welcome the Committee on the Budget to the hearing of failures of fiscal management. Today, we will hear testimony from the Comptroller General of the United States, the Honorable Gene Dodaro. 

I want to welcome everybody back today. 

As I am sure everyone is aware, we will be introducing the fiscal 

year 2018 budget later this spring, and the challenges we face are 

enormous. Deficits are set to start rising again. Many government 

programs are in dire need of reform. And our economy is being held 

back by the policies of the previous administration. 

And while these problems are daunting, we are elected by our 

constituents to make the hard decisions and confront the challenges head on. And that is exactly what we plan to do in this 

year’s House Budget Committee. That is also why we are having 

this hearing today on the failures of fiscal management, and it is 

so important and so timely to what we are called to do. We need 

to do better to understand how the government, Federal Government, is failing to effectively manage taxpayer dollars and how that 

is affecting our long-term fiscal solvency. 

I am happy to welcome our witness today, the Honorable Gene 

L. Dodaro. He is the Comptroller General of the United States and 

the director of the Government Accountability Office. 

The GAO possesses a wealth of information about the government’s fiscal condition and the operation of its programs. Three 

areas we plan to examine today are the disturbing rise of improper 

payments by the government agencies; the programs GAO considers as high risk for waste, fraud, and abuse and mismanagement; and the government’s long-term fiscal outlook, which, as all 

of you are aware, is not good. 

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2 

Mr. Dodaro, thank you for taking time out of your busy schedule 

to be here with us today. The Committee is looking forward to your 

testimony. 

But before we build solutions, we need to understand the core of 

the problem, and Mr. Dodaro’s testimony will be vital to that. First, 

are the improper payments made by the Federal Government. Improper payments are defined as any government payment that was 

made in an incorrect amount to the wrong individual or entity or 

for the wrong person. For example, an improper payment would be 

an unemployment check going to a person who has already returned to work. According to the GAO, improper payments surged 

to $144 billion in just 2016. That is a 35 percent increase from the 

$107 billion in 2012. 

This is a problem that is government wide, including 112 programs across 22 agencies. Even worse, those numbers probably underestimate the extent of the problem since 18 government programs deemed susceptible to improper payments did not even submit error estimates last year. $144 billion is the minimum of the 

problem, not the maximum. 

Second, we want to examine the government’s high-risk programs. Every 2 years, GAO publishes an updated list of programs 

that it covers especially vulnerable to waste, fraud, abuse, and mismanagement. This year, GAO identified 34 programs that matched 

this description. The programs that demand further review are 

Medicare, Medicaid, Federal disability programs, Pension Benefit 

Guaranty Corporation, insurance programs, and the National Flood 

Insurance Program and veterans’ health care. 

Third, we want to focus on our long-term fiscal outlook. In January, GAO released a report examining government spending, revenues, deficits, and debt. The conclusion was all too familiar. Our 

fiscal path is unsustainable, and if we fail to get control of debt and 

deficits, we are putting our country at risk of a fiscal and economic 

crisis. GAO’s simulation shows our debt-to-GDP ratio would pass 

its all-time historical high of 106 percent in the next 15–20 years 

and that Social Security disability insurance, the Medicare Hospital Insurance Trust Fund, and the Social Security Old-Age and 

Survivors Trust Funds will be depleted, and, therefore, forced to 

pay reduced benefits. 

A failure to solve these problems means seniors, who have 

worked their whole lives, and those truly in need of help, can no 

longer count on these vital safety net programs. Improper payments, high-risk programs, and our growing debt all pose an enormous challenge, and we need to take real, tangible steps to reduce 

the amount of money that is being wasted to help keep our fiscal 

house in order. 

Mr. Dodaro, once again, thank you for being here. I know you 

and your staff have worked very hard to prepare for this hearing 

today. And thank you for taking your job as a government watchdog so seriously. I look forward to hearing your testimony and your 

recommendations on how we can all be better stewards of the taxpayer dollars. And thank you for that, and I now yield to the ranking member, Mr.Yarmuth. 

[The prepared statement of Chairman Diane Black follows:] 

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BLACK OPENING STATEMENT: 

GAO Hearing on the Failures of Fiscal Management 

Washington, D.C., May 3, 2017 

As Prepared for delivery-House Budget Committee Chairman Diane Black: 

Good morning, and thank you everyone for being here. 

As I'm sure everyone is aware, we will be introducing the Fiscal Year 2018 budget later 

this spring and the challenges we face arc enormous. 

Deficits are set to start rising again, many government programs arc in dire need of 

reform, and our economy is being held back by the policies of the previous 

administration. While these problems are daunting, we were elected by our constituents 

to make the hard decisions and confront these challenges head on. And that's exactly 

what we plan to do at the House Budget Committee. 

That is also why today's hearing Failures of Fiscal Management is so important and 

so timely. We need to better understand how the federal government is failing to 

effectively manage taxpayer dollars and how that's affecting our long-term fiscal 

solvency. 

I am happy to welcome our witness today, The Honorable Gene L. Dodaro. He's the 

Comptroller General of the United States and the director of the Government 

Accountability Office. The GAO possesses a wealth of information about the 

government's fiscal condition and the operation of its programs. 

Three areas we plan to examine today are: the disturbing rise in improper payments by 

government agencies; the programs GAO considers as "high risk" for waste, fraud, 

abuse, and mismanagement; and the government's long-term fiscal outlook, which- as 

all of you are aware- is not good. 

Mr. Dodaro, thank you for taking time out of your busy schedule to be here today. The 

committee is looking forward to hearing your testimony. 

But before we build solutions, we need to understand the core of the problem, and Mr. 

Dodaro's testimony will be vital. 

First are the improper payments made by the federal government. 

Improper payments are defined as any government payment that was made in an 

incorrect amount, to the wrong individual or entity, or for the wrong reason. For example, 

an improper payment would be an unemployment check going to a person who has 

already returned to work. 
4 

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According to GAO, improper payments surged to $144 billion in 2016 that's a 35 

percent increase from the $107 billion in 2012. This is a problem that's governmentwide, including 112 programs across 22 agencies. 

Even worse, those numbers probably underestimate the extent of the problem since 18 

government programs deemed susceptible to improper payments did not even submit 

error estimates last year. $144 billion is the minimum of the problem, not the max. 

Second, we want to examine the government's 'High-Risk' programs. Every two years, 

GAO publishes an updated list of programs that it considers especially vulnerable to 

waste, fraud, abuse, and mismanagement. 

This year, GAO identified 34 programs that matched this description. The programs that 

demand further review are Medicare, Medicaid, federal disability programs, Pension 

Benefit Guaranty Corporation insurance programs, the National Flood Insurance 

Program, and veterans' health care. 

Third, we want to focus on our long-tenn fiscal outlook. In January, GAO released a 

report examining government spending, revenues, deficits and debt. The conclusions are 

all-too-familiar: our fiscal path is unsustainable and if we fail to get control of debt and 

deficits, we're putting our country at risk of a fiscal and economic crisis. 

GAO's simulation shows our debt-to-GDP ratio would pass its all-time historical high of 

106 percent in the next 15-25 years and that Social Security Disability Insurance, the 

Medicare Hospital Insurance trust fund, and the Social Security Old-Age and Survivors 

trust funds will be depleted and therefore forced to pay out reduced benefits. A failure to 

solve these problems means seniors who have worked their whole lives and those truly in 

need of help can no longer count on these vital safety nets. 

Improper payments, high-risk programs, and our growing debt all pose enormous 

challenges and we need to take real, tangible steps to reduce the amount of money that's 

being wasted to help get our fiscal house in order. 

Mr. Dodaro, thank you again for being here. I know you and your staff have worked very 

hard to prepare for this hearing and thank you for taking your job as a government 

watchdog seriously. I look forward to hearing your testimony and your recommendations 

of how we can all be better stewards oftaxpayer dollars. 

Thank you, and with that, I yield to the Ranking Member, Mr. Y arrnuth. 
5 

Mr. YARMUTH. Thank you, Madam Chairman, and thank you, 

Mr. Dodaro, for being here today to give us your views on the country’s fiscal challenges and on the important work the GAO performs to ensure that the Federal Government is held accountable 

and continues to improve its performance. We all agree that we 

should look for ways to make government agencies and programs 

more efficient. And I look forward to hearing your views on these 

issues. This hearing is titled Failures of Fiscal Management. 

I certainly agree with the chairman that we need to be doing all 

we can to root out improper payments and ineffective programs. In 

fact, I would argue that this should be a greater priority for Democrats because of the important value we believe government plays 

in the lives of the American people. This is certainly a reasonable 

hearing to have. It is a reasonable topic. But we are in a situation 

that is anything but reasonable. 

Yesterday, President Trump called for a shutdown of the Federal 

Government. The President of the United States stated that, ‘‘Our 

country needs a good shutdown.’’ No, our country needs a responsible President, one who understands you do not begin the 2018 

budget negotiations by threatening the economic security of our 

Nation. This administration is already off to a rocky start. Their 

initial budget failed to include any information on revenues and 

well more than half of Federal spending. The only detail provided 

called for severe cuts to discretionary investments that the American people need and deserve. That was followed by a plan to enact 

deficit-busting tax cuts for the rich that the American people overwhelmingly oppose. And then there is a plan to repeal the Affordable Care Act that has failed three times and counting. 

After a 4-month delay requested by the Trump administration, 

which put important new programs on hold, postponed contracts, 

and impeded the work of our Federal agencies, we are just now 

passing a fiscal year 2017 omnibus appropriations bill. That is for 

the fiscal year that started seven months ago. We can now move 

to the fiscal year 2018 budget, which brings me back to President 

Trump and his comments yesterday. I come back to that because 

it is so important to the credibility of every member of this Committee, as well as our colleagues on the Appropriations Committee. 

Calling for a shutdown of the Federal Government is irresponsible 

and reckless. The last shutdown took billions of dollars out of the 

economy and was entirely avoidable. 

As members of the House Budget Committee, it is our job to craft 

a congressional budget, a budget for our Nation. It is our responsibility to treat this process seriously in a way that respects the 

gravity of the decisions made by this Committee, regardless of 

whether we agree or disagree on priorities or policy. We have a responsibility to protect the seriousness of the work we are charged 

with and this must include condemning reckless calls for shutting 

down the Federal Government. On this, we need to speak as a unified voice. 

So, I ask my colleagues on the other side of the aisle, when are 

you going to say something? When are you going to push back 

against these statements about President Trump that threaten our 

economic and national security, that erodes even further the American people’s confidence in our government? Please find that courBU00-A363290 with DISTILLER

6 

age. We cannot let these statements go unchecked any longer. As 

members of the Budget Committee, we must be a stabilizing force 

in these debates. With that, I once again welcome you, Mr. Dodaro, 

I look forward to your testimony, and I yield back. 

[The prepared statement of John Yarmuth follows:] 

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YARMUTH OPENING STATEMENT: 

GAO Hearing on the Failures of Fiscal Management 

Washington, D.C., May 3, 2017 

As Prepared for delivery-House Bwlget Committee Ranking Jltfember John Yarmuth 

Thank you, Madam Chairman. And thank you, Mr. Dodaro, for being here today to give us your 

views on the country's fiscal challenges and on the impot1ant work that GAO perfmms to ensure that 

the federal government is held accountable and continues to improve its perfmmance. We all agree 

that we should look for ways to make goverrm1ent agencies and programs more efficient and I look 

forward to hearing your views on these issues. 

This hearing is titled, "Failures of Fiscal Management" I cetiainly agree with the Chai1man that we 

need to be doing all we can to root out improper payments and ineffective programs. In fact, I would 

argue that this should be a greater p1iority for Democrats because of the impmtant role we believe 

govemment plays in the lives of the American people. 

This is certainly a reasonable hearing to have, it's a reasonable topic but we are in a situation that is 

anything but reasonable. Yesterday, President Trump called for a shutdown of the federal 

government. The President of the United States stated that "'our country needs a good shutdown." No, 

our country needs a responsible President one who understands you don't begin the 2018 budget 

negotiations by threatening the economic security of our nation. 

This Administration is already off to a rocky stmi ... their initial budget failed to include any 

information on revenues and well more than half of federal spending. The only detail provided called 

for severe cuts to discretionary investments that the American people need and deserve. That was 

followed by a plan to enact deficit-busting lax cuts for the rich that the American people 

overwhelmingly oppose. And then there's a plan to repeal the Affordable Care Act that has failed 

three times and counting. 

After a four month delay requested by the Tmmp Administration, which put impmtant new programs 

on hold, postponed contracts, and impeded the work of our federal agencies, we arc just now passing 

an FY 2017 omnibus appropriations bill ... thafs for the fiscal year that started seven months ago. 

We can now move to the FYI8 budget- which brings me back to President Tmmp and his 

comments yesterday. [come back to this because it's so important to the credibility of every member 

of this Committee, as well as our colleagues on the Appropriations Committee. Calling for a shutdown of the federal govenunent is irresponsible and reckless. The last shutdown took billions of 

dollars out of the economy- and was entirely avoidable. 

As Members of the House Budget Committee, it is our job to craft a Congressional budget for our 

nation. It is om responsibility to treat this process seriously, in a way that respects the gravity of the 

decisions made by this Committee, regardless of whether we agree or disagree on priorities or policy. 

We have a responsibility to protect the seriousness of the work we are charged with- and this must 

include condemning reckless calls lor shutting down the federal govemment On this, we need to 

speak as a unified voice. Sol ask my colleagues on the other side of the aisle when are you going 
8 

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to say something? When are you going to push back against these statements by President Trump 

that threaten our economic and national security ... that erode, even futther, the American people's 

confidence in our government? 

Please find that courage. We can't let these statements go unchecked any longer. As Members of the 

Budget Committee, we must be a stabilizing force in these debates. 
9 

Chairman BLACK. Thank you, Mr. Yarmuth. And in the interest 

of time, if any other members have opening statements, I ask that 

you submit them for the record. 

Chairman BLACK. I would now like to recognize the Comptroller 

General of the United States, the Honorable Gene Dodaro. Mr. 

Dodaro, thank you, again, for your time today. The Committee has 

received your written statement and it will be made part of the formal hearing. You have 5 minutes to deliver your oral remarks and 

you may begin when you are ready. 

STATEMENT OF GENE L. DODARO, COMPTROLLER GENERAL 

OF THE UNITED STATES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. DODARO. Thank you very much, Madam Chairman, Ranking 

Member Yarmuth, members of the Committee. I am very pleased 

to be here today to discuss GAO’s work related to the fiscal health 

of the Federal Government. 

In January, we issued a report outlining our views on the current fiscal condition of the Federal Government and its outlook for 

the future. In that report, we recognized that the Congress and the 

country face a number of serious economic, security, and social 

issues and need to make short-term investment decisions and difficult policy options to be considered. But we also underscore the 

fact that the Congress and the administration face a situation 

where the government is heavily leveraged in debt by historic 

norms and, in our view, on an unsustainable fiscal path. 

The deficit for 2016 rose to $580 billion. It was the first time in 

the last 6 years the annual deficit rose. That took the cumulative 

debt held by the public as a percent of gross domestic product from 

74 percent to 77 percent. Now, that compares to an average since 

1946 of 44 percent. So, we are, you know, much more indebted 

than by the historical averages as a percent of gross domestic product. If you look into the future, our projections, the projections of 

Treasury and OMB and CBO all show that the Federal Government, absent a fiscal change in policies, would exceed the historic 

average of debt-to-GDP ratio of over 106 percent that accrued during World War II. And it would keep rising in the out years to 200 

percent and beyond. 

So, something has to change. The key drivers here are health 

care costs, the rapid growth of Medicare and Medicaid programs. 

Health care costs are still growing faster than the economy, and 

demographic changes are adding additional people to the rolls as 

our population ages and as people’s life spans extend. Also, interest 

on the debt is another long-term driver. In 2016, we paid over $250 

billion in just the interest to service the debt. The interest rate 

costs are going to rise, and if we continue to add to the debt combined with interest rates accruing, that is going to be a key driver 

in driving this deficit up much further. You know, compound interest is great when you are saving, but it is not so good when you 

are borrowing. And that is the position, unfortunately, that we are 

in. 

Now, in order to resolve these problems, I believe the Congress 

needs to pass a plan to deal with these long-term situations. The 

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10 

sooner we take action, the better, so people can adjust because you 

are going to have to grapple with the entitlement programs, discretionary spending, and the revenue side of the government. So, it 

would introduce a number of changes, and the sooner action is 

taken, the easier it will be to introduce these changes and give people time to adjust. Now, while solving this problem requires these 

difficult fiscal policy decisions, there are other things that could be 

done to help make the government more efficient and effective. 

You mentioned, Madam Chairman, in your opening statements, 

improper payments. Since the Congress required improper payments to be estimated by Federal departments and agencies and 

reported to the Congress in 2003, the estimated number of improper payments reported has exceeded $1.2 trillion. In the last 

few years, as you mentioned, the last 3 years, it has gone from 

$125 billion, to $137, to now $144 billion. And so, this situation requires attention and focus. We have many recommendations for 

how it could be handled. The figure is an underestimated figure because, as you mentioned, 18 major federal programs did not report 

improper payment estimates in 2016, including the Temporary Assistance for Needy Families Program and the Supplemental Nutrition Assistance Program, both large programs. So, the number is 

much larger, and a number of things could be done. 

We also have recommendations, about almost 400 recommendations, where tens of billions of dollars could be saved by eliminating 

overlap duplication and fragmentation, taking other cost-saving options to deal with these issues, so I look forward to working with 

this Committee. 

I appreciate this hearing today so that we could discuss GAO’s 

work. I believe it can help the Congress deal and grapple with 

these very important issues to the future of our country. Thank you 

very much for the opportunity. I look forward to answering questions. 

[The prepared statement of Gene L. Dodaro follows:] 

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For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, May 3, 2017 

GA0-17-579T 

United States Government Accountability Office 

Testimony 

Before the Committee on the Budget, 

U.S. House of Representatives 

THE NATION'S FISCAL 

HEALTH 

Action is Needed to 

Address the Federal 

Government's Fiscal 

Future 

Statement of Gene L. Dodaro 

Comptroller General of the United States 
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Action is Needed to Address the Federal Government's 

Fiscal Future 

Debt Held by the Public Under Projections from the 2016 Financial Report, the 

Congressional Budget Office, and GAO 

Percentage of gross domestic product 

600 

Actual Projected 

500 

400 

300 

200 

100 

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 

Fiscal year 

-- GAO's baseline simulation 

GAO's alternative simulation 

Congressional Budge\ Ofrlce 

2016 Financtal Report 
13 

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Tho Fedora! Go"ver,nm,ent 

an Unsustainable 

(continuod) 

Of further concern is the fact that none of the 

2028 

Survivors Insurance trust face financial ..:hallenges that add 

It is important to develop and begin to 

for returning to a sustainable path. 

2035 

projection projections 

Debt Limit Is Not a Control on Debt: l11e current debt limit is not a control on 

debt, but rather an aft<:r-t11e-l'act 
14 

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Chairman Black, Ranking Member Yarmuth, and Members of the 

Committee: 

Thank you for the opportunity to be here today to discuss our nation's 

fiscal health and opportunities to address long-term fiscal issues. The 

Congress and administration face serious economic, security, and social 

challenges that will require difficult policy choices in the short term about 

the level of federal spending and investments as well as ways to obtain 

needed resources. At the same time, the federal government is highly 

leveraged in debt by historical norms and on an unsustainable long-term 

fiscal path caused by a structural imbalance between revenue and 

spending absent a change in fiscal policy. At the end of fiscal year 2016, 

the debt held by the public as a share of gross domestic product (GOP) 

was at 77 percent; the highest it has been since 1950. 1 Since 1946 the 

debt-to-GOP ratio has averaged 44 percent. A sustainable policy is one 

where the debt-to-GOP ratio is stable or declining over the long term. 

Decisions over the near term to enhance economic growth and address 

national policies need to be accompanied by a broader fiscal plan to put 

the government on a more sustainable long-term path. This is essential to 

ensure that the United States remains in a strong economic position to 

meet its security and social needs as well as to preserve flexibility in 

addressing unforeseen events. 

In January 2017, we issued our first report on the nation's fiscal health.' 

The report illuminated the need for such a long-term fiscal plan by 

outlining the fiscal condition of the U.S. government and its future path 

based on current fiscal policies. Policymakers will need to have a plan 

that considers reductions in programmatic (non-interest) spending, 

increases in revenue, or more likely, a combination of the two in order to 

change the long-term fiscal path. 

Today, I will discuss not only the federal government's unsustainable 

long-term outlook, the drivers of that outlook, and the need for a long-term 

plan to address the underlying and growing imbalance between spending 

and revenues but also opportunities Congress and executive branch 

1

Debt held by the public is federal debt held by all investors outside the government, 

including international investors, domestic private investors, the Federal Reserve, and 

state and local governments. 

2

GAO, The Nation's Fiscal Health' Action is Needed to Address the Federal Government's 

Fiscal Fu/ure, GA0-17-237SP (Washington, D.C.: Jan. 17, 2017) 

Page 1 GA0·17~579T The Nation's Fiscal Health 
15 

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agencies have to take actions in the short term that will assist in 

addressing the government's fiscal condition. While addressing the longterm structural imbalance will require fiscal policy changes, in the near 

term opportunities exist in a number of areas to improve this situation, 

including addressing improper payments and the tax gap and where 

federal programs or activities are at high risk3 or fragmented, overlapping, 

or duplicative. As you know, last week we released our 2017 annual 

report identifying actions and areas for Congress or executive branch 

agencies to reduce, eliminate, or better manage fragmentation, overlap, 

and duplication and achieve other financial benefits. 4 

My statement is based upon on our report on the nation's fiscal health; 

our work on improper payments; the 2017 duplication, overlap, and 

fragmentation annual report; the 2017 High-Risk List; and other related 

work. These efforts are based upon work conducted in in accordance with 

all sections of GAO's Quality Assurance Framework that are relevant to 

our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions in this 

product. More details on the scope and methodology for our reports can 

be found in the full reports. 5 

High Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts 

Others, GA0-17-317 (Washington, D.C.: Feb. 15, 2017). 

4

GAO, 2017 Annual Reporl: Additional Opportunities to Reduce Fragmentation, Overlap, 

and Duplication and Achieve Other Financial Benefits, GA0~17491SP (Washington, D.C.: 

Apr. 26, 2017). 

5

See appendix I for related work in the areas discussed in this statement. 

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The Federal 

Government Is on an 

Unsustainable Fiscal 

Path 

Growing Debt-to-GOP 

Ratio 

Over the long term, the imbalance between spending and revenue that is 

built into current law and policy is projected to lead to continued growth of 

the deficit and debt held by the public as a share of GOP. This situationin which debt grows faster than GOP-means the current federal fiscal 

path is unsustainable. Projections from the 2016 Financial Report of the 

United States and the Congressional Budget Office (CBO), and 

simulations from GAO all show that, absent policy changes, the federal 

government's fiscal path is unsustainable. 6 

According to the 2016 Financial Report, the federal deficit in fiscal year 

2016 increased to $587 billion-up from $439 billion in fiscal year 2015. 

This marked a change from 6 years of declining deficits. The federal 

government's receipts (taxes and other collections) increased by $18.0 

billion (0.6 percent), from $3,248.7 billion to $3,266.7 billion', but that was 

outweighed by a $166.5 billion increase in spending from $3,687.6 billion 

to $3,854.1 billion. Spending increases in 2016 were driven by Social 

Security (the Old-Age and Survivors Insurance and Disability Insurance 

programs), Medicare, Medicaid, and interest on debt held by the public 

(net interest). 

2016 Financial Reporl. includes sustainabi!ity financial statements-long-term fiscal 

projections for the government as a whole and for social insurance programs (e.g., Social 

Security and Medicare). See GAO, Financial Audit: Fiscal Years 2016 and 2015 

Consolidated Financial Statements of the U.S. Government, GAO~ 17-283R (Washington, 

D.C.: Jan. 12, 2017) for our audit report on the government's consolidated financial 

statements for fiscal years 2016 and 2015. 

7

The 2016 Financial Report attributes the modest increase in receipts to the January 2015 

expiration of numerous individual and corporation income tax preferences followed by 

their retroactive extension in the Consolidated Appropriations Act, 2016, The expiration 

boosted fiscal year 2015 collections, and the retroactive extension reduced fiscal year 

2016 collections; absent these extensions, receipts would have grown more in fiscal year 

2016. 

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Debt held by the public was 77 percent of GOP at the end of fiscal year 

2016-an increase from 74 percent at the end of fiscal year 2015. 

Although the federal government has carried debt throughout virtually all 

of U.S. history, the 2016 Financial Report shows that the current fiscal 

position is unusual in the nation's history and that debt as a share of the 

economy is the highest it has been since 1950. As shown in figure 1, debt 

as a share of GOP peaked as 106 percent just after World War II, but 

then fell rapidly. Since 1946 the debt-to-GOP ratio has averaged 44 

percent. 

100 

60 

Source, GAO analysis oi2D16 Fmancml Report and Cor>gressional Budget Olf<OO data ) GA0.17·579T 

Note: For years 1797·1939, year refers to calendar year. For years 1940-2016, year refers to ftsca! 

year. The Congressional Budget Office notes it estimated gross domestic product {GOP) from several 

sources. Data from 1929 onward reflect revisions to the estimates of GDP that the Bureau of 

Economic Analysis released in July 2013. 

The long-term fiscal projections in the federal government's 2016 

Financial Report and those prepared annually by CBO and GAO each 

use somewhat different assumptions, but their results are the same: 

absent policy changes, the federal government's fiscal path is 

unsustainable with debt held by the public as a share of GOP projected to 

grow continuously. 

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Projections show that under current law it will grow to exceed the 

historical high of 106 percent in 15 to 25 years. (See figure 2.) Both the 

timing and pace of this growth depend on underlying assumptions made, 

especially about health care costs. Under GAO's alternative simulation 

debt held by the public as a share of GOP would surpass its historical 

high of 106 percent by 2032.8 CBO's extended baseline shows debt held 

by the public surpassing that level by 2035 and the 2016 Financial Report 

projections show debt held by the public surpassing 1 06 percent by 2041. 

prepares both a baseline extended and an alternative simulation. Our two 

simulations are the baseline extended and the alternative. The baseline extended begins 

with a baseline using CBO estimates and generally assumes current law continues into 

the future; for example, tax provisions expire as scheduled. The alternative generally 

reflects historical trends; for example, tax expenditures scheduled to expire are extended. 

For a description of the methodologies of these simulations, see 

http://www.gao.govlfiscal_out!ook/federal_fisca!_outlook/ove!View#t=2. CBO discusses 

the impact of different assumptions on its extended baseline projection and shows the 

impact of different deficits over the next 10 years. CBO's long~term outlook goes out 30 

years, while the 2016 Financial Report's projections and GAO's simulations go out 75 

years. GAO, Fiscal Outlook: Federal Fiscal Outlook, accessed April 27,2017, http: 

www.gao.gov/fisca!_out!ooklfedera!_fiscal_outlook/overview. CBO, The 2017 Long~ Term 

Budget Outlook {Washington, D.C.: Mar. 30, 2017). 

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Figure 2: Debt Held by the Public Under Projections from the 2016 Financial Report, 

the Congressional Budget Office, and GAO 

Percentage of gross domestic product 

600 

500 

400 

300 

200 

100 Historical average = 44 percent since 1946 

2000 2010 2020 2030 

Fiscal year 

GAO's baseline simulation 

-- GAO's alternative simulation 

Congressional Budget Office 

2016 Financial Report 

2040 2050 2060 

Sources GAO, Congresslo:1al B(Jdget Office, arnl 20'16 Ftl'iilllCia/ Rept)lt i GA0-17·579T 

2070 2080 2090 

Note: GAO's basellne extended simulation and the Congressional Budget Office·s (CBO) long-term 

projection begin with a baseline using CBO estimates and generally assume current law continues 

into the future, such as the expiration of tax provisions as scheduled. One key difference between the 

results of the 2016 Financial Report projections and GAO's baseline extended simulation is that the 

2016 Financial Report projections assume that individual income taxes increase gradually as rea! 

taxable incomes rise over time and an increasing share of total income is taxed at higher tax 

brackets, while GAO's baseline extended simulation assumes that revenue remains a constant share 

of gross domestic product. GAO's alternative simulation generally reflects historical trends, such as 

the extension of tax expenditures scheduled to expire, and incorporates the CMS Office of the 

Actuary's 2016 illustrative alternative assumptions for health care cost growth, which assume cost 

controls under the Patient Protection and Affordable Care Act and the Medicare Access and CHIP 

Reauthorization Act of 2015 are not maintained over the long term. As noted above, using the 

alternative assumptions, which are not included in the 2016 Financial Report projections and GAO's 

baseline extended simulation, projected health care costs substantially increase. 

Of further concern is the fact that none of these long-term projections 

include certain fiscal risks that create fiscal exposures that could affect 

the government's financial condition in the future. 9 Fiscal exposures are 

9

See GAO, Fiscal Outlook: Federal Fiscal Outlook, accessed on April 26, 2017, 

http://www.gao.gov/fisca!_out!ookffederal_fiscal_out!ook/overview#t:::;3. The 2016 

Financiaf Report discusses various contingencies where the government may face the 

need for additional spending. 

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responsibilities, programs, and activities that may legally commit or create 

expectations for future federal spending based on current policy, past 

practices, or other factors. Some examples of such fiscal risks include: 

The Pension Benefit Guaranty Corporation's (PBGC) financial future 

is uncertain because of long-term challenges related to PBGC's 

governance and funding structure. PBGC's liabilities exceeded its 

assets by over $79 billion as of the end of fiscal year 2016-an 

increase of over $3 billion from the end of fiscal year 2015 and of 

about $44 billion since 2013. 10 PBGC reported that it is subject to 

potential further losses of $243 billion if plan terminations occur that 

are considered reasonably possible. 

The U.S. Postal Service (USPS) continues to be in a serious financial 

crisis as it has reached its borrowing limit of $15 billion and finished 

fiscal year 2016 with a reported net loss of $5.6 billion. USPS's 

business model is not viable and cannot fund its current level of 

services, operations, and obligations. USPS's liabilities exceeded its 

assets by $56 billion as of the end of fiscal year 2016 and USPS 

reported an additional $39.5 billion in unfunded liabilities at that time 

for its retiree health and pension funds. USPS reported a total 

unfunded liability for its retiree health and pension funds of $73.4 

billion, $33.9 billion of which relates to required prefunding payments 

for postal retirees' health benefits that have not been made and is 

included in the liabilities reported on its balance sheet. 

Some government insurance programs such as the National Flood 

Insurance Program do not have sufficient dedicated resources to 

cover expected costs. 11 The Federal Emergency Management 

Agency (FEMA), which administers the National Flood Insurance 

Program, owed $24.6 billion as of March 2017 to the Department of 

the Treasury (Treasury) for money borrowed to pay claims and other 

expenses, including $1.6 billion borrowed following a series of floods 

11We have suggested an alternative way to record insurance commitments in the budget 

such that the federal government's commitment would be more fully recognized. See 

GAO, Fiscal Exposures: Improving Cost Recognition in the Federal Budget,GA0~14-28 

(Washington, D.C.: Oct. 29, 2013) 

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Key Drivers of Long-Term 

Outlook 

Health Care Spending 

in 2016. FEMA is unlikely to collect enough in premiums to repay this 

debt. 12 

Citizens also look to the federal government for assistance when crises 

happen and immediate federal action is expected. This can take the form 

of expectations for additional and large amounts of federal spending. 

These crises often cannot be predicted and are very difficult to budget for. 

According to the Congressional Research Service. the federal budget 

does contain some funds for disaster response through the Disaster 

Relief Fund; however, this fund often is insufficient to respond to the 

number and scope of natural disasters, and it is not typically used as a 

funding source for other types of unforeseen events such as wars, 

financial crises, cyberattacks, or health pandemics. 

The growing gap between revenues and spending reflects three main 

trends: significant growth in spending for retirement and healthcare 

programs, rising interest payments on the government's debt, and modest 

growth in revenues. The size of the gap is such that both the spending 

and revenue side of the budget must be examined. 

The 2016 Financial Report's long-term fiscal projections, CBO's long-term 

projection, and GAO's long-term simulations all show that the key drivers 

on the spending side are health care programs and interest on debt held 

by the public (net interest). Social security also poses significant financial 

challenges. 

Total health care spending (public and private) in the United States 

continues to grow faster than the economy. As figure 3 shows, growth in 

federal spending for health care programs has exceeded the growth of 

GOP historically and is projected to grow faster than the economy. These 

health care programs include Medicare, Medicaid, and the Children's 

Health Insurance Program, along with federal subsidies for health 

insurance purchased through the marketplaces established by the Patient 

Protection and Affordable Care Act (ACA) and related spending. 

Flood Insurance: Comprehensive Reform Could Improve Solvency and Enhance 

Resilience, GA0~17-425 (Washington, D.C.: Apr. 27, 2017). 

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Figure 3: Federal Spending on Major Health Care Programs Grows Faster than 

Gross Domestic Product 

Cumulative real growth since 2000 (percentage) 

500 

400 

300 

200 

100 

Fiscal year 

Source GAOana!ySISOfCrmgreSSIQ!lll!BudgetOfficedata I GA0-17-579T 

Cumulative growth in 

gross domestic product 

------ Note: Cumulative growth in both gross domestic product (GOP) and federal spending on major health 

care programs has been adjusted for inflation. GOP is the value of all goods and services produced in 

a country in a given year. Major federal health programs include Medicare, Medicaid, the Children's 

Health Insurance Program, and federal subsidies for health insurance purchased through the 

marketplaces established by the Patient Protection and Affordable Care Act and related spending. 

According to GAO's alternative simulation, federal spending on major 

health care programs is projected to increase from $993 billion in fiscal 

year 2016 to $2 trillion in fiscal year 2045 in 2016 dollars. Growth in 

federal spending on health care is driven, in part, by increasing 

enrollment in federal health care programs, stemming from both the aging 

of the population and the expansion of federal programs. As many 

members of the baby-boom generation age and as life expectancy 

continues to generally increase, the number of people 65 or older is 

expected to rise by more than one-third, thereby increasing the number of 

Medicare beneficiaries. (See figure 4.) 

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Source. GAO analysts of U.S. Census Bumau information 1 GA0-17,579T 

Net Interest 

Note: Census data est!rnates of population are as of July 1 in each year. 

According to CBO, outlays for Medicaid in fiscal year 2016 rose by $18 

billion (or 5.3 percent) compared with outlays in fiscal year 2015. The 

decision of more than half the states to expand eligibility for their 

Medicaid programs as provided by the ACA was the primary reasons for 

this growth. The growth in federal spending on health care can also be 

attributed to increases in health care spending per enrollee. Per 

beneficiary health care spending has historically risen faster than per 

capita economic output and is projected to do so in the future. 

While health care spending is a key programmatic and policy driver of the 

long-term outlook on the spending side of the budget, eventually, 

spending on net interest becomes the largest category of spending in 

both the 2016 Financial Report's long-term fiscal projections and GAO's 

simulations. Specifically, in GAO's alternative simulation, net interest 

increases from $248 billion in fiscal year 2016 to $1.4 trillion in fiscal year 

2045 in 2016 dollars. 

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Growth in interest payments occurs for two main reasons: 

Growing debt: Even without any increase in interest rates, the cost of 

financing the debt grows as debt held by the public grows, resulting in 

greater interest payments than would otherwise exist with less debt. 

Spending on interest can absorb resources that could be used instead 

for other priorities. 

Growth in interest rates: In recent years interest rates on Treasury 

securities have remained low, lowering interest costs. However, CBO 

and others project those interest rates will rise in the long term, 

increasing the net interest costs on the debt. Marketable U.S. 

Treasury securities consist of bills, notes, and bonds. Treasury seeks 

to accomplish "lowest cost financing over time" in the way it manages 

debt issuance. 13 

Net interest costs will depend in part on the outstanding mix of Treasury 

securities. Treasury issues securities in a wide range of maturities to 

appeal to the broadest range of investors. Longer-term securities typically 

carry higher interest rates but offer the government the ability to "lock in" 

fixed interest payments over a longer period and reduce the amount of 

debt that Treasury needs to refinance in the short term. In contrast, 

shorter-term securities generally carry lower interest rates. They also play 

an important role in financial markets. For example, investors use 

Treasury bills to meet requirements to buy financial assets maturing in a 

year or less. However, shorter-term securities add uncertainty to the 

government's interest costs and require Treasury to conduct more 

frequent auctions to refinance maturing debt. 

As of September 30, 2016, 58 percent of marketable Treasury securities 

held by the public were scheduled to mature and need to be refinanced in 

the next 4 years-potentially at higher interest rates. 14 As the 2016 

Financial Report notes, each year trillions of dollars of debt mature and 

new debt is issued in its place. In fiscal year 2016, new borrowings were 

$8.4 trillion, and repayments of maturing debt held by the public were 

$7.3 trillion. 

13GAO, Debt Management: Floating Rate Notes Can Help Treasury Meet Borrowing 

Goats, but Additional Actions Are Needed to Help Manage Risk, GA0-14-535 

(Washington, D.C.: June 16, 2014). 

14GAO, Financial Audit: Bureau of the Fiscal Service's Fiscal Years 2016 and 2015 

Schedules of Federal Debt, GA0-17 -104 (Washington, D.C.: Nov. 10, 2016). 

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Social Security 

Fiscal Pressures Growing 

Social Security also poses significant financial challenges. It provides 

individuals with benefits that can help offset the loss of income due to 

retirement, death, or disability, and paid more than $905 billion in Old-Age 

and Survivors Insurance (OASI) and Disability Insurance (DI) program 

benefits in fiscal year 2016. However, demographic factors, such as an 

aging population and slower labor force growth, are straining Social 

Security programs and contributing to a gap between program costs and 

revenues. Absent any changes, it is projected that the Social Security 

trust funds will deplete their assets and that incoming revenues will not be 

sufficient to pay benefits in full on a timely basis. 

To change the long-term fiscal path, policymakers will need to consider 

policy changes to the entire range of federal activities: entitlement 

programs, other mandatory spending, discretionary spending, and 

revenue. The 2016 Financial Report, CBO, and GAO all make the point 

that the longer action is delayed, the greater and more drastic the 

changes will have to be. 

Medicare's Hospital Insurance trust fund, and Social Security's OASI and 

Dl trust funds face financial challenges that add to the importance of 

beginning action soon. (See figure 5.) It is important to develop and begin 

to implement a long-term fiscal plan for returning to a sustainable path. 

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Debt Limit Is Not a Control As currently structured, the debt limit-a legal limit on the amount of 

on Debt federal debt that can be outstanding at one time-does not restrict 

Congress and the President's ability to enact spending and revenue 

legislation that affects the level of debt; nor does it otherwise constrain 

fiscal policy. The debt limit is an after-the-fact measure: the spending and 

tax laws that result in debt have already been enacted. In other words, 

the debt limit restricts Treasury's authority to borrow to finance the 

decisions already enacted by Congress and the President. 15 

I cannot overstate the importance of preserving confidence in "the full 

faith and credit" of the United States. Failure to increase (or suspend) the 

debt limit in a timely manner could have serious negative consequences 

for the Treasury market and increase borrowing costs. For those Treasury 

securities issued during the 2013 debt limit impasse, we estimated that 

the additional borrowing costs incurred through fiscal year 2014 were 

between $38 and $70 million depending on the assumptions used. 

When delays in raising the debt limit occur, Treasury often must deviate 

from its normal debt management operations and take a number of 

extraordinary actions to avoid exceeding the debt limit. 16 The Bipartisan 

Budget Act of 2015 temporarily suspended the debt limit from November 

2, 2015, through March 15, 2017. 17 Following the expiration of the debt 

limit suspension period. on March 16, 2017, Treasury began taking 

extraordinary actions to avoid exceeding the debt limit. These 

extraordinary actions included suspending investments to certain federal 

government accounts. 

During the 2013 impasse, investors reported taking the unprecedented 

action of systematically avoiding certain Treasury securities-(i.e., those 

that would mature around the dates when Treasury projected it would 

exhaust the extraordinary actions it used to manage debt as it 

approached the debt limit). For these securities, the actions resulted in 

15For more discussion of the federal debt and debt limit, see GAO, Fiscal Outlook· 

Understanding the Federal Debt, accessed Apr!! 29, 2017, 

http;//www.gao.gov/fiscal_outlooklunderstanding_federal_debtloverview, and Debt Limit: 

Analysis of 2011-2012 Actions Taken and Effect of Delayed increase on Borrowing Costs, 

GA0-12-701 (Washington, D.C.: July 23. 2012). 

16Actions that are not part of Treasury's normal cash and debt management operations 

are considered "extraordinary actionsn by Treasury. 

17Pub. L. No. 114-74, § 901, 129 Stat. 584,620 (Nov. 2, 2015). 

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both a dramatic increase in interest rates and a decline in liquidity in the 

secondary market where securities are traded among investors. 

To minimize disruptions to the Treasury market and to help inform fiscal 

policy debate in a timely way, we recommended that decisions about 

giving Treasury the authority to borrow be made when decisions about 

spending and revenues are made. In 2015, we conducted a forum with 

experts in the field to help identify options for Congress to delegate its 

borrowing authority and better align decisions about the level of debt with 

decisions on spending and revenue. All maintain Congressional control 

and oversight over federal borrowing." Our report described the benefits 

and challenges presented by each of the options described below: 

Option 1: Link Action on the Debt Limit to the Budget Resolution. 

This is a variation of a previously used approach under which 

legislation raising the debt limit to the level envisioned in the 

Congressional Budget Resolution would be spun off and either be 

deemed to have passed or be voted on immediately thereafter. 

Option 2: Provide the Administration with the Authority to 

Increase the Debt Limit, Subject to a Congressional Motion of 

Disapproval. This is a variation of an approach contained in the 

Budget Control Act of 2011. Congress would give the administration 

the authority to propose a change in the debt limit, which would take 

effect absent enactment of a joint resolution of disapproval within a 

specified time frame. 

Option 3: Delegating Broad Authority to the Administration to 

Borrow as Necessary to Fund Enacted Laws. This is an approach 

used in some other countries: delegate to the administration the 

authority to borrow such sums as necessary to fund implementation of 

the laws duly enacted by Congress and the President. Since the laws 

that affect federal spending and revenue and so create the need for 

debt already require adoption by the Congress, Congress would still 

maintain control over the amount of federal borrowing. 

We did not endorse a specific option but we did recommend that 

Congress consider alternative approaches that better link decisions about 

Debt Limit: Market Response to Recent Impasses Underscores Need to Consider 

Alternative Approaches, GAO~ 15-476 (Washington, D.C.: July 9, 2015), 

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Congress and 

Agencies Have 

Opportunities to Take 

Actions that Will 

Assist in Addressing 

the Government's 

Fiscal Condition 

the debt limit with decisions about spending and revenue at the time 

those decisions are made. 

Some of the experts also supported replacing the debt limit with a fiscal 

rule imposed on spending and revenue decisions. The federal 

government has enacted such fiscal rules in the past. For example, the 

Budget Control Act of 2011 enacted limits on discretionary spending, 

which are enforced by additional spending cuts if those limits are 

breached (known as a sequester). Congress could consider additional 

fiscal rules to frame and control the overall results of spending and 

revenue decisions. Such rules could limit spending or affect other areas 

of the budget such as overall debt or annual deficits. Other countries have 

also operated under such fiscal rules. 

For example, the European Union's (EU) stability and growth pact allows 

for sanctions against member states that exceed certain target levels of 

debt or deficits defined as "excessive" by the EU. The pact is a set of 

rules designed to ensure that countries in the EU pursue sound public 

finances and coordinate their fiscal policies. The EU defines an excessive 

budget deficit as one greater than 3 percent of GDP. Public debt is 

considered excessive if it exceeds 60 percent of GDP without diminishing 

at an adequate rate (defined as a decrease of the excess debt by 5 

percent per year on average for more than 3 years). That said, several 

nations have struggled to meet these targets in recent years. In general, 

budget experts and other observers have noted that the success of fiscal 

rules depends on effective enforcement and a sustained commitment by 

policymakers and the public. 

Achieving long-term fiscal sustainability will require examining revenues 

and the drivers of spending and enacting legislation to narrow the growing 

gap between spending and revenues. However, in our prior work we have 

also identified numerous actions Congress and agencies can take now to 

help improve the fiscal situation. It is important for agencies to act as 

stewards of federal resources. Although these actions alone cannot put 

the U.S. government on a sustainable fiscal path, they would improve 

both the fiscal situation and the federal government's operations. 

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Actions Needed to 

Address Improper 

Payments 

Improper Payments Remain a 

Significant, Pervasive 

Government-Wide Issue 

Improper payments remain a significant and pervasive government-wide 

issue. 19 For several years, we have reported improper payments as a 

material weakness in our audit reports on the consolidated financial 

statements of the U.S. government. 20 Since fiscal year 2003-when 

certain agencies began reporting improper payments as required by the 

Improper Payments Information Act of 2002 (IPIA)--cumulative reported 

improper payment estimates have totaled over $1.2 trillion, as shown in 

figure 6. 21 

Improper Payments Information Act of 2002, as amended, an improper 

payment is statutorily defined as any payment that should not have been made or that 

was made in an incorrect amount (including overpayments and underpayments) under 

statutory, contractual, administrative, or other legally applicable requirements. It includes 

any payment to an ineligible recipient, any payment for an ineligible good or service, any 

duplicate payment, any payment for a good or service not received (except for such 

payments where authorized by law), and any payment that does not account for credit for 

applicable discounts. Office of Management and Budget guidance also instructs agencies 

to report as improper payments any payments for which insufficient or no documentation 

was found. 

20GA0-17 -283R. 

21 1PIA-as amended by the Improper Payments Elimination and Recovery Act of 2010 

(IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 

(IPERIA)-requires executive branch agencies to (1) review all programs and activities, 

(2) identify those that may be susceptible to significant improper payments, (3) estimate 

the annual amount of improper payments for those programs and activities, (4) implement 

actions to reduce improper payments and set reduction targets, and (5} report on the 

results of addressing the foregoing requirements. !PIA, Pub. L. No. 107-300, 116 Stat. 

2350 (Nov. 26, 2002), as amended by IPERA, Pub. L. No. 111-204, 124 Stat. 2224 (July 

22, 2010), and IPERIA, Pub. L. No. 112-248, 126 Stat. 2390 (Jan. 10, 2013), and codified 

as amended at 31 U.S.C. § 3321 note. !PIA, as amended, defines "significant improper 

payments" as gross annual improper payments in a program exceeding (1) both 1.5 

percent of program outlays and $10 million of all program or activity payments during the 

fiscal year reported or (2) $100 mi!Hon (regardless of the improper payment error rate). 

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Note: Generally, the specific programs and total number of programs that constitute the government~ 

wide improper payment estimate vary from year to year. In earlier years, the number of programs 

included in the government-wide estimate generally increased as programs reported improper 

payment estimates for the first time. 

For fiscal year 2016, agencies reported improper payment estimates 

totaling $144.3 billion, an increase of over $7 billion from the prior year's 

estimate of $136.7 billion. The reported estimated government-wide 

improper payment error rate was 5.1 percent of related program outlays. 22 

These figures do not include the Department of Defense's (DOD) 

Defense Finance and Accounting Service (DFAS) Commercial Pay 

program because of concerns regarding the reliability of the program's 

estimate, which I will discuss later in this statement. As shown in figures 7 

and 8, the reported improper payment estimates-both dollar estimates 

22Reported error rates reflect the estimated improper payments as a percentage of total 

program outlays. 

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and error rates-have been increasing over the past 3 years, largely 

because of increases in Medicaid's reported improper payment estimates. 

Note: Improper payment estimate amounts do not include the Department of Defense's Defense 

Finance and Accounting Service Commercial pay program because of issues related to the reliability 

of the program's estimate. Figures may not add up to totals due to rounding. 

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Figure 8: Reported Improper Payment Error Rates for Fiscal Years 2012 through 

2016 

5.0 

4.0 

3.0 

2.0 

1.0 

2012 

Fiscal year 

2013 2014 2015 2016 

Source: Ft!Wnr:tal Report of the Umted Slates Goll(l/11n!en! for fiscal yems 2013 through 2016, 1 GA0·17·579T 

Note: Improper payment estimate amounts do not include the Department of Defense's Defense 

Finance and Accounting Servtce Commercial pay program because of issues related to the reliability 

of the program's estimate. 

For fiscal year 2016, overpayments accounted for approximately 93 

percent of the improper payment estimate, according to 

www.paymentaccuracy.gov, with underpayments accounting for the 

remaining 7 percent. 

Although primarily concentrated in three areas (Medicare, Medicaid, and 

the Earned Income Tax Credit), the reported estimated improper 

payments for fiscal year 2016 were attributable to 112 programs spread 

among 22 agencies. (See figure 9.) 

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Source GAO analySIS of age11c1es fiscal year 2016 data I GAO· 17·579T 

Note: Improper payment estimate amounts do not include the Department of Defense's Defense 

Finance and Accounting Service Commercial Pay program because of issues related to the reliability 

of the program's estimate. Due to rounding, numbers may not add up to 100 percent or match the 

government-wide improper payment estimate ($144.3 billion). 

Agencies reported improper payment estimates exceeding $1 billion for 

14 programs, as shown in table 1, and error rates exceeding 10 percent 

for 11 programs. (See table 2.) 

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Table 2: Programs with Reported Improper Payment Error Rates over 10 Percent for Fiscal Year 2016 

Source: GAO summary of agen<;:1es' da!a. j GA0-1?-579T 

Multiple Factors Hinder Efforts 

to Determine the Full Extent of 

and Reduce Improper 

Payments 

In our audit report on the fiscal year 2016 consolidated financial 

statements of the U.S. government, we continued to report a material 

weakness in internal control related to improper payments because the 

federal government is unable to determine the full extent to which 

improper payments occur and reasonably assure that appropriate actions 

are taken to reduce them. 23 Challenges include potentially inaccurate risk 

assessments, programs that do not report any improper payment 

estimates or report unreliable or understated estimates, and 

noncompliance issues. 

Potentially Inaccurate Risk Assessments 

Agencies conduct risk assessments to determine which programs need to 

develop improper payment estimates. However, in Improper Payments 

Elimination and Recovery Act (IPERA) compliance reports for fiscal year 

2015-the most current reports available-various inspectors general 

(IG) reported issues related to agencies' improper payment risk 

assessments. For example: 

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The IG for the General Services Administration reported that the 

agency's risk assessment was flawed because, among other things, 

the questionnaires in the assessment did not ask if programs actually 

experience improper payments and were distributed to individuals 

who did not have direct or specific knowledge of improper 

payments. 24 Further, the IG found that the agency did not evaluate 

relevant reports-such as IG or GAO reports-to identify relevant 

findings, and two of the six questionnaires that the IG reviewed 

included incomplete information. 

The IG for the Department of Housing and Urban Development found 

that the agency did not assess all of its programs on a 3-year cycle 

and did not consider all nine of the required risk factors in conducting 

its risk assessment 25 The IG also noted instances in which the 

agency did not rate risk factors in accordance with the agency's own 

policy. 

It is also important to note that nine of the Chief Financial Officer (CFO) 

Act agencies either reported no improper payment estimates or reported 

estimates for only disaster relief programs funded through the Disaster 

Relief Appropriations Act, 2013 for fiscal year 2016. 26 The nine agencies 

were: 

U.S. Agency for International Development 

Department of Energy 

Department of State 

National Science Foundation 

Nuclear Regulatory Commission 

Department of Commerce (disaster relief only) 

Department of the Interior (disaster relief only) 

Department of Justice (disaster relief only) 

24Genera! Services Administration Office of Inspector General, GSA Did Not Fully Comply 

with the Improper Payments Acts in FY 2015, A160018/B/5/F16002 (Washington, D.C .. 

May 11, 2016). 

25Department of Housing and Urban Development Office of Inspector General, 

Compliance with the Improper Payments Elimination and Recovery Act, 2016~F0~0005 

(Washington, D.C.: May 13, 2016). 

26The Disaster Relief Appropriations Act, 2013, requires agencies to estimate improper 

payments for funds received under the act. 

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AmeriCorps 

National Aeronautics and Space Administration (disaster relief only). 

Programs That Do Not Report Improper Payment Estimates 

We found that not all agencies had developed improper payment 

estimates for all of the programs and activities they identified as 

susceptible to significant improper payments. Eight agencies did not 

report improper payment estimates for 18 risk-susceptible programs. (See 

table 3.) 

Environmental Protection Agency 

Corporation for National and Community Service 

Source GAO summary ol agencm&· fiscal year 201$ ag<:mey 6naocial reports. t GA0-17-579T 

Because agencies did not report improper payment estimates for these 

risk-susceptible programs, the government-wide improper payment 

estimate is understated and agencies are hindered in their efforts to 

reduce improper payments in these programs. For example, the 

Department of Health and Human Services (HHS) did not report an 

improper payment estimate for Temporary Assistance for Needy Families, 

a program with outlays of over $15 billion for fiscal year 2016. HHS cited 

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statutory limitations prohibiting the agency from requiring states to 

participate in an improper payment measurement for the program. 

Another example is U.S. Department of Agriculture's (USDA) 

Supplemental Nutrition Assistance Program. Although USDA has 

reported improper payment estimates for this program in prior years, the 

agency did not report an estimate for fiscal year 2016. 27 In its fiscal year 

2016 agency financial report, USDA stated that it was unable to validate 

data provided by 42 of the 53 state agencies that administer the program. 

USDA stated that it could not adjust for this unreliability and calculate a 

national error rate. 

Potentially Unreliable or Understated Estimates 

Improper payment estimates for certain programs may be unreliable or 

understated. For example, in May 2013 we reported that DOD had major 

deficiencies in its process for estimating fiscal year 2012 improper 

payments in the Defense Finance and Accounting Service (DFAS) 

Commercial Pay program, including deficiencies in identifying a complete 

and accurate population of payments. 28 The foundation of reliable 

statistical sampling estimates is a complete, accurate, and valid 

population from which to sample. As of October 2016, DOD was still 

developing key quality assurance procedures to ensure the completeness 

and accuracy of sampled populations. Therefore, DOD's fiscal year 2016 

improper payment estimates, including its estimate for the DFAS 

Commercial Pay program, may not be reliable. DFAS Commercial Pay's 

reported program outlays are significant-approximately $249 billion for 

fiscal year 2016. Consequently, a small change in the program's 

estimated error rate could result in a significant change in the dollar value 

of its improper payment estimate. 

Further, flexibility in how agencies are permitted to implement improper 

payment estimation requirements can contribute to inconsistent or 

understated estimates. For example, in February 2015, we reported that 

DOD uses a methodology for estimating TRICARE improper payments 

that is less comprehensive than the methodology the Centers for 

year 2015, USDA reported an estimated $2.6 billion-or 3. 7 percent of the 

$70.0 billion ln related program outlays-in improper payments for SNAP. 

28GAO, DOD Financial Management: Significant Improvements Needed in Efforts to 

Address Improper Payment Requirements, GA0~13~227 (Washington, D.C.: May 13, 

2013). 

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Medicare & Medicaid Services (CMS) used for Medicare." Though the 

programs are similar in that they pay providers on a fee-for-service basis 

and depend on contractors to process and pay claims, TRICARE's 

methodology does not examine the underlying medical record 

documentation to discern whether each sampled payment was supported 

or whether the services provided were medically necessary. On the other 

hand, Medicare's methodology more completely identifies improper 

payments beyond those resulting from claim processing errors, such as 

those related to provider noncompliance with coding, billing, and payment 

rules. 

As a result, the estimated improper payment error rates for TRICARE and 

Medicare are not comparable, and TRICARE's error rate is likely 

understated. In addition, corrective actions for TRICARE improper 

payments do not address issues related to medical necessity errors-a 

significant contributor to Medicare improper payments. We recommended 

that DOD implement a more comprehensive TRICARE improper payment 

methodology and develop more robust corrective action plans that 

address the underlying causes of improper payments. In October 2016, 

DOD requested proposals for claim record reviews-including medical 

record reviews-to begin the process of incorporating medical record 

reviews in its methodology for calculating improper payment rates. 

Increasing Reported Agency Noncompliance 

Since fiscal year 2011, IPERA has required agencies' IGs to annually 

report on the respective agencies' compliance under the act. 30 IGs at15 

of the 24 CFO Act agencies found their respective agencies to be 

29GAO, Improper Payments.· TRICARE Measurement and Reduction Efforts Could Benefit 

from Adopting Medical Record Reviews, GA0~15~269 (Washington, D.C.: Feb. 18, 2015}. 

30!PERA established a requirement for entity inspectors general to report annually on 

entitles' compliance with criteria listed in section 3 of IPERA. The six criteria are that the 

entity has (1) published an annual financial statement and accompanying materials in the 

form and content required by OMB for the most recent fiscal year and posted that report 

on the entity website; (2) conducted a risk assessment for each specific program or 

activity that conforms with !PIA, as amended; (3) published estimates of improper 

payments for al! programs and activities identified as susceptible to significant improper 

payments under the entity's risk assessment; (4) published corrective action plans for 

programs and activities assessed to be at risk for significant improper payments; (5) 

published and met annual reduction targets for all programs and activities assessed to be 

at risk for significant improper payments; and (6) reported a gross improper payment rate 

of less than 10 percent for each program and activity for which an improper payment 

estimate was obtained and published, 

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Strategies for Reducing 

Improper Payments 

noncompliant under IPERA for fiscal years 2014 and 2015, the highest 

total since IGs began their annual compliance reviews. Although 

noncompliance has occurred across all six of the criteria listed in IPERA, 

the most common issues are noncompliance related to reporting and 

meeting improper payment reduction targets or reporting an error rate 

below 10 percent. Continued noncompliance further highlights the need 

for additional efforts to reduce improper payments. 

Agencies can use detailed root cause analysis and related corrective 

actions to implement preventive and detective controls to reduce 

improper payments. Collaboration with other relevant entities can also 

assist federal agencies in reducing improper payments. 

Root Cause Analysis 

Root cause analysis is key to understanding why improper payments 

occur and developing effective corrective actions to prevent them. In 

2014, the Office of Management and Budget (OMB) established new 

guidance to assist agencies in better identifying the root causes of 

improper payments and assessing their relevant internal controls. 

Agencies across the federal government began reporting improper 

payments using these more detailed root cause categories for the first 

time in their fiscal year 2015 financial reports. Further identification of the 

true root causes of improper payments can help to determine the 

potential for fraud. Figure 10 shows the root causes of government-wide 

improper payments for fiscal year 2016, as reported by OMB. We will 

continue to focus on agencies' efforts to both identify the root causes and 

take appropriate actions to reduce improper payments. 

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Source: Frscal Year 2016 Fmsnoal Report of !he US Government ! GA0-17-579T 

Preventive Controls 

Implementing strong preventive controls can serve as the frontline 

defense against improper payments. When agencies proactively prevent 

improper payments, they increase public confidence in program 

administration and they avoid the difficulties associated with the "pay and 

chase" aspects of recovering overpayments. 31 Examples of preventive 

controls include up-front eligibility validation through data sharing, 

predictive analytic technologies, and program design review and 

refinement. For example, we have made the following recommendations 

and matters for congressional consideration to improve preventive 

controls in various programs. 

Use of the Do Not Pay (DNP) working system. Established by OMB 

and hosted by Treasury, the DNP working system is a web-based, 

centralized data-matching service that allows agencies to review 

multiple databases-such as data on deceased individuals and 

31 "Pay and chase" refers to the labor~intenslve and time-consuming practice of trying to 

recover overpayments once they have already been made rather than preventing 

improper payments ln the first place. 

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entities barred from receiving federal awards-before making 

payments. In October 2016, we found that the 10 agencies we 

reviewed used the DNP working system in limited ways, in part 

because OMB had not provided a clear strategy and guidance. 32 Only 

2 of these 10 agencies used the DNP working system on a preaward 

or prepayment basis for certain types of payments. Because the DNP 

working system offers a single point of access to multiple databases, 

agencies may be able to streamline their existing data matching 

processes. Among other things, we recommended that OMB develop 

a strategy-and communicate it through guidance-for whether and 

how agencies should use the DNP working system to complement or 

streamline existing data matching processes. OMB generally agreed 

with the concept of developing a strategy and said it would explore the 

concept further. 

Further, we found that the death records offered through the DNP 

working system do not include state-reported death data. The Social 

Security Administration (SSA) officials stated that sharing its full death 

file-which includes state-reported death data-would require an 

amendment to the Social Security Act We suggested that Congress 

amend the Social Security Act to explicitly allow SSA to share its full 

death file with Treasury for use through the DNP working system. 

Sharing the full death file through the DNP working system would 

enhance efforts to identify and prevent improper payments. 

Expanded error correction authority. IRS has the authority to 

correct some calculation errors and check for other obvious 

noncompliance such as claims for a deduction or credit that exceed 

statutory limits. We have suggested to Congress that such authority 

be authorized on a broader basis rather than on a piecemeal basis 

and that controls may be needed to help ensure that this authority is 

used properly. 33 Also, Treasury has proposed expanding IRS's "math 

error" authority to "correctible error" authority to permit it to correct 

errors in cases where information provided by the taxpayer does not 

match information in government databases, among other things. 

Providing these authorities could help IRS correct additional errorsincluding some errors with Earned Income Tax Credit claims-and 

avoid burdensome audits and taxpayer penalties. 

32GAO, Improper Payments: Strategy and Additional Actions Needed to Help Ensure 

Agencies Use the Do Not Pay Working System as Intended, GA0-17-15 (Washington, 

D.C.: Oct. 14, 2016). 

33GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, but Rep01ting and 

Enforcement Improvements Are Needed, GA0-10-349 (Washington, D.C.: Feb. 10, 2010). 

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Additional prepayment reviews in Medicare fee-for-service. In 

April2016, we found that CMS could improve its claim review 

programs by conducting additional prepayment reviews. 34 Using 

prepayment reviews to deny improper claims and prevent 

overpayments is consistent with CMS's goal to pay claims correctly 

the first time. It can also better protect Medicare funds because not all 

overpayments can be collected. A recovery auditor (RA) is one type of 

claim review contractor that CMS uses, and in 2013 and 2014, 85 

percent of RA claim reviews were postpayment. Because CMS is 

required by law to pay RAs contingency fees from recovered 

overpayments, the RAs can only conduct prepayment reviews under a 

demonstration." From 2012 through 2014, CMS conducted a 

demonstration in which the RAs conducted prepayment reviews and 

were paid contingency fees based on claim denial amounts. CMS 

officials considered the demonstration a success. However, CMS has 

not requested legislation that would allow for RA prepayment reviews 

by amending existing payment requirements and thus may be missing 

an opportunity to better protect Medicare funds. 

We recommended that CMS seek legislative authority to allow RAs to 

conduct prepayment claim reviews. HHS did not concur with this 

recommendation, stating that CMS has implemented other programs 

as part of its efforts to move away from the "pay and chase" process 

of recovering overpayments. We continue to believe that seeking 

authority to allow RAs to conduct prepayment reviews is consistent 

with CMS's strategy to pay claims properly the first time. 

Detective Controls 

Although preventive controls remain the frontline defense against 

improper payments, effective detection techniques can help to quickly 

identify and recover those overpayments that do occur. Detective controls 

play a significant role not only in identifying improper payments but also in 

providing information on why these improper payments were made, 

highlighting areas that need stronger preventive controls. Examples of 

detective controls include data mining and recovery auditing. The 

Medicare: Claim Review Programs Could Be Improved with Additional 

Prepayment Reviews and Better Data, GA0~16-394 (Washington, D.C.: Apr. 13, 2016). 

35CMS uses demonstrations to study the likely impact of new methods of service de!!very, 

coverage of new types of service, and new payment approaches on beneficiaries, 

providers, health plans, states, and the Medicare Trust Funds. 

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following are examples of recommendations we have made to improve 

detective controls in various programs. 

Improvements to recovery efforts in Medicare Advantage. In April 

2016, we reported that CMS needs to fundamentally improve its 

efforts to recover substantial amounts of improper payments in the 

Medicare Advantage program. 36 CMS conducts two types of risk 

adjustment data validation (RADV) audits to identify and correct 

Medicare Advantage improper payments: national RADV activities 

and contract-level RADV audits. Both types of audits determine 

whether the diagnosis codes submitted by Medicare Advantage 

organizations are supported by a beneficiary's medical record 

documentation. Contract-level RADV audits seek to identify and 

recover improper payments from Medicare Advantage organizations 

and thus to deter them from submitting inaccurate beneficiary 

diagnoses. However, we found that CMS does not focus its RADV 

audits on the contracts with the highest potential for improper 

payments and has not developed specific plans or a timetable for 

including recovery auditor contractors in the contract-level RADV audit 

process. 

We made several recommendations, including that CMS modify the 

selection of contracts for contract-level RADV audits to focus on those 

most likely to have high rates of improper payments and that CMS 

develop specific plans and a timetable for incorporating a recovery 

audit contractor in the Medicare Advantage program. In response to 

our report, HHS concurred with the recommendations and reaffirmed 

its commitment to identifying and correcting Medicare Advantage 

improper payments. By implementing our recommendations, CMS 

could recover hundreds of millions of dollars in improper payments by 

improving its processes for auditing payments to Medicare Advantage 

organizations. 

Review of federal determinations of Medicaid eligibility. In 

October 2015, we reported that additional efforts were needed to 

ensure that state spending is appropriately matched with federal funds 

in Medicaid. 37 States and the federal government share in the 

Medicare Advantage: Fundamental Improvements Needed in CMS's Effort to 

Recover Substantial Amounts of Improper Payments, GA0-16-76 {Washington, D.C.: Apr. 

8, 2016). 

37GAO, Medicaid: Additional Efforts Needed to Ensure that State Spending is 

Appropriately Matches with Federal Funds, GA0-16-53 (Washington, D.C.: Oct. 16, 

2015). 

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financing of the Medicaid program, with the federal government 

matching most state expenditures for Medicaid services on the basis 

of a statutory formula. CMS has implemented interim measures to 

review the accuracy of state eligibility determinations and examine 

states' expenditures for different eligibility groups, for which states 

may receive multiple federal matching rates. 

However, some states have delegated authority to the federal 

government to make Medicaid eligibility determinations through the 

federally facilitated exchange. CMS has excluded these states from 

the reviews. This creates a gap in efforts to ensure that only eligible 

individuals are enrolled into Medicaid and that state expenditures are 

correctly matched by the federal government. We recommended that 

CMS conduct reviews of federal Medicaid eligibility determinations to 

ascertain the accuracy of these determinations and institute corrective 

action plans where necessary. 

HHS has taken some steps to improve the accuracy of Medicaid 

eligibility determinations, as we recommended, but has not conducted 

a systematic review of federal eligibility determinations. For example, 

in March 2017, HHS reported that it is reviewing federal 

determinations of Medicaid eligibility in two of the nine states that 

have delegated eligibility determination authority to the federal 

marketplace. Although the actions HHS has taken have value, they 

are not sufficient to identify erroneous eligibility determinations. 

Specifically, without a systematic review of federal eligibility 

determinations, the department lacks a mechanism to identify and 

correct errors and associated payments. 

Collaboration with Other Entities 

While federal agencies are responsible for reducing improper payments, 

agencies may consider collaboration with relevant entities-such as 

OMB, states, state auditors, and the IG community-to expand efforts to 

reduce improper payments. In November 2016, we held a discussion with 

various state auditors and federal agencies to identify potential 

opportunities to strengthen collaboration, focusing on federal and state 

initiatives related to improper payments. Further, in September 2015, we 

reported on the Recovery Operations Center's (ROC) significant 

analytical services, provided primarily to IGs to support antifraud and 

other activities. 38 While funding for the ROC ended in September 2015, 

Page 32 

Federal Spending Accountabifity: Presetving Capabilities of the Recovery 

Center Could Help Sustain Oversight of Federal Expenditures, GA0-15-814 

D.C.: Sept. 14, 2015). 

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Opportunities Exist to 

Improve Efficiency and 

Effectiveness of 

Government Programs 

officials from some small- and medium-sized IGs stated that they do not 

have the capabilities to develop independent data analytics or pay for a 

similar service, thus foregoing the ROC's capabilities. We suggested that 

Congress may wish to consider directing the Council of the Inspectors 

General on Integrity and Efficiency to develop a legislative proposal to 

reconstitute the essential capabilities of the ROC to help ensure federal 

spending accountability. 

Finally, I recently met with the Director of OMB to discuss improper 

payments, among other issues. This spring we are providing OMB a letter 

highlighting open priority recommendations related to important issues, 

including improper payments. Strengthened efforts and collaboration 

among relevant entities is important to reducing improper payments 

across the federal government 

For the last 7 years, we have annually presented actions Congress or 

executive branch agencies could take to reduce, eliminate, or better 

manage fragmentation, overlap, or duplication; achieve cost savings; or 

enhance revenue. 39 We also maintain our High-Risk List to bring attention 

to government operations that are at high risk of fraud, waste, abuse, and 

mismanagement, or that need broad-based transformation to address 

economy, efficiency, or effectiveness challenges of government 

operations 4 ° Combined, these efforts have led to hundreds of billions of 

dollars in financial benefits over the last decade. Fully addressing the 

issues we raise in those reports could yield additional benefits, such as 

increased savings, better services to the public, and improved federal 

programs. For example, we estimate tens of billions more dollars could be 

saved by fully implementing our remaining open recommendations to 

address fragmentation, overlap, and duplication. While these issues span 

the government, a substantial number of them involve five agencies that 

made up 69 percent-$3.0 trillion-of federal outlays in fiscal year 2016: 

the Departments of Defense, Health and Human Services, and Veterans 

Affairs; the Social Security Administration; and the Office of Management 

Budget. 

In addition, our online Action Tracker allows Congress, executive 

branch agencies, and the public to track the progress the government is making in 

addressing the issues we have identified since 2011. To improve search functions, we 

have a downloadable spreadsheet of all actions listed in the Action Tracker. (See 

http://www.gao.gov/duplication/action_tracker/aH_areas.) 

40GA0-17-317. 

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Department of Defense DOD represented about 15 percent of federal spending in fiscal year 

2016, with outlays totaling about $637.6 billion. In our 2011 to 2017 

annual duplication reports, we directed 168 actions to DOD in areas that 

contribute to DOD's effectiveness. As of March 2017, 95 of these 168 

actions remained open. DOD also bears responsibility, in whole or part, 

for half ( 17 of 34) of the areas we have designated as high risk. Our work 

suggests that effectively taking actions to address these issues would 

yield significant financial benefits, as discussed below. 

DOD weapon systems acquisition. DOD's portfolio of 78 major 

acquisition programs has a total estimated cost of $1.46 trillion. Over 

the past 4 fiscal years, our analyses of DOD's weapon system 

acquisitions have resulted in nearly $30 billion in savings. We have six 

open priority recommendations to improve DOD's management of 

three of DOD's most expensive programs. each of which is facing 

significant cost, schedule, and performance challenges-the F-35 

Joint Strike Fighter, Littoral Combat Ship. and Ford Class Aircraft 

Carrier. We continue to encourage DOD and Congress to hold 

programs accountable by ensuring that they attain the required 

knowledge at key decision points-such as conducting systems 

engineering reviews and making sure technologies are fully mature 

before product development begins, and successfully completing 

testing-before committing resources to production. By acting on our 

open recommendations for F-35, LCS, and Ford Class, and applying 

the same knowledge-based approach across its portfolio, DOD could 

potentially achieve tens of billions of dollars more in cost savings or 

cost avoidance over the life of these programs. 

DOD contract management. DOD obligated $273.5 billion in fiscal 

year 2015 on contracts for goods and services, including major 

weapon systems, support for military bases, information technology, 

consulting services, and commercial items. As the federal 

government's largest procurement agency, DOD has opportunities to 

leverage its buying power to reduce prices, improve quality, and 

otherwise enhance supplier management and performance. We have 

found that leading commercial companies often manage 90 percent of 

their spending using strategic sourcing and generate 10 to 20 percent 

savings in doing so. 

In contrast, we have reported that DOD components (Navy, Air Force, 

and Army) managed between 10 and 27 percent of their $8.1 billion in 

spending on information technology services through their preferred 

strategic sourcing contracts in fiscal year 2013. By awarding hundreds 

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of potentially duplicative contracts, these components diminished the 

department's buying power 41 Further, the low utilization rate of 

federal strategic sourcing initiatives contracts by DOD and other 

federal agencies resulted in missed opportunities to leverage buying 

power. In this case, the Federal Strategic Sourcing Initiatives reported 

an estimated savings of $470 million between fiscal years 2011 and 

2015, an overall savings rate of about 25 percent. In fiscal year 2015, 

however, the seven large agencies that comprised the Leadership 

Council-a cohort of large federal agencies responsible for federal 

strategic sourcing initiatives-directed less than 10 percent of their 

spending on the types of goods and services offered under federal 

strategic sourcing initiatives in fiscal year 2015, resulting in a missed 

opportunity to potentially have saved over $1 billion42 

DOD headquarters reductions. Since 2014, and in part to respond 

to congressional direction, DOD has undertaken initiatives intended to 

improve the efficiency of headquarters organizations and identify 

related cost savings, but it is unclear to what extent these initiatives 

will help the department achieve the potential savings it has identified. 

DOD has many organizations with multiple layers of headquarters 

management, and at times these organizations possess complex and 

overlapping relationships. To improve the management of DOD's 

headquarters-reduction efforts, we recommended that the Secretary 

of Defense 

conduct systematic determinations of personnel requirements for 

the Office of the Secretary of Defense, Joint Staff, and military 

service secretariats and staffs; 43 

set a clearly defined and consistently applied starting point as a 

baseline for headquarters-reduction efforts and track reductions 

Sourcing: Opportunities Exist to Better Manage Information Technology 

GA0-15-549 (Washington, D.C.: Sept. 22, 2015). 

42GAO, Federal Procurement: Smarter Buying Initiatives Can Achieve Additional Savings, 

but Improved Oversight and Accountability Needed, GA0~17·164 (Washington, D.C. Oct. 

26, 2016). 

43GAO, Defense Headquarters: DOD Needs to Reassess Personnel Requirements for the 

Office of Secretary of Defense, Joint Staff, and Military Service Secretariats, GA0-15-1 0 

(Washington, D.C.: Jan. 21, 2015). 

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against the baselines to provide reliable accounting of savings and 

reporting to Congress;'' and 

conduct comprehensive, periodic evaluations of whether the 

combatant commands are sized and structured to efficiently meet 

assigned missions. 45 

By implementing these recommendations, DOD could yield billions in 

savings. 

DOD commissaries. DOD operates 238 commissaries worldwide to 

provide groceries and household goods at reduced prices as a benefit 

to military personnel, retirees, and their dependents. In our November 

2016 and March 2017 reports, we found that DOD can more efficiently 

manage its commissaries and potentially achieve cost savings46 DOD 

could better position itself to meet its $2 billion target from fiscal years 

2017 through 2021 by implementing our recommendation to develop 

a plan with assumptions, a methodology, cost estimates, and specific 

time frames for achieving alternative reductions to appropriations, to 

support DOD's efforts to ensure that DOD's cost savings target is 

feasible and accurate. DOD generally agreed with our 

recommendations. 

DOD leases and use of underutilized spaces at military 

installations. Overreliance on costly leasing is one of the major 

reasons that federal real property management remains on our highrisk list. Our prior work has shown that owning buildings often costs 

less than operating leases, especially where there are long-term 

needs for space. We analyzed all 5,566 lease records in DOD's real 

property database for fiscal year 2013 (the most recent year for which 

data were available) and found that there were 407 records for 

general administrative space. The total annual rent plus other costs 

for these leases was approximately $326 million for about 17.6 million 

square feet of leased space. 

Defense Headquarters: DOD Needs to Reevaluate Its Approach for Managing 

Resources Devoted to the Functional Combatant Commands, GA0-14-439 {Washington, 

D.C.: Jun. 26, 2014). 

45GAO, Defense Headquarters: DOD Needs to Periodically Review and Improve Visibility 

Of Combatant Commands' Resources, GA0-13-293 (Washington, D.C.: May, 15, 2013). 

46GAO, DOD Commissaries and Exchanges: Plan and Additional Information Needed on 

Cost Savings and Metrics for DOD Efforts to Achieve Budget Neutrality, GAO~ 17-38 

{Washington, D.C.: Nov. 10, 2016), and Defense Commissaries: DOD Needs to Improve 

Business Processes to Ensure Patron Benefits and Achieve Operational Efficiencies, 

GA0-17-80 (Washington, D.C.: Mar 23, 2017). 

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Department of Health and 

Human Services 

We recommended that DOD look for opportunities to relocate DOD 

organizations in leased space to installations that may have 

underutilized space because of force structure reductions or other 

indicators of potentially available space, where such relocation is costeffective and does not interfere with the installation's ongoing military 

mission47 DOD did not agree with the recommendation and had not 

taken action, as of October 2016. These actions could potentially save 

millions of dollars each year in reduced or avoided rental costs. 

We have identified numerous opportunities within the Department of 

Health and Human Services (HHS) to achieve cost savings. HHS 

represented about 28 percent of the fiscal year 2016 federal budget, with 

outlays totaling about $1.2 trillion. HHS's largest mandatory programs are 

Medicare, which in fiscal year 2016 financed health services for over 57 

million beneficiaries at an estimated cost of $696 billion, and Medicaid, 

which covered an estimated 72.2 million people in fiscal year 2016 at a 

cost of $575.9 billion. 48 Our work suggests that effectively implementing 

these actions, could yield substantial financial benefits. 

Our work has identified opportunities for billions of dollars of savings and 

the need for improved federal oversight in multiple areas of traditional 

Medicare-also known as Medicare fee-for service (FFS)-and Medicare 

Advantage (MA), which provides health care coverage to Medicaid 

beneficiaries through private health plans. 

Payments and provider incentives in traditional Medicare. 

Medicare spending on hospital outpatient department services has 

grown rapidly in recent years-nearly $58 billion spent in 2015. In 

December 2015, we reported that some of this growth is because 

services that were typically performed in physician offices have shifted 

to hospital outpatient departments, resulting in higher reimbursement 

rates. 49 We recommended that Congress consider directing HHS to 

equalize payment rates between settings for certain services and 

Defense Infrastructure: More Accurate Data Would Allow DOD to Improve the 

Tracking, Management, and Security of Its Leased Facilities, GAO~ 16~ 101 (Washington, 

D.C.: Mar. 15, 2016). 

48Medicare is the federal health-coverage program for the elderly and certain disabled 

individuals. Medicaid is the joint federal-state program for low-income and medically 

needy individuals. Of the $575.9 billion in Medicaid spending, $363.4 billion was financed 

by the federal government and the remainder by states. 

49GAO, Medicare: Increasing Hospitai~Physician Consolidation Highlights Need for 

Payment Reform, GA0-16-189 (Washington, D.C.: Dec. 18, 2015). 

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return the associated savings to the Medicare program. Congress 

passed legislation to exclude services furnished by off-campus 

hospital outpatient departments from higher payment beginning in 

2017; however, this exclusion does not apply to services furnished by 

providers billing as hospital outpatient departments or those meeting 

certain mid-build requirements prior to November 2, 2015. We 

maintain that Medicare could save billions of dollars annually if 

Congress were to equalize the rates for certain health care services, 

which often vary depending on where the service is performed. 

The federal government spends about $50 billion annually to help 

hospitals with billions of dollars in costs incurred for uncompensated 

care-services hospitals provide to uninsured and low-income 

patients for which they are not fully compensated. Both Medicare and 

Medicaid make multiple types of payments that help offset hospital 

uncompensated care costs. In June 2016, we reported that Medicare 

Uncompensated Care payments are not well aligned with hospital 

uncompensated care costs, potentially resulting in relatively large 

amounts of available funding being distributed to hospitals where 

uncompensated care costs are likely declining. 50 

We recommended that the Centers for Medicare & Medicaid Services 

(CMS) instead base those payments on actual hospital 

uncompensated care costs and account for Medicaid payments made 

when making Medicare Uncompensated Care payments to individual 

hospitals. HHS concurred with the recommendations and indicated 

that the agency planned to implement them beginning in fiscal year 

2021 to allow time for hospitals to collect and report reliable data. 

Implementing our recommendations could prevent more than $1 

billion annually from going to hospitals that may not have any 

uncompensated care. 

The Medicare prospective payment system (PPS) introduced better 

control over program spending and provided hospitals with an 

incentive for efficient resource use. Yet for decades, as required by 

law, Medicare has paid 11 cancer hospitals differently than PPS 

hospitals-specifically, these cancer hospitals are reimbursed largely 

based on their reported costs and as such have little incentive for 

containing costs. To help HHS better control Medicare spending and 

encourage efficient delivery of care, and to generate cost savings 

from any reductions in payments to cancer hospitals that are 

Page 38 

Hospital Uncompensated Care: Federal Action Needed to Better Align Payments 

GA0-16-568 (Washington, D.C.: Jun. 30, 2016). 

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exempted from the PPS, we recommended that Congress consider 

requiring Medicare to pay these PPS-exempt cancer hospitals as it 

pays PPS teaching hospitals, or provide the Secretary of HHS with 

the authority to otherwise modify how Medicare pays PPS-exempt 

cancer hospitals, and provide that all forgone outpatient payment 

adjustment amounts be returned to the Supplementary Medical 

Insurance Trust Fund. The 21st Century Cures Act, enacted in 

December 2016, slightly reduces the additional payments cancer 

hospitals receive for outpatient services. However, the law keeps in 

place the payment system for outpatient services that differs from how 

Medicare pays PPS teaching hospitals. Moreover, the law does not 

change how PPS-exempt cancer hospitals are paid for inpatient 

services. Until Medicare pays PPS-exempt cancer hospitals in a way 

that encourages efficiency, rather than largely on the basis of reported 

costs, Medicare remains at risk for overspending almost $500 million 

per year. 

Medicare Advantage and other Medicare health plans. The 

number and percentage of Medicare beneficiaries enrolled in MA has 

grown steadily over the past several years, increasing from 8.1 million 

(20 percent of all Medicare beneficiaries) in 2007 to 17.5 million (32 

percent of all Medicare beneficiaries) in 2015. We have identified 

opportunities for CMS to improve the accuracy of MA payments, to 

account for diagnostic coding differences between MA and FFS. We 

previously reported that shortcomings in CMS's adjustment resulted in 

excess payments to MA plans totaling an estimated $3.2 billion to 

$5.1 billion over a 3-year period from 2010 through 2012. In January 

2012, we recommended that CMS take steps to improve the accuracy 

of the adjustment made for differences in diagnostic coding practices 

by, for example, accounting for additional beneficiary characteristics 

such as sex, health status, and Medicaid enrollment status, as well as 

including the most recent data available. 51 

Although CMS has taken steps to improve the accuracy of the risk 

adjustment model and Congress has taken steps to increase the 

adjustment, CMS has not improved its methodology for calculating the 

diagnostic coding adjustment. Until CMS shows the sufficiency of the 

diagnostic coding adjustment or implements an adjustment based on 

analysis using an updated methodology, payments to MA plans may 

not accurately account for differences in diagnostic coding between 

Medicare Advantage: CMS Should Improve the Accuracy of Risk Score 

Adjustments for Diagnostic Coding Practices, GA0~12~51 0fVashington, D.C.: Jan. 12, 

2012). 

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these plans and traditional Medicare providers. CMS could achieve 

billions of dollars in additional savings by better adjusting for 

differences between MA plans and traditional Medicare providers in 

the reporting of beneficiary diagnoses. 

We have also found that improved federal oversight is needed in multiple 

areas of Medicaid, including in the area of financing transparency and 

oversight and oversight of Medicaid demonstrations. 

Growing expenditures for and oversight of large Medicaid 

demonstrations. Medicaid demonstrations have become a significant 

proportion of Medicaid expenditures, growing steadily from about $50 

billion, or about 14 percent of total Medicaid expenditures in fiscal 

year 2005, to $165 billion, or close to one-third of total Medicaid 

expenditures in fiscal year 2015. 52 Between 2002 and 2014, we 

reviewed several states' approved comprehensive demonstrations 

and found that HHS had not ensured that all of the demonstrations 

would be budget neutral to the federal government. We recommended 

that HHS improve the process for reviewing and approving Medicaid 

demonstrations and, in January 2008, we elevated this matter for 

consideration by Congress. 53 Legislation was introduced in the 114th 

Congress but not enacted to require HHS to improve the Medicaid 

demonstration review process consistent with our recommendations. 

In October 2016, CMS officials told us that they had established new 

budget neutrality policies to reduce demonstration spending limits and 

they are implementing the policies over time. However, these new 

policies do not address all of the problematic budget neutrality 

methodologies that we identified. We maintain that improving the 

process for reviewing, approving, and making transparent the basis 

for spending limits approved for Medicaid demonstrations could 

potentially save billions of dollars. 

Financing and provider payment transparency and oversight. To 

effectively oversee state Medicaid programs, CMS needs complete 

and accurate information on payments to individual providers. We 

have raised concerns about states making large Medicaid 

supplemental payments-payments in addition to the regular, claimsbased payments made to providers for services they provided-to 

··cxoE>nOI''""" include the federal and state share and are adjusted for inflation to 2015 

dollars using the gross domestic product price index and exclude administrative costs. 

53GAO, Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise Cost 

and Oversight Concerns, GA0-08-87 (Washington, D.C.: Jan. 31, 2008). 

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institutional providers, such as hospitals and nursing facilities. In fiscal 

year 2015, these payments totaled about $55 billion. In April 2015, we 

concluded that federal oversight of Medicaid payments is limited in 

part by insufficient federal information on payments. 54 Oversight is 

also limited because CMS does not have a policy and process for 

determining that payments are economical and efficient. As a result, 

CMS may not identify or examine excessive payments states make to 

individual providers. 

We recommended that CMS ensure that states report accurate 

provider-specific payment data for all payments, develop a policy 

establishing criteria to determine when provider-specific payments are 

economical and efficient, and develop a process for identifying and 

reviewing payments to individual providers to determine if they meet 

the established criteria. CMS planned to publish a proposed rule for 

public comment in fall2016 to improve the oversight of supplemental 

payments made to individual providers, but as of March 2017, the 

proposed rule had not been published. CMS could save hundreds of 

millions of dollars by taking steps to implement our recommendations. 

Department of Veterans Affairs We have identified numerous opportunities for the Department of 

Veterans Affairs (VA) to more effectively and efficiently achieve its 

mission to promote the health, welfare, and dignity of all veterans by 

ensuring that they receive medical care, benefits, and social services. In 

fiscal year 2016, VA spent about $179.6 billion-about4 percent of 

federal outlays-for veterans' benefits and services. Our work suggests 

that effectively implementing these actions could yield cost savings and 

efficiencies that would improve the delivery of services. 

VA health care. Since designating VA health care as a high-risk area 

in 2015, we continue to be concerned about VA's ability to ensure its 

resources are being used cost-effectively and efficiently to improve 

veterans' timely access to health care, and to ensure the quality and 

safety of that care. VA operates one of the largest health care delivery 

systems in the nation, with 168 medical centers and more than 1,000 

outpatient facilities organized into regional networks. VA has faced a 

growing demand by veterans for its health care services. To help 

address veterans' health care needs, VA's budgetary resources have 

more than doubled since 2006 to $91.2 billion in fiscal year 2016. 

Medicaid: CMS Oversight of Provider Payments fs Hampered by Limited Data and 

Unclear Policy, GA0-15-322 (Washington, D.C.: Apr.10, 2015). 

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Despite these increased resources, there have been numerous 

reports in this same period-by us, VA's Office of the Inspector 

General, and others-of VA facilities failing to provide timely health 

care. In some cases, veterans have reportedly been harmed by the 

delays in care or VA's failure to provide care at all. 

Among the concerns we have raised in these reports is the lack of 

reliability, transparency and consistency of VA's budget estimates and 

tracking obligations. These concerns were evident in June 2015, 

when VA requested additional funds from Congress because agency 

officials projected a funding gap in fiscal year 2015 of about $3 billion 

in its medical services appropriation account. The projected funding 

gap was largely due to administrative weaknesses, which slowed the 

utilization of the Veterans Choice Program in fiscal year 2015 and 

resulted in higher-than-expected demand for VA's previously 

established VA community care programs. To better align cost 

estimates for community care services with associated obligations, in 

June 2016, we reported that VA was examining options for replacing 

its outdated financial information technology systems and VA has 

since established a projected completion date of fiscal year 2020 for 

that effort. 55 However, VA continues to underestimate the resources it 

needs to provide health care services efficiently and effectively. For 

example, in February 2017, a VA official told us that VA would need to 

request additional funding for fiscal year 2018 above already 

appropriated funding for that year. 

VA benefits. VA provides billions of dollars in monthly disability 

compensation to veterans with disabling conditions caused or 

aggravated by their military service. In recognition of cases where the 

benefit does not adequately compensate veterans who are unable to 

maintain substantially gainful employment, VA may provide 

supplemental compensation through its Total Disability Individual 

Unemployability (TDIU) benefit. We found that 54 percent of disabled 

veterans receiving TDIU benefits in fiscal year 2013 were 65 years or 

older. By comparison, other benefit programs, such as Social Security 

Disability Insurance, consider retirement age a cause for ineligibility 

and convert benefits for those reaching their full retirement age to a 

Social Security retirement benefit. We recommended that VA develop 

a plan to study whether age should be considered when deciding if 

veterans are unemployable. VA concurred with our recommendation 

VA's Health Care Budget: In Response to a Projected Funding Gap in Fiscal Year 

2015, Has Made Efforts to Better Manage Future Budgets. GA0-16~584 (Washlngton, 

D.C.: Jun. 3, 2016). 

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Social Security Administration 

and began reviewing disability eligibility policies and procedures in 

April 2015, including consideration of age in claim decisions. The 

review was on going as of February 2017. If it were determined that 

TDIU benefits should only be provided to those veterans younger than 

their full Social Security retirement age, VA could achieve significant 

cost savings-$15 billion from 2015 through 2023, according to a 

CBO estimate. 

In fiscal year 2016, the Social Security Administration (SSA) spent about 

$979.7 billion, roughly 23 percent of federal outlays. We have identified a 

number of opportunities for SSA to improve the integrity of its programs 

and achieve cost savings. Its two largest programs-Old-Age and 

Survivors Insurance (OASI), which provides retirement benefits, and 

Disability Insurance (01), which provides benefits to individuals who 

cannot work because of a disability-together paid out more than $905 

billion in fiscal year 2016. 

Benefits provided under these programs are subject to several provisions 

that offset benefits for individuals who receive both Social Security 

benefits and similar benefits under another program, such as state and 

local pensions or workers' compensation. In some of these cases, SSA is 

required to offset or reduce the amount it pays to account for these other 

benefits. We have reported that SSA could take additional steps to better 

enforce these rules and avoid paying duplicative benefits. 

Social Security offsets. SSA needs accurate information from state 

and local governments on retirees who receive pensions from 

employment not covered under Social Security. SSA needs this 

information to fairly and accurately apply the Government Pension 

Offset (GPO), which generally applies to spouse and survivor 

benefits, and the Windfall Elimination Provision (WEP), which applies 

to retirement and disability benefits. Congress could consider giving 

IRS the authority to collect the information that SSA needs on 

government pension income to administer the GPO and the WEP 

accurately and fairly. Implementing this action could save $2.4 billion 

to $7.9 billion over 10 years, if enforced both retrospectively and 

prospectively, based on estimates from CBO and SSA. The estimated 

savings would be less if SSA only enforced the offsets prospectively 

as it would not reduce benefits already received. 

Disability and unemployment benefits. Current law does not 

preclude the receipt of overlapping Dl and Unemployment Insurance 

(UI) benefits. We previously found that 117,000 individuals received 

concurrent cash benefit payments, in fiscal year 2010, from these 

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programs totaling more than $850 million. In 2014, we reported that 

Congress should consider passing legislation to require SSA to offset 

Dl benefits for any Ul benefits received in the same period. As of 

March 2017, legislation had not been enacted. Several bills, including 

the Social Security Disability Insurance and Unemployment Benefits 

Double Dip Elimination Act, were introduced in the 114th Congress 

that would have prevented concurrent receipt of SSA Dl and Ul 

benefits, as we suggested in our 2014 report. If new legislation is 

introduced in the 115th Congress and enacted, the change could save 

$1.9 billion over 10 years in the 01 program, according to CBO. 

SSA's 01 program requires beneficiaries to meet certain medical and 

financial requirements in order to maintain eligibility for benefits. We have 

identified a number of opportunities for SSA to save money by improving 

its ability to determine whether beneficiaries have regained the ability to 

work, and if working, gather information on wages to avoid improper 

payments to beneficiaries earning above program limits. 

Disability Insurance overpayments. 01 overpayments often result 

when a beneficiary returns to work and starts earning income above a 

certain level, but the earnings activity is not properly reported to or 

processed by SSA. We estimated that SSA overpaid individuals $11.5 

billion during fiscal years 2005 through 2014 because their work 

activity resulted in earnings that exceeded program limits. SSA may 

waive overpayments under some circumstances, in which case 

collection of the debt is terminated, and allows flexibility to 

administratively waive low dollar amounts. 56 

In October 2015, we identified several weaknesses in SSA's process 

for handling work reports and waivers, and we made several 

recommendations-including that SSA study the costs and benefits of 

automated reporting options to enhance the ease and integrity of the 

work reporting process and take additional steps to ensure 

compliance with waiver policies, including updating its Debt 

Management System to ensure waivers over $1 ,000 are not 

improperly waived. SSA agreed with this recommendation. Regarding 

beneficiary may request a waiver of an overpayment that ts not in dispute, and SSA 

may grant that waiver request if two conditions are met: (1) the agency finds that the 

beneficiary was not at fault, and (2) recovery of adjustment would either defeat the 

purpose of the program or be against equity and good conscience, as determined by SSA, 

For overpayment amounts under $1,000, administrative waivers may be granted on the 

sole basis that the beneficiary was not at fault, with minimal documentation requirements. 

Waivers of debts under $2,000 do not require supervisory review. 

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Office of Management and 

Budget 

work reporting, SSA was drafting business processes as of March 

2017 to (1) build an Internet and telephone wage reporting system for 

Dl beneficiaries and (2) contract with third-party payroll providers to 

receive monthly earnings data that will allow SSA to automatically 

make benefit adjustments. Until these new processes are 

implemented, the incidence of overpayments will likely remain high 

due to the lack of convenient reporting options for beneficiaries, failure 

of beneficiaries to self-report, and SSA processing errors. Regarding 

waivers, SSA had not updated its Debt Management System as of 

March 2017, and commented that it lacks the funds to do so. Fully 

implementing these recommendations would help prevent the loss of 

billions of dollars, by preventing overpayments in the first place, as 

well as improper waivers of overpayments, once they occur. 

Disability reviews. SSA is generally required to conduct continuing 

disability reviews (CDR) to determine whether Dl and Supplemental 

Security Income recipients remain eligible for benefits based on their 

medical condition and ability to work. In February 2016, we reported 

that SSA's process for targeting CDRs does not maximize potential 

savings for the government. We recommended that SSA further 

consider cost savings when prioritizing reviews. SSA partially agreed 

with our recommendation, stating that. although it could do more to 

increase the return on its CDRs, the agency's statistical models and 

prioritization process already do much of what was recommended. 

However, we believe that SSA could refine its prioritization process by 

factoring in actuarial considerations in addition to its existing statistical 

models. SSA had not taken action as of February 2017. If SSA further 

incorporates cost savings into its process for prioritizing CDRs to 

conduct, the agency could realize greater savings by targeting cases 

with the highest average potential savings among those with the 

highest likelihood of benefit cessation. 

Many of the results the federal government seeks to achieve require the 

coordinated effort of more than one federal agency, level of government, 

or sector. OMB manages and coordinates many government-wide efforts 

and its involvement is critical in continuing to make progress in improving 

efficiency and effectiveness of government programs. OMB also plays a 

critical role in the management of improper payments. tax expenditures. 

and the Digital Accountability and Transparency Act of 2014 (DATA Act). 

Reducing acquisition costs. Between fiscal years 2011 through 

2015, federal agencies spent almost $2 billion through OMB's federal 

strategic sourcing initiatives and achieved an estimated $4 70 million 

in savings. Implementing our recommendations related to federal 

acquisitions would help agencies achieve significant savings. In 2016, 

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we found that OMB and the General Services Administration needed 

to take actions to hold federal agencies more accountable for the 

results of federal strategic sourcing initiatives. 57 For example, the 

seven largest federal agencies that comprised the Leadership 

Council-a cohort of large federal agencies responsible for federal 

strategic sourcing initiatives governance--directed less than 10 

percent of their spending on the types of goods and services offered 

under the federal strategic sourcing initiatives in fiscal year 2015. As a 

result, they missed the opportunity to potentially have saved $1 billion. 

OMB generally agreed with these recommendations. It is important 

that OMB continue to expand this approach to other high-spend 

categories in a timely fashion to help agencies reap billions of dollars 

in potential savings. 

Information technology investment portfolio management. 

Federal agencies spend billions of dollars each year to meet their 

increasing demand for information technology (IT). In March 2012, 

OMB launched an initiative, referred to as PortfolioStat, to maximize 

the return on IT investments across the government's 

portfolio. PortfolioStat is designed to assist agencies in assessing the 

current maturity of their IT investment management process, making 

decisions on eliminating duplicative investments, and moving to 

shared solutions (such as cloud computing) within and across 

agencies. 

In 2013, we made several recommendations to OMB regarding the 

PortfolioStat initiative. For example, we recommended that OMB 

direct the Federal Chief Information Officer to improve transparency of 

and accountability for PortfolioStat by publicly disclosing planned and 

actual data consolidation efforts and related cost savings by agency. 58 

While OMB disagreed with the recommendation, as of March 2017, 

OMB had taken steps to improve transparency of and accountability 

for PortfolioStat by displaying actual data consolidation savings data 

on the federal information technology dashboard. However, OMB 

stated that it does not track planned cost savings and cost avoidance 

figures and did not provide any plans to do so. OMB's continued 

attention in addressing this recommendation and our governmentwide high-risk area Improving the Management of IT Acquisitions and 

Operations is essential to enabling agencies to demonstrate progress 

57GA0-17-164. 

58GAO, Information Technology: Additional OMB and Agency Actions Are Needed to 

Achieve Porlfo!io Savings, GA0-14-65 (Washington, D.C.: Nov. 6, 2013). 

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in improving their portfolios of IT investments. Improving the 

transparency and accountability for PortfolioStat by publicly disclosing 

both planned and actual data consolidation efforts and related cost 

savings by agency would provide stakeholders, including Congress 

and the public, a means to monitor agencies' progress and hold them 

accountable for reducing duplication and achieving cost savings. Fully 

implementing the actions in this area could result in billions of dollars 

in additional savings. 

Federal data center consolidation. Over time, the federal 

government's increasing demand for IT has led to a dramatic rise in 

the number of federal data centers (defined as data processing and 

storage facilities over 500 square feet with strict availability 

requirements) and a corresponding increase in operational costs. In 

2011, we identified the need for OMB to work with agencies to 

establish goals and targets for consolidation (both in terms of cost 

savings and reduced data centers), maintain strong oversight of the 

agencies' efforts, and look for consolidation opportunities across 

agencies. Since 2011, OMB has taken steps to look for data center 

consolidation opportunities across agencies; however, continued 

evidence of agencies not fully reporting their savings demonstrates 

the importance of OMB's continued oversight. 

As of March 2017, agencies collectively reported having 10,058 data 

centers, of which 4,679 were reported closed. Agencies also reported 

that they planned to close another 1 ,358 data centers-for a total of 

6,037 closed-by the end of fiscal year 2019. The agencies reported 

achieving approximately $2.8 billion in cost savings or avoidances 

from their data center consolidation and optimization efforts from fiscal 

year 2012 through 2016. Further, as of December 2016, agencies 

were planning a total of approximately $378 million in cost savings 

between fiscal years 2016 and 2018-significantly less than OMB's 

$2.7 billion cost savings goal for agencies to achieve by the end of 

fiscal year 2018. Of the recommendations that we made to 10 

agencies in March 2016 to complete their planned data center cost 

savings targets for fiscal years 2016 through 2018, all remain open. 59 

Going forward, it will be important for OMB to continue to implement 

its oversight of agencies' data center consolidation efforts to better 

ensure that the consolidation and optimization efforts are meeting 

their established objectives. 

Page 47 

Data Center Consolidation: Agencies Making Progress, but Planned Savings 

Established, GA0-16-323 (Washington, D.C.: Mar. 3, 2016). 

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Geospatial investments. The federal government collects, 

maintains, and uses geospatial information linked to specific 

geographic locations to help in decision making and to support many 

functions, including national security. law enforcement, health care, 

and environmental protection. Many activities, such as maintaining 

roads and responding to natural disasters can depend on critical 

analysis of geospatial information. Further, multiple federal agencies 

may provide services at the same geographic locations and may 

independently collect similar geospatial information about those 

locations. 

In 2012, we recommended that OMB develop a mechanism, or modify 

existing mechanisms, to identify and report annually on all geospatialrelated investments, including dollars invested and the nature of the 

investment60 In responding to the recommendation at the time of the 

report, OMB noted that it developed new analysis tools and updated 

its models to improve its ability to identify and report on geospatialrelated investments. As of March 2017, OMB has made progress in 

developing a way to identify and report annually on all geospatialrelated investments, but has not completed its efforts. Better 

coordination by agencies and better oversight by OMB could help to 

reduce duplication of geospatial investments, providing the 

opportunity for potential savings of millions of dollars on the estimated 

billions of dollars spent annually on geospatial information technology. 

Ensuring the security of federal information systems and cyber 

critical infrastructure and protecting the security of personally 

identifiable information. Federal agencies and our nation's critical 

infrastructures-such as energy, transportation systems, 

communications, and financial services-are dependent on 

computerized ( cyber) information systems and electronic data to carry 

out operations and to process, maintain, and report essential 

information. 61 The security of these systems and data is vital to public 

confidence and the nation's safety, prosperity, and well-being. 

GeospatiallnformaUon: OMB and Agencies Need to Make Coordination a Priority 

to Duplication, GA0-13-94 (Washington, D.C.: Nov. 26, 2012). 

61Critica! infrastructure includes systems and assets so vital to the United States that 

incapacitating or destroying them would have a debilitating effect on national security. 

These critical infrastructures are grouped by the following industries or "sectors": 

chemical; commercial facilities; communications; critical manufacturing; dams; defense 

industrial base; emergency services; energy; financial services; food and agriculture: 

government facilities: health care and public health; information technology (!T); nuclear 

reactors, materials, and waste; transportation systems; and water and wastewater 

systems. 

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Protecting the privacy of personally identifiable information (PI!) that is 

collected, maintained, and shared by both federal and nonfederal 

entities is also criticaL Regarding PI I, advancements in technology, 

such as new search technology and data analytics software for 

searching and collecting information, lower data storage costs, and 

ubiquitous Internet and cellular connectivity have made it easier for 

individuals and organizations to correlate data and track it across 

large and numerous databases. These advances-combined with the 

increasing sophistication of hackers and others with malicious intent, 

and the extent to which both federal agencies and private companies 

collect sensitive information about individuals-have increased the 

risk of Pll being exposed and compromised. 

Actions initiated by OMB and the Federal Chief Information Officer, 

such as the 30-Day Cybersecurity Sprint and the October 30, 2015, 

cybersecurity strategy and implementation plan, reflect an increased 

level of attention by OMB to the security of federal networks, systems, 

and data at civilian agencies. Consistent with our 2015 

recommendations for developing a federal cybersecurity strategy, 

OMB's strategy identifies key actions, responsibilities, and timeframes 

for implementation as well as mechanisms for tracking progress and 

holding individuals accountable. 62 These actions should help federal 

agencies stem the rising tide of information security incidents. In 

addition, OMB should continue to focus its attention on implementing 

our recommendations to (1) address agency cyber incident response 

practices in its oversight of agency information security programs and 

(2) collaborate with stakeholders to enhance reporting guidance for 

the inspector general community. Doing so will enable federal 

agencies to better respond to cyber attacks and will provide for more 

consistent and useful reporting to the Congress. 

Better coordination among programs that support employment 

for people with disabilities. In 2010, an estimated one in six 

working-age Americans reported having a disability, and the federal 

government obligated more than $4 billion in fiscal year 2010 for 

employment-related supports for people with disabilities. Lack of 

coordination is, in part, why federal disability programs have remained 

on our high-risk list since 2003. Meanwhile, SSA paid out almost $196 

billion in fiscal year 2015 in income supports for people with 

disabilities who cannot work, and historically, people with disabilities 

Federal Information Security: Agencies Need to Correct Weaknesses and Fully 

Implement Security Programs, GA0-15-714 (Washington, D.C.: Sept. 29, 2015). 

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Multiple Strategies 

Needed to Address the 

Persistent Tax Gap 

have experienced higher unemployment and poverty rates than those 

without disabilities. 63 

In 2012, we found overlap and limited coordination among 45 

programs in nine federal agencies that support employment for people 

with disabilities-programs that have been created or have evolved 

over time to address barriers in employment for people with 

disabilities, resulting in a fragmented system of supports. To improve 

coordination and spur more efficient and economical service delivery 

in overlapping program areas, OMB should consider establishing 

measurable, governmentwide goals for employment of people with 

disabilities, and agencies should establish related measures and 

indicators and collect additional data to ensure goals are being met. 

Establishing such goals and related measures could further enhance 

coordination and help improve employment outcomes for people with 

disabilities, including finding or maintaining employment outside of the 

federal government. 

The tax gap-the difference between taxes owed to the government and 

total taxes paid on time-has been a persistent problem for decades 

despite the Internal Revenue Service's (IRS) efforts to improve voluntary 

compliance. In 2016, IRS estimated that for tax years 2008 to 2010, the 

voluntary compliance rate averaged 81.7 percent of taxes owed, resulting 

in an average annual gross tax gap of $458 billion. After accounting for an 

estimated $52 billion in late payments and payments resulting from IRS 

enforcement actions, the net compliance rate averaged 83.7 percent of 

taxes owed, resulting in an annual average net tax gap of $406 billion for 

those years. 

The largest part of the tax gap is from underreporting, when taxpayers 

inaccurately report tax liabilities on tax returns. (See figure 11 .) Other 

forms of noncompliance are underpayment, when taxpayers fail to pay 

taxes due from filed returns, or nonfiling, when they fail to file a required 

tax return altogether or on time. 

particular, SSA's Disability Insurance and Supplemental Security Income programs 

dispensed $143.4 and $52.3 billion respectively in cash benefits in fiscal year 2015, while 

grappling with large workloads and struggling to make timely decisions on who is eligible 

for cash benefits. 

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Source· GAO analysis of !ntemal Revenve Service infrnmation. 1 GAO-17-579T 

Note: Individual income tax includes individual business income tax. Estate tax underreporting 

noncompliance is not shown in this graphic because it represents less than one-half percent of total 

underreporling noncompliance. Excise tax is not shown in this graphic because the lntemal Revenue 

Service (IRS) does not have excise tax underreporting noncompliance or nonfi!ing noncompliance 

estimates, and its estimate for excise tax underpayment noncompliance represents less than one-half 

percent of total underpayment noncompliance. In addition, IRS does not have a corporation income 

tax estimate for nonfiling noncompliance. 

We have identified actions IRS and Congress can take to reduce the tax 

gap. 64 For example, we recommended that IRS collect more data on 

noncompliance and determine resource allocation strategies for its 

enforcement efforts, such as for partnerships; strengthen referral 

programs so whistleblowers can more easily submit information to IRS 

about tax noncompliance; and enhance taxpayer services, such as by 

developing a long-term strategy for providing web-based services to 

taxpayers. 

Likewise, Congress could help address the tax gap by expanding thirdparty information reporting requirements, requiring additional taxpayers to 

file tax and information returns electronically, regulating paid tax return 

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Action Needed to Improve 

Information on Programs 

and Fiscal Operations 

preparers, and, as previously discussed, providing IRS with broad 

authority to correct errors where there are inconsistencies within a 

taxpayer's tax return. 

In many cases, agencies also need to take action to provide decision 

makers with additional or improved information on the performance and 

costs of policies or programs. In particular, decision making could be 

improved by strengthening internal controls over financial reporting to 

ensure the statements are fully auditable, increasing attention to tax 

expenditures, and effectively implementing the DATA Act. 

Ensuring the federal government's financial statements are fully 

audltable. Eliminating these weaknesses would improve the reliability 

of financial information and improve financial decision making. 65 The 

U.S. government's consolidated financial statements are intended to 

present the results of operations and the financial position of the 

federal government as if the government were a single enterprise. 

Since the federal government began preparing consolidated financial 

statements 20 years ago, three major impediments have continued to 

prevent us from rendering an opinion on the federal government's 

accrual-based consolidated financial statements over this period: (1) 

serious financial management problems at DOD that have prevented 

its financial statements from being auditable, (2) the federal 

government's inability to adequately account for and reconcile 

intragovernmental activity and balances between federal entities, and 

(3) the federal government's ineffective process for preparing the 

consolidated financial statements"' 

Over the years, we have made a number of recommendations to 

OMB, Treasury, and DOD to address these issues. Generally, these 

entities have taken or plan to take actions to address these 

recommendations. The material weaknesses in internal control 

underlying these three major impediments continued to (1) hamper 

material weakness is a deficiency, or a combination of deficiencies, in internal control 

over financial reporting such that there is a reasonable possibility that a materia! 

misstatement of the entity's financial statements will not be prevented, or detected and 

corrected, on a timely basis. A deficiency in internal control exists when the design or 

operation of a control does not allow management or employees, in the norma! course of 

performing their assigned functions. to prevent, or detect and correct, misstatements on a 

timely basis. 

66GA0-17-283R. 

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the federal government's ability to reliably report a significant portion 

of its assets, liabilities, costs, and other related information; (2) affect 

the federal government's ability to reliably measure the full cost, as 

well as the financial and nonfinancial performance of certain programs 

and activities; (3) impair the federal government's ability to adequately 

safeguard significant assets and properly record various transactions; 

and (4) hinder the federal government from having reliable financial 

information to operate in an efficient and effective manner. 

Increased attention to tax expenditures. Tax expenditures are 

sometimes used to provide economic relief to selected groups of 

taxpayers or to encourage certain behavior or to accomplish other 

goals. The goals they seek to advance may be similar to the goals of 

mandatory or discretionary spending programs. According to 

Treasury, in fiscal year 2016 there were 167 tax expenditures. These 

tax expenditures represented an estimated total of $1.4 trillion in 

forgone tax revenue 67 

However, despite their use as a policy tool, tax expenditures are not 

regularly reviewed, and their outcomes are not measured as closely 

as those from spending programs. We recommended that OMB take 

actions to develop a framework for evaluating tax expenditure 

performance and to regularly review tax expenditures in executive 

branch budget and performance review processes. However, OMB 

has not developed a systematic approach for conducting such reviews 

and has not reported progress on addressing data availability and 

analytical challenges in evaluating tax expenditures since the 

President's fiscal year 2012 budget. 

In July 2016 we recommended that OMB work with agencies to 

identify which tax expenditures contribute to agency goals, and OMB 

generally agreed with the recommendation. 68 Absent such analysis, 

policymakers have little way of knowing whether these tax provisions 

support achieving the intended federal outcomes and lack information 

to compare their cost and efficacy with other policy tools. 

Effective implementation of the DATA Act. We have reported that 

the DATA Act holds great promise for improving the transparency and 

tax expenditure estimates provides a sense of size but does not take into 

account possible interactions among individual tax expenditures and within the tax code. 

Total change in tax revenues from repealing all tax expenditures could differ from the sum 

of the estimates. 

68GAO, Tax Expenditures: Opportunities Exist to Use Budgeting and Agency Performance 

Processes to Increase Oversight, GA0~16-622 (Washington, D.C.: July 7, 2016). 

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accountability of federal spending data. Full and effective 

implementation of the act would enable-for the first time-the federal 

government as a whole to report on funds at multiple points in the 

federal spending lifecycle and significantly increase the types and 

transparency of data available to Congress, agencies, and the general 

public. OMB and Treasury have taken significant steps toward 

implementing the DATA Act's various requirements, but agencies 

have reported that they continue to face challenges, including issues 

involving systems integration, lack of resources, evolving and complex 

reporting requirements, and inadequate guidance. 69 

As agencies begin to report data required by the act in May 2017, 

attention will increasingly focus on the quality of the data being 

produced. Prior agency financial audits and inspectors general 

reviews have identified material weaknesses and significant 

deficiencies that present risks to agencies' ability to submit quality 

data. 70 We also identified challenges with guidance that will impact 

data quality and limitations with the processes to provide and 

communicate needed quality assurances to users. Moving forward, 

OMB and Treasury need to continue to address issues that we 

identified in our previous work as well as our open recommendations 

related to implementation of the act and data transparency. 71 

The government must act soon to change the long-term fiscal path or risk 

significant disruption to individuals and the economy. Congress will need 

to discuss the entire range of federal activities and spending-entitlement 

programs, other mandatory spending, discretionary spending, and 

revenue. Moving forward, the federal government will need to make tough 

choices in setting priorities and ensuring that spending leads to positive 

results. Having a broader fiscal plan to put the federal government on a 

more sustainable long-term path would help with these tough decisions. 

DATA Act: OMB and Treasury Have Issued Additional Guidance and Have 

Improved Pilot Design but Implementation Challenges Remain, GA0-17-156 (Washington, 

D.C.: Dec. 8, 2016) and DATA Act: Implementation Progresses but Challenges Remain, 

GA0-17-282T (Washington, D.C.: Dec. 8, 2016). 

70A significant deficiency is a deficiency, or a combination of deficiencies, in internal 

contra! that is less severe than a materia! weakness, yet important enough to merit 

attention by those charged with governance. For more information, see GAO, DATA Act: 

As Reporting Deadline Nears, Challenges Remain that Will Affect Data Quality, 

GA0-17-496 (Washington, D.C.: Apr. 28, 2017). 

71 See GA0~17w496, appendix !I for a list of our previous recommendations relating to the 

DATA Act and their implementation status. 

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GAO Contacts 

Thank you, Chairman Black, Ranking Member Yarmuth, and Members of 

the Committee, this concludes my prepared statement. I would be 

pleased to answer questions. 

For further information on this testimony, please contact Susan J. Irving, 

Director of Federal Budget Analysis, Strategic Issues, who may be 

reached at (202) 512-6806 or irvings@gao.gov, and J. Christopher Mihm, 

Managing Director, Strategic Issues, who may be reached at (202) 512-

6806 or mihmj@gao.gov. Contact points for the individual areas listed in 

our 2017 Fragmentation, Overlap, and Duplication annual report can be 

found on the first page of each area in GA0-17-491SP. Contact points for 

the individual high-risk areas are listed in GA0-17 -317 and on our highrisk website. Contact points for our Congressional Relations and Public 

Affairs offices may be found on the last page of this statement. 

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Appendix 1: Related GAO Work 

Tax Gap 

The Nation's Fiscal Health: Action is Needed to Address the Federal 

Government's Fiscal Future. GA0-17-237SP. Washington, D.C.: 

January 17, 2017. 

GAO, Fiscal Outlook & The Debt Key Issues Page, accessed April 28, 

2017. http://www.gao.gov/fiscal_outlookloverview. 

Fiscal Outlook: Addressing Improper Payments and the Tax Gap 

Would Improve the Government's Fiscal Position GA0-16-92T 

Washington, D.C.: October 1, 2015. 

Social Security's Future: Answers to Key Questions. GA0-16-75SP. 

Washington, D.C.: October 27, 2015. 

Improper Payments: CFO Act Agencies Need to Improve Efforts to 

Address Compliance Issues. GA0-16-55. Washington, D.C.: June 30, 

2016. 

Improper Payments: Government-Wide Estimates and Use of Death 

Data to Help Prevent Payments to Deceased Individuals. 

GA0-15-482T. Washington, D.C.: March 16,2015. 

Disaster Relief: Agencies Need to Improve Policies and Procedures 

for Estimating Improper Payments. GA0-15-209. Washington, D.C.: 

February 27, 2015. 

Improper Payments: TRICARE Measurement and Reduction Efforts 

Could Benefit from Adopting Medical Record Reviews. GA0-15-269. 

Washington, D.C .. February 18, 2015. 

Improper Payments: DOE's Risk Assessments Should Be 

Strengthened. GA0-15-36. Washington, D.C.: December 23, 2017. 

Improper Payments: Inspector General Reporting of Agency 

Compliance under the Improper Payments Elimination and Recovery 

Act. GA0-15-87R Washington, D.C.: December 9, 2014. 

Improper Payments: Government-Wide Estimates and Reduction 

Strategies. GA0-14-737T. Washington, D.C.: July 9, 2014. 

Partnerships and S Corporations: IRS Needs to Improve Information 

to Address Tax Noncompliance. GA0-14-453. Washington, D.C.: May 

14,2014. 

Paid Tax Return Preparers: In a Limited Study, Preparers Made 

Significant Errors. GA0-14-467T. Washington, D.C.: AprilS, 2014. 

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Debt Limit 

Consolidated Financial 

Statement 

{101977) 

Appendix 1: Related GAO Work 

Tax Gap: IRS Could Significantly Increase Revenues by Better 

Targeting Enforcement Resources. GA0-13-151. Washington, D.C.: 

December 5, 2012. 

Tax Gap: Sources of Noncompliance and Strategies to Reduce If. 

GA0-12-651T. Washington, D.C.: April19, 2012. 

Debt Limit: Market Response to Recent Impasses Underscores Need 

to Consider Alternative Approaches. GA0-15-476. Washington, D.C.: 

July 9, 2015. 

Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of 

Delayed Increase on Borrowing Costs. GA0-12-701. Washington, 

D.C.: July 23, 2012. 

The Effects of Delays in Increasing the Debt Limit Podcast, accessed 

April28, 2017, http://www.gao.gov/multimedia/podcasts/592827. 

Debt Limit Alternative Approaches Podcast, accessed April 28, 2017, 

http://www.gao.gov/multimedia/podcasts/670669. 

Financial Audit: Fiscal Years 2016 and 2015 Consolidated Financial 

Statements of the U.S. Government. GA0-17-283R. Washington, 

D.C.: January 12, 2017. 

Understanding the Primary Components of the Annual Financial 

Report of the United States Government. GA0-09-946SP. 

Washington, D.C.: September 25, 2009. 

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73 

Chairman BLACK. Wow, you were right on the dot there. I would 

expect nothing less from the Comptroller General to be right on the 

dot when it comes to numbers. Again, we so much appreciate you 

being here and the work that you and all of the folks in your office 

have done. I do not disagree at all that we have to have a better 

plan, and we have not done as good a job as we need to do with 

controlling many of those costs, including the growing interest, 

which you have already indicated is a big part of our expenses and 

will only grow if we do not get cost control on the other side. 

But let me go to the government wide improper payments. As 

has already been said in my comments and again with you that it 

totaled $144 billion. And I do not know, when we talk about millions and billions and trillions of dollars around here, it is almost 

like a Monopoly game. But this is real money: $144 billion dollars. 

I think about what could be done with that money instead of being 

an improper payment that goes out the door, and we do not really 

have a good way of retrieving that. 

But you also said this may be an understated problem, so some 

of 18 government programs did not even report the estimate for 

their improper payments last year. Does this suggest that the problem of improper payments is even larger than what you are reporting? In other words, $144 billion really might just be a floor, rather 

than a ceiling, and if you could give us some kind of, even, just 

ballpark? I know that is difficult to be done, but just kind of a ballpark of where that difference may be? 

Mr. DODARO. First, it is definitely an underestimate, what the 

total scope of the problem is. Every year, when we issue our statement on our audit of the Federal Government’s financial statements, we list this material weakness that the Federal Government is unable to report for staff an improper payment problem 

and, thus, is not in the position to effectively manage the results 

of those programs. When we first started doing our audits of the 

Federal Government financial statements, and those audits were 

not required by the Congress until 1996. So, we went for 200 years 

in this country without the discipline of annual financial statement 

preparation and audit, like it occurs in the private sector and, of 

course, at the state and local levels. The auditors estimated the improper payment estimates and then, finally, Congress passed a law 

requiring the management of the departments and agencies to do 

this. 

You know, unfortunately, I cannot find you a figure on what I 

think the total would be, but I think it to be materially understated 

at this point, which would lead to an additional billions of dollars. 

I know for a fact, when the Supplemental Nutrition Assistance Program did report improper payments, their improper payments were 

over $3 billion. So, when they start resuming making their estimates, I expect it to be, you know, billions of dollars understated. 

The problem is pervasive, as you mentioned, so 112 programs in 

22 different agencies. The biggest three, though, are Medicare, 

which is about $60 billion; Medicaid, $36 billion, and I believe Medicaid to be understated because it does not specifically focus on the 

managed care portion of Medicaid yet; and the earned income tax 

credit, which is close to $17 billion for 2016. 

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74 

Chairman BLACK. Could I ask to have figure 1, slide 1 put up 

on the charts? And if we could just refer to this. Over the past 5 

years, the GAO has made nearly 130 program specific recommendations to various agencies to reduce these improper payments that have not been adopted or implemented. And so, we see 

the dollars go out the door. You make recommendations; they are 

not adopted; they are not implemented. Can you give us some kind 

of an idea about why that is? Is this the case of the agency just 

not wanting to do it? Are there other barriers at play that prevent 

the agencies from acting on the GAO recommendations? 

Mr. DODARO. Yeah, there are a couple factors. One, I feel this is 

a cultural shift. Most of the programs in the agencies believe their 

job is to make sure they do not miss anybody that should be paid. 

And so, as a result, the tendency is to, when in doubt, pay, and 

then worry about it later. And we are trying to shift that culture 

to making sure there are not payments made inappropriately in 

the first situation. Ninety percent, over 90 percent of these figures 

are overpayments. Now, some of them are underpayments, which 

is a problem, too, because that means somebody who should be getting the money is not. But the big problem is overpayments. There 

is not enough checking before the payments that are made up front 

in the first place. 

We have a recommendation to the Congress, for example, to 

match against the complete Social Security Death Master File to 

make sure people are not taking advantage of people who died in 

filing false claims. This has been a problem. We have identified 

this, the IGs and others in the past. But it will take a requirement 

change, amendment to the Social Security Act, in order to allow Social Security to share that full Death Master File with the agencies. 

I have also been working with the State auditors, particularly as 

it relates to Medicaid, because, in some States, Medicaid is 1⁄3 or 

more of the entire State budget to get the State auditors involved. 

This may require help from the Congress in order to provide some 

funding, which I think would have a good return on investment 

there as well. 

The other thing is I think there needs to be greater congressional 

oversight. There are at least 7 agencies that are out of compliance 

with the law. The law says you have to keep your improper payment rates below 10 percent. There are 14 agencies, I believe, or 

maybe 11 that are above 10 percent. And some are extraordinarily 

high. And if you are out of compliance with that for 3 straight 

years, you are out of compliance with the law. And they are required, the agencies are required, to submit to Congress proposed 

legislative changes to bring them into compliance with the law. 

But there needs to be more oversight by the Congress and attention made to these areas. And we have a number of other open recommendations I list in my written testimony for specific areas and 

programs and other areas. And Medicare, for example, we have recommended that the CMS seek the authority to allow recovery auditors to do audit before the payments are made in the first place. 

They did a pilot. It was demonstrated successful. But they have not 

submitted that legislative proposal to the Congress. So, there is 

much that can be done. 

BU00-A363290 with DISTILLER

75 

Chairman BLACK. Well, and I appreciate that because, once the 

dollars are out the door, they are very hard to get back. But as you 

have indicated, there has to be some kind of consequence, rather 

than just a good-faith effort to fix or because we see how this has 

continued to grow, and if there were an effort to be done where 

there were actually teeth behind it, consequence, some sort of a 

tangible penalty to sanction, that seems to be what would be a 

whole lot more effective than just good-faith effort because, if we 

continue to see this grow, that is ultimately affecting the taxpayer. 

I know we talk about these dollars as though they somehow belong to the Federal Government, and they do not. These are taxpayer dollars. I only have a brief period of time left, but I am looking at the long-term fiscal outlook, and GAO has been doing its 

long-term simulations since 1992 about a quarter of the century. 

How much worse is the outlook now compared to what it was then, 

and is it worse now than GAO projected in 1992? So, in other 

words, what you project in 1992, is that true, or is it worse than 

what you had projected? 

Mr. DODARO. Yeah. Yeah. I would have to go back and check the 

1992 projections, but I would believe they would show the situation 

now is worse because I do not think, at that time, we anticipated 

the Great Recession that occurred during the global financial crisis. 

And that worsened the situation considerably. We were on an 

unsustainable path before the global financial crisis. But after that, 

when we borrowed money to help stabilize the financial institutions 

and resume credit lending, we had the American Recovery and Reinvestment Act to provide stimulus funding; all that added additional money. And there are a number of things that have been 

added over time: part D, paying for prescription drugs without 

funding it. And so, all those things have added to the debt. So, I 

will double check compared exactly to our 1992 estimates and submit that for the record, but my overall feeling is it is worse. 

Chairman BLACK. Thank you. Well, I sure do appreciate that. 

And again, I appreciate you being here. I do want to highlight one 

of our colleagues who brought this to our attention, so that we 

could have this most interesting and important conversation, and 

that is Mr. Palmer. And I know he will be here in just a bit to ask 

some questions. But I do not know that there is much else that is 

more important than our fiscal sustainability and the fact that we 

can say to the American people, when you send your taxpayer dollars, they are being used for the best use and that there is not a 

waste in that. 

So, such an important conversation, one that I do not believe 

many of my other colleagues outside of this Committee have any 

idea. And so, we hope to highlight it through this hearing and 

other measures that we do going forward. So, thank you again. 

Now, we can begin our question and answer period, and I will turn 

to the ranking member, Mr. Yarmuth, for your questions. 

Mr. YARMUTH. Thank you, Madam Chairman. Once again, Mr. 

Dodaro, thank you for your testimony, and you and I had a very 

good conversation in my office several months ago, and I appreciate 

the work that you do and that your organization does. As I said 

in my opening statement, I truly believe that this is something that 

we Democrats should be even more vigilant on than Republicans 

BU00-A363290 with DISTILLER

76 

because I accept the moniker that we are the party of government 

and ought to make sure that we do what we can to create the most 

efficient government possible and that, certainly, when you have 

abuse of programs that we believe in, we would be much more 

credible if we worked to make sure that those programs were as 

efficient and effective as possible. 

So, I look forward to working with you as we move forward. 

Chairman Black asked the question about what is responsible, and 

you gave some answers, but I am wondering whether it is a larger 

problem with personnel or in the agencies, or whether it is with 

structural problems. Is there any way to characterize that? 

Mr. DODARO. I think it is a multifaceted problem, and quite 

frankly, the agencies have not really identified all the root causes 

necessary to identify what the specific problem is. I think it is part 

people; it is part technology. You know, technology is really one of 

the ways to be able to do this. Part of it is legal barriers and that 

there is not enough sharing of information between the departments and agencies that could check. 

You know, a lot of these programs are based on income requirements. And there could be more checking. Right now, it is mostly 

self-reporting by people about what their income levels are. So, 

there could be more checking up front before payments are made. 

So, it is people, it is technology, it is incentives and it is culture. 

Mr. YARMUTH. I appreciate that. And I know the lawyers say 

never ask a question you do not know the answer to. I am not a 

lawyer and I am not that disciplined so I tend to ask questions that 

I could be surprised about, but I am curious as to whether you 

have done any analysis as to whether a lot of this ends up being 

a cost-shifting situation in which if you were to actually stringently 

enforce all of the guidelines of these programs whether you would 

not shift costs onto either State and Local governments or some 

other area of the Federal Government? 

Mr. DODARO. Yeah. The only cost shifting that we have reported 

on I am aware of is actually the reverse. And it is in the Medicaid 

program where the States are shifting more of the cost to the Federal Government. They have to provide a non-Federal Government 

share of their Medicaid spending, and a lot of them are taxing and 

using other means for local providers and then they are compensating, making payments back to those local providers that are 

high, which, in effect, shifts the cost because it increases the Federal matching requirement there. In most of the programs, the Federal Government bears most of the fiscal responsibility in the outcome through the program, so the responsibility really lies at the 

federal level. 

There could be incentive issues at the state and local level, particularly in the Medicaid program, you know, where the Federal 

Government does so much matching. In the Food Stamp Program 

or the Supplemental Nutrition Assistance Program, it is all federal 

money that is administered at the State level. So, the only shifting 

I am aware of is within the Medicaid program. And we have made 

recommendations to CMS to collect better information to prevent 

that cost shifting from inappropriately effecting the Federal Government’s share. 

BU00-A363290 with DISTILLER

77 

Mr. YARMUTH. How much of the inappropriate payments that 

you have analyzed are the result of criminal behavior? 

Mr. DODARO. It is hard to determine, you know. Not all improper 

payments are fraud by a long shot, but all fraud is improper payments. And just to give you some examples, in the health care area 

alone, you know, the Justice Department has a special task force; 

they had almost 900 cases that they have opened up, and the HHS 

inspector general has completed over 700 criminal cases just in 

2016 alone and almost 700 civil cases as well. 

So, it is clear there is fraud in the health care area in particular. 

The other area is in the earned income tax credit area, and we 

have made a number of recommendations to the Congress. In that 

area, you have a very complex program with a lot of complex rules 

that are difficult to follow about residency and dependency of the 

children movements between families. But we found, you know, 

most of the earned income tax credit people go to have their returns prepared by unenrolled tax preparers at IRS, and about /1/ 

3/ of the overpayments are due to errors by these unenrolled tax 

preparers. And, actually, for refundable tax credits, people who do 

their own taxes have a much higher accuracy rate than if they go 

and they use an unenrolled tax preparer. 

So, we have recommended that the IRS provide some certification requirements and training requirements in this area, which 

we think would really help reduce the error rates in earned income 

tax credit. They are close to 25 percent of the program. And they 

also take up a lot of IRS’s time in doing the audits. They do more 

audits in that than almost any other area. 

And, also, I have been talking with several members, Congressman Renacci and others. There is a way to give IRS more authority 

to correct errors when the returns are there. Congress could act to 

do that. That would solve part of this problem too rather than happen to have a full-blown audit to address the issues. 

So, there are a lot of things that we have made recommendations 

to the Congress. One area that Congress already acted on, and I 

am very pleased, is they are now requiring the W–2 information by 

employers to be sent to IRS by the end of January, previously had 

been March and April. So, IRS did not have that information to 

match against returns that were filed. 

Mr. YARMUTH. Right. While we are on the subject of tax exempt, 

when you throw out the figure of $450 billion a year in uncollected, 

but due, tax revenue, that is a pretty frightening figure because 

you are talking about, in some years, the entire federal deficit, essentially and a good share, even, of it today. What are the key factors that we need to consider in Congress to reduce that number 

significantly? 

Mr. DODARO. Yeah. The number is an annual number. So, you 

know, like improper payments, we have money going out the door 

that probably should not in some cases and a lot of revenue that 

should be coming in, and it is not. We are about 84 percent compliance, voluntary compliance rate. We have encouraged the IRS to do 

more third-party reporting. If you look at where the tax gap is, 

about 84 percent of it is people who un-report their income, about 

10 percent; 10 percent is people who have reported properly, but 

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just do not pay the tax. And then you have about 6 percent of people who do not file at all. 

And so, in targeting, you look at where the gaps are, where there 

is withholding at the source, like, for most people, their taxes get 

withheld by their employer and remitted to the IRS; there is very 

high compliance rates. But when you get to small businesses, partnerships, and corporations and others, there is less compliance rate 

at these areas. 

So, if IRS has better third party reporting information that they 

compare to the tax returns that are submitted, the compliance 

rates go up. So, we think there is more third party reporting that 

can be done. We believe this correctable error authority at IRS 

would help a lot, not only in earned income tax credits, but in other 

tax returns. And also, we believe that their giving IRS the authority to ensure that anybody who is a tax preparer is credible, welleducated, and is going to make good-faith efforts to comply. 

Mr. YARMUTH. Okay, one obvious question I have and then probably is a very simple answer, but if a lot of this is income that we 

do not know about, the government does not know about it, how 

do you know about it? 

Mr. DODARO. Yeah, well, IRS does studies. The estimates are all 

based upon, actually, it was a GAO recommendation years ago, and 

nobody knew what the size of the tax gap was. So, IRS has a research effort there they use all their tools and results of all their 

audits where they found these things. They have whistleblower 

programs that we have recommended be streamlined, so people call 

them with tips all the time. So, you know, while, you know, we do 

not know or IRS does not know, somebody knows. And they inform 

the IRS, and there are other ways for them to find out these measures, but these are well-informed estimates by IRS. 

Mr. YARMUTH. Great, I appreciate that. Thank you for your responses, and I yield back. 

Chairman BLACK. Thank you, Mr. Yarmuth. I now recognize the 

gentleman from California, Mr. McClintock, for 5 minutes. 

Mr. MCCLINTOCK. Thank you, Madam Chairman. First, of all, I 

would like to correct the misrepresentation that we heard from the 

ranking member that the President was calling for a government 

shutdown. And, in fact, he has been bending over backwards to 

avoid a government shutdown. There are some on our side of the 

aisle who think that maybe he has gone too far in bending over 

backwards to avoid a government shutdown. 

What he called for was for the Senate to reform its closure rule 

on fiscal bills that has completely gridlocked Congress’ ability to 

control spending and exert its power of the purse. He suggested it 

might end up taking a shutdown before the Senate finally realizes 

how serious the problem is and decides to fix it. So, I want to make 

that clear. Mr. Dodaro, does the omnibus spending bill that is now 

pending before the Congress improve or degrade our government 

solvency? 

Mr. DODARO. Well, I believe the current estimate for this year by CBO, the deficit, is over $500 billion, so it is still not, you know, 

or we are still spending more than we are—— 

Mr. MCCLINTOCK. Well, does the current spending bill make it 

better, worse, or keep us on the current trajectory? 

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Mr. DODARO. I think the deficit would go up a tad. I would have 

to check and go back to see—— 

Mr. MCCLINTOCK. So, it would increase our debt picture even further? 

Mr. DODARO. Yes, yes. 

Mr. MCCLINTOCK. So, you would put the revenue gross up $18 

billion. Our spending is up $166 /1/2/ billion, you know, that is certainly a prescription for disaster. It seems to me, from your report, 

that the increase in spending is all being driven by mandatory 

spending? 

Mr. DODARO. Mandatory spending, including interest on the 

debt. But what you are seeing now is a harbinger of what is going 

to happen with the demographic changes in the country and the 

baby boomer retirement. Between now and 2029, every day in the 

United States on average, 10,000 turn 65, so we are almost going 

to double the number of people enrolled in Medicare and Social Security. 

Mr. MCCLINTOCK. Well, let’s go to that question for a second because you said the debt held by the public is going to exceed our 

previous high of 106 percent of GDP in the next 15–20 years. But 

is not our total debt intergovernmental and debt held by the public 

already approaching or exceeding that all-time record high? 

Mr. DODARO. Yeah, that is correct. 

Mr. MCCLINTOCK. And that record high occurred at the very end 

of World War II when we completely exhausted our Nation’s resources fighting against the two most powerful military forces on 

the planet. And there was serious concern whether we could even 

continue the war into fiscal 1946 because we were out of money. 

Mr. DODARO. Right. 

Mr. MCCLINTOCK. And we are actually there right now in terms 

of the total amount of debt being held by the Federal Government, 

both by the public and intergovernmental debt. And is not the distinction between debt held by the public and intergovernmental 

debt largely due to the government repaying loans it has taken out 

from the Social Security Trust Fund? 

Mr. DODARO. Yes. 

Mr. MCCLINTOCK. So, as it does so, it converts intergovernmental 

debt into public debt; is not that right? 

Mr. DODARO. That is right; that is right. 

Mr. MCCLINTOCK. So, is not this a distinction without a difference? Intergovernmental debt will automatically convert into 

public debt over the next few years, so really, are not we already 

at that all-time limit? 

Mr. DODARO. Well, it is a timing issue. It is a timing issue. In 

fairness, we are using the debt held by the public to compare to 

the current GDP ratio. And as this intergovernmental debt plays 

out over the coming years, there will be different GDP estimates. 

So, it is the classic way to compare this—— 

Mr. MCCLINTOCK. Going to the issue of revenues, where do we 

stand right now on revenues as a percentage of our GDP as compared to our post-war average? 

Mr. DODARO. We are lower. 

Mr. MCCLINTOCK. We are lower in—— 

Mr. DODARO. Yes. 

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Mr. MCCLINTOCK.——revenues than our post-war average? 

Mr. DODARO. Yes. 

Mr. MCCLINTOCK. Okay, where are we on our spending? 

Mr. DODARO. Higher. 

Mr. MCCLINTOCK. And is not spending really the critical issue 

here? I mean, to me, I think there are really only 2 ways to pay 

for spending. You either tax it now as revenue, or you tax it in the 

future as debt. And if you tax it as debt, you end up paying interest 

on that debt, and you borrow from the same capital market that 

would otherwise be available for consumer purchases when twothirds of economic growth is driven by consumer spending. Or 

loans to businesses seeking to expand jobs. 

Mr. DODARO. Yeah. The gap, that structural problem between 

revenues and expenditures, is so large, if you just keep the debt 

held by the public at the current average of GDP over the next 75 

years, you would have to, on average, cut spending 25 percent from 

current levels on average, over the 25-year period, if you were to 

do spending alone. If you were to do revenue alone, it would be 36 

percent increase in taxes in order to generate more revenue. The 

closest gap—— 

Mr. MCCLINTOCK. Minus the negative impact. 

Mr. DODARO.——would just stay even. 

Mr. MCCLINTOCK. Minus the negative impact on the economy 

that would suppress revenues. 

Mr. DODARO. Yeah, you would have all sort of attendant, you 

know, factors that would cascade from those decisions. But I think 

the problem is so big, eventually, there is going to have to be a 

combination of spending reductions and attendant to revenues in 

order to solve this problem in an equitable way. 

Mr. MCCLINTOCK. Or revenue growth—— 

Chairman BLACK. The gentleman—— 

Mr. MCCLINTOCK.——or economic expansion. 

Mr. DODARO. Yes, that always helps. 

Chairman BLACK. The gentleman’s time has expired. The gentleman’s time has expired. 

The gentleman from California, Mr. Carbajal, is recognized for 5 

minutes. 

Mr. CARBAJAL. Thank you very much, Chairman Black and 

Ranking Member Yarmuth. Thank you, Mr. Dodaro for coming 

today to provide us your nonpartisan, unbiased opinion and feedback today. The CBO has told us that of the 10 largest tax expenditures, the top 1 income percent of income earners reap 17 percent 

of the tax benefit. And some are massively favoring the wealthy. 

68 percent of the benefit from the preferential rate on capital 

gains and dividends goes to just the top 1 percent. Others favor 

well-connected special interests, like the carried interest for hedge 

fund partners, special depreciation for corporate jets, and subsidies 

for big oil. Would reexamining and closing some of these loopholes 

and provisions be a way to improve our fiscal situation? 

Mr. DODARO. Yes, we have an outstanding recommendation that 

the tax expenditures be regularly reviewed just like the agency operations or appropriations decisions are made every year. The 

amount of tax expenditures in any 1 year of revenue forgoes over 

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a trillion dollars. So, it is almost as much money as discretionary 

spending in as many years. 

And we have recommended that more disclosures be made in the 

budget process and that, in OMB implementing the program inventories, you look at a set of programs and related tax expenditures 

together because tax expenditures are another Federal tool for delivering services. Programs are one; tax expenditures are another; 

loans are another, but a lot of them are in similar areas, where you 

are trying to achieve multiple objectives. So, regular review of tax 

expenditures ought to be a normal practice of our government. It 

has not been. 

Mr. CARBAJAL. Thank you. In your report on page 21, it shows 

that the highest improper payments go to 4 major programs: Medicare Fee-for-Service, Medicare Advantage part C, Medicaid and 

earned income tax credits. I am wondering if there has been a 

deeper dive of trying to understand the profile of who the recipients 

of these improper payments are. 

Mr. DODARO. Yes, there has been. For example, in the Medicare 

Fee-for-Service area, there is higher improper payments rates for 

home health services and durable medical equipment. And so, 

there are, you know, some additional information, probably not everything that needs to be done eventually. But there are some indicators of where there are higher improper payment rates in place. 

Most of the improper payment rates in Medicaid are in the Feefor-Service portion. The managed care portion, now, is about 40 

percent and that we have recommended that the State start auditing the managed care providers in the Medicaid programs, and 

CMS has passed the rule to require that, so that will start soon. 

That will provide additional insights into the Medicare managed 

care portion. 

Mr. CARBAJAL. Thank you. And the last observation that I wanted to share is that, in 2009, the improper payment error noted in 

the 2016 financial report for the U.S. government noted that, in 

2009, the improper error rate was 5.42 percent. When sequestration came into effect, it was 3.53 percent. In 2016, it has come up 

to 4.67 percent. I only throw that observation out because it seems 

that there might be a correlation with sequestration; any thoughts? 

Mr. DODARO. I find it difficult to draw that correlation myself. I 

think a lot of this is driven by the growth in the programs. And, 

you know, Medicaid or Medicare are growing at 6 to 8 percent a 

year and are projected to grow. And so, some of the increase is just 

by the fact that programs are growing faster. Most of this needs 

to be resolved through technology, you know, changes, as well. 

Maybe there was some effect of the changes, but I do not think, 

over time, that that is really the driver. 

Mr. CARBAJAL. I was referring to the error rate, but I am almost 

out of time. 

Mr. DODARO. Right. Yeah. 

Mr. CARBAJAL. But thank you so much. 

Mr. DODARO. But my answer applies to that, too. 

Mr. CARBAJAL. Okay. Thank you very much. 

Mr. DODARO. Sure. 

Mr. CARBAJAL. I yield back. 

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Chairman BLACK. The gentleman yields back. I now recognize 

the gentleman from Wisconsin, Mr. Grothman, for 5 minutes. 

Mr. GROTHMAN. Thank you. I am looking at the table we looked 

at that you mentioned programs reporting improper payments. I 

would like to zero-in on a couple of them. 

Mr. DODARO. Sure. 

Mr. GROTHMAN. One is the earned income tax credit. You show 

here that, shockingly, 24 percent of the payments are improper. 

And I wondered what that means, ‘‘improper,’’ or whether you are 

catching everything. How do they determine that 24 percent number? 

Mr. DODARO. It is based upon a statistical sample that they take 

of error rates they take later and a closer examination. 

Mr. GROTHMAN. Is it error rates on the return, or is that going 

into somebody’s house and seeing whether the child is really with 

them, or is it actually, you know, going through and seeing whether they have income that is cash off the books? 

Mr. DODARO. Yeah. 

Mr. GROTHMAN. I mean, I hear so much evidence, especially from 

kind of the more liberal people in my district, who, you know, 

maybe administer the low-income housing, this is a broken program. I just wondered what that 24 percent means. How hard do 

we look to see—— 

Mr. DODARO. Yeah. I believe it is mostly through audits that the 

IRS does through the EITC program. The EITC audits account for 

39 percent of all the audits IRS does of individual tax returns. So, 

this is an area that is heavily audited by the IRS because of the 

error rate. And I will give you a detailed answer for the record 

about exactly how they develop the rate, but it is a heavily audited 

area by IRS. 

Mr. GROTHMAN. I realize it is audited, but I wonder, when they 

audit, what they pick up on, you know? I mean, do they go into 

somebody’s house if somebody puts down, you know, Mary Smith, 

Social Security number 123–45–6789, do they confirm that Mary 

Smith is there? Do they go into the house and make sure? Because 

a lot of people make money off of the books, and there is certainly 

a lot of evidence that people are using their income tax credit for 

things other than children’s shoes. I mean, would the audit pick up 

on those things, or would those be additional examples of fraud? 

Mr. DODARO. Yeah. Yeah, I do not know off hand. And I will give 

you an answer for the record on that. 

Mr. GROTHMAN. Can you look into that for us? 

Mr. DODARO. Sure, sure. 

Mr. GROTHMAN. Because I have a feeling it is even higher, and, 

you know, any program, if 24 percent was going out the window, 

we would look for a different program. 

Mr. DODARO. Right. 

Mr. GROTHMAN. Next question I have for you is on Medicare and 

Medicaid. I recently talked to a guy from my district whose business includes auditing payments for companies that self-insure. 

And he found shockingly high overpayments. When he went out of 

network to an emergency room, I am reluctant to even give you the 

numbers because I am afraid somebody will question them, and 

they are just so high, it is beyond belief. But when you talk about 

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errors in Medicare Fee-for-Service, again, how deep a dive are you 

doing? Are you going deep in depth of the individual bills? Like if 

a Medicare patient goes to an emergency room, are they really 

going through those bills? Or how do they get at that 11 percent 

number? 

Mr. DODARO. Yeah. Yeah, well, in those cases, I know they take 

a statistical sample to claims, and they ask for all the medical documentation. So, sometimes they will determine that the medical 

procedure charge was not really needed. During that period of 

time, they will find that there is not adequate documentation, that 

the doctor actually ordered the particular service. There are a lot 

of different reasons. So, they go through a pretty thorough job. We 

are going to take a look at that area. I want us to understand a 

little bit more about exactly what they are doing and how they are 

making the decisions in these estimates. 

Mr. GROTHMAN. Because this guy tells me and it puts you in 

kind of, you know, in excess of 30 percent, which is kind of scary. 

I do not know. Obviously, you know, you are talking when you get 

out of network, but kind of scary stuff. 

Let’s see. Where is our clock in this room? Oh, there it is. I cannot see, okay. I will come back to the income tax credit one more 

time. It seems to be the problem there is that it is refundable. Do 

you have any opinion as to what high an error rate you considered 

satisfactory? 

Mr. DODARO. Well, I think it would vary by individual program, 

but the Congress has already statutorily determined, if you are 

below 10 percent, you are in compliance with the law; if you are 

above, you are not. And I would not have any reason to say that 

that is not a reasonable basis to start with. 

Mr. GROTHMAN. Can you dig in to that number and let us know 

whether the IRS checks into cash off the books and whether the 

IRS literally—because I do not even know how they would be able 

to do it. I mean, you say the kids are at school; what are you going 

to do? Does the IRS do something to confirm that those children 

are genuinely with the people who are claiming the credit? 

Mr. DODARO. Yeah. Yeah, I think they do some checks, as I am 

thinking back now in terms of checking school records or have people give them documentation about school records and other things. 

So, but I will give you a thorough answer to that. 

Mr. GROTHMAN. Thank you. 

Mr. DODARO. And it is an important area. And I think, you know, 

our overall conclusion along the line of your questioning is the 

problem is bigger than what is being stated already. 

Chairman BLACK. The gentleman’s time is expired. The 

gentlelady from Illinois, Ms. Schakowsky, is recognized for 5 minutes. 

Ms. SCHAKOWSKY. I want to thank you, Comptroller General, for 

being here today. You talked about the cost of health care, and 

within health care spending overall, prescription drug costs are 

really a driver in the growth of costs for both consumers and the 

Federal Government. Medicare part D prescription drug costs nearly doubled from $61 billion in 2007 to $121 billion in 2014 and 

more since then. Prescription drug costs and Medicare part B doubled from $11 billion in 2007 to $22 billion in 2015. So, I wanted 

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to know if you thought that, and this is, by the way, an issue that 

the President has raised, to get a handle on prescription drug costs. 

So, do you believe that slowing the growth of prescription drug 

costs could help reduce health care spending and improve our longterm budget outlook? 

Mr. DODARO. Yes. Yes, definitely. 

Ms. SCHAKOWSKY. So, the President has mentioned reforms like 

letting Medicare negotiate drug prices like the VA has done. And 

then, additionally, we could end anti-competitive practices in the 

pharmaceutical industry, promote greater transparency in drug 

pricing, so that consumers and taxpayers can get a best deal. Do 

you agree that those are options? 

Mr. DODARO. Yes. Yes, I think now, for example, in Medicaid, 

there are some rebates negotiated. But this is an area where you 

do not only have Medicare and Medicaid, but you have two of the 

largest healthcare systems in the country, and Veterans Administration and DOD also purchase a lot of these drugs. So, I think 

there are a lot of opportunities for the Federal Government to better leverage its purchasing power. Now, it is a complicated area 

and requires a lot of study, but I think it is a worthwhile area to 

pursue. 

Ms. SCHAKOWSKY. Thank you. I agree. I wanted to ask you about 

the Defense Department. Years ago, I was on the government efficiency Subcommittee of Government Reform along with Steve Horn 

from California. 

Mr. DODARO. Steve Horn, yes. Yes, I spent many hours before 

that Committee. 

Ms. SCHAKOWSKY. Yes, exactly. And so, I remember, at that time, 

we were saying that the Department of Defense could not account 

for a trillion dollars at the time of expenditures. And that number, 

I believe, has gone up. Am I right? The Department of Defense has 

never had an audit or been able to perform an audit? 

Mr. DODARO. That is exactly right. They are the only major agency that has never been able to pass the test of an independent 

audit. Right now, they are trying to audit 1 year’s budget expectation numbers, and they have not been able to do that yet satisfactorily. A third of the areas on our high-risk list that the chairwoman mentioned in the beginning are DOD business practices: financial management, contract management, weapons systems, acquisition, information technology, management, and their business 

modernization efforts. I mean, we have a wonderful military; it is 

the best in the world, but their business practices need to be reformed. 

Ms. SCHAKOWSKY. But it was $600 billion last year, 15 percent 

of the Federal spending. So, how much should we focus on that? 

It seems to me that, at the very least, we should ask for the Department of Defense to pass an audit like every other department. 

Mr. DODARO. I agree, I agree. I think Congress should focus more 

on it. The Armed Services Committees have been. They passed 

laws saying they should be auditable by 2017. So, they are planning a full-blown audit for 2018. But they have already said that 

they do not believe that they are likely to pass the audit. But I 

think we need to keep the pressure on to impose the fiscal discipline necessary at the Defense Department. 

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Ms. SCHAKOWSKY. I have a little time left, but I just want to 

raise this issue of Social Security. In 1983, 3⁄4 of employee compensation in the country was subject to payroll taxes. In 2015, less 

than 2⁄3 of employee compensation was subject to payroll taxes. 

There has been a lot of concern about the long-term viability of Social Security. Would not it raising or eliminating the cap to capture 

more income make sense? 

Mr. DODARO. The programs are in jeopardy. The disability portion is expected by 2023 to only have enough money to pay 89 cents 

on the dollar of promised benefits. The Old-Age, Survivors portion 

of Social Security is expected, by 2035, to only be able to pay 77 

cents on the dollar. 

One of the options that people have suggested is raising the cap. 

I think that is a viable option to pursue. It depends on whether, 

though, if you raise the cap, whether you delink benefits. And so, 

in other words, if people were paying more, their benefits do not 

go up above a certain level. If the benefits go up as a percent of 

what they are contributing, it will not solve as much of a problem. 

Ms. SCHAKOWSKY. Thank you, I yield back. 

Chairman BLACK. The gentlelady yields back. The gentleman 

from Michigan, Mr. Bergman, is recognized for 5 minutes. 

Mr. BERGMAN. Thank you, Madam Chairman. Comptroller General, first of all, thanks for being here today because you are painting a realistic picture, and that is what this country needs at all 

levels is a realistic picture. Your written testimony shows how 

agencies’ improper payment estimates have steadily grown every 

year, almost doubling over the last 8 years, not only the total dollar 

amounts, but also the rate of improper payments. What factors 

have driven this growth, and is it a matter of examining more programs, doing the analysis more accurately, more government 

spending, or all of the above? 

Mr. DODARO. It is basically all of the above. The estimates need 

to be better. Like we found, for example, I will give you one good 

example. The Tricare program and the DOD area. We were just 

talking about DOD. Their estimate does not go as deep as the 

Medicare estimates do in the fact that they do not check whether 

the payment was made for something that was medically necessary; whereas Medicare does do that check. 

So, the error rate in Tricare is way low. And so, we have asked 

them to change their methodology. A number of programs and departments do not report at all because they have assessed their 

risk of improper payments as not a high-risk area. And so, that 

needs to be examined. In other cases, there needs to be more pressure on the agencies to find a root cause of the problem and correct 

it and bring the error rates down, so they are in compliance with 

the law. 

Mr. BERGMAN. So, it is fair to say, then, that, the more we look 

for improper payments at this point, the more we are probably 

going to find? 

Mr. DODARO. Definitely, definitely. And that accounts for some of 

the growth, actually, and the reported amounts and the error rates. 

Mr. BERGMAN. Well, there are 18 programs across the Federal 

Government that agencies have determined are at risk for significant improper payments, yet no estimates were reported. I chair 

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the Veterans’ Affairs Committee on Oversight and Investigations 

Subcommittee and 4 of those programs belong to the VA. VA has 

pledged to report estimates this year. Have the other agencies who 

are in control of those programs pledged to do the same? 

Mr. DODARO. The prior administration was focused on this area 

in trying to get the agencies to develop plans. I met recently with 

the new OMB director, Mick Mulvaney, and expressed my concern 

about this area and the need to focus on it within the administration. So, I think it is important for this administration to focus on 

this important area. The agencies, by law, are supposed to make 

that pledge. They are supposed to set goals and work hard to 

achieve those goals in good faith, but there needs to be more oversight within the administration, by OMB, and within the Congress. 

Mr. BERGMAN. And as you know, the VA Committee, the VA 

Community Care has the highest improper payment rate in the 

Federal Government at almost 76 percent. The reason for that 

technically is because the Community Care spending is not backed 

up by contracts that comply with the Federal acquisition regulation. There is debate about whether all those arrangements with 

doctors need to be contracts or something else. Once that technical 

cause is determined, are VA and GAO looking deeper into how 

much is actually paid out in the wrong amount or to the wrong person? 

Mr. DODARO. Yeah, we will look more carefully at that area once 

that issue gets resolved. You know, I am very concerned about the 

Veterans Administration. We placed them on our high-risk list 

back in 2015, veterans’ health care, because a lot of inadequate 

policies and procedures that were ambiguous, there is not good 

oversight and accountability; their information technology systems 

are way outdated. 

The scheduling system now that is being used to schedule appointments with doctors is over 30 years old, for example. And 

there are problems with use of resources to make sure that they 

are properly—there is a lot of lack of clarity between the requirements and resources that are needed. So, we are very focused. I 

met with Secretary Shulkin about them coming up with a plan to 

address the high-risk areas which would include, you know, taking 

a look at these improper payment issues. 

Mr. BERGMAN. Thank you for your very direct candor, and I yield 

back. 

Chairman BLACK. The gentleman yields back. The gentleman 

from New York, Mr. Higgins, is recognized for 5 minutes. 

Mr. HIGGINS. Thank you, Madam Chair. So, you indicate in your 

report that Federal spending is driven disproportionately by Social 

Security, Medicare, and Medicaid. The stated objective of health 

care reform, the Affordable Care Act, Obamacare, call it what you 

will, was to do two things. One was to increase the number of people who would have health insurance, and I think that objective 

has been met in the aggregate by some 20 million additional. 

The other was to slow the growth of health care spending as it 

relates to Medicare and Medicaid. Economists would call that bending the cost curve. Your assessment as to the success of that since 

the enactment of the Affordable Care Act as it relates to annual increases in Medicare spending per beneficiary. 

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Mr. DODARO. Yeah, I need to give you a technical answer for the 

record. But what I will say is that the Trustees Report—now this 

is the secretary of HHS, or Social Security administrator, and a 

secretary of treasury, and a CMS actuary have real questions about 

whether or not the reforms put in place by the Affordable Care Act 

will hold over a period of time and actually reduce costs both in 

terms of productivity, expenditures, as well as the subsequent legislation that Congress passed changing provider payments to physicians and whether that will hold over time. 

So, there are real questions about it. But I will give you a specific 

answer, you know, for the record. But one of the differences between our report is estimates of whether or not health care costs 

follow this alternative path that the CMS actuary has put in place. 

If that happens and these reforms do not hold over a period of 

time, you have much more escalating costs in the future for Medicare and Medicaid. And you get to a point where our debt grows 

faster as a result of that. 

Mr. HIGGINS. Okay, the Congressional Budget Office report that 

I read recently indicated that, prior to the Affordable Care Act, 

Medicare was growing at between 7 and 9 1⁄2 percent a year. And 

since the enactment, full enactment, of the Affordable Care Act, it 

is growing at about 1.4 percent per beneficiary. And when you take 

into consideration 57 million people getting their health care from 

Medicare, that seems to be an objective, at least in the short-term, 

that has been met. Would you disagree with that? 

Mr. DODARO. Yeah, well, I will take a look at that issue. 

Mr. HIGGINS. Okay. 

Mr. DODARO. I have no doubt there might be some short-term effects on those changes. 

Mr. HIGGINS. Let me just throw something else out at you. And, 

as you know, there is a lot of discussion in the air here about 

health care reform and new iterations of it. And Democrats and Republicans are always going to disagree the extent to which government should be involved. And that is a fair public disagreement 

and argument. 

But the fact of the matter is the United States Government is 

a massive provider of health coverage for people. Fifty-seven million people under the Medicare Program, 70 million people under 

the Medicaid Program, 28 million under the Veterans’ Program. 

That is a lot of leverage. That is a lot of leverage to drive down 

the cost, not only of prescription drugs, because you are buying 

medical services generally. 

So, driving down that cost and driving up the quality of that 

care. And it seems to me that the Federal Government should be 

a lot wiser in using the leverage that it has that it seems to just 

defer to private insurance companies that really screw people. You 

know their business model is to jack up premiums and to reduce 

the payouts. So, any thoughts on a bipartisan effort to recognize 

the strength that we do have in the Federal Government by purchasing, not only prescription drugs, but also medical services, generally, toward the goal of reducing costs, increasing quality, and 

addressing the fundamental issue that you point to in your assessment? 

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Mr. DODARO. Yeah, so, I mean, I think that area has a lot of potential merit. There has been a shift recently by the Congress to 

make a move to not pay for quantity of services, but to pay for 

quality of services. And CMS is in the early stages of trying to figure out how they could change the payment programs to emphasize 

quality and, hopefully, reduce costs, but get away from the quantity benefits. And I think that has promise, but it is very early in 

the implementation of that change. 

Chairman BLACK. The gentleman’s time has expired. The gentleman from New York, Mr. Faso, is recognized for 5 minutes. 

Mr. FASO. Madam Chairman, thank you. And I thank you and 

Mr. Palmer for the idea of bringing the Comptroller General here 

before the Committee to discuss this very important topic. Listening to your testimony and reading through a number of the pages 

of your written testimony questions strikes me. Do our agencies, 

particularly the IRS and CMS, do they have the technological capacity to truly address the question of improper payments? And 

have you examined that issue thoroughly? 

Mr. DODARO. Yes, and I am very concerned. In fact, in 2015, I 

labeled information technology and acquisitions across the Federal 

Government a high-risk area. Most of the $80 billion that the Federal Government spends every year on IT services, almost 75 percent of it goes to support legacy systems that are in place, old systems. And that percent has been growing, which means we are investing less proportionally in new technology and new investments. 

I mean, we took a look lately at the oldest systems in the Federal 

Government. There are a couple of them at the VA over 50 years 

old. The DOD is still using one system operating off a floppy disc. 

I mean, so there is need for more technology. And there—— 

Mr. FASO. Could you—— 

Mr. DODARO. Yeah. 

Mr. FASO. Comptroller General, could you, for the record, supply 

the Committee with an analysis of this? Your current best thinking 

of your agency on this topic and something that we could consider? 

On the topic, you mentioned that EITC has been subject to discussion here. Let me just relate to you a meeting I had with a CPA 

in my district over the recent break. 

And he related that he believes there is massive fraud in the 

EITC. He related a current situation where a couple came to him, 

and the gentleman made $60,000 a year; the woman made about 

$12,000 a year. There were two or three kids in the household. The 

couple were not married. And EITC, as I understand it, requires 

a household income as a determination for eligibility. 

And they specifically said they want you to put on the IRS return 

for the man a separate address from where he actually lives. And 

he said this is rampant. He said he refused to do it. And he said 

the value of the EITC to this woman would be about $14,000 cash. 

And he refused to do it. They went to one of the nationally-known 

income tax preparers. And he said he is certain that they got the 

EITC payment with an improper address. 

Does the IRS have the capacity to truly check the addresses of 

people? And should an EITC be subject to a pre-audit, which you 

alluded to also in your testimony? 

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Mr. DODARO. Yeah. Yes, it definitely should be. The other issue 

that we have identified, you know, we have sent undercover teams 

into 19 paid tax preparers with different tax scenarios. Only 2 of 

the 19 gave us the right answers out of that approach. And, as I 

mentioned—— 

Mr. FASO. On EITC? Or on anything? 

Mr. DODARO. On not only EITC, on anything. 

Mr. FASO. Okay. 

Mr. DODARO. All right? On EITC, though, IRS records show that 

there are more errors made by people who use tax preparers for 

this refundable tax credit than people who prepare their returns 

themselves. 

Mr. FASO. And who are the unenrolled tax preparers that you 

mentioned earlier in your testimony? 

Mr. DODARO. That would be some of the chains that are in place. 

The ones that are enrolled are usually with tax practices or public 

accounting firms. 

Mr. FASO. So, would it not be better to restrict the EITC to only 

those who have the return prepared by an enrolled tax preparer? 

Mr. DODARO. I do not know if there is enough capacity to do that. 

But if not, what we have recommended, and the IRS actually implemented our recommendation, to have certification training requirements of these unenrolled tax preparers, but the courts ruled 

they did not have the legal authority. So, we recommend that Congress give them legal authority to do it. 

Mr. FASO. One last question. You mentioned SNAP, and I am interested in this, as I serve on the Agriculture Committee and the 

Nutrition Subcommittee, and we have to do the Farm Bill next 

year. You mentioned improper payments of over $3 billion in 

SNAP. Could you just briefly describe those? 

Mr. DODARO. Yeah, that was what they reported in 2015. They 

did not report any estimate in 2016 because they became concerned 

about the quality of the information at some of the state levels. 

And so, I am trying to delve into it and find out exactly what is 

wrong, which leads me to believe that maybe some of the prior estimates were not entirely accurate. 

Mr. FASO. Thank you so much. And I would like it if you could 

give us some more information on SNAP. And I yield back. Thank 

you, Madam Chairman. 

Mr. DODARO. Yeah, we will do that. 

Chairman BLACK. The gentleman yields back. I now recognize, 

for 5 minutes, the gentleman from Pennsylvania, Mr. Smucker. 

Mr. SMUCKER. Thank you, Madam Chair. Good morning, General. 

Mr. DODARO. Good morning. 

Mr. SMUCKER. I am having a little trouble wrapping my head 

around the idea that agencies can identify improper payments after 

the fact, but not before. So, I guess, could you just explain to me 

a little more what exactly the improper payments estimate is? Is 

it based on actual findings of improper payments that have been 

made? Or is it an estimate based on some other way of achieving 

that estimate? 

Mr. DODARO. Yeah, in most cases, it is an estimate that is made, 

an after-the-fact estimate, where they draw statistical sample. 

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Let’s say, for example, on Medicare, they will pull a statistical sample of claims. And then they will ask for all the documentation and 

examine the claim after the fact. A lot of these payments are made 

without documentation being submitted other than a provider 

number or whatever because, in Medicare, there are over a billion 

claims paid every year by over a million different providers. And 

so, the volume of activity would not—unless you are using technology and you have it, you know, properly, with good screening. 

Mr. SMUCKER. Right. 

Mr. DODARO. So they are made based on that. And like in the 

case of Medicare—— 

Mr. SMUCKER. So in—— 

Mr. DODARO. Yeah. 

Mr. SMUCKER. I am sorry. 

Mr. DODARO. Yeah, go ahead please. Yeah. 

Mr. SMUCKER. So, in your estimate, how much of the improper 

payment in Medicare/Medicaid, for instance, which you identified 

as the two largest—— 

Mr. DODARO. Right. 

Mr. SMUCKER.——sources of improper payment, how much of 

that could be stopped by stronger controls before the payment is 

made? 

Mr. DODARO. I think a significant amount. I cannot give you a 

specific number. But I think it would be the only way to prevent 

these things from happening in the first place. That is where we 

are trying to move the agencies to is to—— 

Mr. SMUCKER. Yeah, it seems to be that that would be a place 

of great opportunity if we can do that. 

Mr. DODARO. Yes. And I have joined recently with a group of private sector providers that are working with the government to 

identify technological ways to address this issue. So, I am hopeful 

that we will get some good ideas from the private sector to be able 

to implement in the government programs. 

Mr. SMUCKER. I am going to change the subject on you briefly. 

Mr. DODARO. Sure. 

Mr. SMUCKER. I want to ask you a question on that. I have been 

asking others and trying to get a good answer to, you mentioned 

the long-term economic picture, or the fiscal picture, and the deficits and the growing debt, which I share your concern for that. In 

2015, the economic growth rate slowed to 1.6 percent. What is the 

impact of that economic growth rate on our national debt projection? 

Mr. DODARO. Well, it has an impact. I am sure CBO, I mean, 

that is really the area that they focus on, has some way of calculating the impact of it. But the point I would make is that this 

problem that we have right now is so big, we will never grow our 

way out of it. 

Mr. SMUCKER. Yeah, how much would that impact? So I think 

CBO right now is forecasting a 1.9 percent growth rate over the 

next 10 years. If we were able to move that, for instance, through 

a tax policy or whatever it may be to an average of closer to 3 percent, how would that change over that 10-year period our economic 

picture? 

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Mr. DODARO. Yeah, well, it would definitely improve it. I would 

have to go back and give you, you know, more detail to answer 

after we, you know, we would do it and whether or not CBO has 

all the models. We do not duplicate what they do. We use what 

they do. So, they would have the models to answer that question 

for you. 

Mr. SMUCKER. Yeah, but you believe it would have a significant 

impact? 

Mr. DODARO. I believe it will have an impact, yeah. But it depends on what you do on the spending side. You know, if the 

spending side is going to keep going up. 

Mr. SMUCKER. Yeah, sure. 

Mr. DODARO. I mean, that is the issue. And interest on the debt 

is going to keep going up. So you can have economic growth and 

get some additional revenues, but you already have a structural 

imbalance between revenues and spending. So through economic 

growth, you may catch up a little bit, but it is not going to be 

enough as long as spending is growing faster than the economy is 

growing? 

Mr. SMUCKER. Yeah. 

Mr. DODARO. And right now it is. 

Mr. SMUCKER. Yeah. Okay, thank you. I yield back. 

Chairman BLACK. The gentleman yields back. I now recognize 

the gentlelady from Washington, Ms. Jayapal. 

Ms. JAYAPAL. Thank you so much, Mrs. Chairwoman. And thank 

you for your testimony, Mr. Dodaro. I am sorry I missed the last 

few minutes of this hearing for other votes. 

I wanted to go back to something you said at the very beginning 

when you were talking about a fiscal plan and the recommendation 

around a fiscal plan. And our distinguished ranking member, Mr. 

Yarmuth, spoke also about the President’s comments on a shutdown. And I wanted to ask you about the necessity of being able 

to plan and the specific fiscal impacts of not being able to plan, not 

being able to purchase in bulk, not being able to actually bring 

about efficiencies that might come about when you can do that 

kind of planning. 

The appropriations work for 2017 was nearly complete last December when then President-elect Trump convinced congressional 

Republicans to instead pass a long-term continuing resolution 

through April, 7 months into the fiscal year. Continuing resolutions, in my view, disrupt agency operations. People have told us 

over and over again they cannot start new projects. They cannot 

implement any kind of planning that has any sort of certainty. And 

funding ends up being misallocated based on previous year requirements. 

Can you comment on how a breakdown, this kind of breakdown 

in the appropriations process, has hurt the efficient administration 

of vital government services? And specifically, on both the lack of 

an overall plan, but also the lack of ability on a regular basis to 

approve a budget and to not rely on continuing resolutions? 

Mr. DODARO. Continuing resolutions have been a problem for 

years. Only 3 times in the last 28 years have part of the Federal 

Government not operated on a continuing resolution, some shortterm, some longer-term. They disrupt hiring, contracting, orderly 

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planning practices. And they also compress spending because, 

when you do receive the final appropriation for the year, as in this 

particular case this year, there are only a few months left in the 

end of the fiscal year. 

So, it suppresses things earlier and compresses things later. It is 

a problem. You know, I have told the Appropriation Committees 

when I testified about GAO’s own appropriation, one of the things 

I never aspire to be in the Federal Government is an expert managing under continuing resolutions. I mean, it is a problem in that 

area. 

Now the fiscal plan, not having a fiscal plan there, you know, 

Congress, you know, we have this debt ceiling; it was never intended to control the debt, and it does not control the debt. All it 

does is authorize Treasury to pay the bills that Congress has already authorized. So there is no up-front decision Congress makes 

about how much do we want to have in national debt as a percent 

of gross domestic product. 

You know, in the European Union, they say 60 percent, you 

know, and states set different levels of how much debt they want 

to have. But the Federal Government does not do that. So I recommended that we change the debt ceiling approach because the 

way we are doing it right now, when there is a debt ceiling impasse, actually, the markets have adjusted to this. 

So, they are avoiding Treasury securities that would occur during 

a dead impasse period. And the Federal Government is paying 

more money. During the 2013 debt impasse and the government 

shut down period, we estimate between $38 and $70 billion was 

paid in additional interest costs just because people were nervous 

we were not go to pay our debts in time. 

I cannot emphasize how important the full faith in credit of the 

Federal Government is to the effective functioning of our country 

and our Nation. And I believe we need a better, not only a fiscal 

plan, but a better way to manage our overall debt to make conscious decisions at the time revenue and spending decisions are 

made up front. So, we need much more fiscal discipline in our approach, both on the annual basis but also the long term. 

Ms. JAYAPAL. Well, you actually went right into my next question, which was about the debt ceiling. And you mentioned specifically that your analysis says that the brinkmanship around that 

using the debt limit increase on the impasses that we get to actually hurt us substantially, $38 to $70 million. Is there a reason to 

think that these costs might be higher later this year if we delay 

action on the debt limit until Treasury approaches the limit of the 

extraordinary measures? And what would that be? 

Mr. DODARO. Yes. Well, it depends on how long it would be. But 

I think, number one, Congress should pass the debt ceiling limit on 

time, so there is not concern about whether or not the Federal Government is going to pay its bills on time. I mean, the last time this 

occurred, Standard & Poor’s reduced our sovereign credit rating. 

Ms. JAYAPAL. Right. 

Mr. DODARO. And it is still lower than the top. Moody’s and Fitch 

have us at still at the top. All three bond raters have expressed 

concerns about the credit risk that we have from our debt burden. 

And they are concerned, and they have said, in some cases, if that 

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debt burden continues to increase, that will lower the Federal Government’s credit rating, which will raise interest rates and costs 

and alarm investors. 

What we found is that, based on the global financial crisis and 

lessons learned out of that, but also this debt impasse thing, that 

investors in Treasury securities already have contingency plans to 

not buy these investments that might mature around a dead impasse ceiling. And that is depressing the Treasury securities markets. And we are paying additional interest costs, but it is affecting 

liquidity in the secondary markets because treasuries are used to 

trade for financial capital. So not only are we paying more, we are 

distorting the markets by not having a rational process for approach to authorize this debt to be paid in a timely manner. I am 

very concerned that we never do anything to affect the full faith 

and credit of the Federal Government. 

Ms. JAYAPAL. Excellent advice, thank you. And I yield back. 

Chairman BLACK. The gentlelady yields back. The gentleman 

from Georgia, Mr. Ferguson, is recognized for 5 minutes. 

Mr. FERGUSON. Madam Chairwoman, thank you so much, and to 

the Comptroller General, thank you for being here today. This has 

been incredibly helpful to listen to not only the questions that have 

been asked by both sides, but also your answers. And I thank you 

for your candor in delivering those. 

You know, one of the things that I look at, and we have looked 

at on the Budget Committee, is looking at the growing size of mandatory spending. And I think that we would all agree that as we 

approach the next 12 to 15 years, and we look at that number moving from somewhere close to 70 percent to over 80 percent. Would 

you agree that we are going to be very limited in our ability to 

meet our obligations, the promises that have been made, particularly related to Social Security, Medicare, and Medicaid? 

Mr. DODARO. Yeah, definitely. I mean, this situation will limit 

the flexibility, not only to deal with known problems in mandatory 

spending. There are some fiscal exposures, the Pension Benefit 

Guaranty Corporation; $74 billion liabilities exceed their assets. 

The Multiemployer Pension Fund is expected to go insolvent in 

2025. 

These things are not even included in the estimates that I have 

given you about the long-term fiscal exposure. Fannie Mae and 

Freddie Mac are still under Federal conservatorship. Since the 

global financial crisis, the Federal Government has been either directly or indirectly insuring about 2⁄3 of all single-family mortgages. 

And so, if there is a downturn in the housing economy, the risk will 

accrue to the Federal Government. That is not considered in these 

costs. 

So, you are absolutely right. They are mandatory programs, but 

there are other fiscal exposures. And the more we borrow, the less 

flexibility we will have later on to deal with these situations. 

Mr. FERGUSON. Okay. To that point, I think we are fast approaching an environment where we simply cannot cut our way out 

of a program. We cannot spend our way out of a program. We cannot simply reform our way out of a program. We are going to reach 

the point where we have to have a very honest conversation with 

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ourselves, but most importantly with the American people, about 

where these programs are. 

One of the reasons that I was so glad to have this particular 

meeting is that I think, before we go into a discussion about Social 

Security and Medicare, I think we owe it to the American public 

to do everything that we can to make sure that we are spending 

every dime as wisely as we can. Getting rid of the waste, the 

wrongful payments, the fraud, whether it is intentional or unintentional, we have to be good stewards of the money. And so I thank 

you for your time here. 

I have one final question. And do you believe that the processes 

that we have followed on budgeting and appropriations, let’s say, 

for the last decade, and even our current omnibus and appropriations bill, does that mechanism address the spending reforms needed to actually get at deficit reduction? 

Mr. DODARO. No. 

Mr. FERGUSON. Okay, thank you. Madam Chairman, I yield back. 

Chairman BLACK. The gentleman yields back. I now recognize 

Mr. Westerman from Arkansas for 5 minutes. 

Mr. WESTERMAN. Thank you, Madam Chairman. And thank you, 

Mr. Dodaro, for being here today and for your very insightful comments, and for the report that you provided to us. Having served 

in a state legislature before I came here I first started reading 

about improper payments through a GAO report that was done 

around 2010 or 2011 on Medicaid payments, so we did a little audit 

back in my state to see if we could find any improper payments in 

the Medicaid System. 

And sure enough, our state auditors found that there were improper payments in our Medicaid System, pretty much in line with 

the numbers that the GAO had projected, but also learned something very interesting about Medicaid. Because it is a Federal 

match program, that there really is not a lot of incentive in states 

to stop the improper payments. You could almost, I hate to say 

this, but look at it where it is viewed as economic development 

where you put a small percentage of state dollars in, and you get 

a large percentage of Federal dollars flowing into the state. 

So, I am a proponent of block grant-type of funding. But do you 

see other ways that we could address the Medicaid System to put 

more incentive in the states to stop these improper payments? 

Mr. DODARO. Yes, there are 2 ways. One, we made a number of 

recommendations for CMS to collect more information from the 

state. A good example of this is that the Federal Government 

makes payments to the states for uncompensated care. These are, 

you know, if somebody goes in and they do not have insurance or 

whatever. 

But they do not base it on the actual uncompensated cost of the 

hospitals. They base it based on Medicaid workload, which, in this 

case, more people are being covered by Medicaid, so it is not a good 

proxy for uncompensated care. And when they go to make uncompensated care payments for Medicare, they do not even consider 

what they have already paid the state for Medicaid. So, they need 

more information. This is a big problem. 

Number two, I have been working with the state auditors around 

the country. I have got about 37 state auditors to agree to do more 

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work looking at the Medicaid area. They see, and they are independent. But CMS has not had a relationship with the state auditors. So I brought them together in a meeting, along with OMB, 

and I have now connected that state audit community to the Federal agency that has responsibility. They are meeting this month 

in South Carolina to talk more about what could be done by the 

state auditors. So, those are two, you know, just good examples. 

Also, the state auditors need to audit more of the managed care 

portion of Medicaid, not just the Fee-for-Service portion. 

Mr. WESTERMAN. All right, we also set up a State Office of Medicaid Inspector General that was out from under the Department 

of Human Services in the state, which had the program integrity 

layered underneath in kind of a middle management role within, 

and that helped expose more of the waste, fraud, and—— 

Mr. DODARO. Yeah, you need to have an independent look. 

Mr. WESTERMAN. So, moving on to a different topic. Last year, 

our deficit was $587 billion according to CBO. And the terminology 

we use around here is if we had zero deficit spending we would 

have a balanced budget. But if we look at CBO’s numbers last year, 

the debt actually increased over a trillion dollars. So, there is another approximately $500 billion that went towards debt that was 

not in the deficit. 

And it gets complicated, but it comes back to the debt limit and 

financing. And one of the CBO notes says, ‘‘Debt subject to limit 

differs from growth Federal debt, mainly because most debt issued 

by agencies other than the Treasury and the Federal Financing 

Bank is excluded from the debt limit. That limit was most recently 

set at $18.4 trillion but has been suspended through March 15, 

2017. On March 16, 2017, the debt limit will be raised to its previous level, plus the amount of Federal borrowing that occurred 

while the limit was suspended.’’ 

CBO says that the growth of Federal debt is projected to rise 

$9.7 trillion over the next 10 years or about a trillion dollars per 

year. And I notice you addressed the debt limit on page 14 of your 

report. And you said, ‘‘We recommend that decisions about giving 

Treasury the authority to borrow be made when decisions about 

spending and revenues are made.’’ And you gave us about three. 

Can you briefly tell us how that will help lower the debt if we 

move that decision point to when spending decisions are made? 

Mr. DODARO. Well, number one, it will focus the attention of the 

Congress up front, rather than just on the spending and the appropriations. In a way, you know, you have to remember, almost 2⁄3

of the Federal Government spending is on autopilot. It does not involve the appropriation process. The appropriation process only 

covers about 1⁄3 of the Federal Government’s total spending. 

So, other than the budget resolution process, there really is not 

any definitive congressional focus on total Federal Government 

spending and total revenue that is expended and how much of a 

deficit are we going to have to finance up front before that decision 

is made. 

So, forcing that decision to be made up front will do it. Now, that 

alone will not solve the problem. I also think there needs to be a 

way to have a fiscal rule on how much debt that the Federal Government wants to incur over a period of time. There would have 

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to be exceptions for exigencies and other things that occur. But 

right now, there is not a conscious decision made about how much 

debt we want to have as a country. It just sort of happens as it 

happens and, you know, then there is the result. And I do not 

think that that is good fiscal discipline. 

Mr. WESTERMAN. Thank you. 

Chairman BLACK. The gentleman’s time has expired. The gentleman from Texas, Mr. Arrington, is now recognized for 5 minutes. 

Mr. ARRINGTON. Thank you, Madam Chair and Comptroller General, thank you for your time. And thank you for your clear and 

extremely sobering insight as we prepare to vote on this omnibus. 

But more importantly, you know, most of the freshman, we showed 

up 100 days ago, really did not have a lot of input into that, if any. 

Let me just say it another way. We had no input into that. And 

we will have input now going forward on this 2018 budget. And we 

are having really good discussions along the lines of what you have 

laid out and some of the things you have mentioned. 

And, you know, for me, I think this is the biggest threat to the 

future of our country. I think it is the biggest threat to my children’s future. My acid test is to uphold the Constitution and hand 

this country, safer, stronger, and freer, to my 6-year-old, 4-year-old, 

and 2-year-old. This is the one that keeps me up at night. 

Mr. DODARO. Yeah. 

Mr. ARRINGTON. You know, we cannot have all the discussion 

that this deserves in the 5 minutes. But quantify for me, if you 

could, the implications of the interest rate risk. That is, if it moves 

up a percentage point, what is the impact? 

Mr. DODARO. Right. Yeah, CBO estimates that a 1 percent increase in the interest rate over 10 years would add about $1.7 trillion to the debt. And the other point I would make along this line 

here is we are very exposed because a lot of the borrowing is in 

short-term borrowing in bills and notes. So, that borrowing has to 

be refinanced on a fairly regular basis. For example, last year, 

there was $8 trillion in new financing. And that was to pay $7 trillion of debt that we had to refinance over a period of time, plus financing new debt that occurred during that period of time. So our 

interest rate exposure is very significant. 

Mr. ARRINGTON. You know, when you look at this, and I do not 

think the American people fully appreciate the extent or the depth 

of the debt hole that we are in and the spiral, the vicious cycle, and 

how we get out of it. It almost feels like Mission Impossible at 

times, but we did not get here overnight; we will not get out of it 

overnight. What is a meaningful way to get us on a path going forward? And mainly on the mandatory spending side because we 

know those are the drivers. And we have not—— 

Mr. DODARO. Right. 

Mr. ARRINGTON.——touched it, and nobody wants to talk about 

it or do anything about it. But I hope our class, especially, we invigorate the body here with the political courage to do something 

about it. So with that, tell me what is a reasonable and responsible 

reduction in spending on mandatory to get us to balance. 

Mr. DODARO. Right. I think there are two fundamental decisions. 

What does government want to do? And how do you want to pay 

for it, other than borrowing? All right? A good place to start, in my 

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opinion, is the Social Security system. I issued a special report, 

which I am glad to give to this Committee, last year because the 

disability portion of the Social Security program was projected to 

go bankrupt last year. 

Now, the way that was solved was to just redirect some of the 

payroll taxes that were going into the Old-Age portion of Social Security to the Disability Fund. But that only props it up for the next 

6 years. 

By 2023, the Disability Fund will only have enough money to pay 

89 cents on the dollar. By 2035, Social Security will only have 77 

cents to pay on the dollar. And so there are known options for addressing the Social Security problem. We lay them all out in our 

report and give the pros and cons of the options. So I think that 

is there. Health care is a more difficult—— 

Mr. ARRINGTON. Let me push pause on that if you do not mind. 

Mr. DODARO. Yeah, sure. 

Mr. ARRINGTON. I have got just a little time. Real quick answer 

on this. I was not here and I do not know if this was asked. But 

this omnibus that we were prepared to vote on, is that doing anything to get at the structural reforms and the spending reforms 

that you are recommending, or that we are talking about here? 

Mr. DODARO. No. 

Mr. ARRINGTON. Okay. You know, another thing that I hear a lot 

because, again, I am new, and I had a year and a half to talk to 

folks in west Texas and listen to them. But this notion of Washington playing by a different set of rules. You said 10 agencies or 

more are below the 10 percent threshold or above the—— 

Mr. DODARO. No, above. 

Mr. ARRINGTON.——10 percent. 

Mr. DODARO. Yeah, right. 

Mr. ARRINGTON. Tell me about that a little bit, and what can we 

do about it as members of Congress and this Committee? 

Mr. DODARO. I think there ought to be more oversight hearings. 

I mean, there ought to be the agencies that are responsible for 

these overpayments here, either along with me or in lieu of me, to 

question them about what they are doing and to hold them responsible, not just the lower-level people; I think you have got to hold 

the heads of the agencies responsible for this problem. 

And the tone at the top needs to be set appropriately, and there 

needs to be focus on this because, if that leadership occurs, I believe you will see a drop in there. And if there is some potential 

consequences, other than a public hearing and the risk of embarrassment, there needs to be some decisions by the appropriators 

about, you know, how we are going to allocate money if people are 

not providing proper financial stewardship. 

Mr. ARRINGTON. Thank you very much. 

Chairman BLACK. The gentleman’s time has expired. The gentleman from Pennsylvania or, excuse me, the gentleman from Ohio, 

Mr. Renacci, is recognized for 5 minutes. 

Mr. RENACCI. Thank you, Madam Chairman, and I thank you for 

holding this hearing, as well. I know we were looking at improper 

payments, but I was actually asking the chairman, the previous 

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cause I do think your insight is important, especially for people 

that are designing a budget. 

I thank you for being here as a father of three myself. And I 

know you and I have spoken many times. What I really loved about 

the first conversation you and I had, you said that you were in this 

to try and make sure we turn this country in the right fiscal direction. It is one of the reasons why I dropped the bill last cycle to 

bring you before the complete House and Senate. It was a resolution that got 160 cosponsors because I do believe the starting point 

should be you coming before the House and Senate and explaining 

our fiscal situation. So, I am going to continue to push for that resolution this year. 

In your testimony you indicate, ‘‘We cannot continue to ignore 

the fiscal constraints facing our country. We have an obligation to 

our constituents and future generations of Americans to make 

tough decisions and put our fiscal house in order.’’ You stated that 

the current debt, as a share of the economy, is the highest it has 

been since 1950. And under current law, the debt-to-GDP ratio is 

projected to exceed its historical high of 106 percent in the next 

15–20 years. 

I was a businessman and a mayor of a city, which had fiscal 

issues. And the first thing we did was we drove everything based 

on our fiscal issues. So from a top line picture, would you agree 

that the current drivers of our debt are Medicaid, Medicare, Social 

Security, and interest on our debt? 

Mr. DODARO. Yes. 

Mr. RENACCI. Okay, would you also agree that these programs 

are unsustainable based on the current demographics in our country and the current program payouts? 

Mr. DODARO. Yes. 

Mr. RENACCI. Thank you. And these drivers are growing rapidly 

each year, correct? 

Mr. DODARO. Yes. 

Mr. RENACCI. If you were reporting to Congress and the American people your greatest fiscal concern for our Nation, would you 

report that our spending is unsustainable? 

Mr. DODARO. I would say our fiscal condition is unsustainable because we are not generating enough revenue to meet the commitments that we have. And we either have to generate more revenue 

or cut spending. But that is a policy decision by the Congress. I 

would never advise Congress on what to do, but it is a spending 

and a revenue issue, in my opinion. 

Mr. RENACCI. Okay, and is our debt growth unsustainable as 

well? 

Mr. DODARO. Yes, definitely. 

Mr. RENACCI. Okay, how much of our debt is held by foreign 

countries? 

Mr. DODARO. About 40–45 percent. 

Mr. RENACCI. What happens if those countries decide they no 

longer want to lend this money to the United States? 

Mr. DODARO. We will either have to pay probably higher interest 

rates to domestic savers. And we do not have a lot of domestic savings to begin with. And whatever the Federal Government takes up 

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from domestic savings, that is less for capital investment for economic growth. So we would be in trouble. 

Mr. RENACCI. Yeah, and there has been a couple ideas driven 

out, which I realize. But let’s talk about spending. You said, the average, we need to cut spending by is 25 percent on the average over 

the next 10 years. Today 70 percent of our spending is Medicare, 

Medicaid, Social Security interests. And you also said that is on 

autopilot. And 15 percent is military, and 15 percent is discretionary. If you cut 25 percent, I am just looking at the spending 

side. 

Mr. DODARO. Yeah, right. 

Mr. RENACCI. If you cut 25 percent, you would basically have to 

gut our military and gut every bit of discretionary spending, because the 70 percent is on autopilot. So, if it is just the spending 

side, would you agree with that? 

Mr. DODARO. Yeah, if you did not change the mandatory programs, that is what you would have to do. 

Mr. RENACCI. All right, so—— 

Mr. DODARO. And I would not recommend it, but—— 

Mr. RENACCI. No, I would not recommend it either, but it is kind 

of interesting—— 

Mr. DODARO. Yeah, right. Yeah, right. 

Mr. RENACCI.——because if you are going to cut 25 percent, you 

would cut everybody’s salary here, too. 

Mr. DODARO. Yeah, but it shows the magnitude of the problem 

that we have. 

Mr. RENACCI. Absolutely. Now, on the income side of the issue— 

and I realize that. I mean, I heard one of the members say, ‘‘Well, 

if you increase the Social Security tax on the payout, the problem 

is you would also be increasing the expense to the corporation.’’ Because, you know, that is 6 1⁄2 percent more of an expense to the corporation, which will slow their ability to grow as well. Would you 

agree? 

Mr. DODARO. Yes, it would have implications. In particular, the 

only way it would help solve the problem is if you delink it to their 

benefits, so if their benefits did not rise based on their payments. 

And that would have other consequences for people, as well. 

Mr. RENACCI. Sure. So, I want to look; we went to the expense 

side, which was kind of drastic to fix this. On the income side, we 

also have the highest corporate tax rate in the world. Would you 

agree with that? 

Mr. DODARO. On a statutory basis, not necessarily on an effective 

tax rate basis. 

Mr. RENACCI. But corporations are leaving and going overseas 

because they can get a lower corporate rate. So we are losing businesses to overseas markets. 

Mr. DODARO. Yeah, well, that is a problem. But our study shows 

that the effective tax rate, after all the tax expenditures are in 

place, is an average of about 14 percent. 

Mr. RENACCI. Okay, so again, the real key here is, and I agree 

it has to be a mix of expenses and probably have to look at some 

issues with our tax rate. But in the end, and I am just hoping we 

can get to the bottom of this. I mean, our spending is out of control; 

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our debt is out of control, and we have 70 percent of our spending, 

which is on autopilot. 

Interest rates, I heard if it just goes up 1 percentage point our 

debt increase is $1.6 trillion over 10 years. I sure hope the Congress members are listening today because these are the issues 

that we face every day. So I thank you again for being here, and 

Madam Chairman, I yield back and thank you for having this hearing. 

Chairman BLACK. The gentleman yields back. Now the 

gentlelady from Texas, Ms. Sheila Jackson Lee, is recognized for 5 

minutes. 

Ms. JACKSON LEE. I thank the Chairman and the ranking member and Mr. Dodaro. I thank you for the years of service that you 

have given. It is a privilege to serve on the Budget Committee with 

my colleagues. And I get a chance to see the gentleman who is behind so many good studies that come before our Committees on responsible management. 

And I wanted to make sure that I put on the record that the essential agency, this agency, to support the fiscal management of 

agencies. You carry out audits, evaluative and investigative assignments, provide legal analysis for the Congress, which I think is 

very important. 

I think another important element of your work, of course, is 

that you deal with the issue of audited financial [inaudible]. And 

that we raise a concern about ensuring that our agencies can get 

to that point, that they can do that. But more importantly, you 

have found that the consolidated financial statements for fiscal 

year 2016 and 2015 indicate that the Federal Government make 

more strides in improving Federal financial management. 

But to say all that is to say that we also have to have the dollars, 

the balanced dollars, to be able to be fiscally responsible. And I 

think that that is something that I want to pursue in a line of 

questioning. We are in tax season, and there are a number of proposals. One, in particular, that has come forward that has a list of 

eliminating the AMT, eliminating the estate tax. And the calculated number is about $2 trillion in debt or deficit that will be 

increased. 

So, my question is the biggest tax cut a person could receive is 

not paying any Federal income taxes at all. That is, of course, 

under the jurisdiction of the IRS. In your 40 years of experience at 

GAO, have you come across any evidence that, when a person 

avoids paying taxes for 20 years, they are helping the economy? 

And their tax avoidance activities, some will say tax avoidance festivities actually pay for themselves, so that when individuals do not 

pay their taxes and if someone has not paid it for 20 years, that 

it actually pays for itself. 

Mr. DODARO. I am not sure. In terms of an individual, on an individual basis—— 

Ms. JACKSON LEE. It could be a corporation or—— 

Mr. DODARO. Yeah. If it is a corporation, whatever, I mean—— 

Ms. JACKSON LEE. A person of wealth. 

Mr. DODARO. Yeah, well, they are definitely not in compliance 

with the law, and it is not helping fund the Federal Government. 

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So they are not fulfilling their legal responsibilities. And, therefore, 

it is not helping anyone other than themselves. 

Ms. JACKSON LEE. Another quick question. Can the IRS, in your 

perception now, adequately address tax compliance without additional staff? And will the tax gap widen if we continue to cut IRS 

staff, actual staff? 

Mr. DODARO. Yeah, well, I think the record is pretty clear. If you 

add additional resources to the IRS, they will produce additional 

revenue. We have made a lot of recommendations though, too, that 

they could do more with the revenue that they have to have a better comprehensive plan. And I would recommend that the Congress, if they decide to make a policy decision to give them additional money, they also require them to produce greater return on 

the investment that is made and show that they are pursuing the 

best comprehensive strategy to use their resources in a constrained 

budget environment. 

Ms. JACKSON LEE. Thank you so very much. Let me further ask, 

is not receiving an emolument of the type prohibited on the Constitution the worst of improper payment? And does not an emolument have far greater potential to corrode our democratic system 

of governance than a working class taxpayer who may be overpaid 

a few hundred dollars under the earned income tax credit? 

Mr. DODARO. Yeah, we have not done any work, that I recall, on 

an emolument issue. I will go back and check, and if we have something, I will submit it for the record. 

Ms. JACKSON LEE. And I appreciate it. And I am going to make 

an official request, and I will put it in writing that I had asked the 

GAO to make that assessment because I think it is important, 

when you look at the balance between what the earned income tax 

credit does for a working family, or a single person, as well as how 

it impacts on the emolument. 

We are in the midst of debating health care. And so one of the 

questions is the loss of insurance for 24 million people. Can you 

comment on how the breakdown in the appropriations process has 

hurt taxpayers? Meaning that we do not do it, and we are in a CR, 

hurt taxpayers and programs, beneficiaries like the 24 million who 

now receive available accessible, quality health care through the 

Affordable Care Act, who depend upon the efficient administration 

of vital government services? 

Mr. DODARO. Yeah, well, there needs to be, you know, final decisions made by the Congress on how they are going to handle those 

issues. I mean, the continuing resolution process, if that is what 

you are referring to—— 

Ms. JACKSON LEE. Yes. 

Mr. DODARO.——really affects the functioning of the agencies. 

And it debilitates their hiring approach and working with contractors. And it also requires them to make compressed spending decisions about the money once the appropriations available at the end 

of the year. So it is disruptive to the agency operations. Now, how 

that translates into impacts on individual people, American citizens, varies from program to program. 

Ms. JACKSON LEE. Might I say that it might also impact upon 

their audited financial statements or their ability to put financial 

statements together when we have a disruptive appropriations 

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process and cannot fund the government in the way that it can 

plan? 

Mr. DODARO. Yeah. It is definitely not a best practice. 

Chairman BLACK. The gentlelady’s time has expired. 

Ms. JACKSON LEE. I thank the gentlelady. 

Mr. DODARO. Yeah. 

Chairman BLACK. The gentleman from Alabama, Mr. Palmer, 

you are recognized for 5 minutes. 

Mr. PALMER. Thank you, Madam Chairman. I just want to address the issue of delinquent taxes for just a moment, if I may, and 

point out that, as reported in 2015, that there was $3.5 billion 

owed to the Federal Government by Federal workers; 3.1 percent 

of the Federal workforce had not paid their taxes, including a number of key officials within the Obama administration. 

There was a bill introduced in 2015 that would have given agency directors the ability to take action against Federal workers, Federal employees, who did not pay their taxes. And our colleagues 

across the aisle would not support it. There was a Senate bill to 

block bonuses for people who failed to pay their taxes, and that bill 

also failed. 

Now, to get back to the topic at hand and the improper payments. I thank you for coming here, and you have been enormously 

helpful. I am very grateful for the work you and the GAO have 

done on this. I want to talk about a couple things, one, to try and 

put this in perspective. There are four programs, well, actually two, 

and one of which has three subsets, that being Medicare, that account for $96 billion in improper payments. 

And just for a point of reference, I want to point out that the entire Department of Education was funded at $69.2 billion, the Department of Labor at $12.2 billion. I mean, those two departments 

together are less than what we sent out in improper payments. So, 

this is a huge problem. 

I appreciate what was done in the previous administration and 

their efforts to try to stop the improper payments, but I think we 

have to take this very seriously. And I have got a slide, and it is 

actually from your testimony and from a previous meeting that we 

have had with the Subcommittee on Intergovernmental Affairs at 

OGR and with this Committee as well. 

And I just want to point out that, in terms of where the problem 

lies, it is really due diligence. You have got 56.5 percent of the 

problem in terms of due diligence that is insufficient documentation, inability to authenticate eligibility, and the failure to verify 

data; 56.5 percent that is low-hanging fruit. We ought to be able 

to stop that. That would account for $75.5 billion, okay? 

And then you mentioned problems with data systems, outdated 

technology, that sort of thing. I think that falls under the administrative or process errors at the state, local, other parties, and federal level. That accounts for another 33.8 percent. That is a little 

tougher to solve. I think that is going to require some outlays from 

the Federal Government to improve their data systems. But that 

accounts for $45.2 billion. I think the savings more than justify 

whatever it might cost us to upgrade our data systems. Would you 

agree with that? 

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Mr. DODARO. Definitely, if properly managed. If properly managed, the—— 

Mr. PALMER. Well, that gets back to the due diligence part. 

Mr. DODARO. Yeah, right. 

Mr. PALMER. I cannot understand why we have not had some enforcement effort on the agencies, particularly the ones who have 

the bigger numbers and with the 18 programs that failed to report. 

We have got to take this seriously because I made this point several times that, when we look at the dollars that are going out, the 

$133.7 billion, that is not all that is going out. I think just the top 

of my head estimate, we are paying about 2.8 percent interest 

so—— 

Mr. DODARO. That is about right. 

Mr. PALMER. About right? 

Mr. DODARO. Average, on average. 

Mr. PALMER. So you add that to the dollars that are going out 

improperly, and that adds another $3.7 billion. So Madam Chairman, I just think this is a critical issue for us. I think it helps us 

in terms of finding a pathway to balancing the budget if we can 

just stop sending out the money. I have had some people say, 

‘‘Well, how do you recover?’’ I would love to be able to recover the 

money, but right now, I would be quite happy if we just stopped 

it. 

Again, General Dodaro, I thank you for this outstanding work. 

I would encourage my colleagues on the Committee to take a look 

at that slide. It is in your binder on page 28 in the General’s testimony. And we need to start working out a way to have the program directors do the due diligence to make sure we stop the improper payments. I yield back. 

Chairman BLACK. The gentleman yields back. And I want to say, 

at the beginning, I gave you recognition for bringing this issue to 

our forefront, and we really appreciate that. 

I now recognize the gentleman from Ohio, Mr. Johnson, for 5 

minutes. 

Mr. JOHNSON. Thank you, Madam Chairman. Thank you for joining us today. I appreciate it. GAO’s long-term budget projections 

indicate that, absent some policy changes, the Federal Government’s debt held by the public as a share of GDP is expected to rise 

steadily from today’s already high level of 77 percent. It will surpass its historical high of 106 percent in 15 years under GAO’s alternative simulation. And in 25 years under GAO’s baseline simulation, the debt-to-GDP ratio would continue to escalate at an 

ever-increasing rate in subsequent years under both scenarios. 

GAO writes that this compares to an average of 44 percent since 

1946. As I understand it, the GAO report, recent CBO long-term 

budget outlook reports, and the fiscal year 2016 financial report of 

the United States, all conclude that the Federal Government’s fiscal path is unsustainable. Do I have this correct? 

Mr. DODARO. Yes, you do. 

Mr. JOHNSON. an you elaborate on what this unsustainable fiscal 

path could mean for our country and the American people? Could 

this debt path eventually lead to a fiscal crisis in which borrowing 

rates rise sharply? And, if so, how soon might this occur? 

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Mr. DODARO. This definitely has a lot of different impacts on the 

country. 

Mr. JOHNSON. None of them good. 

Mr. DODARO. The American people. None of them good. None of 

them good. That is a good summary. What they include are higher 

interest rates that the Federal Government will have to pay to 

service this debt. So you have, right now in 2016, there were over 

$250 billion in interest that we were already paying the Federal 

Government to service this debt. That will continue to compound 

and grow the more debt we have and the more interest rates grow 

up over a period of time. 

That means that there is going to be more pressure on the rest 

of the Federal Government’s budget that could ultimately impact 

the types of decisions Congress makes about what programs to 

fund, what benefits to provide, what services to authorize. It will 

also potentially affect our credit rating. I mentioned earlier that all 

the bond raters believe our existing debt burden is already a credit 

weakness in our profile. And one has reduced our credit rating 

from the top credit rating and that, if it impacts our credit rating 

in the future, that will affect not only our interest cost, but borrowing. 

It also enormously affects the flexibility of the Congress to deal 

with problems, the known problems, that will occur, Social Security 

program, Medicare program, for example; the Pension Benefit 

Guaranty program is going to be a problem; flood insurance is already not actuarially sound and owes over $23 billion to the Federal Government. And that is unlikely to be repaid. 

So, there are enormous implications. Over the long-range it could 

reduce national savings and income that would have deleterious effects to the economy as well. 

Mr. JOHNSON. Like we said, none of them good. 

Mr. DODARO. That is right. 

Mr. JOHNSON. Does this debt trajectory that GAO projects emphasize the need for putting in place policies as soon as possible 

that would arrest this trend and lower debt levels over time? And 

do you have any ideas of what some of those policies might be? 

Mr. DODARO. Yeah, well, definitely the sooner the Congress takes 

action to put a plan together, the better. These things will accrue 

over time. If we stop the compound interest on our debt, that will 

help a lot there in that area. So, the exact policies that the Congress wants to follow, that is up to the Congress to decide. That 

is not, you know, a role for the GAO. Our role is to say you have 

a problem; you need to deal with the problem. The sooner you deal 

with it, the better because the longer you wait, as you mentioned 

earlier, none of the options are good. But the longer you wait, the 

more difficult and more draconian those options become in order to 

deal with the problem. 

You know, one of the most difficult parts of my job is to try to 

get people to take action before it becomes a crisis. So, I am here 

today to tell you, if you start taking action, this will avoid a potential crisis down the road. 

Mr. JOHNSON. You sound a little bit like that commercial. 

Mr. DODARO. You pay me now, or you pay me later, yeah. 

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Mr. JOHNSON. Yeah, I am not a guard. I am just a robbery monitor. 

Mr. DODARO. Yeah. 

Mr. JOHNSON. There is a robbery. So I, for one, would—— 

Mr. DODARO. I am not elected. You are. 

Mr. JOHNSON. And I appreciate that, and you are right; it is Congress’ responsibility. 

Mr. DODARO. Yeah. 

Mr. JOHNSON. But, you know, as people might assume, we do not 

hold the corner market on all the good ideas. And if you have some, 

I, for one, would love to hear what they are. And with that, I yield 

back. 

Chairman BLACK. The gentleman yields back. I just want to clarify, for the record, one question that was asked by Mr. McClintock 

earlier on the level of Federal revenues compared to the historical 

average. And the staff reminds me, according to page 2 of the Congressional Budget Office’s January 2017 baseline report, the budget 

and economic outlook for 2017 to 2027, it says, ‘‘If current laws 

generally remain unchanged, revenues would rise from 17.8 percent of GDP in 2017 to 18.4 percent by 2027. They have averaged 

about 17.4 percent of the GDP over the last 50 years.’’ 

So, according to the CBO’s current low baseline Federal revenues 

as a percent of GDP are projected to be higher than the 50-year 

historical average, both this year and over the budget window. And 

I think it just, once again, says that, no matter how much we grow 

our revenue, if we do not get our spending under control, the revenue will not matter if we just keep spending more than what we 

bring in day after day after day, and year after year after year. 

So, Mr. Dodaro and your staff, all the workers in your office, I 

just want to say a big thank you for the work you do. You have 

given us such great information that has enlightened us, given us 

some instructions on how we can control this path that we are 

going down right now. I only wish that I could have all 435 members of Congress hearing what you are saying in here. And I am 

going to recommend, at least in my conference, that they listen to 

this hearing and that they read the information that you put out 

because it is such helpful information. First, we have to know it, 

and then we have to take charge of it and make sure that we put 

those policies in place. 

And then I think, finally, we have got to hold people accountable 

for the policies you put in place because, obviously, they are no 

good unless you do hold people accountable. You can put the ideas 

out there, the recommendations, but there has got to be accountability at the end of the day. 

So, I thank you. I thank Ms. Jayapal for sitting in for the ranking member and being here with me during the hearing. 

I want to advise that members may submit written questions to 

be answered later in writing. And those questions and your answers will be made part of the formal hearing record. Any members 

who wish to submit questions or any extraneous materials for the 

record may do so within 7 days. So all of those ghosts that are sitting here, hear that. 

With that, the Committee stands adjourned. 

[Whereupon, at 12:09 p.m., the Committee was adjourned.] 

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Congresswoman Pramila Jayapal 

Questions for the Record following hearing with 

GAO Comptroller General, Gene Dodaro 

May 3, 2017 

1. From the ACA repeal proposals to President Trump's one-page tax plan, the 

Republican majority seems intent in providing tax cuts to the wealthiest 

Americans at any cost. Can you speak to how starving the nation of critical 

services will help get those working families who are most in need back on track? 

2. How significant is climate change to the fiscal health of our nation? 

3. Similarly, how do immigrants and New Americans affect the fiscal health of our 

nation? I have to note that in my home state of Washington, the Washington 

State Budget and Policy Center reports 1 that immigrant-owned businesses 

account for more than a billion dollars a year. 

4. I note that these estimates of improper payments do not include the DOD's 

Defense Finance and Accounting Service (DFAS). What would you say is the 

best estimate of what is missing from your picture of improper payments from 

DOD? Are you able to reconcile how DOD can function efficiently and effectively 

if it has been the one agency in the Federal government that has remained 

unauditable? According to the Project on Government Oversight, "[Since 1990], 

[t]he Department of Defense remains the only federal agency that can't get a 

clean audit opinion on its Statement of Budgetary Resources." 

1 http:/ /budgetandpolicy.org/schmudget/the-economic·contributions-of-immigrants·in·washington-state 
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REP. LEE'S QUESTIONS FOR THE RECORD 

BUDGET COMMITTEE HEARING: 

FAILURES OF FISCAL MANAGEMENT: 

A VIEW FROM THE COMPTROLLER GENERAL 

Date: Wednesday, May 3'd, 2017 

Location: 1334 Longworth 

Time: 10:00 AM 

1. DEPARTMENT OF DEFENSE SPENDING: 

Mr. Dodaro, I have long been concerned about the financial management of the 

Pentagon as- shamefully -it is the only federal agency that has NOT achieved an 

audit. Since 1995, according to past GAO reports, the Pentagon remains on the 

"High-Risk" list for its inability to control costs, ensure accountability and prevent 

and detect fraud, waste, and abuse. And in December, the Washington Post drew 

attention to the fact that the Pentagon spent $125 billion they could not account for 

-that is really unacceptable. All of this underscores the need to pass my bill the 

bi-partisan Audit the Pentagon Act which would bring long overdue 

transparency and accountability to defense spending by reducing by .5% a federal 

agency's discretionary budget authority for a fiscal year if that agency cannot be 

audited. 

It is really unacceptable that we keep trying to balance the budget on the backs of 

the poor by slashing funding for safety net programs, while turning a blind eye to 

a department that mismanages a $600B budget. 

a. Mr. Dodaro, I understand that the GAO has compiled numerous 

recommendations for cost saving measures that will help save tens of 

billions of dollars and bring a culture of financial accountability to the 

Pentagon. From what I also understand, and from the GAO's recent 

report in February, the Pentagon has YET to meet any of these 

requirements. Do you have an update for the committee on the 

Pentagon's progress in meeting any of the recommendations originally 

laid out by GAO? 

b. Would it be a fair and sensible strategy to stop increasing spending for 

the DOD until they are capable of successfully passing an audit, 
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especially considering that OCO spending is already an additional slush 

fund of money for the DOD to tap into? 

2. OVERSEAS CONTINGENCY OPERATIONS (OCO): For a number of years, 

the Overseas Contingency Operations (OCO) designation has been used as a 

budget gimmick to circumvent budget caps- what we like to call a "slush fund." 

Based on the FY17 Omnibus, the total for that account is now $83 billion- a slush 

fund for military action that benefits defense contractors. This practice obscures 

the true cost of regular government operations, it inhibits long-term planning, and 

it really is a budget gimmick. 

a. Mr. Dodaro, does using the OCO designation in this way adhere to your 

notion of sound budgeting and accounting principles? 

3. TAXES: 

a. History shows us that the massive tax cuts under the Reagan and Bush 

administrations what we like to call "trickle-down economics" - resulted 

in huge deficits because they hurt working families and the poor. 

i. In your decades of experience at GAO, have you come across any 

evidence to the contrary, that somehow President Trump's 

trillions of dollars in tax cuts will have a positive impact on our 

nation's debt'? 
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Congresswoman Pramila Jayapal 

Questions for the Record following hearing with 

GAO Comptroller General, Gene Dodaro 

May 3, 2017 

1. From the ACA repeal proposals to President Trump's one-page tax plan, the Republican 

majority seems intent in providing tax cuts to the wealthiest Americans at any cost. Can you 

speak to how starving the nation of critical services will help get those working families who 

are most in need back on track? 

GAO response: 

We have not conducted the analysis to answer the question. 

2. How significant is climate change to the fiscal health of our nation? 

GAO response: 

Since 2013, we have highlighted the significance of the fiscal exposure to the federal 

government from projected climate change impacts in our High Risk Series-which focuses 

on serious weaknesses in areas that involve substantial resources and provide critical 

services to the public.' The 2017 High Risk Series update section focuses on 5 areas where 

action is needed to reduce federal fiscal exposure: (1) strategic planning, (2) federal 

property and resources, (3) federal flood and crop insurance, (4) technical assistance, and 

(5) disaster aid.2 

Examples of federal fiscal exposure to projected impacts such as sea-level rise and more 

frequent or intense severe weather events include: 

Property: The federal government owns and manages facilities and land vulnerable 

to climate change. For example, the Department of Defense's (DOD) 2010 and 2014 

Quadrennial Defense Reviews stated that climate change poses risks to defense 

infrastructure, particularly on the coasts. DOD's infrastructure consists of more than 

555,000 defense facilities and 28 million acres of land, with a replacement value of 

close to $850 billion. 3 

Federal insurance: Two federal insurance efforts- the Federal Emergency 

Management Agency's National Flood Insurance Program (NFIP) and the U.S. 

Department of Agriculture's Federal Crop Insurance Corporation-face climate 

change and other challenges that increase federal fiscal exposure and send 

inaccurate price signals about risk to policyholders. For example, we found that NFIP 

likely will not generate sufficient revenues to repay the billions of dollars borrowed 

'GAO, High-Risk Series: An Update, GA0-13-283 (Washington, D.C.: February 2013). 2

GAO, High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others, GA0-17-

317 (Washington, D.C.: Feb. 15, 2017). 3

GAO, Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for 

Potentia/Impacts, GA0-14-446 (Washington, D.C.: May 30, 2014). 
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from the Department of the Treasury to cover claims and expenses from the 2005 

and 2012 hurricanes or potential claims related to future catastrophic losses. 

Technical assistance: To reduce fiscal exposure, the federal government plays a role 

in providing climate information to state, local, and private-sector decision makerswho are responsible for planning and maintaining infrastructure paid for with federal 

funds, federally-insured, or eligible for federal disaster aid. 

Federal disaster aid: Disaster aid functions as the insurance of last resort in certain 

circumstances because whatever is not covered by insurance or not built to be 

resilient to extreme weather increases the government's implicit fiscal exposure 

through disaster relief. For example, from fiscal years 2005 through 2014, the federal 

government obligated at least $277.6 billion across 17 federal department and 

agencies for disaster assistance programs and activities. 

One way to reduce the potential fiscal impacts of climate-related risks is to enhance climate 

resilience (i.e. adjusting natural or human systems in response to actual or expected climate 

change). Enhancing climate resilience can cost additional money up front, but could also 

reduce potential future damage from climate-related events that-given expected budget 

pressures-would otherwise constrain federal programs. We have made several 

recommendations in this area and almost of them remain open. 

3. Similarly, how do immigrants and New Americans affect the fiscal health of our nation? I 

have to note that in my home state of Washington, the Washington State Budget and Policy 

Center reports4 that immigrant-owned businesses account for more than a billion dollars a 

year. 

GAO response: 

We have not conducted the analysis to answer the question. 

4. I note that these estimates of improper payments do not include the DOD's Defense 

Finance and Accounting Service (DFAS). (1) What would you say is the best estimate of 

what is missing from your picture of improper payments from DOD? (2) Are you able to 

reconcile how DOD can function efficiently and effectively if it has been the one agency in 

the Federal government that has remained unauditable? According to the Project on 

Government Oversight, "[Since 1990], [t]he Department of Defense remains the only federal 

agency that can't get a clean audit opinion on its Statement of Budgetary Resources." 

GAO response: 

Our work and that of the DOD Office of Inspector General (OIG) have identified various 

shortcomings with the statistical validity and completeness of DOD's improper payment 

estimates, including the Defense Finance and Accounting Service (DFAS) Commercial Pay 

(vendor and contract payments) program estimate. 

4 http://budgetandpolicy.org/schmudget/the-economic-contributions-of-immigrants-in-washington-state 

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In May 2013, we reported on major deficiencies in DOD's process for estimating 

fiscal year 2012 improper payments in the DFAS Commercial Pay program, including 

deficiencies in identifying a complete and accurate population of payments from 

which to sample.5 The foundation of reliable statistical sampling estimates is a 

complete, accurate, and valid population from which to sample. DOD has yet to 

establish key quality assurance procedures to ensure the completeness and 

accuracy of sampled populations. Therefore, DOD's fiscal year 2016 improper 

payment estimates, including the DFAS Commercial Pay program, may not be 

reliable. 

o The Office of Management and Budget (OMB) includes the DFAS 

Commercial Pay improper payment estimate when reporting the 

governmentwide total of improper payments. We exclude the DFAS 

Commercial Pay estimate because it significantly affects the overall 

governmentwide improper payment rate due to a combination of the low 

overall error rate DOD reports for this program (0.04 percent) and the high 

amount of outlays for this program (nearly $249 billion for fiscal year 2016). 

Excluding the DFAS Commercial Pay program estimate yields a 

governmentwide error rate of 5.1 percent for fiscal year 2016 compared to an 

error rate of 4.7 percent if this program were included. 

In February 2015, we reported that DOD uses a methodology for measuring 

TRICARE improper payments that is less comprehensive than the methodology used 

to measure improper payments in the Medicare program despite similarities between 

the two programs.6 DOD's TRICARE methodology does not include a medical 

record review to verify the medical necessity of the services provided. DOD did not 

validate that the diagnostic and procedural information reported on the TRICARE 

claim matched the care and services documented in the supporting medical record 

whereas such procedures are performed by the Centers for Medicare & Medicaid 

Services (CMS) when testing Medicare claims for improper payments. As a result, 

the DOD TRICARE estimate is not comparable to the Medicare estimate and is likely 

understated. 

o We recommended and DOD agreed to implement a more comprehensive 

TRICARE methodology that includes medical record reviews. DOD solicited 

proposals from companies that would conduct the medical record review we 

recommended but has not yet awarded a contract for these services. 

Therefore, our recommendation remains open. 

In May 2017, the DOD OIG reported that DOD failed to comply with the Improper 

Payment Elimination and Reduction Act of 2010 and cited issues with several of its 

reported improper payment estimates including the following.? 

o The U.S. Army Corps of Engineers developed a statistically valid sampling 

plan but did not implement it as designed. 

o For DOD Travel Pay, its sampling plans were not statistically valid and it did 

not have a written sampling plan for fiscal year 2016. Further, although the 

5

GAO, DOD Financial Management: Significant Improvements Needed in Efforts to Address Improper Payment 

Requirements, GA0-13-227 (Washington, D.C.: May 13, 2013). 6

GAO, Improper Payments: TRICARE Measurement and Reduction Efforts Could Benefit from Adopting Medical 

Record Reviews, GA0-15-269 (Washington, D.C.: Feb. 18, 2015). 

'Inspector General, U.S. Department of Defense. The DOD Did Not Comply With the Improper Payment Elimination 

and Recovery Act in FY 2016, Report No. DODIG-2017-078. (May 8, 2017). 

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Army and Air Force estimated improper travel payments, these estimates 

were not included in the DOD Travel Pay estimate. 

o DOD did not ensure that all payments required to be tested were included in 

the sample plans for DFAS Commercial Pay and Military Health Benefits 

(TRICARE). 

DOD financial management has been on our High-Risk list since 1995 because of longstanding internal control deficiencies, the effects of which extend beyond financial reporting 

and adversely affect the economy, efficiency, and effectiveness of its operations. For 

example, DOD's financial management problems have contributed to (1) inconsistent and 

sometimes unreliable reports to Congress on weapon system operating and support costs, 

limiting the visibility that Congress needs for effective oversight of weapon system programs, 

and (2) an impaired ability to make cost-effective choices, such as deciding whether to 

outsource specific activities or how to improve efficiency through technology. 

DOD remains one of the few federal entities that cannot demonstrate its ability to accurately 

account for and reliably report its spending or assets. DOD has consistently been unable to 

receive an audit opinion on its financial statements and its financial management problems 

remain one of three major impediments preventing us from expressing an opinion on the 

consolidated financial statements of the federal government. DOD's efforts to improve its 

financial management have been impaired by its decentralized environment; cultural 

resistance to change; lack of skilled financial management staff; lack of effective processes, 

systems, and controls; incomplete corrective action plans; and ineffective monitoring and 

reporting. 

DOD is continuing to work towards undergoing a full financial statement audit for fiscal year 

2018. DOD has made some progress toward demonstrating leadership commitment and 

developing capacity and corrective action plans. For example, DOD continues its efforts to 

address its financial management challenges through ( 1) updating its financial improvement 

and audit readiness guidance related to service providers, financial reporting of property, 

and critical capabilities for full audit readiness; (2) implementing training programs to build a 

skilled financial management workforce; and (3) developing a number of corrective action 

plans. 

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REP. LEE'S QUESTIONS FOR THE RECORD 

BUDGET COMMITTEE HEARING: 

FAILURES OF FISCAL MANAGEMENT: 

A VIEW FR0:\1 THE COMPTROLLER GENERAL 

Date: Wednesday, May 3'd, 2017 

Location: 1334 Longworth 

Time: 10:00 AM 

I. DEPARTMENT OF DEFENSE SPENDING: 

Mr. Dodaro, I have long been concerned about the financial management of the 

Pentagon as- shamefully -it is the only federal agency that has NOT achieved an 

audit. Since 1995, according to past GAO reports, the Pentagon remains on the 

"High-Risk'" list for its inability to control costs, ensure accountability and prevent 

and detect fraud, waste, and abuse. And in December, the Washington Post drew 

attention to the fact that the Pentagon spent $125 billion they could not account for 

that is really unacceptable. All of this underscores the need to pass my bill the 

bi-partisan Audit the Pentagon Act which would bring long overdue 

transparency and accountability to defense spending by reducing by .5% a federal 

agency's discretionary budget authority for a fiscal year if that agency cannot be 

audited. 

It is really unacceptable that we keep trying to balance the budget on the backs of 

the poor by slashing funding for safety net programs, while turning a blind eye to 

a department that mismanages a $600B budget. 

a. Mr. Dodaro, I understand that the GAO has compiled numerous 

recommendations for cost saving measures that will help save tens of 

billions of dollars and bring a culture of financial accountability to the 

Pentagon. From what I also understand, and from the GAO's recent 

report in February, the Pentagon has YET to meet any of these 

requirements. Do you have an update for the committee on the 

Pentagon's progress in meeting any of the recommendations originally 

laid out by GAO? 
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GAO response: 

In our 2011 through 2017 annual reports on overlap, duplication, and fragmentation, and 

areas for cost savings and revenue enhancements, we directed 168 actions to DOD 

designed to improve the efficiency and effectiveness of its programs and operations. As 

of March 2017, 95 of these 168 actions remained open. DOD also bears responsibility, in 

whole or in part, for half (17 of 34) of the areas we have designated as high risk-7 areas 

that DOD manages and I 0 areas for which DOD shares management responsibilities with 

other federal agencies. Although DOD has made progress in addressing 

recommendations we have made related to these high risk areas, significant work 

remains. Our work suggests that effectively taking actions to address these actions and 

high risk areas would yield financial benefits in the billions of dollars, as discussed 

below. 

DOD headquarters reductions. DOD headquarters functions have significantly grown 

over the years. For example, headquarters positions at the Functional Combatant 

Commands increased by about 84 percent from fiscal year 2004 to fiscal year 2013. DOD 

does not conduct periodic and systematic reviews of its headquarters requirements at the 

DOD elements we reviewed. In addition, up until 2015, DOD did not have a 

comprehensive definition of what constituted a major headquarters activity, but has since 

developed a definition and is working to establish a baseline for some of its 

organizations, as we had recommended. 

The National Defense Authorization Act for Fiscal Year 2016 required DOD to 

implement a plan to ensure it achieves not less than $10 billion in cost savings from 

headquarters, administrative, and support activities for fiscal year 2015 through fiscal 

year 2019. We are currently reviewing DOD's efforts to do this. Preliminarily, we are 

finding that DOD does not have plans to achieve the required cost savings by fiscal year 

20 19, and there is limited support for the approximately $8 bi Ilion in cost savings they 

have identified to date. For example, about $5.3 billion of the approximately $8 billion 

was self-reported cost savings from subordinate organizations that DOD itself has 

deemed "not auditable" because the baselines for reductions were not established. 

We have five priority recommendations related to DOD headquarters management that 

the department has not yet addressed. These recommendations are related to (I) 

collecting reliable infonnation on the costs associated with functions within headquarters 

organizations; (2) determining requirements to identifY opportunities for more efficient 

use of resources; (3) establishing a baseline to improve the management of headquarters 

reduction efforts; (4) ensuring that headquarters organizations are properly sized to meet 

assigned missions; and (5) improving DOD's ability to identifY how many headquarters 

personnel it has, including contractors. DOD has recently undertaken initiatives intended 

to improve the et1iciency of headquarters organizations and identify related cost savings, 

but these efforts are in the early stages and it is unclear to what extent these initiatives 

will be fully implemented and result in meaningful savings. 

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Our body of work in this area has found that over the past decade, authorized military and 

civilian positions have significantly increased within DOD headquarters organizations. 

Data provided by five geographic combatant commands, excluding U.S. Central 

Command, reveal that authorized military and civilian positions increased by about 50 

percent from fiscal years 200 I through 2012, to about I 0,100 authorized positions. In 

addition, mission and headquarters support costs at the combatant commands more than 

doubled from fiscal years 2007 through 2012, to about $1.1 billion. DOD has also 

increasingly relied on contractors to perform headquarters functions, but their 

identification and inclusion in headquarters reporting is incomplete. 

The size of these organizations has recently leveled off or begun to decline. However, 

DOD's plans for future reductions are not finalized. For example, the Office of the 

Secretary of Defense experienced a 20 percent net increase in its authorized military and 

civilian positions from fiscal years 2001 through 2013. By more appropriately sizing 

DOD's headquarters activities, DOD could potentially save billions. We will continue to 

monitor DOD's progress in this area and implementation of our outstanding 

recommendations, which we have designated as a priority for the department to address. 

DOD commissaries. DOD operates 238 commissaries worldwide to provide groceries 

and household goods at reduced prices as a benefit to military personnel, retirees, and 

their dependents. In our November 2016 and March 2017 reports, we found that DOD 

can more efficiently manage its commissaries through modifYing its business processes, 

such as exploring options to use in-house staff for stocking and custodial services rather 

than contracting these functions out. We found that contracting these functions out costs, 

on average, $900,000 a year per commissary, compared to $500,000 per year when 

conducted with in-house staff DOD can also achieve potential savings by modifYing its 

distribution processes at the commissaries. Pursuing these and other changes would better 

position department to meet its $2 billion savings target at the commissaries from fiscal 

years 2017 through 2021. 

In March 2017, we recommended that DOD develop a plan with objectives, goals, and 

time frames on how it will improve efficiency in product management at its 

commissaries. We also recommended that DOD conduct cost-benetit analyses to guide 

decisions on how to cost-effectively execute its stocking and custodial services and 

choose product distribution options. DOD concurred with our recommendation to 

develop a plan and partially concurred with our recommendation to conduct cost-benefit 

analysis. 

For conducting cost-benefit analysis for stocking and custodial services, DOD stated that 

there were requirements in certain laws and regulations would impede implementation of 

our recommendation. With respect to product distribution options, DOD stated that it 

does not believe there is a demonstrable need to conduct a cost-benefit analysis. While 

DOD has cited a number oflaws and regulations that apply once it has made a decision to 

contract out for the performance of a function, the Department did not cite a specific 

provision that would prevent it from conducting a cost-benefit analysis to make an 

informed decision whether to contract for services or to perform them in-house. Further, 

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DOD did not provide any rationale for why it should not pursue the $2 million in cost 

avoidances identified in our report for its product distribution options. We continue to 

believe that both recommendations arc valid. 

DOD leases and use of underutilized spaces at military installations. Overreliance on 

costly leasing is one of the major reasons that federal real property management remains 

on our high risk list. Our prior work has shown that owning buildings often costs less 

than operating leases, especially where there are long-tenn needs for space. In March 

2016, we reported that DOD has not assessed effects of future force reductions on 

existing leased facilities and, as a result, DOD may miss opportunities to reduce its leased 

space. For example, we found three Army leases for administrative space with total 

annual lease costs of about $915,000 that were within 8 miles of Fort Carson, Colorado, 

which likely would have available administrative office space after planned inactivations 

of Brigade Combat Teams. 

We recommended that DOD look for opportunities to relocate DOD organizations in 

leased space to installations that may have underutilized space because of force structure 

reductions or other indicators of potentially available space, where such relocation is cost 

effective and does not interfere with the installation's ongoing military mission. DOD did 

not agree with the recommendation and had not taken action, as of October 2016. These 

actions could potentially save millions of dollars each year in reduced or avoided rental 

costs. 

DOD business systems. DOD spends billions of dollars each year to acquire modernized 

systems that are fundamental to achieving its business transformation goals, including 

systems that address key areas such as personnel, financial management, health care, and 

logistics. While DOD's capacity for modernizing its business systems has improved over 

time, significant challenges remain. These challenges include fully defining and 

establishing management controls for business systems modernization. Such controls are 

vital to ensuring that DOD can effectively and efficiently manage an undertaking with the 

size, complexity, and significance of its business systems modernization, and minimize 

the associated risks. DOD's effort to modernize its business systems environment has 

been designated as high risk since 1995. 

We have numerous outstanding recommendations aimed at improving DOD's business 

systems management controls. These include recommendations associated with 

improving how DOD manages its portfolio of business systems and improving DOD's 

Business Enterprise Architecture. Potential annual savings associated with implementing 

these recommendations and making better informed investment decisions would vary by 

year, but the potential exists for hundreds of millions or more in individual years. We 

have work underway to examine the department's recent efforts to improve how it 

manages its business systems, and we expect to issue a report later this year. 

DOD contract management. DOD obligated $273.5 billion in fiscal year 20 !5 on 

contracts for goods and services, including major weapon systems, support for military 

bases, information technology, consulting services, and commercial items. As the federal 

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government's largest procurement agency, DOD has opportunities to leverage its buying 

power to reduce prices, improve quality, and otherwise enhance supplier management 

and performance. We have found that leading commercial companies often manage 90 

percent of their spending using strategic sourcing and generate 10 to 20 percent savings 

in doing so. 

In contrast, we have reported that DOD components (Navy, Air Force, and Army) 

managed between 10 and 27 percent of their $8.1 billion in spending on information 

technology services through their preferred strategic sourcing contracts in fiscal year 

2013. By awarding hundreds of potentially duplicative contracts, these components 

diminished the department's buying power. 1 Further, the low utilization rate of federal 

strategic sourcing initiatives contracts by DOD and other federal agencies resulted in 

missed opportunities to leverage buying power. 

In this case, the Federal Strategic Sourcing Initiatives reported an estimated savings of 

$470 million between fiscal years 2011 and 2015, an overall savings rate of about 25 

percent. In fiscal year 2015, however, the seven large agencies that comprised the 

Leadership Council-a cohort of large federal agencies responsible for federal strategic 

sourcing initiatives--directed less than 10 percent of their spending on the types of goods 

and services offered under federal strategic sourcing initiatives in fiscal year 2015, 

resulting in a missed opportunity to potentially have saved over $1 billion.2 

We recommended that DOD agency conduct spend analysis, monitor spending, develop 

savings goals and metrics, and consider the use of standardized labor categories, as 

appropriate for their agency. DOD agreed with our recommendations and identified the 

actions that the Army, Navy, and Air Force intended to take to improve efforts to 

strategically source IT services. 

b. Would it be a fair and sensible strategy to stop increasing spending for 

the DOD until they are capable of successfully passing an audit, 

especially considering that OCO spending is already an additional slush 

fund of money for the DOD to tap into? 

GAO response: 

The specific decision regarding funding levels for DOD is policy decision for Congress 

based on a variety of factors. 

1

GAO, Strategic Sourcing: Opportunities Exist to Better Manage Information Technology Services Spending, GA0-15-549 

(Washington. D.C.: Sept. 22, 2015). 

2GAO, Federal Procurement: Smarter Buying Initiatives Can Achieve Additional Savings, but Improved Oversight and 

Accountability Needed, GA0-17-164 (Washington, D.C. Oct. 26, 2016). 

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2. OVERSEAS CONTINGENCY OPERATIONS (OCO): For a number of years, 

the Overseas Contingency Operations (OCO) designation has been used as a 

budget gimmick to circumvent budget caps what we like to call a "slush fund." 

Based on the FY17 Omnibus, the total for that account is now $83 billion- a slush 

fund for military action that benefits defense contractors. This practice obscures 

the true cost of regular government operations, it inhibits long-term planning, and 

it really is a budget gimmick. 

a. Mr. Dodaro, does using the OCO designation in this way adhere to your 

notion of sound budgeting and accounting principles? 

GAO response: 

The need for a clear distinction between what constitutes a war cost versus a base budget 

cost is an issue that we believe the Administration and Congress needs to resolve and one 

that we've highlighted in our work. Since 2001, Congress has provided DOD with over 

$1.7 trillion in appropriations to fund OCO. DOD acknowledges that some of its OCO 

costs are likely to endure after contingency operations cease. We recently reported in 

January 2017 that DOD's enduring costs were between $20-$30 billion-as much as 43 

percent of DOD's total OCO request for fiscal year 2017 of$69.7 billion. We have 

recommended that DOD develop a complete and reliable estimate of enduring OCO costs 

to report in future budget requests. DOD partially concurred with this recommendation 

but identified no steps planned to develop and report its enduring OCO costs. 

We also reported the criteria DOD used for deciding whether items properly belong in the 

base budget or in the OCO funding request are outdated and do not address the full scope 

of activities included in DOD's fiscal year 2017 OCO budget request. We have 

recommended that DOD, in collaboration with the Office of Management and Budget 

(OMB), reevaluate and revise the criteria for determining what can be included in DOD's 

OCO budget request. DOD concurred with this recommendation and plans to propose 

revised OCO criteria to OMB. Taking these steps would provide decision makers with a 

complete picture of the departments future funding needs and assist them in making 

informed choices and trade-off's in budget formulation. 

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3. TAXES: 

a. History shows us that the massive tax cuts under the Reagan and Bush 

administrations- what we like to call "trickle-down economics" - resulted 

in huge deficits because they hurt working families and the poor. 

i. In your decades of experience at GAO, have you come across any 

evidence to the contrary, that somehow President Trump's 

trillions of dollars in tax cuts will have a positive impact on our 

nation's debt? 

GAO response: 

We have not examined this question directly. Revenue estimates fall within the purview 

of the Joint Committee on Taxation and the Congressional Budget Office. While tax rate 

cuts reduce revenue, tax laws can be designed to be revenue neutral-if tax deductions, 

loopholes, or preferences (known as tax expenditures) are reduced to fully cover the loss 

in revenue from the rate cuts. On the whole, professional economic literature suggests 

that any associated economic growth from tax rate cuts has not historically covered the 

revenue reduction. 

7