How Many [Fill in the Blank] Does It Take to Change ... ?

CPA Journal, The, Feb 2008 by Kranacher, Mary-Jo

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 drags, yet it relies on drag 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 lowincome 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 mie 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/special districts.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