I

106TH CONGRESS

1ST SESSION H. R. 1827

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

A BILL

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

agencies.

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

5 Corrections Act of 1999’’.

6 SEC. 2. FINDINGS AND PURPOSES.

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

8 (1) In private industry, overpayments to pro9 viders of goods and services occur for a variety of

10 reasons, including duplicate payments, pricing er-
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1 rors, and missed cash discounts, rebates, or other al2 lowances. The identification and recovery of such

3 overpayments, commonly referred to as ‘‘recovery

4 auditing’’, is an established private sector business

5 practice with demonstrated large financial returns.

6 On average, recovery audits in the private sector

7 identify payment error rates of 0.1 percent of pur8 chases audited and result in the recovery of

9 $1,000,000 for each $1,000,000,000 of purchases.

10 (2) Overpayments are a serious problem for

11 Federal agencies, given the magnitude and com12 plexity of Federal operations and documented and

13 widespread financial management weaknesses. Fed14 eral agency overpayments waste tax dollars and de15 tract from the efficiency and effectiveness of Federal

16 operations by diverting resources from their intended

17 uses.

18 (3) Recovery auditing already has been em19 ployed successfully in limited areas of Federal activ20 ity. It has great potential for expansion to many

21 other Federal agencies and activities, thereby result22 ing in the recovery of substantial amounts of over23 payments annually. Limited recovery audits con24 ducted to date have identified errors averaging 0.4

25 percent of Federal payments audited, or $4,000,000
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1 for every $1,000,000,000 of payments. If fully im2 plemented within the Federal Government, recovery

3 auditing has the potential to recover billions of dol4 lars in Federal overpayments annually.

5 (b) PURPOSES.—The purposes of this Act are the fol6 lowing:

7 (1) To require the use of recovery audits by

8 Federal agencies.

9 (2) To provide incentives and resources to im10 prove Federal management practices with the goal

11 of significantly reducing Federal overpayment rates

12 and other waste and error in Federal programs.

13 SEC. 3. ESTABLISHMENT OF RECOVERY AUDITS REQUIRE14 MENT.

15 (a) ESTABLISHMENT OF REQUIREMENT.—Chapter

16 35 of title 31, United States Code, is amended by adding

17 at the end the following:

18 ‘‘SUBCHAPTER VI—RECOVERY AUDITS

19 ‘‘§ 3561. Definitions

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

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

22 the Director of the Office of Management and Budg23 et.
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1 ‘‘(2) PAYMENT ACTIVITY.—The term ‘payment

2 activity’ means an executive agency activity that en3 tails making payments to—

4 ‘‘(A) vendors or other entities that provide

5 property or services for the direct benefit or use

6 of an executive agency; or

7 ‘‘(B) entities that provide services or make

8 payments on behalf of the Federal Government

9 pursuant to contractual arrangements with an

10 executive agency.

11 ‘‘(3) RECOVERY AUDIT.—The term ‘recovery

12 audit’ means an auditing process to identify over13 payments made by executive agencies to vendors and

14 other commercial entities in connection with a pay15 ment activity, including overpayments that result

16 from duplicate payments, pricing errors, failure to

17 provide applicable discounts, rebates, or other appli18 cable allowances, or charges or payments that are

19 not authorized by law, regulation, or other applicable

20 requirements.

21 ‘‘§ 3562. Recovery audit requirement

22 ‘‘(a) IN GENERAL.—Except as provided in subsection

23 (d), the head of each executive agency—
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1 ‘‘(1) shall conduct recovery audits with respect

2 to each payment activity of the executive agency that

3 expends $10,000,000 or more annually; and

4 ‘‘(2) may conduct recovery audits for any other

5 payment activity of the executive agency.

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

7 under this section, the head of an executive agency—

8 ‘‘(1) shall give priority to the most recent pay9 ments;

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

11 designed to ensure the greatest financial benefit to

12 the Government; and

13 ‘‘(3) may conduct recovery audits directly, by

14 procuring performance of recovery audits by con15 tract (subject to the availability of appropriations),

16 or by any combination thereof.

17 ‘‘(c) RECOVERY AUDIT CONTRACTS.—

18 ‘‘(1) EXECUTIVE AGENCY AUTHORITIES.—With

19 respect to recovery audits procured by an executive

20 agency by contract—

21 ‘‘(A) notwithstanding section 3302(b) of

22 this title, the executive agency head may pay

23 the contractor an amount not to exceed 25 per24 cent of the total amount recovered by the exec25 utive agency, through setoff and otherwise, sole-
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1 ly on the basis of information obtained as a re2 sult of audits performed by the contractor

3 under the contract;

4 ‘‘(B) the executive agency head may au5 thorize the contractor (subject to subparagraph

6 (C)) to notify entities of potential overpay7 ments, to respond to questions concerning po8 tential overpayments, and to take other admin9 istrative actions with respect to overpayment

10 claims; and

11 ‘‘(C) subject to section 3711 of this title,

12 the executive agency head shall have final au13 thority to resolve disputes, to compromise or

14 terminate overpayment claims, to collect by

15 setoff, and to initiate litigation or referrals for

16 litigation.

17 ‘‘(2) CONTRACT TERMS AND CONDITIONS.—The

18 head of an executive agency shall include in each

19 contract for procurement of performance of a recov20 ery audit a requirement that the contractor shall—

21 ‘‘(A) provide to the executive agency peri22 odic reports on conditions giving rise to over23 payments identified by the contractor and any

24 recommendations on how to mitigate such con25 ditions; and
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1 ‘‘(B) notify the executive agency of any

2 overpayments identified by the contractor per3 taining to the executive agency or to another

4 executive agency that are beyond the scope of

5 the contract.

6 ‘‘(3) EXECUTIVE AGENCY ACTION FOLLOWING

7 NOTIFICATION.—The head of an executive agency

8 shall take prompt and appropriate action in response

9 to a notification by a contractor under subparagraph

10 (A) or (B) of paragraph (2), including forwarding to

11 other executive agencies any information that applies

12 to them.

13 ‘‘(d) EXEMPTIONS.—The Director may exempt any

14 executive agency payment activity from the requirement

15 of subsection (a)(1) if the Director determines that con16 ducting recovery audits for that payment activity would

17 not be practical or cost-effective.

18 ‘‘§ 3563. Recovery audit model programs

19 ‘‘(a) IN GENERAL.—The Director, after consulting

20 with executive agency heads, shall designate not less than

21 five recovery audit model programs. The designated model

22 programs shall—

23 ‘‘(1) reflect a representative range of executive

24 agencies, program activities, and payment practices;

25 and
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1 ‘‘(2) continue for a period of at least one year.

2 ‘‘(b) PURPOSE.—The purpose of the model programs

3 designated under this section is to stimulate and enhance

4 recovery audits in the Federal Government by developing

5 best practices and otherwise identifying ways to make re6 covery audits more effective. In designating the model pro7 grams, the Director shall ensure that the designated pro8 grams complement, and in no way preempt or delay, other

9 Federal recovery audit activities.

10 ‘‘§ 3564. Disposition of amounts collected

11 ‘‘(a) IN GENERAL.—Notwithstanding section

12 3302(b) of this title, amounts an executive agency collects,

13 by setoff and otherwise, each fiscal year through recovery

14 audits conducted under this subchapter shall be treated

15 in accordance with this section.

16 ‘‘(b) USE FOR RECOVERY AUDIT COSTS.—Not more

17 than one quarter of the amounts collected by an executive

18 agency through recovery audits shall be available to meet

19 obligations to recovery audit contractors and to reimburse

20 applicable appropriations for other recovery audit costs in21 curred by the executive agency.

22 ‘‘(c) USE FOR MANAGEMENT IMPROVEMENT PRO23 GRAM.—Not more than one half of the amounts collected

24 by an executive agency through recovery audits—
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1 ‘‘(1) shall be available to the head of the execu2 tive agency to carry out the management improve3 ment program of the agency under section 3565 of

4 this title;

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

6 agency head to any agency appropriations and funds

7 that are available for obligation at the time of collec8 tion; and

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

10 as the appropriation or fund to which credited.

11 ‘‘(d) USE FOR ORIGINAL PURPOSE.—Not more than

12 one quarter of the amounts collected—

13 ‘‘(1) shall be credited to the appropriation or

14 fund, if any, available for obligation at the time of

15 collection for the same general purposes as the ap16 propriation or fund from which the overpayment was

17 made; and

18 ‘‘(2) shall remain available for the same period

19 and purposes as the appropriation or fund to which

20 credited.

21 ‘‘(e) REMAINDER.—Amounts collected that are not

22 applied in accordance with subsection (b), (c), or (d) shall

23 be deposited in the Treasury as miscellaneous receipts.

24 ‘‘(f) LIMITATION OF AMOUNTS.—In accordance with

25 section 1512(d) of this title, the Director may reserve
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1 amounts made available to an executive agency under sub2 sections (b) through (d) to the extent the Director deter3 mines that the full amounts otherwise available cannot be

4 used productively for the purposes for which they are

5 made available.

6 ‘‘§ 3565. Management improvement program

7 ‘‘(a) IN GENERAL.—

8 ‘‘(1) REQUIREMENT.—The head of each execu9 tive agency shall conduct a management improve10 ment program, consistent with rules prescribed by

11 the Director.

12 ‘‘(2) PROGRAM FEATURES.—In conducting the

13 program, the head of the executive agency—

14 ‘‘(A) shall, as the first priority of the pro15 gram, address problems that contribute directly

16 to agency overpayments; and

17 ‘‘(B) may seek to reduce errors and waste

18 in other executive agency programs and oper19 ations by improving the executive agency’s staff

20 capacity, information technology, and financial

21 management.

22 ‘‘(3) INTEGRATION WITH OTHER ACTIVITIES.—

23 The head of an executive agency—

24 ‘‘(A) subject to subparagraph (B), may in25 tegrate the program under this section, in whole
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1 or in part, with other executive agency manage2 ment improvement programs and activities; and

3 ‘‘(B) must retain the ability to account

4 specifically for the use of amounts made avail5 able under section 3465(b) of this title.

6 ‘‘(b) AWARDS.—

7 ‘‘(1) IN GENERAL.—The head of an executive

8 agency may, under the program under this section

9 and subject to the availability of appropriations, pay

10 cash awards to career employees of the executive

11 agency who have made extraordinary contributions

12 to improving the executive agency’s operations in a

13 way that demonstrably and substantially reduces

14 waste and error by the executive agency.

15 ‘‘(2) TERMS AND CONDITIONS.—An award

16 under this subsection shall be subject to the fol17 lowing terms and conditions:

18 ‘‘(A) An award may be granted to an indi19 vidual employee or to a group of employees, in

20 any amount not exceeding $150,000 for any in21 dividual.

22 ‘‘(B) The award must be based on a writ23 ten determination by the executive agency head

24 that the awardee (or the group of awardees, col25 lectively) was directly and primarily responsible
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1 for actions that result in tangible cost savings

2 to the executive agency of at least double the

3 amount of the award.

4 ‘‘(C) The Director must concur in any

5 award that exceeds $50,000 to any individual.

6 ‘‘(D) The awards shall be in addition to

7 any pay and allowances to which an employee

8 is otherwise entitled, and shall not affect an

9 employee’s eligibility for other bonuses and

10 awards.

11 ‘‘(E) The award shall be subject to such

12 additional terms and conditions as may be pre13 scribed by the Director.

14 ‘‘(3) CAREER EMPLOYEE DEFINED.—In this

15 subsection the term ‘career employee’ means any

16 employee of an executive agency, other than—

17 ‘‘(A) a noncareer appointee, limited term

18 appointee, or limited emergency appointee (as

19 such terms are defined in section 3132(a) of

20 title 5) in the Senior Executive Service; and

21 ‘‘(B) an employee in a position that has

22 been excepted from the competitive service by

23 reason of its confidential, policy-determining,

24 policy-making, or policy-advocating character.
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1 ‘‘§ 3566. Responsibilities of the Office of Management

2 and Budget

3 ‘‘(a) IN GENERAL.—The Director shall be responsible

4 for coordinating and overseeing the implementation of this

5 subchapter.

6 ‘‘(b) GUIDANCE.—In addition to the Director’s spe7 cific responsibilities under this subchapter, the Director

8 shall issue rules and provide support to agencies in imple9 menting the subchapter. The Director shall issue initial

10 rules not later than 90 days after the date of enactment

11 of this subchapter.

12 ‘‘(c) REPORTS.—

13 ‘‘(1) IN GENERAL.—Not later than one year

14 after the date of the enactment of this subchapter,

15 and annually for each of the two years thereafter,

16 the Director shall submit a report on implementa17 tion of the subchapter to the President, the Com18 mittee on Government Reform of the House of Rep19 resentatives, the Committee on Governmental Affairs

20 of the Senate, and the Committee on Appropriations

21 of the House of Representatives and of the Senate.

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

23 ‘‘(A) a general description and evaluation

24 of the steps taken by executive agencies to con25 duct recovery audits, including an inventory of
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1 the programs and activities of each executive

2 agency that are subject to recovery audits;

3 ‘‘(B) a description of any exemptions from

4 recovery audits made under section 3562(d) of

5 this title;

6 ‘‘(C) a description and evaluation of the

7 recovery audit model programs conducted under

8 section 3563 of this title, that shall include—

9 ‘‘(i) an assessment of the benefits of

10 the programs;

11 ‘‘(ii) an identification of best practices

12 from the programs that could be applied to

13 other recovery audit activities; and

14 ‘‘(iii) an identification of any signifi15 cant problems or barriers to more effective

16 recovery audits that were experienced in

17 the model programs;

18 ‘‘(D) a description of executive agency

19 management improvement programs under sec20 tion 3565 of this title, including a description

21 of any awards under section 3565(b) of this

22 title; and

23 ‘‘(E) any recommendations for changes in

24 executive agency practices or law or other im25 provements that the Director believes would en-
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1 hance the effectiveness of executive agency re2 covery auditing.

3 ‘‘§ 3567. General Accounting Office reports

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

5 under section 3566(c) of this title, the Comptroller Gen6 eral of the United States shall submit a report on the im7 plementation of this subchapter to the Committee on Gov8 ernment Reform of the House of Representatives, the

9 Committee on Governmental Affairs of the Senate, the

10 Committee on Appropriations of the House of Representa11 tives and of the Senate, and the Director.’’.

12 (b) APPLICATION TO ALL EXECUTIVE AGENCIES.—

13 Section 3501 of title 31, United States Code, is amended

14 by inserting ‘‘and subchapter VI of this chapter’’ after

15 ‘‘section 3513’’.

16 (c) DEADLINE FOR INITIATION OF RECOVERY AU17 DITS.—The head of each executive agency shall begin the

18 first recovery auditing under section 3562 of title 31,

19 United States Code, as amended by this section, by not

20 later than 6 months after the date of the enactment of

21 this Act.

22 (d) CLERICAL AMENDMENT.—The analysis at the be23 ginning of chapter 35 of title 31, United States Code, is

24 amended by adding at the end the following:

‘‘SUBCHAPTER VI—RECOVERY AUDITS

‘‘3561. Definitions.
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‘‘3562. Recovery audit requirement.

‘‘3563. Recovery audit model programs.

‘‘3564. Disposition of amounts collected.

‘‘3565. Management improvement program.

‘‘3566. Responsibilities of the Office of Management and Budget.

‘‘3567. General Accounting Office reports.

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