Union Calendar No. 270

106TH CONGRESS

1ST SESSION H. R. 1827

[Report No. 106–474]

A BILL

To improve the economy and efficiency of Government operations by requiring the use of recovery

audits by Federal agencies.

NOVEMBER 17, 1999

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union,

and ordered to be printed
IB

Union Calendar No. 270

106TH CONGRESS

1ST SESSION H. R. 1827

[Report No. 106–474]

To improve the economy and efficiency of Government operations by requiring

the use of recovery audits by Federal agencies.

IN THE HOUSE OF REPRESENTATIVES

MAY 17, 1999

Mr. BURTON of Indiana (for himself, Mr. ARMEY, and Mr. OSE) introduced

the following bill; which was referred to the Committee on Government Reform

NOVEMBER 17, 1999

Additional sponsors: Mr. SESSIONS, Mr. GOODE, Mr. DOOLITTLE, Mr.

MCHUGH, Mr. TERRY, Mr. SOUDER, Mr. ENGLISH, Mrs. MYRICK, Mr.

SHAYS, Mr. WALDEN of Oregon, Mr. GOODLING, Mr. LATOURETTE, Mrs.

KELLY, Mr. SCHAFFER, Mr. LAZIO, Mr. SAM JOHNSON of Texas, Mr.

KNOLLENBERG, Mr. GILMAN, Mr. RYAN of Wisconsin, Mr. METCALF,

Mr. CALVERT, Mr. STEARNS, Mr. TURNER, and Mr. FOLEY

NOVEMBER 17, 1999

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on May 17, 1999]

A BILL

To improve the economy and efficiency of Government operations by requiring the use of recovery audits by Federal

agencies.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Government Waste Cor5 rections Act of 1999’’.

6 SEC. 2. FINDINGS AND PURPOSES.

7 (a) FINDINGS.—The Congress finds the following:

8 (1) Overpayments are a serious problem for Fed9 eral agencies, given the magnitude and complexity of

10 Federal operations and documented and widespread

11 financial management weaknesses. Federal agency

12 overpayments waste tax dollars and detract from the

13 efficiency and effectiveness of Federal operations by

14 diverting resources from their intended uses.

15 (2) In private industry, overpayments to pro16 viders of goods and services occur for a variety of rea17 sons, including duplicate payments, pricing errors,

18 and missed cash discounts, rebates, or other allow19 ances. The identification and recovery of such over20 payments, commonly referred to as ‘‘recovery audit21 ing and activity’’, is an established private sector

22 business practice with demonstrated large financial

23 returns. On average, recovery auditing and activity

24 in the private sector identify overpayment rates of 0.1

25 percent of purchases audited and result in the recov-
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1 ery of $1,000,000 for each $1,000,000,000 of pur2 chases.

3 (3) Recovery auditing and recovery activity al4 ready have been employed successfully in limited

5 areas of Federal activity. They have great potential

6 for expansion to many other Federal agencies and ac7 tivities, thereby resulting in the recovery of substan8 tial amounts of overpayments annually. Limited re9 covery audits conducted by private contractors to date

10 within the Department of Defense have identified er11 rors averaging 0.4 percent of Federal payments au12 dited, or $4,000,000 for every $1,000,000,000 of pay13 ments. If fully implemented within the Federal Gov14 ernment, recovery auditing and recovery activity have

15 the potential to recover billions of dollars in Federal

16 overpayments annually.

17 (b) PURPOSES.—The purposes of this Act are the fol18 lowing:

19 (1) To ensure that overpayments made by the

20 Federal Government that would otherwise remain un21 detected are identified and recovered.

22 (2) To require the use of recovery audit and re23 covery activity by Federal agencies.

24 (3) To provide incentives and resources to im25 prove Federal management practices with the goal of
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1 significantly reducing Federal overpayment rates and

2 other waste and error in Federal programs.

3 SEC. 3. ESTABLISHMENT OF RECOVERY AUDIT REQUIRE4 MENT.

5 (a) ESTABLISHMENT OF REQUIREMENT.—Chapter 35

6 of title 31, United States Code, is amended by adding at

7 the end the following:

8 ‘‘SUBCHAPTER VI—RECOVERY AUDITS

9 ‘‘§ 3561. Definitions

10 ‘‘In this subchapter, the following definitions apply:

11 ‘‘(1) DIRECTOR.—The term ‘Director’ means the

12 Director of the Office of Management and Budget.

13 ‘‘(2) DISCLOSE.—The term ‘disclose’ means to

14 release, publish, transfer, provide access to, or other15 wise divulge individually identifiable information to

16 any person other than the individual who is the sub17 ject of the information.

18 ‘‘(3) INDIVIDUALLY IDENTIFIABLE INFORMA19 TION.—The term ‘individually identifiable informa20 tion’ means any information, whether oral or re21 corded in any form or medium, that identifies the in22 dividual, or with respect to which there is a reason23 able basis to believe that the information can be used

24 to identify the individual.
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1 ‘‘(4) OVERSIGHT.—The term ‘oversight’ means

2 activities by a Federal, State, or local governmental

3 entity, or by another entity acting on behalf of such

4 a governmental entity, to enforce laws relating to, in5 vestigate, or regulate payment activities, recovery ac6 tivities, and recovery audit activities.

7 ‘‘(5) PAYMENT ACTIVITY.—The term ‘payment

8 activity’ means an executive agency activity that en9 tails making payments to vendors or other nongovern10 mental entities that provide property or services for

11 the direct benefit and use of an executive agency.

12 ‘‘(6) RECOVERY AUDIT.—The term ‘recovery

13 audit’ means a financial management technique used

14 to identify overpayments made by executive agencies

15 with respect to vendors and other entities in connec16 tion with a payment activity, including overpay17 ments that result from any of the following:

18 ‘‘(A) Duplicate payments.

19 ‘‘(B) Pricing errors.

20 ‘‘(C) Failure to provide applicable dis21 counts, rebates, or other allowances.

22 ‘‘(D) Inadvertent errors.

23 ‘‘(7) RECOVERY ACTIVITY.—The term ‘recovery

24 activity’ means activity otherwise authorized by law,
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1 including chapter 37 of this title, to attempt to collect

2 an identified overpayment—

3 ‘‘(A) within 180 days after the date the

4 overpayment is identified; and

5 ‘‘(B) through established professional prac6 tices.

7 ‘‘§ 3562. Recovery audit requirement

8 ‘‘(a) IN GENERAL.—Except as exempted by the Direc9 tor under section 3565(d) of this title, the head of each exec10 utive agency—

11 ‘‘(1) shall conduct for each fiscal year recovery

12 audits and recovery activity with respect to payment

13 activities of the agency if such payment activities for

14 the fiscal year total $500,000,000 or more (adjusted

15 by the Director annually for inflation); and

16 ‘‘(2) may conduct for any fiscal year recovery

17 audits and recovery activity with respect to payment

18 activities of the agency if such payment activities for

19 the fiscal year total less than $500,000,000 (adjusted

20 by the Director annually for inflation).

21 ‘‘(b) PROCEDURES.—In conducting recovery audits

22 and recovery activity under this section, the head of an ex23 ecutive agency—
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1 ‘‘(1) shall consult and coordinate with the Chief

2 Financial Officer and the Inspector General of the

3 agency;

4 ‘‘(2) shall implement this section in a manner

5 designed to ensure the greatest financial benefit to the

6 Government;

7 ‘‘(3) may conduct recovery audits and recovery

8 activity internally in accordance with the standards

9 issued by the Director under section 3565(b)(2) of this

10 title, or by procuring performance of recovery audits,

11 or by any combination thereof; and

12 ‘‘(4) shall ensure that such recovery audits and

13 recovery activity are carried out consistent with the

14 standards issued by the Director under section

15 3565(b)(2) of this subchapter.

16 ‘‘(c) SCOPE OF AUDITS.—(1) Each recovery audit of

17 a payment activity under this section shall cover payments

18 made by the payment activity in a fiscal year, except that

19 the first recovery audit of a payment activity shall cover

20 payments made during the 2 consecutive fiscal years pre21 ceding the date of the enactment of the Government Waste

22 Corrections Act of 1999.

23 ‘‘(2) The head of an executive agency may conduct re24 covery audits of payment activities for additional preceding
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1 fiscal years if determined by the agency head to be practical

2 and cost-effective.

3 ‘‘(d) RECOVERY AUDIT CONTRACTS.—

4 ‘‘(1) AUTHORITY TO USE CONTINGENCY CON5 TRACTS.—Notwithstanding section 3302(b) of this

6 title, as consideration for performance of any recovery

7 audit procured by an executive agency, the executive

8 agency may pay the contractor an amount equal to

9 a percentage of the total amount collected by the

10 United States as a result of overpayments identified

11 by the contractor in the audit.

12 ‘‘(2) ADDITIONAL FUNCTIONS OF CONTRACTOR.—

13 (A) In addition to performance of a recovery audit,

14 a contract for such performance may authorize the

15 contractor (subject to subparagraph (B)) to—

16 ‘‘(i) notify any person of possible overpay17 ments made to the person and identified in the

18 recovery audit under the contract; and

19 ‘‘(ii) respond to questions concerning such

20 overpayments.

21 ‘‘(B) A contract for performance of a recovery

22 audit shall not affect—

23 ‘‘(i) the authority of the head of an execu24 tive agency under the Contract Disputes Act of

25 1978 and other applicable laws, including the
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1 authority to initiate litigation or referrals for

2 litigation; or

3 ‘‘(ii) the requirements of sections 3711,

4 3716, 3718, and 3720 of this title that the head

5 of an agency resolve disputes, compromise or ter6 minate overpayment claims, collect by setoff, and

7 otherwise engage in recovery activity with re8 spect to overpayments identified by the recovery

9 audit.

10 ‘‘(3) LIMITATION ON AUTHORITY.—Nothing in

11 this subchapter shall be construed to authorize a con12 tractor with an executive agency to require the pro13 duction of any record or information by any person

14 other than an officer, employee, or agent of the execu15 tive agency.

16 ‘‘(4) REQUIRED CONTRACT TERMS AND CONDI17 TIONS.—The head of an executive agency shall include

18 in each contract for procurement of performance of a

19 recovery audit requirements that the contractor

20 shall—

21 ‘‘(A) protect from disclosure otherwise con22 fidential business information and financial in23 formation;

24 ‘‘(B) provide to the head of the executive

25 agency and the Inspector General of the executive
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1 agency periodic reports on conditions giving rise

2 to overpayments identified by the contractor and

3 any recommendations on how to mitigate such

4 conditions;

5 ‘‘(C) notify the head of the executive agency

6 and the Inspector General of the executive agency

7 of any overpayments identified by the contractor

8 pertaining to the executive agency or to another

9 executive agency that are beyond the scope of the

10 contract; and

11 ‘‘(D) promptly notify the head of the execu12 tive agency and the Inspector General of the ex13 ecutive agency of any indication of fraud or

14 other criminal activity discovered in the course

15 of the audit.

16 ‘‘(5) EXECUTIVE AGENCY ACTION FOLLOWING NO17 TIFICATION.—The head of an executive agency shall

18 take prompt and appropriate action in response to a

19 notification by a contractor pursuant to the require20 ments under paragraph (4), including forwarding to

21 other executive agencies any information that applies

22 to them.

23 ‘‘(6) CONTRACTING REQUIREMENTS.—Prior to

24 contracting for any recovery audit, the head of an ex25 ecutive agency shall conduct a public-private cost
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1 comparison process. The outcome of the cost compari2 son process shall determine whether the recovery audit

3 is performed in-house or by a contractor.

4 ‘‘(e) INSPECTORS GENERAL.—Nothing in this sub5 chapter shall be construed as diminishing the authority of

6 any Inspector General, including such authority under the

7 Inspector General Act of 1978.

8 ‘‘(f) PRIVACY PROTECTIONS.—

9 ‘‘(1) LIMITATION ON DISCLOSURE OF INDIVID10 UALLY IDENTIFIABLE INFORMATION.—(A) Any non11 governmental entity that obtains individually identi12 fiable information through performance of recovery

13 auditing or recovery activity under this chapter may

14 disclose that information only for the purpose of such

15 auditing or activity, respectively, and oversight of

16 such auditing or activity, unless otherwise authorized

17 by the individual that is the subject of the informa18 tion.

19 ‘‘(B) Any person that violates subparagraph (A)

20 shall be liable for any damages (including nonpecu21 niary damages, costs, and attorneys fees) caused by

22 the violation.

23 ‘‘(2) DESTRUCTION OR RETURN OF INFORMA24 TION.—Upon the conclusion of the matter or need for

25 which individually identifiable information was dis-
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1 closed in the course of recovery auditing or recovery

2 activity under this chapter performed by a non3 governmental entity, the nongovernmental entity shall

4 either destroy the individually identifiable informa5 tion or return it to the person from whom it was ob6 tained, unless another applicable law requires reten7 tion of the information.

8 ‘‘§ 3563. Disposition of amounts collected

9 ‘‘(a) IN GENERAL.—Notwithstanding section 3302(b)

10 of this title, the amounts collected annually by the United

11 States as a result of recovery audits by an executive agency

12 under this subchapter shall be treated in accordance with

13 this section.

14 ‘‘(b) USE FOR RECOVERY AUDIT COSTS.—Amounts re15 ferred to in subsection (a) shall be available to the executive

16 agency—

17 ‘‘(1) to pay amounts owed to any contractor for

18 performance of the audit; and

19 ‘‘(2) to reimburse any applicable appropriation

20 for other recovery audit costs incurred by the execu21 tive agency with respect to the audit.

22 ‘‘(c) USE FOR MANAGEMENT IMPROVEMENT PRO23 GRAM.—Of the amount referred to in subsection (a), a sum

24 not to exceed 25 percent of such amount—
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1 ‘‘(1) shall be available to the executive agency to

2 carry out the management improvement program of

3 the agency under section 3564 of this title;

4 ‘‘(2) may be credited for that purpose by the

5 agency head to any agency appropriations that are

6 available for obligation at the time of collection; and

7 ‘‘(3) shall remain available for the same period

8 as the appropriations to which credited.

9 ‘‘(d) REMAINDER TO TREASURY.—Of the amount re10 ferred to in subsection (a), there shall be deposited into the

11 Treasury as miscellaneous receipts a sum equal to—

12 ‘‘(1) 50 percent of such amount; plus

13 ‘‘(2) such other amounts as remain after the ap14 plication of subsections (b) and (c).

15 ‘‘(e) LIMITATION ON APPLICATION.—

16 ‘‘(1) IN GENERAL.—This section shall not apply

17 to amounts collected through recovery audits and re18 covery activity to the extent that such application

19 would be inconsistent with another provision of law

20 that authorizes crediting of the amounts to a non21 appropriated fund instrumentality, revolving fund,

22 working capital fund, trust fund, or other fund or ac23 count.

24 ‘‘(2) SUBSECTIONS (c) AND (d).—Subsections (c)

25 and (d) shall not apply to amounts collected through
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1 recovery audits and recovery activity, to the extent

2 that such amounts are derived from an appropriation

3 or fund that remains available for obligation at the

4 time the amounts are collected.

5 ‘‘§ 3564. Management improvement program

6 ‘‘(a) CONDUCT OF PROGRAM.—

7 ‘‘(1) REQUIRED PROGRAMS.—The head of each

8 executive agency that is required to conduct recovery

9 audits under section 3562 of this title shall conduct

10 a management improvement program under this sec11 tion, consistent with guidelines prescribed by the Di12 rector.

13 ‘‘(2) DISCRETIONARY PROGRAMS.—The head of

14 any other executive agency that conducts recovery au15 dits under section 3562 that meet the standards

16 issued by the Director under section 3565(b)(2) may

17 conduct a management improvement program under

18 this section.

19 ‘‘(b) PROGRAM FEATURES.—In conducting the pro20 gram, the head of the executive agency—

21 ‘‘(1) shall, as the first priority of the program,

22 address problems that contribute directly to agency

23 overpayments; and

24 ‘‘(2) may seek to reduce errors and waste in

25 other executive agency programs and operations by
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1 improving the executive agency’s staff capacity, infor2 mation technology, and financial management.

3 ‘‘(c) INTEGRATION WITH OTHER ACTIVITIES.—The

4 head of an executive agency—

5 ‘‘(1) subject to paragraph (2), may integrate the

6 program under this section, in whole or in part, with

7 other management improvement programs and activi8 ties of that agency or other executive agencies; and

9 ‘‘(2) must retain the ability to account specifi10 cally for the use of amounts made available under sec11 tion 3563 of this title.

12 ‘‘§ 3565. Responsibilities of the Office of Management

13 and Budget

14 ‘‘(a) IN GENERAL.—The Director shall coordinate and

15 oversee the implementation of this subchapter.

16 ‘‘(b) GUIDANCE.—

17 ‘‘(1) IN GENERAL.—The Director, in consultation

18 with the Chief Financial Officers Council and the

19 President’s Council on Integrity and Efficiency, shall

20 issue guidance and provide support to agencies in im21 plementing the subchapter. The Director shall issue

22 initial guidance not later than 180 days after the

23 date of enactment of the Government Waste Correc24 tions Act of 1999.
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1 ‘‘(2) RECOVERY AUDIT STANDARDS.—The Direc2 tor shall include in the initial guidance under this

3 subsection standards for the performance of recovery

4 audits under this subchapter, that are developed in

5 consultation with the Comptroller General of the

6 United States and private sector experts on recovery

7 audits.

8 ‘‘(c) FEE LIMITATIONS.—The Director may limit the

9 percentage amounts that may be paid to contractors under

10 section 3562(d)(1) of this title.

11 ‘‘(d) EXEMPTIONS.—

12 ‘‘(1) IN GENERAL.—The Director may exempt an

13 executive agency, in whole or in part, from the re14 quirement to conduct recovery audits under section

15 3562(a)(1) of this title if the Director determines that

16 compliance with such requirement—

17 ‘‘(A) would impede the agency’s mission; or

18 ‘‘(B) would not be cost-effective.

19 ‘‘(2) REPORT TO CONGRESS.—The Director shall

20 promptly report the basis of any determination and

21 exemption under paragraph (1) to the Committee on

22 Government Reform of the House of Representatives

23 and the Committee on Governmental Affairs of the

24 Senate.

25 ‘‘(e) REPORTS.—
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1 ‘‘(1) IN GENERAL.—Not later than 1 year after

2 the date of the enactment of the Government Waste

3 Corrections Act of 1999, and annually for each of the

4 2 years thereafter, the Director shall submit a report

5 on implementation of the subchapter to the President,

6 the Committee on Government Reform of the House of

7 Representatives, the Committee on Governmental Af8 fairs of the Senate, and the Committee on Appropria9 tions of the House of Representatives and of the Sen10 ate.

11 ‘‘(2) CONTENTS.—Each report shall include—

12 ‘‘(A) a general description and evaluation

13 of the steps taken by executive agencies to con14 duct recovery audits, including an inventory of

15 the programs and activities of each executive

16 agency that are subject to recovery audits;

17 ‘‘(B) an assessment of the benefits of recov18 ery auditing and recovery activity, including

19 amounts identified and recovered (including by

20 administrative setoffs);

21 ‘‘(C) an identification of best practices that

22 could be applied to future recovery audits and

23 recovery activity;
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1 ‘‘(D) an identification of any significant

2 problems or barriers to more effective recovery

3 audits and recovery activity;

4 ‘‘(E) a description of executive agency ex5 penditures in the recovery audit process;

6 ‘‘(F) a description of executive agency man7 agement improvement programs under section

8 3564 of this title; and

9 ‘‘(G) any recommendations for changes in

10 executive agency practices or law or other im11 provements that the Director believes would en12 hance the effectiveness of executive agency recov13 ery auditing.

14 ‘‘§ 3566. General Accounting Office reports

15 ‘‘Not later than 60 days after issuance of each report

16 under section 3565(e) of this title, the Comptroller General

17 of the United States shall submit a report on the implemen18 tation of this subchapter to the Committee on Government

19 Reform of the House of Representatives, the Committee on

20 Governmental Affairs of the Senate, the Committee on Ap21 propriations of the House of Representatives and of the Sen22 ate, and the Director.’’.

23 (b) APPLICATION TO ALL EXECUTIVE AGENCIES.—

24 Section 3501 of title 31, United States Code, is amended
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1 by inserting ‘‘and subchapter VI of this chapter’’ after ‘‘sec2 tion 3513’’.

3 (c) DEADLINE FOR INITIATION OF RECOVERY AU4 DITS.—The head of each executive agency shall begin the

5 first recovery audit under section 3562(a)(1) title 31,

6 United States Code, as amended by this section, for each

7 payment activity referred to in those sections by not later

8 than 18 months after the date of the enactment of this Act.

9 (d) CLERICAL AMENDMENT.—The analysis at the be10 ginning of chapter 35 of title 31, United States Code, is

11 amended by adding at the end the following:

‘‘SUBCHAPTER VI—RECOVERY AUDITS

‘‘3561. Definitions.

‘‘3562. Recovery audit requirement.

‘‘3563. Disposition of amounts collected.

‘‘3564. Management improvement program.

‘‘3565. Responsibilities of the Office of Management and Budget.

‘‘3566. General Accounting Office reports.’’.

Amend the title so as to read: ‘‘A bill to improve the

economy and efficiency of Government operations by requiring the use of recovery audits and recovery activity

by Federal agencies.’’.