American Recovery and Reinvestment Act: GAO's Role in Helping to Ensure Accountability and Transparency
Published: 2009-03-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony discusses GAO's plans to carry out its oversight role related to the American Recovery and Reinvestment Act of 2009 (Recovery Act). The Recovery Act funds are provided for purposes including: preserving and creating jobs and promoting economic recovery; assisting those most impacted by the recession; investing in transportation, environmental protection, and other infrastructure to provide long-term economic benefits; and stabilizing state and local government budgets. The Recovery Act assigns GAO a range of responsibilities to help promote accountability and transparency. Some are recurring requirements such as providing bimonthly reviews of the use of funds by selected states and localities. Others include targeted studies in several areas such as small business lending, education, and trade adjustment assistance. This statement discusses (1) GAO's plans to carry out its responsibilities under the Recovery Act, (2) how GAO's responsibilities relate to other oversight authorities, such as the Inspectors General (IG) and the Recovery Accountability and Transparency Board (Board), and (3) the challenges posed in ensuring accountability over the use of funds and associated lessons learned and best practices that can be helpful in addressing those challenges.
section_title: What GAO Found
paragraphs: The Recovery Act delineates an important set of responsibilities for GAO and others in the accountability community. GAO's bimonthly reviews of selected states' and localities' uses of the Recovery Act funds will examine how funds are being used and achieving the stated purposes of the Recovery Act. GAO has selected a core group of 16 states to follow over the next few years to provide an ongoing longitudinal analysis of the use of funds under the Recovery Act. These states contain about 65 percent of the U.S. population and are estimated to receive about two-thirds of the intergovernmental grants funds available through the Recovery Act. In addition, GAO will sample localities within these states to provide a perspective on the use of funds at the local level. In addition to reporting on the core group of 16 states, GAO will be reviewing the recipient reports from all 50 states as part of its responsibilities to review these filings. Depending on those assessments and other risk-based analyses, GAO's reviews may include additional states, localities, or other recipients as implementation proceeds. GAO is charged with reviewing the use of funds by selected states and localities. IGs across government are expected to audit the efforts of federal agencies' operations and programs related to the Recovery Act, both individually within their particular entities and collectively, as many of them are members of the Board. Because funding streams for the Recovery Act will flow to states and localities from different federal agencies, it is important for GAO to coordinate with the IGs and the Board, which is charged with coordinating and conducting oversight of Recovery Act funds in order to prevent fraud, waste, and abuse. Among other things, the Board is to review contracts and grants to ensure they meet applicable standards. It is also important for GAO to coordinate with the Office of Management and Budget, especially with regard to reporting requirements and other guidance to fund recipients and on what information should be collected in order to adequately evaluate how well the Recovery Act achieves its objectives. There are many implementation challenges to ensuring adequate accountability and efficient and effective implementation of the Recovery Act. Experience tells us that the risk for fraud and abuse grows when billions of dollars are going out quickly, eligibility requirements are being established or changed, and new programs are being created. This suggests the need for a risk-based approach for targeting attention on specific programs and funding structures early on based on known strengths, vulnerabilities, and weaknesses such as a track record of improper payments or contracting problems. In that regard, the accountability community has, in recent years, produced a wide variety of best practices and related guides, which are available to agencies to assist them in ensuring they have the needed internal controls in place from the outset. These best practices and related guides cover such areas as fraud prevention, contract management, and grants accountability.

section_title: Letter
paragraphs: I am pleased to be here today to discuss how GAO plans to carry out its  oversight role related to the American Recovery and Reinvestment Act of  2009 (Recovery Act). Congress and the administration have fashioned a  significant response to what is generally reported to be the Nation’s most  serious economic crisis since the Great Depression. The Congressional  Budget Office (CBO) estimates that the Recovery Act’s combined spending  and tax provisions will cost $787 billion, of which over $580 billion will be  in additional spending.
The Recovery Act assigns GAO a range of responsibilities to help promote  accountability and transparency. Some are recurring requirements such  as, most prominently, conducting bimonthly reviews of the use by selected  states and localities of funds made available under the act and  commenting on the estimates of the number of jobs created and the  number of jobs retained in the quarterly reports filed by recipients of  funds under the Recovery Act. Others relate to specific areas including  trade adjustment assistance, new education incentive grants, and efforts  by the head of the Small Business Administration (SBA) to, among other  things, increase the liquidity in the secondary market for small business  loans. Still others include performing longer-term studies of the new  health care tax credits and of the effects of national economic downturns  on states over the past several decades—especially in the Medicaid area— leading to recommendations to help address those effects in the future.
As I will outline today, we have already begun the work of meeting these  responsibilities and have reached out to the broader accountability  community to start coordinating our respective roles, planned approaches,  and timelines. This includes the Inspectors General (IG), state auditors,  and local government auditors as well as the Chair of the Recovery  Accountability and Transparency Board (Board). Collectively, the  accountability community will play important roles in helping to ensure  that Recovery Act funds are spent properly and meeting their intended  purposes, as well as in identifying management or funding issues that need  attention.
My statement today discusses (1) GAO’s plans to carry out its  responsibilities under the Recovery Act, (2) how GAO’s responsibilities  relate to other oversight authorities, such as the IGs and the Board, and (3)  the challenges posed in ensuring accountability and transparency of funds  and the associated lessons learned and best practices that can be helpful  in addressing those challenges.
subsections: section_title: GAO’s Plans to Carry Out Its Recovery Act Responsibilities
paragraphs: Our bimonthly reviews of selected states’ and localities’ will examine how  Recovery Act funds are being used and whether they are achieving the  stated purposes of the act. These purposes include:  to preserve and create jobs and promote economic recovery; to assist those most impacted by the recession; to invest in transportation, environmental protection, and other  infrastructure that will provide long-term economic benefits; and to stabilize state and local government budgets in order to minimize  and avoid reductions in essential services and counterproductive state  and local tax increases.
We have selected a core group of 16 states that we will follow over the  next few years to provide an ongoing longitudinal analysis of the use of  funds under the Recovery Act. The states are Arizona, California,  Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan,  Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania,  and Texas. These states contain about 65 percent of the U.S. population  and are estimated to receive about two-thirds of the intergovernmental  grants funds available through the Recovery Act. We selected these states  on the basis of outlay projections, percentage of the U.S. population  represented, unemployment rates and changes, and a mix of states’  poverty levels, geographic coverage and representation of both urban and  rural areas. In addition, we will sample localities within these states to  provide a perspective on the use of Recovery Act funds at a local level.
GAO will be reaching out to the respective governors’ and state auditors’  offices to begin the work needed for our first bimonthly review to be  completed this April. In addition to reporting on the core group of 16  states, we will be reviewing the recipient reports from all 50 states as part  of our responsibilities to review these filings. These recipient reports are  to include information on funds received, the amount of recovery funds  obligated or expended to projects or activities, and the projects or  activities for which funds were obligated or expended. Depending on our  assessments, we may visit states other than the 16 core group to review  targeted areas. Finally, our Forensic Audits and Special Investigations unit  (FSI) will be undertaking ongoing risk assessments to identify specific  programs and funding streams that are especially vulnerable to fraud, and  it will conduct targeted investigations based on its assessments.
In addition to our bimonthly reviews of selected states and localities, we  also have efforts underway to meet two other short-term requirements.  Specifically, within 45 days after the Recovery Act was signed—by April 3,  2009—we must make 13 appointments to the Health Information  Technology (HIT) Policy Committee, which is to recommend a policy  framework for development and adoption of a nationwide health  information infrastructure to permit the electronic exchange and use of  health information. On February 25, 2009, we placed a notice in the  Federal Register to solicit nominations to the HIT Policy Committee. Also,  within 60 days, we must report on the Small Business Administration’s  efforts to, among other things, increase liquidity in the secondary market  for SBA loans, and our work on this review is well underway.
section_title: How GAO’s Responsibilities Relate to Other Oversight Authorities
paragraphs: The Recovery Act delineates an important set of responsibilities for the  accountability community. GAO is charged with reviewing the use of funds  by selected states and localities. IGs across government are expected to  audit the efforts of federal agencies’ operations and programs related to  the Recovery Act, both individually within their particular entities and  collectively, as many of them are members of the Board. The Recovery Act  established the Board to help prevent waste, fraud, and abuse. The Board  is to review contracts and grants to ensure they meet applicable standards,  follow competition requirements, and are overseen by sufficient numbers  of trained acquisition and grants personnel. The Board has a range of  authorities and is charged with reporting to the President and Congress  any potential problems requiring immediate attention in addition to  reporting quarterly and annually.
Because funding streams of the Recovery Act will flow to the states and  localities from different federal agencies, it is important for us to  coordinate with the IGs and the Board. Consequently, soon after the act  was passed, I reached out to the IG community and, with Ms. Phyllis Fong,  the Chair of the Council of Inspectors General on Integrity and Efficiency  (CIGIE), hosted an initial coordination meeting on February 25, 2009, with  Inspectors General or their representatives from 17 agencies. It was a very  productive discussion in which we outlined coordination approaches  going forward.
Soon after the President appointed him as Chair of the Board on February  23, 2009, I talked with Mr. Earl Devaney, former Inspector General at the  Department of the Interior. I am confident that we will coordinate our  respective efforts well, both with the IG community and the Board. We  work well together on other large coordination efforts such as the audit of  the U.S. government’s consolidated financial statements whereby GAO  relies on the individual efforts of the IG’s financial audits of their  departments and entities across government.
We also have already reached out to the state and local audit community  to have initial discussions and establish coordination approaches. On  February 26, 2009, we participated in a conference call arranged by the  National Association of State Auditors, Comptrollers and Treasurers with  state auditors or their representatives from 46 states and the District of  Columbia. On February 27, 2009, we held a similar discussion with local  auditors from many localities throughout the country. State and local  auditors perform very important oversight functions in their jurisdictions  and have unique knowledge about their governments; we plan to  coordinate with them closely in carrying out our responsibilities.
It is also important for us to coordinate with the Office of Management  and Budget (OMB), especially in regard to reporting requirements and  other guidance to fund recipients and on what information is to be  collected in order to adequately evaluate how well the Recovery Act  achieves its objectives. For example, OMB Director Peter Orszag and I  have received a letter from the National Association of State Auditors,  Comptrollers and Treasurers; the National Association of State Budget  Officers; the National Association of State Chief Information Officers; and  the National Association of State Procurement Officials. This letter  expresses their strong interest in coordinating reporting and compliance  aspects of the Recovery Act. I have been in contact with OMB and these  groups, and we and OMB are undertaking discussions with them.
While there are many reporting and other implementation issues that lie  ahead, we are encouraged by OMB’s initial implementation guidance. In its  guidance, OMB points out the need to balance the desire to get funds out  quickly to help turn the economy around with the equally important need  to make sure funds are spent properly, efficiently, and effectively.
One particular area that also needs attention is identifying the data to be  collected concerning the use and results of the Recovery Act’s various tax  provisions. Accountability and transparency are perhaps easier to envision  for the outlay portions of the stimulus package, but the billions of dollars  in tax provisions in the Recovery Act are considerably different than  outlay programs in their implementation, privacy protections, and  oversight. Most tax benefits are entirely administered by the Internal  Revenue Service (IRS), and all taxpayer information, including the identity  of those using the benefits, is protected by law from disclosure. Further,  unlike for most outlay programs, IRS does not know who makes use of the  tax benefit until after the fact, if then.
In general, IRS does not collect information on who claims tax benefits  and to what extent, unless it determines such information is necessary for  tax administration. In part because of the Paperwork Reduction Act, IRS  generally avoids collecting information not directly needed for tax  administration because both taxpayers and IRS incur costs and other  burdens associated with any information-reporting requirements. As a  result, in the past, information often has not been available to help  Congress determine the effectiveness of some tax provisions or even  identify the numbers of taxpayers using some provisions.
For example, information was not available to Congress to determine the  effect of the Empowerment Zone and Enterprise Community program on  poverty, unemployment, and economic growth. IRS did not collect  information on who used some of the tax benefits or the communities  where benefits were used, or both. The lack of data on the use of the  Empowerment Zone and Enterprise Community tax benefits was of  particular concern because the estimated amount of the tax benefits was  greater than the amount of grant funds dedicated to the program. For  instance, in the first round of the program, recipients received about $1  billion in grants; the Joint Committee on Taxation had estimated that tax  benefits would reduce federal revenues by $2.5 billion between 1994 and  1998.
Absent direction from the Department of the Treasury (Treasury) or OMB,  IRS is unlikely to collect sufficient information to support congressional  oversight of the act’s tax provisions because some provisions have  characteristics similar to existing provisions in other laws where we found  insufficient information was collected to enable congressional oversight.  Accordingly, we have reached out to both OMB and Treasury about their  plans to collect and report data on the Recovery Act tax provisions. Both  OMB and Treasury indicated they initially focused on the spending  programs and not the tax provisions in the Recovery Act. They  acknowledged that additional data beyond what IRS would normally  collect may be needed and that they would consider the tax-data needs as  they proceed.
section_title: Lessons Learned and Best Practices That Can Be Helpful in Addressing Challenges to Implementing the Recovery Act
paragraphs: There are many implementation challenges to ensuring adequate  accountability and efficient and effective implementation of the Recovery  Act. Experience tells us that the risk for fraud and abuse grows when  billions of dollars are going out quickly, eligibility requirements are being  established or changed, new programs are being created, or a mix of these  characteristics. This suggests the need for a risk-based approach to target  for attention specific programs and funding structures based on known  strengths, vulnerabilities, and weaknesses, such as a track record of  improper payments or contracting problems. In that regard, the  accountability community has, in recent years, produced a wide variety of  best practice and related guides, which are available to agencies to assist  them in ensuring they have the needed internal controls in place from the  outset. These best practice and related guides cover such areas as:  Fraud Prevention: By establishing an effective fraud prevention  program, agencies can provide reasonable assurance that Recovery Act  funds benefit intended recipients. A well-designed fraud prevention  program—which can also minimize waste and abuse—should consist of  preventive controls, detection and monitoring, and investigations and  prosecutions. Our work has shown that building internal controls in up  front is of the utmost importance and that fraud prevention is the most  efficient and effective means to minimize fraud, waste, and abuse. Once  federal dollars are disbursed fraudulently or improperly, the government is  only likely to recover a few pennies on the dollar. Thus, preventive  controls are the most important component of a fraud prevention system.  These controls prevent ineligible individuals and questionable firms from  gaining access to government funds in the first place.
Our work across the government shows that agencies sometimes do not  focus on the importance of preventive controls. Examples of preventive  controls, based in part on our body of work that was focused on disaster  relief after Hurricanes Katrina and Rita include the following:  validating data used in decision making against other government or  third-party sources; inspecting whenever possible to confirm information prior to payment;  conducting system edit checks to identify problems before payments  are made; and training staff on fraud awareness.
In addition, we testified last week that businesses and individuals that  have been excluded for egregious offenses ranging from national security  violations to tax fraud are improperly receiving federal contracts and  other funds. Most recently, in February 2009, the National Procurement  Fraud Task Force (NPFTF) published a white paper that identified best  practices and made recommendations for agencies to consider in  preventing fraud, waste, and abuse in grants they administer. These  recommendations included enhanced certifications, increased training,  improved communications with grant recipients, increased information  sharing concerning potential fraud, and rigorous oversight of how grant  dollars are spent after they are awarded.
Have transparent lines of procurement responsibility, authority, and oversight defined  and in place.
Ensure contracts are well structured by establishing clear requirements prior to  award.
Award contracts competitively.
Use fixed-price contracts to the maximum extent possible.
Ensure adherence to high ethical standards, including appropriately limiting state and  local officials’ employment by firms they supervised as government employees.
Appoint contract surveillance personnel as early on as possible—preferably prior to or  as soon as contracts are awarded—and ensure that these personnel have clear  guidance and training as to their role and responsibilities and that there is clear  responsibility for approving payments.
Enforce penalties for companies and individuals that commit severe ethics violations  or fail to demonstrate acceptable performance and refer suspected fraud to the  appropriate agency promptly.
Coordinate with state and local program officials and auditors in the planning and  execution of contracts, agreements, and audits and other reviews.
In addition, we recently issued the GAO Cost Estimating and Assessment  Guide as a helpful resource to agencies. It will be especially helpful to  agencies that will be administering large project contracts stemming from  the use of Recovery Act funds. Congress, agencies, and the American  public want to know whether government programs are achieving their  goals and what their costs are. To make those evaluations, reliable cost  information is required. We developed the Cost Guide in order to establish  a consistent methodology that is based on best practices and that can be  used across the federal government for developing, managing, and  evaluating capital program cost estimates.
Grants Accountability: In 2005, the Domestic Working Group, made up  of federal, state, and local audit organizations and chaired by the  Comptroller General, developed a set of suggestions for improving grant  accountability. In its report, the Domestic Working Group highlighted  what it called “promising practices” in the areas of internal control  systems, performance measures, managing performance, the preaward  process, and assessing and using results. Some specific examples of these  practices included:  assessing applicant capability to account for funds, including clear terms and conditions in grant award documents,   providing grant-management training to staff and grantees,  consolidating information systems to assist in managing grants, coordinating programs with similar goals and purposes, linking activities with program goals and working with grantees to  develop performance measures, and   monitoring the financial status of grants and monitoring subrecipients  as a critical element of grant success.
In summary, GAO welcomes the responsibility that Congress has placed  on us to assist it in the oversight, accountability, and transparency of the  Recovery Act. We will continue to coordinate closely with the rest of the  accountability community. We also are committed to completing our  Recovery Act work on the timetable envisioned by the act and will keep  the Congress fully informed as our plans evolve.
Mr. Chairman, Senator Collins, and Members of the Committee this  concludes my statement. I would be pleased to respond to any questions  you may have.
section_title: Appendix I: GAO Mandates in the American Recovery and Reinvestment Act of 2009
paragraphs: The Comptroller General is required to appoint 13  members of the Health Information Technology (HIT)  Policy Committee. The HIT Policy Committee is to  make policy recommendations to the National  Coordinator of Health Information Technology relating  to the implementation of a nationwide health  information technology infrastructure, including  implementation of a strategic plan.
Division A, title IX, § 901 GAO is required to conduct bimonthly reviews and  prepare reports on such reviews on the use by  selected states and localities of funds made available  in the Recovery Act. The Recovery Act does not  specify the criteria by which the states and localities  will be selected. The reports are to be available online.
Division A, title V, § 507  GAO is required to report on the actions of the Small  Business Administration (SBA) in implementing the  authorities established in certain provisions of the  Recovery Act. The report is to include a summary of  the activity of SBA under these provisions and an  analysis of whether SBA is increasing liquidity in the  secondary market for SBA loans.
GAO, along with the Congressional Budget Office, is to  comment on estimates of the numbers of jobs created  and retained by projects and activities as reported by  recipients of federal funds appropriated by the  Recovery Act.
GAO is required to report on the best practices related  to the disclosure among health care providers of  protected health information of individuals for purposes  of treatment. The report is to include an examination of  the best practices implemented by states and other  entities; the extent to which these best practices  improve the quality of the health care provided to  individuals; the ability of health care providers to  manage the best practices; and the use of electronic  informed consent for disclosing protected health  information for treatment, payment, and health care  operations.
GAO is required to perform a study regarding the  health care credit allowed under section 35 of the  Internal Revenue Code, and report on the results of the  study and include in the report an analysis of the  administrative costs of the federal government and  qualified health insurance providers; the health status  and relative risk status of individuals covered under by  qualified health insurance; the participation in the  health care credit any advance payments under the  credit; and the extent to which covered individuals  obtained health insurance other than qualifying health  insurance or went without health insurance.
GAO is required to study and report on the impact of  2007 and 2008 increases in the minimum wage in  American Samoa and the Commonwealth of the  Northern Mariana Islands on the rates of employment  and the living standards of workers, and estimate the  impact of any further wage increases on rates of  employment and the living standards of workers in  those territories, with full consideration of other factors  that may impact the rates of employment and the living  standards of workers, including how the profitability of  major private sector firms may be impacted by wage  increases in comparison to other factors such as  energy costs and the value of tax benefits.
GAO is required to submit a report including a  recommendation of a methodology under which an  individual who is harmed by certain offenses under  HIPPA relating to privacy or security may receive a  percentage of any civil monetary penalty or monetary  settlement.
GAO is to study and report on periods of national  economic downturn since 1974, including the current  one, for the purpose of developing recommendations  for addressing the needs of states during such periods.  The study is to include an analysis of the past and  projected effects of temporary increases in the federal  medical assistance percentage under the Medicare  program with respect to such periods. The report is to  include, among other things, recommendations for  modifying the national economic downturn assistance  formula for temporary adjustment of the federal  medical assistance percentage under Medicaid to  improve the effectiveness of the application of such  percentage in addressing the needs of states.
Division B, title I, § 1894  GAO is to comprehensively report on the operation and  effectiveness of certain amendments made by the  Recovery Act to the Trade Act of 1974.
GAO is to report on the impact of the Recovery Act on  health insurance premiums, overall health care costs,  adoption of electronic health records by providers, and  reduction in medical errors and other quality  improvements.
GAO is to evaluate certain programs related to  education. The evaluation is to include the criteria used  for the awards made, the states selected for awards,  award amounts, how each state used the award  received, and the impact of this funding on progress  made toward closing achievement gaps.
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