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lower taxes, there are plenty of other folks in this town who can address those issues.

Our mission is to look at the programs to see if they are working as intended, to measure how well they are performing, and to see if there are possibilities of effecting savings as a result of more efficient or effective operation of the programs—without adversely affecting the intended beneficiaries. That, of course, is our mainline objective at any given time.

During 1990 alone, we were able to effect a total of about $5.8 billion in savings which were posted. These savings came from the areas of program improvements, restitution, and recoveries to our Department's programs. We believe that inspector general recommendations have made a major contribution to departmental programs over the last 5 years. If you were to add all the savings up, you would see a total of about $28 billion over 5 years.

Also in the area of insuring that our programs and beneficiaries are not abused in any fashion, we also have taken action against individuals and entities who have attempted to defraud these programs. We had 900 administrative sanctions that emanated from that part of our program in fiscal year 1990.

Of course, the last thing we want to have is people engaging in criminal conduct against our programs. We have had a very strong policing effort in this area. In this last year we have convicted, in the courts, 1,310 individuals and entities for criminal conduct. So we feel that we are making a contribution on that side of our mission.

We also make it a point to develop our OIG “Cost Savers Handbook” and “Management Improvement Recommendations Handbook," the so-called red and orange books. These documents provide recommendations on how we can put funds to better use and how we can make improvements in the operation of the Department.

Again staying on the area of savings, in the OBRA 90 legislative package there were a number of OIG recommendations contained in the more than $31 billion that was scored for the next 5 years in that legislative effort. We made contributions to about 72 percent of all the Medicare savings provisions. These contributions included a lot of things. One of them I would like to highlight because you played a major role in it. We had hearings in which we were trying to find a better way in which to deal with durable medical equipment and the abuses in that program, and to find ways in which we could eliminate some of the unnecessary spending, the waste and, quite frankly, just out-and-out fraud. That portion of the package was about $2.1 billion. We were very pleased to see that you and your colleagues were able to have that provision added.

The savings picture looks very good in the President's budget to the Congress. We feel that there are a lot of other opportunities for savings without adversely affecting the programs, so we hope that you in the Congress will take a close look at the recommendations that we put in there. Again, we are focusing on areas where you could effect savings without adversely affecting either the programs or the beneficiaries.

BUDGET REQUEST

In fiscal year 1992, we are requesting $111,189,000 in obligational authority. This breaks down to $63,842,000 from appropriations and $47,347,000 from trust fund transfers for the work that we do for the trust fund programs, primarily Social Security and Medicare. This also does not include authority for the roughly $2.2 million that we are reimbursed by other departments for work that we perform on their behalf and for which they pay.

We are requesting a total of 1,510 FTE's. That includes 95 FTE's for the Chief Financial Officers Act of 1990 to which you have previously alluded. This is a rather ambitious piece of legislation. From a financial management viewpoint, I think it is probably the most significant piece of legislation that Congress has passed in my conscious memory.

Among other things, it understates the importance of having better financial management in the executive branch of Government. In furtherance of that goal, they have created a controllership function, a chief financial officer who will be responsible for improving management in the executive branch.

Also as part of that legislation, Congress said that for all trust funds, commercial-type activities, and revolving funds, they want to have financial statements prepared. These funds will then be audited by the inspectors general to give a clear picture as to how the agencies are performing. So 95 FTE's are line itemed and dedicated for that purpose in our Department, and the total cost comes to $9.5 million. That amount includes both the support of the FTE's and contracting for specialized services to evaluate computerized systems or to add actuarial services to the Inspector General's Office.

The CFO Act activities are probably the most significant change that we have seen in the submission of our budget in the 10 years that I have been appearing before this committee. What it, in fact, means is that we will have 60 major line items and program operations that will fall within the category of agencies that should have financial statements prepared and audited. When that is done, it will account for 80 percent of the outlays of the Department's program.

Congress specifically referred to the Social Security trust funds as an area of high priority that would be audited both in the current year and from now on. We have already been doing that. That is already in our budget. We are not asking for any additional funding to audit those financial statements. That is our contribution. Although we were never funded to do it before now, we feel that it is something we have already done and, therefore, we should not ask for anything additional for it.

The add-ons will include a host of programs, particularly in the Public Health Service and the Medicare programs. One of the primary users of this information, I think, will be this committee and your sister committees in the House, since it will provide you with financial information on the operations of the agencies in a way that you have never had available before. So I think that offers a lot of promise for you as well.

PREPARED STATEMENT

We also have built into our request moneys to ensure funding for the Federal Employees Pay Comparability Act. This act has affected us greatly, and we want to ensure that funding is available. It is also in my formal statement.

With your permission, I would like to stop my oral testimony now and reserve whatever time remains to answer questions that you might have about our operations or about the Department.

[The statement follows:]

STATEMENT OF RICHARD P. KUSSEROW

Good morning Mr. Chairman, I am Richard P. Kusserow, Inspector General of the Department of Health and Human Services. I am pleased to appear before you today to present the fiscal year 1992 appropriations request for the Office of Inspector General (OIG). The fiscal year 1992 budget request we present for your consideration will enable us to continue our statutory mission to eliminate waste, fraud and abuse in the Department's programs and to protect those beneficiaries whose health and welfare depend on them. Also, it will enable us to undertake a major new effort to improve financial management across the Department by implementing provi. sions of the Chief Financial Officers Act of 1990.

ACCOMPLISHMENTS

Let me take this opportunity to thank you for your continued trust in our office and for your assistance with our past fiscal years' appropriations. Before discussing our objectives for the coming year, I would like to briefly recount our most recent accomplishments.

Fiscal year 1990 marked our tenth consecutive increase in savings and prosecu. torial accomplishments. During fiscal year 1990 alone, $5.8 billion in program sav. ings, settlements, fines, restitutions, and receivables resulted from implementation of OIG recommendations, contributing toward a five year total of nearly $28 billion.

We continue to implement the many enforcement responsibilities that the Con gress and the Secretary have entrusted to our office. In fiscal year 1990, we imposed approximately 900 administrative sanctions on individuals and entities who defrauded or abused departmental programs or their beneficiaries. This is nearly double the number of sanctions made just two years ago. In addition, our investigations resulted in 1,310 successful judicial prosecutions.

We are continuing to enhance the OIG Cost Savers and Management Improve. ment Recommendations handbooks to make them more useful to the Administration and Congress. These books, commonly referred to as the Red and Orange books, describe where funds could be better utilized and make recommendations as to which departmental programs require management improvements.

The recent enactment of the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990) implemented numerous recommendations made by the OIG. Our preliminary analysis indicates that this law contained more than $31 billion in Medicare savings alone which pertained to OIG recommendations. This represents 72 percent of all Medicare savings enacted. Significant changes in legislation include savings for durable medical equipment, outpatient procedures, the Part B deductible, prescription drugs and clinical diagnostic laboratory tests.

In addition, OBRA 1990 included significant savings for the Social Security Administration's (SSA) trust funds based on the OIG's recommendations. Savings over a five year period are estimated to total nearly $10.3 billion for OIG recommendations made in the following areas: Mandatory coverage for part-time State and local employees not participating in a public retirement system, acceleration of the payment of FICA taxes, and recovery of Retirement, Survivors and Disability Insurance (RSDI) overpayments by reducing Federal tax refunds.

We estimate that the President's fiscal year 1992 budget request, if enacted, would effect nearly $5.3 billion in savings which are attributable to OIG recommendations.

BUDGET REQUEST

The resource request currently under your consideration reflects a substantial new area for us. Our fiscal year 1992 budget request includes 1,510 FTE's and $111,189,000 in obligational authority, of which $63,842,000 would be from appropriations and $47,347,000 would be transferred from the Medicare and Social Secu. rity trust funds for work in support of these programs. This request is an increase over last year as a result of two important pieces of legislation which were enacted by the 101st Congress: the Chief Financial Officers Act (CFO) of 1990 and the Federal Employees Pay Comparability Act. I would like to briefly describe the impact of these legislative actions on the OIG.

CHIEF FINANCIAL OFFICERS A The Chief Financial Officers Act of 1990, for which we are requesting 95 FTE's and $9.5 million, has important implications for Federal financial management. It requires agencies to prepare and the OiG to audit financial statements for revolving funds, trust funds and for agency offices, bureaus and activities which perform substantive commercial functions. While we will begin these audits for 7 programs in the Social Security Administration in fiscal year 1991, we will be adding 52 programs in fiscal year 1992, bringing 80 percent of the Department's outlays under audited

financial statements. The goal of these audits is to express an independent opinion on the accuracy of the financial statements. In addition, these audits will instill public and govern. mental confidence that no further “HUD type” scandals will occur and will provide an assessment of th alts operations of the audited Federal programs.

We have made substantial progress in planning and executing the responsibilities required by the Act. In support of this activity, we have established a new audit unit, the Accounting, and Financial Management Division, committed solely to effecting financial policy and to providing technical assistance. In addition, many of the Departments and the OIG's activities related to the Federal Managers' Financial Integrity Act (FMFIA) will be useful in preparing and auditing financial statements. This information on the most serious of the Department's control weaknesses has a major impact on the financial statements which the Department is required to produce. Many problems identified through FMFIA reviews must be resolved prior to developing acceptable financial statements.

Further, we will use relevant information from performance audits, inspections and investigations in the audit of program financial

statements. For example, in fiscal year 1990 the OIG performed a review of the Department's payroll system rel. ative to time and attendance. This review identified significant weaknesses in the Department's controls regarding time and attendance of employees. We are able to use the results of this review to plan audits of the Department's payroll system in order to render an opinion on the accuracy of financial statements in this area. There are many similar examples of audits conducted in the past.

FEDERAL EMPLOYEES PAY COMPARABILITY ACT

The other piece of legislation enacted last year which has affected OIG's resource request is the Federal Employees Pay Comparability Act (FEPCA) of 1990. We estimate that this new law will increase OIG's payroll costs by nearly $1.3 million in fiscal year 1992. In addition to the geographic differentials currently being paid for our employees located in New York City, Los Angeles and San Francisco, this law also stipulates special pay for law enforcement officers.

These new pay reforms are designed to reduce turnover and provide incentives to law enforcement officers. At this time OIG has decided to implement only the mandatory provisions of the Act. The other discretionary provisions will be implemented as funding becomes available.

In addition to the new financial management activities, we will continue our efforts to target vulnerabilities in HHS programs and activities that protect the safety, health and welfare of the American people and to prevent and detect fraud, waste and abuse and to promote economy and efficiency in the Department and its programs. This includes our endeavors in the following areas: reviewing whether Medicare is being billed as the secondary payer; monitoring the implementation of physician payment reforms; reviewing programs within the Public Health Service, such as the Indian Health Service, acquired immune deficiency syndrome (AIDS) activities, and the Food and Drug Administration (FDA); and evaluating the impact of the expansion of the Head Start program.

CONCLUSION

In summary, our goals are ambitious. But we believe you have found that funding for the OIG is a sound investment. In fiscal year 1990, each dollar you invested in our Office resulted in savings of more than $62. We are pleased with the accomplishments we have had in ensuring that beneficiaries receive quality care, that the integrity of the trust funds is maintained and that those individuals who defraud the Department's programs are held responsible for their actions. The resources that we have requested for fiscal year 1992 will enable us to further our accomplishments, protect departmental programs and safeguard the health and welfare of program beneficiaries. Our new responsibility for auditing financial statements will help improve financial management of the Department's programs.

BIOGRAPHICAL SKETCH OF RICHARD P. KUSSEROW

Richard P. Kusserow has served as Inspector General of the U.S. Department of Health and Human Services since June 1981. He has the statutory responsibility to ferret out fraud, waste, abuse and inefficiency in the world's largest agency. The department has some 250 health and human services programs with a budget of nearly $500 billion which represents more than one-third of Federal qutlays.

Kusserow directs a staff of 1,400 auditors, inspectors, program analysts and investigawrs. His office recorded more than $5.5

billion in fines, savings, restitutions, recoveries and settlements in the last year. This represents a 3,500 percent increase during his tenure. Since 1981, convictions resulting from his investigative staff rose from 165 to nearly 1,300, an 800 percent increase. Additionally, he has increased successful administrative sanctions in excess of 1,000 percent.

Kusserow served from 1986 to 1989 as the Vice Chairman of the President's Council on Integrity and Efficiency (PCIE). The PCIE was established to provide cohesive leadership to governmentwide activities to reduce fraud, waste and abuse in Federal programs and operations.

Kusserow is president of the National Association of Government Accountants (AGA) and past-president of the Baltimore Chapter of AGA. Since 1985, he has served on the AGA Task Force on Federal Financial Management. in 1989, he served on the National Advisory Commission on Enforcement and he was a member of the Attorney General's Economic Crime Council from 1985–89. He also served 3 years on the Executive Committee of the National Intergovernmental Audit Forum. In 1984 and 1985, he was national president of the Association of Federal Investiga. tors and is an active member of the Society of Former FBI Agents.

Kusserow received the Secretary's Bronze Medal from the Department of Health and Human Services. It represents one of the highest honors accorded to an HHS employee. In 1987, he received the National Distinguished Leadership Award for sustained outstanding leadership and notable contributions in the field of financial management from the National AGA.

Kusserow served in the United States Marine Corps and was honorably discharged as a captain. He was an intelligence officer with the Central Intelligence Agency (CIA) before joining the Federal Bureau of Investigation

(FBI) in 1969 as an FBI special agent. He was the coordinating supervisor of the Chicago FBI Organized Crime program preceding his appointment as Inspector General.

He earned his bachelor's degree from UCLA and a master's degree from California State University at Los Angeles where he was also employed as a lecturer in gov. ernment. He has done postgraduate work at Southern Methodist University and John Marshall University School of Law. He has lectured widely and written nu. merous articles on innovative management and investigative techniques to detect and prevent fraud and corruption in government programs. He is co-author of the book entitled "Management Principles for Asset Protection."

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INDIRECT COSTS

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Senator HARKIN. Thank you very much, Mr. Kusserow, for your statement.

I have some questions on the chief financial officers matter, but I will come back to that later.

I really want to get into the indirect costs, because this is something that, the more I look at it from my limited viewpoint, I believe that there is just something amiss here. I do not know what it is, but there is something wrong someplace.

Mr. KUSSEROW. I do not know if it will provide you any comfort, Mr. Chairman, but I have personally been looking at this area for 10 years, and I am at the same place as you. So I feel a great deal of discomfort as well.

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