that regard. let me get my third question out and you can answer it to both of them. that is to both you, chairwoman shapiro and mr. gensler with reference to the title seven that all swaps with their squier were not are required to the swap data repository. i'd like to know what you're agencies are doing to ensure that the information being reported to the multiple suppositories is not so fragmented and ultimately allows an accurate and complete view of the market activity. one of the provisions of god for the lead -- dodd-frank allows the repository to provide electronic access to the commission for all of the swap data repository information and i am wondering if you consider that. you can tell me what we are doing on cybersecurity. >> certainly. i don't want to comment

specifically on the nasdaq matter which is obviously intensely under scrutiny by the regulators broadly but let me just say given the highly electronic nature of the markets and highly fragmented nature the financial and institutions broadly exchange and are having to face cybersecurity threats. we work very closely with the exchanges and have the automated review program, which are examiners that evaluate with the exchanges, the quality of their information security that is in place and what the vulnerabilities they might have. we recently asked all of the exchanges to provide an audit of their information security policies, practices and systems so we can have a baseline understanding of where all of the many different markets are with respect to that. we are taking this extremely seriously and working closely with the fbi, secret service, department of justice to make sure that we are pursuing any of

these threats as aggressively as we can. i can tell you the exchanges are taking it seriously as well. this is their franchise. .. and hope to make final later this year that would have all the market provides two of the transactional information in the life from conception to execution that we get the ability to reconstruct trading market to look for violations of the federal securities law.

>> with regard to state, which is so critical to regulators to get an aggregate picture, congress did you get every direct electronic fee from the data repositories in which we appreciate that. put that on proposed rules, working for comment. one of the challenges is aggregating the third spot with unwanted for interest rates swaps, for instance. not as part of the reason why at the cftc we believe disney to be efficient in these technologies. it actually recommends doubling technologies that we can be more efficient agency and then aggregate the data with those direct electronics. >> senator johanns. >> mr. chairman, thank you. chairman bernanke, let me start with you and i went to visit with you a little bit about the interchange rules that she put

out. when you start out with an observation. i think you folks send everybody. i think he stunned the retailers, the bangs. i don't think anyone ever expect to something this dramatic, district attorney and. do you agree with me that 80% of the transactions interchanged transactions are actually done by 8% in the house of the merchants out there? is that inaccurate statistic? i know it's very concentrated. obviously the large national firm's that account for a lot of the transactions, but i don't know the exact number. >> i think that's the best available information i can find. not only national firms were the biggest economic players.

this isn't joe's hardware somewhere in nebraska. doesn't it occur to you that really what we have done their is we've taken money from this site or the economy through congressional price-fixing and directed you to transfer that money to this site or of the economy, impacting the biggest players really in the world on this side of the equation. >> senator, let me at first either comment about kryptonian. we find it hard to follow the language of this, which is pretty clear. don't get me wrong. i'm not enough to messenger. if it feels that way, i'm sorry about that. you are just trying to do what we told you to do. not me. i voted against it. and they wish more of my colleagues would have. but the end result is this is

really what you're doing is moving money from here to here in the debate layers that are going to see the benefit, the big retailers. would you agree with that? >> retailers will benefit according to the fraction of their -- of the total debit transactions that they have. the question is to what extent -- and i'm sure there'll be some extent those savings are passed on to test donors, which is part of the objective. the mac that is the problem with price technique. we can't guarantee that, can we we can't guarantee that a single consumer will get any benefit from not much legislation. i mean, we hope we do. you might be able to make an economic argument that they will. but the reality is we don't know, do we? >> know, senator. there is no guarantee certainly. >> now i might just go further

because this sounds so preposterous to me. we are seeing commodity prices go up. there's a lot of complex reasons for that like the energy and drought in china, it better, if better. but you know, good economists are now saying you are going to pay more at the grocery store or various products because the input costs are going up so dramatically. it's hard to argue against that at the moment. you would suggest that it would be good economic policy that we pass a law that the price of the porterhouse steak or the price of a gallon of milk can only go so high, which you? >> no. >> yet. mr. gensler, let me go to you. you know, i have an interest in this and we all do. and one of the challenges i have

and i'm guessing you probably have it, too, is how do we define end-user clicks like a small community banks out there that want to protect themselves so they are in the derivatives market to protect themselves against the risk they are incurring. are they end-users or are they financial and dictations that should be regulated here? >> the statute says that they are financial companies. and so, most of the community banks are not swap dealers. in fact, i'm not aware of any. they haven't come knocking on the door. i don't think any probably are swap dealers, so they wouldn't be regulated that way. the question of the end-users is whether they are brought into clearing, with it they benefit in congress did give us

authority to exempt them from that. we've asked the public a series of questions to help us on that. we are working with fellow regulators here looking at that, not only for the community banks, but also foreign credit in situations and national credit union saslow. >> mr. chairman, thank you. >> senator reid. >> thank you, ladies and gentlemen. chairman bair, there's a great deal in the last several months trying to sort out mortgage foreclosure issues. the state attorney generals. everyone's been engaged. it seems than reports that with respect to oppose signing, liabilities have been established, the penalties have not. is that the crux at the moment? >> well, i would defer to the comptroller on this.

they've been meeting most of this. we are not the primary regulator of the large servicers. the way i envision it is all agencies of an hoping for some type of global settlement that would include robust enforcement actions as well as more appropriate media measures, and putting perhaps some type of genetically streamlined modification to help our worst get a fair shot at the mortgage and also help clear the market because there's an increasing backlog here. but hope this is the key elements of any final package, but john might have something to add. >> is this an issue -- what is holding up his helmet? attorney general miller was here months ago talking about how they are working. can you elaborate briefly aquatic >> well, we have been at work actually sent last week. here in the committee on a series of examinations.

with the fed, the ots and fdic participating to some extent in the exams to identify the problems and develop both the facts on the ground and also to develop with the appropriate remedies or two that. and those remedies include both remedial actions that the servicers will have to take to fix what's broken and there's clearly banks broken as i mentioned in my testimony. there's also the question of the penalty phase if you will of that process. so we have finished the work. we are kind of getting to the point now where we will be delivering document to the bank spent talking about civil money penalties. but the comprehensive settlement that we are talking about is one that would also involve violations that are under the purview of other agencies. the department of justice, ftc, state attorneys general.

and our effort has been to achieve a kind of comprehensive settlement that will kind of put the problem to bed and let us get on with remediation. the specific supervisory peace is kind of one piece of a broader effort. >> you are recommending that their modest bond in the penalty phase. and again, some of -- from following these revelations in the news paper, it seems like there was some intentional activity and also just -- in fact, it can get their green to the penalty phase, son negligence. and so, are you measuring these signs in terms of the overall impact on the people who lost their homes through this process

in terms of the benefit the banks derived from a lease prior to detection the operation? >> although one is amazed at what the l. street journal finds out, in this case we have not made decisions about the level of penalties. that is the next phase to come. we will be discussing that with federal reserve and there will be penalties are holding company in services. in terms of the sword of penalties involved, they will include other things than just those we are looking at. >> i think you have to move for some expedition because again the last time we were all here together visiting, we were talking about how much progress we were making and, you know, you've got to come to a conclusion very quickly as chairman bair said in terms to settle in the market in.

just a quick question because i have only a few seconds left, mr. chairman. dodd-frank creates the position of vice chairman of supervision for the fed. how close are we to getting that person in place and in the interim who was taken the lead in terms of what you now have as an extraordinarily more complicated and vast supervisory responsibilities? >> well, the administration has not yet nominated anyone, so we are so nowhere in that respect. but governor cirillo who has had bitter banks provision area and has testified before this committee and number of times is taking the lead on the supervisory and relevant programming issues. >> thank you. >> welcome to the committee. senator curt. >> thank you. congratulations and i look

forward to working with you on the subcommittee. chairman bernanke, i'm an admirer of yours that just finished the lords of finance, which is a human story of what central bankers go through. a quick question on dodd-frank titles one and seven, which creates the oversight council and talks about systemic risk, regulatory gap and the key phrase, regardless of legal charm. so they brought authority authority to examine risk here if you have now established this financial security to look at any potential dangers out there. would you be able to locate u.s. states as a source of systemic risk? >> our office of financial stability of this mall office where we tried to get risks that might emerge and doesn't have any for example.

the risks arising for states within the municipal market would be something the federal reserve would pay attention to, but the appropriate venue for that would be the council where we would discuss mutually any complications or ramifications of development they are. >> just notes there were state-funded pension of 54%, but a new analysis could be as low as dirty. "chicago tribune" reported this morning the state deficit is at $168 billion we have concerns about california. i would just note that young state representative from the assailant wrestled with this issue in 1840, named abraham lincoln. the senate passed a resolution in 1841 advising treasury secretary webster not to guarantee state that to preserve the full credit of the united states. so it would appear that this could be a source of systemic risk in something fully within your capability to examine.

one other question, "the wall street journal" two days ago reported that our largest creditor, china, had sold $11.2 billion in treasuries in november and another 4 billion in december. $15.2 billion unwinding is about a 1.1% reduction in their total holdings, now down to 892 billion. do you see this movement by america's largest creditor abroad as a source of systemic risk? >> the international balance and reserve accumulation is included in principle the systemic risk and i think they contributed to the crisis. that being said, i wouldn't make much of those data. first of all, they are actually incomplete data. and secondly, in the short run the main determinant of chinese accumulation of dollars does there need to keep them pegged at the level they choose. so it's pretty much they take

whatever they need to take in order to keep their current get the desired level. >> thank you, mr. chairman. i was stuck to chairman warner, one who will continue in spain and portugal on the adequate side of the imf, which this community really needs to work on. >> senator akaka. >> thank you very much, mr. chairman, and congratulations on being chairman. good morning to our witnesses. your agencies have worked late on implementing this law. your efforts i would say have a large part been prompt, thorough and transparent and we do appreciate that. before we begin, i'd like to thank you speech for your leadership and recognize your stats for the extraordinary

efforts. chairman shapiro, i was pleased that the commission staff study on obligations of broker-dealers and investment advisers. i'm also encouraged by the recommendations in favor of the human uniform fiduciary. i know an area you have an interest in, so i have two questions for you. first is how can confusion at the very obligations of financial professionals harmed investors, taking advantage of the base? and second is how can a uniform fiduciary's pandered reduce investors caused and improve

performance? >> thank you, senator. and they do share my great interest in financial literacy. i always appreciated that the port. i think one of the things we learned that the fcc commissioned a study by the rand corporation several years ago that looked at the issue of whether investors understood the relationship they had with the broker versus relationship with investment advisers and found there was significant confusion and our current study references much of the work that was done by the rand corporation. the issue goes to whether the interest of the customer must be put ahead of the interests of the financial professionals. the customer must come first or whether it is current under the broker dealer regime, the duty to only provide suitable recommendations, understanding the investment goals and so forth of the investor. so it is a suitability standard poker dealers, a fiduciary duty

to put that under the investment research regime. we thought it wasn't fair to his customers to guess which standard of care they were receiving when they were dealing with the financial professional. it is not something that is transparent to investors. and so the staff study does recommend as the dodd-frank act authorizes the commission to study, that a uniform fiduciary standard accord, no less stringent than the one that applies be applied across financial professionals when giving advice to retail investors about securities. i think that this standard will alleviate confusion for investors because it will become uniform. i think while the corals are hard to quantify a common assessment attempts to do of that and we've asked for data in that context. i think the benefit to investors of having their interests but first or also hard to quantify, but will be very real over time.

and so, our next ages for the commission to consider the report carefully and make a determination about whether to move forward with specific rules that would create the fiduciary standard of care. >> chairman shapiro, through the.frank at, we provide the commission with the authority to require meaningful disclosures prior to the purchase of an investment product for services. more effect is entirely disclosures can greatly improve investor financial decision-making. what is the commission's plan to implement a specific provision and to promote more responsible investor behavior in general? >> well, this is an area of longtime interest to me, that investors get decision useful,

accessible information at the right omits in the process of making a decision about whether or not to invest. what we often see is to get information after they've made the decision to invest. so it would be my hope that we could -- when our calendar is a little bit more open, post getting too many of those dodd-frank providing provision, that we that we could turn our provision back to the provision factory point-of-sale disclosure inquiry and see if the commission can do something to help investors get really useful information, not pages and pages and get it at a time that will help them make the right decision. that would be my hope that at some point later this year will be a left turn our attention back to those issues. the mac thank you very much for your response. >> welcome to the committee. senator graham. >> thank you very much. i want to be a good member of this committee. this is my first hearing and

want to impress you. i assume that's done by speaking less than five minutes. [laughter] i want to talk just about about a broad issue in a very specific one. we've had lots of conversations about small community banks, credit unions, small financial situations. they certainly dominate the communities in kansas and a crossers date. and in all the response to questions that have been given in your testimony, you indicate an advert to treat differently, to recognize the difference between a community bank. i would assume you agree they are not a cause of systemic risk to our economy. and yet, the comp in conversation with community bankers, credit unions is very much about the regulations that are coming our way. this conversation predates

dodd-frank, but it is exacerbated by dodd-frank. so while you regulators think we understand them and treat them differently, there does not seem to be a recognition on the part of anchors. my question of are my bankers firmly complaining types who have it wrong or are my regulators wrong in which they say we are taking care of this issue. we are not overly regulated community banks. and mr. shelby and this question about the loss of small banks, the immediate response ms. bear by you was number of closures. that's a component i suppose it was maltings. what i've noticed in our economy is affecting by consolidation. there are perhaps economic reasons consolidation should occur, but it i question if it is recurring because of the regulatory costs. at a conversation with one of our large regional bankers felt it for the first time in the

bank's history, they are receiving calls to small community bankers saying are you interested in by interbank because we no longer can afford the regulations. it's no longer fun to be a banker and the cost of being a small community bank now exceeds our ability to generate the revenues necessary to get a return on investment. so my question is, what we talk about treating differently community banks, the evidence for my view does not seem to be there. what are we missing? wendy's to take place? i think there's great value in the community bank that's making decisions in that issue to caveat. i'm not necessarily advocating on behalf of bankers, but i am advocating on behalf of customers, barbers, client who in states like kansas are like south dakota it is a place in which our farmers and ranchers, small businessmen and women have the opportunity to ask and there's a tremendous consequence to our economy, including job

creation and the failure of our banks being comfortable in making loans. finally, in that regard, particularly real estate loans. either cappadocian bankers tommy we no longer make real estate loans. you can come to our bank and her money to buy a house because of the regulations interfere the next examination that we have missed something that's going to think it is for not come in making the real estate loan is no longer worth it. but it's a terrible circumstance in small-town kansas -- small-town america in which the local bank is now fearful of making the real estate loans and mortgage on the house. your response? >> well, i would be a couple of things. i think you are right that there's still over 7000 community banks out there, but there is consolidation to do so is the byproduct of. that is what is happening here. we are very concerned about a

future that we have a vibrant community banking site here. it's not our job to serve community banks. it is our job to serve the public. but they have a diversity and choice of the banking institution. i think i've said this repeatedly throughout the crisis we many thanks a better job of funding measure institution and that's just a fact. we are very duly tried to protect community banks of the dodd-frank requirements, which are overwhelmingly targeted a large financial institutions. as indicated earlier, they change the assessment basis that reduced by 30% in aggregate and they'll be paying for deposit insurance. they are by and large exempt from the comp patient goes that we just put out. we've tried to inflate them on the securitization, as you'll see when those come out. so i think we have acted on a number of fronts to try to insulate and strengthen their

competitive edition. as i said, judy to film the best implementation of liquidation will increase benincasa for many large institutions can provide better competitive clarity. if he is a very real one. we are very concerned will be writing a comment letter. i think the likelihood of the community banks and requiring them to increase the fees they charge for accounts is much greater than any tiny benefit retail customers make it for savings to be passed along. i think that it's just obvious. so we are very much hopeful that i don't know if this can be dealt with by congress, but what we are planning to do its work within the regulatory framework to see if there's greater discretion to provide community banks and particularly by networks. i do think this is a real issue in would have an adverse impact in a way that is unintended by

congressman. >> i put a standard for myself and the red light is on. i would like to follow up to you, mr. shapiro about financial advisors in making perhaps advice to government. there's a noble issue changers exist creta creek area. ms. bair, i'll be in your home a week from now. [laughter] >> thank you, mr. chairman. i want to congratulate you on your chairmanship and think everybody for being here today. we appreciate your efforts in this difficult time. before i get to my question, i want to say that the issues and regulations senator murray and product with credit unions is a big one. i brought it up with members of the panel released on four different occasions. and the inconsistencies with regulation and the amount on my watch as it applies to community banks is a big turn and

continues to be a big concern and i don't buy the consolidation in our financial system is a positive thing especially for all of america. that aside what to talk about the rules and chairman bernanke, it's an issue in very good thing about. and i was wondering, is there any way to actually ensure the community banks and credit unions are exempted in this from this provision? >> i do not hesitate to give a final answer because first of getting comment. it may not be the case. they will be a practice exams. of course one way to address if the congress wants to would be to require the networks to differentiate. >> let's talk about that for a second. with the routing provisions in this bill, first of all it's

illegal to turn down? >> i don't think so. from it i finally go? if you go into a retailer and you have a card and a look at it and say, we don't want that. we'd rather have a different one, that's okay. >> you certainly have the right to ask that different types. visa, american express, so on. >> this case is one that has a bigger fee. >> restrictions -- restrictions there are more functional requirements imposed by the visa company, for example, as opposed to legal fees. the mac is clearly two-tiered system, and the amount charged to interchange fees by the smaller banks and credit unions will be hired the most of the

big banks, correct? >> correct. >> with such the retailer from fame and you want to use that card? at the small bank. rather use a bigger one? what stops them from doing it, anything? >> not now. unless again the company, the visa requires oil cards, which in many times they do. >> in practice, i can't imagine visa is out there checking out. they are going to make -- they are going to do there thing anyway. it would seem to me that there is going to be undue harm done to smaller banks when the retailer looks at this and says he know what, i'm going with the smallest change possible cut is going to help my bottom line. do you see it being that way? >> i think there's two reasons why the extension by number. one is exactly what you're saying. merchants might turn down in the

networks may not be economical to have it in your system. >> chairman bair, from your point of view, how do you think it's going to impact the hashish and aec provides? >> it remains to be seen whether they can be protected. i'm skeptical for other reasons chairman bernanke has been accepted. it's forced on to the level that is going to reduce the income that they get for debit cards. afflicting thoughts to make that up somewhere probably by raising fees they have a transaction account. the cost of the intended consequence of putting minutes with prepaid card and prepaid cards don't have the same level of protection for debit cards, for instance. it is important and more difficult and you have to be careful how you get insurance.

so i think that would not be helpful for consumers. hopefully to the current regulatory authority in what we're looking at right now. >> i'm not sitting on your site in the table, but you think it would be beneficial to delay this provision, to take a look at unintended consequences? >> yeah, you know, look, there's legitimate policies on both sides that it was under the full policy ramifications. he's paying for what, who will pay and his pain less was not dealt with. >> thank you for staying here. i wish we had another two or three hours. thank you, mr. chairman. >> senator warner, welcome to the committee. >> thank you, mr. chaiman. i'm delighted to be on the committee and i've enjoyed the testimony, which i've watched on television from my office.

i wanted to get a few other things done, so i'm glad to be back. thank you all for your patience and for working with us today. let me ask chairman schapiro. god frank -- dodd-frank is a familiar term. less familiar as franken wicker, but it was an amendment that offering can and i authored, which passed actually in the senate by a vote of 64, 35 with regard to the rating agency. as you know, there are many people, including me who feel that the rating agencies were one of the principal reasons that we encounter them out town in 2008. our amendments would have required the securitize product to be signed for rating by the

sec, rather than having the companies themselves shop around for their favorite rating agency. when we got to conference, the franken worker language was dropped, but in the final version, the law does require the fcc to implement a study on credit rating agencies and gives the effort we the authority to implement franken-wicker if it is deemed to be beneficial to the public's interest. so how is the study coming and what are your comments? >> that's right, senator. we have many studies on raising the agency, but this is important one. we should be doing that shortly with a request for comments from the public on ways --

alternative ways to structure a system for the assignment as well as having the fcc do it or some regulatory do it or another entity do it. so it has a two-year time deadline, which is why we have an gotten it out the door yet in terms of receiving public comments. but the staff has worked on the notice and hopefully will go there soon. they'll pick up the study from our perspective and then will be able, with the comment, begin to put together the different ideas. >> do you share my conclusion that effective and improper ratings for large part of the problem at 2007, 2008? >> i have spoken a lot over the last two years about the contributions to the financial crisis. and so, the fcc gave much broader response ability under todd frank about with respect to

rules and examinations of credit rating agencies, including report to congress on our findings. and we are well underway with all of those it emanations. >> under the law now, a company wishing to be rated still has completely rearrange to go out and pick the rating agency. >> we have some rules to try to discourage rating shopping, which would require disclosure that she did shop around for ratings and you ultimately select did the agency that gave you the highest rating in the preliminary reading. so with an disclosure in that regard. within another rules to limit the conflict of interest that are really inherent in this model that is the predominant model among the agencies right now.

>> thank you. i hope to be attentive to this issue. chairman bernanke, i have a question about qualified residential mortgages. and with the unintended consequence is that the qr and and -- qrm;s enforcing or direct and housing finance for the government incentive towards the private sector. as you know the federal government now dominates housing finance in this country and i think it is the stated position of the administration is certainly my position we want private sector capital to return to the market to return taxpayer guaranteed mortgages. federal housing and mortgages are exempt from the risk retention requirement that the

5% risk retention requirement because they are considered by definition required by presidential mortgages. mike is cause fha mortgages to grow and drive up the dirt the first time a home buyer mortgage is and what steps might they take to ensure that the qrms rules do not push more guaranteed mortgages rather than the private one. >> i leave part of the pros so that the fha would become a smaller part of the housing market and be restrict it to the appropriate people who are qualifying for that type of mortgage. they are government guaranteed and therefore this securitization retention

requirement does not necessarily relevant. i think the main purpose of the qr and is to provide standardized rating criteria that are sufficiently strong, that the securitize there can be exempt from the retention requirement. but it is to my mind entirely consistent with the private market and securitization and the housing market with the government's role is quite limited other than through fha and other special programs. it becomes relevant only during periods of crisis. >> well, i know we're out of time. but have you received comments or has the received comments from americans expressing the view that this rule and the exemption of federal housing amendments grecian mortgages

might drive more and more mortgage coworkers to the public rather than private archaic? >> we haven't issued a request for for comments, right? and so, we will of course do that and we'll get comments, but we haven't got to that stage yet. thank you. last but not least, senator isakson. >> mr. chairman, thank you very much for including me. thanks to all those who have testified. we appreciate your time and i will be brief. my question would be for ms. bair, but applies to all of you because you all have the mortgage world is being written and senator wicker's comments could not be more appropriate. in your testimony, ms. bair come you say we will continue to work to these shows forward without

delay. we are determined to get them right the first time. it's to that subject i want to speak. the qrm amendment is very specific and with the theme of the requirement shall be in terms of underwriting or a fine income, verified job, credit rating ability to amortize the mortgage. i'm down payment it did not specify an amount, but as specified in the amount of loan about 80% would have to be privately insured and carry private orphanages. i have sent a letter with t. wolpe lurches to two shen, a down payment requirement to be a qrm loan for 30%. what that would in effect to the city handful of people in control of the entire mortgage market privately and for smart people into fha than arty fare. our markets from the va loans to the post world war ii until the beginning of the collapse, which is lending practices in 2000 carried mortgage insurance and

95% that performs equally as well. 41% of all purchases of first-time home buyers who don't have 20% of them. so my request is, careful when you address this subject as you could retract what is already protected by denying liquidity in the private markets. with that said, i just hope you will follow the guidelines and parameters issued in the qrm amendment by ms. landrieu is taken hankin and myself on the down payment and private wordage as well. i hope you'll been able to do that. >> senator, i do think it's important to emphasize that the qrm standards will not be standards for mortgages. they don't apply to lenders and those who love the 5% risk retention. i think the intention of the agencies is there will be multiple funding mechanisms for

mortgages and portfolio lenders. those who retain all the risk and those who offer the 5% risk retention because there is some skin in the game, there's natural economic incentive to a standards and provide more flexibility. so the security is really trying to compensate for the lack of skin in the game by the issuer. and zero, i'll have to be honest with you. i talked a lot by staff about this. we are very open and we want comments on this question, but we are unable to document that pmi was to focus. we just can't find it. if you have additional information, about to see it. we do have a lot of data that show strong correlation between lcds and loan performance. this is a framework were trying to come up with. were absolutely consistent with dodd-frank as it was written. i commend to you, but i do want

to make sure everyone understands we do not anticipate the qr and standards to be standards for mortgages and again this is just to compensate for the lack of economic incentive is there's no portfolio lenders and knows securitize those who want to retain the 5% will have much more flexibility. >> first of all, i will give you the data. i am old enough to have sold out in 1968 when those came the tupac is an later and 72 and 95% of lung came in. there's good historical data on default we think of as to what those with larger down payment is there will underwritten, which is the whole attendant of qrm. as understand the 5% risk retention. but the qrm requirement is so restrictive that it takes up most of the marketplace and then you have the first all number of people controlling conventional lending to everybody else because they'll be risk retention lenders, be able to

price it come controller, which will dramatically raise the potential cost of the loan to the borrowers, somewhat like what a, b., c. s. a printed. they began to push the right to securitize to sell at premium rate, but in fact underwrote poorly on the loans. that is a very important decision you will be making and not get the data to you this afternoon as a matter of fact. i've been working on it. thank you very much, mr. chairman. thank you for your time. >> senator isakson. we have it tough but this on the committee, but i believe we have a stronger financial and because of dodd-frank. over the next weeks, months and will continue to oversee the implementation of dodd-frank in hearing more from our colleagues and the regulatory. i'm sure we will continue to hear about numerous successes

and challenges and it is important for us to conduct oversight. thanks again to my colleagues and panelists for being here today. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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>> according to a government report, the federal government has reduce waste and fraud over the last two years in high risk government programs. the report also highlights 30 areas and the federal government that are most at risk of problems or failure. the house oversight committee held a three-hour hearing on the finding. [inaudible conversations] >> a little house keeping for everyone. senator mccaskill is going to be here shortly. this is an unfortunate but inevitable situation in which we are going to have those clearly kid in the middle of this morning's hearing. so what we're going to do is we're going to start immediately when the senator comes in shall be on a panel by herself. she will speak and by agreement she will not be able to remain.

she doesn't have enough time for all the members to question her. what i would like to do with the ranking member's approval is allow the ranking member to make his opening statement now, even before she arrives so was covered. i'll withhold my name till the main panel. but we're hoping to get as much read into the record and then we will break for the senator as soon as she arrives to ensure we get her before the vote. with that for being present, this hearing has come to order and i recognize the ranking member for his opening statement. >> mr. chairman, 20 thank you very much and think all the witnesses today for being a part of this hearing. particularly at night to extend a special welcome to senator claire mccaskill who has taken out of her busy schedule to be with us today. if many of you know, senator mccaskill was the chair of the subcommittee on contracting

oversight when the senate committee on homeland security and governmental affairs. and if they to say that a single member of congress have been more active than senator cast both at rooting out waste, fraud and abuse in contracting across the federal government. i am also thankful that senator mccaskill should be here today because the committee plans to review the 2011 high-risk record issued by the government accountability office. this report has come a critical tool in focusing congress' oversight effort. it was 30 government programs and spending areas most susceptible to waste, fraud or abuse. i had the opportunity yesterday to join the comptroller general, gene dodaro, our chairman issa with gao's issues report. as in previous eras come issues surrounding procurements are featured prominently. over the past decade, government contract gained costs have

escalated dramatically. in 2000, the federal government spent about $209 billion in procurement. the number has grown to more than $500 billion in annual expenditures. during the same period, the number of sole source and noncompetitive contracts have also expanded. and this year's high risk report, six of the 30 programs on the gao list relate directly to federal contracting. they involve contracting at the department of defense, department of energy, nasa and across multiple federal agencies. several other entries on the gao list are also significant contracting components, such as transforming the department of homeland security. when you examine all of these together, they have a massive impact, coming for hundreds of billions of taxpayer dollars every year. it's a real challenge to fully evaluate the extent of this

problem. for example, during an interview last year, defense secretary robert gates offered what he called a terrible confession. he stated, and i quote, i cannot get a number on how many contract tours work for the office of the secretary of defense, and if quote. in many cases congressional oversight of contracting method to meaningful reform. in 2007 i became chairman of subcommittee and maritime transportation, and washed a series of hearings to ask them in the coast guard multibillion dollars acquisition program to modernize the ships and aircraft. we found that the coast guard had little in-house capability to manage a major procurement effort when they initiated the deepwater program. as a result, it outsourced many of its oversight response abilities to private contractors during the work. based on these assaults i introduced legislation to make comprehensive reforms in the coast guard's acquisition program and it passed the house

unanimously. representative turning bad into defense department contracts for supply chain tracking in afghanistan. general davis petraeus created a task force to review contracting to his credit, the obama administration has made significant strides to improve government contract and period in 2009 from the president directed federal agencies to streamline their acquisition processes and last year the amount of federal contracting declined for the first time in 1997. the administration's initiative off though resulted in a reduction of no-bid and other non-competitive contracts last year. finally, moving forward, we have to continue this progress by conducting our oversight efforts in a sustained, dedicated and

bipartisan way. end of the chairman is committed to that. so i see that senator mccaskill has a right to know went to thank you, senator for coming. i know you have a hearing with secretary gates, so we really appreciate you coming over. if you have time for one or two questions after your prepared remarks, i would appreciate it if you give us any thoughts about how we can keep this oversight effort going on the contract project. what steps can we take, and maybe even together to try to avoid sitting here again in two years with the problems worse and not going anywhere fast. again, mr. chairman, and thank you for your courtesy. >> i think the ranking member and i'm going to do my opening statement after the senator has given her views on this. two things for all the members. it is the rule of the committee that all witnesses be sworn. that was by policy not

applicable to active members of the house and senate. although if you want to be sworn for any reason, will be happy to, senator. .. >> taxpayers have a right to know what they get from their government. we will work in partnership with

citizen watchdogs to deliver the facts to the american people and bring genuine reform to the federal bureaucracy. this is the commission statement of the oversight and government reform, and with that, senator, we're delighted to have you here. we realize that second only to our 25 or so amendments coming up in 15 minutes, you probably have the busiest schedule on the hill, and i now recognize the gentlelady. >> thank you so much. i want to thank both you and the ranking member for this invitation. i'm honored to be here. in fact, i would hope that we would develop a strong working relationship. i think it's one thing -- there's a lot of things we don't do right around here. one is we don't work together often enough across the hall so to speak, and i would enjoy working with this committee as we tackle the incredibly challenging job of contract oversight. it is -- i think if there's one

thing to agree on it's that we have to be smarter and better about how we spend the public's money, and we can't have an honest conversation about restoring sanity to federal spending if we don't take a hard look at federal contracting. there's a dirty little secret about federal contracting. that is, there have been times that there has been some bragging going on about how we slunk the size of government. when that bragging was going on, they were not honest with the american people that the reason the government was shrinking was not because we were spending less money. it was because we were contracting. in many federal agencies across this government, you can walk in to a large office building and go down and one cubicle is a federal employee. the very next cubicle doing the same job is a contractor. employee, employee, contractor,

contractor. one of the challenges we have to is look whether or not the contracting that occurred in many agencies whether we're getting value, whether or not we actually are saving money by the deprivatization that occurred, and most importantly, whether we're gaining efficiencies by that contracting, and that's just in the area of performance services. i'm not getting to the huge, huge mammoth problem of contracting for goods which whether it's in the defense department or any other department, we have a long, long list of problems that need to be addressed. of the 30 areas of government that the gao office identified being most vulnerable to waste, fraud, and abuse, five have to do with the management of government contracts. the weapon system acquisition management, the defense department, contracted management department of the energy national nuclear administration, management at nasa, and the interagency contracting.

contracting is also a huge part of at least 10 more areas on the list, on the high-risk list including financial management, supply chain management at department of defense, implementing and transforming the department of homeland security, and the medicare and medicaid programs. in total, at least half of the most wasteful, most mismanaged, and most inefficient areas of government today involve major levels of contracting. it will be impossible to have a real impact on wasteful spending without focusing on the defense department. the defense department alone is responsible for almost a quarter of the high risk areas in gao's list. dod is also responsible for more than two-thirds of the government's spending contracts. holding the departments accountable for the way they spend money will help save the

taxpayers real money and will e limb wait waste, fraud, and abuse and provide the men and women in uniform with the resources they need in a fiscally responsible way. i would like to take the opportunity to acknowledge the extraordinary contributions the gao makes to our efforts. through the high-risk lists and reports they release every year, gao along with agency inspector generals to work hard to identify abuse is the best weapon against this. they recover money than they cost us. they save us more than they cost us. we need to make sure they have the resources and tools they need, and, in fact, we have a lot of discussions going around about cutting the legislative budget. i support cutting the legislative budget particularly when it comes to our offices and committees. i think we need to trim our sales like most of america is trimming where they need to

trim, but we must be careful that we do not trim the agencies that have the real opportunity of showing us the way to save even more money, so i hope that through your influence, mr. chairman, and the influence of the ranking member and all the members of this committee, that you keep a watchful eye out for the resources that we dedicate to our government's auditors, and most importantly to the government accountability office. gao's work should be the road map to cut spending and improve spending of the federal government. the time has come to be honest, to feel the pain and suffer the political consequences of making hard choices about when and where the government should spend taxpayer dollars. we should start with the programs on the gao's high-risk list. that's where we need to begin because that's where we know things are not being run well. gao acknowledged in their report

that federal government has made progress in many of the areas that they have identified. part of that progress can be traced to the congressional actions taken in the last few years including the weapons systems acquisition reform act and other major pieces of contracting legislation passed in the past few years. some of which originated from the members of this committeement some of the credit should also go to the increase in contracting oversight from this imheet and others which has helped drive substantial changes in federal agencies. in fact, the obama administration recently announced for the first time in 13 years, overall contract spending actually declined last year. this achievement cannot be sustained without ongoing aggressive oversight from congress. it is one of our core speedometers which i know the members of this committee take very seriously. when it comes to oversight of government contracting, this is a bipartisan issue. many of the agencies and programs on ga os' list have

been there for decades. under administrations of both parties, and in the senate i've been fortunate to work with leaders on both sides of the aisle on this issue including senator mccain, senator levin, senator collins and more. currently the ranking member, senator scott brown and i, were able to oversight hearings to make a real difference in legislation that you helped us pass to clean up the disgraceful problems in contracting that resulted in broken hearts in articlington national cemetery. i look forward to the new ranking member, senator rob portman, the new ranking member of the oversight committee. he's an expert on government, and he knows where there's a lot of problems that we need to be focusing on, and i'm looking forward to a strong working relationship with him as we move forward on aggressive contract oversight. in fewer than two years, the

subcommittee on contracting oversight held more than 15 hearings on government contracting. these hearings addressed everything from improvements needed in federal contract auditing to medicare contracts to, as i mentioned, arlington national cemetery. we have questioned contracts and loopholes that cost the government literally billions of dollars. we plan to hold regular hearings throughout this congress and fight for legislation to address the abuses that we find. we can hold hearings once a week, every week for the next five years, and frankly, still have plenty of fish in the barrel to shoot. that's why i'm encouraged this committee will continue your important work in this area. i look forward to working with you and coordinating with you so that we can be very efficient in the way that we move forward on contracting oversight. if you're committee has a good idea and doesn't have time on the hearing schedule, we'd love to hear from you. vice verse is a, we will track

your work, and if there's something we're doing that we think would fit in nicely so some of the hearings that you're having, i would look forward to that kind of cooperation also. we've got a lot we can do here, and this really ought to be an area that we don't need to play political games. this shouldn't be about elections. this should be about how good can we make this government, how responsible can we make the government to the people who pay the bills, and most importantly, we can do better in terms of how we run this government if we actually hold government officials more accountable for the way they are contracting. i could tell you horror story after horror story, and i'm sure mr. chairman and ranking member, you could tell horror stories too. i will tell you one that got me fired up which is why the subcommittee was created. i went to iraq. my trip was only to look at the way they were contracting. i was a brand new senator. i come out of a government

auditing office. i was used to there being processes and procedures in government that made some kind of sense in terms of tracking the money. i'm in an office outside the outskirts of baghdad asking about the contracts. any of you involved in oversight of government knows that that is the huge contract that did all the logistical support for our military in iraq. the estimates of the first year of the contract was $700 million. it was a no-bid contract. it was a cost-plus contract. the first year that they estimated it was going to cost $700 million, it cost $20 billion. they put a powerpoint up on the wall, and this poor woman in the room, the only one without a uniform. i knew she was a civilian in charge of this. they looked to her to explain what had happened with the contract. i was asking aggressive questions. the first year was $20 billion.

the second year of spending on the contract went down, i want to say, $16 billion. the figures may not be exactly right. i'm trying to remember them. she went on with the presentation. i felt sorry for her. i wanted to through her a bone. i said, explain what you did that brought the level of contract down from $20 billion to $16 billion. with god as my witness, she looked across the table to me and said, i don't know, senator, it was fluke. [laughter] that's when i knew we had serious significant problems with contracting in the defense space, particularly in contingency contracting. the department is doing better, but we have problems particularly relating to tracking the corruption issue, butwork for all of us, and i'm honored you asked me to be here, and i look forward to any questions you have and a strong working relationship in the future. >> thank you, senator. we're going to have very, very

little time for questions because not only do you have a hearing convening in 10 minutes, but we have six minutes left on the clock to vote. i have one question, and i think the ranking member has one also. would you be willing to meet on a bicameral basis with your ranking member and other members of your committee and members of this committee on a periodic basis if our schedules can be put together >> >> i think that's terrific. if we just met for coffee and talk and coordinate, i think it would set a great example. >> we'll have coffee, juice, and if my personal account settles for it, maybe a couple of donuts. with that, i recognize the ranking member for questions. >> one quick question. senator, do you think the president is doing enough to address these issues and what kind of cooperation do you think we will be able to get from him and his administration?

>> i think he is trying very hard with the performance officer in the white house. i think they will come with plans this year that will surprise people in terms of the way they are willing to look at organizationing government and -- organizing government and realizing efficiencies. the contracting piece is hard because it is so stove piped. we don't have the right data bases. we spent money on i.t. and don't really have a product to appear in the world of contracting in an efficient way. i think they are trying, but i think they need our oversite to do it better. >> again, i thank you, and mr. chairman, again, i thank you for your curtesy to make sure the senator was able to testify within our schedule, but thank very much. >> well, thank you. i apologize to the other members, but the senator has agreed to come back on an inform mall basis to have the one on one to be helpful between the two bodies. with fairness to the witnesses,

i would swear you in. we'll do this. we'll break, come back immediately following the votes. for all the new members on either side of, this is the most important thing we do every year is to look at the new high-risk, which although cybersecurity is a big one, the $80 billion we spend in it and get less than we pay for is important. senator, again, thank you for your graciousness. we stand in recess. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> hearing will come to order. today's hearing concerns one of the most basic responsibilities of the oversight committee eliminating wasteful spending and fraud in the federal government. yesterday's release of the latest gao high-risk list presents an occasion to renew our focus on this priority and look forward to hearing from the united states controller. not only about the positive results and developments, but about the continuing struggle that affects 83% of all

executive branch spending. there really is no celebration for good news possible, but we have a $1.6 trillion deficit, but every dollar saved through elimination of waste, fraud, abuse of any sort that cost the american taxpayers money should be applauded, encouraged, and as they say in las las vegas, double down on. it is my intention to work closely with the gao and groups in the days and weeks to come to ensure that the house and the senate do everything possible to have the good news we'll hear about today and the challenges that remain ahead be, in fact, our highest priority. with deference to all of the other members who are returning, i ask unanimous consent that all members have five legislative days in order to place their opening statements in the

record. without objection. the chair now would like to swear in the first panel, and let me go to that part. you know, it's probably easier not to rise. i'll just make sure i say it correctly. okay. my committee staff is swearing that we need to rise. i saw it seated yesterday, so i knew it could be done. that's better, thank you. please raise your right hand. do you solemnly swear the testimony you are about to give to this committee will be the truth, the whole truth, and nothing but the truth? let the record reflect that all

members of the panel answered yes. please be seated. now, you may feel like the first panel, but my talking points say i'm recognizing the second panel because of the senator. it's my pleasure to introduce the honorable gene dodaro who is the comptroller the united states. ms. debra cammer. mr. vine sent frakes, the senior policy direct for health transformation, and de rugy, a

senior research fellow. you've done this so many times, so it's for anybody who hasn't. your entire written statement is placed in the record. the goal of your opening statement is not to read it in its totality, but to use your five minutes in a way to enhance or augment. we will not step you exact -- spot you exactly in five minutes, but when it's red, wrap up your statements. with that, we recognize the controller general for five minutes. >> thank you, mr. chairman. good morning to you, ranking member, cummings, all the members of the committee. i want to commend you, mr. chairman, for holding this hearing and the committee. it is a good opportunity for us to discuss our high-risk list that we keep updated and unvail at the beginning of each new congress to oversight the agenda not only for the congress, but to give the administration a road map as well as to what areas they should be working

on. the 30 areas we have on the high-risk list represent tremendous opportunities to save billions of dollars, and if the actions are taking appropriately to improve the performance and accountability of the federal government for the benefit of the american people, so they represent tremendous opportunities. i'll highlight a few areas that app propoe this area. first is the mid -- medicare and medicaid programs, programs that are highly susceptible to billionings of dollars in improper payments. when we first put these programs on the high-risk list, there were no improper payments, and thanks to legislation, the amount of improper payments, but the work is just beginning. there's a long way to go to bring these improper pams and the billions of dollars under control and to really provide

the type of accountability. a lot will depend on how successful agencies are in implementing the new improper payments recovery act which this committee sponsored and supported, and as you know, that act introduces a lot more rigor into the statistical nature of the estimates, lowers the thresholdings to make sure more things are reported appropriately. it requires corrective actions and i -- identification and accountability to be fixed, and it will also require recovery of those moneys where it is appropriate and possible to make the recoveries. this legislation has a lot of potential, and i would, you know, respectfully recommend that the committee figure out a way, and i know i think it's already in your oversight plans to make sure you follow-up on how agencies are implementing

this improper payments legislation. you know, in some areas like the medicare part d, prescription drug part of medicare, that's not even and estimate yet. the estimates made today are not yet complete. this has tremendous potential, and we'd be happy to work with you in doing this, and also as potential cross government. second area has to do with unused federal property. as we know and has been reported, in 2009, the federal agencies identified over 45,000 federal buildings that are either not being used or being under utilized, and the government is incurring an annual operating cost for the buildings of $1.7 billion a year. clearly, there's a need to move forward and to dispose of these buildings properly, eliminate this unnecessary operating cost. there's also costly leasing

opportunities that could be revisited as well, so that's an another target. also, and dod weapons systems acquisition as senator mccaskill mentioned, the congress passed the acquisition reform act in 2009, and that included a lot of important reforms to come up with better cost estimates, and also better accountability in terms of reporting on those areas, but our reviews of the weapons system portfolios have shown billions of dollars in cost growth in those activities and longer period of time to deliver the weapons system, so it's costing a lot more than original expected and it's delaying the implementation of this. we made a number of recommendations to better prioritize the weapon systems port portfolios, put in better business practices and business cases, technology maturity

levels before investments are made, and also to make sure that there's proper oversight and control over that whole process. as senator mccaskill mentioned, there are a wide range of other dod business practices whether they're in the lo logistic support or other management that provide opportunities for streamlining the government's costs. the bottom line, mr. chairman, is there are tremendous opportunities out there for correcting these high-risk problems we've identified. agencies are working on them, and i'm pleased to report that we've had a series of meetings that with omb and the agencies on the high-risk list and gao to talk about more specific actions that need to be taken to come off this list, congressional oversight is important. the only areas that we've taken

offer the list have been ones where the congress has been diligent in conducting oversight. the two we took off this year, over a dozen congressional hearings were held on the consensus area and the clearance area since the time we put them on the list for them coming off the list. it's a major factor. you need top level agency commitment on the part of the add mrks. i can assure you that's a top priority at the gao to focus on these activities and do what we can to help be specific. we're not taking anything off the list until it's deserved to be taken off the list, but our goal to provide as much specifics as we can to get these problems remedied. we can't afford to have these problems continue. thank you very much, and i look forward to answering questions. >> thank you.

ms. cammer. >> thank you. mr. chairman, ranking member cummings, and members of the committee. thank you for allowing me to appear before you today on how the ibm corporation can improve their efficiency and reduce cost through the application of commercial best practices. i'm debra cammer. in that role, i oversee all of ibm's consulting activities at the federal, state, and local level. prior to becoming a management consultant, i worked as a federal credit policy analyst at the budget office. i performed credit and economic policy analysis in the review of credit programs across the federal government. we recently authored a report entitled strategies to cut cost and improve performance. the purpose was to advance the

dialogue about the federal crisis by offering seven initiatives where technology enabled productivity solutions can make a material difference in the performance of federal programs. these seven initiatives include, one, consolidate information technology and infrastructure. two, streamline government supply chains. three, reduce energy use. four, move to shared services for permission support activities. five, apply advanced business analytics to reduce payments. six, reduce field operations and move to electronic self-service. and seven, monetize the government's assets. we estimate the aggressive initiatives can generate a trillion dollar of savings in ten years. these savings are generated through improved performance rather than tacks increases. state and local governments

spend a great deal of energy collecting and dispersing funds. they collect taxes and fees from citizens and business, and they disperse funds to organizations and individuals through a wide variety of programs. these activities generate large volume of transactions, and as a consequence, they are vulnerable to honest mistakes in administration as well as intentional efforts to defraud. the good news for governments at all levels is these types of programs fund themselves to what we call predictive analytics. it's a collection of techniques that when applied to a large number of transactions processed through a standard business process can reveal patterns that are indications of fraud, abuse, or simply poor management. several federal agencies apply predictive analytics today, most notely the irs and department of health and human services. however, we believe deeper

investments in these techniques and the lessons learned can improve the performance of these efforts and yield significant savings. let me describe one example of how the application of these tools is generating real results. the state of new york hired ibm after the state's tax department estimated it was losing $1 billion annually in improper tax refunds. ibm built a predictive model that scores every refund that was valid. the 4% deemed questionable were rejected. investigators examined, others conferred high-risk to determine whether they were valid, and over the last six years, the state denied $1.2 in improper refunds taking into the account the successful appeals. today, the state continues to run the program on its own, and we have similar programs with other states and local

governments that i'd be glad to share. it is important to note that many federal agencies are focused on these issues and are making important strides. omb, for example, should be applauded with working in partnership with the state, federal, and agencies to identify ways to stop improper payments, improve efficiency, and reduce access barriers to federally funded state administered programs. more can and should be done. thank you. >> thank you. fl. frakes? >> thank you. thank you for holding this hearing today and inviting me to participate. i'm vincent frakes. decreasing and eliminating waste, fraud, and abuse in the health care system is vital to improving the quality of care and lower health care costs. the center of health transformation worked on these issues and with our members to

find solutions to this problem. fraud and abuse places a massive burden on governments and on american taxpayers. on monday, president obama released the budget for the upcoming year. in the budget, the president noted the gross federal debt will exceed $15 trillion this year, equal to the size of the entire u.s. economy. this is unsustain baling. a recent study found between $600 billion and $850 billion of health care spending annually is wasted and up to $175 billion of that is pure fraud. front and wasteful spending is low hanging fruit that can be used to reduce this debt. there is broad consensus that fraud and abuse must be addressed and can make a sit debt in the nation's government spending. unfortunately, little has been done to curve the practices. outright criminality imposes the largest burden on the system. cooks figured out how to game

the system, and they must be stopped. take, for example, a cancer doctor charged in april of last year for fraudulently doing medicare and charging health care companies $1 million for medications that were never provided or a consultant convicted of a scheme in which the clinic was claiming to administer hiv infusion treatments. countless examples of this exist armed the country, and the practices must be eliminated. doing so can save the american taxpayers more than $1 trillion over the years. these crimes go undetected. medicare and medicaid is high-risk and they exceed 10%. compare that to the less than one tenth of 1% credit card fraud that collects $2 trillion

annually in transactions and has nearly 1 billion credit cards in circulation. the primary reason for success is utilizing realtime technology by prescreening. we can learn from the private sec forsees successes. there are three solutions to be taken to improve medicare and medicaid and solve the fiscal crisis we find with these programs. first, we must incorporate private sector solutions to identify, monitor, and ultimately prevent fraud and abuse. companies like mcn are on the front lines of data tracking models to head off fraud in order to save the public and private payers significant moneys on the back end. there is no reason these same systems can't be use liesed at the federal level as well. we need significant changes in the electronic data tracking and sharing across departments. that including utilizing a single unified depository of

information to reduce wasted resources expended on cross references on potential crooks. realtime data tracking identifies irregularity at a moment's notice. third, we must institute a comprehensive and transparent model of supplier approve as well as encourage the implementation of schemes to reduce waist waste fraud in the system. many more steps can be taken, but these are the most important. not only do we need to address fraud in the system, but solve the primary reason for waste, and that is the defensive medicine. one major reason that providers order unnecessary services is due to the fear of potential legal action. predatory litigators cause physicians to practice defensive medicine ordering far more tests and procedures than are necessary. this drives the cost through the roof. jackson health care in dallas recently reduced a --

released a poll of physicians where a quarter of health care services they deliver, more than $600 billion a year are unnecessary and delivered solely to reduce their liability risks. congressman and david scott introduced hr5 the health act that you cosponsored and that including meaningful liability reforms while strengthen the doctor to patient relationship. this reform is a critical step in lowering costs, eliminating defensive medicine. waste is running rampant in our system. proper screening providers, involved law enforcement, and legal reform, we can save trillions of dollars and transform our health care system to one that delivers more choices of better quality at a lower cost for every american. thank you very much. i look guard to your questions. >> thank you. dr. de rugy.

>> distinguished member of this committee. thank you for allowing me to testify. i'm a senior research fellow at the george mason university where i study tax and budget issues. fraud, waste, and abuse are problems worthy of attention, however, the $125 billion in waste that comes from improposer payments pails in comparison to the waste that exists in congressional spending patterns and the economic damage caused by the misallocation of capital and the creation of perverse incentives. first, this waste occurs when the federal government spend money on private sector functions. having the government run businesses such as amtrak and the air photographic control system is just not inefficient, but hinders growth and costs the taxpayers money while providing

low quality service to customers. second, this waste also occurs when the federal government spends money on functions in the purview of the state. president reagan wrote that federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government. sadly, congress has ignored this advice and is now spending $500 billion in grants to states for activity that it has no legal or practical reason to be involved in such as healthy marriage promotion and museum professional training grants. it is inefficient and creates an unacceptable lack of accountability. the waste also occurs because when lawmakers run states, local and priecht affairs, they have less time to oversee federal agencies and focus on critical issues like defense and security. their largest example of

wasteful federal spending occurred under the american recovery and reinvestment act. much of the money in the bill was spent, and yet unemployment hovers around 9%, higher than the 8.8% unemployment rate that the government threatened the country would face if congress did not pass the gigantic stimulus bill. evidence like this just confirmed what many scholars predicted all along, government spending can't jump start an economy. as a result, many have concluded that the stimulus package was a waste. the practical realities witnessed by the american taxpayers bear out the academic truth. the spending that did not deliver on the promises made, unemployment remains high, and it has startled the country with more debt. what would increase employment and stimulate economic growth is investment, private investment, not government spending labeled

as investment, but the american company are not investing their capital in some $1.8 trillion in capital is sitting on the sidelines. why? because risk takers are acting cautiously out of fear because of the future. recent policy change have hampered business investment making a bad situation worse. the process of debt and deficit raises the threat of increase the taxes and government crowding out capital markets. uncertainty prevails. as a result, companies don't build new plants, conduct research, and they don't hire people. people stay unemployed for weeks, months, years. you are the representative of the american taxpayers. you are the stewards of the nation's finances. you want the economy to grow. you want people to be employed. you must realize that the federal government cannot be and

should not be the solution to every one of our problems. there are things that only the federal government can do, but when the federal government gets involved where it shouldn't be, it waste capital, time, and taxpayers' money. understanding this will guide you on how to cut spending, however, it also means you have to put all spending on the table. no areas are untouchable, not entitlements or defense spending. all part of the budget should be on the table for review and potential cuts. finally, put in place now, serious, strict, and unavoidable budget rules that ties congress' hands and restores fiscal discipline. with such reform, the american people will start having confidence in their future again. the country will be on the road to recovery and prosperity. thank you for your attention, and i'm looking forward to your questions.

>> i first want to thank all of you for being very, very close to the five minutes. that's close to a record. i recognize myself for five minutes. you each gave a different perspective. in five minutes, it's hard to go through all. mr. frakes, when you gave the numbers, one interesting thing is you went through defensive medicine as a major part, beyond the scope of this committee. other committees will deal with it, but when you looked at the $178 billion in outright payments for either procedures that didn't occur or even some cases to entities that were not what they claimed to be, what do you believe or has your organization studied what you believe would cost the federal government to avoid all or part of that? where is the sweet spot? would $1 billion in a system to attack that kind of waste or

that kind of false payments yield far more than a billion dollars? >> certainly. we've seen it through the private sector, through ibm and others that if you put in money on the front end, it will yield significant results and much greater results on the back end. when i'm talking about putting in money at the front to curve this idea of stopping suppliers and checking thinkings before they go out the door, you're going to see a massive increase in the number of drops in numbers of payments and fraudulent payments. if you put in $1 billion, you'll see a much higher yield. the numbers are not insignificant, and they be influential in cutting things off. there's a thought out there that if you're a medicaid supplier, yows granted that. that's not the case. we need to do a much better job of putting in front end money to yield back end higher savings to

cut of fraudulent payments. >> if -- you're familiar with the recovery organization's efforts. their website and data base management, my understanding is that was a couple million dollars, and they have found, you know, like $80 million in one example only that would have been the losses through medicare fraud in which the organizations that were doing it had actually stolen other doctor's identifications and so on. can you comment a little bit on how do we get from you and other watchdog organizations, how do we get the numbers to find a way to fund programs similar? >> yeah. i would be happy to provide some additional details, but what i would say is that i agree completely that an up front investment targeting certain

areas that you know have high rates of issues like home health services for example and other areas that book appointments would an appropriate investment to be made. we're looking at prepayment controls right now. >> prepayment control is a big step. that's back to the $80 billion we can't get well spent in i.t. expenditures. my real question here and why i picked at that, there are all kinds of numbers in fairness. i've seen it at $70 billion approaching $200 billion in medicare with services not provided or entities who were not what they said they were. how do we attack that? it wasn't the main target, but because similar los funds were used, he was able to stand up,

and it was less than $2 million, and he's headed off a scam that was just apt. how do we get the case to congress at a time in which we're cutting cutting to make, and perhaps that $2 million is enough, but to make that kind of investment, and then score the savings so that if we spend $5 million to save $500 million, we then see the opportunity to spend ten times that to spend ten times that. >> no, i understand what you're saying. i agree with that. we can work with earl. i think we're going to try to use his system in the health care area and on experimental basis and to try to come up with some proposals for that detection kind of capability of up front of the relationships between different entities and the screens that was done. we'd be happy to try to come up with a proposal that we could

discuss with you. >> ms. cammer, if i could ask one question, if we were able to score it, do you believe a private sector in the way they have in the past with the irs, would you believe private sector would be interested in working on, if you will, a bounty system, one in which it costs nothing to the government unless we save many times that. >> that's an example of what we do with the state of north carolina and that we're operating right now with their medicare and made cad payments. -- medicaid. >> briefly. >> it's an outcome-based approach, and we have just started that. we have identified opportunities for them to go after that, and i don't have the number in front of me, but it's in the written testimony. >> you only get a small part? >> 10% of what's identified. >> thank you.

i recognize the gentleman from maryland. >> thank you very much, mr. chairman. your testimony is fascinating and so very, very important. first of all, let me go back mr. dodaro to something that senator mccaskill was talking about. you were here when she was testifying? you will recall she said basically don't cut your nose off despite your face with regard to funding for agencies like yours. are you satisfied with the funding that you have to do your job? you're going to answer that quickly unfortunately. i have a lot of questions. >> basically, i've requested given the fiscal situation in the country that our funding level be kept flat at 2010 fiscal year levels, and i'd be satisfied if our funding was kept at that level. >> thank you. another question is during your testimony, you talked about the folks that you were or the

agencies you were able to take off the list, and you said that you saw something very interesting in that they seemed to have come under the most scrutiny by the congress. is that a fair statement? >> yes, there was sustained congressional discussion on both areas. >> what he just said is so crucial. we saw that with regard to the coast guard. when we stayed on top of them, we got it done and saved millions of dollars in a short period of time because it was at the sustained effort. federal contracting expanded over the last 10 years, and to over $500 billion according to your report. gao included the defense department contract management on the high-risk list since 1992. dod weapons systems and supply training management have been on the list longer than 1990.

mr. dodaro, is anybody able to quantity how much this is lost to waste, fraud or abuse? >> i'm not aware of any estimate of that nature. >> one of the things that made me realize, and i said this to the coast guard folks, i believe that we were caught up in a culture that was mediocrity, and then it made me, when i saw a statement by secretary gates, it made me wonder about the defense department caught up in a callture of mediocrity with these issues particularly on contracting out. secretary gates said, i can't get a number on how many contractors work with the secretary of defense. are you surprised by that statement? >> no, i'm not. >> that's sad, isn't it?

>> there's plenty of room for improvement in the defense department's business areas. for example, they are one of the few and the largest department that has yet been able to get a financial audit with an unqualified opinion. they are in need of some major reforms and better data. >> you've done a great advertisement for ibm. the -- i'm wondering and following up on what the chairman asked about, is there any way that we can incorporate, and is there anything that congress can do to incorporate those things? one of the things said to our committee is i want to stop the fraud before it happens. i'll never forget that being said. i want to stop the mismanagement before it happens. i think he's probably done that. is there any way we can do those

kind of things, the kinds of things that some of other witnesses talked about from the very beginning. are you following? what would it take for us to do that? what would we need? >> well, i think you need to have well-developed plans with the agencies. part of this is changing the culture. there was a lot of emphasis on getting the money out of the door fast without screening it up front. changing the culture shift, having well-targeted investments that are tailored to the programs. >> going back to the dod, there's a situation where we have private contractors, and we saw this in the coast guard. private contracts are hired to oversee private contractors which is, again, that goes to the culture of mediocrity. does that make any sense, and how can we get around that? >> that definitely increases risk. part of the problem is the contracting amounts of funding

of dod have gone like this. the acquisition work source is flat. they haven't adapted to have the right oversight. part of the problem is you can never contract the government's decisions on what the requirements ought to be and then provide an effective oversight over that area. the lack of definitive requirements is something we see time and time again, and changing rierpts and not applying good business practices and having the good business case in the beginning before the investments are made or contracts are left. >> i thank the gentleman. gentleman from texas. >> thank you, mr. chairman. i had a couple questions. first is billions of dollars in fraud and waste. i think i know the answer to the question, but i learned in government, it's better to ask the question. when you're scoring the amount of waste, let's say, it's a check for $1 million and 96

cents, and it should have been a million dollars and 69 crepts. that's counted as a little error. i want to make sure we are chaising the really big dollars. >> well, i think the amounts that we've mentioned in our report are the right estimates. >> that's the actual cost to the government and not the aggregate numbers? >> right. there could be error in there, and some of the estimates from the medicare and medicaid program, for example, some of the imprommer payments are based upon incomplete documents, but a lot of it is for unnecessary medical services or people not receiving money. >> okay. i think medicare and medicaid is probably a right target, and we talk about using software. we have a record with i.t. in the federal government. i think that comes from the fact we don't try to use off the shelf products. we come up with our own, i'm

going to use the word ridiculous specifications rather than squeezing something into an existing product. it's not like buying something at best buy, but it seems like in medicare and medicaid, there should be somebody already developed out there by the private insurance carriers who are doing pretty much the same thing. do you see some advantage in doing that, and maybe i should direct this to the lady from ibm. is there a product to plug this into your product and just start working at it? >> yes, and so -- i mean there is a solution. i won't say product, but it's a solution that exists. like i said, north carolina, and also cms recently issued a request or proposal to do exactly what we're talking about, to do a before leverage analytics and i.t. to do predictive analytics around what gets paid. >> all right, and i will yield

back the remappedder of my -- remainder of my time with the comment i think part of what we need to be doing is looking for off-the-shelf solutions to plug into rather than trying to develop something custom for ourself. that always tends to be much more exceptive. thank you. >> would the gentleman yield? >> sure. >> mr. dodaro, we vice haven't asked you to talk about the cyber threat of both dollar waste and failure. could you comment on that quickly? >> yeah. that's a very important issue. i'm glad you asked the question. we put computer security across the federal government as a high-risk area. in 1997 because of concerns that we have, it's the first time we does enated across the -- designated across the entire federal government. the federal agencies did not have good comprehensive systems

with access control, segregation of duties, comprehensive security programs. in 2003, we expanded it to critical infrastructure protection, the energy grid, and other areas, and the incidents occurring on a reported are going higher. the federal government needs to have a better public private partnership with the private sector since most of the assets are in the private sector. there needs to be more early warning and protection capabilities. this is a very important area. i was glad to see the commission issued a study, but our review of the study shows of the 24 recommendations, only two have been implemented fully to date. there's clear responsibilities, partnership with the private sector, this is a terribly important area, and we're concerned about it. >> thank you. gentleman from new york is recognized. >> you got me in the wrong

state. i'm not from new york. >> i apologize. kentucky. >> i know everything in california is mashed up. >> that reminds me, i was from cleveland before california, but the gentleman from kentucky. >> that's quite all right. thank you, mr. chairman. thank you for your testimony. i wanted to talk to you about the categories you've added to the high-risk list, and that's the revenues from oil and gas leases. according to your report, that is actually one of the largest -- not taxed income sources of the government, $9 billion in 2009, and just a couple days ago you wrote in the new "new york times" and you wrote in fiscal years 2006 and 2007 much of the data reported by gas companies were erroneous

in uncollected fees. do you have any sense of how long the oil and gas companies have been misreporting their production? >> i'm not sure offhand, you know, how far back that goes. we updated 245 work in -- that work in 2009 and still find data and accuracies in the system. we also looked at interior's efforts recently to verify the production numbers of oil and gas production, and we found problems with that as well. the other point i add on this is the assessment system generally hasn't been looked at in the last 5 years, -- 25 years, and we made recommendations there because when the federal government was compared to other countries and even some states, it was relatively low in terms of what it was charges. interior has a study underway and due to produce it this year. >> do you have any estimate of how much this may have cost the taxpayers? >> not offhand. >> in your examination of the

data from 2006 and 2007, what company did you find to have underreported and underpaid the most? >> i'm not sure. i have to provide that for the record if we have it. i'd be happy to do so. >> i'd be happy to have you do that. i appreciate that. i want to just ask you a question. you made a comment about the amount of medical services provided basically as defensive medicine, and i think you mentioned that 25%, possibly? >> yes, that's correct. >> where did that come from? >> a study between jackson health care and the gallop organization. ..

how much more delay or would there be more delay based on kind of the theory of approaching payments that you have given us? >> we are at the point now through leveraging technology to do predictive analytics that you could get closer to real-time

for use of those so you could really speed at a. >> okay. thank you chairman and i yield back. >> a i thank the gentleman. the gentleman from pennsylvania, mr. kelly. >> thank you mr. chairman. i was really intrigued by what you talked about and you seems to have a really direct response to what is going on. the president the other day was talking about all this capitol sitting on the sidelines and businesses aren't investing it which leads to the premise that the only way to get out of this situation is for the government to borrow more money and spend more money. projects bend a little bit on that because i am an automobile dealer and i've been in courage to build another building and the point that i have it is very difficult to borrow money from banks right now for small business people, so while this money sitting on the sidelines please give me an idea of this philosophy that the government has to just keep our wing and borrowing money to get us out of

this dilemma. if you could expand on her comments because i think you are hitting right where we need to hear this information. >> thank you. is a great question. i think i would like to ring -- remind people the federal government has done this, borrowed a lot of money and pretended to invest in our economy to jump started and it has not worked. this money on the sideline is a real direct product of all the uncertainty that is inserted into an economy with the federal government spending massive amounts because individuals and entrepreneurs are pretty rational and they understand that spending today or borrowing today means taxes tomorrow. also they want a lot of new regulations going and so it induced a lot of uncertainties. and that is what this money on the sideline is. it is like why am i going to actually invest money today, hire people and i don't know what is going to happen? i don't know whether i'm going

to have customer so i think the uncertainty is the key to everything and the more the government creates the uncertainty the more uncertainty we will have in the and the less we will recover. >> let me ask you now, this 814 billion-dollar stimulus bill, are there any parts of that you thought were worthwhile? >> i mean, i think the part about unemployment benefits i think. as a society we are pretty wealthy and can afford to help people who are in need to some extent. however the economic literature was very clear, this is not going to work because while the government invest money, the money has to come from somewhere. there are no magical forces for federal funds. has to be taken from the economy and it doesn't have the return on investment that they claimed it was going to have.

>> and the whole drive was to spend this money because if we didn't spend that we were going to see unemployment rise above 8% and so 10% so let me ask you, at some point, people knew this wasn't working. where could we have said wait a minute, this is crazy? what are we doing? we are throwing a lot of money out there. we have haven't spent it all yet but the nurses mad rush to spend a lot of money because we simply see it is not working and we are following this -- and saying spend more we are going to be okay. borrow more and spend pointed at some point it will break. at some point it is going to break but i don't think it is going to break the right way. >> i agree with you. actually would have argued that in the first place. there was a lot of evidence. it hasn't worked in the 70s and it hasn't worked now. the other thing is it is not only spending in the form of the stimulus bill.

is all the spending that took place in the last 10 years, and the last 20 years come in the last 30 years. there has been a lot of spending. if there was and we wouldn't be in this mess in the first place and i think we need to change pass and we are talking about waste and we need to revise waste doesn't come in the form of overpayment and earmarks. it also comes in the form of the federal government putting its finger everywhere in the private sector where it shouldn't be too prop companies that are failing, which is a drag on the economy, this propping up those companies. to give money to companies who are succeeding, which is totally useless. like when the federal government gives money to the state and when it shouldn't be. this creates ways. we need to change past and start thinking directly about wasting government spending means. >> i appreciate it and i have to tell you when you add the federal government and in the state and local governments, when we start to talk about how we are attacking our gdp and amount of money we are wasting their government is way the top

so thank you for being here today and i appreciate your comments. i yield back my time mr. chairman. >> we now recognize -- are you ready? the gentleman from cleveland ohio, mr. kucinich. >> thank you very much mr. chairman. over the past few days demers of his house at voted on the amendments to this year which will cut or entirely eliminate government entities are programs which provide critical assistance to the most vulnerable americans. some amendments which a party pass eliminate funding for research and some of our nation's most consistently pressing social and economic issues. to my knowledge none of these existing programs appear on the gao's with that government programs at high risk of waste fraud and abuse. in the meantime numerous department of defense initiatives and specifically dod contracting ran prominently in the gao hybrids report is programs that remain susceptible to fraud and abuse. the report states that there are

"significant ongoing problems" " persistently poor program outcomes" into the department of defense and ability to perform detailed audits for major defense acquisition programs. it notes that for fiscal year 2009 for example the dod obligated $372 billion in contracts for goods and services and yet that the contracting is hampered by "a lack of well-defined requirements use of ill-suited business arrangements and the lack of an adequate number of trained acquisition and contract oversight or snow." i have a copy of the letter sent november of last year by eight individuals who represent more than 300 years of experience with the defense department budget weapons and military operations and mr. chairman i ask unanimous consent that a copy of the letter be entered into the record. >> without objection so ordered. >> this letter was sent to erskine bowles. these individuals import your marbles to take the opportunity

reform the defense department to create a deficit reduction. the pentagon cannot track the money it spends. routinely dod does not know if it's paid contractors once twice or not at all. we recently learned it doesn't even know how many contractors that have how many gameplay and what they are doing. in sharp contrast almost every other federal agency that pentagon has failed to apply with chief financial officers at 1990 would solve the problem by requiring the pentagon to pass annual audits of the links between their expenditures and legally enacted appropriations authorizing these expenditures. so comptroller general, can congress be sure that budget request from the pentagon reflect the department of defense's actual cost? >> as you mentioned, there is an inability to have the books of book so they had pentagon aside from the army corps of engineers. they have not been able to pass

the test with an audit so it is not clear. there is accurate accounting of what the expenditures are. >> is the trio to be able to audit them to know if their costs roughly match up with a request? the request? >> it would need important to have that information as adequate assurance that the cause where they are. >> sofie don't have accurate tracking of dod payments to its contractors much less how those contractors spent those monies, is it even possible to know if it dod budget request is being lost to waste, fraud or other abuse? >> there would be a degree of uncertainty that you wouldn't necessarily want to have him make and those kinds of judgments, but you know basically, the allocations that are made are tracked through budgetary systems that aren't audited either, and i would note that the department is first not starting the audit. the budget numbers that are

allocated against the cost and i think that is a good step and a step in the right direction and should eventually provide the type of assurance you are looking for. >> when i first came to congress i was told the department of defense had over 1100 accounting systems individual accounting systems and also that they had over a trillion dollars in accounts that they could not track or reconcile. i just am hopeful that those who have the responsibility for oversight of the auditing part will pay attention to that and hope you take that message back baccas will. >> i will do that. in fact of the main reasons we can provide an opinion on the audited consolidated financial statements of the u.s. government is because of the department of defense pervasive management practices and procedures and so we have been trying to work with them. they have got short-term priorities now to focus on auditing the budget numbers and

asset accountability issues which i think is a good starting point. they have a long way to go. >> i'm hopeful mr. chairman of this committee inspires its oversight responsibilities and will have the opportunity to go deeply into some of these questions related to the department of defense's spending. >> can the gentleman yield? >> i certainly would. >> i might share with you when i was in the army during that payback of time they decided they'd find out how many railcars they had so they did in auditing came up with about 25% of them missing. than they did a walk down audit and found out many have been repainted over the years to company names because they didn't have to explain to the army or the military that they were missing but there would be hell to pay if they lost one belonging to a company, so this is not a new problem. i look forward to working with you on solving this long-term problem of the lack of accountability at dod. >> i want to want to tackle the gentleman and also his remarks do not imply a favoring of

privatization of the army. [laughter] >> no but i would like to know if those railcars have all been found. [laughter] >> we recognize the gentleman from florida mr. ross for five minutes. >> mr. dodaro thank you for being here. i know lester congressmen were raising the debt ceiling and empowered the gao office for the duplication of any activities or efforts of the federal government that might be cost savings and that report is forthcoming. can you give us a preliminary like a trailer or a snake review of what we might anticipate? >> we have identified about 34 different areas of overlap and duplication for consideration by the congress, and they touch several hundred programs and virtually all federal departments and agencies. now we also as an added bonus are including in the report about another 50 cost savings opportunities for congress to consider and also revenue

enhancements, where there is abilities to tackle what is now an estimated tax gap between taxes collected, about $290 billion. >> could to quantify how many we are looking at in terms of duplication? >> we don't have, and we will discuss in in the reports the limitations as congressman kucinich talk about, some of the baseline information isn't really there so it is hard to come up with an overall quantification effort but it will be billions. is significant. >> i know we have limited time so this will be an interesting question i would love for you to answer it in a brief time i have here. in your report on youth indicate efficiency and effectiveness. one of the recommendations is restructuring the u.s. postal service to achieve sustainable financial viability. how? >> basically they have to change their business model. the model they have. we have outlined options in the

report for the postal service to consider and for the congress has will. >> in that business model you have 150 million households that are being reached every day six days a week by the u.s. postal service. but you have got 80% of their cost is for compensation and benefits. are you suggesting we look at both sides of the equation, not only the revenue side of the equation but also the expense side of the equation? >> i think everything is to be on the table to restructure it. we are looking at facilities. we just put out a report this week talking about how other countries that tackle this problem and reduce their facilities, change their retail options, change personnel structures so i think all things have to be considered. >> ms. cammer and i have to ask the question. because of your background not only in the public sector but also in the private sector as a consultant, with ibm, again you have got an understanding of

marketing channels. you have an understanding of relationships. would you have root -- recommendations with the u.s. postal service on how they can make more more technologically advanced? >> we have a team of consultants working with the postal service today and i would be happy to get back to you with some of their recommendations they have offered. >> that would be great. thank you. dr. de rugy, quick question. i'm a firm believer the government shouldn't be in the -- the central government should provide that we not only be a competitor but the regulator of the same market, so i have got some concerns that i think run deep with your philosophies in a report but i want to talk to you specifically about project labor agreements. are you familiar with project labor agreements, the pla's where any government contract negotiated has to be done on a human wage and in most cases we have seen a situation

which we recommend that those be dealt with as well. we think it is basically a management responsibility to decide that. it should be done. definitely, definitely. >> thank you is human time is that. >> thank the gentleman. >> mr. chairman, i thank the members for your testimony here today. this committee has conducted a lot of oversight about the department of defense contingency contracting in iraq and afghanistan including use of private security contractors but not exclusively of course. when i was china's subcommittee on foreign policy, we uncovered evidence of a trucking contractors paying insurgents billions of dollars for so-called protection and we also talked to other contractors with $3 billion in fuel contracts who were going to companies that the state department and department of defense knew nothing about so my question to you sir is, mr. deaderick you think we have to have some improvement in the contracting laws it will provide

those authorities that may be necessary to meet the challenges for operating a contingency complex? >> i deftly think they are lessons learned that need to be applied both in potential but in practice and there is a lot of lessons learned about putting this type of responsibility in the theater without appropriate training and support that needs to be done adequately a overseas so yes i agree with you that there is probably lessons learned and we can provide some of our thoughts on that to you. >> that would be excellent if you would. also with particular concern to the public contractors is a real persistent problem on how they're managing both of those areas in iraq and afghanistan and in last year centcom we got a task force together to figure out how many private security contractors they actually employed in afghanistan and the number came to tens of thousands on that. in iraq the state department is

about to take on a lot of the responsibility's from the department of defense and they are hiring additional private security contractors on that, so how much confidence should we have that is dod transitions to the state department are they going to be a over a -- able to oversee effectively the thousands of private security contractors they are bringing on? >> that is an area that i think needs focus. i believe we have work underway in that area to assess that it might be happy to provide a briefing to you. >> how far along are you on that work? >> it is a pretty immediate situation and i hope we will expedite that and move that forward. we have had hearings regularly and they seem to be getting too far along on examining and i say we not meaning you but the state department and the department of defense. they know there's a problem but we are not there yet and do your work can be very helpful on that the other problem we have of course and we don't seem to have enough people to really oversea

those contractors that we do put it out to them that it's been a serious problem problem and usaid the state department and other places on that. work -- wartime contracting commission, they found out we were hiring private contractors to oversee other private contractors on that, so how do you assess the department of defense progress in insourcing those critical roles of oversight and management contracts? >> our assessment is the contracting decisions are made much too often on an ad hoc basis. the release and a systematic assessment of what should be contracted out what should be in source and for what should be in source how you build capability center staffing and expertise to be able to do that? what expertise duty to oversee the contractors so we have encouraged and recommended systematic assessment of that. that is the only way you can do with deal with that issue over time. we have serious issues and as we analyze that do have any ideas for how they might ramp that up

and separate those out so that those inherently governmental functions of oversight of contractors can actually be brought back in art and source? is there an impediment that exist that you can recognize to do something about it or do you think this analysis will wind its way out before we get effective recourse be i think it all has to start with what mission do you want to achieve and what is the best way to be able to do it? i don't think there is going going to be a magic solution to that. there is going to be a set of rules on this or that particularly when you get into environments when you are in contingency operations and planning. they need to have something that is more robust as a foundation but then you need to be able to allow some flexibility to be put in place but you have to have proper oversight congressman and that is where you think he think things break down. >> the coast guard had large ships and the contractor out there doing different components and we had a contractor analyzing the job. we have been managing the job. we have them overseen a the job

and when the job got all messed up with we almost hired the same people to come in and assess how we can fix it. >> the government needs for those areas that you know you are going to contract out you need the proper people to oversee a better government employees to be able to make sure you have the duty of loyalty and you have the expertise of continuity to oversee the best interest of the government and the taxpayer. >> is getting a grip on not outsourcing jobs and making sure we can manage them properly. i agree it is a serious issue. >> yes, it is. >> thank you. the gentleman from michigan, mr. walberg for five minutes. >> thank you mr. chairman and thank you to the panel for being here. it has been enlightening at least the portions i have been in and i wish i could have been here for the entire time. mr. dodaro in your written testimony, you state that excess or underutilized buildings cost over $1.6 billion annually to operate.

i guess the question i would flow from mr. ross' earlier is what has prevented the federal government from doing something that makes so much sense such as selling the property. you stated he wouldn't pick the properties that what has kept us from doing that? >> there are certain barriers that we have recommended that omb focused on. for example they are stakeholder interests in some of these buildings and properties that need to be dealt with be able to do it. there are some legal requirements that are in place but none of these barriers are insurmountable and our point is that you need to aggressively identify them. they are different for each property as you might imagine that they need to be dealt with on a more concerted aggressive basis. >> what is the hesitancy towards this aggressive action? >> yes, to be honest with you i'm not quite sure other than it takes a lot of hard work and effort to be able to go forward

on these initiatives. we have been pushing for plans to be developed to be able to do that and we are pleased they are getting better data and they are also what the situation is like but actually implementing a lot of these things appears to be more typical. to be honest with you i'm not quite sure exactly what the reason is. >> any concern about any impropriety and stakeholder issues that go beyond simply dragging feet or arguments that we don't have, the resources or time or energy? i mean is there anything that would go beyond that to something. >> nothing. i will go back and check with her team to make sure my answer is correct on this. if there are any things of that nature that will provide them to you but in some cases like for example there are some historic preservation issues that need to be dealt with some of these

buildings and other you know, legal concerns. but i will provide a listing to you of some of the barriers and also if there are any improprieties we will certainly let you know. >> thank you. dr. de rugy, i am tempted to just say my question is how would you expand on your statement already? but i won't do that. maybe the question will allow that to take place. i appreciate what you had to say in your written submission, you identified three areas of federal spending that should be addressed. one being federal spending of functions that should be reserved for the state and to cut federal spending of functions that should be reserved for the private sector and three, federal spending on items or services that government has no business are choosing in the first place. i would like to focus my question mostly on this first area. apparent that you strongly

believe in the tenth amendment, reserving powers of the state not enumerated to the federal government to. >> i do. >> and you believe a reevaluation and likely a limitation of the grants the federal government makes is the best way to reorganize federal priorities or does congress need to do something more explicit and if so what is that? >> i mean, i can't talk to the legal aspect because i'm not a lawyer. i'm an economist so i've will go to the money. i really do think restructuring the money that goes to the states either by cutting it off for actually turning a lot of it into block grants a set of matching grants, which induce deficiency, promotes overspending would be a good way to do it. first it would allow states to have time to think about how they are going to provide the service in one of the problems with the system we have now on top of the fact that it induces

overspending is the fact that it is a one-size-fits-all type of thing. any of that grant from the federal government it comes with strings attached and things that you have to do in a certain way and doesn't take into consideration the city or the state so that would be the first. i would either cut a lot of this money off or turn the rest into block grants. >> so cutting it off, you are not concerned that the job can be done then? i say that facetiously. >> it is like there is always this belief that if the federal government doesn't do anyone happen but it is just not true. the state's -- most of the spending comes from the states and it is the state-sponsored or private sector sponsored in the states don't get this money then they will be thinking about what they actually truly need to do and maybe a lot of these functions they are providing right now should be returned to the private sector.

>> thank you very much. >> i thanked the gentleman and we now recognize the gentlelady from the district of columbia, ms. norton for five minutes. >> thank you very much mr. chairman. mr. dodaro i would like to ask you a question that is perplexed members of this committee. and certainly the public. it has to do with very large, sometimes huge contractors whose abuses or poor performance is so severe that they are brought before this committee or their headlines on them and i want to know, i want to describe the response of federal agencies in awarding them contracts again. for example, if you did equipment of what some of these contractors have done as an employee, you would be out the door and nobody would ever hire you again it would seem that let

me give you a couple of examples. kbr did work in iraq or the department of defense. it was so faulty on the maintenance and the electrical equipment that death resulted, including dozens of deaths of american soldiers. it awards kbr at $2.8 billion contract to provide support services, additional support services for our troops in iraq. let's take -- perhaps blackwater and private security because that has been a headline -- a headliner. they still have major -- the state department after those headlines awarded them contracts for protected services in

afghanistan. these people were seen as having themselves committed her hats, or at least accused of committing what would amount to in prosecution, crimes while they are doing their work. is the dod and in the case of blackwater, give contracts again to such companies because of the difficulty of startup? is it wasteful? is it a competitive process? why in the world if a contractor has exposed the agency to such embarrassment and infamy, with the agency want to give that contract again? there must be some inherent reason for doing so. >> typically, what we find when there is a lack of competition,

they are -- there either reasons for expediency and they need to move quickly in an area, they need to have people who have the proper background and security clearances and that type of thing or there is a limited number of companies that could provide that service. but what we have focused on is making sure there is more competition in the process as a better value to the government. there needs to be adequate consideration of past contractor performance in the process. there are safeguards built into the process through suspension and department that need to be put into place and that is followed adequately do the process. >> is the debarment used? >> it is used, but i think our work has shown that it is not always properly checked before some of the awards are made on across government kind of basis. >> is the contract up front? for example, if waste or failure

to maintain the electrical system in iraq occurs somehow you owed the government? >> definitely provisions to protect the government from nonperformance on a contract. >> what protects them now? >> i would have to go back and look and to provide some explanations. what we did find though and this is being addressed come, is that many times their incentive awards, the contractors are being paid in the incentive fee and really weren't meeting the standards of performance as what you would think they should be but i will go back and i will provide to you and this committee the standard provisions that are in there. >> it does seem to me that a system of rewards -- i love incentives frankly -- of rewards and penalties, carrots and

sticks have always been thought to work. thank you very much. >> just for the record we are doing work currently on suspension and department practices which we will be happy to share with this committee as that work is being completed and we will provide you the federal acquisition regulations that protect the government. >> thank you. thank you mr. chairman. >> i thanked the gentlelady. we now recommend -- recognized mr. gowdy for five minutes. >> is possible to explain to the folks i work with and perhaps my colleagues who have difficulty explaining we work for their pervasiveness and longevity of government waste, fraud and abuse and i commend you for gathering with us today to seek solutions and i want to start with one that i find most compelling, which would be criminal consequences. do you have an estimate and i will throw this open to all four of you, and estimate negligence,

gross negligence, criminal negligence. where is the preponderance of the waste, fraud and abuse? where does it fall in that paradigm? not all at once. >> i can to you from a medicare and medicaid side. a lot of what happens in terms of the prosecution of fraudulent claims within cms unfortunately does not occur until it meets a certain threshold of money, so a lot of these claims. >> whose threshold is that? >> i'm sorry? >> who sets the threshold? >> it is cms for their ones that determine based on allocation of resources what claims they can go after. >> let me ask about the allocation of resources because of my numbers are correct there are almost 50 different investigative agencies that are seeking waste, fraud and abuse just within health care. that along is an example of waste and fraud and abuse.

50 different agencies. >> the huge irony that exists is my next., is that there is waste going on between all of those organizations in the sense there's a lack of data-sharing going on between them so for instance even with let's say medicare part a or d you are missing data-sharing between those two that they would be able to use to identify who potential crooks are and so as a result, they are losing out on being able to cross-reference these individuals and some of these people might actually be claiming to be legitimate suppliers for medicare part a when they were already identified as a potential fraudulent supplier for part part d max of that lack of sharing is leading to a lot of the negligence you are speaking of. >> it is is also an explicit bowl. is impossible to explain to anybody outside this zip code how you can have that. with respect to the question asked by my colleague from the district of columbia about

carrots and sticks, i prefer the stick so tell me what is being done with respect to criminal prosecution, consequences to ameliorate what has been if my numbers are accurate a two decade long acknowledged problem? how many investigations have been started? how many matters? how many declination spies u.s. attorneys offices? >> we can provide that information to you for the record. there are reports that the inspector general has put out that shows matters referred in how many have been investigated in the prosecutions that have been prosecuted as well so we can provide that information to you and the threshold specifically are set by the justice department in terms of how much monetary money would have to be you know sort of roach before they feel it would be efficient and productive to go through the judicial system in that process.

those figures are available and we will provide them to you. >> okay, thank you. i would yield back the balance of my time. >> would the gentleman yield? >> yes, sir. >> and it case of the question of prosecution, is the biggest problem the lack of prosecution from your studies or is it the lack of catching in real time these individuals before the money is taken? which do you think leads to more of a long-term abuse? the fact that people continue stealing again and again in various ways or the fact that we don't prosecute them at a low enough level? >> while we haven't studied that issue directly mr. chairman, i think part of the issue is that it is not that -- you can continue to abuse the system with low potential gain caught, so i think that just intuitively

from that standpoint. i will go back and take a look and see if we have a more definitive answer. >> one follow-up question to an earlier one, would be impossible for the government to contractor agree with everyone, and meaning at some point the government has have to rely on general contractors to do jobs does is inevitable he will have a contractor hiring other contractors? >> as long as it is in a typical subcontractor i think that is fine but when the government contracts out its responsibilities to oversee the prime contract and i think you have an issue. >> which we all agree with. we now recognize the gentlelady from california, ms. speier for five minutes. >> thank you mr. chairman. i'm very pleased with this hearing and frankly think if we spent the rest of the fear just dealing with the issues that were raised here and actually got some results we would have done our job. i have much frustration with the fact that we hold hearings, we

uncover problems and then nothing happens. to you comptroller, congratulations on your official appointment. you have a high high-risk list. their agencies that stay on this high-risk list year after year with no penalties, no results, no changes and i think that is inexcusable and if you need to have more authority to force these agencies to do what you recommend, then we should introduce legislation to make sure that happens, because we look foolish and the american people look at us as if we are totally ineffective when we cannot deliver once we have uncovered a problem. let that may move onto an area that you just editorialized in "the new york times" about just two days ago. a percentage of the proceeds

from gas and oil companies that drill on federal lands. abdel a according i according to a report there is substantial funds that could be generated, some $9 billion in fiscal year 2009. but it appears that it is on your high-risk list in part because the oil and gas companies aren't obtaining their proper share. so i guess my question is, how long have they been underreporting, why do we allow them to underreport? why are the taxpayers getting the proper payments that they should be receiving because the drilling is going on on federal land? >> basically i had agreed as a result of an earlier question to go back and provide a listing of the underreporting.. what i would say though there are really a couple of issues. one, there is too much reliance on self-reported data.

needs to be checked. secondly we found problems with the verification process that the interior department is supposed to use to make sure that the production figures are correct as well. >> excuse me. are you telling me that the oil and gas companies are self reporting and we are supposed to trust them? >> there are supposed to be checks that are put in place as well. >> by who? >> by the interior department? >> are they? >> that is where we found some gaps in that it also the bear cage and of the production numbers which are things we believe need to be addressed and that is one the reasons we are highlighting this as a high-risk area? the other reason is the federal government's basic system to assess what the costs would cost would be for federal leasing has not been revisited for 25 years and when the federal government, what it charges for leasing off federal lands as compared to what is charged in other countries or even some states it ranks extremely low in his

charges to begin with. >> mr. chairman i would recommend that we have a hearing specifically on this issue. the taxpayers deserve to get fair market value for the leases that they provide to anyone, be they the next-door neighbor or an oil and gas company and i think we should be getting what is justifiably hours. we are the stewards of taxpayers money and i think this is a blighted area. i would like to move very quickly to the alaska native corporation. i don't know if you have looked into it. if you have not i would request the committee they do so. the washington peace did -- washington posted a piece which is astonishing. anytime you allow for soul contact, sole-source contracts, there is an issue that is going to take place in this case evidently a contract for $250 million was offered to a

subsidiary of the alaska native corporation, jump among living in delaware whose office was in colonial four-bedroom home and he was providing sexual assault and harassment training. except he had no experience doing that and his last contract with the government was $473,000 it was for janitorial services. there has been $29 billion provided to the anc over the last decade. most of the money not going to the natives. most of it going to the non-natives. it is an absolute abuse of the program and i think we should look into that as well. >> yeah. we have issued reports in the past on that with recommendations. we are currently looking at it again and we would be happy to share. >> that is my problem. you issue a report, nothing happens and then there's another story written because we haven't done anything about it. i want to be part of the committee this year that

actually delivers on results, not just have a bunch of hearings, but show that we are saving the american taxpayers money and i yield back. >> the gentlelady yields back. chairman isaiah had to go to the floor with several amendments he is dealing with so i'm honored to set them as the chair. i am up in the order so the timing. i yield myself to five minutes. first i want to tank a which of you for your testimony and to work on these important issues as the gentlelady just said. we could spend the rest of this session just on what you are sharing with us and still not get everything done that we need to include oversight that chairman isaiah has made a priority of just this, oversight of how the federal government is handling the peoples money and we are glad to have you here. while i thank all of you, general dodaro i want to thank

you. believe this is your first time testifying before this committee as the newly sworn in comptroller general. r., -- congratulations on your confirmation and your 30 plus service of tao. i am going to start with you and i want to thank you for your flexibility on our subcommittee hearing dealing with the consolidated financial reports that the move back to march 9. look forward to hearing your testimony then and also to your upcoming report i believe march march 1 on duplicative federal programs. we are anxious to see that and i know this is a first-time report although you have addressed some of the issues in other ways in the past. as chair of the subcommittee on organization deficiencies and financial management we look forward very much to working with you and your staff because when we think of efficiency,

duplication of effort certainly is not an efficient use of the taxpayers funds. is there anything you want to give us a primer on, what we may see or so we wait until march 1? >> well, we were charged with doing an annual report so this will be our first annual report on this. it will basically summarize the work that we have done an new work we have started since the requirement was put in place. we focused a lot on discretionary spending programs in this first area of both civilian and defense. we think it is important for depends to be on the table as well and so you will see a number of issues on that. in subsequent years we are going to focus on mandatory spending and also tax expenditures as well so we have got this on a three-year cycle to cover the entire federal government. this first report will identify 34 different areas that touch hundreds of programs and virtually every major mission and agency in the federal

government. i think you will find it plenty of opportunity to delve into. some of these issues very well. you also find there are limitations on the ability of us to give definitive answers to the questions about how much money you actually save if you consolidate this because the limitations on information that is collected on a reliable basis from the agencies as well. we are adding to that another 50 items of cost savings and opportunities beyond the overlap duplication and revenue enhancements where additional revenue could be brought into the federal government to help close what is now an estimated 290 billion-dollar tax gap. so both revenue-generating and enhancements as cost savings opportunities. so we are looking forward to unveiling the report and providing appropriate follow-up support for the congress. >> hopefully given the timing is we are debating the new cr today

and that is still going to be an ongoing dialogue between us and the senate no matter what what we passed today or tomorrow. this may give us additional information as we try to really look at how to be the most efficient with taxpayer funds even in the immediate term in this current year. when you look at discretionary, i do agree that you need to look at everything including dod and the duplication of efforts. i assume it it is more duplication of programs and not items such as the ongoing debate of the duplication of whether we have one or two engines on the joint strike fighter. i assume that is the outside of this report. >> that is correct. >> i'm going to run out of time here quick. one i would add on the oil and gas royalty and i apologize because i'm trying to multitask here. is very rough estimate? we see $9 billion, from these

royalties. yet they are off by even 10%. that is almost a billion dollars, 900 million. is there an estimate of what you think they be lost because of the lack of good material, the material witnesses in their structure? >> we do not have an estimate at this time. >> okay and one final quick comment we look forward to getting into on the financial management at dod. when we look at discretionary spending there is no bigger entity then dod and if they can't manage their finances, need we know they are the best in the world at defending us and winning wars but as a know from my previous chairmanship of the subcommittee, their financial management leaves a lot to be desired so we look forward to working with you on that. >> yeah, i do as well. i look forward to the upcoming hearing on the financial audits and working with you on the subcommittee chair capacity. >> thank you and i would now

yield five minutes to the gentleman, mr. mchenry from north carolina. >> cannonmack mr. chairman and thank you for being here on this long morning. dr. de rugy in your previous answer to mr. walberg and in your testimony you talked about the flypaper effect, the fact that these federal transfers with matching grants at the state and local level actually increase spending and over the long-term increases taxation. thisthis is particularly intereg in light of the stimulus, which with $150 billion roughly that was in direct federal transfers to states and thereby increasing the spending. so the question is, is the federal government really complicit in the state and municipal government's financial woes by these operations?

>> yes. it is. >> will you elaborate? >> there is economic literature that actually documents this problem and yet, the system goes on. one of the things that people always bemoan is the fact that if we cut federal spending going to the states, the states are going to end up with big holes but it always rests on this assumption that the federal government has deep pockets and that is not the case. for every dollar the federal government spends, whether it is on the state or the private sector, it has to tax people. taxpayers who live in 50 states and also it has to -- so the more the federal government does and this is how it works and sends money to the states, right? because they can borrow this money. it actually pushes the federal government towards a more irresponsible behavior. speak, so in my subcommittee on this committee, we have had

discussions about the state bond issue, the lack of real transparency they are. >> there is another issue there, right? the fact the federal government has actually been complicit in granting special treatment to investors who think it is a really good idea to lend money to bankruptcies in the form of tax affections and american bonds where the federal government sums of guys lending money to lend money to bankruptcy these as complicit. >> okay, so in terms of this, do you think that the state and municipal financial decision is worse than currently known? >> yes, i think it is. if you take the economic approach of actually valuing the pension unfunded liability, instead of their less than

$500 billion that state pensions have on their books, you come up with a number of at least $3 trillion so yes, the fiscal picture is much worse than we think. >> okay, and in terms of well, here is a separate question. i don't know if you would want to answer but in terms of our ability to know or your ability when you are doing research to see the long-range unfunded liabilities of states and venus abilities and even the federal government. is it knowable for the average taxpayer to see where their city or state is in terms of financial liabilities over the long-range? >> i think it is very important. not everyone might want to look at it but i can tell you, i find that it is way easier to look for data at the federal level. i find it extremely complicated to look at data at the state level and municipal level and more importantly there are a lot of accounting that apply only to the government apply to the

private sector that makes the liability of the federal government, state and federal government much smaller than it actually is and it would be a very good thing not only to make this data -- but also to value it at its actual present value and so we can see what the true size of this liability is. >> okay so this is the gatsby versus fasb in essence to speak the lingo but the private sector as the value things differently than governments value things based on accounting standards. so you see some flaw with government accounting? >> there are real flaws with accounting centers. and it makes -- and it all points in one direction and making the size of the liability and what taxpayers ultimately will have to pay and the bill they will have to burden look way smaller and at a zero

problem. >> so fasb standard would give you greater transparency and a better ability to understand the chair nature of the liability? >> yes and also value the liability in the future and its present value so you know actually what you are going to have to pay in the future and what you need to actually put down right now with a realistic rate of return rather than quickly optimistic 8% rate of return. >> thank you. >> you are welcome. >> thank you gentleman. just a follow on that real quick, if you are talking about a cruel method of a more accurate having the federal government be fully disclosing so when we talk about poor chilean dollars in debt if we had an olive bar unfunded liabilities on medicare and medicaid we are really in 50 to 60 chilean dollars. >> actually it is on the accounting financial statements of the united states unfunded

liability reaches almost $80 trillion. >> exactly and that is what is not well focused on as we focus on the publicly held debt which is just a small fraction of that whole cost. >> one of the things we don't talk much about is the fact that the intergovernmental death which is supposed to be actually be already funded heart of the promises we have made to seniors, actually this money is gone and there are ious in the trust funds and the only way the ious will be paid back to these programs is that the federal government taxes people are borrows more money. >> thank you. we thank each of you again for your testimony and the great resources you have provided today and we know you will continue to do and is a committee we look forward to continuing to partner with you. thank you and we are going to move to our third panel then, if our witnesses want to work their way towards the witness table.

[inaudible conversations] thank you. on our third panel today, i would like to recognize thomas shots, president of citizens against government waste. mr. andrew moylan is vice president of government affairs for the national taxpayers union and mr. gery kalman is director of u.s. federal legislative office. as you saw in the previous panel pursuant to the rules all witnesses will be sworn. if you would these rise and raise your right hands. do you solemnly swear that the testimony you are about to give this committee will be the truth, the whole truth and nothing but the