OMB controller cites government’s ‘low learning curve’ on analytics

The government is "low on the learning curve" and remains in the "embryonic stage" in the exploitation of digital data analytics to improve efficiency, Danny Werfel, controller in the Office of Management and Budget, told a corporate conference on Wednesday.

The most promising federal work in using technology to reduce fraud and improper payments is being done by the Recovery Accountability and Transparency Board, he said, which is deploying open-source technology, data mining and source triangulation to "set the government on new path."

Werfel spoke at the leadership summit held at the Newseum by business intelligence software firm SAS, which brought together federal financial managers and vendors to explore how private sector analytics tools can enhance government decision-making.

He recounted several "transformational moments" in his long career at OMB that opened his eyes to the notion that financial management systems -- under the rubric of transparency and accountability -- have now become central to the policy process and to public trust in government.

At a 2005 financial forum led by then-Comptroller General David M. Walker, "there was palpable frustration," Werfel said, "that no one was reading our financial reports," or vesting themselves in the government's financial controls and risk mitigation. "There was an identity crisis in the chief financial officer community," he said.

Soon after that meeting, the Transportation Department lost its clean audit opinion, for minor reasons, Werfel said, which was a "traumatic experience for a multimillion-dollar organization." What was notable, however, was that the event received no press coverage and no inquiries from Congress. "But that same week, the Defense Department spent $60,000 on a tent for a retirement party," he recalled, and the mainstream media and Congress took up the cry. "That was my first data point, when I started to think seriously about whether a CFO's report can be impactful on citizens trust in government's management."

His next transformational event occurred when, during the final days of the George W. Bush administration, he watched as Treasury Secretary Henry Paulson drafted a bill of just three pages, asking Congress for $700 billion for what became the Troubled Asset Relief Program. "The response from Capitol Hill was, How dare they ask for all that with no transparency, accountability, audits, and bells and whistles?" Werfel said. "It was eye-opening that by now people were interested in what government is doing with finances and controls."

Werfel's third transformation came soon after when the fledgling Obama administration asked him to help write the legislation asking for another $700 billion that became the stimulus package known as the American Recovery and Reinvestment Act. "We knew that this time we wouldn't make the same mistake [Paulson did]," Werfel continued. "The Recovery Act was a validation of our data points, that how far controls in the intersection of political demand for public information and transparency and accountability controls took center stage."

Noting Vice President Biden's announcement on Monday that the Recovery Board's leader and methods for cutting government waste are being applied governmentwide, Werfel said agencies are getting better at creating infrastructure to track spending. "It's a real labor and a push, which shows how far we still need to go" in responding to the "growing call for more transparency and accountability" in federal spending, he said.

The Recovery Board's fraud detection center, Werfel said, shows that the government can be smarter about, for example, avoiding making payments to contractors who are suspended or debarred. He pointed to triangulating tools of data mining that raise such potential red flags as multiple corporations at the same headquarters or contractors with felony records. "Sometimes it's the naming convention that's off," he explained, noting that data mining can uncover that fact that "John Smith" and "John L. Smith" are the same person. Agencies can welcome this because it identifies such issues upfront without spending a dime, he said.

Some agencies, Werfel added, are skeptical that OMB and the Recovery Board have many tools to add to their own kits. But he proved his point when he supervised a pilot project at the Health and Human Services Department, which houses the government's "big fish" that specialize in medical claims fraud. "HHS is good at finding fraud in medical claims" by looking at geographic patterns, he said, "but they're not so good at identify theft, as when doctors steal licenses from doctors in other states and set up false billing practices."

The Recovery Board's data tools "sprung out an entire fraud ring right under HHS' nose," Werfel said. "I'm not saying the Recovery Board is always better, just that many agencies are not effectively deploying the technology. My mission is to gain momentum and make this stuff go viral as we roll in more agencies."

Werfel spoke of the need to cut the estimated annual $125 billion in improper payments, noting that sending checks to people who are incarcerated or otherwise ineligible "is shameful and embarrassing, and it's a headline-grabber." But it's difficult to mitigate, he said. When people die, the government doesn't get the information in real time -- it can take as long as 20 or 24 months to get the information "in the system," he said.

"But some [in government] have said they'd rather allow 100,000 payments to dead people than deny one legitimate claim. So we have to decide what policies we're willing to live with," Werfel said. "It's OK to do a data pull" and use a combination of technology and expertise to collaborate to perform the analytics, which can do the job efficiently" he said. But financial managers can't cut too deeply into the values issues. "We need to find a strategic balance between the tools and the policy decisions on what we're willing to live with, and know this upfront before we invest in them."