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                                                      Calendar No. 391
114th Congress    }                                       {     Report
                                 SENATE
 2d Session       }                                       {    114-229
_______________________________________________________________________

 

             FRAUD REDUCTION AND DATA ANALYTICS ACT OF 2015

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 2133

         TO IMPROVE FEDERAL AGENCY FINANCIAL AND ADMINISTRATIVE
          CONTROLS AND PROCEDURES TO ASSESS AND MITIGATE FRAUD
           RISKS AND TO IMPROVE FEDERAL AGENCIES' DEVELOPMENT
              AND USE OF DATA ANALYTICS FOR THE PURPOSE OF
           IDENTIFYING, PREVENTING, AND RESPONDING TO FRAUD,
                      INCLUDING IMPROPER PAYMENTS

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                 March 15, 2016.--Ordered to be printed
                                   ______              
 
                         U.S. GOVERNMENT PUBLISHING OFFICE 

59-010                         WASHINGTON : 2016                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                  Christopher R. Hixon, Staff Director
                Gabrielle D'Adamo Singer, Chief Counsel
       Patrick J. Bailey, Chief Counsel for Governmental Affairs
            Jennifer L. Schaeffer, Professional Staff Member
              Gabrielle A. Batkin, Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
               Mary Beth Schultz, Minority Chief Counsel
 Katherine C. Sybenga, Minority Chief Counsel for Governmental Affairs
                     Laura W. Kilbride, Chief Clerk
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                                                      Calendar No. 391
114th Congress    }                                       {     Report
                                 SENATE
 2d Session       }                                       {    114-229

======================================================================



 
             FRAUD REDUCTION AND DATA ANALYTICS ACT OF 2015

                                _______
                                

                 March 15, 2016.--Ordered to be printed

                                _______
                                

 Mr. Johnson, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 2133]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 2133) to improve 
Federal agency financial and administrative controls and 
procedures to assess and mitigate fraud risks, and to improve 
Federal agencies' development and use of data analytics for the 
purpose of identifying, preventing, and responding to fraud, 
including improper payments, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................3
 IV. Section-by-Section Analysis......................................4
  V. Evaluation of Regulatory Impact..................................4
 VI. Congressional Budget Office Cost Estimate........................5
VII. Changes in Existing Law Made by the Bill, as Reported............6

                         I. PURPOSE AND SUMMARY

    S. 2133, the Fraud Reduction and Data Analytics Act of 
2015, seeks to strengthen Federal anti-fraud controls by 
implementing agency guidelines set by the Director of the 
Office of Management and Budget (OMB) with input from the 
Governmental Accountability Office (GAO) on risk-based fraud 
prevention techniques, increasing reporting on agency fraud 
reduction strategies to Congress, and facilitating the creation 
of a Federal interagency library of data analytics and data 
sets used to prevent fraud and improper payments.

              II. BACKGROUND AND THE NEED FOR LEGISLATION

    Fraud in the Federal Government is a serious problem that 
wastes taxpayer dollars, prevents Federal programs from 
carrying out their intended purpose and serving target 
populations, and creates potential national security risks. 
Congress and Federal agencies have been working to combat fraud 
and reduce improper payments by creating policies and 
legislation that will give agencies the tools that they need to 
target and prevent fraud. In 2014, Federal agencies reported an 
estimated $124.7 billion in improper payments, which includes 
payments made because of waste, fraud, and abuse.\1\ According 
to GAO, the improper payment amount was $136.9 billion in 
2015.\2\
---------------------------------------------------------------------------
    \1\Gov't Accountability Office, GAO-15-593SP, A Framework for 
Managing Fraud Risks in Federal Programs 47 (July 2015), available at 
http://www.gao.gov/assets/680/671664.pdf.
    \2\Gov't Accountability Office, GAO-16-357R, Financial Audit: U.S. 
Government's Fiscal Years 2015 and 2014 Consolidated Financial 
Statements 32 (Feb. 2016), available at http://www.gao.gov/assets/680/
675425.pdf.
---------------------------------------------------------------------------
    This Committee has a history of conducting oversight of the 
fraudulent and wasteful use of taxpayer dollars, including 
holding hearings on improper payments in both the 113th and 
114th Congress. For example, on February 11, 2015, the 
Committee held a hearing titled Risky Business: Examining GAO's 
2015 List of High Risk Government Programs. The hearing 
examined government functions identified by the GAO as a high 
risk to taxpayers, including fraudulent income tax returns due 
to identity fraud, which led to $5.8 billion in improper 
payments in 2013.\3\
---------------------------------------------------------------------------
    \3\Risky Business: Examining GAO's 2015 List of High Risk 
Government Programs: Hearing Before the S. Comm. on Homeland Sec. & 
Governmental Affairs, 114th Cong. (2015), available at http://
www.hsgac.senate.gov/hearings/risky-business-examining-gaos-2015-list-
of-high-risk-government-programs; Gov't Accountability Office, GAO-15-
371T, GAO'S 2015 High-Risk Series: An Update 7 (Feb. 2015), available 
at http://www.gao.gov/assets/670/668419.pdf.
---------------------------------------------------------------------------
    In another February 2015 hearing looking at the work of 
Federal inspectors general, the Social Security 
Administration's (SSA) Inspector General testified that in 
fiscal year 2013, SSA reported $3 billion in improper payments 
in its Old Age, Survivors, and Disability programs, and $5.1 
billion in improper payments in the Supplemental Security 
Income program.\4\ The Inspector General was quick to point out 
that these aggregate numbers do not include fraud that the 
agency has not detected, meaning it represents only a portion 
of the full amount of improper payments made, and highlighting 
the importance of detecting fraud.\5\
---------------------------------------------------------------------------
    \4\Improving the Efficiency, Effectiveness, and Independence of 
Inspectors General: Hearing Before the S. Comm. on Homeland Sec. & 
Governmental Affairs 2, 114th Cong. (2015) (statement of Patrick P. 
O'Carroll, Jr., Inspector General, Social Security Administration), 
available at http://www.hsgac.senate.gov/hearings/improving-the-
efficiency-effectiveness-and-independence-of-inspectors-general.
    \5\Id.
---------------------------------------------------------------------------
    To help Federal agencies reduce fraud, in 2014, GAO updated 
their Standards for Internal Control in the Federal Government 
(the ``Green Book'') which provides the overall framework for 
establishing and maintaining an effective internal control 
system. According to GAO, internal controls are the 
organizational processes which agencies use to comply with 
applicable laws and regulations and report accurately on their 
operations.\6\ The new Green Book, which became effective at 
the beginning of fiscal year 2016, sets the standards for 
internal controls in Federal agencies and requires Federal 
managers to ``consider the potential for fraud when 
identifying, analyzing, and responding to risks.''\7\
---------------------------------------------------------------------------
    \6\Gov't Accountability Office, GAO-14-704G, Standards For Internal 
Control in the Federal Government 5 (Sept. 2014), available at http://
www.gao.gov/assets/670/665712.pdf.
    \7\Id at 34.
---------------------------------------------------------------------------
    Additionally, GAO published the Fraud Risk Management 
Framework (the Framework) in July 2015 to help Federal managers 
adjust to a risk-based approach to combat fraud.\8\ The 
Framework emphasizes fraud prevention and recommends control 
activities Federal managers can implement to prevent, detect, 
and respond to fraud. It was created with input from Offices of 
Inspector General (OIG), national audit institutions from other 
countries, the World Bank, the Organization for Economic Co-
operation and Development, as well as anti-fraud experts 
representing private companies, state and local audit 
associations, and nonprofit entities.\9\ The Framework 
recommends that agencies create an organizational culture that 
emphasizes fraud risk management, plan regular risks 
assessments tailored to each program, design anti-fraud 
strategies that include cooperation with program stakeholders, 
and design methods to measure fraud reduction outcomes, among 
other recommendations.\10\
---------------------------------------------------------------------------
    \8\Gov't Accountability Office, GAO-15-593SP, A Framework For 
Managing Fraud Risks in Federal Programs (July 2015), available at 
http://www.gao.gov/assets/680/671664.pdf.
    \9\Id. at 1.
    \10\Id. at 6.
---------------------------------------------------------------------------
    The Fraud Reduction and Data Analytics Act of 2015 seeks to 
utilize the GAO Framework by codifying these new standards and 
directing OMB to use the Framework to create guidelines for 
agencies to establish controls to identify and assess fraud 
risks and to design and implement control activities to 
prevent, detect, and respond to fraud. Agencies will then be 
required to report to Congress on their implementation of the 
new fraud reduction strategies, as well as identify their risks 
and vulnerabilities to fraud. These reports will help Congress 
monitor the progress made by agencies in addressing and 
reducing fraud risk, including the success or failures of the 
guidelines created by OMB as a result of this bill.
    Finally, to give Federal agencies the technical tools they 
need to better analyze fraud risk, the bill establishes a 
working group tasked with establishing a plan for the creation 
of a Federal interagency library of data analytics and data 
sets to facilitate the detection of fraud and the recovery of 
improper payments. The working group is comprised of the 
Controller of OMB as chairperson and the Chief Financial 
Officer (CFO) of each agency. This information will allow 
agencies to coordinate in their fraud detection and improve 
their ability to use data analytics to monitor databases for 
potential improper payments, a recommendation included in GAO's 
Framework for reducing fraud risk.\11\
---------------------------------------------------------------------------
    \11\Id.
---------------------------------------------------------------------------

                        III. LEGISLATIVE HISTORY

    S. 2133, the Fraud Reduction and Data Analytics Act of 
2015, was introduced October 5, 2015, by Senators Tom Carper, 
Thom Tillis, Claire McCaskill, Ron Johnson, and Tammy Baldwin. 
The bill was referred to the Committee on Homeland Security and 
Governmental Affairs.
    The Committee considered S. 2133 at a business meeting on 
October 7, 2015. The Committee ordered the bill reported 
favorably by voice vote without amendment. Members present for 
the vote on the bill were Senators Johnson, Portman, Lankford, 
Enzi, Ernst, Sasse, Carper, McCaskill, Baldwin, Heitkamp, and 
Booker.

        IV. SECTION-BY-SECTION ANALYSIS OF THE BILL, AS REPORTED

Section 1. Short title

    This section establishes the short title of the bill as the 
``Fraud Reduction and Data Analytics Act of 2015.''

Section 2. Definitions

    This section defines the terms ``agency'' and ``improper 
payment.''

Section 3. Establishment of financial and administrative controls 
        relating to fraud and improper payments

    This section directs the Director of OMB to create 
guidelines for agencies to establish controls to identify fraud 
risks and to design and implement control activities to respond 
to fraud, which should specifically incorporate practices 
identified in the GAO Framework, and states that the Director 
of OMB should work with the United States Comptroller General 
to modify the guidelines as necessary.
    This section specifies that agencies should be using a 
risk-based approach to design controls to prevent fraud and 
that control activities should mitigate identified fraud risks. 
The section also states that agencies should be collecting data 
to detect and monitor fraud, and using that data to perfect 
their fraud prevention techniques, as well as using the results 
of audits and investigations to improve their fraud detection 
and response.
    Finally this section requires each agency to submit a 
report on their progress toward: enacting the guidelines 
created by OMB, the fraud risk principle in the Green Book, and 
the OMB Circular A-123 with respect to the leading practices 
for managing fraud risk; and identifying risks and 
vulnerabilities to fraud. Such reports are required to be 
submitted to Congress in the agency's annual financial report 
to Congress for each of the three fiscal years following the 
enactment of this bill.

Section 4. Working group

    This section establishes a working group, comprised of the 
Controller of OMB as chairperson, and the CFO of each agency. 
This working group will meet quarterly to share best practices 
in addressing fraud and to establish a plan for the creation of 
a Federal interagency library of data analytics and data sets 
to facilitate the detection of fraud and the recovery of 
improper payments.

                   V. EVALUATION OF REGULATORY IMPACT

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill and determined 
that the bill will have no regulatory impact within the meaning 
of the rules. The Committee agrees with the Congressional 
Budget Office's statement that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on state, local, or tribal governments.

             VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

                                                  January 12, 2016.
Hon. Ron Johnson,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2133, the Fraud 
Reduction and Data Analytics Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 2133--Fraud Reduction and Data Analytics Act of 2015

    S. 2133 would require federal agencies to report on their 
efforts to assess and combat fraud and improper payments in 
each of the next three years. In addition, the legislation 
would require the Office of Management and Budget (OMB) to set 
up a working group to establish best practices for preventing 
fraud and improper payments and for sharing analytical 
information among federal agencies.
    The Federal Managers' Financial Integrity Act requires 
agencies to establish and maintain internal controls to ensure 
federal programs operate efficiently, effectively, and in 
compliance with relevant laws. The Government Accountability 
Office (GAO) issues financial control standards for the federal 
government through the Standards for Internal Control in the 
Federal Government (known as the Green Book). Additionally, OMB 
establishes specific requirements for assessing and reporting 
on financial controls used by the federal government. The 
standards in the most recent Green Book include methods for 
assessing the risk of fraud.
    Based on information from GAO and OMB, CBO expects that 
implementing the bill would increase the administrative costs 
of each major federal agency by roughly $50,000 annually 
primarily to prepare reports for the Congress for three years. 
Because there are about 25 major agencies, CBO estimates that 
implementing S. 2133 would cost about $4 million over the 2016-
2020 period, including funds to operate the proposed working 
group. Such spending would be subject to the availability of 
appropriated funds.
    Under S. 2133, agencies would be required to undertake 
additional efforts to detect fraud and improper payments that 
will not be undertaken under current law. Such efforts could 
result in cost savings to some agencies, but could also lead to 
additional costs to correct financial systems. CBO has no basis 
for estimating the magnitude of either increases in the 
recovery of fraudulent payments or costs to correct financial 
systems.
    Enacting S. 2133 also could affect direct spending by some 
agencies (such as the Tennessee Valley Authority) because they 
are authorized to use receipts from the sale of goods, fees, 
and other collections to cover their operating costs. 
Therefore, pay-as-you-go procedures apply. Because most of 
those agencies can make adjustments to the amounts collected as 
operating costs change, CBO estimates that any net changes in 
direct spending by those agencies would not be significant. 
Enacting the bill would not affect revenues.
    CBO estimates that enacting S. 2133 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2026.
    S. 2133 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Matthew 
Pickford. The estimate was approved by H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

       VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    Because this legislation would not repeal or amend any 
provision of current law, it would make no changes in existing 
law within the meaning of clauses (a) and (b) of paragraph 12 
of rule XXVI of the Standing Rules of the Senate.

                                  [all]