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DEPARTMENTS OF LABOR AND HEALTH AND HUMAN SERVICES HIGH-RISK MANAGEMENT PROBLEMS

THURSDAY, MARCH 8, 1990

U.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.
The Committee met, pursuant to notice, at 9:45 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. John Glenn (Chair-
man of the Committee) presiding.
Present: Senators Glenn, Pryor, and Roth.

OPENING STATEMENT OF CHAIRMAN GLENN Chairman GLENN. The hearing will be in order.

I apologize to everyone here this morning. We usually try and start these things reasonably on time, but I was at another hearing where I was making a presentation this morning on Armed Services involving some of our personnel matters in the military, and I just couldn't break out of that until the last few minutes. So I am sorry we are about 15 minutes late getting started this morning.

Today the Governmental Affairs Committee continues its oversight of management problems disclosed on the OMB and GAO lists of high-risk Government programs. High-risk is a term we use here; I think everyone probably has an idea of what it means. When we got into some of the financial, the accounting, the weak spots in Government that might be similar in nature to what happened over at HUD that everybody is familiar with, we talked to OMB, who oversees all this. We asked about trying to expand the "M" in OMB—as we have said at our hearings repeatedly-the management function. We talked to them about what their assessments were of whether there might be any more HUDs out there. They came up with a list of over 100 spots in Government where they thought there might be problems.

We asked GAO quite separately and independently to make their own assessment also, and they came up with their list of areas where they felt the financial management and the accounting systems and so on, and the general management practices, were not sufficient to make sure that we might not have other very, very serious management functions awry out there in Government someplace.

So these high-risk Government programs are the things we are looking at and having a whole series of hearings on. These problems represent extremely serious vulnerabilities in agency oper

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ations and open the door to fraud, waste and abuse. We are here today to heed the red flags flying over the Department of Labor and Department of Health and Human Services in certain areas.

Programs these two agencies administer-for example, Social Security, Medicare, Pension and Welfare Benefits-touch the lives of almost every American. All of us have a stake in their sound administration, and I believe that well-intentioned efforts are underway to achieve that goal. A few more examples from the lists reveal their importance.

Certainly the reported billions of dollars in unreconciled wages reported to the Social Security Administration and the Internal Revenue Service strikes fear into the heart of every wage earner in America. Without accurate earnings data, SSA cannot ensure that all earnings are properly credited, so that upon application the worker will receive the full benefits to which he or she is entitled. We are told that SSA and the IRS are in the process of reconciling data for the last 10 years, and as a result have resolved over $111 billion in wage discrepancies. That is $111 billion in discrepancies, not total accounts, discrepancies. Nevertheless, I remain concerned about workers whose earnings are among those differences which will never be cleared up and are in jeopardy of receiving lower benefits than they actually earned.

In the past year warnings have been sounded by the Labor Department's Inspector General that pension plans are increasingly vulnerable to fraud, waste and abuse. Protections provided under ERISA are not effective, in part because of the current limited role of the independent public accountants in pension plan audits. Indeed, the IG has compared this situation to the exposed vulnerabilities in the savings and loan industry, a comparison the Secretary of Labor vehemently rejects. In any event, workers who depend upon these pension plans for future security deserve the protection of audits that are complete in scope, properly done and go beyond just the numbers to look at compliance with ERISA requirements.

The Department of Labor must also act expeditiously to ensure there is no additional risk to the billions of Federal grant and contract dollars which it administers because of the problems and delays in implementing its new integrated accounting system, called DOLAR$. We understand that the dissatisfaction among its departmental users is growing, but that the Department is promising all will be well by April 30th. Again, the Inspector General and DOL management are at opposite poles on the question of whether this financial system will be up and will be working properly in the near term.

The Medicare program will spend about $137 billion in fiscal year 1990 for health care services for more than 34 million beneficiaries. About one billion of those costs are properly the responsibility of other primary insurers. Though this number is relatively small compared to the overall Medicare program, it remains a huge annual drain, especially in this time of so many unmet needs in Government. The Health Care Financing Administration estimates an authorized 2-year computer matching program will help recover about half of that one billion in each year. Though this pro

gram may go a long way, I cannot help but conclude that the problem can and should be fixed sooner.

Finally, the FDA's mission of insuring the safety of the food, drugs and cosmetics we use is crucial to all our lives. I am concerned that the shocking problems uncovered in FDA's regulation of the generic drug industry, leading to eight convictions already, will impair public confidence in all generic drugs, an innovation that has saved Americans millions and millions of dollars in drug costs. We have been told that similar problems have not been found in the other application approval processes at FDA.

In these circumstances, I believe the Department, under pressure from the Justice Department, has rejected a valuable resource—the criminal investigative capabilities of the HHS Inspector Generalin its efforts to ensure the integrity of all FDA activities, and that was done under pressure from the Justice Department.

On this issue, I note that tomorrow marks an unfortunate anniversary of sorts. Tomorrow will be one full year since the Justice Department's Office of Legal Counsel issued an opinion limiting the Labor IG's investigative authority to cases where Federal employees or Federal funds are involved. I feel that is too limited. That opinion, in my view, also gratuitously opined that any delegation of additional investigative authority from the Secretary would be illegal. Since that opinion hit the streets I have watched with increasing dismay the confusion and chilling effect that has been brought upon the IGs. Other IGs quite outside this department have wondered about what their status is. They are nervous about what they can do now.

But I was assured by this Administration that there was no effort underway to handcuff all of the IGs. Last September the Office of Legal Counsel issued a letter to the IGs stating that its opinion would not be applied across the board and that issues concerning the remaining IGs' investigative authority would be resolved on a case-by-case basis. The Department of Justice invited inquiries from the other agencies. Moreover, in October, Office of Management and Budget Director Darman testified to this Committee that both the Justice Department and OMB had concluded the opinion applied only to the Labor IG

In preparing for this hearing we learned that these promises have not been kept. Rather, the Justice Department and OMB invited themselves over to HHS to challenge Secretary Sullivan's decision, reached during the height of the generic drug approval crisis, to delegate FDA felony crime investigative authority to the HHS IG. Ultimately, threats from Justice that it would not defend the delegation in any court proceeding pressured the Secretary to rescind that delegation.

There can be no doubt that the Justice Department's actions over the past year have created a climate which encourages every defense lawyer representing a client being audited or investigated by any IG to question that IG's authority to act. Indeed, such defense tactics have already occurred in a Medicare case, forcing the HHS IG to run to the Justice Department for legal opinion approving his authority to proceed. I don't believe that Congress ever intended that the Justice Department, which fought tooth and nail against receiving its own IG until it lost that battle a year ago, should be passing day-to-day on the scope of any IG's authority.

In sum, the confusion and bureaucratic bickering that have resulted from the Justice Department's legal opinion has created an unworkable and intolerable situation for the IGs, and in many respects for Congress right along with them, and I intend to get to the bottom of this one and fix it, however we have to do it.

I have directed my Governmental Affairs staff to draft legislation, or see if we can't draft legislation, for introduction this session to amend the IG, the Inspector General Act, and straighten out both the inherent investigative authority and delegation issues. In this process, I intend to see that the IGs and the Secretaries they work for have full authority to find and stop fraud on the Government and criminal activity wherever it occurs with no arbitrary, unworkable rules involving Federal employees and Federal funds.

Just for the record the Justice Department declined our invitation to testify at this particular hearing on these issues, which I regret.

Today we will hear from Mr. Roderick DeArment, Deputy Secretary of the Labor Department and Mr. Kevin

Moley, Assistant Secretary for Management and Budget for the Department of Health and Human Services. We welcome them to this hearing to tell us what each department is doing with these trouble spots and to answer the question-when will these problems no longer be eligible for anybody's high-risk list?

As a follow-on, many of the questions that we will be asking will be coming from some of the previous testimony of the IGs from our past hearings on this particular subject.

Before we proceed, Senator Roth.

OPENING STATEMENT OF SENATOR ROTH Senator ROTH. Mr. Chairman, I welcome these hearings because they are directed at a very important aspect of our efforts to eliminate waste, fraud and mismanagement within the Federal Government. That is the follow-up to identified problems. Too often the tendency in the Congress is to focus exclusively on exposing problems. While, that is a very important function for us to engage in, it is not enough if we are truly serious about eliminating these problems. For once a problem has been identified, whether by us or by an IG or by OMB, it is important that Congress make certain that proper corrective actions have taken place.

Each agency IG is required to make recommendations on how to eliminate and prevent the repetition of problems that have been discovered. The agencies, in turn, should either implement those on comparable actions, or explain why such corrective measures are not necessary. And that, of course, is why we are here today. OMB has identified in its recently released high-risk list what it believes to be the most significant of the problems reported by each agency's IG. Today we will be hearing from the Departments of Labor and Health and Human Services. Administration representatives will be talking about these previously identified problems, the IG This may be less exciting than the original exposés, but it is every bit as important if we are to improve management capacity and the financial integrity of the Federal Government.

I know that you laid the groundwork for this hearing, Mr. Chairman, and you held hearings last fall. At that time we heard testimony from the IG's office at HHS concerning the Health Care Financing Administration's management of the Medicare Secondary Payer Program. I look forward to hearing testimony on this issue today.

According to GAO, the Federal Government continues to lose at least hundreds of millions of dollars per year in the MSP program. The taxpayers are footing this enormous bill, and despite our efforts to tighten up Medicare expenditures, some private insurers are apparently continuing to try to improperly shift costs to the Medicare program. In an effort to get a better idea of what is happening, I sometime ago directed my staff on the Permanent Subcommittee on Investigations to conduct an investigation to get to the bottom of the allegations. We need to find out what corrective measures can be taken to curb the fraud, waste, and abuse that appear to be rampant in the Medicare program.

Mr. Chairman, in your opening remarks you made some comments about the problem of jurisdiction of the IG. I think that is a critically important problem that needs to be carefully investigated to ensure that the IG is within its proper bounds as well as the Justice Department and the various Secretaries. I have to say that I have some concern in this area. I do not want to see the IGs be directed into work that should be done by the agency, because then we are going to have the question who is going to oversee their work. So I think that this may well be an area that we ought to hold some hearings in order to fully determine what the problems are and how best to fix them, because it is a critically important problem, I think, if the IG is to achieve the purpose that we intended, as one of the original authors.

Thank you, Mr. Chairman.

Chairman GLENN. Thank you. Mr. DeArment, who is Deputy Secretary, Department of Labor, is accompanied by Thomas C. Komarek, Assistant Secretary for Administration and Management, Roberts T. Jones, Assistant Secretary for Employment and Training, David Ball, Assistant Secretary, Pension and Welfare, and Robert P. Davis, Solicitor. I believe all of the gentlemen are here this morning with you. We welcome everyone this morning.

Mr. DeArment, we look forward to your statement.
Thank you.

TESTIMONY OF RODERICK A. DeARMENT, DEPUTY SECRETARY,
DEPARTMENT OF LABOR, ACCOMPANIED BY THOMAS C. KO.
MAREK, ASSISTANT SECRETARY FOR ADMINISTRATION AND
MANAGEMENT, ROBERTS T. JONES, ASSISTANT SECRETARY
FOR EMPLOYMENT AND TRAINING, DAVID BALL, ASSISTANT
SECRETARY, PENSION AND WELFARE BENEFITS, AND ROBERT
P. DAVIS, SOLICITOR
Mr. DEARMENT. Thank you, Mr. Chairman.

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