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Hearing of the Federal Financial Management, Government Information, Federal Services and International Security Subcommittee of the Senate Homeland Security and Governmental Affairs Committee: Eliminating Agency Payment Errors


Location: Washington, DC

Hearing of the Federal Financial Management, Government Information, Federal Services and International Security Subcommittee of the Senate Homeland Security and Governmental Affairs Committee: Eliminating Agency Payment Errors


SEN. TOM COBURN (R-OK): Thank you, Senator Carper, for having this hearing.

You all are not the enemy; I understand that. So as we discuss this, please take our comments in the light that we're trying to solve this problem.

I have a statement for the record I'd like to have put into the record, if I could.

SEN. CARPER: Without objection.

SEN. COBURN: First of all, I don't believe the number that we have. I think it's about twice that.

I sit and look at Medicare and then I look at what has just recently been documented in the state of Florida. Just by capturing one ring of people on Medicare, we dropped the billings $1.4 billion -- ($)1.4 billion just by breaking up one ring of false billing.

I don't think our numbers are accurate. We say Medicaid improper payments are $13 billion. I think it's that in New York state alone, based on what I'm looking at and what I'm seeing.

The question is is do we really have a handle? And what we really know is we really don't, especially in the bigger programs.

And there's some things we're going to talk about with OMB in terms of, you know, with the direction that's been given; we allow NASA to use anything under $500 million as not to be looked at. Well, that can't be right, and that certainly isn't what we intended.

So the question is, the impending financial crisis that we are seeing a little peek at right now as the world looks at the value of our dollar and whether or not we can repay the borrowings under which we're trying to operate for the next generation, it's really going to become important that you all in all your areas of expertise cut no slack in this area.

And I know each of you are dedicated to that, but I think the biggest problem is that we don't really still yet know how big the problem is. We still have lots of agencies that aren't even about doing the first things to develop how big the problem is.

So when we look at the number, what we know is the number isn't right. And, you know, the one thing, as an accounting major, is -- it's the old computer adage: If the numbers we're putting in aren't right, the numbers we're going to get out aren't going to be right as well.

So when we're looking at a portion of the pie -- granted, we're looking at a bigger portion than what we did, and that's -- to all of you -- you should be complimented in terms of we are making progress, but it's not near to the level that we need to be and it's not to the degree we need to be.

And I compliment Senator Carper in working with us on this new bill. We're not quite comfortable yet -- I'm not -- in terms of how aggressive I want it to be and how, because of what we've seen, how we limit some of the flexibility in this.

But nevertheless, I think it's very important that we're moving in that direction, and I thank him for it, and I'll redirect most of my questions and my statement as we get into the questioning.

Thank you.


SEN. COBURN: Thank you. Just a couple of questions.

The last thing we want is to make work for the agencies. And the OMB cited the change -- you changed the annual review. And I guess my question for you is what statute or regulation do you use to cite the authority to deviate from -- that was required by this law for an annual review? What did you all use to give you the authority to change what Congress has said about annual reviews?

MR. WERFEL: Dr. Coburn, let me first clarify that I have the right deviation in mind. Are you referring to the --

SEN. COBURN: From the risk assessment.

MR. WERFEL: From the risk assessment, okay.

We look at the Improper Payments Information Act as establishing at its outset a risk-management framework. It requires agencies to not look at every dollar across the board and trigger all these activities but to do a risk assessment and break things up into low- risk and high-risk. Once a program is identified as low-risk, the agency looks at it and says, "We have other information available to us based on the complexity of the program, based on the number of times federal funds changed hands," et cetera, whatever process they go through -- they've identified as low-risk. And then we had a question to ask ourselves in terms of how to implement the bill. Once it's been designated as low-risk, what should we require the agencies to do each year in order to continue to validate its low-risk status?

SEN. COBURN: I don't have any problem with that. The question is is where did you get the authority to change what we told you to do? What did you use to say -- what we've said in the law is we require you to make a risk assessment yearly, not every three years. Regardless of what you've done, that's what the law said. All I'm asking is, where did the authority come to change that? What do you cite as an authority? I'm not saying it's not common sense. I'm not disagreeing with it. I'm just saying, where'd you get the authority to do that?

MR. WERFEL: We believe that the authority is in the Improper Payments Information Act. It's the provision that requires a risk assessment generally. And our interpretation of that provision -- and we may have differing interpretations -- our interpretation of that provision is that once a program is designated low-risk, we're not telling agencies to ignore that program and to put it out of their minds completely. We require in our guidance that agencies have to re-evaluate that program if exigent factors or new factors emerge, like the program changes or there is an influx of money into that program or conditions change. And it's the fact that the agencies have to keep apprised of potential changes -- because they've done a baseline risk assessment and found it low-risk.

SEN. COBURN: Yeah. Let me use a specific example. This -- we had a hearing -- CDBG block grants. We had a great look at it. This is somebody that's low risk. And yet, in our hearing the inspector general found $100 million in fraud and abuse in only 35 of the 1,180 grantees. That's just the first 35 they looked at -- $100 million in fraud. And yet, under your all's program, its low-risk; they don't have to do another risk assessment.

So where is -- where do we catch this so that this falls back in -- I'm not critical that you say people -- we don't want them to keep doing the same thing. But here you've got CDBG block grants with $100 million out of the first 35 programs that they look at -- fraud -- documented fraud -- and yet they fall outside of what your guidance is to say that they're not -- they don't need to do a risk assessment. And yet it's $100 million going out the door every year.

So my question is is how do you firm that up? You're trying to accomplish something on the front side to not give anybody -- make work. But how do we catch it on the backside when it's obviously missed it and we want to pick it up?

MR. WERFEL: That's a good question. And when we -- the way we would focus on this problem going forward is -- the risk assessment that initially designates a program as low-risk needs to have been found, otherwise the framework that I've just outlined doesn't really work that well.

SEN. COBURN: So where does HUD fall back in this? Because under your all's guidance right now HUD isn't under -- they don't have to do a risk assessment even though they had $100 million run out the door.

MR. WERFEL: There is flexibility in the guidance. And we've implemented that flexibility to target certain programs that even though they're designated for low risk that we require the agency to go back annually. And we don't provide them this type of ability to do the full-scope risk assessment each year, and CDBG is one of those programs. So under --

SEN. COBURN: So it's not going to fly under the radar. It's -- we see it, it's coming back in, it's going to be re-looked at. Right?

MR. WERFEL: Absolutely. And really what we need is a partnership between OMB, GAO and the inspector generals to identify the CDBGs in the world where there's questions about that initial risk assessment.


MR. WERFEL: If an agency made a good initial risk assessment and then no environmental factors change and the IG and GAO and OMB and Congress were all not seeing things that need to be extra focused on, we are comfortable generally in allowing the IG to move forward and risk -- a full-scope risk assessment every three years. But programs like CDBG where, in partnership, we can pinpoint and say, "I know you risk-assessed it low, but it doesn't add up when you look at other factors that we consider at play; risk-assess it again." And that's what's going on with CDBG right now.

SEN. COBURN: Yeah. But you would admit you could -- under the way you all do it, you could get low-risk, but there could still be fraud?


SEN. COBURN: Okay. So, for example, it is really important that Congress do oversight, isn't it? I mean, had somebody not asked for this IG to look, had we not had the -- would we have found this? You know, that's the real question, is would we have seen this hundred million dollars going out the door had somebody not say (sic), "IG, do a look at this and let's have a hearing on it." And so -- which is the point I try to make to my fellow senators all the time; the reason that we have as many problems as we have is we're not doing enough oversight to look at -- to see where the problems are, asking the right questions.

Let me go to one other area. I still have a little problem with your risk-assessment threshold -- this 2.5 percent -- and I think that's going to be identified in what Senator Carper is planning in (terms of ?) legislation. But is there not areas where we're missing things when we have that, when we have the threshold that you all have designed? And I know we've been over this, but kind of help me with that if you would.

MR. WERFEL: Certainly. There's a couple of factors at play. So, as I described, we have a current framework where we have this 2.5 percent and $10 million. OMB's guidance goes beyond that and says if we know about a program that has a low error rate but high improper payment dollars, then we're not going to let the agencies off the hook for those programs.

So it's not an automatic exemption if you hit those two categories. And the way the results have played out -- back in 2004, under this framework agencies were identifying ($)1.4 trillion in high risk, and that was that about 60 percent of all outlays.

And we, you know -- that was quite stunning in and of itself, that even with this framework you had ($)1.4 trillion being caught and saying, "Yes, this is a problem; this is high risk."

Since 2004 -- now flash forward to 2007 -- now we're at ($)1.9 trillion. And what you see -- as I mentioned earlier -- DHS just designated 12 programs high-risk. And other agencies are coming forward with additional high-risk programs. We look at those numbers and those trends and we say the framework's working, because ($)1.4 trillion right off the bat was quite impressive in terms of a net to cast. But since then, and over time, the process is still generating more and more looks.

And I have to compliment the Government Accountability Office and -- when I talked about partnership. They were the ones who shook their head at DHS and said, "Something's not adding up; you're risk- assessing these things as low, go back again." And it was all GAO. And --

SEN. COBURN: The one that comes to mind to me is NASA. Do we really feel comfortable that NASA has no payment problems? I mean, does anybody in the room want to stand up and say NASA has no payment problems? And yet that's what they've reported. They have no high- risk programs? I mean, can we really accept that? With the amount of money they spend, there's no fraud in contracting, there's no significant improper payments made by NASA. Can we really say that? And can we believe it? Do we believe it? I mean, does OMB believe it?

MR. WERFEL: No, we don't. But we would categorize NASA as -- looking at NASA's expenditures, they're spending a predominant amount of their money on contracts. So distinguished from the earlier programs -- food stamps, public housing, benefit payment world, which we believe is where the IPIA is -- that's the sweet spot for the IPIA -- where NASA's expenditures are, it's in all the contracts that they expend on, and that's really the Recovery Auditing Act. And under the Recovery Auditing Act, NASA absolutely is responsible, under the threshold in the current bill, which is $500 million a year in contract payments, they are absolutely on the hook to be doing a thorough review and to be implementing Recovery Auditing Act procedures.

And the unfortunate thing that occurred this year was that NASA did not get off the dime quick enough and start up their Recovery Auditing Act process, and it was too late by the end of the year to get the process started. And so, for '07 they had a significant gap in their reporting.

Believe me, that did not go undetected by OMB. We're very concerned about that. We're putting a lot of focus with NASA on getting back on track. And we anticipate that in '09 we'll see very thorough review of those contract dollars.

SEN. COBURN: My time is expired. Just -- I'd make the last point and then I won't ask a second round on this. The president, in his wisdom, put in CFOs everywhere, right? Everywhere. That's their job. Somebody ought to be hanging if there was no recovery audit at NASA.

SEN. CARPER: Well, I don't know that it was the president in his wisdom, but I think it might've been Senator Bill Roth, my predecessor, who was -- I think might've been the lead sponsor in that in the Senate. And I think he --

SEN. COBURN: It happened. Let me just say that.


SEN. COBURN: I have another question.

SEN. CARPER: Go right ahead, please.

SEN. COBURN: What happens, if anything, for an agency that does not comply with the law or OMB guidance right now in improper payments?

MR. WERFEL: Currently there are two particular implications that come to mind. First, the independent auditor would include in the audit report a finding indicating noncompliance with that particular law or regulation. And secondly, the impact, from an OMB standpoint, is we would downgrade their score in the president's management agenda and make the public.

SEN. COBURN: All right.

Okay. Thank you.


SEN. COBURN: Can I interject here for a second?

SEN. LEVIN: Of course.

SEN. COBURN: The guidance that OMB gives is 2.5 percent or $10 million. Well, $500 million is two-tenths of a percent. Therefore, they don't have to report, which is nuts.

SEN. LEVIN: It's not only nuts, it's inconsistent.

SEN. COBURN: Well, but it also -- the footnote for that zero says that the Defense Department did not report.

SEN. LEVIN: Yeah, but my question is why.

SEN. COBURN: What I suspect is is because they don't fall under the 2.5 percent or $10 million rule.

SEN. LEVIN: But didn't they fall under the same thing in 2006?

SEN. COBURN: Well, but once -- it's still, again, it's the 2.5 percent, because it's such a small percentage, even though it's $500 million. They have two years -- they're not required. But --

Under the -- we covered this before you came in. Under the interpretation, OMB's guidance to them -- I don't know if that's right or not, but --

SEN. LEVIN: I think I got it, but that -- that may explain zero in 2007. It's wrong guidance, we think -- I think. I won't speak for anyone else in terms of the purpose of the act, but that's not my question. My question is the same guidance you said was in effect in 2006.

MR. WERFEL: And I think I'm going to have to ask you to indulge me and let me get back to you on that because I don't have that information at my fingertips in terms of why that number appeared in 2006 and didn't in 2007.

SEN. LEVIN: Right. And I understand what Senator Coburn's saying, and that's not an acceptable --

SEN. COBURN: It's not --

SEN. LEVIN: -- interpretation for me either. And I won't speak for our chairman, but I agree with that. That's not acceptable, but it also seems to be a change in guidance of some kind between those two years, and I want to know if that's true. And if not, what explains the zero? That's my question for the record.

And thank you and thank you for letting me buzz in this way.

SEN. CARPER: No, no, no. Just before you arrived, we were in the back and forth with Mr. Werfel. He had mentioned in his testimony that the administration has asked the Congress to do a number of things through the appropriations legislation and others to enable us to reduce improper payments and do a better job on recovery. And it sounds to Senator Coburn and me as if we may have -- we the Congress -- may have used some of those initiatives in our budget resolutions, for pay-fors, to reduce outlays over five years, over 10 years, to enable us to pay for other things.

But then when it came time to actually do the appropriation, to follow up and make those pay-fors possible, we may not have done that. And that's -- I think that's fertile ground for us to work together, work with the administration to make sure if that's indeed what happened that we don't make that mistake again.

SEN. LEVIN: Thank you both.

SEN. CARPER: Yeah, good to see you. Thanks so much for joining us.

I've got a couple more questions for the record, Mr. Williams and Mr. Werfel.

Anything else, Dr. Coburn? No? Okay.

All right, gentlemen, again, we appreciate you being back with us today.

Mr. Williams, I understand you can stay a bit longer for the second panel. If you could do that, we'd be most appreciative. But thank you so much.

MR. WILLIAMS: Thank you.

MR. WERFEL: Thank you.

SEN. COBURN: While you all are being seated, I have to go to a Judiciary markup. I just wanted to express my appreciation for the work that you do. It's often not appreciated. The importance of it is often not recognized. This subcommittee recognizes it, and although I won't be here to hear your testimony or ask questions, I wanted you to know how much I appreciate it, and I think I'm speaking for Senator Carper as well, of the fine work that you do. And we have noticed progress in the last three years. I think you all have as well, and I think that should be noted. Thank you.

SEN. CARPER: Dr. Coburn, keep them straight on that Judiciary Committee.

SEN. COBURN: I'll do my best.


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