It did not surprise me at all that there was confusion about that not only by the press but for all I know even by those who announced it. An investigation like the GSA investigation goes through three stages and they merge into each other in a very subtle way—or four. There is an allegation. The allegation is pursued through some period of time by GSA to see if it amounts to something substantial enough to warrant FBI investigation. That is stage two. Stage three is FBI investigation of any other investigative agency. Stage number four is prosecution.

GSA has the responsibility not only for administrative remedies and handling its own affairs and getting its house in order and setting up new procedures, but for the first stage of the investigation.

It has the responsibility as I discussed with Senator Chiles for taking an allegation that may be frivolous and seeing if there is is enough there to be worth pursuing. It doesn't surprise me that if Mr. Kirbo was to work with GSA, there woud be confusion as to whether that did not blend into investigations. He should not and he will not work in the criminal investigative side. As soon as something was referred to the task force, GSA would be out.

Senator HEINZ. I think we recognize that the Attorney General acted promptly to see things straight, and I don't question the Attorney General's handling of the Kirbo matter since he recognized that it was a mistake to have any implication that Mr. Kirbo was going to be inserted in the investigative process which was clearly not right and improper and not something the Justice Department would

want.

Would you care to comment on the fact that Mr. Griffin, with some 30 years of experience at GSA is in the White House and what implications that has, the independence-in fact, I believe the President personally offered him that $50,000 a year job.

Mr. HEYMANN. I would like to admit I am about to take advantage of what one thought was a disability. The price I think I ought to take in general for the independence the Attorney General has given me is that I should not advise the White House on personnel matters, not advise them on anything that goes through investigation and comment on it. I don't have any views on that.

I don't want to stress views on that one way or the other. I want to say that nobody would get in the way of my prosecuting anybody arising out of this or any other matter. It would not be troublesome if, in fact, no evidence of this led to White House staff, the Congress or Senate, we would proceed. We will proceed.

Senator HEINZ. What will you do if Mr. Griffin claims executive privilege?

Mr. HEYMANN. I suppose I would contest it to the full extent of the law. We would contest executive privilege.

Senator HEINZ. Thank you.

Senator NUNN. You are not saying Bert Lance had anything to do with GSA, are you?

Mr. HEYMANN. That's a good question, Senator. No, I'm not saying that.

Senator CHILES. Thank you very much, Mr. Heymann, for your appearance here today and your testimony. We will look forward to seeing signs of it regarding the fleshing out of the task force and getting an opportunity to meet with the task leader and being able to discuss

Mr. HEYMANN. Thank you.

Senator CHILES. Our next witness will be Elmer B. Staats, the Comptroller General of the United States.

Mr. Staats, I understand you have with you Mr. Bill Anderson, the Acting Director of the General Government Division and John Ols, Assistant Director. We are glad to have them with us today.

Before I put you on, I might want to say, in the audience we have Mr. Bob Lowrey. I think that it is kind of important to note that a lot of Attorneys General, Comptrollers General and Senators discuss what should be done to fix the mess at GSA.

Mr. Bob Lowrey from Hyattsville was the first one that found it and reported it. Mr. Lowrey, would you stand up?

[Mr. Lowrey standing.]

Senator CHILES. I want to thank you for your courage in bringing this investigation to light.

Let me just say we are delighted to have you here, Mr. Staats. While this is an investigative hearing, we are not going to swear you in because you are not a part of this investigation. We just got a chance to see the General Accounting Office study of fraud within the Government over the weekend. Not surprisingly, the study deals with GSA as well as a host of other agencies. We are delighted to have you here today to tell us about this study because I think it is so relevant to what we are looking at. It seems that somehow we tend to think that each one of these when they occur is a selective instance.

I remember the first time we found there were some problems with the way the military was buying its meat. We thought that was a problem just in the military procurement. Then we saw that there were problems with SBA and the 8-A program, actual fraud there as there was fraud in the military; even the subcommittee gets a feeling something is wrong with the SBA now. We will try to fix that.

Then we get into GSA. I think for the first time this report tells us that it is not only selective instances which go on. It goes on in all of the agencies and it is going to continue unless we do something about it. The cart is broken and the question is whether we are going to fix it or not.

We are delighted to have you with us today.

Mr. STAATS. Thank you very much, Mr. Chairman.

Before I make a statement on the report to which you referred, I would like to make reference to the additional statement which we have supplied to the committee in connection with this hearing which deals directly with the GSA problems; in connection with that, we have issued something like 200 reports in the last 5 years which touch upon the kinds of concerns that your committee is now addressing itself to. We are happy, also, to recognize that we believe now there will be added attention to our reports in GSA.

We point out in the statement that the Administrator has indicated to us that he will schedule quarterly meetings with his auditors and this will be in conjunction with all of the Commissioners who are involved, in reports that we have issued; and while we do not have any directive authority, we are pleased that these reports will have a higher level attention in the future than they have in the past.

I would like to present a brief statement, if I may, Mr. Chairman,

TESTIMONY OF ELMER B. STAATS, COMPTROLLER GENERAL OF THE UNITED STATES; ACCOMPANIED BY BILL ANDERSON AND JOHN OLS

Mr. STAATS. We are particularly pleased to be here today to discuss our report "Federal Agencies Can, and Should, Do More to Combat Fraud in Government Programs," because it provides me with an opportunity to not only discuss the important matters covered in this report, but also in that context provide this committee with some added insight into the importance of GAO's self-initiated work. I think you will agree that because of the press of legislative responsibilities, the Congress generally does not approach the oversight of Federal programs in a methodical fashion. One of GAO's major functions is to cover this shortfall-to systematically examine the major operations of Federal agencies and programs.

Obviously in doing this, we are often not addressing the concerns of the moment but by the same token, these efforts can and often do disclose major weaknesses deserving of congressional consideration. Let me explain the genesis of this particular GAO audit to illustrate the point I just made. In mid-1976, we started some exploratory work aimed at ascertaining whether Federal agencies had instituted effective policies and procedures for combating the fraud that might exist in their programs. In doing this, we had to formulate criteria regarding the composition of an effective antifraud effort. It seemed to us that the essential elements of such an effort would include:

A set of procedures to assess the vulnerability of the programs in question. We wanted to learn if agencies had thought through the type of fraudulent schemes to which their programs were susceptible.

The comprehensive collection and analysis of information on known incidents of fraud. The question here was whether the agencies were alert to identifying patterns or trends in the types of frauds being perpetrated.

An aggressive effort to follow up on instances of fraud that may have surfaced, but to not only react but also actively seek out fraudulent schemes. We wanted to know whether the agencies were "policing" as well as "investigating."

Strong leadership on the part of the Department of Justice in bringing its expertise to bear on the overall problem. Our intent here. was to find out if the Department of Justice was doing what it could in assisting the agencies to combat fraud.

Having established the hypotheses to be tested, our next stepan arduous and time-consuming one-was to identify and gather the evidence needed to confirm or deny the existence of the postulated problems. As discussed in the report, we reviewed these activities. at the Departments of Agriculture, Labor, Transportation, and Housing and Urban Development, and the Veterans', General Services, and Small Business Administrations.

We examined these agencies' policies, procedures, and records and held discussions with their officials at headquarters and field offices in five States. We believed that this kind of coverage was necessary if we were to draw sweeping conclusions about the matters being reviewed. We also performed work at the Department of Justice's Civil and Criminal Divisions and at various U.S. attorney's

We believe the scope of our work amply supports the conclusions contained in our report. Although some bright spots existed here and there with respect to an individual agency's antifraud activities, overall our worst fears were confirmed and the existence of the postulated problems established.

At this point, Mr. Chairman, we will discuss the principal findings in our report. Although these problems were common to all of the agencies encompassed in our review, we shall emphasize examples involving the General Services Administration because of our particular interest in that agency. Before doing that though, I would like to refer to an important related effort underway in the Congress to establish Offices of Inspector General across Government.

The need for stronger internal audit and inspection is reenforced by our report, but a strengthened criminal investigative capability is not sufficient to solve these problems. The internal auditors should also be very much involved. They have as one of their major tasks the evaluation of the adequacy of management's internal control systems necessary to the prevention of fraud. Theirs is a preventive role. In doing this they must work closely with the investigators in providing leads to the latter on potentially fraudulent situations and in return consider the investigator's findings as part of the internal control system assessment. Each has an important role to play but not to the exclusion of the other. It is for this reason that we have urged the Congress to designate the proposed officers "Auditor and Inspector General" as provided for in the Senate bill. The House bill would designate these officers as "Inspectors General" with the auditor relegated to the third level in the organization. I hope very much that the Senate approach will be adopted in conference.

The Government's economic assistance programs, amounting to about $250 billion annually, are vulnerable targets of fraud and related white-collar crimes. Identifying the extent, nature, and frequency of these illegal acts, together with strong internal controls and effective audit coverage, are essential first steps to combating and preventing them. Yet the agencies we reviewed were not doing nearly enough to identify fraud.

Federal programs involving grants, contracts, and loan guarantees are exploited through such means as false claims for benef.ts or services, false statements to induce contracts or secure goods or services, bribery or corruption of public employees and officials, false payment claims for goods and services not delivered, and collusion involving

contractors.

No one knows the magnitude of fraud against the Government. Hidden within apparently legitimate undertakings, it usually is unreported and or undetected. However, all indications are that fraud is a problem of critical proportion. Department of Justice officials believe that the incidence of fraud in Federal programs ranges anywhere from 1 to 10 percent of the programs' expenditures.

Senator CHILES. When you say 1 to 10 percent, you are talking about 1 to 10 percent of $250 billion.

Mr. STAATS. That is correct. We have no estimates with respect to the remainder of the budget.

Senator CHILES. We are talking about a range of $2.5 to $25 billion annually?

Senator CHILES. Would you say that 1 percent is on the low side? Mr. STAATS. We really wouldn't have an independent capability to provide a figure at this time. It is just not possible to give you a GAO audit figure.

Senator CHILES. I think the report says almost all crime is also understated in all figures.

Mr. STAATS. That is correct.

Senator NUNN. What is your figure-you say 1 to 10 percent. What figure are you using for Federal programs, the total?

Mr. STAATS. The entire Federal budget is around $500 billion. This is not a GAO estimate. You understand that. We are simply citing the figure of the Department of Justice, but I think we would support their position that in instances we know about, it tends to be underestimated.

Senator NUNN. Well, this figure accumulated by the Department of Justice, is this in the nature of a statement, just a guess or is it based on

Mr. ANDERSON. I would say that it falls in the nature of a wild guess, sir. Just the range alone, a tenfold difference between the high and the low end. There is no other figure to work with, and we wanted to indicate some idea of the order of possible magnitude of fraud within Government and their estimate was the best we had.

Senator NUNN. Would you be taking 1 percent of $500 billion then? Mr. ANDERSON. No; $250 billion, which represents the direct benefit payments to individuals and grants to States and localities. Senator NUNN. Overall it would be about one-half the total Federal budget?

Mr. ANDERSON. That is correct.

Senator CHILES. The Inspector General of HEW has estimated $67 billion in the HEW portion of the budget, has he not?

Mr. ANDERSON. Yes; he has, sir.

Mr. STAATS. I don't know how the Department of Justice would be able any more than we to give you a precise figure, because part of the problem is that a lot can happen with nobody knowing about it, and part of the thrust of what we are suggesting is we need to have better information.

Senator CHILES. I think that is true. But in just trying to get the subject down, I understand your report also says, does it not, that right now the Justice Department is prosecuting that amount to $250 million; that those are in court right now?

Mr. STAATS. That is correct, sir.

Senator CHILES. So that is what you might call detected fraud that has already been found, as opposed to that undetected. We know of a quarter of $1 billion worth of cases right now in the courts.

Mr. STAATS. That is correct. HEW alone estimates losses under the medicaid program alone total $750 million annually from fraud and abuse.

At the time of our review, top level GSA officials in Washington and the various field locations visited were of the impression that fraud and abuse was not a major problem-not a major problem because few instances had been detected. This attitude reflected the passive effort taken by GSA to comprehensively assess its vulnerability. GSA, like the other agencies visited, lacked any systematic effort to identify and