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ASSESSING EFFORTS TO ELIMINATE IMPROPER 

PAYMENTS 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 25, 2011 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

H605-41331-79W7 with DISTILLER

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

MARK BEGICH, Alaska 

SCOTT P. BROWN, Massachusetts 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

JOHN KILVINGTON, Staff Director 

WILLIAM WRIGHT, Minority Staff Director 

DEIRDRE G. ARMSTRONG, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statements: Page 

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

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

Senator Pryor .................................................................................................... 5 

Prepared statements: 

Senator Carper ................................................................................................. 39 

Senator Brown .................................................................................................. 42 

WITNESSES 

WEDNESDAY, MAY 25, 2011 

Daniel I. Werfel, Acting Controller, Office of Management and Budget ............ 7 

Hon. Richard Gregg, Fiscal Assistant Secretary, U.S. Department of the 

Treasury ................................................................................................................ 9 

Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and Chief 

Financial Officer, U.S. Department of Defense ................................................. 10 

Hon. Calvin Scovel, III, Vice Chairman, Recovery Accountability and Transparency Board ...................................................................................................... 13 

Kelly Croft, Deputy Commissioner for Systems, U.S. Social Security Administration ................................................................................................................... 15 

ALPHABETICAL LIST OF WITNESSES

Croft, Kelly: 

Testimony .......................................................................................................... 15 

Prepared statement .......................................................................................... 74 

Gregg, Hon. Richard: 

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

Prepared statement .......................................................................................... 51 

Hale, Hon. Robert F.: 

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

Prepared statement .......................................................................................... 55 

Scovel, Hon. Calvin L., III: 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 65 

Werfel, Daniel I.: 

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

Prepared statement .......................................................................................... 44 

APPENDIX 

Questions and responses for the Record from: 

Mr. Werfel ......................................................................................................... 78 

Mr. Hale ............................................................................................................ 87 

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(1) 

ASSESSING THE EFFORTS TO ELIMINATE 

IMPROPER PAYMENTS 

WEDNESDAY, MAY 25, 2011 

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

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

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

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Pryor and Brown. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The hearing will come to order. 

Welcome, one and all, to our witnesses, to our guests. Glad you 

could join us today. 

I want to thank our staffs, both Democrat and Republican, for 

their work in preparing for this hearing, not our first hearing on 

trying to reduce or eliminate improper payments, but an important 

hearing. And while the amount of improper payments actually is 

growing, I think because we are requiring or having more agencies 

that are complying with the law and we have amended the law to 

make the net a little bigger. Overall, I am encouraged that we are 

starting to make some progress. 

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

payments that are being reported now by Federal Agencies as well 

as our efforts to try to curb these wasteful, and sometimes fraudulent, payments. 

As we hold this hearing today, our Nation faces considerable economic challenges although I am encouraged. I have just been on 

the phone today with some folks from the financial services industry, talking in one instance about what is going on in terms of 

meeting mortgage payments and delinquencies on mortgage payments. Actually, it has been encouraging news. It was reported to 

me as sort of the canary in the coal mine but in a positive way, 

in terms of early indicators. So we are encouraged that things are 

getting better, too slowly, but we are making some progress. 

But partly as a result of the challenges that we continue to face, 

we have record budget deficits as we know, and our national debt 

stands at about $14.3 trillion dollars, well over double what it was 

just 10 years ago. 

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2 

And as you are all undoubtedly aware, just a few days ago we 

reached the Federal debt ceiling. The legal limit for borrowing 

money by our Federal Government has been met. The last time the 

debt was this high, at least as a percentage of Gross Domestic 

Product (GDP), I think was at the end of World War II. That level 

of debt was not sustainable then, and I think most of us would 

agree it is not sustainable today. 

A wide variety of ideas have been put forward on how to reduce 

our budget deficit and begin whittling down our debt. Last fall, a 

majority of the bipartisan deficit commission appointed by President Obama provided us with a roadmap to reduce the cumulative 

Federal deficits over the next decade or so by about $4 trillion— 

about two-thirds on the spending side, one-third on the revenue 

side. A number of the steps that were in their suggestion we would 

have to take would be painful if we are to meet that goal. 

While most Americans want us to reduce the deficit, determining 

the best path forward will not be easy. I was at a gathering where 

we were having a pollster present some polling data on the deficit: 

Do people being polled across the country think the deficit is a 

problem? Yes, they do. 

Do they think it is something we should do something about? 

Yes, they do. 

Should we do it on the spending side or the revenue side? More 

spending, some revenue, but some of each. 

And then the pollster went literally through a whole litany of 

spending programs, whether it is domestic discretionary spending, 

defense spending, entitlement program spending, where we should 

making the cuts. 

And one by one by one, people said no, do not cut there, do not 

cut there, do not cut there, and do not raise taxes. 

And the pollster finished his presentation, and he said to a group 

of my colleagues and others, he said any questions or any comments? 

And one of the people in the room said we need a new public. 

[Laughter.] 

I do not know if we do or not, but it is a pretty good line. 

Many Americans believe that those of us here in Washington are 

not capable of doing the hard work that we were hired to do, and 

that is to effectively manage the tax dollars that we are entrusted 

with. They look at the spending decisions we have made in recent 

years, and they question whether the culture here is really broken. 

They question whether or not we are capable of making the kind 

of tough decisions that most families make with their own budgets. 

And you cannot blame them for being somewhat skeptical. 

I think we need to really change the culture here and to move 

away from what I describe as a culture of spendthrift and to move 

us toward a culture of thrift, and that is what we endeavor to do 

in this Subcommittee. We try to do it by partnering with the Administration, by partnering with the Office of Management and 

Budget (OMB), by partnering with the Government Accountability 

Office (GAO), by partnering with Inspectors General (IGs) all 

across the Federal Government and all the different departments, 

and we partner with a bunch of nonprofit groups that are interH605-41331-79W7 with DISTILLER

3 

ested in waste and eliminating waste. It is a good way to increase 

our leverage and at the end of the day to get some things done. 

And actually we are making a little bit of progress. I am encouraged by that. 

I have said here many times we need to look in every nook and 

cranny of the Federal Government, all of our spending, whether it 

is domestic or defense or entitlements, tax expenditures, and basically ask this question: Is it possible to get a better result for less 

money, or maybe a better result for the same amount of money? 

But even before we start on that important work, we need to 

sharpen our pencils and stop making the kind of expensive avoidable mistakes that lead to improper payments. 

Every year for a number of years, our friends at GAO have been 

looking at improper payments, and Senator Coburn and I wrote a 

change to the law that was adopted and signed by President 

Obama last year. We know that as of last year, a number that is 

pretty hard to miss, there was $125 billion in improper payment. 

I would like to say that is all. They are not reporting all improper 

payments. We have some missing returns, if you will, from the Department of Defense (DOD). I do not think that includes the Medicare Part D prescription drug program, and there are some other 

outliers that are not in yet. But it is a whole lot of money. 

Even in a big State like Massachusetts, that is a lot. That is real 

money. 

These improper payments come from over 70 programs at 20 different agencies. They include programs like Medicare and Medicaid, civilian and military pay at the Department of Defense and 

Federal Emergency Management Agency (FEMA), just to name a 

few. 

And improper payments—sometimes people say to me: Well, 

what is counted as an improper payment, or maybe what is not? 

But an improper payment occurs, as most of you probably know, 

when an agency pays a vendor for something it didn’t receive or, 

maybe even pays them twice. It can occur when a recipient has 

died and is no longer eligible for receiving a payment, or when a 

vendor owes the government money and legally should not be getting a payment until that obligation to the government has been 

met. 

These are the kinds of mistakes that occur every day across government. If the truth were known, it probably also occurs every day 

at big companies. And we need to work on those with the kind of 

vigor and commitment that those big companies work on them. 

What disturbs me about the problem here in the Federal Government is that we seem to make these kinds of mistakes at a rate 

that is much higher than businesses and higher than the average 

family would tolerate or could afford. 

We throw big numbers around Washington all the time. So I 

want to take a moment just to put things in perspective, as I have 

in the past at hearings of this nature. 

The $125 billion figure is more than the gross domestic product 

of each of 120 other countries around the world. In fact, for a comparison even closer to home, $125 billion would fund the entire 

State of Delaware’s operating budget for about 40 years. But I 

should point out that—and Arkansas’s budget for probably about 3 

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4 

years. I should point out to our Ranking Member that it would not 

only fund the State of Massachusetts for well, not 40, but 4 years, 

but yours is a big State. 

So it is easy to see how urgent it is that we step up the pace of 

our efforts to prevent improper payments and eliminate, to the best 

of our abilities, the management problems that lead to waste and 

ultimately to fraud. Success in doing so will go a long way toward 

helping us to reduce our deficit. 

The good news is that we are seeing some renewed commitment 

to reducing improper payments and we have made some progress. 

A number of agencies have reduced their mistakes, and saved 

money since we first began to shine a spotlight on improper payments during the Bush Administration. 

Today, we have been joined by several witnesses who are each 

key players in helping the government successfully identify, decrease and even eliminate improper payments in the Federal Government. 

A new law that I mentioned earlier, that I co-authored with Senator Coburn and a number of our colleagues on this panel, is moving us even further along. The Improper Payments Elimination and 

Recovery Act, signed into law by President Obama last summer, requires more transparency from agencies with regard to waste and 

fraud within their programs. It also forces managers to take additional steps to end practices that lead to improper payments and, 

where appropriate, recover the funds that they spend. And we also 

say we introduce into the equation here new criteria on which 

managers are evaluated, and that includes the rigor with which 

they enforce the new law. 

In addition, our witnesses today will talk about some specific 

ideas, well, at least one specific idea called the ‘‘Do Not Pay’’ List. 

The idea of the Do Not Pay List is straightforward and logical. It 

would require that Federal agencies first check against a centralized Federal database, the Do Not Pay List, to better ensure that 

we are not paying recipients who are ineligible for payments. 

Of course those watching this hearing may ask the obvious question: Why would a Federal agency ever pay an individual who has 

died or is a debarred Federal contractor, for example? 

And unfortunately, the answer is that all too often agencies simply do not do a very good job of coordinating their efforts to prevent 

improper payments or communicating about best practices. Many 

also have antiquated databases and computer systems for tracking 

basic payment information. The Do Not Pay initiative is a major 

attempt to fix this frustrating problem. 

And we are here today in large part because I believe that we 

have a moral imperative to ensure that scarce resources that we 

do put into our Federal programs are well spent. I think my colleagues agree with that. It is the right thing to do on behalf of the 

taxpayers who entrusted us with their hard-earned money. We 

must use every tool available to bring our fiscal house back to 

order and give the American people the government that they deserve and, frankly, can afford. 

Now I want to turn to Senator Brown and then to Senator Pryor 

for any comments that they would like to make. 

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5 

Gentlemen, welcome. Thanks so much for being here and for 

your active involvement. 

OPENING STATEMENT OF SENATOR BROWN 

Senator BROWN. Thank you, Mr. Chairman. Sorry I was a little 

late. I am having one of those days. 

But I want to thank you for holding this hearing. And it is funny, 

listening to you talk. I appreciate your personalization of that and 

pointing out how much we could be doing with the money that we 

are inappropriately paying. 

I mean how many people listening or in the audience have actually got a bill or a credit card or something and you look at that 

charge and its like, oh my, that is not accurate? And then you 

spend like 4 or 5 hours, even if it is just a finance charge you have 

received and it is for $7, but you will spend 3 hours getting that 

done because you have won a battle and it is a you over the machine type of thing. 

And yet, here we are in the Federal Government, $125 billion, 

and it is like oh, yes, now we will get to it. It is getting larger. 

I do want to say that through your efforts, sir, and Senator 

Coburn’s and others, we have had some success. 

And I know that I do appreciate the efforts of Mr. Werfel and the 

Office of Management and Budget to take this effort very seriously. 

I am encouraged by that, by the new initiatives that you have just 

referenced, the Do Not Pay List, for example. 

And Mr. Robert Hale’s part, for your quick response to our letters, shows me that the DOD is also putting more attention to this 

problem. That is why I was glad to co-sign a letter, along with you, 

Mr. Chairman and others, asking DOD to provide that inquiry as 

to what the status is and how it is going to fix the problem. 

And quite frankly, Mr. Chairman, I think we should do this with 

every department and ask them what are their plans because I 

have said it before. Here we were a couple weeks ago, wrestling 

about $61 billion. We are going to shut down the government. Remember that? 

And yet, here we are. We are giving away $125 billion through 

whatever means, whether it is fraud, waste and abuse, just improper payments, just a mistake, however you want to phrase it. 

It just makes no sense to me. So I appreciate the effort. 

I have a more detailed opening which I will make part of the 

record, but I want to just hear the witnesses and move on. Thank 

you. 

Senator CARPER. That is great. And your entire statement will be 

made part of the record. 

Mark, welcome. Thank you both. Any statement you would like 

to offer, please? 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. I do not. I just want to thank you, and thank 

both of you, for your leadership on this, and I look forward to hearing what the panel has to say today. 

I think it is very important that we keep our eye on the ball. As 

Senator Brown said, it is not always easy to do around here for 

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6 

some reason, but anyway, thank you for this hearing and thank 

you for holding our feet to the fire on this. 

Senator CARPER. You bet. Thanks for being part of this team. 

I am just going to introduce our witnesses from our left to our 

right, from your right to your left. 

And our first witness today will be probably someone we have 

seen before here, Danny Werfel, and we are delighted to see again 

our Controller at the White House Office of Management and 

Budget. You are nice to come. 

He is responsible for coordinating the OMB’s efforts to initiate 

governmentwide improvement in all areas of financial management 

including financial reporting, improper payments and real property 

management—all those issues that we are deeply involved in here 

as we get to work with him a lot. Those are important issues. I 

think they are important to the Subcommittee. They are important 

to the Committee. They are important to all of us, whether you 

serve here or not. 

Mr. Werfel is a frequent witness here before this Subcommittee 

and someone we very much enjoy working with, so thanks so much. 

Next, I would like to introduce from the Department of the 

Treasury, Richard Gregg, and Mr. Gregg is the Fiscal Assistant 

Secretary. Fiscal Assistant Secretary. How long have you been Fiscal Assistant Secretary? 

Mr. GREGG. Just 2 years. I retired after a long career in Treasury 

and came back 2 years ago. 

Senator CARPER. So you failed at retirement, is that it? 

Mr. GREGG. Yes. [Laughter.] 

Senator CARPER. Mr. Gregg is responsible for developing policy 

on payments, on collections, on debt financing operations, on electronic commerce, on governmentwide accounting and government 

investment fund management at Treasury. That is a lot. 

And he is a busy fellow these days, and we appreciate very much 

your being with us, sir. 

Robert Hale, no stranger here, Under Secretary of Defense and 

Comptroller, as well as the Chief Financial Officer (CFO), at the 

Department of Defense. That is a big job, responsible for the Department’s financial policies, for financial management systems 

and business modernization efforts. He has come before our panel, 

again as I said before, to discuss the Department’s financial management. 

Mr. Hale was an officer in the Navy—go Navy—and he has a 

long history of working with the Department of Defense on financial management improvements. He also worked at the Congressional Budget Office (CBO). 

We thank you for your service and thank you for joining us 

today. 

Next, Mr. Calvin L. Scovel, III. We have a new intern in our office. He is also the Third, and I said what should I call you? 

He said you may call me Trip. 

And I said would that be with one P or two? 

And he said just one. 

So we have a Trip. And he is. [Laughter.] 

But he is a good man. He is a very good man. 

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7 

1The prepared statement of Mr. Werfel appears in the appendix on page 44. 

Calvin Scovel is the Vice Chairman of the Recovery Accountability and Transparency Board (RATB) and Inspector General of 

U.S. Department of Transportation (DOT). These positions are his 

second career. He has a distinguished military history serving as 

a Marine judge advocate and retiring as a brigadier general in the 

Marine Corps. Is that right? 

That is great. He has us outranked, Scott. 

Well, you were a general, were you not? Attorney general. 

[Laughter.] 

That tradition of service continues today in his family. One of 

your two sons serves as a police officer, yes, and another is an officer in the Marine Corps who graduated from the Naval Academy. 

So that is good for your family. 

Where is your son serving now? 

Mr. SCOVEL. He is in the Infantry Officer Corps, sir, down in 

Quantico, ready to go to 5th Marines at Camp Pendleton and next 

year to Afghanistan. 

Senator CARPER. All right. We were just over there. Scott and I 

have been before, and I know Senator Pryor has been there. Very 

impressed a couple weeks ago when I was there. With our men and 

women who are serving, very impressed. 

Mr. Scovel, again, we thank you for your time and for your service to our country. 

And finally, Mr. Kelly Croft, Social Security Administration 

(SSA). We welcome you, Mr. Croft. I believe you are the Deputy 

Commissioner for Systems at the Social Security Administration, 

and you have worked at the Social Security Administration for, it 

says here, 30 years. Is that right? 

Mr. CROFT. Yes. 

Senator CARPER. Did you start as like right out of school? 

Mr. CROFT. Pretty much. 

Senator CARPER. OK. Middle school? [Laughter.] 

And you led many important initiatives including electronic disability folders and Medicare modernization. We are happy that you 

are here. 

Your entire statements will be made part of the record. Feel free 

to summarize. If you are much over 5 or 6 minutes, we might try 

to rein you in, but up to that you are in good shape. 

We are going to start with votes at about, I am told, 5. So we 

should have a chance to get all this in and make our goals as well. 

So thanks. Please begin. 

STATEMENT OF DANIEL I. WERFEL,1 ACTING CONTROLLER, 

OFFICE OF MANAGEMENT AND BUDGET 

Mr. WERFEL. Chairman Carper, Ranking Member Brown, Senator Pryor and another distinguished Members of the Subcommittee, thank you for inviting me to testify today. 

This Subcommittee has been at the forefront of moving us forward in addressing improper payments, and I look forward to continuing to work together with you on this problem. Last August, I 

spoke before you about our efforts to prevent and recapture imH605-41331-79W7 with DISTILLER

8 

proper payments, and I appreciate the opportunity to testify before 

you again. 

As you have mentioned, Senator, one of the biggest sources of 

waste and inefficiency within the Federal Government is the 

amount we pay out each year in improper payments. In Fiscal Year 

(FY) 2010, Federal agencies estimated that approximately $125 billion in improper payments were made to individuals, organizations 

and contractors. Although not all errors are fraud, all payment errors degrade the integrity of government programs and compromise 

citizens’ trust in government. 

As part of the Administration’s Accountable Government Initia- tive, we have set aggressive goals to prevent $50 billion in improper payments and recapture at least $2 billion in improper payments between FY 2010 through FY 2012. These goals represent 

a significant acceleration in increase of recoveries from the previous several years. 

In addition to the enactment of the Improper Payments Elimination and Recovery Act of 2010 (IPERA), as well as putting forward administrative, legislative and funding request in the Fiscal 

Year 2012 President’s Budget, the Administration is already taking 

several steps to prevent, reduce and recapture improper payments, 

which I would like to briefly highlight. 

For example, in November 2009, the President issued an Executive Order (EO) on Reducing Improper Payments. The Executive 

Order aims to reduce and prevent improper payments by enhancing transparency, increasing agency accountability and exploring 

incentives for State and local governments to reduce their error. 

The order represents a fresh approach to addressing improper payments and emphasizes the importance of detecting fraud, averting 

improper payments and improving payment accuracy without making government programs harder to navigate. 

In addition, this Administration has made leveraging technology 

a major focus for addressing improper payments. Technology was 

a central theme of the Executive Order which required OMB to 

work with agencies to identify new forensic tools and technologies. 

Last June, the President issued a memorandum to agencies to 

enhance payment accuracy. As a result, we have created an initial 

portal called VerifyPayment.gov, which will serve as a single source 

through which all agencies can check the status of potential contractor, grantee or individual beneficiaries by linking the agency to 

relevant eligibility databases such as the Social Security Administration’s Death Master File or the General Service Administration’s 

(GSA) Excluded Party List. 

While the initial portal has been built, the Treasury Department’s Bureau of Public Debt (BPD) is responsible for enhancing 

the portal and developing the operations center that will utilize forensic technology. In fact, the implementation of this initiative will 

have several components to be executed in phases. The next step 

for expanding VerifyPayment.gov is to connect all needed data 

sources and create an operations center that will leverage forensic 

technology to assist agencies in identifying, preventing, reducing 

and recapturing error. 

In addition, other phases will include conducting pilot tests of the 

portal by Federal agencies, addressing implementation issues and 

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9 

1The prepared statement of Mr. Gregg appears in the appendix on page 51. 

developing capabilities for automating the checks by agencies’ systems. The automation phase would incorporate cutting-edge fraud 

technology, like those utilized by the Recovery Board, to further reduce the number of improper payments. 

I want to also highlight that last month OMB released its guidance on implementing IPERA. The guidance ensures that agencies 

are properly assessing risk in their programs, measuring and reporting improper payments for required programs and establishing 

corrective action plans and reduction targets to drive agency performance. We have already been answering many questions from 

agencies and have been meeting with them to discuss the new requirements. 

I want to thank you again for inviting me to testify here today, 

and I look forward to answering any questions that you may have. 

Senator CARPER. All right. Thanks for your testimony, and we 

will look forward to the Q and A’s. 

Mr. Gregg, please proceed. 

STATEMENT OF HON. RICHARD GREGG,1 FISCAL ASSISTANT 

SECRETARY, U.S. DEPARTMENT OF THE TREASURY 

Mr. GREGG. Good afternoon, Chairman Carper, Ranking Member 

Brown, Senator Pryor. It is a great opportunity to testify today on 

Treasury’s work to help ensure the validity of government payments. 

The Administration set a very high priority on the importance of 

reducing improper payments. In the June 2010 memorandum, 

President Obama reinforced his commitment to eliminate waste, 

fraud and abuse in Federal programs, including reducing and capturing erroneous payments. There are many causes of improper 

payments, but whatever the cause we can all agree on one thing, 

that the amount of those payments remains unacceptable and immediate steps need to be taken to reduce them. 

In 2010, Treasury supported an OMB initiative to examine improper payments. The Treasury-led work group identified key 

pieces of information that could help solve this problem. If agencies 

have access to accurate and timely data on death, employment status, income levels, incarceration and residents of dependent children as well as information on whether or not applicants are already receiving benefits and whether applicants are suspended or 

disbarred from doing business with the Federal Government, the 

number of improper or erroneous payments could be drastically reduced. 

Rather than trying to reduce improper payments using only an 

expensive, and in many cases unsuccessful, pay-and-chase fund recovery model, we will work with agencies to help validate payment 

data before the payments are made. Our goal is to get accurate 

data in the hand of agencies early in the decisionmaking process 

for payment and also prior to making contract awards. 

OMB has requested Treasury to begin developing a single point 

of entry or verification portal where agencies can verify information 

about potential recipients of Federal payments. Treasury will also 

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10 

1The prepared statement of Mr. Hale appears in the appendix on page 55. 

provide a risk modeling capability and provide access to the centralized analytic center. 

To the extent permitted by law, the center will provide Federal 

and State agencies a one-stop shop for information and fraud detection tools to help reduce erroneous or improper payments. We envision a business solution where key data from many sources of information can be accessed through various databases or through 

queries against portals that are already commercially available. A 

call center will be established to assist users, support in-depth 

analysis or proactively investigate patterns of behavior. 

Our plan is for Treasury to work with agencies to expand their 

participation, both as data users and as data providers. The new 

business solution can accomplish some of these goals within existing law, but it is likely that new legislation will be required to enable Treasury and other agencies to share data and through a more 

streamlined process. Treasury is working with OMB to draft legislation right now, and we of course, look forward to working with 

Congress on that legislation. 

Treasury’s overall goal for this initiative is two-fold—to help 

agencies achieve the Administration’s goal of reducing improper 

payments by $50 billion and to do this while safeguarding the privacy of individuals. Managing this data is an enormous responsibility and requires good management, strong controls and a deep 

commitment to the importance of safeguarding sensitive information. Nevertheless, we feel that information sharing is a very important element, and perhaps the most element, to help us reduce 

improper payments. 

Treasury is designing the portal so the decision to make a payment or to contract or enroll a program applicant resides in the 

hands of those who best know and are responsible for the program—the individual agency. Treasury’s role is to assist OMB and 

the agencies in making payments to only those who should receive 

them. 

Thank you for the opportunity testify. I would be happy to answer any questions. 

Senator CARPER. You are welcome and thank you very much for 

testifying. 

Mr. Hale, please proceed. 

STATEMENT OF HON. ROBERT F. HALE,1 UNDER SECRETARY 

OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE 

Mr. HALE. Well, thank you Mr. Chairman, Ranking Member 

Brown, Senator Pryor. I appreciate the chance to discuss the actions we are taking to eliminate and control improper payments 

across the Department. 

Improving financial management in DOD represents one of my 

highest priorities as the Chief Financial Officer of the Department. 

I regard improper payments as a cornerstone of this broad effort, 

so I am pleased today to report that I believe DOD currently has 

a strong program to identify, report, eliminate and recover improper payments. 

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11 

Based on our current reporting methods, we estimate that 1 to 

2 percent of our payments are classified as improper and most of 

those are recovered, I would say probably 85 to 90 percent of them 

are recovered often quite quickly. Now of course, the only appropriate goal for improper payments is zero, and as I will indicate in 

my remarks today, we are taking steps to further improve our program. 

To provide perspective, I note that our improper payment percentage is low in comparison to overall Federal levels. I believe our 

colleagues at the Office of Management and Budget generally agree 

that DOD has a strong program. And, it is important to note that 

DOD’s improper payments are not on OMB’s list of high-error programs. Indeed, OMB has identified some of the techniques we 

use—and I will describe one of them in a moment—to control improper payments as best practices. 

Our success with improper payments is particularly noteworthy 

because of the size and complexity of the Department’s payments. 

The Defense Finance and Accounting Service (DFAS), which disburses about 90 percent of our total payments, disbursed a total of 

$578 billion last year, roughly $3 billion every working day. We not 

only disburse very large sums; we also make payments that are 

among the most complex in government. 

I would like to take just a few moments to highlight some of the 

key areas and strengths in our program and also areas where we 

plan further improvements including full implementation of the 

IPERA legislation. Let me turn first to commercial payments to 

contractors. That is about two-thirds of our total payments. 

For commercial payments we make heavy use of prepayment 

screening. We are trying to stop these before they happen rather 

than chase them afterward. One especially important tool is the 

Business Activity Monitoring (BAM), software program that DOD 

introduced in August 2008. BAM is an automated prepayment 

mechanism that uses business rules to flag, for human review, payments that may be improper. 

So if BAM saw two payments that were the same size in a similar timeframe it would flag them for human review. It does not 

mean they are improper, but they ought to be looked at. 

When coupled with diligent work by the Defense Finance and Accounting Service technicians, BAM has prevented more than $3 billion in improper payments in little more than 21⁄2 years. For those 

systems that are covered, and about 90 percent of our commercial 

payments are covered by BAM, we think it has essentially eliminated duplicate commercial payments based on internal reviews. 

And that is, for us, a major achievement. 

But we are not resting on our laurels. We continue to refine the 

logic to catch still more improper payments and to expand BAM to 

all, to handle all commercial payments. 

Because we have BAM and what we believe are effective prepayment measures, we have historically not used post-payment statistical sampling for commercial payments. This summer though, we 

plan to begin using post-payment sampling as part of our efforts. 

We hope to have it in place by the fourth quarter of this fiscal year 

for the largest commercial pay systems so that we fully implement 

the IPERA legislation that you enacted. 

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12 

On civilian and military pay, we do use post-payment sampling, 

so we are compliant already with that portion of IPERA. 

I think when the public hears the words ‘‘improper payment,’’ it 

probably thinks of over-payments that maybe are never recovered. 

In fact, for military pay, two-thirds are underpayments, often the 

results of a miscalculation of leave where service member returns 

to Reserve/Guard from active duty. It is usually our pay systems, 

personnel systems did not get, say, a promotion in time, so we do 

not pay it that time. It is probably no surprise to you we hear 

quickly from the individuals involved, and we usually fix those 

within a pay period or two. 

DOD travel payments are also subject to monthly statistical sampling, so we are consistent with IPERA there. 

And we have begun using automated file matching, between 

travel systems to prevent duplicate reimbursements again to try to 

catch these before they happen, so we are not chasing them afterward. 

Another category of payments is retiree and annuitant pay where 

our focus is on recapturing payments when we do not get timely 

notice that the individual is deceased. 

And there are a lot of smaller categories, but they are large in 

absolute terms—Army Corps of Engineers (ACE), our TRICARE 

health system—where we think in most cases, not all, we have 

good controls in place to prevent improper payments. 

Despite what we at DOD consider a strong program, two recent 

audits have cast doubt on that program. My time is running out. 

I am not going to go through them, but let me just say—and I will 

answer your questions if you would like—the Department of Defense IG audit and the GAO audit we feel were overstated and, in 

some ways, misleading. 

More generally, DOD has in place an aggressive program to improve financial information and move toward meeting government 

audit standards, which are indeed based in many cases based on 

commercial standards. We call this the Financial Improvement and 

Audit Readiness Program. It is a major effort to move us toward 

auditability. A cornerstone of that program, or an important part 

of it, will be continued efforts to improve our control over improper 

payments and to fully implement the IPERA legislation. 

So after my other colleagues complete their statements, I would 

welcome your questions. 

Senator CARPER. All right. We will welcome the opportunity to 

ask them. Thank you for that testimony. 

Mr. Scovel, please proceed. 

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1The prepared statement of Mr. Scovel appears in the appendix on page 65. 

STATEMENT OF HON. CALVIN L. SCOVEL, III,1 VICE CHAIRMAN, 

RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD 

Mr. SCOVEL. Mr. Chairman, Ranking Member Brown, Members 

of the Subcommittee, thank you for this opportunity to appear before you in my role as Vice Chairman of the Recovery Accountability and Transparency Board. 

A key responsibility of the Board is to coordinate oversight of recovery funds, to prevent fraud, waste and abuse, and provide for 

accountability. My testimony today will focus on our efforts to combine law enforcement and technology to track the quick disbursement of billions of recovery dollars. 

Early on, the Board recognized that the traditional pay-andchase paradigm for pursuing misspent funds forfeited multiple opportunities to thwart fraud before payments were made to ineligible parties. To stop fraud in its tracks, we built the Recovery Operations Center (ROC) which combines traditional law enforcement 

analysis with sophisticated software tools, government databases 

and open-source information. 

Through the Operations Center, the Board’s analysts look for 

criminal convictions, lawsuits, tax liens, bankruptcies, risky financial deals, suspension and debarment proceedings, and other early 

warning signs of trouble. The risk-relevant global information on 

entities receiving recovery funds has allowed investigators to expose suspicious relationships between parties that may not have 

been transparent at the time of contract or grant award. It has also 

allowed them to target limited government oversight resources 

where they are most needed. 

Since the Board’s inception about 2 years ago, more than 200 

hotline complaints from the public have been referred to appropriate law enforcement entities for further inquiry, and nearly 400 

analyses have been conducted in response to agency requests for 

assistance, along with many hundreds of analyses generated by 

Board staff. 

In one case, a U.S. Attorney requested an analysis of a real estate development company. A Board analyst discovered that the 

company discovered that the company had a $9.5 million grant 

pending from the Department of Housing and Urban Development 

(HUD) through the State of Indiana. The analysis revealed that the 

company was a joint venture with a firm owned by several individuals who had been convicted of fraud and embezzlement in 2006, 

and the U.S. Attorney was unaware of their relationship with the 

company and its owner. 

In another case, an Assistant U.S. Attorney requested an analysis of six people indicted for fraud-related crimes involving Medicare. A Board analyst tied those individuals to 120 medical businesses, about a quarter of which had been unknown to the prosecuting attorney. This new information can now be used to 

strengthen a criminal sentence. 

Another 260 leads have been generated by the Board through its 

review of recovery awards, some of which ultimately resulted in rescinded recovery contracts. 

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14 

For example, a construction company had much of its $9 million 

in recovery contracts rescinded after a Board investigator found 

that the firm had been suspended from doing business with the 

Federal Government. 

In another case, an agency rescinded a recovery contract after a 

Board investigator determined that a $1 million set-aside contract 

was awarded to a company that no longer qualified as a small business because the company’s ownership had changed. 

Last year, Board Chairman Earl Devaney testified before this 

Subcommittee that the Operations Center’s tools were being pilottested at the Centers for Medicare and Medicaid Services (CMS). 

In the pilot, the Centers partnered with the Board to investigate 

a group of high-risk providers that had been accepted into the 

Medicare program. At the time of Chairman Devaney’s testimony, 

the pilot had not been completed. I can now tell you that Operations Center data confirm that several providers were banned 

from doing business with the government at the time they were enrolled in the program. 

Our analysis also identified a pattern of Medicare fraudsters 

using legitimate doctors’ medical identification numbers in States 

far removed from where those doctors had their true practices. 

The Board is also working with the Veterans Affairs Office (VA) 

of Inspector General to oversee the more than $1 billion in solesource and set-aside recovery contracts that have been awarded to 

service-disabled, veteran-owned small businesses. To date, Board 

investigators have identified more than 150 potential shell companies that were set up to defraud the government, approximately 

half of which were awarded more than $1 million each in recovery 

funds. 

Earlier this year, the Board began a pilot program to test the 

concept of granting remote access to the Operations Center’s tools 

to investigators in several Offices of Inspectors General (OIG), and 

perhaps ultimately to agency procurement and grant officials as 

well. Trained personnel at the four pilot Offices of Inspectors General, all of which have recovery fund oversight responsibilities, can 

now use a secure portal to scan and analyze Operations Center 

data. 

While the Board is pleased with these noteworthy successes, we 

believe the Operations Center could be even more robust if the 

Board, the Inspectors General and the Council of Inspectors General on Integrity and Efficiency were exempted from the computer 

matching provisions of the Privacy Act. Such an exemption, which 

was introduced last year by the House Committee on Oversight 

and Government Reform, would allow us to compare data from different systems of records to detect improper payments and fraud 

in Federal benefits programs. It could also give us the ability to 

proactively identify recovery dollars, as well as non-recovery dollars, that are vulnerable to fraud, waste and abuse. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to answer any questions you or Members of the Subcommittee might have. 

Senator CARPER. Mr. Scovel, thanks. Thanks very much for that. 

Mr. Croft, please proceed. 

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1The prepared statement of Ms. Croft appears in the appendix on page 74. 

STATEMENT OF KELLY CROFT,1 DEPUTY COMMISSIONER FOR 

SYSTEMS, U.S. SOCIAL SECURITY ADMINISTRATION 

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

Brown and Senator Pryor, thank you for inviting me here today. 

And as requested, I will focus my comments on our collection and 

distribution of death information. 

Within SSA, I am responsible for delivering information technology services across the Agency. Each year, we receive approximately 2.5 million death reports from multiple sources including 

States, family members and funeral home directors. We use that 

information to stop payments for a beneficiary who has died and 

also to establish benefits for any eligible survivors. We also retain 

a record in our files, and we currently have over 92 million death 

records. 

Recognizing the broader value of death information to support 

accurate benefit payments by other government programs, we have 

been sharing data for many years. We currently share death information with the Veterans Administration, the Retirement Railroad 

Board, the Office of Personnel Management (OPM) and the Department of Defense. We also provide a more limited copy of our death 

information to the Internal Revenue Service (IRS), the Centers for 

Medicare and Medicaid Services and the Department of Commerce. 

Commerce then resells the information to other organizations and 

the public, and I believe some of those customers make additional 

commercial use of the data. 

We update the death information we share with these organizations on both weekly and monthly schedules. To provide a sense of 

the scale for these exchanges, we currently post approximately 

48,000 new death reports a week. And I know the Administration 

plans to use this information to enhance the President’s initiative 

for agencies to check key eligibility databases prior to making a 

government payment. 

That said, every large data set, at least every one that I have 

been associated with, has flaws, and it is extremely important that 

anyone reusing this data do so in a responsible manner. For example, we make it well known that the information we share is not 

a complete record of deaths in the United States and not all 

records are verified by Social Security. In addition, unfortunately 

a very small amount of death data we post to our records proves 

to be wrong. We fix errors as soon as we learn of them, but then 

we must rely on all the downstream users of death information to 

correct their records as well. 

I want to mention that an ongoing effort between the Federal 

Government and States called Electronic Death Registration 

(EDR), is helping to improve death reporting and the quality of the 

data. Thirty States, the District of Columbia and the city of New 

York now have an EDR process in place, and records that come to 

us via this automated process are almost error-free. The effort to 

promote the use of EDR in States is ongoing. 

In conclusion, technology clearly enables the exchange of data. 

Once agreements are reached, files can be shared relatively quickly 

and safely, and query tools can provide end users with easy access 

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16 

to information. We believe careful and responsible reuse of the 

death information in our records supports the governmentwide effort to maintain the integrity of Federal programs and protect taxpayer funds. 

We will continue to share death information from our records to 

the extent the law allows, and we look forward to participating in 

any new initiative that will help prevent improper payments. 

Thanks again for having me today, and I will do my best to answer your questions. 

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

I have asked Senator Brown if he would like to go first and Senator Pryor second, and I will go last. We will start off with like 7- 

minute rounds. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

First of all, thank you all once again for coming, and Mr. Chairman, thank you for holding this. 

So Mr. Werfel, I just might as well start with you. Considering 

there is an estimated $125 billion in improper payments just within this last fiscal year, the goal of preventing $50 billion in improper payments by Fiscal Year 2012, as stated in your testimony, 

seems certainly aggressive, a big goal. Considering the fact we are 

in mid-Fiscal Year 2011 and that total improper payment estimates 

are still growing year over year and the decline in the reported governmentwide improper payment rate has been relatively modest, 

do you still see that goal as being achievable? And if so, why, or 

if not, why? 

Mr. WERFEL. I would certainly agree, Senator, that it is an enormously aggressive goal, driven in large part by a specific goal to 

cut the Medicare fee-for-service error rate in half by Fiscal Year 

2012, and Medicare fee-for-service errors represent the largest portion of errors. 

I continue to believe that it is achievable although it is aggressive. The fact that the error rate went down between Fiscal Year 

2009 and 2010 is certainly a positive trend. It did not go down as 

much as we were hoping in terms of staying on track for the $50 

billion. It just means that we have to make up some of that ground 

in the coming year and then in the following year make up even 

more ground. 

I think the key here is that how aggressively Federal agencies 

are taking their responsibilities to drive their error rates down, and 

right now I have not seen in my experience—and I have been involved in improper payments since the Improper Payments Act was 

first passed in 2002. I have not seen this much concerted activity 

and this much proactive steps being taken by agencies to address 

their errors. So I am optimistic that the error rate will continue to 

trend down. 

And whether we hit the $50 billion or not, I think obviously it 

is an aggressive goal. So it is an open question, but I am confident 

that the error rate is going to trend downward. 

Senator BROWN. Because I know OMB testimony stated that the 

improper payment error rate declined from 5.65 percent in 2009 to 

5.49 percent in Fiscal Year 2010, representing $4 billion in potential improper payments that were actually averted. So to get to 

that $50 billion number ultimately, that is going to—— 

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17 

Mr. WERFEL. You have to get down to somewhere in the low 4 

percent, high 3 percent range depending on what the outlays are. 

Senator BROWN. Yes. 

Mr. WERFEL. But, yes. I mean again I agree, Senator. There is 

a lot of work to be done. And our hope is that a lot of the work 

that has been being done, which does not happen overnight, is really going to kick into gear. 

Senator BROWN. Well, listen; I do appreciate your effort. I will 

say that publicly and wish you well. And I think the reason you 

are seeing a lot of activity is because we are out of money and we 

need to find it and we need to use it better. 

So whatever the Chairman and I can do to push any buttons by 

holding hearings or sending letters or making phone calls, we are 

on board certainly. Which programs do you see a majority of the $50 billion in prevented improper payments coming from? 

Mr. WERFEL. Well, right now, I think the most—both the Medicare and Medicaid error rates went down between Fiscal Year 2009 

and Fiscal Year 2010, which is important because those are the two 

largest programs. 

The Food Stamp, or the Supplemental Nutrition Assistance Program (SNAP), error rate has continued to trend downward, and 

that is another one of our big program areas. 

In fact, if you look at the approximate 11 of our largest programs 

that make up approximately 90 percent of the error, most of them 

went down: Medicare, Medicaid, Social Security, one of the Social 

Security programs, SNAP and School Lunch and HUD programs. 

All of those trended downward. 

Where we are trending upward and where we have to do a better 

job is on the Department of Labor’s Unemployment Insurance Program is one of the big concerns that we have. 

Senator BROWN. So why do you think these programs will have 

the most impact? Just obviously because of the size of the money, 

the total moneys that they are dealing with, there is more leeway 

on either side? 

Mr. WERFEL. Yes. I think obviously when we are attacking this 

problem, we want to use good approaches of risk management. And 

very early in our improper payments effort it started to materialize 

in the numbers that about a dozen or so programs were making up 

90 percent of the errors. So not surprisingly, we focused a lot of our 

efforts around that, and Medicare and Medicaid make up a substantial portion of the error if you just isolate those two programs. 

And again, there are enormously detailed and comprehensive correction plans underway at each agency, to attack this problem. And 

again, we are seeing positive trends. But as you point out, those 

declines in the error rate are going to have to steepen over time 

if we are going to meet our goals. 

Senator BROWN. Thank you. 

And Mr. Hale, if I could just zero in on you a little bit, a couple 

of questions. So the DOD financial management has been on the 

GAO’s high-risk list since 1995, and improper payments are obviously a significant problem for the rest of the government. Yet, in 

your testimony, you said that DOD is ahead of the curve on eliminating improper payments. 

H605-41331-79W7 with DISTILLER

18 

But I am looking at reports from various years since 1995, and 

the recommendations and the problems still seem to be here. So I 

think there is some skepticism in the statements, and I am wondering about it. 

They include GAO and the DOD Inspectors General indicating 

that, and I just want to see if I get this right. In your testimony 

and in response to the letter that I, along with the Chairman and 

others sent you recently, you concluded that both the reports were, 

‘‘overstated and, in some cases, misleading.’’ 

So what areas were in fact overstated and misleading? While I 

want to give the benefit of the doubt, I just want to make sure I 

understand. 

Mr. HALE. Sure. Glad to answer. In the case of the DOD IG report, they argue that we had failed to review $167 billion of payments for improper payments. Of that, more than two-thirds were 

internal fully supported transactions essentially between government computers paying for transfers to retirement accrual funds. 

Both DOD and OMB agree it makes no sense to review for these 

payments, as they are essentially accounting transactions. 

In the case of GAO, they noted that we had not done post-payment statistical sampling for $300 billion of commercial payments, 

which was true. At the time the audit was issued, because we had 

a strong prepayment program that I described in my testimony, we 

were following OMB’s guidance not to do post-payment statistical 

sampling but reporting under the Recovery Auditing Act to allow 

fuller recoveries. That was pre-IPERA, which now requires it by 

law. 

And as I said in my statement, we are moving to post-payment 

statistical sampling for all of our commercial payments to start 

with quarter 1, Fiscal Year 2012. But we will continue the prepayment effort because it is just much better to catch these before they 

happen than to chase them after they happen. 

Senator BROWN. Yes. 

Mr. HALE. So I want to see—I want to do everything we can to 

stop them from getting out the door rather than sampling afterwards to find out whether we have failed. 

Senator BROWN. It seems that we need to get every—— 

Mr. HALE. Does that answer your question? 

Senator BROWN. Yes, somewhat. I mean I am going to come back 

to it because my time is up. 

But it seems like we need to kind of get one-stop shopping with 

all this stuff. It seems like there are so many agencies and so many 

departments dealing with payments, and it seems like there should 

be like a master list like that person is dead; we should not be paying him anymore. Or, that company is bankrupt—— 

Mr. HALE. Well, we file match with the Social Security Administration Master Death File. As you heard the Social Security witness say, we use that for retirement payments. In that case, that 

is the one relevant to us. It is not perfect, as he indicated. But we 

use it regularly, and actually our error rates are fairly low, and we 

do post-payment statistical sampling on those. 

Senator BROWN. I will followup. Thank you, Mr. Chairman. 

Senator CARPER. Thanks. 

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First, just briefly respond to my first question, all of you if you 

would. What should Senator Brown and Senator Pryor and others 

on this panel and our Subcommittee, what should we be doing to 

try to make sure that this new law is fully implemented, faithfully 

implemented? What should we be doing? 

Mr. Werfel, just briefly. 

Mr. WERFEL. I think, very briefly, hearings are like this are important, making sure that you are shining a light on the issue because it creates accountability and incentivizes Federal agencies to 

take their efforts seriously, and it strengthens our ability to lead. 

Also, I think we really do need to roll up our sleeves and look 

at what additional legislative solutions can be had. I do not think— 

I mean IPERA is an important milestone, but I still believe there 

is more work to be done from a legislative standpoint. 

The President’s budget includes legislative proposals that, if en- acted, would save $160 billion over 10 years in the area of program 

integrity. We need to look very seriously at those provisions. And 

there are other types of enhancements we can make to the agencies’ ability to share information and track information that we 

need legislative help on. So in those areas, we want to work with 

you. 

Senator CARPER. Good. Thanks. 

Mr. Gregg, what more should we be doing to make sure that this 

new law is faithfully and fervently implemented? 

Mr. GREGG. Senator Brown made the comment that it is kind of 

things are all over the map, and I think that is true. When we 

looked at this last year, we were looking at various databases. And 

agencies, in some cases, could not get access to databases that 

would have helped them. In other cases, where they did have authority, it takes 18 months to 2 years to go through the computer 

security matching agreements and the Memorandum of Understanding (MOU) to get from here to there. I know that from firsthand experience. 

So I think having an organization within Treasury that we are 

working on, to pull information together and allow agencies to 

come in one place. At least in some cases, we need amendments to 

the Privacy Act and the Computer Security Act to enable us to provide information. I think that would be a very big step to allow us 

to move forward. 

Senator CARPER. Senator Brown asks if you can give us some 

specific ideas here, and we will probably ask you to do that in writing. 

Mr. GREGG. I would be happy to do that. There is a long list. 

Senator CARPER. Good. That is good. 

Mr. Hale, just briefly, what more can we do to make sure this 

new law is faithfully implemented? 

Mr. HALE. Well, Mr. Chairman, I think at DOD our main issue 

is continued implementation. Again, I think we have a strong program, but it can be better. We need to implement IPERA. 

I rarely ask for hearings, but I concur with Mr. Werfel, that they 

are a good way. I know more about improper payments now in 

DOD than I did 2 weeks ago, and so shining a spotlight on this is 

good idea. 

Senator CARPER. All right. Thanks. Mr. Scovel. 

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20 

Mr. SCOVEL. Mr. Chairman, thanks for the opportunity. We appreciate the support provided by this Subcommittee and especially 

by Mr. Werfel in OMB for the activities of the Recovery Board. 

Sir, the vision that you have outlined and that Mr. Werfel mentioned in his testimony already exists at the Recovery Board. That 

is one-stop shopping in the Recovery Operations Center. 

And it is the Board’s position that our capability could be enlarged and exploited for the common good—in this case, to help 

eliminate and recover improper payments. We have brainstormed 

over at the Board how we might do that. We anticipate that within 

the next 6 months to 1 year we might be able to embed the capabilities that you and OMB might need in our own recovery center. 

Our next steps would be to gain access to several more needed 

databases. We already use the Excluded Parties List system, the 

Department of Health and Human Services (HHS) OIG’s List of 

Excluded Individuals and Entities, and we also use the Death Master File of course. We would need access to the Treasury’s 

DebtCheck and HUD’s Credit Alert Interactive Voice Response System. 

We would want to standardize and normalize that data because 

those files were all built on different systems. We would invite 

agencies to come and consult with us, and find out exactly what 

they would want to search for. Again, this is in the prevention of 

improper payment arena. 

And we want to ensure that sufficient security is built into that 

system. We would ask the Congress, as I mentioned in my opening 

statement, for exemption from the computer matching provisions of 

the Privacy Act. 

Senator CARPER. OK. Thank you. Mr. Croft. 

Mr. CROFT. Thank you. A couple things. Positive reinforcement 

and patient follow-through would be my initial thoughts, and also 

recognition that there is lots of underlying complexity to these 

issues and it is going to be an incremental improvement. It is not 

going to happen in a big bang. 

Senator CARPER. OK. Thanks. 

Mr. Hale, a couple of questions, if I could, of you and then maybe 

further for the other panel members. Our colleagues have examined the many challenges and opportunities, not all the challenges 

and opportunities that you face in the Department of Defense, but 

some that you have done in order to improve your financial operations. And you play a key role, obviously, in those efforts. Improving financial operations, as I said earlier, will mean that the Department of Defense can reduce its level of improper payments, 

which you are endeavoring to do. 

May I discuss with you some important steps that the Department, at least to me, appears that you need to take to implement 

the Improper Payments and Elimination Recovery Act? 

If I heard your testimony correctly, I think you said you plan on 

expanding—I think was the word that you used—on your improper 

payments efforts, which is good. Do you plan on expanding the improper payments effort so that all parts of the Defense budget are 

examined for improper payments? 

I think you mentioned earlier the Department has not examined 

commercial payments in order to estimate improper payments. So 

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21 

I think maybe close to half of the DOD budget has not been examined. Could you just respond to that? 

Mr. HALE. Well, it depends what you mean by ‘‘examined,’’ Mr. 

Chairman. I think we have a good program to identify and stop, 

before they happen, improper payments in the commercial pay 

which is close to two—— 

Senator CARPER. Talk to us about that. 

Mr. HALE. Say again. 

Senator CARPER. Talk to us about that. That is not always the 

impression that one gets. 

Mr. HALE. OK. Well, let me try to do that. 

The key item—there are a number of ways we do this. The key 

is the one that I mentioned in my statement, that we have software 

logic that searches all the payments. I say all; about 90 percent of 

the payments we make are subject to this BAM logic. It is a series 

of business rules that essentially identify high-risk areas, risky 

payments, and then they are scrutinized by a technician at the Defense Finance and Accounting Service, and they make a decision. 

So if BAM saw two payments of a similar amount that were 

made in the same timeframe, it would flag them, and a technician 

would look to see if indeed they are two different companies or 

whether we paid the same company twice. 

We think, based on internal reviews, that for the 90 percent of 

payments that are covered by BAM we have essentially eliminated 

duplicate payments through this and many other rules. I am simplifying it. It is a complicated set that I do not fully understand, 

of business rules. 

So we think we have good prepayment control mechanisms for 

commercial payments. But we understand the law, and as I said, 

we will fully implement post-payment statistical sampling, so we 

will get another read on whether or not we are properly, whether 

we are capturing all of the improper payments in commercial pay. 

In military pay, in civilian pay, in travel, in military retirement, 

we already do post-payment sampling. And most of them—frankly, 

many of them are under-payments, especially in military pay. And 

we get them back very quickly, as I mentioned. 

Soldiers and sailors and airmen and the Coast Guard are quick 

to tell us if we do not pay them the correct amount, as they should, 

and we fix it. And similarly, we are able to recover most of those 

usually within a pay period or two. 

So we still have a ways to go. We will keep trying. 

Senator Brown asked me if we are still on the high-risk list for 

GAO. Yes, we are. But I do not think it is because of improper payments. We have other problems, lack of auditability being one of 

them, that causes GAO to say this, but I would note again we are 

not on OMB’s high error list in terms of improper payments. 

Have I answered your question? 

Senator CARPER. That is a good start. 

My time is expired. Let me yield to Senator Pryor. 

Thank you again so much for coming. 

Senator PRYOR. Thank you, Mr. Chairman, for having this. 

I would like to take us in a little different direction. I am 100 

percent in favor of going after improper payments. I think that is 

important. I would say when it comes to budget matters that we 

H605-41331-79W7 with DISTILLER

22 

can do better and should do better. So I appreciate everything you 

guys are saying today and what you are working on. 

But let me start with you, Mr. Werfel. There is a human element 

in this as well where there are people who maybe in the Social Security Administration or maybe somewhere else, that there are just 

some hardship cases. And for humanitarian reasons you would 

think that the government, in some narrow circumstances, should 

just not press too hard to try to recover from these people. 

I have had an experience recently with FEMA. FEMA feels the 

pressure to try to recover as much as they possibly can. They are 

talking about putting some people that are on Social Security, that 

wrongly received a payment, that FEMA assured them all the way 

through the process that they were entitled to, and then FEMA reviews it 3 years later and says: Oops, our mistake. You owe the 

$27,000. 

So I guess for you, Mr. Werfel. How do you define that balance? 

What is that balance where certainly the taxpayer and the government have a compelling interest in trying to get money that has 

been wrongly paid, but on the other hand, you would need to—and 

I hope we would—take into consideration this human element? 

Mr. WERFEL. Well, Senator, it is a great question. I have studied 

improper payments very closely over the last 8 years, and I keep 

on being struck by the fact that there are very, very difficult public 

policy tensions in our efforts to address improper payments. It is 

at both ends of the spectrum. You referenced the collection spectrum. 

Let me just spend a second on the improper payment itself—— 

Senator PRYOR. Right. 

Mr. WERFEL [continuing]. And then I will address your question 

about collection. 

There are certainly areas of egregious error, where the government is being defrauded, and in that case it makes all the sense 

in the world to be in the most aggressive posture. 

Then there are examples where there are just basic mistakes we 

made. We have mentioned some of them—payments to the deceased, payments to excluded parties. And certainly, we need to be 

in an enormously aggressive posture on there. But a great majority of our $125 billion are much tougher calls. 

There are eligibility requirements that are sometimes difficult to 

navigate, and let me give you a great example of one in Medicare. 

Under the Medicare process, we audit a payment to see if it was 

correct or not. And what we find is that a patient was admitted 

that is eligible for Medicare, and that patient and the doctor made 

a decision to admit that patient for an overnight stay. 

But when you go back and you review the basic facts of the situation, the auditor makes a judgment that the types of issues that 

were presented did not warrant Medicare reimbursement for an 

overnight stay. It warranted only for an outpatient procedure. 

These are very tough to mitigate and to address. And in particular, in the moment when an individual is being brought into 

the hospital and a doctor is making a subjective decision, and the 

HHS regs are not always black and white in terms of how to interpret, you get very much into that human element. And the more 

we try to drive those types of error payments down, the tougher 

H605-41331-79W7 with DISTILLER

23 

situations we could potentially present to ourselves in terms of difficult decisions that are being made in delivering Medicare, medical 

assistance to those covered by Medicare. 

I want to offer that as an example, and we see that time and 

time again. 

Senator PRYOR. Let me interrupt right there if I can, and that 

would be in that scenario that you just gave, which is obviously a 

good example, would your recourse be against the individual who 

received the benefit of the payment, or would your recourse be 

against the doctor or the hospital? How do you parse that out? 

Mr. WERFEL. In Medicare, it is the doctor and the hospital that 

who—if we are going to recover those funds through an audit or 

some other mechanism, so it is that. 

Just another quick example, on the Earned Income Tax Credit 

(EITC), which has the highest error rate of any program—so Medicare is the highest dollar amount. EITC has the highest error rate. 

Often, a lot of those errors are people that are marginally poor. 

They have an adjusted gross income that is narrowly above the 

threshold. It is still technically an error, and there are some difficult decisions that go into preventing those payments to those individuals that are just marginally poor versus not fully within the 

realm of the statute. 

With respect to collection, to get at your question, I think you see 

a similar thing. I think there is a basic rule of debt collection which 

enables, across government, agencies to forgive or compromise or 

write down a debt if they believe the collection of that debt would 

be too expensive to justify the benefits of recovering the actual 

funds. And very often, the economic situation of a given individual 

can factor into this question of whether the costs and benefits line 

up. So in that regard, there is some degree of flexibility, although 

it is not perfect flexibility, for agencies to allow for the human element in some of their collection activities. 

There are other programs—that is the general, common rule. I 

happen to know that there are programs throughout government 

where there is even more flexibility that enables agencies, for example, to take into account fairness, equity, good conscience. And 

those are where Congress, in its wisdom, decided for this particular 

program to enact that type of additional flexibility for the agency. 

So there is precedent for this type of recognition. It is just something that has to be balanced against the enormous amount of 

overpayments we have and the tremendous economic benefit we get 

from recovering them. I think it is a challenging public policy balance that needs to be looked at. 

Senator PRYOR. And you referred to this earlier, but what percentage of your—in your estimate, how would you lay out those 

percentages in terms of the recovery that is very clear-cut, where 

there is fraud or clearly some wrongdoing, versus these other 

grayer areas? 

I mean I understand you might get a double-dipping situation. 

Like in my case it is FEMA, and some people may have homeowners insurance or some other insurance that covers some of this 

false property, and they get the FEMA money. Then they get the 

insurance money, and they are supposed to pay FEMA back. 

H605-41331-79W7 with DISTILLER

24 

I do not know if I would even call that a mistake, but that is just 

a double-dipping situation where they probably ought to pay that 

money back. 

Do you have a breakdown of how many of these are truly clearcut versus the harder to—— 

Mr. WERFEL. I do not have that. I can go back to the team and 

the Treasury Department. Actually, Mr. Gregg oversees a large 

portfolio of debt collection that Treasury does for the government 

as a whole, and maybe we can look at that question. It is a very 

difficult one to assess because it involves subjective judgments 

about fault and timing. 

Senator PRYOR. Yes. 

Mr. WERFEL. So we can try, but I am not sure we will have that 

data. 

Senator PRYOR. Let me just run through this one scenario, if the 

Chairman will give me just another couple of minutes here, to talk 

about the situation in my State. And the truth is we will see this 

in other States. 

There were some floods in Arkansas about 3 years ago. A couple 

had their home flooded out. When they bought the home or built 

the home, they had flood insurance. 

Then after a period of years, the flood insurance company canceled on them and said we are getting out of that line of work. So 

they could not find anywhere, but they went to Lloyd’s of London 

and got flood insurance, made sure they were covered. Of course, 

all this time they never had a flood, but nonetheless they carried 

the insurance. 

Then the Lloyd’s of London folks said we are not going to do this 

anymore. So they tried to go to the National Flood Insurance Program. They could not get it because the county had not passed a 

FEMA-approved ordinance. In order to be in the flood insurance 

program, the county has to do this. 

So nonetheless, the flood happens. A few days later, FEMA 

shows up. They come to the house. They take photos. They give 

them the forms. They walk them through the process. They assure 

them that: You are covered. Everything is going to be good. Just 

fill out these forms. 

Turns out it went through the process. There was even some sort 

of appeal or higher review on it. It is neither here nor there, but 

nonetheless, ended up giving $27,000. 

Now these folks are on Social Security. They are in their seventies. So pretty much all they have is Social Security, as far as I 

know. 

So they get the $27,000 and do exactly what they are supposed 

to do with it: They put it in their home. 

And now 3 years later, FEMA comes back and says: Our mistake. Because your county did not do this ordinance, we should 

never have given you this in the first place. Therefore, we want our 

money back. 

Well, the problem is—and from my standpoint—the government 

has really harmed them because they would not have taken this 

money. They could have made personal decisions 3 years ago when 

the flood happened, but now they are in a situation where they 

took some money. They put it all back in here. They did not restore 

H605-41331-79W7 with DISTILLER

25 

the house to what it was before, but it is livable and they have 

been living there. 

And now FEMA is coming back and saying: Look, you have 30 

days. We can maybe put you on a payment plan, figure out your 

disposable income. Maybe it is $100 a month. We do not like to collect for more than about 5 years. So that would be $6,000. You owe us $27,000. So we are going to squeeze you for 5 years and get $6,000 out of the $27,000. 

It just troubles me, given that scenario where the mistake is 

completely on the government side. The people did not do anything 

wrong other than what their government told them to do. They 

said: Fill out these forms. You are entitled to this. 

Back to the human element that you and I have talked about. 

It seems that there ought to be some clear ability for FEMA to 

waive that without forcing them to go through this appeal process. 

Right now, they have an appeal process where it can take 

months or even longer to go through this process. They have to fill 

out paperwork. The burden is on them to show FEMA has made 

the mistake, and who knows what FEMA will do. It is totally within FEMA’s discretion. 

FEMA, apparently, if you look at their track record, they do not 

have great statistics on that. But if you look at this, they are very 

reluctant to give this kind of relief to people. And they may technically have the authority. I think there is a dispute about that. 

But what I would say is we ought to write something in the statute, kind of like what Social Security has, that takes into consideration the human element. 

Mr. CROFT. We do have a waiver provision where we would assess the person being without fault, but also we would look at their 

ability to repay. You have to meet both of those qualifications. And 

that includes installment plans and things. But yes, we do have 

waiver provisions. 

Senator PRYOR. Do you have a sense of how often you guys utilize the total waiver? 

Mr. CROFT. We would have that data. I do not know off the top 

of my head, but we certainly could provide that. 

INFORMATION FOR THE RECORD

In FY 2010, we handled about 197,000 requests for waiver of an OASDI program 

overpayment. Of those, we approved about 161,500, or about 82 percent. 

During the same period, we handled about 263,400 requests for waiver of an SSI 

program overpayment, and approved about 210,000, or about 80 percent. 

Senator PRYOR. Do you have any comment on that, Mr. Werfel. 

Mr. WERFEL. My reaction is that it is a complex terrain, and 

there are different types of government errors where there is one 

end of the spectrum where you would really want the government 

to aggressively recover the money even though it was the government’s fault. Just as a hypothetical, if John Smith wakes up one 

morning and the IRS accidentally sent him a $10,000 check, he 

should have knowledge that this was a clerical error of some kind 

and be compelled to return the money. 

Senator PRYOR. Right. 

Mr. WERFEL. There are many errors in which we need citizen 

participation and citizen responsibility to help us understand 

H605-41331-79W7 with DISTILLER

26 

where these errors are occurring and return them to us. And then 

there is the example that you gave, which is arguably on the other 

end of the spectrum. 

As I mentioned, right now, I think there are general authorities 

that FEMA and other agencies have to take into account economic 

situation of the individual involved. But programs like Social Security have a layer deep of flexibility and authority around these 

issues of good conscience, and certainly they should be evaluated 

to see if there is a better approach. 

But OMB, from my perspective, we want to look at that closely 

to make sure that we are not entering into a situation that potentially could inhibit other types of recoveries that fall at a certain 

end of the spectrum where you really want to be as aggressive as 

possible. 

Senator PRYOR. Mr. Chairman, thank you. 

Senator CARPER. Your time has just about expired. 

Senator PRYOR. I know I was way over. Thank you. 

Senator CARPER. Senator Brown. 

Senator BROWN. Just a little bit. It is OK though as I am aware 

of your story from the Subcommittee the other day. I understood 

that FEMA does have the ability to mitigate, and they just have 

to do their job and mitigate. There is a provision in there to do just 

that. 

Then when you are talking about the human element, I mean 

the example you gave is a perfect example. There is an obligation, 

an affirmative obligation, by an individual. When they receive a 

payment improperly, they have an affirmative obligation to say: 

You know what? This is a mistake. Here is the money back. 

Not go out and spend it and then just say oh, I do not have the 

money, and then have us compromise the improper payment to our 

detriment. I mean it may seem harsh, but you have an unintended 

benefit that you are not entitled to. 

That story is a little bit different, and I would encourage FEMA 

to mitigate if it is appropriate. 

And if we could stay with you, Mr. Werfel, the IPERA legislation 

and recent OMB guidance has improved agency accountability. But 

beyond putting their names on a Web site, where is the individual, 

as kind of an extension of what we were talking about, individual 

accountability built into the current guidance and the legislative 

provisions? 

Mr. WERFEL. Well, there are a couple of pieces. I think Senator 

Carper mentioned in his opening remarks that we now have this 

requirement to incorporate improper payment efforts into employee 

performance appraisals, which is clearly kind of getting right to the 

bottom line of accountability. I think when you couple that with an 

expansion of the transparency requirements around improper payments. The President, in his Executive Order, had agencies designate senior accountable officials for improper payments that I 

meet with and are ultimately responsible to their secretaries and 

the President for these efforts. 

When you take these things on whole, I think they do have an 

impact of having people take more seriously and be more proactive 

on their improper payment efforts. We are always open to other 

suggestions to increase those accountability points. Right now, that 

H605-41331-79W7 with DISTILLER

27 

is what we are working with, and I think there is a lot of promise 

there. 

Senator BROWN. Can you imagine if a large company gave away through an inadvertence, mistake, improper payments of $125 billion, what would happen to that individual or individuals that were 

responsible? 

Is there anything? Can we fire people under IPERA? Can we reprimand them? 

Is there any type of individual accountability to say: Hey, you 

made a mistake, and you have not improved, and you have to do 

your job or you are out? 

I mean where is all that? 

Mr. WERFEL. Certainly, at the most egregious end of the spectrum—— 

Senator BROWN. One hundred and twenty-five billion is pretty 

egregious. I am sorry. 

Mr. WERFEL. No, it is. The whole $125 billion is, but as I mentioned, there are certain payments of $125 billion that have a fraud 

or criminal element to them—— 

Senator BROWN. Right. 

Mr. WERFEL [continuing]. That certainly the types of steps we 

can take, in particular if an employee is involved to dismiss and 

prosecute. 

But along the way, I mean just to look at it from a realistic per- spective of what makes up that $125 billion a great proportion of 

them are these more challenging eligibility determinations that 

need to be made. And in many cases the employees are doing their 

best with the information and the material that they have, and 

they need to be held accountable to be as forward leaning as possible. 

Senator BROWN. So can I just interrupt? 

Mr. WERFEL. Yes. 

Senator BROWN. So now you are saying that because these cases 

are so close, we are going forward. In the hospital example you 

used, for example, somebody comes in and has a determination and 

then after an audit or a review that is when that determination of 

an improper payment is made? 

Mr. WERFEL. That is correct. 

Senator BROWN. What is the number associated with that and 

how many cases approximately, percentage-wise? 

Mr. WERFEL. Well, I will tell you the Medicare error amount is 

approximately—Medicare fee-for-service is approximately $34 billion. 

Senator BROWN. Now in taking that, how many of those cases 

are ultimately adjudicated in fact, yes, I agree with you, Doctor, 

and percentage-wise? 

Mr. WERFEL. How much are they outpatient versus inpatient? 

Senator BROWN. Well, no. For example, on those cases where you 

have actually gone and done that review and they say oh, it is an 

improper payment? 

Then is there an appeal process for the doctor or hospital to go 

and say yes, but this case is different, i.e., and they spell it out, 

and then in fact it turns into not being an improper payment ultimately down the road? 

H605-41331-79W7 with DISTILLER

28 

Mr. WERFEL. Yes. What happens is we will carry the total in our 

improper payment amount. 

Senator BROWN. Until it is resolved? 

Mr. WERFEL. Well, no. It is in. It is in our improper payment 

amount. 

And then what happens is HHS will deploy recovery auditors to 

go in strategically and in an optimal way to make sure we are 

maximizing the return on investment, to go and recover those errors. 

And if they go to that hospital and they say this procedure on 

December 1, you kept the patient overnight, that reimbursement 

was inappropriate given the way HHS regulations read, they will 

ask for the money back. And at that point, the hospital can appeal 

or challenge the determination. 

Senator BROWN. And I know that GAO has pointed out in its recent reports that challenges continue to limit our ability to determine the full extent of the improper payments. A Fiscal Year 2010 

estimate is from a review of 70 programs. With only 70 programs 

being reviewed, I mean what programs are being left out, and are 

there any major programs that we should be focusing on still? 

Mr. WERFEL. What happens under the law is agencies are asked 

to kind of place all their payments and activities into two buckets— 

high risk and low risk. And we do not measure the low risk. We 

measure the high risk. 

And the law sets out criteria, and OMB helps regulate what 

those criteria are. They are things like that we believe there is a 

2.5 percent or higher error rate, or we believe there is $10 million 

or more in error in a given program. 

Once you look at that bucket of high risk—and certainly GAO 

and others have raised questions to make sure that we are putting 

all the appropriate activities in the high-risk bucket, and I think 

we are getting better and better at that—there are programs still 

within the high-risk bucket that have not yet been measured. But 

we have identified all of them, and all of those agencies are on a 

path to measurement. 

The biggest and the most publicized one is the Part D Prescription Drug Program. HHS is reporting that they are on target to 

measure that program and report an error next fiscal year. So 

when their next financial report comes out the end of this fiscal 

year, it should have a Medicare Part D error measurement within 

it. 

Senator BROWN. Mr. Scovel, I want to make sure you—I do not 

want to leave everybody else out. 

Much has been made of the Recovery Board’s tools and technology for forensic analysis to identify the fraud, and I am presuming they are helpful. How is the Board addressing the simpler 

issues such as simply eligibility verification before disbursement, 

No. 1? 

And No. 2, does the Recovery Board Operations Center focus 

their efforts more on the front end or the back end of the disbursements at this point? 

Mr. SCOVEL. Thank you, Senator. Early on, we focused our efforts on the back end; that is on the investigation side and the 

prosecution and recovery side. We are turning our attention now to 

H605-41331-79W7 with DISTILLER

29 

explore our capabilities as to the front side, how we might help program officials prevent—to turn to the attention of the Committee— 

prevent improper payments. 

If I could refer to our experience in a pilot program that we executed with the Center for Medicare and Medicaid Services last 

summer, it was to test our capabilities to work with their data and 

with the resources available through the Recovery Operations Center—first, to identify risk with a subset of Medicare providers who 

had been referred by the Medicare hotline to us and also then to 

prevent fraud before it occurs, and that was an analysis of enrollment applications. It was quite successful in our estimation and in 

HHS’s estimation. 

And it is partly on the basis of that pilot program, as well as a 

couple of others that we have underway right now, that we would 

offer the services and capabilities of the Recovery Operations Center to the Committee and to OMB for this important initiative to 

rein in improper payments. 

Senator BROWN. Thank you, Mr. Chairman. I have to meet—— 

Senator CARPER. So you are going to go meet with Leon Panetta 

who has been nominated to be Secretary of Defense. 

And I say to Senator Brown, be sure to mention improper payments to him. [Laughter.] 

Mr. HALE. Tell him we have a strong program, Senator. 

Senator CARPER. But also remind him one of my core values: If 

it is not perfect, make it better. While we are doing better, we are 

still not perfect. 

I just want to come back to an issue just for a moment, if I could, 

Mr. Hale. 

I say it with respect to Leon Panetta. He was the Chairman of 

the House Budget Committee when I served with him in the 

House, and he has been the OMB Director. He is a guy who gets 

numbers and the importance of strong financial management. So 

my hope is that Senator Brown will have a receptive audience 

when they are meeting. 

But I would come back, if I could, Mr. Hale. I was interested in 

the IG’s point that when the Department examined civilian and 

uniform personnel pay to determine the level of improper payments 

the examination did not check documentation for pay grade and for 

locality. For pay grade and for locality. 

And I would ask you just to share with me how can the Department examine its books if basic information such as a soldier’s, or 

sailor’s, or Marine’s pay grade and their locality are not doublechecked? 

Mr. HALE. Well, there are a variety of checks that are made, Mr. 

Chairman, and some of them certainly involve that. The ones you 

are speaking of that we define as improper payments by the Defense Finance and Accounting Service do not go all the way back 

there to a source document. But there are a variety of checks, and 

I can get you more information for the record. I do not know all 

of them off the top of my head that are made with regard to the 

accuracy of the personnel information. 

H605-41331-79W7 with DISTILLER

30 

INFORMATION FOR THE RECORD

H605-41331-79W7 with DISTILLER


67640.054
31 

H605-41331-79W7 with DISTILLER


67640.055
32 

Is it perfect? No. We deal with people that are in war zones, and 

the wounded and injured that are moving around, and a lot of people—at one point, 4 million people were on active duty. So I can 

assure you that there are problems. 

It would be good if we had fully integrated pay and personnel 

systems, and that is another area where we have tried but so far 

not succeeded. That would certainly both speed up the process and 

probably reduce improper payments. 

But there are checks. Let me provide for the record more information about how they are made. But the Defense Finance and Accounting Service does not check all of that information back to the 

source documents. 

Senator CARPER. OK. Well, I appreciate your follow-up there. 

I would just say—and I say this probably about once a day—everything I do I know I can do better. The same is true for all of 

us. 

Mr. HALE. I agree with you. 

Senator CARPER. And we just need to look at everything that we 

do and say how can we do this better. 

We talked earlier, and when I spoke I talked to you about part 

of what we are trying to do in this Subcommittee is to really 

change, help change, the culture in the Federal Government from 

what we describe as a culture of spendthrift to something closer to 

a culture of thrift. 

We want to make sure that we are actually keeping score. If we 

do not keep score we are just practicing, as Vince Lombardi used 

to say. 

People and some others have said you only manage what you 

measure. 

So we are just trying to do a better job on all those fronts. We 

are trying to put a spotlight on behavior that is good, that we want 

others to emulate, and we want to put a spotlight on those that are 

not so good and try to make sure that we are providing the encouragement and the resources to do better. 

I think the next question may be back to Mr. Werfel. I think in 

your testimony you pointed out that in the last fiscal year, Federal 

agencies recovered about, I think, just under $700 million through 

recoveries after the improper payments were made. And I realize 

that amount—I think it was $687 million dollars. I think that is 

three times the amount for the previous year. If you do that again 

next year and the next year, we are talking about real money. 

However, having said that, the progress also has to be measured 

against that big number right over there, $125 billion, in improper 

payments. And I believe that if we do the math the Federal Government only recovered about 0.6 percent, and that, as we know, 

is not a lot. 

And if we triple that again for next year, we are still only about 

1.8 percent. While that is an improvement, that still would not be 

a whole lot. 

I know that part of this recovery figure is from the Medicare Recovery Audit Contractor, a program that uses private companies to 

comb through reimbursements to look for over-payments. But what 

efforts are underway by agencies to improve recovery and will expanded use of Recovery Audit Contractor play a role? 

H605-41331-79W7 with DISTILLER

33 

Mr. WERFEL. Absolutely. Well, first, just as a qualification—and 

I have mentioned this to you before, Senator, and it is not meant 

as an excuse in any way. It is just something that I want to put 

out there as a basis for thinking about recovery—is that a lot of 

that $125 billion is generated on a statistical sample. 

And so what happens is we will pull a sample of payments, and 

we will get an error measurement associated with that sample, and 

then we will extrapolate it to the universe. So the amount available 

for recovery in many of our programs is the only amount that we 

identify in the sample because if we pull a sample from John Smith 

down the street and say your payment was an error, we can go out 

and get that, but we cannot knock on his neighbor’s door and say 

because he had an error we assume there is an error in your payment of some percent and we will pull it back as well. 

So in some cases, not all, we are constrained to the universe of 

the sampling that we take for the recoveries. 

That said, I agree that there is an expanded universe, an expanded denominator if you will, of recoveries out there. IPERA 

opens the door to a greater set of recoveries because it expands our 

recovery audit programs beyond vendor payments to grant payments and other activities. 

Right now, agencies, under OMB guidance, have reported in 

their plans to us for how they are going to leverage the new IPERA 

authority to expand their recoveries. And as you would expect, we 

are seeing a spectrum with respect to the plans. In some cases, the 

agencies are coming at it aggressively and have already started up, 

and in some cases they are needing a little bit of prodding from 

OMB to take the authority even more proactively and expand. 

So I predict that as the financial reports come in at the end of 

the year, you will start to see the needle move as a result of the 

IPERA legislation, in terms of recoveries. But over the next few 

years, if we are successful, that needle will move much more significantly. 

Senator CARPER. Good. Thanks for those efforts and that reassurance. 

A question, if I could, for Mr. Gregg, and this focuses on the Do 

Not Pay Initiative. I understand many of the basic operations of 

the Do Not Pay Initiative will likely be housed within Treasury. Is 

that correct? 

Mr. GREGG. Yes. In the Fiscal Year 2012 budget, there is a request that Department of Treasury and the bureau under me, Bureau of Public Debt, take on this role, and we are moving very 

quickly to get the portal up by January of next year. 

Senator CARPER. Good. Has a price tag for the new system been 

estimated? Have you heard any price? 

Mr. GREGG. Well, we have not got any money yet, but the request was for $10 million. We think that is doable for the work 

that we have underway, and we plan to—well, hopefully, we can 

get that to accomplish what we have been asked to accomplish. 

Senator CARPER. Good. Ten million dollars for most of us as individuals or families, that is a lot of money. But I would certainly 

observe that while it is a lot of money, compared to $125 billion, 

it is a relatively modest sum. 

H605-41331-79W7 with DISTILLER

34 

Mr. GREGG. I would mention, Senator Carper, that the public 

debt is also in the midst of merging its IT operations with the other 

bureau that works with me, and that is well on its way. It is one 

of the initiatives that OMB has identified, and we are merging 

those two operations and closing three data centers. So we are 

doing this work in the midst of that, but we are still very optimistic 

that January of next year we will be up and running with the portal. 

Senator CARPER. Vivek Kundra was before us today, sitting right 

where Mr. Croft is sitting, early this morning in another hearing, 

and we talked about data centers. I think we have about 2,000 of 

them in the Federal Government, and the effort is to try to reduce 

that to about 800 and to save I think he said $3 billion. I think 

it is $3 billion over 5 years, which that is real money. Going back to the $10 million that you said that you thought the Do Not Pay Initiative might cost, around $10 million, at least that 

is what you had asked for, do you have any estimate or just an 

educated guess of how much that might save? 

Mr. GREGG. I really do not. I think that when we did a study last 

year and looked at the various databases, and it so happened that 

it was done out of my office, but no one owned kind of the whole 

picture in terms of bringing all these databases together. 

I think the impact it can have on reducing improper payments 

can be enormous because you have, as Danny Werfel said, you have 

agencies who are really at the point where they want to do something. And at the same time you have many of them that cannot 

get access to information that they would need on employment or 

whether or not their individuals are residing where they say they 

are residing. Or, if they do that get information, it is extremely difficult. 

So if we can pull this information together to provide the agencies, to make it easy for them to do that while still controlling the 

information appropriately, I think the savings will be enormous. 

Senator CARPER. OK. I like that word ‘‘enormous.’’ 

In the weather forecast, I like the word when they are giving the 

weather forecast and they say ‘‘bountiful sunshine.’’ I like bountiful 

sunshine. 

When we are talking about deficit reduction, ‘‘enormous’’ is a 

very good adjective. 

Mr. Werfel, did you want to say something there? If not, I have 

a question for you and for Mr. Gregg, and we are going to close it 

down. 

Mr. WERFEL. I was just going to point out that our review of all 

the relevant data that we had at our disposal showed approximately $240 million in improper payments identified as a result of 

payments to dead people, and incarcerated. I think the Do Not Pay 

solution will help us cut deeply into that amount but also have repercussions beyond that. Particularly the Recovery Board, with 

their fraud detection tool, is uncovering and helping prevent fraud 

in ways that go way beyond just stopping payments to the deceased 

and the incarcerated, and we would like our tool to be used in a 

similar way. 

The only other point I want to add to the question about how 

much will it cost—because I have been getting this question a lot 

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35 

by your colleagues in the House, so I figure I will go on the record 

here—is that we are very interested in partnering with the Recovery Board to see if we can leverage the infrastructure of their solution to help mitigate the cost of the Treasury’s deployment. I know 

Mr. Devaney is open to that. 

Senator CARPER. How about Mr. Scovel? [Laughter.] 

Mr. SCOVEL. Yes, sir. 

Senator CARPER. Oh, good. 

Mr. WERFEL. So we are hopeful. We asked for $10 million because we cannot assume that the Recovery Board, an independent 

entity, is going to hand us the keys to their system. At the same 

time, we are extremely open to mitigating that $10 million by a 

partnership with them. 

Senator CARPER. That would be good. 

This will be my last question. Again, this is for Mr. Werfel and 

Mr. Gregg, and we will stay on the same subject. Could you tell us 

just a little bit more about the Treasury’s plan to launch the Do 

Not Pay List over the next several months? 

Will you be obtaining contractor support? 

What is the timing to bring all the agencies on board using the 

Do Not Pay List, please? 

Mr. WERFEL. I will start for Mr. Gregg and say that after the 

President’s memo was issued to create a Do Not Pay List we quickly launched VerifyPayment.gov, which brings together data sets on 

various data sources such as Excluded Parties, the Death Master 

File and incarcerated. 

And what we have done is started to pilot that with agencies 

such as the VA. We are working with the Small Business Administration (SBA) and Education and other agencies to say what do you 

see in this tool that is going to be more helpful, the way the data 

is structured, the way you are getting batch uploads versus individual records, the way it interfaces with your system. We are just 

learning about how to deploy the functionality more effectively, targeting a January date where we can be up and running, and then 

a larger suite of agencies can start incorporating this into their 

daily operations. 

So rather than face a suite of different data and different agencies and navigating more bureaucracy, they are just navigating 

with Treasury, and Treasury is providing that portal. 

So the pilot process and phase have been enormously successful 

to date. We are learning a lot, and we are also learning, I think 

as mentioned throughout this testimony, that we have some challenges to make sure that we are getting access to more data than 

we have today and that we are figuring out how to streamline some 

of the bureaucracy associated with obtaining that data. 

My final thought is—and I was thinking this when the question 

was raised earlier, and I think it is important to get out there— 

just like we were talking about the public policy tensions between 

recovering information and fault and good conscience and equity, 

they are similar with respect to the sharing of data and the privacy 

impacts. It is going to be really important for me and for OMB as 

we knock down barriers to data integration across agencies, as we 

figure out better approaches for sharing data, we have to do it in 

a way that continues to protect data security and data privacy. 

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36 

I firmly believe there is a win-win here, where you can knock 

down those barriers, yet still be in a place where the privacy and 

the security of the data have not been compromised. But it is something that has to be part of your process, moving forward, and we 

are certainly committed to that. 

Senator CARPER. Mr. Gregg. 

Mr. GREGG. All the things that Danny mentioned we are certainly working on. 

And I think the culture that you have mentioned a couple times; 

in fact if it has not changed, it is changing. It is easy—— 

Senator CARPER. It is encouraging to hear you say that. I think 

it is. I think it is. It is like changing the course of an aircraft carrier, something that is not easy to do, but you stay at. 

Mr. GREGG. And it is easy for—and I certainly understand from 

agencies’ perspective, having run a couple of bureaus and know the 

importance of getting your program. But I think they are looking 

at the issue more broadly and saying, like Social Security, how can 

we share this? When we are at that point, I think that the opportunities here are enormous. 

I am not sure how much contractor support we will need. We certainly will, to the extent we can, take advantage and learn from 

the Recovery Board. At the same time, we know that there is software out there that will help us do business analytics, to help us 

do things that we have not been doing before. 

For example, one of the Financial Management Services (FMS), 

another bureau that works for me, has software that now is helping them identify whether or not the individual with a slight variation of the name is actually the person who owes a debt or not, 

and that is something we have not been doing in the past. So that 

kind of software to say actually Richard Gregg and Dick Gregg living in Springfield, Virginia are the same people, and go ahead and 

collect that debt. 

So we are looking at different kinds of software that agencies can 

use to help them do some analytics before the payment goes out. 

So I think it is—I am excited about actually the opportunity that 

I see to really go after that big number up there. 

Senator CARPER. Not everybody gets excited about this stuff. And 

I know sometimes my colleagues look at me, roll their eyes and say 

why do you spend so much time focusing on it, or why do you get 

so juiced up about this? 

This is money we do not have. This is money that we end up just 

going around the world and borrowing. And some of the folks that 

we borrow this money from, it gives them an advantage on policy 

issues that is an advantage we do not want to give them. 

We can just continue to give them that advantage and put ourselves at a disadvantage, or we can try to do something about it, 

and no one solution, no silver bullets. But as I like to say, a lot 

of silver BBs, and in the end they add up to a lot of silver, a lot 

of money. 

I am not the smartest guy around. I am pretty good at surrounding myself with really good people. I like to say people smarter than me. My wife says it is not hard to find them. [Laughter.] 

But I think we are on to something. I think we have good partners in the Administration, a bunch of good partners on this SubH605-41331-79W7 with DISTILLER

37 

committee and Committee, and in the Senate and House, both parties. 

We have just got to stick with this. Our attention span is we easily get distracted on things. We got distracted with Afghanistan. 

We got distracted with Iraq, kind of left a vacuum in Afghanistan. 

Now we get to go back to Afghanistan and clean that place up and 

help them leave behind a country where people can feed themselves, protect themselves, govern themselves. 

But it is hard to stay focused in this business, but we are going 

to endeavor to do that. And I am pretty good at that. 

I want to say to our witnesses today I will give each of you 

maybe 30 seconds if you want to give us a quick closing comment, 

just a thought you would like for us to take home with us at the 

end of the day, as we approach Memorial Day weekend. Mr. Croft. 

Mr. CROFT. Well, thank you. Thanks very much for having us 

today. 

I really do not have any deep thoughts other than to—— 

Senator CARPER. Any shallow thoughts? 

Mr. CROFT. We do share data an awful lot. 

Senator CARPER. You do. I am impressed by that. 

Mr. CROFT. Yes. 

Senator CARPER. Do you think that is a good example for maybe 

the rest of us? 

Mr. CROFT. I do although I would comment there is a lot of work 

behind the scenes in sharing, as was observed by some of our colleagues. Legal issues are paramount, and so are fiscal issues. We 

share on a reimbursement basis, unless it is trust fund mission, or 

required by statute. 

So there are a lot of activities that go with sharing, but right 

now Social Security would have over 1,500 different data exchanges 

going on. There is a lot of data sharing and it is a lot to keep track 

of. 

Senator CARPER. OK. Thanks. Mr. Scovel. 

Mr. SCOVEL. Thank you, Mr. Chairman. We appreciate your confidence in the Recovery Board’s experience and capabilities. 

And we would offer for the Committee’s consideration simply a 

reiteration of my earlier statement, and that is should the Board— 

should the Committee wish to entrust the Board with a function 

such as executing the Do Not Pay List, the Board would welcome 

that opportunity. 

Senator CARPER. All right. Good. Thanks for putting an exclamation point behind that. 

Mr. HALE. 

Mr. HALE. Mr. Chairman, we at DOD know we need to keep 

working to do better. I believe we have a strong program, but it 

can get better. 

We will cooperate fully with the Do Not Pay List and make use 

of it. Even though Treasury does not disburse overpayments, we 

will tap into the information. 

We will fully implement IPERA, and we will continue to strive 

to help get that number down. 

Senator CARPER. Good. We appreciate that. 

Mr. Gregg, a closing thought? 

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38 

Mr. GREGG. Mr. Werfel and I were very happy we were able to 

convince Nancy Fleetwood, sitting right behind me, who retired—— 

Senator CARPER. Nancy Fleetwood, will you raise your hand? All 

right. 

Mr. GREGG. Who retired a year ago and has brought great energy 

and collaboration skills to moving this forward. So we are very appreciative. 

Senator CARPER. You say she retired a year ago? Did you bring 

her back out of retirement? 

Mr. GREGG. Yes. 

Senator CARPER. No kidding. OK. 

Mr. GREGG. There is a team here. She has done tremendous 

work. 

Senator CARPER. Good. I noticed when you testified I could see 

her lips move. [Laughter.] 

She is pretty good at that. You are too. 

Thanks. Welcome back. 

And Mr. Werfel, and a closing comment, do you want to mention 

anybody in your staff who is getting married any time soon that 

you want to just give a shout-out to? 

Mr. WERFEL. I would like to mention a Delawarean who works 

for me because I surround myself with smart people from good 

States as well, and Joe Pika who is sitting behind me, who is our 

lead analyst on improper payments, is just that individual. I know 

you had the pleasure of working with him. 

Senator CARPER. I worked for Joe—— 

Mr. WERFEL. You did. 

Senator CARPER [continuing]. when I was a junior Senator. 

Mr. WERFEL. He is off right after this hearing. This is the last 

assignment I could give him as a single man, and he is off to get 

married and go on his honeymoon to Italy, and I just wish him the 

best. 

We are fighting the good fight on improper payments. People like 

Joe are pouring their heart and soul into this effort, and I think 

it is a cause for optimism that you have smart people working on 

this effort. 

Senator CARPER. OK. I would say a fight worth fighting. It is a 

fight worth fighting. 

All right. I think some of my colleagues who are not here will 

have some questions for you. 

And what do they have, Peter? Two weeks? 

Two weeks. Two weeks, about the time that Joe Pika is wrapping 

up his honeymoon. [Laughter.] 

We will hopefully give you all the questions that we have, and 

we would ask you to just respond promptly. 

With that having been said, this hearing is over. Thanks so 

much. 

[Whereupon, at 4:15 p.m, the hearing was adjourned.] 

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