By Andrew McLauchlin, Director, CGI Initiative for Collaborative Government

October 22, 2009

Congratulations to Danny Werfel, who was confirmed Oct. 13 as the new controller of OMB’s Office of Federal Financial Management (OFFM). Back in July, when Werfel was nominated, OMB Director Peter R. Orszag pointed out that Werfel will work closely with Deputy Director for Management Jeff Zients to improve the efficiency and effectiveness of the federal government. The controller also coordinates policy on financial reporting, audits, internal controls, fraud and error reduction, and grants management.

During his confirmation hearing, Werfel set his course. The first item on his list of key areas and priorities was eliminating improper payments. “The amount of remaining improper payments on the government’s books is staggering and must be corrected,” he testified.

Sen. Tom Carper (D-DE), who presided over the hearing, also focused heavily on improper payments. It was an appropriate focus, especially during this era of increased government spending to relieve national economic distress. With the Recovery Act, Congress made spending accountability and transparency critical factors in evaluating the success or failure of economic stimulus.

According to Carper, an important step in overcoming improper payments is increasing the level of transparency to “prevent mistakes before they happen.” Another key step is aggressively recovering misspent funds, he said. Werfel said he will address these goals in part by taking advantage of low-risk, low-cost technologies and processes emerging from the private sector to support transaction processing and reporting.

Government already is leveraging one of those processes via an emerging form of public-private partnership that both reduces risk to federal agencies and virtually eliminates up-front capital expenditures. For example, by using benefits-funded contracts, agencies can pass to companies all the risk and investment involved in implementing a program or system. In return, the private sector partner receives as compensation a portion of the fees or payments collected under the program.  This approach is particularly well-suited for recovering improper payments, where the contractor invests in the infrastructure and personnel to perform the work and receives a percentage of each payment recovered.

Werfel cited one such program during his hearing; the Centers for Medicare and Medicaid Services created the Recovery Audit Contractors (RAC) program.  CMS implemented the RAC program in response to the 2006 Tax Relief and Health Care Act.  The companies that hold RAC contracts are responsible for identifying, investigating, and recovering improper Medicare reimbursement payments. In return they receive a percentage of the money recovered.

The RAC program has allowed CMS to improve its accountability to Congress and taxpayers while shifting program risks to the contractors. CMS not only avoided up-front expenditures but also saves money by recovering improper payments.  Citing the nearly $1 billion recovered during the first phase of the RAC program, Werfel noted that “the strength of this program is the incentives that are set up.” What’s more, he said, those incentives and the partnership approach have delivered “significant results” for CMS and, by extension, for taxpayers. 

With the Improper Payments Elimination and Recovery Act of 2009 currently under consideration in Congress, the need for best practices in this area could become increasingly important. The CMS RAC program provides a model the government can draw on to help other agencies set the right outcome-based incentives for contractors while reducing risk and cost.

Disclaimer: The postings on this site are the opinions of the individual author, and do not necessarily represent CGI’s strategies, views, or opinions. CGI expressly disclaims all liability for actions taken or not taken based on the content of this blog.

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