[Senate Report 106-502]
[From the U.S. Government Publishing Office]
Calendar No. 950
106th Congress Report
SENATE
2d Session 106-502
_______________________________________________________________________
TO AMEND TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE
AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES,
AND FOR OTHER PURPOSES
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
together with
ADDITIONAL VIEWS
to accompany
S. 3030
TO AMEND TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE
AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES, AND
FOR OTHER PURPOSES
October 12 (legislative day, September 22), 2000.--Ordered to be
printed
__________
U.S. GOVERNMENT PRINTING OFFICE
89-010 WASHINGTON : 2000
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Ellen B. Brown, Senior Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Deborah Cohn Lehrich, Minority Counsel
Darla D. Cassell, Chief Clerk
Calendar No. 950
106th Congress Report
SENATE
2d Session 106-502
======================================================================
AMENDING TITLE 31, UNITED STATES CODE, TO PROVIDE FOR EXECUTIVE
AGENCIES TO CONDUCT ANNUAL RECOVERY AUDITS AND RECOVERY ACTIVITIES, AND
FOR OTHER PURPOSES
_______
October 12 (legislative day, September 22), 2000.--Ordered to be
printed
_______
Mr. Thompson, from the Committee on Governmental Affairs, submitted the
following
R E P O R T
[To accompany S. 3030]
The Committee on Governmental Affairs, to which was
referred the bill (S. 3030) amending title 31, United States
Code, to provide for executive agencies to conduct annual
recovery audits and recovery activities, and for other
purposes, 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 Legislation..............................2
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................4
V. Regulatory Impact Statement......................................7
VI. CBO Cost Estimate................................................8
VII. Additional Views................................................12
VIII.Changes to Existing Law.........................................15
I. Purpose and Summary
S. 3030 amends chapter 35 of title 31, United States Code,
to require Federal agencies to perform recovery audits if their
direct purchases for goods and services total $500 million or
more per fiscal year. Agencies that must undertake recovery
auditing also would be required to institute a management
improvement program to address underlying problems of their
payment systems.
II. Background and Need for Legislation
Improper payments in the Federal Government
Each year, the Federal government spends hundreds of
billions of dollars for a variety of grants, transfer payments,
and the procurement of goods and services. The Federal
government must be accountable for how it spends these funds
and for safeguarding against improper payments. Unfortunately,
the problem of improper payments by Federal agencies and
departments is immense. The General Accounting Office recently
identified $20.7 billion in improper payments in just 20 major
programs administered by 12 Federal agencies in Fiscal Year
1999 alone (Financial Management: Improper Payments Reported in
Fiscal Year 1999 Financial Statements (GAO/AIMD-00-261R)). This
represents an increase of more than $1.5 billion from the
previous year's estimate. In its report, GAO wrote that its
``audits and those of agency inspectors general continue to
demonstrate that improper payments are much more widespread
than agency financial statement reports have disclosed thus
far.''
Legislative efforts have focused on improving the Federal
government's financial control processes. Recently-enacted
laws, such as the Chief Financial Officers Act, the Government
Management Reform Act, and the Government Performance and
Results Act, have provided an impetus for agencies to
systematically measure and reduce the extent of improper
payments.
However, the risk of improper payments and the government's
inability to prevent them continue to be significant problems.
While the Committee continues to work to improve the
government's widespread financial management weaknesses, it is
important to begin to address the recovery of the tens of
billions of dollars in improper payments.
Recovery auditing in the private sector
Recovery auditing is used extensively by private sector
businesses, including a majority of Fortune 500 companies.
These businesses typically contract with specialized recovery
auditing firms that are paid a contingent fee based on the
amounts recovered from payment errors they identify. Recovery
auditing is not ``auditing'' in the usual sense. Recovery
auditing firms do not examine the records of vendors doing
business with their client companies or assess the vendors'
performance. Instead, these firms develop and use computer
software programs that are capable of analyzing their clients'
own contract and payment records in order to identify
discrepancies in those records between what was owed and what
was paid. They focus on obvious but inadvertent errors, such as
duplicate payments or failure to get credit for applicable
discounts and allowances.
Payment errors identified by private sector recovery
auditors average only 0.1 percent of all payments reviewed.
Nevertheless, recoveries are substantial when applied to large
volumes of transactions. The 0.1 percent average error rate
produces $1 million in recoveries for each $1 billion of
payments reviewed.
III. Legislative History
HOUSE ACTIVITY
The House companion to S. 3030--H.R. 1827--was introduced
on May 17, 1999 by Rep. Dan Burton (R-IN), Chairman of the
Committee on Government Reform. Original co-sponsors were
Majority Leader Dick Armey (R-TX), Rep. Pete Sessions (R-TX),
and Rep. Doug Ose (R-CA). H.R. 1827 was referred to the
Committee on Government Reform, then referred to the
Subcommittee on Government Management, Information, and
Technology on May 25, 1999.
The Subcommittee held a legislative hearing on June 29,
1999. Witnesses at the hearing were: David Walker, Comptroller
General of the United States, General Accounting Office; Deidre
Lee, Acting Deputy Director of Management and Administrator of
the Office of Federal Procurement Policy, Office of Management
and Budget; George H. Allen, Deputy Commander, Defense Supply
Center Philadelphia; Gerald R. Peterson, Chief, Accounts
Payable Division, Army and Air Force Exchange Service; Michelle
Snyder, Director, Financial Management Office, and Chief
Financial Officer, Health Care Financing Administration; Paul
Dinkins, Executive Vice President, The Profit Recovery Group
International, Inc.; Douglas R. Wilwerding, Chief Executive
Officer and President, Omnium Worldwide, Inc.; Terrance Lyons,
Director of Accounting, the Walgreen Company; Stephen R. Booma,
private consultant; Robert Koehler, American Logistics
Association.
A business meeting was held by the Subcommittee on July 21,
1999, at which time the Subcommittee chairman, Rep. Steve Horn
(R-CA), offered an amendment in the nature of a substitute to
H.R. 1827. It was ordered favorably reported to the full
Committee on Government Reform by voice vote. On November 10,
1999, the full Committee on Government Reform met to consider
H.R. 1827. Chairman Dan Burton offered an amendment in the
nature of a substitute. Two additional amendments were offered
and accepted. The Committee on Government Reform approved the
amendment in the nature of a substitute, as amended, by voice
vote. The Committee on Government Reform then ordered the bill
reported favorably, as amended, to the House by voice vote. On
November 17, 1999, the bill was reported by the Committee on
Government Reform and placed on the House Calendar. On March 8,
2000, H.R. 1827 was passed by the House 375-0.
senate activity
S. 3030 was introduced by Committee on Governmental Affairs
Chairman Fred Thompson on September 12, 2000, and referred to
the Committee. On September 27, 2000, the Committee held a
business meeting and discussed S. 3030. Chairman Thompson
recognized that some issues still remained open and committed
to working with the Committee to resolve them prior to bringing
S. 3030 up for consideration by the full Senate.
The Committee ordered S. 3030 reported without amendment
favorably to the full Senate by voice vote (en bloc). Senators
present were: Thompson, Roth, Stevens, Collins, Voinovich,
Domenici, Cochran, Levin, Akaka, Durbin, Torricelli, Cleland,
and Edwards.
IV. Section-by-Section Analysis
Section 1. Recovery audits
Section 1(a)(1) would add a new subchapter to chapter 35 of
title 31, United States Code, entitled ``Recovery Audits''
containing sections 3561 through 3566.
Section 3561. Definitions
This section would contain definitions of terms applicable
under this legislation. For example, the term ``Director''
would mean the Director of the Office of Management and Budget
(OMB). The definition of ``facial discrepancy payment error''
is meant to convey Congressional intent with respect to the
conduct and meaning of ``recovery audit'' in this legislation.
Under this legislation, the subject of the recovery audit is
the contract, invoice, and payment documents held by the
agency. A recovery audit contractor would not be authorized to
access or audit the vendor's records. The Committee intends for
the recovery audit to be performed strictly to identify payment
errors found from a review of the facts and figures on the
``face'' of contract, invoice, and payment documents held by
the agency and would not entail assessments, evaluations, or
judgement calls regarding the quality of goods or services
provided to the agency. Further, the language is not meant to
restrict a recovery audit contractor from substantiating agency
payment errors such as missed discounts or rebates. The term
``payment activity'' would mean an agency activity that entails
making payments to vendors or other nongovernmental entities
that provide goods or services to support the performance of
the agency's mission. The term ``recovery audit'' would mean a
financial management technique used by an agency to perform
internal audits of its records to identify payment errors in
connection with agency payment activities. The term ``recovery
activity'' would mean the process, otherwise authorized by law,
to try and collect payment errors.
Section 3562. Recovery audit requirement
Subsection (a) would require each executive agency to
conduct recovery audits for every fiscal year if combined
payment activities total at least $500 million annually on
goods or services for the use or direct benefit of the agency.
Agencies may conduct recovery audits for payment activities
under this threshold if they so choose.
Subsection (b) would provide agency heads the authority to
seek from the Director of OMB exemptions to the requirement in
(a).
Subsection (c) would provide that agency heads prescribe
procedures for recovery audits and recovery activities which
will ensure the greatest financial benefit to the United
States. It also would provide that agency heads consult and
coordinate recovery audits with the agency Chief Information
Officer and the Inspector General. Agencies would be authorized
to conduct recovery audits in-house, contract with private
recovery audit specialists, or use any combination thereof. It
would be necessary for recovery audits to comply with a
recovery audit standard to be set forth by the Director of OMB.
Subsection (d) would prescribe authorities and functions of
recovery audit contractors and terms and conditions required in
recovery audit contracts. Under (d)(1), the agency head would
have the explicit authority to use contingency contracts,
whereby contractors would be allowed to retain a percentage of
collections from payment errors they identify during the audit.
Under (d)(2), it is made explicit that a contract for
recovery auditing would not affect an agency's authorities
under the Contract Disputes Act, the Debt Collection Act, or
other applicable laws to resolve disputes and take collection
action. It also is made clear that nothing in this subchapter
would require the production of documents by anyone other than
the executive agency or that nothing in this subchapter would
create the authority for a physical presence on the property of
a vendor by the executive agency.
Under (d)(3), recovery audit contractors would be required
to protect any financial information they come across in the
course of their recovery audit work or any other information
which has not been released for general public use. They would
be required to report periodically to the agency on the causes
of payment errors they identify and offer any recommendations
they have on how to mitigate them. They also would be required
to notify the agency of any payment errors they happen to
identify that are beyond the scope of their contracts. They
would have to promptly notify the agency head of suspected
fraudulent or criminal activity.
Agencies, under (d)(4), would be required to take prompt
and appropriate action in response to contractor
recommendations and notifications.
Under (d)(5), agencies would have to conduct a public-
private cost comparison to determine whether to conduct
recovery auditing in-house or by contract.
Subsection (e) would indicate that the legislation would
not affect current authorities of Inspectors General, including
such authorities under the Inspector General Act of 1978.
Subsection (f) would specify that the legislation would not
affect current payment authorities and claim procedures for
certain types of transportation provided to the government.
Subsection (g) would limit the disclosure by recovery audit
contractors of any individually identifiable information
obtained during the course of the audit and places liability
for damages on any violators of this restriction. The
subsection also would require the return of individually
identifiable information at the conclusion of the audit.
Section 3563. Disposition of amounts collected
Subsection (a) would provide that this section applies to
annual amounts recouped by the United States.
Subsection (b) would provide authority for amounts
recovered to be available to pay recovery audit contractors and
to reimburse applicable appropriations for recovery audit costs
incurred by the agency.
Subsection (c) would provide authority for up to 25 percent
of collections to be used to fund agency management improvement
programs under section 3564.
Subsection (d) would require that at least 50 percent and
any additional amounts not used for recovery audit costs or the
management improvement program would revert to the Treasury.
Subsection (e)(1) would exempt from this section amounts
collected if the application would be inconsistent with other
provisions of law governing the crediting of collections.
Examples include non-appropriated fund instrumentalities,
revolving funds, working capital funds, and trust funds.
Subsection (e)(2) would provide that, except for use for
the recovery audit contract, the disposition authorities and
requirements for collected amounts under this section would not
apply to funds that remain available for obligation at the time
the amounts are collected.
Section 3564. Management improvement program
Subsection (a) would require the agencies that are mandated
to conduct recovery audits to implement management improvement
programs consistent with guidance prescribed by the Director of
OMB. Other agencies that conduct recovery auditing in
compliance with OMB guidance would be authorized to implement
management improvement programs.
Subsection (b) would require the agency to address the
problems that contributed to the payment errors as the first
priority of the management improvement program. The agency head
also would be able to use the management improvement program
for other initiatives to reduce error and waste in agency
programs.
Subsection (c) would authorize the agency head to integrate
the management improvement program with other management
improvement programs within the agency or with other agencies.
Agency heads would have flexibility, within the guidance
established by OMB, over how to conduct their management
improvement programs; however, they must be able to account for
the use of amounts made available from recovery audit proceeds.
Section 3565. Responsibilities of the Office of Management
and Budget
Subsection (a) would assign the Director of OMB general
responsibility for coordinating and overseeing the
implementation of the legislation.
Subsection (b) would require the Director of OMB in
consultation with the Chief Financial Officers Council (CFOC)
and the President's Council on Integrity and Efficiency (PCIE),
to issue implementation guidance and support to the agencies.
The guidance must include recovery audit standards to be
developed in consultation with GAO and private recovery audit
specialists. This subsection also would require the guidance to
include specific standards and procedures for the
identification and disposition of payment errors which cause
underpayments to vendors.
Subsection (c) would authorize the Director of OMB to place
limitations on percentage amounts paid to recovery audit
contractors under contingency fee arrangements.
Section 3566. Exemptions
Subsection (a) would authorize the Director of OMB to make
exemptions from the recovery audit mandate if compliance with
such a mandate would impede the agency's mission or would not
be cost effective. Under subsection (b), the Director of OMB
would have to promptly report any such determination and
exemption to Congress.
Subsection (c) would provide exemptions for certain
contracts which, under current law, already are subject to
extensive audit scrutiny and oversight.
Section (1)(a)(2) would add the new table of sections to
chapter 35.
Section (1)(b) would clarify that its provisions apply to
all Executive Branch agencies.
Section (1)(c) would require the Director of OMB to issue
initial guidance on implementation of this legislation not
later than 180 days after enactment, and such initial guidance
shall include the standards required by paragraph (2) of
section 3565(b).
Section (1)(d) would require each executive agency to begin
the first recovery audit required under section 3562(a)(1) not
later than 18 months after date of enactment and that such
recovery audit will cover 2001, the preceding fiscal year, and
any additional fiscal years that the head of the executive
agency determines are practical and cost-effective.
Section (1)(e) would prohibit information obtained from a
recovery audit to be used by plaintiffs in certain actions.
Section (1)(f) would authorize the Director of OMB to
establish a recovery audit pilot program at one or more
agencies to test the feasibility and effectiveness of recovery
audits with respect to payment activities other than those
related to Federal contracts for the procurement of goods and
services.
Section (1)(g)(1) would require the Director of OMB to
submit to the President and Congress, not later than 30 months
after the date of enactment and then annually for each of the
two years thereafter, detailed reports on implementation of
this legislation. The reports would include: a description and
evaluation of agency efforts to conduct recovery audits; an
assessment of the benefits of the Act, including amounts
identified and recovered; an identification of best practices;
a list of any significant problems or barriers to more
effective performance of recovery audits and activities; a
report on agency expenditures related to recovery auditing; a
description of the management improvement programs;
recommendations for changes in agency practices or law that
would improve agency efforts under this Act; and a description
and evaluation of each pilot program conducted.
Section (1)(g)(2) would require the GAO, not later than 60
days after the submittal of each report under paragraph (1), to
report to Congress and the Director of OMB on implementation of
this legislation.
Section (1)(h) would require the Director of OMB to conduct
a study on the effects of recovery audits including any
problems relating to improper or inadequate notice of recovery
audits. The study would be reported to Congress and would
contain the Director's findings, conclusions, and
recommendations.
V. Regulatory Impact Statement
Paragraph 11(b)(1) of the Standing Rules of the Senate
requires that each report accompanying a bill evaluate ``the
regulatory impact which would be incurred in carrying out this
bill.''
The enactment of this legislation will not have significant
regulatory impact. S. 3030 contains no intergovernmental or
private-sector mandates as defined in the Unfunded Mandates
Reform Act and would have no impact on state, local or tribal
governments.
VI. CBO Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 11, 2000.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3030, a bill to
amend title 31, United States Code, to provide for executive
agencies to conduct annual recovery audits and recovery
activities, and for other purposes.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is John R.
Righter.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 3030--A bill to amend title 31, United States Code, to provide for
executive agencies to conduct annual recovery audits and
recovery activities, and for other purposes
Summary: S. 3030 would require federal agencies to conduct
specialized audits of accounts that purchase at least $500
million of goods and services in a given year from the private
sector. By increasing the federal government's recovery of
erroneous payments made to the private sector, CBO estimates
that enacting S. 3030 would decrease direct spending by $60
million over the 2001-2010 period. Consequently, pay-as-you-go
procedures would apply to the bill. Implementing the bill also
could yield similar savings for amounts made available in
future years, but such savings would depend on the amounts
appropriated for the relevant accounts. In addition, CBO
estimates that the Office of Management and Budget (OMB) would
spend less than $500,000 a year to oversee and report on the
bill's implementation and that the General Accounting Office
(GAO) would spend less than $500,000 in each of fiscal years
2001 through 2003 to report on the bill's effectiveness.
S. 3030 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on the budgets of state, local, or
tribal governments.
Major provisions: S. 3030 would require federal agencies to
conduct specialized audits of accounts that purchase at least
$500 million of goods and services in a given year from the
private sector. The audits, referred to as recovery auditing,
are conducted using software that identifies such anomalies as
pricing errors on invoices, duplicate payments, miscalculated
freight charges, and any failure to provide applicable rebates,
allowances, and discounts.
For certain accounts, S. 3030 would allow agencies to
retain and spend, without further appropriation action, one-
half of any amounts collected from conducting recovery audits.
Agencies could use the amounts they retain to improve
management functions and to pay for the costs of performing the
audits. The bill would require agencies to deposit the
remaining amounts recovered in the Treasury as miscellaneous
receipts.
S. 3030 would require both OMB and GAO to report to the
Congress on the bill's implementation in each of fiscal years
2001 through 2003. As part of its role in overseeing such
implementation, OMB could exempt agencies or programs from the
bill's requirements.
Estimated cost to the Federal Government: CBO estimates
that implementing S. 3030 would increase offsetting receipts
from the recovery of overpayments by about $120 million over
fiscal years 2002 through 2005. That estimate represents
recovery of overpayments made with funds appropriated during
fiscal years 2000 and 2001. Because the bill would allow
agencies to retain and spend one-half of such amounts without
further appropriation, CBO estimates that agencies would spend
about $60 million of those recoveries over fiscal years 2002
through 2006. Implementing the bill could yield similar savings
in net spending for amounts made available in years after
fiscal year 2001, but such savings would depend on the amounts
appropriated.
The estimated budgetary impact of S. 3030 is shown in the
following table. The costs of this legislation fall within
multiple budget functions.
------------------------------------------------------------------------
By fiscal year, in millions of
dollars--
---------------------------------------
2001 2002 2003 2004 2005
------------------------------------------------------------------------
Recovery of Overpayments:
Estimated Budget Authority.. 0 (\2\) -20 -90 -10
Estimated Outlays........... 0 (\2\) -20 -90 -10
Spending by Agencies:
Estimated Budget Authority.. 0 (\2\) 10 45 5
Estimated Outlays........... 0 (\2\) 5 25 25
Net Changes:
Estimated Budget Authority.. 0 (\2\) -10 -45 -5
Estimated Outlays........... 0 (\2\) -15 -65 15
------------------------------------------------------------------------
\1\ Implementing the bill would also affect spending subject to
appropriation.
\2\ Less than $500,000.
Basis of estimate: This estimate assumes that the bill will
be enacted early in fiscal year 2001 and that it would apply to
appropriations provided for 2001 and 2000.
Direct spending
Audits of Appropriated Accounts. Within 18 months of
enactment, S. 3030 would require agencies to begin conducting
recovery audits of payments made from certain accounts during
fiscal years 2000 and 2001. Based on an analysis of 1998 and
1999 data from the Federal Procurement Report, which is
compiled by the General Services Administration, CBO estimates
that recovery audits could apply to about $125 billion in
annual payments made in each of fiscal years 2000 and 2001, net
of those payments (including payments from revolving and
working capital funds) that we expect will be audited under
current law. However, CBO expects that OMB would exempt certain
accounts from the bill's requirements, including accounts that
involve the research, testing, and procurement of military
weapons, finance federal law enforcement activities, and
involve medical records. Thus, we estimate that the bill's
requirement to audit payments would apply to about $60 billion
in annual payments.
In the private sector, companies using the recovery audit
process have identified and collected approximately $1 for
every $1,000 in audited payments, or a rate of 0.1 percent.
Recovery audits of some payments made by the Department of
Defense (DoD) have identified a payment error rate of 0.4
percent; however, DoD's experience in recovering the identified
overpayments is mixed. On average, CBO assumes the federal
government would recover about 0.1 percent of the $60 billion
audited, or $60 million a year. That rate takes into account
the increased difficulty in collecting overpayments that are
more than one year old and the likelihood that federal agencies
will settle for less than full payment on some of these debts.
We expect that agencies would not begin collecting overpayments
from contractors until the end of fiscal year 2002.
Audits of Revolving and Working Capital Funds. S. 3030 also
could affect spending from accounts that receive no annual
appropriations, such as revolving and working capital funds.
Some agencies, particularly the DoD, are currently auditing
tens of billions of dollars of payments from such accounts
already, and CBO expects that they will continue to expand
their use of recovery auditing to recapture overpayments made
from these accounts. Under the bill, none of the funds
recovered by revolving and working capital funds would be
deposited in the Treasury. Therefore, the legislation would
have no net budgetary effect for such accounts.
Spending subject to appropriation
If recovery audits are used to collect overpayments made
with funds appropriated after 2001, then implementing the bill
could yield savings similar to the net recoveries estimated for
audits of 2000 and 2001, but such savings would depend on the
amounts appropriated for the relevant accounts. If
appropriations were to continue at about the same level as in
fiscal year 2001, the net savings would average about $30
million a year in 2004 and subsequent years (allowing time for
agencies to complete their audits of 2000 and 2001 funds and
begin recovering 2002 overpayments).
In addition, CBO estimates that OMB would spend less than
$500,000 a year to oversee and report on the bill's
implementation and that GAO would spend less than $500,000 in
each of fiscal years 2001 through 2003 to report on the bill's
effectiveness.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays that are subject to pay-as-you-go procedures
are shown in the following table. For the purposes of enforcing
pay-as-you-go procedures, only the effects in the budget year
and the succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays............................................ 0 0 -15 -65 15 5 0 0 0 0
Changes in receipts........................................... Not applicable
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: S. 3030
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on the budgets of
state, local, or tribal governments.
Previous CBO estimate: On November 17, 1999, CBO prepared a
cost estimate for H.R. 1827, the Government Waste Corrections
Act of 1999, as ordered reported by the House Committee on
Government Reform. CBO estimated that H.R. 1827 would decrease
direct spending by $100 million over the 2000-2004 period and
by $90 million over the 2000-2009 period. The estimate of net
savings under H.R. 1827 is higher because that bill would
require that federal agencies conduct specialized audits of
payments made in the year in which the bill is enacted and the
two preceding fiscal years. In contrast, S. 3030 would require
that agencies only audit payments made in the year in which the
bill is enacted and the preceding fiscal year. As a result, our
estimate of total recoveries--and, therefore, net savings--is
greater under H.R. 1827.
Estimate prepared by: John R. Righter.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
VII. Additional Views
----------
ADDITIONAL VIEWS OF SENATOR LEVIN
I fully support the objective of S. 3030 to encourage
federal agencies to conduct recovery audits to identify and
recover erroneous payments. Reviews by the General Accounting
Office and others indicate that federal agencies make erroneous
payments far too often, and rely far too much on contractors
and other recipients of federal funds to identify the errors
and volunteer repayment.
However, I have a number of concerns about the details of
S. 3030. First and foremost, it appears that this bill would
exclude from its coverage most of the federal payments with
which the General Accounting Office and others have identified
problems. The bill would address only contract payments,
excluding payments to States, entitlement payments, and federal
grants and loans. The vast majority of contract payments would
be excluded from coverage as well, because the bill contains an
exclusion for all contracts that are covered by the Truth In
Negotiations Act, the Cost Accounting Standards, or statutory
audit requirements. Such contracts account for most contract
dollars, including the major weapons systems contracts on which
GAO has identified significant problems.
The result is that the bill would establish detailed and
prescriptive requirements for a small number of contracts
(where there has been no identifiable problem) while excluding
the bulk of federal payments. While it would make sense to give
agencies the authority to structure their own recovery audit
programs, and to exclude categories of contracts for which the
costs of conducting recovery audits would exceed the benefits,
broad statutory exclusions like those in S. 3030 could send the
message that Congress does not expect federal agencies to
address payments that account for the vast majority of federal
dollars.
Secretary of Defense William Cohen expressed additional
concerns about the bill in a February 10, 2000 letter to the
House of Representatives. These concerns included the
following:
The bill would permit agencies to take a
significant percentage of funds recovered by recovery audits
and put them into ``management improvement programs.'' All of
the funds recovered were authorized and appropriated for
specific programs identified by Congress--not for ``management
improvement programs'' selected by the executive branch. For
this reason, Congress should carefully consider Secretary
Cohen's request that the bill be modified to ``[r]ecognize that
funds collected from recovery audit activities should not be
used for management improvement programs or returned to the
Treasury if those funds are needed for liquidation of
obligations or obligational adjustment.''
The bill would require a public-private
competition before any recovery audit could be conducted by a
private sector company. This requirement appears to go beyond
the requirements of OMB Circular A-76, because it would apply
even in the case of audit work which is not currently being
performed by government employees. For this reason, Congress
should carefully consider Secretary Cohen's request that the
bill be revised to ``eliminate the requirement to conduct
public-private cost comparisons before any agency may contract
for recovery audit services,'' where those audits are not now
being conducted in the public sector.
It is my hope that we will be able to address these issues
before S. 3030 is brought to the Senate floor.
Carl Levin.
ADDITIONAL VIEWS OF SENATOR AKAKA
During the markup of S. 3030, I pointed out that H.R. 1827,
a similar bill to S. 3030, was approved on a roll call vote of
375-0. I noted that the reason the House bill enjoyed such wide
bipartisan support was because the measure included a provision
requiring that whenever an agency is planning to do a recovery
audit, that government employees must be given an opportunity
to compete against any outside contractors for that work.
This public-private competition, as it is called, would
determine whether the audit would be performed in-house or by a
private recovery audit contractor. Although a similar provision
is included in S. 3030, it has been altered slightly. The two
largest federal employee unions--the National Treasury
Employees Union and the American Federation of Government
Employees--expressed concern that section 3562(c)(2)(B) of S.
3030 would prevent the use of interagency service agreements
and would limit in-house performance of the recovery audit to
payment office personnel. The unions argue that such
limitations micro-manage agencies in a way that could limit
public-private competition. For example, if an agency develops
a proficiency for recovery audits, that agency should be
allowed to compete with other agencies' in-house staff, as well
as outside firms. Similarly, agencies should be allowed to
determine if they want to reallocate their contract
administration personnel to meet the mandate to perform
recovery audits, and, therefore, should not be limited to using
only payment office personnel. I suggest that the language
found in H.R. 1827 be considered in lieu of that in S. 3030.
I also note that federal Inspector Generals and the Office
of Management and Budget have some lingering concerns about S.
3030, as drafted. I understand that the Majority is working on
those issues. I am pleased that Chairman Thompson recognized
that there are those who expressed concern with the bill and
that he would attempt to address those concerns.
Daniel K. Akaka.
VIII. Changes to Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill, as reported, are shown as follows, (existing law
proposed to be omitted is enclosed in black brackets, new
material is printed in italic, existing law in which no change
is proposed is shown in roman).
CHAPTER 35 OF TITLE 31, UNITED STATES CODE
CHAPTER 35--ACCOUNTING AND COLLECTION
Subchapter I--General
Sec.
3501. Definition.
* * * * * * *
Subchapter VI--Recovery Audits
3561. Definitions.
3562. Recovery audit requirement.
3563. Disposition of amounts collected.
3564. Management improvement program.
3565. Responsibilities of the Office of Management and Budget.
3566. Exemptions.
* * * * * * *
Subchapter VI--Recovery Audits
Sec. 3561. Definitions
``In this subchapter:
``(1) Amounts collected.--The term `amounts
collected' means monies received or credited, by any
means, including offset, by the United States
Government.
``(2) Chief financial officer.--The term `Chief
Financial Officer' means--
``(A) the official appointed or designated
under section 901 of this title; or
``(B) in the case of an executive agency that
is not required to have a Chief Financial
Officer under that section, an official of the
agency whose authority and functions are
substantially equivalent to the authority and
functions of an agency Chief Financial Officer
under section 902 of this title.
``(3) Director.--The term `Director' means the
Director of the Office of Management and Budget.
``(4) Disclose.--The term `disclose', with respect to
individually identifiable information on any person,
means release, publish, transfer, provide access to, or
otherwise divulge the individually identifiable
information to any other person.
``(5) Facial-discrepancy payment error.--The term
`facial-discrepancy payment error'--
``(A) means, except as provided in
subparagraph (B), any error in a payment made
by an executive agency for goods or services
that is apparent from a review of the face of
an invoice or other payment document that is
presented to the executive agency by the
supplier of the goods or services in the usual
and customary conduct of business or pursuant
to a requirement in law or a contract to
substantiate the claim for the payment,
including any such document that is presented
electronically; and
``(B) does not include a payment error
identified, resulting, or supported from a
document that is--
``(i) a record of a proprietary
nature that is maintained solely by the
supplier of the goods or services;
``(ii) not specifically required to
be presented to the executive agency by
contract, law, or regulation, or not
necessary for the substantiation of the
claim for the payment; or
``(iii) submitted to the executive
agency for evaluative purposes before
the award of the contract under which
the payment was made.
``(6) Individually identifiable information.--The
term `individually identifiable information', with
respect to a person, means any information, whether
oral or recorded in any form or medium, that identifies
the person or with respect to which there is a
reasonable basis to believe that the information can be
used to identify the person.
``(7) Oversight.--The term `oversight', with respect
to a payment activity, recovery audit, or recovery
activity, means activities by a Federal, State, or
local governmental entity to enforce laws relating to,
to investigate, or to regulate such audit or activity.
``(8) Payment activity.--The term `payment activity'
means an executive agency activity to pay
nongovernmental sources for goods or services acquired
from those sources by the agency to support the
performance of the agency's mission.
``(9) Recovery audit.--The term `recovery audit'
means a financial management technique of an executive
agency that is used by the executive agency to perform
internal audits of its records to identify facial-
discrepancy payment errors that are made by the
executive agency in connection with a payment activity,
including facial-discrepancy payment errors that result
from any of the following:
``(A) Duplicate payments.
``(B) Invoice errors.
``(C) Failure to take advantage of applicable
discounts, rebates, or other allowances.
``(D) Any other similar facial-discrepancy
payment errors resulting in inaccurate
payments, including underpayments identified
pursuant to guidance issued under section
3565(b)(3) of this title.
``(10) Recovery activity.--The term `recovery
activity' means an executive agency activity to attempt
to collect, under the authority of chapter 37 of this
title or any other provision of law, a payment error
identified in a recovery audit.
``(11) Recovery audit contractor.--The term `recovery
audit contractor' means any private sector person who
is obligated under a contract entered into with an
executive agency to perform a recovery audit for the
executive agency.
``Sec. 3562. Recovery audit requirement
``(a) In General.--Except as exempted under section 3566 of
this title, the head of each executive agency--
``(1) shall conduct each fiscal year--
``(A) recovery audits of the payment
activities of the agency for the preceding
fiscal year if the payment activities for the
fiscal year total at least $500,000,000
(adjusted by the Director annually for
inflation); and
``(B) the recovery activities determined
warranted with respect to those payment
activities; and
``(2) may conduct in any fiscal year--
``(A) recovery audits of the payment
activities of the agency for the preceding
fiscal year if the payment activities for the
fiscal year total less than $500,000,000
(adjusted by the Director annually for
inflation); and
``(B) the recovery activities determined
warranted with respect to those payment
activities.
``(b) Request for Exemption.--The head of an executive agency
required to conduct a recovery audit under subsection (a)(1)
may request that the Director exempt a payment activity, in
whole or in part, from that requirement if the head of the
executive agency determines and can demonstrate that the
exemption is justified on any basis described in section
3566(a) of this title.
``(c) Procedures.--
``(1) In general.--The head of each executive agency
shall prescribe procedures for the performance of
recovery audits and recovery activities in the agency
that implement this section in a manner designed to
ensure the greatest financial benefit to the United
States.
``(2) Specific procedures.--In conducting recovery
audits and recovery activities under this section, the
head of an executive agency--
``(A) shall consult and coordinate with the
Chief Financial Officer and the Inspector
General of the agency to avoid any duplication
of effort;
``(B) may conduct recovery audits and
recovery activities regarding payments by the
executive agency by using personnel of the
agency's payment office without reimbursement
or payment for services in accordance with the
standards issued by the Director under section
3565(b)(2) of this title, by procuring the
performance of recovery audits by contractors,
or by any combination of both methods; and
``(C) shall ensure that the recovery audits
and recovery activities are carried out
consistent with the standards issued by the
Director under section 3565(b)(2) of this
title.
``(d) Recovery Audit Contracts.--
``(1) Authority to use contingency contracts.--
Notwithstanding section 3302(b) of this title, as
consideration for performance of any recovery audit
procured by an executive agency, the head of the
executive agency may pay the recovery audit contractor
an amount equal to a percentage of the total amount
collected by the United States as a result of payment
errors identified by the recovery audit contractor in
the audit.
``(2) Construction.--
``(A) Relationship to other executive
authorities.--A contract for the performance of
a recovery audit shall not affect--
``(i) any authority of the head of an
executive agency, or any other person,
under the Contract Disputes Act of 1978
(41 U.S.C. 601 et seq.) and other
applicable laws, including authority to
initiate litigation or referrals for
litigation; or
``(ii) the requirements of sections
3711, 3716, 3718, and 3720 of this
title that the head of an executive
agency resolve disputes, compromise, or
terminate payment of error claims,
collect by offset, and otherwise engage
in recovery activities with respect to
payment errors identified by the
recovery audit.
``(B) Contractor authorities and duties.--
Nothing in this subchapter shall be construed
to authorize a recovery audit contractor with
an executive agency--
``(i) to require the production of
any record or information by any person
other than an officer, employee, or
agent of the executive agency; or
``(ii) to establish, or otherwise
have, a physical presence on the
property or premises of any private
sector entity as part of its
contractual obligations to an executive
agency.
``(3) Required contract terms and conditions.--The
head of an executive agency shall include in each
contract for the procurement of the performance of a
recovery audit the following requirements:
``(A) That the recovery audit contractor
protect from improper use and from disclosure
to any person inside or outside the recovery
audit contractor's firm who is not directly
involved in the identification or recovery of
payment errors--
``(i) any financial information that
is viewed or obtained in the course of
carrying out a recovery audit for an
executive agency; and
``(ii) any other information so
viewed or obtained that has not been
released for general public use by the
audited person or an authorized agent
of that person.
``(B) That the recovery audit contractor
submit to the head of the executive agency
periodic reports on conditions giving rise to
payment errors identified by the recovery audit
contractor and any recommendations on how to
mitigate such conditions.
``(C) That the recovery audit contractor
notify the head of the executive agency of any
payment errors identified by the contractor
pertaining to the executive agency or to
another executive agency that are beyond the
scope of the contract.
``(D) That the recovery audit contractor
promptly notify the head of the executive
agency of any indication of fraud or other
criminal activity discovered in the course of
the audit.
``(4) Executive agency action following
notification.--The head of an executive agency shall
take prompt and appropriate action in response to a
notification by a recovery audit contractor pursuant to
the requirements under paragraph (3), including
forwarding to the head of another executive agency any
information that applies to that agency.
``(5) Contracting requirements.--Before contracting
for any recovery audit, the head of an executive agency
shall determine and compare the cost of using employees
of the United States to perform the audit and the cost
of procuring the performance of the audit from the
private sector. The head of the executive agency shall
use the outcome of the cost comparison process to
determine whether to use the employees of the United
States or to procure recovery audit services from the
private sector.
``(e) Relationship to Authority of Inspectors General.--
Nothing in this subchapter shall be construed as impairing the
authority of an Inspector General under the Inspector General
Act of 1978 or any other provision of law.
``(f) Relationship to Requirements for Payments for
Transportation.--Nothing in this subchapter shall be construed
to affect the requirements and authorities provided in section
3726 of this title.
``(g) Privacy Protections.--
``(1) Limitation on disclosure of individually
identifiable information.--
``(A) Restriction.--Any recovery audit
contractor that obtains individually
identifiable information on a person through
the performance of a recovery audit or recovery
activity under this subchapter may disclose
that information only for the purpose of such
audit or activity, respectively, and for the
oversight of such audit or activity, unless
otherwise authorized by that person.
``(B) Sanctions.--Any person that violates
subparagraph (A) shall be liable for any
damages (including nonpecuniary damages, costs,
and attorneys' fees) caused by the violation.
``(2) Return of information.--
``(A) Requirement.--Upon the date determined
under subparagraph (B), a recovery audit
contractor having possession of individually
identifiable information disclosed in the
course of a recovery audit or recovery activity
that is performed under this subchapter by the
recovery audit contractor shall return it to
the person from whom it was obtained unless
another applicable law requires retention of
the information.
``(B) Time for return of information.--The
date referred to in subparagraph (A) is the
date of the conclusion of the matter or need
for which the information was disclosed, except
that if, on that date, the recovery audit
contractor has actual notice of any oversight
of the recovery audit or recovery activity, the
date referred to in subparagraph (A) is the
date of the conclusion of such oversight.
``Sec. 3563. Disposition of amounts collected
``(a) In General.--Notwithstanding section 3302(b) of this
title, the total amount collected in a fiscal year by the
United States as a result of recovery audits by an executive
agency under this subchapter shall be disposed of in accordance
with this section.
``(b) Use for Recovery Audit Costs.--
``(1) Contractor payments.--Amounts referred to in
subsection (a) shall be available to the executive
agency to pay amounts owed to any recovery audit
contractor for performance of the audit.
``(2) Other costs.--Subject to the limitation in
subsection (e), amounts referred to in subsection (a)
shall be available to the executive agency--
``(A) to reimburse any applicable
appropriation for other recovery audit costs
incurred by the executive agency with respect
to the audit; and
``(B) to pay any fees authorized under
chapter 37 of this title.
``(c) Use for Management Improvement Program.--Subject to the
limitation in subsection (e), up to a total of 25 percent (as
determined under the guidance issued under section 3565 of this
title) of the amount referred to in subsection (a)--
``(1) shall be available to the executive agency to
carry out the management improvement program of the
agency under section 3564 of this title; and
``(2) may be credited for that purpose by the head of
the executive agency to any agency appropriation that
is available for obligation at the time of the
collection and shall be merged with other amounts in,
and shall remain available for the same period as, the
appropriation to which credited.
``(d) Remainder to Treasury.--Subject to the limitation in
subsection (e), there shall be deposited into the Treasury as
miscellaneous receipts a sum equal to--
``(1) 50 percent of the amount referred to in
subsection (a); plus
``(2) any of that amount that remains unallocated
after the application of subsections (b) and (c).
``(e) Limitation on Application.--
``(1) In general.--This section does not apply to
amounts collected through recovery audits and recovery
activities to the extent that such application would be
inconsistent with another provision of law that
authorizes the crediting of the amounts to a
nonappropriated fund instrumentality, revolving fund,
working-capital fund, trust fund, or other fund or
account.
``(2) Amounts paid out of currently available
funds.--Subsections (b)(2), (c), and (d) shall not
apply to amounts collected through recovery audits and
recovery activities that were paid out of an
appropriation or fund that remains available for
obligation at the time the amounts are collected.
``Sec. 3564. Management improvement program
``(a) In General.--
``(1) Required program.--The head of each executive
agency that is required to conduct recovery audits
under section 3562 of this title shall conduct a
management improvement program under this section,
consistent with guidelines prescribed by the Director.
``(2) Discretionary program.--The head of any other
executive agency that conducts recovery audits under
section 3562 of this title that meet the standards
issued by the Director under section 3565(b)(2) may
conduct a management improvement program under this
section.
``(b) Program Features.--In conducting a management
improvement program under this section, the head of an
executive agency--
``(1) shall, as the first priority of the program,
address problems that contribute directly to payment
errors of the executive agency; and
``(2) may seek to reduce errors and waste in other
programs and operations of that executive agency by
improving the executive agency's staff capabilities,
information technology, and financial management.
``(c) Integration With Other Activities.--The head of an
executive agency--
``(1) subject to paragraph (2), may integrate the
program under this section, in whole or in part, with
other management improvement programs and activities of
that agency or other executive agencies; and
``(2) shall retain the ability to account
specifically for the use of amounts available to the
executive agency under section 3563 of this title.
``Sec. 3565. Responsibilities of the Director of the Office of
Management and Budget
``(a) In General.--The Director shall coordinate and oversee
the implementation of this subchapter.
``(b) Guidance.--
``(1) In general.--The Director, in consultation with
the Chief Financial Officers Council and the
President's Council on Integrity and Efficiency, shall
issue guidance and provide support to the executive
agencies for the implementation of this subchapter.
``(2) Recovery audit standards.--The Director shall
include in the guidance standards for the performance
of recovery audits under this subchapter. The Director
shall develop the guidance in consultation with the
Comptroller General and private sector experts on
recovery audits, including such experts who use
recovery auditing as part of their financial management
procedures.
``(3) Treatment of underpayments.--The guidance
developed under this subsection shall include specific
standards and procedures for the identification and
disposition of facial-discrepancy payment errors that
result in underpayments to vendors.
``(c) Fee Limitations.--The Director may limit the percentage
amounts that may be paid to recovery audit contractors under
section 3562(d)(1) of this title.
``Sec. 3566. Exemptions
``(a) In General.--The Director may exempt an executive
agency, in whole or in part, from the requirement to conduct
recovery audits under section 3562(a)(1) of this title if the
Director determines that compliance with the requirement--
``(1) would impair the performance of the agency's
mission; or
``(2) would not, or would no longer, be cost-
effective.
``(b) Report to Congress.--The Director shall promptly report
the basis of any determination made and exemption granted under
subsection (a)(1) to Congress.
``(c) Exemption of Certain Contracts.--The requirements of
section 3562(a) of this title shall not apply to any of the
following contracts:
``(1) A contract that provides for periodic audit of
invoices pursuant to section 2313 of title 10 or
section 304C of the Federal Property and Administrative
Services Act of 1949 (41 U.S.C. 254d).
``(2) A contract for which cost or pricing data were
required to be provided pursuant to section 2306a of
title 10 or section 304A of the Federal Property and
Administrative Services Act of 1949 (41 U.S.C. 254b).
``(3) A contract that is subject to cost accounting
standards issued by the Cost Accounting Standards Board
under section 26 of the Office of Federal Procurement
Policy Act (41 U.S.C. 422).''.