rors, and missed cash discounts, rebates, or other al-
lowances. The identification and recovery of such
overpayments, commonly referred to as ‘‘recovery
auditing’’, is an established private sector business
practice with demonstrated large financial returns.
On average, recovery audits in the private sector
identify payment error rates of 0.1 percent of pur-
chases audited and result in the recovery of
$1,000,000 for each $1,000,000,000 of purchases.
(2) Overpayments are a serious problem for
Federal agencies, given the magnitude and com-
plexity of Federal operations and documented and
widespread financial management weaknesses. Fed-
eral agency overpayments waste tax dollars and de-
tract from the efficiency and effectiveness of Federal
operations by diverting resources from their intended
uses.
(3) Recovery auditing already has been em-
ployed successfully in limited areas of Federal activ-
ity. It has great potential for expansion to many
other Federal agencies and activities, thereby result-
ing in the recovery of substantial amounts of over-
payments annually. Limited recovery audits con-
ducted to date have identified errors averaging 0.4
percent of Federal payments audited, or $4,000,000
for every $1,000,000,000 of payments. If fully im-
plemented within the Federal Government, recovery
auditing has the potential to recover billions of dol-
lars in Federal overpayments annually.
(b) PURPOSES.—The purposes of this Act are the fol-
lowing:
(1) To require the use of recovery audits by
Federal agencies.
(2) To provide incentives and resources to im-
prove Federal management practices with the goal
of significantly reducing Federal overpayment rates
and other waste and error in Federal programs.
SEC. 3. ESTABLISHMENT OF RECOVERY AUDITS REQUIRE-
MENT.
(a) ESTABLISHMENT
OF REQUIREMENT.—Chapter
35 of title 31, United States Code, is amended by adding
at the end the following:
‘‘SUBCHAPTER VI—RECOVERY AUDITS
‘‘§ 3561. Definitions
‘‘In this subchapter, the following definitions apply:
‘‘(1) DIRECTOR.—The term ‘Director’ means
the Director of the Office of Management and Budg-
et.
‘‘(2) PAYMENT ACTIVITY.—The term ‘payment
activity’ means an executive agency activity that en-
tails making payments to—
‘‘(A) vendors or other entities that provide
property or services for the direct benefit or use
of an executive agency; or
‘‘(B) entities that provide services or make
payments on behalf of the Federal Government
pursuant to contractual arrangements with an
executive agency.
‘‘(3) RECOVERY
AUDIT.—The term ‘recovery
audit’ means an auditing process to identify over-
payments made by executive agencies to vendors and
other commercial entities in connection with a pay-
ment activity, including overpayments that result
from duplicate payments, pricing errors, failure to
provide applicable discounts, rebates, or other appli-
cable allowances, or charges or payments that are
not authorized by law, regulation, or other applicable
requirements.
‘‘§ 3562. Recovery audit requirement
‘‘(a) IN GENERAL.—Except as provided in subsection
(d), the head of each executive agency—
‘‘(1) shall conduct recovery audits with respect
to each payment activity of the executive agency that
expends $10,000,000 or more annually; and
‘‘(2) may conduct recovery audits for any other
payment activity of the executive agency.
‘‘(b) PROCEDURES.—In conducting recovery audits
under this section, the head of an executive agency—
‘‘(1) shall give priority to the most recent pay-
ments;
‘‘(2) shall implement this section in a manner
designed to ensure the greatest financial benefit to
the Government; and
‘‘(3) may conduct recovery audits directly, by
procuring performance of recovery audits by con-
tract (subject to the availability of appropriations),
or by any combination thereof.
‘‘(c) RECOVERY AUDIT CONTRACTS.—
‘‘(1) EXECUTIVE AGENCY AUTHORITIES.—With
respect to recovery audits procured by an executive
agency by contract—
‘‘(A) notwithstanding section 3302(b) of
this title, the executive agency head may pay
the contractor an amount not to exceed 25 per-
cent of the total amount recovered by the exec-
utive agency, through setoff and otherwise, sole-
ly on the basis of information obtained as a re-
sult of audits performed by the contractor
under the contract;
‘‘(B) the executive agency head may au-
thorize the contractor (subject to subparagraph
(C)) to notify entities of potential overpay-
ments, to respond to questions concerning po-
tential overpayments, and to take other admin-
istrative actions with respect to overpayment
claims; and
‘‘(C) subject to section 3711 of this title,
the executive agency head shall have final au-
thority to resolve disputes, to compromise or
terminate overpayment claims, to collect by
setoff, and to initiate litigation or referrals for
litigation.
‘‘(2) CONTRACT TERMS AND CONDITIONS.—The
head of an executive agency shall include in each
contract for procurement of performance of a recov-
ery audit a requirement that the contractor shall—
‘‘(A) provide to the executive agency peri-
odic reports on conditions giving rise to over-
payments identified by the contractor and any
recommendations on how to mitigate such con-
ditions; and
‘‘(B) notify the executive agency of any
overpayments identified by the contractor per-
taining to the executive agency or to another
executive agency that are beyond the scope of
the contract.
‘‘(3) EXECUTIVE AGENCY ACTION FOLLOWING
NOTIFICATION.—The head of an executive agency
shall take prompt and appropriate action in response
to a notification by a contractor under subparagraph
(A) or (B) of paragraph (2), including forwarding to
other executive agencies any information that applies
to them.
‘‘(d) EXEMPTIONS.—The Director may exempt any
executive agency payment activity from the requirement
of subsection (a)(1) if the Director determines that con-
ducting recovery audits for that payment activity would
not be practical or cost-effective.
‘‘§ 3563. Recovery audit model programs
‘‘(a) IN GENERAL.—The Director, after consulting
with executive agency heads, shall designate not less than
five recovery audit model programs. The designated model
programs shall—
‘‘(1) reflect a representative range of executive
agencies, program activities, and payment practices;
and
‘‘(2) continue for a period of at least one year.
‘‘(b) PURPOSE.—The purpose of the model programs
designated under this section is to stimulate and enhance
recovery audits in the Federal Government by developing
best practices and otherwise identifying ways to make re-
covery audits more effective. In designating the model pro-
grams, the Director shall ensure that the designated pro-
grams complement, and in no way preempt or delay, other
Federal recovery audit activities.
‘‘§ 3564. Disposition of amounts collected
‘‘(a) 
IN
GENERAL.—Notwithstanding 
section
3302(b) of this title, amounts an executive agency collects,
by setoff and otherwise, each fiscal year through recovery
audits conducted under this subchapter shall be treated
in accordance with this section.
‘‘(b) USE FOR RECOVERY AUDIT COSTS.—Not more
than one quarter of the amounts collected by an executive
agency through recovery audits shall be available to meet
obligations to recovery audit contractors and to reimburse
applicable appropriations for other recovery audit costs in-
curred by the executive agency.
‘‘(c) USE FOR MANAGEMENT IMPROVEMENT PRO-
GRAM.—Not more than one half of the amounts collected
by an executive agency through recovery audits—
‘‘(1) shall be available to the head of the execu-
tive agency to carry out the management improve-
ment program of the agency under section 3565 of
this title;
‘‘(2) may be credited for that purpose by the
agency head to any agency appropriations and funds
that are available for obligation at the time of collec-
tion; and
‘‘(3) shall remain available for the same period
as the appropriation or fund to which credited.
‘‘(d) USE FOR ORIGINAL PURPOSE.—Not more than
one quarter of the amounts collected—
‘‘(1) shall be credited to the appropriation or
fund, if any, available for obligation at the time of
collection for the same general purposes as the ap-
propriation or fund from which the overpayment was
made; and
‘‘(2) shall remain available for the same period
and purposes as the appropriation or fund to which
credited.
‘‘(e) REMAINDER.—Amounts collected that are not
applied in accordance with subsection (b), (c), or (d) shall
be deposited in the Treasury as miscellaneous receipts.
‘‘(f) LIMITATION OF AMOUNTS.—In accordance with
section 1512(d) of this title, the Director may reserve
amounts made available to an executive agency under sub-
sections (b) through (d) to the extent the Director deter-
mines that the full amounts otherwise available cannot be
used productively for the purposes for which they are
made available.
‘‘§ 3565. Management improvement program
‘‘(a) IN GENERAL.—
‘‘(1) REQUIREMENT.—The head of each execu-
tive agency shall conduct a management improve-
ment program, consistent with rules prescribed by
the Director.
‘‘(2) PROGRAM FEATURES.—In conducting the
program, the head of the executive agency—
‘‘(A) shall, as the first priority of the pro-
gram, address problems that contribute directly
to agency overpayments; and
‘‘(B) may seek to reduce errors and waste
in other executive agency programs and oper-
ations by improving the executive agency’s staff
capacity, information technology, and financial
management.
‘‘(3) INTEGRATION WITH OTHER ACTIVITIES.—
The head of an executive agency—
‘‘(A) subject to subparagraph (B), may in-
tegrate the program under this section, in whole
or in part, with other executive agency manage-
ment improvement programs and activities; and
‘‘(B) must retain the ability to account
specifically for the use of amounts made avail-
able under section 3465(b) of this title.
‘‘(b) AWARDS.—
‘‘(1) IN GENERAL.—The head of an executive
agency may, under the program under this section
and subject to the availability of appropriations, pay
cash awards to career employees of the executive
agency who have made extraordinary contributions
to improving the executive agency’s operations in a
way that demonstrably and substantially reduces
waste and error by the executive agency.
‘‘(2) TERMS
AND
CONDITIONS.—An award
under this subsection shall be subject to the fol-
lowing terms and conditions:
‘‘(A) An award may be granted to an indi-
vidual employee or to a group of employees, in
any amount not exceeding $150,000 for any in-
dividual.
‘‘(B) The award must be based on a writ-
ten determination by the executive agency head
that the awardee (or the group of awardees, col-
lectively) was directly and primarily responsible
for actions that result in tangible cost savings
to the executive agency of at least double the
amount of the award.
‘‘(C) The Director must concur in any
award that exceeds $50,000 to any individual.
‘‘(D) The awards shall be in addition to
any pay and allowances to which an employee
is otherwise entitled, and shall not affect an
employee’s eligibility for other bonuses and
awards.
‘‘(E) The award shall be subject to such
additional terms and conditions as may be pre-
scribed by the Director.
‘‘(3) CAREER
EMPLOYEE
DEFINED.—In this
subsection the term ‘career employee’ means any
employee of an executive agency, other than—
‘‘(A) a noncareer appointee, limited term
appointee, or limited emergency appointee (as
such terms are defined in section 3132(a) of
title 5) in the Senior Executive Service; and
‘‘(B) an employee in a position that has
been excepted from the competitive service by
reason of its confidential, policy-determining,
policy-making, or policy-advocating character.
‘‘§ 3566. Responsibilities of the Office of Management
and Budget
‘‘(a) IN GENERAL.—The Director shall be responsible
for coordinating and overseeing the implementation of this
subchapter.
‘‘(b) GUIDANCE.—In addition to the Director’s spe-
cific responsibilities under this subchapter, the Director
shall issue rules and provide support to agencies in imple-
menting the subchapter. The Director shall issue initial
rules not later than 90 days after the date of enactment
of this subchapter.
‘‘(c) REPORTS.—
‘‘(1) IN GENERAL.—Not later than one year
after the date of the enactment of this subchapter,
and annually for each of the two years thereafter,
the Director shall submit a report on implementa-
tion of the subchapter to the President, the Com-
mittee on Government Reform of the House of Rep-
resentatives, the Committee on Governmental Affairs
of the Senate, and the Committee on Appropriations
of the House of Representatives and of the Senate.
‘‘(2) CONTENTS.—Each report shall include—
‘‘(A) a general description and evaluation
of the steps taken by executive agencies to con-
duct recovery audits, including an inventory of
the programs and activities of each executive
agency that are subject to recovery audits;
‘‘(B) a description of any exemptions from
recovery audits made under section 3562(d) of
this title;
‘‘(C) a description and evaluation of the
recovery audit model programs conducted under
section 3563 of this title, that shall include—
‘‘(i) an assessment of the benefits of
the programs;
‘‘(ii) an identification of best practices
from the programs that could be applied to
other recovery audit activities; and
‘‘(iii) an identification of any signifi-
cant problems or barriers to more effective
recovery audits that were experienced in
the model programs;
‘‘(D) a description of executive agency
management improvement programs under sec-
tion 3565 of this title, including a description
of any awards under section 3565(b) of this
title; and
‘‘(E) any recommendations for changes in
executive agency practices or law or other im-
provements that the Director believes would en-
hance the effectiveness of executive agency re-
covery auditing.
‘‘§ 3567. General Accounting Office reports
‘‘Not later than 60 days after issuance of each report
under section 3566(c) of this title, the Comptroller Gen-
eral of the United States shall submit a report on the im-
plementation of this subchapter to the Committee on Gov-
ernment Reform of the House of Representatives, the
Committee on Governmental Affairs of the Senate, the
Committee on Appropriations of the House of Representa-
tives and of the Senate, and the Director.’’.
(b) APPLICATION TO ALL EXECUTIVE AGENCIES.—
Section 3501 of title 31, United States Code, is amended
by inserting ‘‘and subchapter VI of this chapter’’ after
‘‘section 3513’’.
(c) DEADLINE FOR INITIATION OF RECOVERY AU-
DITS.—The head of each executive agency shall begin the
first recovery auditing under section 3562 of title 31,
United States Code, as amended by this section, by not
later than 6 months after the date of the enactment of
this Act.
(d) CLERICAL AMENDMENT.—The analysis at the be-
ginning of chapter 35 of title 31, United States Code, is
amended by adding at the end the following:
‘‘SUBCHAPTER VI—RECOVERY AUDITS
‘‘3561. Definitions.
‘‘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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