[Senate Report 114-229]
[From the U.S. Government Publishing Office]
Calendar No. 391
114th Congress } { Report
SENATE
2d Session } { 114-229
_______________________________________________________________________
FRAUD REDUCTION AND DATA ANALYTICS ACT OF 2015
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 2133
TO IMPROVE FEDERAL AGENCY FINANCIAL AND ADMINISTRATIVE
CONTROLS AND PROCEDURES TO ASSESS AND MITIGATE FRAUD
RISKS AND TO IMPROVE FEDERAL AGENCIES' DEVELOPMENT
AND USE OF DATA ANALYTICS FOR THE PURPOSE OF
IDENTIFYING, PREVENTING, AND RESPONDING TO FRAUD,
INCLUDING IMPROPER PAYMENTS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
March 15, 2016.--Ordered to be printed
______
U.S. GOVERNMENT PUBLISHING OFFICE
59-010 WASHINGTON : 2016
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Christopher R. Hixon, Staff Director
Gabrielle D'Adamo Singer, Chief Counsel
Patrick J. Bailey, Chief Counsel for Governmental Affairs
Jennifer L. Schaeffer, Professional Staff Member
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
Mary Beth Schultz, Minority Chief Counsel
Katherine C. Sybenga, Minority Chief Counsel for Governmental Affairs
Laura W. Kilbride, Chief Clerk
Calendar No. 391
114th Congress } { Report
SENATE
2d Session } { 114-229
======================================================================
FRAUD REDUCTION AND DATA ANALYTICS ACT OF 2015
_______
March 15, 2016.--Ordered to be printed
_______
Mr. Johnson, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 2133]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 2133) to improve
Federal agency financial and administrative controls and
procedures to assess and mitigate fraud risks, and to improve
Federal agencies' development and use of data analytics for the
purpose of identifying, preventing, and responding to fraud,
including improper payments, having considered the same,
reports favorably thereon without amendment and recommends that
the bill do pass.
CONTENTS
Page
I. Purpose and Summary..............................................1
II. Background and Need for the Legislation..........................2
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................4
V. Evaluation of Regulatory Impact..................................4
VI. Congressional Budget Office Cost Estimate........................5
VII. Changes in Existing Law Made by the Bill, as Reported............6
I. PURPOSE AND SUMMARY
S. 2133, the Fraud Reduction and Data Analytics Act of
2015, seeks to strengthen Federal anti-fraud controls by
implementing agency guidelines set by the Director of the
Office of Management and Budget (OMB) with input from the
Governmental Accountability Office (GAO) on risk-based fraud
prevention techniques, increasing reporting on agency fraud
reduction strategies to Congress, and facilitating the creation
of a Federal interagency library of data analytics and data
sets used to prevent fraud and improper payments.
II. BACKGROUND AND THE NEED FOR LEGISLATION
Fraud in the Federal Government is a serious problem that
wastes taxpayer dollars, prevents Federal programs from
carrying out their intended purpose and serving target
populations, and creates potential national security risks.
Congress and Federal agencies have been working to combat fraud
and reduce improper payments by creating policies and
legislation that will give agencies the tools that they need to
target and prevent fraud. In 2014, Federal agencies reported an
estimated $124.7 billion in improper payments, which includes
payments made because of waste, fraud, and abuse.\1\ According
to GAO, the improper payment amount was $136.9 billion in
2015.\2\
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\1\Gov't Accountability Office, GAO-15-593SP, A Framework for
Managing Fraud Risks in Federal Programs 47 (July 2015), available at
http://www.gao.gov/assets/680/671664.pdf.
\2\Gov't Accountability Office, GAO-16-357R, Financial Audit: U.S.
Government's Fiscal Years 2015 and 2014 Consolidated Financial
Statements 32 (Feb. 2016), available at http://www.gao.gov/assets/680/
675425.pdf.
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This Committee has a history of conducting oversight of the
fraudulent and wasteful use of taxpayer dollars, including
holding hearings on improper payments in both the 113th and
114th Congress. For example, on February 11, 2015, the
Committee held a hearing titled Risky Business: Examining GAO's
2015 List of High Risk Government Programs. The hearing
examined government functions identified by the GAO as a high
risk to taxpayers, including fraudulent income tax returns due
to identity fraud, which led to $5.8 billion in improper
payments in 2013.\3\
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\3\Risky Business: Examining GAO's 2015 List of High Risk
Government Programs: Hearing Before the S. Comm. on Homeland Sec. &
Governmental Affairs, 114th Cong. (2015), available at http://
www.hsgac.senate.gov/hearings/risky-business-examining-gaos-2015-list-
of-high-risk-government-programs; Gov't Accountability Office, GAO-15-
371T, GAO'S 2015 High-Risk Series: An Update 7 (Feb. 2015), available
at http://www.gao.gov/assets/670/668419.pdf.
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In another February 2015 hearing looking at the work of
Federal inspectors general, the Social Security
Administration's (SSA) Inspector General testified that in
fiscal year 2013, SSA reported $3 billion in improper payments
in its Old Age, Survivors, and Disability programs, and $5.1
billion in improper payments in the Supplemental Security
Income program.\4\ The Inspector General was quick to point out
that these aggregate numbers do not include fraud that the
agency has not detected, meaning it represents only a portion
of the full amount of improper payments made, and highlighting
the importance of detecting fraud.\5\
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\4\Improving the Efficiency, Effectiveness, and Independence of
Inspectors General: Hearing Before the S. Comm. on Homeland Sec. &
Governmental Affairs 2, 114th Cong. (2015) (statement of Patrick P.
O'Carroll, Jr., Inspector General, Social Security Administration),
available at http://www.hsgac.senate.gov/hearings/improving-the-
efficiency-effectiveness-and-independence-of-inspectors-general.
\5\Id.
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To help Federal agencies reduce fraud, in 2014, GAO updated
their Standards for Internal Control in the Federal Government
(the ``Green Book'') which provides the overall framework for
establishing and maintaining an effective internal control
system. According to GAO, internal controls are the
organizational processes which agencies use to comply with
applicable laws and regulations and report accurately on their
operations.\6\ The new Green Book, which became effective at
the beginning of fiscal year 2016, sets the standards for
internal controls in Federal agencies and requires Federal
managers to ``consider the potential for fraud when
identifying, analyzing, and responding to risks.''\7\
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\6\Gov't Accountability Office, GAO-14-704G, Standards For Internal
Control in the Federal Government 5 (Sept. 2014), available at http://
www.gao.gov/assets/670/665712.pdf.
\7\Id at 34.
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Additionally, GAO published the Fraud Risk Management
Framework (the Framework) in July 2015 to help Federal managers
adjust to a risk-based approach to combat fraud.\8\ The
Framework emphasizes fraud prevention and recommends control
activities Federal managers can implement to prevent, detect,
and respond to fraud. It was created with input from Offices of
Inspector General (OIG), national audit institutions from other
countries, the World Bank, the Organization for Economic Co-
operation and Development, as well as anti-fraud experts
representing private companies, state and local audit
associations, and nonprofit entities.\9\ The Framework
recommends that agencies create an organizational culture that
emphasizes fraud risk management, plan regular risks
assessments tailored to each program, design anti-fraud
strategies that include cooperation with program stakeholders,
and design methods to measure fraud reduction outcomes, among
other recommendations.\10\
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\8\Gov't Accountability Office, GAO-15-593SP, A Framework For
Managing Fraud Risks in Federal Programs (July 2015), available at
http://www.gao.gov/assets/680/671664.pdf.
\9\Id. at 1.
\10\Id. at 6.
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The Fraud Reduction and Data Analytics Act of 2015 seeks to
utilize the GAO Framework by codifying these new standards and
directing OMB to use the Framework to create guidelines for
agencies to establish controls to identify and assess fraud
risks and to design and implement control activities to
prevent, detect, and respond to fraud. Agencies will then be
required to report to Congress on their implementation of the
new fraud reduction strategies, as well as identify their risks
and vulnerabilities to fraud. These reports will help Congress
monitor the progress made by agencies in addressing and
reducing fraud risk, including the success or failures of the
guidelines created by OMB as a result of this bill.
Finally, to give Federal agencies the technical tools they
need to better analyze fraud risk, the bill establishes a
working group tasked with establishing a plan for the creation
of a Federal interagency library of data analytics and data
sets to facilitate the detection of fraud and the recovery of
improper payments. The working group is comprised of the
Controller of OMB as chairperson and the Chief Financial
Officer (CFO) of each agency. This information will allow
agencies to coordinate in their fraud detection and improve
their ability to use data analytics to monitor databases for
potential improper payments, a recommendation included in GAO's
Framework for reducing fraud risk.\11\
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\11\Id.
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III. LEGISLATIVE HISTORY
S. 2133, the Fraud Reduction and Data Analytics Act of
2015, was introduced October 5, 2015, by Senators Tom Carper,
Thom Tillis, Claire McCaskill, Ron Johnson, and Tammy Baldwin.
The bill was referred to the Committee on Homeland Security and
Governmental Affairs.
The Committee considered S. 2133 at a business meeting on
October 7, 2015. The Committee ordered the bill reported
favorably by voice vote without amendment. Members present for
the vote on the bill were Senators Johnson, Portman, Lankford,
Enzi, Ernst, Sasse, Carper, McCaskill, Baldwin, Heitkamp, and
Booker.
IV. SECTION-BY-SECTION ANALYSIS OF THE BILL, AS REPORTED
Section 1. Short title
This section establishes the short title of the bill as the
``Fraud Reduction and Data Analytics Act of 2015.''
Section 2. Definitions
This section defines the terms ``agency'' and ``improper
payment.''
Section 3. Establishment of financial and administrative controls
relating to fraud and improper payments
This section directs the Director of OMB to create
guidelines for agencies to establish controls to identify fraud
risks and to design and implement control activities to respond
to fraud, which should specifically incorporate practices
identified in the GAO Framework, and states that the Director
of OMB should work with the United States Comptroller General
to modify the guidelines as necessary.
This section specifies that agencies should be using a
risk-based approach to design controls to prevent fraud and
that control activities should mitigate identified fraud risks.
The section also states that agencies should be collecting data
to detect and monitor fraud, and using that data to perfect
their fraud prevention techniques, as well as using the results
of audits and investigations to improve their fraud detection
and response.
Finally this section requires each agency to submit a
report on their progress toward: enacting the guidelines
created by OMB, the fraud risk principle in the Green Book, and
the OMB Circular A-123 with respect to the leading practices
for managing fraud risk; and identifying risks and
vulnerabilities to fraud. Such reports are required to be
submitted to Congress in the agency's annual financial report
to Congress for each of the three fiscal years following the
enactment of this bill.
Section 4. Working group
This section establishes a working group, comprised of the
Controller of OMB as chairperson, and the CFO of each agency.
This working group will meet quarterly to share best practices
in addressing fraud and to establish a plan for the creation of
a Federal interagency library of data analytics and data sets
to facilitate the detection of fraud and the recovery of
improper payments.
V. EVALUATION OF REGULATORY IMPACT
Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill and determined
that the bill will have no regulatory impact within the meaning
of the rules. The Committee agrees with the Congressional
Budget Office's statement that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would impose no costs
on state, local, or tribal governments.
VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
January 12, 2016.
Hon. Ron Johnson,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2133, the Fraud
Reduction and Data Analytics Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Keith Hall.
Enclosure.
S. 2133--Fraud Reduction and Data Analytics Act of 2015
S. 2133 would require federal agencies to report on their
efforts to assess and combat fraud and improper payments in
each of the next three years. In addition, the legislation
would require the Office of Management and Budget (OMB) to set
up a working group to establish best practices for preventing
fraud and improper payments and for sharing analytical
information among federal agencies.
The Federal Managers' Financial Integrity Act requires
agencies to establish and maintain internal controls to ensure
federal programs operate efficiently, effectively, and in
compliance with relevant laws. The Government Accountability
Office (GAO) issues financial control standards for the federal
government through the Standards for Internal Control in the
Federal Government (known as the Green Book). Additionally, OMB
establishes specific requirements for assessing and reporting
on financial controls used by the federal government. The
standards in the most recent Green Book include methods for
assessing the risk of fraud.
Based on information from GAO and OMB, CBO expects that
implementing the bill would increase the administrative costs
of each major federal agency by roughly $50,000 annually
primarily to prepare reports for the Congress for three years.
Because there are about 25 major agencies, CBO estimates that
implementing S. 2133 would cost about $4 million over the 2016-
2020 period, including funds to operate the proposed working
group. Such spending would be subject to the availability of
appropriated funds.
Under S. 2133, agencies would be required to undertake
additional efforts to detect fraud and improper payments that
will not be undertaken under current law. Such efforts could
result in cost savings to some agencies, but could also lead to
additional costs to correct financial systems. CBO has no basis
for estimating the magnitude of either increases in the
recovery of fraudulent payments or costs to correct financial
systems.
Enacting S. 2133 also could affect direct spending by some
agencies (such as the Tennessee Valley Authority) because they
are authorized to use receipts from the sale of goods, fees,
and other collections to cover their operating costs.
Therefore, pay-as-you-go procedures apply. Because most of
those agencies can make adjustments to the amounts collected as
operating costs change, CBO estimates that any net changes in
direct spending by those agencies would not be significant.
Enacting the bill would not affect revenues.
CBO estimates that enacting S. 2133 would not increase net
direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2026.
S. 2133 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. The estimate was approved by H. Samuel Papenfuss,
Deputy Assistant Director for Budget Analysis.
VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
Because this legislation would not repeal or amend any
provision of current law, it would make no changes in existing
law within the meaning of clauses (a) and (b) of paragraph 12
of rule XXVI of the Standing Rules of the Senate.
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