OMB controller nominee Werfel would take deeper look at DoD's books

Daniel Werfel has some sober news for the Defense Department and its inability to close its financial books each year.

Werfel, the nominee to be the Office of Management and Budget's controller, told lawmakers Wednesday that the DoD chief financial officer needs to convince the military program managers that obtaining a clean audit will benefit their mission.

"Right now, progress has been made, but it's been incremental, it hasn't been subsitive from my vantage point," says Werfel during his nomination hearing before the Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management Government Information, Federal Services and International Security. "We need to start making subsitive progress."

OMB says 21 of 24 Chief Financial Officer's Act agencies received clean audit opinions and closed their financial books in 45 days in 2008.

DoD is the biggest reason the government cannot close its books and receive a consolidated audit opinion. Werfel says the Homeland Security Department and NASA also are key agencies serious financial management challenges, but it's DoD that is most important.

"They are each making progress, but not the type of progress that is acceptable at this point," he says. "One of the things we have to do with each of the agencies is relook at their corrective action plans and make sure, for one thing, we have to find a moment of truth for these agencies. Every agency in government Nov. 15, when financial statements are due, is a nerve racking day for them. This is the day they find out if they have passed or they did not passed, and it's a rallying cry for those organizations. What I've noticed with NASA, Homeland and Defense, they don't have that same urgency. I don't get the frantic calls from those CFOs in October asking what is going on. And those frantic calls are important because it tells me they are looking at the problems and doing everything they can to fix it."

Werfel says he would like NASA, DHS and DoD create that moment of truth to have a sense of urgency to get specific financial actions completed.

Along with consolidated audits, Werfel detailed several other of his priorities should the Senate confirm him.

He says further reducing the $72 billion a year in improper payments agencies make and eliminating or consolidating the amount of unused or under used real property the government owns are other major areas of focus.

Sen. Tom Carper (D-Del.), chairman of the subcommittee, says the $72 billion figure is only a portion of the amount agencies are improperly spending as it doesn't include the Medicare prescription drug program and several large DHS programs.

"We must get our arms around this problem, we need to help agencies improve transparency in this area, prevent mistakes before they happen and to more aggressively recover improper payments that are made," he says.

Carper introduced the Improper Payments Elimination and Recovery Act of 2009 to help address many of these ongoing issues. The bill passed the Senate Homeland Security and Governmental Affairs Committee in July and should make it to the Senate floor this fall, Carper says. Rep. Patrick Murphy (D-Pa.) introduced a companion bill in the House.

Werfel says a three-year pilot program in three states to recover improper payments made by Medicare paid off last year to the tune of almost $1 billion recovered. The program uses a share-in-savings model where the government and contractor split the money recovered.

"We are very excited about this program, in particular, how can we use this example and this model of finding the right incentives and getting the right players involved to remediate improper payments in other areas as well," he says. "We will expand this program to all 50 states by January 2010."

Carper says he would like to see something similar with the states when it comes to Medicaid.

"Financial incentive is a powerful tool," Werfel says. "We need to get a more aggressive approach to recovering money."

Carper says getting a better handle on improper payments could produce the most results in the shortest amount of time. He says agencies have not done a good enough job in recovering these improper payments.

Incentives also would play a big role in getting agencies to get rid of or consolidate the amount of unused or under used real property they hold. OMB says agencies own more than 20,000 assets from office buildings to labs to hospital to runways that are considered excess, and 65,000 assets that are considered under used.

Werfel says there are two reasons why agencies have not disposed or consolidated of these excess. The first is there is no incentive or benefit for the agency, and the second is the law regulating how the process works is 60 years old and arduous.

"We have to break a culture of 'well if I have it, why would I give it up,' and break a culture of not thinking progressively and proactively about the asset as excess," he says. "We have an army of federal facility managers out there and we need to incentivize them and their leaders to want to derive benefit from identifying their excess and getting rid of it."

Werfel points to the Veterans Affairs Department as a good example of an agency that is managing its excess property well. As veterans move from the Northeast to the Southwest, VA must accommodate these population changes by building more hospitals or offices, which means getting rid of some or consolidating some that are no longer needed.

Carper says he would work with the administration to update the 1949 law that governs how agencies dispose of real property.

Carper could not say when the full committee would vote on Werfel's nomination, but he expected the process to be swift and without any roadblocks.

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On the Web:

FederalNewsRadio - President nominates Werfel to be OMB controller

FederalNewsRadio - Rep. Cuellar pushing for performance based budgeting

GPO - Senate Improper Payments Elimination and Recovery Act of 2009 (pdf)