House panel seeks to get money back from contractors

Legislation that aims to save billions of taxpayer dollars each year by stemming federal agencies' overpayments for goods and services sailed quickly through the House Government Reform Committee last week.

The "Government Waste Corrections Act" (H.R. 1827), which the panel approved by a unanimous voice vote last Wednesday, would require federal agencies to use a common private-sector practice known as "recovery auditing" to weed out duplicate payments, uncollected rebates, unauthorized expenditures and a variety of other financial blunders.

"This legislation represents the first significant step that anyone has taken in dealing with the tens of billions of dollars in federal overpayments that are made each year," said Committee Chairman Dan Burton, R-Ind., the legislation's chief sponsor.

Bill sponsors have noted that on average, private sector recovery audits turn up one payment error for every 1,000 purchases. Erroneous federal payments have occurred at four times that rate in limited recovery audits that already have been conducted in some executive agencies, according to the bill's findings section.

Under the legislation, any agency that spends $500 million or more annually on direct purchases from vendors or contractors would be required to conduct recovery audits.

The bill would allow agencies to perform the audits themselves or farm the task out to contractors. But in deciding whether to hire an outside auditor, an agency would have to compare the contractor's projected costs with those of an in-house audit, under an amendment by Rep. Henry Waxman, D-Calif., the panel's ranking Democrat. Waxman's amendment drew no objections and cleared the panel by voice vote.

The legislation also aims to help agencies do a better job of "getting the payment right in the first place," according to Burton. The bill would allow agencies that recoup erroneous payments to use some of those funds to improve their financial systems and lower their payment error rates.

Burton offered an amendment in the nature of a substitute Wednesday that made substantive changes to the bill and served as the base text for other amendments.

Burton said that as originally written, the bill called for recovery audits in nearly every major federal agency and program. But the substitute, which the panel adopted by voice vote, would require recovery audits only for "direct contracting" transactions-such as the purchase of a new weapons system-that directly benefit the federal government.

The substitute would not require recovery audits for the Medicare system, education grants or other federal programs that involve payments to third parties for the delivery of "indirect services," according to Burton.

Burton noted that in those programs, federal payments earmarked for services to the general population are channeled through a variety of third parties, such as states and local communities.

"The issue is that the payment systems for these programs are often so complex that it is uncertain at this time where and how the recovery audit procedure would best be applied," Burton explained.

Nevertheless, Burton said the decision to exempt those programs was not an easy one, especially since Medicare overpayments cost taxpayers nearly $13 billion a year.

Burton said he planned to begin work immediately, in conjunction with the General Accounting Office, to find out how best to conduct recovery audits within the Medicare system and other federal programs involving indirect services.

Prior to adopting Burton's substitute, the committee approved, by voice vote, an amendment by Rep. Jim Turner, D-Texas, to protect the privacy of individuals whose personal information-such as health or financial records-might be reviewed during agencies' recovery audits.

Turner said veterans are among the individuals who might face privacy issues under the legislation because private health care facilities, in treating veterans, provide a direct service to the Veterans Administration. By requiring recovery audits for that agency, the bill also would require audits of private health care providers' records -- including invoices relating to individual veterans' care.

"Records that reveal that an individual is receiving psychiatric treatment, for example, could be reviewed by the recovery auditors," Turner said.

Turner's amendment would specify that auditors could obtain individually identifiable information only for purposes relating to recovery audits or oversight. Auditors would be required to destroy or return that information once they are finished with it.

Turner's amendment also would enable individuals to seek redress for any privacy violations that occur during the recovery audits.