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74–028 PDF 2012

SOLUTIONS NEEDED: IMPROPER PAYMENTS TOTAL

$115 BILLION IN FEDERAL MISSPENDING

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

FEBRUARY 7, 2012

Serial No. 112–130

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

(

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

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

CONNIE MACK, Florida, Vice Chairman

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

EDOLPHUS TOWNS, New York, Ranking

Minority Member

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia
(III)

C O N T E N T S

Page

Hearing held on February 7, 2012 ......................................................................... 1

Statement of:

Carper, Hon. Thomas R., a U.S. Senator from the State of Delaware ......... 6

Werfel, Daniel I., Controller, Office of Management and Budget; Michael

Wood, executive director, Recovery Accountability and Transparency

Board; and Beryl Davis, Director, Financial Management and Assurance, Government Accountability Office ..................................................... 16

Davis, Beryl ............................................................................................... 29

Werfel, Daniel I. ........................................................................................ 16

Wood, Michael ........................................................................................... 25

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

Carper, Hon. Thomas R., a U.S. Senator from the State of Delaware,

prepared statement of ................................................................................... 11

Davis, Beryl, Director, Financial Management and Assurance, Government Accountability Office, prepared statement of .................................... 31

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

of New York, prepared statement of ........................................................... 4

Werfel, Daniel I., Controller, Office of Management and Budget, prepared

statement of ................................................................................................... 18

Wood, Michael, executive director, Recovery Accountability and Transparency Board, prepared statement of ........................................................ 27

(1)

SOLUTIONS NEEDED: IMPROPER PAYMENTS

TOTAL $115 BILLION IN FEDERAL

MISSPENDING

TUESDAY, FEBRUARY 7, 2012

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2247, Rayburn House Office Building, Hon. Todd ‘‘Russell’’ Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Farenthold, Towns, and

Connolly.

Staff present: Sharon Casey, senior assistant clerk; Mark D.

Marin, director of oversight; Tegan Millspaw, research analyst;

Laura L. Rush, deputy chief clerk; Peter Warren, legislative policy

director; Jaron Bourke, minority director of administration; Beverly

Britton Fraser, minority counsel; Devon Hill, minority staff assistant; and Paul Kincaid, minority press secretary.

Mr. PLATTS. The committee will come to order.

I am glad to welcome everyone here today and appreciate everyone’s interest in this important topic.

The hearing today will address improper payments made by the

Federal Government and will continue this subcommittee’s examination of Federal financial management issues. In fiscal year 2011, the Federal Government reported $115 billion in improper payments. We know that this is only an estimate

and that the total amount of improper payments is unknown and

likely even higher.

Improper payments occurs for a variety of reasons, but they are

the result of poor financial management. Programs are particularly

vulnerable to improper payments when agencies fail to maintain effective internal controls, adequate financial management systems

or insufficient oversight. These programs are classified as high

error.

In fiscal year 2011, the Office of Management and Budget identified 11 high error programs. These 11 programs made up 94 percent of all improper payments identified in 2011. At the top of the

list are Medicare and Medicaid programs which account for over

half of all reported improper payments. Other high error programs

include unemployment insurance, social security and the earned income tax credit. Some of these high error programs are uniquely
2

challenged due to their large budgetary obligations. However, they

all share similar problems of ineffective, internal controls.

In order to reduce improper payments, agencies must reevaluate

their internal control structures and increase accountability in program management. There must also be more effort to ensure that

agencies report their improper payments. Although not all agencies

are required to report such improper payment estimates, some

agencies that are required to do so are failing to do so.

The most significant agency failing to report is the Department

of Defense, although both the Government Accountability Office

and the Defense Office and Inspector General have found that the

Department is at a high risk for improper payments. Over the past

decade, there has been significant work by both President Bush

and his administration and President Obama and his administration to reduce and prevent improper payments.

While some agencies have made progress in identifying and reducing improper payments in certain programs, many of the agencies still lack the necessary framework of internal controls that

could lead to a sustainable decrease in such payments. It is clear

that better solutions are needed to protect taxpayer dollars and to

bring accountability to Federal spending.

An increased focus on preventive controls would allow agencies

to stop more improper payments before they are issued. Better detection methods would also help prevent and recover more payments. Most importantly, the government must do a better job of

identifying the root causes of improper payments.

Until we understand how and why these payments are being

made, it will be impossible to effectively prevent them. Billions of

taxpayer dollars are misspent every year through improper payments. This administration and agency leaders have made significant efforts to reduce these payments and the work is both important and commendable. However, we need more solutions to better

protect taxpayer funding.

We are honored to be joined here today by Senator Carper to discuss a bill currently being considered to help reduce improper payments. We will also hear from witnesses on the problems that lead

to improper payments and what we can do to prevent them. We

certainly are grateful for each of the witnesses who will share their

expertise and knowledge with us here today and look forward to

their testimony.

I am now honored to recognize the ranking member, the former

chairman of the full committee, Mr. Towns from New York, for the

purpose of an opening statement.

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

I am pleased that we are continuing to examine the progress we

have made in reducing improper payments and also the challenge

which remains.

I would like to welcome Senator Carper, a dedicated, committed

and tireless champion, of good government in the other Chamber.

It is my hope that we can work closely together on our proposal to

build a bridge between where we are now and the elimination of

improper payments in the future.

Mr. Werfel, it is good to see you again. Ms. Davis and Mr. Wood,

welcome, and I look forward to your testimonies.
3

The Obama administration has put forth very robust initiatives

to eliminate improper payments which is one of the key components of the President’s effort to eliminate waste in government. I

am encouraged that we have seen some positive results. In fiscal

year 2011, the Federal Government shrank the amount of improper

payments by 4.7 percent or $5.3 billion compared to the prior year.

While this is a significant accomplishment, the level of improper

payments is still unacceptably high. Some of the initiatives responsible for the drop in improper payments include the Do Not Pay list

which the President called for in June 2010 in order to prevent ineligible recipients from being paid repeatedly.

The VerifyPayments.gov Web site was created to enhance this effort. We will hear from Senator Carper today about a legislative fix

that would make checking the Do Not Pay list the law of the land.

The President also asked agencies to be transparent about the

amount of improper payments and to account to the American public for their actions in addressing the problem. I am pleased that

the PaymentAccuracy.gov Web site has been up and running and

shows the exact information which is also a great response.

President Obama expanded the use of payment recapture audits

as a way of detecting paying errors and recovering improper overpayments. Since 2010, agencies have recaptured nearly $1.9 billion

in improper payments for our Treasury.

Once again, we look forward to hearing Senator Carper’s proposal on how to improve this initiative. A healthy financial future

for the United States requires sustained efforts from more than one

source. We have to watch what we spend, get rid of the waste, increase revenue and reduce improper payments all at the same time

to accomplish this goal.

Our witnesses are the professionals in our government dedicated

to achieving all of these goals. They will explain our gains, our

challenges and propose solutions that will keep us on the path to

eliminating waste in our government.

I am looking forward to working in a bipartisan way to reduce

the cap and capturing the improper payments.

Thank you very much, Mr. Chairman. On that note, I yield back

and I am anxious to hear the Senator from the other side.

[The prepared statement of Hon. Edolphus Towns follows:]
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Mr. PLATTS. I thank the gentleman and certainly echo Mr.

Towns’ comments about work on this issue in a bipartisan and bicameral manner because it is truly about protecting the taxpayers’

hard-earned dollars.

We will have the record open for 7 days for other Members who

want to submit an opening statement or extraneous material for

the record.

We are honored to have the senior Senator from Delaware, the

Honorable Thomas R. Carper, also chairman of the Subcommittee

on Federal Financial Management, Government Information, Federal Services, and International Security of the Senate Homeland

Security and Government Affairs Committee. Senator, I thought I

had a committee with a long title but I think you have outdone me.

Mr. Chairman, we really appreciate your efforts. You are a longtime leader on government reform issues and especially about protecting taxpayer funds. Not only do we look forward to working

with you, but we are honored to have you here to share your insights about the legislation you have introduced.

Without further ado, Mr. Chairman, the floor is yours.

STATEMENT OF HON. THOMAS R. CARPER, A U.S. SENATOR

FROM THE STATE OF DELAWARE

Senator CARPER. Thank you, Chairman Platts, and my compadre

and friend, for many years, Ed Towns.

I came to government, as I mentioned to you earlier, to Congress

in 1982 when we are about to run out of money in Social Security,

not reduce payments, but literally in 1983, run out of money entirely.

We had a Republican President, Ronald Reagan; Democratic

Speaker of the House, Tip O’Neill; and a lot of Democrats and Republicans here went to work and I used as a blueprint a commission led by Alan Greenspan and solved the problem, not forever,

but for another 25 or 30 years and put Social Security on a pretty

good path. It was that bipartisan spirit, the House and Senator

working together, the legislative and executive branch with some

really smart people who joined Alan Greenspan.

I come to you in that same spirit that led us to that success in

1982 and 1983 and hopefully we can rekindle that here today. I

thank you very much for the chance to come by and to revisit these

old haunts and to have a chance to see both of you too.

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

Federal deficits in recent years. The national debt now stands, I

am told, at something over just $15 trillion, well over double what

it was just a decade ago. The last time the debt was this high I

think was at the end of World War II. That level of debt was not

sustainable then and it is not sustainable now.

I talk a lot about cultures that we have here in Washington and

suggest that what we ought to do is establish a different kind of

culture when it comes to spending. A lot of people think we have

a culture of spendthrift around here and that we should replace it

with a culture of thrift. I agree and I am sure you do too.

I think we need to look in every nook and cranny of Federal Government, including domestic spending, defense, entitlements, and

tax expenditures. We need to ask the question is it possible to get
7

better results for less money or is it possible to get better results

for the same amount of money, and if it is, let us do that. Do what

works and frankly do more of that.

In order to be effective in the important work of identifying areas

where we can spend taxpayers’ money more effectively, we need to

sharpen our pencils, stop making the kind of expensive, avoidable

mistakes that lead to improper payments.

Before going any further, I want to take just a moment to explain what it means for Federal agencies to make improper payments. Improper payment occurs, as you know, when an agency

pays a vendor for something it did not receive or maybe even pays

twice for what it did receive. It can occur when a recipient has died

and is no longer eligible for payment or when a vendor owes the

government money and legally should not be getting a payment

until a debt is repaid. Of course, sometimes people or companies receive payments that are actually fraudulent.

Federal agencies have estimated, as you noted, improper pay- ments at levels of more than $100 billion annually during the past

few years. Whenever I talk to people out on the stump, in my State

or around the country about one of the keys to reducing the deficit

is to address improper payments, their eyes kind of glaze over

when I say the words improper payments until I tell them how

much they were, until I say, did you know improper payments were

$121 billion last year. That gets their attention.

Those payments come from over 70 programs and more than 20

agencies and include programs like Medicare, Medicaid, civilian

and military pay at the Department of Defense, and at FEMA, to

name just a few. Clearly this level of inaccuracy particularly as the

Federal Government struggles with our massive debt and deficit is

unacceptable.

Fortunately, we can do something about it. If the truth be

known, we already are and we are beginning to make some

progress. I want to take a moment to say this. The folks sitting behind me from GAO, I just want to thank them for being great partners with all of us in trying to identify areas where we are in danger of wasting a lot of our taxpayers’ money.

I want to give OMB a lot of credit. The last administration under

President Bush said we have a problem with improper payments

and we should do something about it and got us started on this

path. This administration, to their credit, has pushed it hard and

OMB has been very, very supportive of our efforts.

There are several additional effective tools that are able to curb

wasteful and fraudulent payments. Today, I just want to outline a

couple of steps that Congress can take now that will make an even

bigger dent in improper payments and help get Federal spending

back on track.

According to GAO, the Federal Government made an estimated

$121 billion in improper payments in fiscal year 2010. I was encouraged to learn that the early data for fiscal year 2011 shows a

slight drop in the level of improper payments to approximately

$115 billion, even though more agencies have begun reporting their

improper payments.

For example, 2011 estimates include something that 2010 did not

and that is improper payments for the Medicare Prescription Drug
8

Program for the first time and even though that is included, we

still see apparently improper payments dropped from 2010 to 2011

by about $6 billion, that’s a lot of money. That is twice the budget

of the State of Delaware in a single year.

Having said that, error rates and the amount of money lost to

avoidable errors still remain at unacceptably high levels. While

agencies are beginning to make progress in implementing new antiwaste, fraud controls and procedures, I believe a lot more work

needs to be done to identify, recover and prevent improper payments. I like to say if it isn’t perfect, make it better. With us all

working together, we can make it better.

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

much higher than a business or the average family would tolerate

or could afford and we keep making them over and over again.

Having said that, we are making some progress in improper payments as I noted earlier.

In 2010, you may recall Congress passed and President Obama

signed into law, the Improper Payments Elimination and Recovery

Act, a bipartisan bill. Dr. Coburn and I collaborated on it. We had

a lot of bipartisan support in passing it. This new law aimed at

making agencies and agency leadership far more accountable for

the expensive mistakes that they make. Again, it represents bipartisan and bicameral progress in this important area.

The 2010 law basically does four things. First, it says Federal

agencies across the board have to report improper payments. Second, you have to stop making them. Third, we want you to go out,

where it is feasible and where it is practical, and recover the moneys that have been improperly paid. Fourth, we called for agency

managers to be evaluated, at least in part, on how well they complied with this new law.

A wide variety of ideas have been put forth on how to further

curb improper payments and in the progress, reduce our budget

deficit and begin whittling down our debt as well. For example, recognizing that more than half of all Federal improper payment estimates are from the Medicare and Medicaid Programs, last year

that same guy, Senator Tom Coburn and I teamed up to introduce

legislation to curb waste and fraud in both of those programs,

Medicare and Medicaid.

The bipartisan legislation is S. 1251, the Medicare and Medicaid

Fighting Fraud and Abuse to Save Taxpayer Dollars Act. We take

a series of commonsense steps to identify and prevent fraud and

waste in Medicare and Medicaid. It drills down into specific waste

and fraud challenges within health care such as physician identity

theft, the need for improved fraud data sharing between the Federal Government and State agencies, and quick identification of improper payments to medical providers.

Our bipartisan legislation is now attracted 33 co-sponsors, a

third of the Senate, bipartisan. There is now a companion bill in

the House led by Congressman Peter Roskam and Congressman

Carney from Delaware, my colleague and friend, John Carney.

Our legislation has garnered the support of a wide of organizations including the National Taxpayers Union, Citizens Against

Government Waste, and AARP, not always names you hear to-
9

gether in the same sentence. Most of the provisions of these bills

are based on GAO’s good work and the Inspector General recommendations.

Let me briefly focus on an important new measure that would

help all Federal agencies prevent, detect and recover improper payments. Bipartisan legislation that I co-authored with Senator

Susan Collins, S. 1409, the Improper Payments Elimination and

Recovery Improvement Act, is now making its way through the

U.S. Senate. This measure builds upon the 2010 Improper Payments law that Tom Coburn and I introduced and shepherded

through.

Our new bill recently passed by unanimous consent in the Homeland Security and Government Affairs Committee. I am hopeful it

will soon see action on the floor of the U.S. Senate. I see the word

action and Senate in the same sentence, I hope to see action on

this legislation in the Senate.

Let me talk about a couple provisions in the bill and I will close.

Too often, Federal agencies make improper payments to individuals who could easily be identified as ineligible. Some of these individuals are applying for benefits using a false address—their address may not meet the criteria for eligibility. Take for example, a

person with a job applying for unemployment benefits using the

name of someone who may actually be dead.

Of course those listening to this hearing may ask the obvious

question of would a Federal agency ever pay unemployment insurance benefits to an individual who has died or someone who is trying to commit fraud? That is a good question. 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.

When I meet folks who have been married a long time, 50, 60

or 70 years, I say to them what is the secret for being married 50,

60 or 70 years? The best answers I have ever heard are the same,

the two C’s, communicate and compromise. What we need here is

a lot better communication.

Many of those agencies also have antiquated data bases and computer systems for tracking basic payment information. All too

often, we simply don’t allow agencies to access the information they

need to avoid giving scarce taxpayer dollars to the wrong people.

To their credit, the administration, through executive action, is

establishing a Do Not Pay Initiative. This effort involves screening

recipients of Federal funds against a list of those ineligible to receive those funds before we cut a check, for example, or make a

payment. For example, before an agency could award a contract to

a company, the agency would have to cross check against the Do

Not Pay data base which will include a central, comprehensive

data base of companies and entities that are no longer allowed to

do work with the Federal Government because of a fraud conviction

or some other reason.

Our improper payment legislation establishes the Do Not Pay

Initiative in law throughout the Federal Government. We believe

it makes several important improvements to the initiative and adds

some tools and procedures to help agencies access data.
10

The legislation also addresses what is called death fraud and

other improper payments to deceased individuals. Too many agencies pay benefits to individuals who are deceased and are therefore

no longer eligible for payments under program rules. For example,

the Office of Personnel Management’s Inspector General reported

that $601 million in improper payments were made to Federal retirees who have already died during the last 5 years.

However, such payments to dead people were not unique to one

program. Last year, one of my home State newspapers reported

that 28 years after a Delaware woman had died, one of her relatives was still pocketing, collecting and cashing her social security

checks. Improving the collection, verification and use by Federal

agencies of data on individuals who have died will help curb hundreds of millions, if not billions, of dollars in improper payments.

Our legislation requires that the Office of Management and

Budget, in consultation with other agencies and stakeholders, identify specific solutions and report back to Congress in 180 days after

passage. The legislation also includes provisions to strengthen and

make more consistent the methods used by agencies to estimate

improper payments. This is an issue identified by both GAO and

the Inspector General.

Finally, the bill establishes a series of recovery audit contracts

to assure that agencies actually recover overpayments. Recovery

audit contracting has already proven very successful in the private

sector, as well as in several Federal agencies, including within the

Medicare Program. In the Medicare Program, we have witnessed

recovery of improperly spent taxpayer dollars approaching $2 billion in recent years. We expect those recoveries to continue to

growth.

I anticipate that the Senate will look as favorably on S. 1409 as

it did on the Improper Payments Elimination and Recovery Act. I

want to invite the members of this panel and the House of Representatives to join us in this new effort by introducing a companion bill to S. 1409, improving it where possible, and passing it.

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

because we believe we have a moral imperative to ensure that

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

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

and to give the American people the government they expect and

that they deserve.

It is the right thing to do on behalf of the taxpayers of this country who entrust us with their hard earned money. By working together on this latest series of commonsense initiatives, I believe we

can take another important step toward earning their trust once

again.

Thank you.

[The prepared statement of Senator Carper follows:]
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Mr. PLATTS. Senator, thank you for a well stated synopsis of the

challenges before us, the progress we have made and what we need

to do as your legislation proposes. We certainly do look forward to

working with you.

I certainly appreciate a couple of the points you made. It is always good to be able to kind of poke fun at ourselves. Your reference to action in the Senate is appreciated on the House side. We

sometimes share that sentiment.

Senator CARPER. I have sat in your seat.

Mr. PLATTS. Exactly. I would say personally, of all the points you

made, as one who will celebrate 22 years of marriage this summer,

looking to hit 50 and 60 and beyond, compromise and communication both in marriage and in government are necessary for success.

I think that is a very important message for all of us here in Washington to keep things simple with what works at home in our marriages can work here.

I know I speak for the ranking member as well and the members

of this committee in saying we do look forward to a partnership between the House and the Senate, bicameral, bipartisan, just to do

right by the American people. We are grateful for your efforts here

today to share your insights.

Senator CARPER. These are a couple of our ideas we wanted to

share with you. They are not just Democratic ideas, not just Republican ideas, just smart ideas. You all have a lot of good ones over

here. I note you are going to be here for one more year and you

will be stepping down and sailing off into the sunrise.

I just want to say we all have good ideas. We just need to do a

better job of sharing those ideas with us and communicating better

to say what do you think of this, let’s see if we can work on this

together. In the instances I talked about and some good stuff that

you have for us to pay more attention to, and we would love to do

that.

Mr. PLATTS. We look forward to it. Thank you again.

We will take a brief recess while we reset for the second panel.

[Recess.]

Mr. PLATTS. We were happy to have Senator Carper with us, his

insights and commitment to good government issues, especially fiscal responsibility.

We are also delighted and honored to have the next panel. We

welcome all three of you and appreciate your willingness to share

your expertise with us. The Honorable Daniel I. Werfel serves as

the Controller for the Office of Federal Management at the Office

of Management and Budget. Mr. Mike Wood is executive director

of the Recovery Accountability and Transparency Board. Ms. Beryl

Davis is Director of Financial Management and Assurance at the

Government Accountability Office.

We appreciate your testimony, not just today, but day in and

day, the work that each of you is doing to serve our fellow citizens

and well protect the hard earned tax dollars of all Americans.

Pursuant to committee rules, now that you are seated, if I could

ask you to stand so that we can swear you in. I ask that you rise

and raise your right hands.

[Witnesses sworn.]
16

Mr. PLATTS. Let the record reflect that all witnesses affirmed the

oath. Please be seated.

We have had a chance to review your written testimony and if

you can try to keep your initial statement today about 5 minutes.

If you need to go over some, we are not going to be sticklers too

much for that, but we do want to save time for questions and answers and to have a more engaged discussion with you as we can,

time allowing.

With that, Mr. Werfel, would you like to begin?

STATEMENTS OF DANIEL I. WERFEL, CONTROLLER, OFFICE

OF MANAGEMENT AND BUDGET; MICHAEL WOOD, EXECUTIVE DIRECTOR, RECOVERY ACCOUNTABILITY AND TRANSPARENCY BOARD; AND BERYL DAVIS, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF DANIEL I. WERFEL

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

Towns and distinguished members of the subcommittee for inviting

me to discuss the Federal Government’s efforts in preventing, reducing and recapturing improper payments.

We can all agree that improper payments degrade the integrity

of programs and compromise taxpayers’ trust in their government.

In fact, combating improper payments has been a leading priority

of the administration’s campaign to cut waste. Our intensive efforts

to reduce improper payments are guided by the President’s bold

goals and by key reform ingredients such as transparency, accountability, collaboration and innovation.

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

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

governmentwide error rate sharply from 5.4 percent in 2009 to 4.7

percent in 2011 and by doing so, avoided making more than $20

billion in improper payments over the last 2 years. We have also

nearly met the President’s goal to recapture $2 billion in overpayments to contractors.

Today, I would like to quickly highlight three important initiatives that anchor our efforts. First, the 2009 Executive order on Reducing Improper Payments, we have made great strides in implementing this Executive order by identifying agencies with high

error programs that account for the majority amount of improper

payments, establishing supplemental measures to provide more frequent and current measurements for the majority of these high

error programs, and selecting accountable officials responsible for

coordinating agency efforts to reduce improper payments. All of

this information is transparent and readily available to the public

at PaymentAccuracy.gov.

Second is the implementation of the Improper Payments Elimination and Recovery Act of 2010, IPERA. Last year, OMB released

guidance to agencies on implementing IPERA to ensure that they

are properly assessing risks in their programs, measuring and reporting improper payments and establishing corrective action plans

and reduction targets.
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IPERA also expanded agencies’ authorities and requirements for

recapturing over payments and created sanctions for agencies that

are found noncompliant with the law by their Inspector General.

Third is the implementation of the Do Not Pay solution. In June

2010, the President directed the establishment of a single point of

entry where agencies could access relevant data before determining

eligibility for a payment or award and thereby avoid paying ineligible recipients. In addition to this memorandum, the Government

Accountability and Transparency Board recently recommended that

OMB work with agencies and the Recovery Accountability and

Transparency Board to create a centralized accountability framework that all agencies can use to prevent waste, fraud and abuse.

In response, the Department of Treasury has established the

GoVerify Business Center, a single entry point that agencies can

access to determine eligibility information prior to making an

award or payment. The GoVerify Business Center is comprised of

two components. One component is the GoVerify Portal, a Webbased, single entry access portal that assists efforts to prevent improper payments by enabling agencies to access data sources at a

centralized location. The other component is the GoVerify Data

Analytics Services, a resource that provides advanced data analytics to identify trends, risks and patterns of behavior that may

lead to further investigation on the part of the agency.

When the President took office, improper payments were on the

rise. Today, based on efforts underway, and the collaborative work

of the administration and Congress, we are on track to meet or exceed the President’s goals to cut improper payments by $50 billion

and recapture $2 billion in overpayments to contractors by the end

of this fiscal year.

We have seen error rate reductions in almost every major program with a history of significant errors, including Medicare, Medicaid, SNAP, rental housing, the earned income tax credit, Pell

grants and supplemental security income. As I referenced earlier,

without these declines, the government would have made over $20

billion in additional improper payments in 2010 and 2011 combined.

The administration will continue to work through the Campaign

to Cut Waste to reinforce a sense of responsibility and accountability for taxpayer dollars and make clear that no amount of

waste in our Federal programs is acceptable.

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

[The prepared statement of Mr. Werfel follows:]
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Mr. PLATTS. Thank you, Mr. Werfel.

Mr. Wood.

STATEMENT OF MICHAEL WOOD

Mr. WOOD. Thank you, Mr. Chairman, and distinguished members of the committee. Thank you for being able to appear before

you today to talk about this important matter and potential solutions to reducing improper payments based on work done by the

Recovery Board.

The American Recovery and Reinvestment Act of 2009 created

the Recovery Accountability and Transparency Board, tasked in

part with preventing fraud, waste and abuse of recovery funds.

Last summer, the President issued an Executive order calling for

the creation of the Accountability and Transparency or GAT Board

to make recommendations based on lessons learned from the Recovery Act, implementation of the Board’s successes applying these

approaches across government spending.

At the same time, Congressman Issa and Senator Warner introduced legislation, the DATA Act, that among other things, would

create a new, independent agency, the Federal Accountability and

Spending Transparency Board, to provide accountability and transparency for federally funded activities.

Even before the creation of the GAT Board and the DATA Act,

the Recovery Board realized key lessons: that transparency drives

accountability and that the tools we have built for these dual purposes have proved useful from both a program and oversight perspective. Along with Recovery.gov, the Board has received wide acclaim for building our Recovery Operations Center, ROC, which

combines traditional law enforcement analysis with sophisticated

software tools, government data bases, and open-source information to identify high-risk recipients.

This accountability solution provides an in-depth fraud analysis

capability to identify non-obvious relationships between parties,

and provides a predictive-analysis model, useful in focusing limited

government oversight resources. The Board is now conducting pilots on a fraud prevention tool with agency personnel as well as

with the Offices of Inspectors General via the Board’s new

FederalAccountability.gov Web portal. This framework has the potential to open the ROC tools and approaches more fully to investigators and practitioners throughout the Federal Government.

Our goals are to help agencies in performing their own risk evaluations before awarding Federal funds and to help enforcement officials to conduct reviews in order to prevent and detect fraud,

waste and abuse in Federal spending.

Pilots with agency procurement, grant and financial officials just

began. With our expanded 2012 appropriations language, Congress

provided some flexibility for us to develop and test new applications on non-Recovery funds and we plan on broadening the scope

of these pilots.

FastAlert, a new application within the

FederalAccountability.gov framework, provides awarding officials

with the ability to quickly access risk factors associated with entities that seek or have received Federal funds. The Board feels
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FastAlert can be applied to all Federal spending from pre-award to

the payment phases.

Our work on FederalAccountability.gov and FastAlert is in keeping with the GAT Board’s December report to the President which

noted the ROC ‘‘has been instrumental in keeping fraudulent actors from attacking Recovery programs, using cutting edge forensic

technology to protect taxpayer interests.’’ This technology has applications across the government and that is why the GAT Board

recommends that agencies work together to create a centralized

framework that leverages the ROC and similar technologies, allowing us to share data and coordinate our efforts to detect and prevent fraud. It is also in keeping, I think, with the internal control

guidance established by OMB for improper payments that cited our

lessons learned as well and came to a sililar conclusion.

Payments resulting from fraudulent activity are only a subset of

the wider problem of improper payments. However, the Board’s

tools would assist in identifying questionable entities in the preventive pre-award phase, and as a review prior to payment. In consultation with OMB and the Department of Treasury, we have incorporated features like batch searches and program specific data

bases to better meet agency needs.

Realizing full implementation of FastAlert is complicated by

some common problems that Congress, agencies and executive leaderships must solve. The computer matching provisions of the Privacy Act may restrain oversight activities, a problem that is solved

by the DATA Act. True data management also requires that the

government standardize data and provide more modern, open access to data bases.

Agencies are often reluctant to share data bases due to fear of

violating the Privacy Act, leaving inadequacies in payment and

awarding tools. We have the technology and know-how, and with

your help, the governance, access, and data issues can be swiftly

solved.

That concludes my prepared remarks and I will be happy to answer any questions.

[The prepared statement of Mr. Wood follows:]
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Mr. PLATTS. Thank you, Mr. Wood.

Ms. Davis.

STATEMENT OF BERYL DAVIS

Ms. DAVIS. Chairman Platts, Ranking Member Towns and members of the subcommittee, thank you for the opportunity to be here

today to discuss improper payments in Federal programs.

My testimony will cover agencies’ reported progress in estimating

and reducing improper payments, the challenges ahead of us and

how to move forward in improper payment reduction strategies. An

improper payment is any payment that was made incorrectly, in

the wrong amount and includes payments as well as overpayments.

Also it includes payments that lack sufficient documentation.

Progress is being reported by Federal agencies in both estimating

and reducing improper payments. In fiscal year 2011, Federal

agencies estimated improper payments of $115.3 billion, as noted

by Chairman Platts, a decrease of $5.3 billion from that of the previous year. This figure is about 4.7 percent of the $2.5 trillion in

total spending, as noted by Ranking Member Towns.

The estimate was attributable to 79 programs spread across 17

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

payments. The 10 programs with the highest rates of improper

payments had rates that ranged from 11 percent to over 28 percent.

Although progress has been reported, the Federal Government

continues to face challenges in determining the full extent in improper payments. Some agencies have not yet reported estimates

for their risk assessable programs. In addition, internal control

weaknesses continue to exist that heighten the risk of improper

payments occurring.

Estimating methodologies need to be developed. For example,

there are two DOD programs related to commercial payments

where the estimating methodologies are still being developed. For

this reason, the programs could not be included in the governmentwide estimate for this year.

Given the amount of Federal dollars that are flowing into these

risk acceptable programs, it is really critical to enhance our efforts

to improve and reduce improper payments. Continuing and expanding activities are needed to move forward in the following three reduction areas. First is identifying and analyzing root cause of improper payments. Second is implementing effective controls that

would prevent improper payments in the first place. Third is implementing effective detection controls that would identify and recover

improper payments.

Regarding the root causes, identifying and analyzing the root

causes of improper payments is key to developing effective, preventive and corrective action plans.

Beginning in fiscal year 2011, agencies were required by the Office of Management and Budget to categorize their root causes into

three different categories. We found that only about half of the 79

programs with improper payment estimates were actually using

those three root cause categories. Without detailed and specific in-
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formation, agencies are really hampered in their ability to take action to prevent and to reduce improper payments.

Regarding preventive controls, strong preventive controls serve

as the front line defense against improper payments and many

agencies are in the process of implementing those controls. Preventive controls involve a variety of activities such as up-front validation of eligibility through data sharing and a predictive analytic

test that can identify patterns of potential risk for fraud.

Addressing program design issues is another preventive strategy.

For instance, agencies may explore whether complex and inconsistent program design could actually contribute to improper payments. Effective strategies for reducing improper payments may actually call for streamlining and for redesigning or changing those

program requirements.

Finally, regarding detective controls, agencies need effective detective techniques to identify quickly and to recover improper payments that actually result in losses to the government. Recovery

auditing such as that used in the Medicare Program is an example

of identifying contractor overpayments.

Detection activities play a significant role not only in identifying

improper payments but also in determining and highlighting those

areas where there is a need to enhance our preventive controls.

Chairman Platts and Ranking Member Towns, that concludes my

prepared statement. I would be happy to answer any questions you

may have.

[The prepared statement of Ms. Davis follows:]
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Mr. PLATTS. Thank you, Ms. Davis.

We will go to questions. We are glad to be joined by the gentleman from Virginia, Mr. Connolly. Before we go to questions, did

you want to make a brief statement?

Mr. CONNOLLY. Mr. Chairman, I thank you so much for your indulgence. I have two other hearings at the same time and I am the

ranking member on one of them.

I wanted to come because first of all, I wanted to thank you for

your leadership and yours, Mr. Towns, on this important subject.

Here we were sweating in the so-called Super Committee to try to identify $1.2 trillion over 10 years. Here we have improper payments that are $125 billion plus every year which would exceed actually the goal of the Super Committee if somehow we could get it

to zero.

We are never going to get it to zero but it seems to me that one

of our goals in this subcommittee and in pursuing this subject is

how do we put in place processes that push us toward that goal

and in doing so, we make a very substantial contribution to debt

reduction and to getting our Federal spending under control without having to take a meat ax to substantive investments that matter to the country.

I think this is one of the most promising endeavors of the entire

committee, Mr. Chairman, and I thank you again for your leadership. I thank our panelists for being here.

Please forgive me when I have to duck out to return to my primary subcommittee.

Mr. PLATTS. We appreciate the gentleman making an effort to be

here and his words regarding this issue and as we conveyed to Senator Carper in his testimony, the bicameral, bipartisan effort to

focus on this issue. As you well stated, if we were successful, we

would more than exceed the $1.2 trillion that we were after in the

Super Committee.

I will yield myself 5 minutes now for questions.

I certainly thank each of you for what you are doing every day

to help prevent improper payments as well as the overall good fiscal management of government. I do want to acknowledge very

much so the efforts of this administration and the number of initiatives. Mr. Werfel, you highlighted them well.

I do want to caution in how we use numbers and statistics when

we talk about $20 billion toward a $50 billion goal. That is a guesstimate because the percent went down that therefore, we avoided

$20 billion. We really do not know if we did or not; we are just applying 5.4 percent in 2009 to today at 4.7 and perhaps we saved.

We don’t really know for certain if that is an accurate number.

Because if we take that approach we would also have to acknowledge that we also know that improper payments that have not been

identified went up with DOD being the biggest culprit here of not

being able to properly identify improper payments. Their budget is

higher today than it was in 2009, therefore there is more money

that is not being properly identified to prevent improper payments.

That is just a caution but it is a specific concern as we look at

the numbers because they do give us guidance of are we having

success, taking strides in the right direction and specifically with

the Department of Health and Human Services. The biggest chal-
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lenges are Medicare and Medicaid. As we have heard, about half

or a little over half of all improper payments identified are those

programs in that department.

It is my understanding that there has been a change in the

methodology and what they consider an improper payment within

the Department of Health and Human Services and specifically

that if they identify an improper payment and recover it, then it

is not counted as improper payment because they actually got the

money or prevented it in some way.

Is that your understanding and your thoughts on that if that is

the case?

Mr. WERFEL. Thank you for the question, Mr. Chairman.

Actually, the HHS methodology fix is as follows. They determined there is a paperwork process they go through once they sample a payment to determine whether it was accurate or not. All

that paperwork doesn’t come in all at the same time; it takes time

to investigate the accuracy of the payment. What happens is at the

point in time at which they have to put down their pencils and do

their error measurement, they still have paperwork outstanding

and they haven’t fully addressed whether the error is an error or

not.

Historically, for any area where they had to put down their pencils because they were out of time and it was time to do their annual report, they counted everything that they didn’t get full paperwork as an error. They have been looking at this for a few years.

In consultation with their Inspector General, they thought perhaps

we are over stating our errors by doing this because they started

looking at historical numbers.

They put their pencils down on say November 15th so they can

issue their audit report. On December 1st or December 15th, the

paperwork comes in and they get the answer in full in terms of

whether the error was an error or not. They determined they could

go back and look at historical records and say based on historical

records, there is a certain percentage of that paperwork over time

that actually comes in and is not an error versus it is an error.

They decided what was a more fair presentation of their error

was to adjust their error rate based on historical numbers that dictate say we have 10 paperwork that is outstanding, historically

three of those are errors and seven of those turn out to be accurate.

That is true for a year so we are going to apply that percentage

for the paperwork outstanding this year for the error. That is the

change they made.

Believe me, Mr. Chairman, we would not have been comfortable

with the change if the Inspector General had not endorsed it. The

Inspector General agreed that it was a fair presentation. That is

why the change was made.

Mr. PLATTS. There is nothing where even if they identify something up front, a question where they put their pencil down, but

if they identify a payment that was made improperly, that they recovered it, that it is no longer counted as an improper payment,

you are not aware?

Mr. WERFEL. I am not aware of that. There are certain isolated

incidences that I am aware of where an agency makes a payment

and can subsequently discount their error rate by a quick recapture
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of that amount. That takes place, for example, in social security

and in many ways, we allow that within the methodology because

under the law and regulations, they are compelled to make the

payment even when they know it is wrong because the due process

hasn’t been complete.

For those where they know they are about to make a payment

they believe is an error but they are compelled to, then they can

get the due process done and quickly pull it back, we have discounted those. I am not aware of this situation occurring in HHS.

Mr. PLATTS. I am hoping that is accurate across the board because that would defeat our goal here which is to identify why we

are making improper payments because ultimately that is how we

prevent them in the future.

A second question before I yield. I am certainly glad with Part

D now being part of the analysis, the first year that the Prescription Drug Program is now being looked at, but CHIP and TANF

are two that are not. I know there are two issues here. With TANF,

it is State partners and more challenging and with CHIP, it is statutory of when they can start looking at error rates.

If you or other witnesses could comment on what we should expect with TANF and CHIP? Is there a guesstimate of what their

error rates are likely to be? What is that going to do to the numbers? May be we can’t because we don’t have good enough data, but

if any of you could comment, that would be helpful.

Mr. WERFEL. There are different data points that we could possibly share with you. I am not sure I have them at my fingertips

where the agency, in particular on TANF, has gone out and done

a measurement. With TANF, there are a lot of legal questions that

have not yet been resolved in terms of the ability of HHS, when

the program converted from AFDC to TANF, there were certain alleged restrictions placed on what the agency could do to audit payments.

As a result, I think it was about 5 or 6 years ago, the IG used

its enforcement and investigative authority to go downward and

the measurement themselves, which is unusual. Typically in all the

situations of which I am aware, the agency does the measurement

and the IG evaluates the sufficiency of the measurement and

whether the necessary corrective actions are taking place.

Because the IG went ahead and did that, we got some insight

into some of the error. I think they did an error measurement in

about three States, so yes, we found there were significant errors

in TANF when that study was done. There were very, very important perspectives that were coming from the State government

challenging the HHS IG methodology.

There is a lot to sort through there but I agree completely that

until we have a measurement on TANF, our overall measurement

is incomplete. I just don’t know that we, without Congress’ help,

have a path forward on that particular program.

Mr. PLATTS. I think that is an important point. As you and the

IGs work through that issue, if there is a legislative barrier we

need to take a look at, we welcome that information on how to

partner with you.

Mr. Wood or Ms. Davis.

Mr. WOOD. No.
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Mr. PLATTS. I yield to the gentleman from New York for the purpose of questions.

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

Ms. Davis, let me ask, in your testimony you state that identifying and analyzing the root causes of improper payments is the

key to developing corrective actions to reduce and prevent improper

payments. What has GAO identified as the main root cause of improper payments among Federal agencies?

Ms. DAVIS. That is a good question. There are many answers to

that and it would be difficult to put everything into one specific category.

As you know, there are three different categories established by

OMB: documentation/administrative, authentication medical necessity and verification errors. The compliance is about 50 percent as

far as agencies reporting they have identified root causes within

those.

I can give an example that I think might be helpful to you. For

example, the Department of Labor’s Unemployment Insurance Program has determined that most of the errors there are due to people who have actually gone back to work and are still continuing

to collect benefits. As an information point, the Department of

Labor has been working with HHS who has a Do Not Hire data

base and they are looking at that data base to help and assist them

in determining when people actually go back to work.

There are many, many reasons. There are many administrative

errors. The issues presented have been categorized into those different areas. We noted that the explanations were in all three

areas when we received information from the different agencies but

the first area, the documentation and administrative area, seemed

to have the highest recurrence or frequency of reasons for root

cause information.

Mr. TOWNS. Senator Carper said something that really, really

bothered me. He indicated that an example of a person who had

expired and 20 some years later, they were still receiving his or her

social security money. I know it is the obligation of the family to

report but is there any way we can connect with the funeral director and require some responsibility there in terms of from a legislative standpoint? It seems to me that should be easy to fix. If a person expires, the funeral director would indicate this person is no

longer with us, therefore no further payment should be made.

Does this make sense? I am trying to get my arms around what

we can do to cut down on the numbers because they still seem to

be very big. Anybody?

Mr. WERFEL. I agree, Congressman. This is an area we have

delved into after the President directed the creation of the Do Not

Pay List because in that memorandum, the President specifically

called out the Social Security Death Master File as a dataset that

we need to make sure we are checking more robustly to prevent

these payments.

There are a couple challenges. There is imperfect information in

the Death Master File. The Social Security Administration has

tried a variety of different efforts to improve the timely and accuracy of that data base, including working in some cases with States

on programs to get funeral directors to report information more fre-
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quently. There are other mechanisms in play that can improve that

but it remains an imperfect data base and that can be part of the

problem.

The other challenge, and this is something I think Congress can

help us think about very closely, the access to the Social Security

Death Master File and all these various data bases are not seamless. There are I believe legitimate but challenging legal barriers

for an agency to access information whether it is the Privacy Act

or data security issues.

Even if we get a fully robust and timely complete Death Master

File, which is a challenge we are working toward and Social Security is working on with us, the next hurdle is making sure that the

agencies have real time access to that data because the 20-year example is egregious and we need to stop that.

The higher risk is the more recent death situation where we

didn’t get the data, the payment went out and I think that is the

higher probability of where we are going to make an error and that

is where more of the improper payments are. To close that particular gap, we need to make sure we are getting access to data.

We need to figure out good solutions to some of these legal issues

because the Privacy Act and the data security all these issues are

legitimate. We just need to figure out if there is a way to get agencies access to that information quicker while still protecting those

other important interests.

Mr. PLATTS. I yield myself time again. One is a follow up on Mr.

Towns’ question and the discussion about reporting of root causes

and the failure by the majority in dollar amount of the improper

payments did not come along with the proper identification of the

root causes.

In the Improper Payments Act of 2010, sanctions were created

for agencies that do not properly comply with the law. I think that

goes to the issue of not properly reporting the root causes of improper payments. HHS, which again has the majority of these improper payments, their auditors said for the eighth year in a row

now, they have failed to comply with the original Improvement Act

of 2002.

Mr. Werfel, I know the 2010 act is a little over a year old but

what type of sanctions should we expect to see and what, if any,

are being pursued because of the failure of agencies to fully comply?

Mr. WERFEL. The Improper Payments Elimination and Recovery

Act, which was passed in July 2010 I believe, for the first time

changed the landscape on improper payments and added this concept of sanctions and increased accountability. Those are really

triggered, I believe, on the Inspector General’s review and their assessment, and based on the different type of noncompliance, whether it is failure to report root cause or having an error rate that is

too high, whatever the issue is, or not reporting a program.

For example, we discussed TANF in the HHS realm. The IG will

report and I think those reports are due, and with the enactment

of IPERA, we are now kind of in that first phase of IG assessment,

and those reports are due in mid-March. At that time, we will have

a good sense of what the landscape of non-compliance is and then

the statute will trigger a variety of different repercussions such as
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special reports to Congress, requirements in terms of how discretionary funds are used to combat improper payments.

This is something we hope will help reinforce the importance of

these things that are not being complied with. It is something we

will have to evaluate together to see if those sanctions are doing

their job or if we need to think differently and raise the stakes.

Mr. PLATTS. Do you see, under the President’s Executive order,

we created accountable officials? They kind of go hand in hand

with the law of trying to ensure compliance and make sure there

isn’t a reason for sanctions. Can you comment on how the administration sees the accountable officials working with the requirements for sanctions if there is noncompliance?

Mr. WERFEL. Absolutely. Let me start by saying I have had the

privilege and the opportunity of being at OMB across the entire life

span of the Improper Payments Initiative starting with the passage

of the IPIA in 2002 until today and I believe firmly that this administration has set a new bar in terms of accountability.

The President himself has been actively engaged on the issue. I

have been in meetings where he has talked to Deputy Secretaries

directly about his concern over this issue. The establishment of the

senior accountable official is a part of the blend of different things

that the administration is doing on a whole variety of management

improvements.

I think we need to look at a broader picture. From the HHS perspective, you mentioned that half our balance sheet is HHS for

these improper payments. There is a tremendous footprint of work

going on at HHS right now. It is a major, major top priority. I mentioned the President, the Vice President is also interested in this.

The Vice President is now holding quarterly Cabinet meetings on

waste and improper payments is an essential theme of those meetings. I think in two of those meetings, Secretary Sebelius has presented to the Vice President on HHS efforts. This is at the very

highest level.

I will point out I think it is important to note that while there

are areas HHS needs to improve upon, when you step back and

look at the amount of improper payments that HHS makes, it is

staggering, but at the same time, the major programs in HHS, all

the parts of Medicare and Medicaid, those error rates are declining

and have declined several years in a row. That is an important

trend and demonstrates that the agency effort is having an impact.

As everyone in this hearing has noted so far, there is a lot more

work to be done but I think the trend is positive.

Mr. PLATTS. If you use Part D as kind of the newest major program to come online, I think an error rate of a little over 3 percent

versus over 8 percent for Medicare and Medicaid, I hope that

means since it is a new program, we are getting it right up front

as opposed to trying to correct problems down the road with Medicare and Medicaid after the fact.

Mr. WERFEL. I would say that the Department is much more focused and has much more resources they are bringing to bear on

improper payments at the birth of Part D than they did at the

birth of the other programs. I think that is one of the reasons why

you are seeing a Part D error rate that is lower than the other programs.
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Mr. PLATTS. Hopefully that continues. Before I yield to Mr.

Towns, I think all three of you had an opportunity to hear Senator

Carper’s testimony and are familiar with his legislation. It may not

be fair to ask without him here to respond, but what do you think

is most important in his bill that we should be looking at or is

there anything that concerns you in a broad sense.

Mr. Werfel, maybe for you specifically, the Do Not Pay part of

his bill, do you think it aligns with what he is proposing legislatively and what the administration is already seeking to do or is

there something we should be aware of in the groundwork already

laid that we don’t undo it legislatively by taking a different approach?

I will start with Mr. Wood, Ms. Davis and then Mr. Werfel, we

will finish with you, the broad pros and cons of the bill and then

specifically the Do Not Pay part for Mr. Werfel.

Mr. WOOD. Thank you and I will touch on the Do Not Pay as well

because we have been doing some work in that related area at the

Recovery Board.

I think it is a strong bill and I think it improves the methodology

for collecting this data. As Mr. Werfel said, the data is not always

perfect. We seem to be moving in a direction to get that.

One of my concerns, at the Board, our tools are focused more on

prevention and oversight. That is what we have been doing with

the Recovery Act. We have done a fairly good job on that. We have

talked to both OMB and GAO and the Treasury Department is

building this GoVerify system about our technology and their technology.

My concern with the Do Not Pay area would be being to prescriptive in what do you have to look at for Do Not Pay. At the Board,

we take sort of a broader approach. We have our Recovery Operations Center, we have a system where you can run entities or individuals through it and come up with a list of people who would

clear and then take a closer look at people where you think there

is a problem because there are a lot of false positives and so forth.

We have talked to Treasury about our approach. Danny mentioned it is difficult to get access to some of these data bases. We

are still working on getting all the data bases listed in the Executive order that talked about Do Not Pay.

The one area I think I would be concerned about in looking at

that from a technology standpoint and an oversight standpoint is

being too prescriptive in here are the three things you will check.

There are a lot of things you might check.

For instance in the Recovery Operations Center, one of our successes has been able to look across government. You can look at

things, for instance, these recovery audits which are recouping payments, you can look at them across government perhaps using nonstructured data analysis to find if there are trends and similarities

where you might not expect them.

DOD may collect some money that is very similar to what Social

Security Administration is collecting and for the same reasons that

it gets to the root cause analysis. There are some technological approaches you could take that are interesting, some of advanced,

cutting edge sorts of things that you really don’t want legislation

tying your hands on any of that.
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I don’t think it does at this point but that is one area, in reviewing it, that I would mention.

Mr. PLATTS. In essence, making it clear that if the legislation

identifies certain data bases to look at.

Mr. WOOD. These, plus perhaps others, and the methodologies

might go beyond one check.

Mr. PLATTS. Ms. Davis.

Ms. DAVIS. Since GAO has not formally reviewed the bill, I cannot specifically comment. I can say that at a very high level, the

intent of the bill for accountability transparency purposes is certainly an admirable goal. I can also make a statement again very

generally that some of the concepts in the bill such as looking at

high priority programs and data matching, comparing data bases,

are best practices that we really talked about in many of our reports. Other than that, I really cannot comment.

Mr. PLATTS. Mr. Werfel.

Mr. WERFEL. Similar to Ms. Davis, we have not run the appropriate process across the administration so I can present an administration position, so I don’t want to state anything that could be

represented that way.

I will say on a general matter, and reinforcing my point earlier,

the number one barrier to success in the Do Not Pay environment

is going to be access to data. I think one of the most important

things Congress can do to help on improper payments is to help us

pull back the onion layer on these various data bases and figure

out how to navigate this important tension between privacy and security and the need to have this information to enforce program integrity outcomes.

I think right now we haven’t tackled the issue directly and therefore, every time we determine that access to a data base is going

to be helpful to drive down improper payments, we go through a

very long and laborious process to try to figure out how to thread

the needle and get the data in and we are not serving the taxpayer

effectively by taking it one at a time. I think that is one of the most

important things we can do as a community.

Mr. PLATTS. We certainly saw that in our oversight hearings regarding the Internal Revenue Service and taxpayer identity fraud

and the challenge of access to information preventing that type of

fraud from occurring.

I understand you can’t speak as far as the administration position. As it currently stands, are you aware of anything in the bill

regarding the Do Not Pay aspect of it that would undo the efforts

currently underway by the administration regarding Do Not Pay?

Mr. WERFEL. I am not aware of anything that I would undue. If

I understand the bill correctly, its intent is to reinforce. Again, I

would go back to this broader question of data access as the big

issue that is going to help accelerate and drive greater success outcomes. I don’t know of anything in the bill that undoes it.

Mr. PLATTS. I yield to the gentleman from New York, Mr. Towns.

Mr. TOWNS. Mr. Wood, can you explain what factors you use to

predict whether a program is susceptible to fraud?

Mr. WOOD. I don’t know if I have a perfect explanation of that

but we do look at a whole series of factors. When we were doing

the Recovery Act early on, we worked very closely with the various
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Inspectors General, and with the program officials and OMB to

come up with a list of what we considered high risk programs. That

was based on a whole series of analysis, historical information,

data we might have on hand, what type of spending it was going

to be and what seems to be more subject, at least historically, to

risk. As Mr. Werfel keeps mentioning, part of our issue with the

Federal Government is we don’t have good historical data sets

around some of these things.

We look at a whole series of things. We are building a product

called the fraud scorecard which is very similar to something you

might see in FICA and the actually the people who developed it are

building it for us. When we look at it, the difficulty we have is we

don’t have as good historical data sets of bad actors. That kind of

information just wasn’t collected in a manner that would help us.

You take the people who did things incorrectly versus those we

know who did it correctly and you build some factors where you

could do that using technology.

At the Board, we have combined both technology and sort of commonsense rules of thumb on what we see as high risk areas. That

is what we are looking at. The Board is looking at identifying these

high risk areas and trying to initiate preventive measures, better

internal control, training, different checks on who we are giving

money to, that type of thing.

If I could figure out a good set of characteristics for fraud, I

would probably be very wealthy.

Mr. TOWNS. You wouldn’t need this hearing.

Mr. WOOD. Yes, we could design a solution. Hopefully that is

helpful. We sort of look at a matrix of things. At the Board, we are

lucky we have technology that we are able to apply that is very

powerful as well that needs to be interpreted by humans.

Mr. TOWNS. I noticed that there have been 70 leads of possible

fraudulent activity to various agencies. Will you be able to get results as to whether or not what you suspected really happened? I

am trying to figure if there is a feedback mechanism?

Mr. WOOD. Yes, there is and we actually just started an effort

at the Board to go out and work closer with the IGs to build that

better feedback mechanism that if we send out information, what

is happening with that, is it really actionable and does it turn into

cases. Unfortunately, if it is a criminal matter, that could take a

couple years, so we are fairly young in that regard. We have only

been around for a few years and a couple of years before we sunset.

We are building a feedback. We have a new chairman, Kathy

Tighe, who has come over to replace Earl Devaney who had been

there for the last few years. That is one of the things Kathy has

been working on, to try and get this feedback loop in place so we

can answer those questions very specifically.

Mr. TOWNS. Thank you very much.

Mr. Werfel, people doing wrong sometimes find different ways

and methods to move on to continue to do wrong. What steps have

been put in place to ensure that individuals and entities that are

on the list do not simply create a new company or continue their

fraudulent activities by changing their name?

Mr. WERFEL. That gets to what Mr. Wood talked about being the

real game changer in terms of addressing error reduction. The Ex-
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cluded Party List GSA has of those suspended and debarred from

receiving Federal payments, if we do a one dimensional match and

say I am about to pay 30 vendors and I run a match against the

GSA data base, I could very well not see any of those 30 entities

appear, assume none of them are suspended or barred and move

forward.

As you point out, the reality may be that one of the entities I am

about to pay was a suspended and debarred entity not a few years

ago but has reincorporated under a new name and therefore has

done so in a way that eludes our ability to make sure we stop that

payment. In order to get at that, you have to do two things. You

have to access more detailed and robust sets of data. You can’t just

rely on the simple, uni-dimensional GSA list, you have to do some

investigation outside of that list to understand the history of some

of these companies and the relationship of some of these companies. Fortunately, where we are today in the information age, that

type of information is available.

As Mr. Wood pointed out, you need human beings that know how

to ask the questions of data. It can’t simply be the technology doing

the match, you have to be smart enough to look for patterns and

trends and profile some of this information to say this is the type

of company that we have seen before that has been reincorporated

in a new name, so we know exactly how to ask the data.

It is not easy to do. I think the good news, Congressman Towns,

is that because of the great work that is going on, the Recovery

Board has plowed new ground in terms of showing us the way in

terms of how to look at the data multi-dimensionally. When we

build our GoVerify Center, I mentioned earlier it is not just the

technology, there is an Analytic Center, it is for this exact reason

because just the technology won’t solve the problem, you need the

analytics as well in order to stay ahead.

I think where you would be pleased is if HHS was here talking

about some of the work they are doing in fraud detection. They are

asking these multi-dimensional questions they didn’t ask previously. They are starting to look and understand trends and patterns of behavior they didn’t once know about. Frankly, the Recover Board helped them raise their game because the Recovery

Board did a pilot of their tool with HHS and showed them some

new tricks and new ways of staying ahead of the fraudsters now

being deployed at HHS.

We are not where we need to be yet but there is some promising

direction taking place. We are starting to have more robust approaches to fraud detection.

Mr. TOWNS. My time has expired but I have one quick question.

I know you asked about the legislation and I heard the response.

Is there anything more we need to do on this side of the aisle that

might help you be able to work much more effectively and be able

to solve some of the problems you keep running into?

Mr. WERFEL. From my standpoint, there are a couple of key

things. Last year’s President’s budget, for example, includes a series of program integrity proposals that we believe have a dramatic

and important impact on improper payments that have been in

budgets for years and not been enacted for whatever reason.
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In some cases, it is investing in more reviewers and investigators

but that infrastructure you invest in has a return on investment,

sometimes $11 for ever dollar invested. Those are really, really important things that we need to be very careful if we are not going

to make those investments in understanding the cost we are bestowing on the taxpayer when we don’t do that.

There is also included in previous Presidential budgets legislative changes that provide tools, for example, to the Treasury Department or others that help us wield certain tools to help collect

data or enforce improper payments more effectively. Whenever I

am asked that question, I try to call attention to those remaining

program integrity provisions that are not provided for.

I reiterate, helping us crack this nut of data access, making sure

we can balance those policy tensions and third is what you are

doing today, these types of hearings, it is powerful and important

for me to go back to the agencies and say I was just up on Capital

Hill, they were demanding answers on improper payments, that

empowers me to work with the community to make sure they are

dedicating the necessary resources to address the problem.

Mr. TOWNS. Thank you.

Mr. Wood.

Mr. WOOD. I would second the item on access to data sets. Anything the Congress could do to alleviate some of the problems we

run into because of the Privacy Act. There is a tension; you don’t

want to release privacy information but at the same time, the government needs to be able to match some of the data in an easier

way.

The second piece related to data is anything you could do in your

oversight role or in other legislation to push data quality and

standardization. We have new tools that allow us to reach into

some of these data bases that are fairly antiquated and match data

but that is a difficult thing to do.

There are a lot of people maintaining these data bases and if

they would do it in a more standard way, build them in a more

modern way where we can get access to the data much easier than

we do today, that would be very beneficial so we could share data

easier. Those would be my two points.

Mr. TOWNS. Thank you.

Ms. DAVIS. Congressman Towns, I would echo the earlier comments about the value of these hearings. I think they show the

transparency and the importance of this issue, so that would be my

first comment.

My second comment might be looking very deeply at some of

these program design issues to the extent they might be affected

by legislative barriers. Medicare is a very good example of how we

have partnerships with the States but it is very difficult because

there are so many complex and inconsistent requirements among

the States. It creates difficulties and is certainly something that

would affect improper payments.

The other area is working more closely with GAO as you have

been doing. We have a number of projects currently in process. We

have a couple of Medicare projects related indirectly to improper

payments; we have two projects in Medicaid that are looking at improper payments. One of them is specifically looking at CMS esti-
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mating methodology. One is in the design phase so it is very early.

The other is expecting a report probably this summer, may be

around June.

We are looking at DOD looking at a number of things related to

improper payments along with some of their estimating methodologies, looking at the Recovery Audit Program and regulations affecting improper payments.

We continue to do that and would be happy to continue to work

with you in any way we can and any issue related to improper payments.

Mr. TOWNS. Thank you very much.

Thank you, Mr. Chairman, for your generosity. I know I went

way over my time.

Mr. PLATTS. You and me both.

A final comment, Mr. Wood, those projects with Medicare and

Medicaid, and Mr. Werfel, with your discussions as part of your

testimony with HHS in the broad sense of the leadership of Secretary Sebelius and the commitment they are making. We may

want to look at a hearing specific to HHS programs that may include what GAO is looking at and allowing the Department to

share what they are doing. Certainly it is important given the size

of the improper payments that come under that Department, but

also what they are doing that can be beneficial across the Federal

Government departments and agencies.

That is something we can look at maybe later this summer, to

have GAO participate with those projects, it would have to be a bit

later in the summer. I think it would be a good idea for us to look

at that.

I do want to again thank each of you for your testimony. As always, we are very blessed by the knowledge and expertise our witnesses bring to us. Mr. Werfel, you have been before us a good

number of times over the years, probably both when Mr. Towns

chaired as well as when I have chaired. To all of you, and especially Mr. Werfel, your leadership on these issues and the partnership you have had with this committee for a long time is appreciated.

We are going to keep the record open for 7 days if there are other

materials to be submitted and look forward to continue to work

with you on the macro sense as well as the micro sense such as

Senator Carper’s legislative proposal as we go forward.

This hearing stands adjourned.

[Whereupon, at 11:30 a.m., the subcommittee was adjourned.]

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