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How
Many [Fill in the Blank] Does It Take to
Change … ?
FEBRUARY
2008 - Variations of this joke have been around for years. One
version is: How many psychiatrists does it take to change a lightbulb?
Answer: Only one, but the lightbulb has to really want to change.
This month’s cover article on government procurement fraud
tackles an ongoing and frustrating problem for taxpayers. It highlights
fraud and waste in our government programs that’s rampant
and has been well documented in countless reports by the Government
Accountability Office (GAO), the Congressional Budget Office,
and the Inspectors General of various agencies. Recommendations
for ways to address the problems abound, but unfortunately, there
seems to be a lack of desire to change—at least by some
of the gatekeepers.
Paring government
expenses, including wasteful and fraudulent ones, hasn’t
been a priority for legislators, who are hesitant to be seen by
voters as withholding support for popular governmental programs.
So throwing more money at the problem has been their modus operandi.
But how much is too much? Well, no one really knows because, according
to the GAO, the federal government has been “un-auditable”
for the past 10 years. How can we begin to fix a problem if we
don’t know where to look? As of March 2006, the GAO has
given us “clues” by identifying 26 areas of the federal
government as high-risk due to their greater vulnerabilities to
fraud, waste, abuse, and mismanagement. As accountants, our first
instinct is to depend on internal controls. And although that
would be a good start, the problem is bigger. We need to stop
the financial hemorrhaging entrenched in these programs.
Modernizing
and Safeguarding Insurance and Benefit Programs
A prime example
of this hemorrhaging is in Medicare, the U.S. government's health
insurance program for seniors and those with disabilities. Medicare
is supposed to pay wholesale prices for drugs, yet it relies on
drug manufacturers to define what constitutes “wholesale
prices.” Giving the pharmaceuticals industry this sort of
authority is akin to having the fox guard the proverbial henhouse.
Abuse of
Medicaid funding formulas by the states is another leak in the
system. Medicaid is a joint federal and state health services
program for low-income Americans. Under current law, the U.S.
government reimburses each state 57% of its residents’ Medicaid
costs. But the long-term viability of this program is being threatened
by fraudulent financing arrangements that increase the federal
Medicaid share above the prescribed limits. With most state budgets
stretched to the breaking point, many states have resorted to
overcharging the federal government by entering into kickback-type
schemes with health service providers. In these schemes, the provider
returns all or part of the overpayment to the state. The loser
in this transaction is the federal government—or, to be
more precise, the taxpayers. In an attempt to mitigate the problem,
the federal agency responsible for overseeing Medicaid issued
a rule in May 2007 that limits Medicaid payments to providers.
Time will tell whether the implementation achieves the intended
objective.
Effectively
Managing Federal Contracting
We’ve
all heard a litany of horror stories about the fraud, waste, abuse,
and mismanagement that followed Hurricane Katrina. In the aftermath
of the catastrophic destruction of more than 134,000 homes in
Mississippi alone, the GAO found that FEMA’s ineffective
management resulted in an estimated $30 million in potentially
fraudulent and wasteful payments to contractors for maintaining
temporary housing units. According
to the GAO report, “This amount includes about $15 million
spent on maintenance inspections even though there was no evidence
that inspections occurred and about $600,000 for emergency repairs
on housing units that do not exist in FEMA’s inventory.”
This type
of waste, fraud, and abuse is not limited to the federal government.
In New York, a December 2007 report from the Nassau County Comptroller’s
Office (www.nassaucountyny.gov/
agencies/Comptroller/specialdistricts.html) identified wide
disparities in the costs associated with the delivery of sanitation,
water, and fire services from “special districts.”
Perhaps unsurprisingly, the cost of the service had no relation
to its quality.
Reducing
Opportunity for Fraud
Consolidating
government programs that duplicate efforts could save taxpayers
countless dollars by reducing administrative costs.
Implementing
the proper controls and oversight at government agencies could
mitigate the opportunities for fraud. By offering suggestions
for reforms like these and others, CPAs can be the agents for
change and embrace our responsibility as “financial cops.”
But like that lightbulb, we have to really want to change.
As always,
I welcome your comments.
Mary-Jo
Kranacher, MBA, CPA, CFE
Editor-in-Chief
mkranacher@nysscpa.org
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