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IT Innovation and the Budget Deficit: Some Thoughts for the New Administration*

Originally published February 19, 2013

There’s no doubt that when you look at the numbers, times are tough. You can’t go to the front page of any major newspaper or listen to the nightly news without mention of the sequestration, the debt limit, or simply the dire predictions around the belt tightening that we are faced with as a nation as our publicly held debt is forecasted to reach 100% of GDP by 2020. We must take action, we are constantly told, but no one agrees on what actions it is that we must take.

In the middle of the discussion, of course, lies the Federal budget with its statutory requirements, authorizations and appropriations. Yet we need to go beyond the wonky language used inside the Beltway to really grasp what this means in to an average citizen’s daily life. We often lose sight of the fact that thousands of government programs touch us every day. Whether it’s directing air traffic, providing weather forecasts, issuing social security checks, protecting us from terrorist threats, inspecting the food supply, providing us with passports, operating hospitals for our veterans, issuing food stamps, insuring the deposits in our banks, managing our national parks, paying our Medicare and Medicaid claims or protecting our borders, we are completely immersed in activities that are dependent on Federal funding. And this list does not include the Department of Defense, currently still involved in fighting two wars, plus combating terrorism and several other significant thrusts to guard the nation from the spread of nuclear weapons, the imminent threat of cybersecurity attacks and the challenges from nation states that are avowed enemies or could become so with a shift in geopolitical winds.

Federal Debt Projections

(Source: Budget and Economic Outlook: Fiscal Years 2012 to 2022, Congressional Budget Office, January 2012.)  

So when we look at ways to reduce the deficit, as economists overwhelmingly assure us that we must, it is critical that we explore doing it in a way that does not jeopardize the essential mission of government to defend, protect and serve U.S. citizens in the process. And here is where technology can play an important role because we are convinced that identifying and deploying innovative IT solutions will enable agencies to bridge the funding gap while continuing to deliver mission-critical services.

While there are many areas fertile with possibilities for cost savings, a focus on three specific recommendations could potentially bring in $220 billion of deficit reduction. They are the following:
  1. Accelerate the use of data analytics to identify opportunities to reduce government costs.
  2. Invest in technology and leverage industry best practices to increase productivity and reduce costs.
  3. Use technology to combat fraud, waste and abuse.
Let’s dive a bit deeper into each one of these to understand them better.

Accelerate the use of data analytics to identify opportunities to reduce government costs
The government already collects huge amounts of data on just about everything. This provides very significant opportunities to do analysis of the data in order to uncover ways to reduce costs, and hence promote fiscal stewardship and deficit reduction. The Center for Medicare and Medicaid Services (CMS), serves as an excellent example of what can be accomplished in just one area, healthcare, a key sector since the cost of social security, Medicare, Medicaid and Safety Net programs is expected to grow from 20% of federal outlays in the 1960s to over 60% of federal outlays in 2022.

The federal government spends about one-quarter of its total budget on healthcare, and this is by far the fastest growing segment of the budget. While CMS’ share of the healthcare budget is the largest, we must remember that it is not the only agency involved in addressing the nation’s health. Aside from CMS, just within the Department of Health and Human Services (DHHS) we have the Centers for Disease Control, the National Institutes of Health, the Food and Drug Administration, the Health Resources and Services Administration and the Indian Health Service all involved healthcare programs. Beyond DHHS, the Department of Defense, the Veterans Administration and other federal agencies are very involved in healthcare too.

Fortunately exciting developments in analytical and processing technologies on the data front are already yielding promises; and they are providing new ways to explore large amounts of data to obtain insights into healthcare delivery. The McKinsey Global Institute predicts1 an annual 8% savings ($200 billion) in healthcare reduction through the creative use of big data. This could yield a savings of $70 billion in Federal healthcare expenditures.  Furthermore, CMS has established an Office of Information Products and Data Analysis (OIPDA) to lead the charge in this area.

Taking a cue from these developments, here are three further suggestions to CMS and other agencies in the healthcare field:  a) make data analytics a central part of healthcare cost control; b) conduct smaller “problem-based” demonstrations to showcase the power of data analytics; and c) continue to focus on increasing data quality, quantity, and timeliness.

ACT-IAC estimates that the use of analytics on “big data” for healthcare alone could result in a deficit reduction of $70B per year.
Invest in technology and leverage industry best practices to increase productivity and reduce costs
The focus here is on IT as a driver of innovation to deliver new and better approaches to government products and services through smart investments in technology. The Department of Veterans Affairs (VA) is used as an example of what could be accomplished.

As the wars in Iraq and Afghanistan wind down, veterans’ applications for claims and benefits have risen tremendously, and with it an increase in case backlog, from about 600,000 in 2008 to nearly 900,000 in 2012 to a projected 1.2 million in 2013. One key initiative launched by the VA is the Veterans Benefits Management System (VBMS), a paperless system scheduled for nationwide implementation in 2013.

In addition, the VA developed the VA Blue Button Initiative allowing veterans to easily access and download their personal medical and health information from the VA’s large health data repository. This enables data sharing with healthcare providers, caregivers or other people that veterans trust. This system enhances veteran service delivery through real-time data processing as well as cost reduction in healthcare delivery.

As with the first recommendation, the paper suggests that the VA and other agencies providing healthcare services: a) build on the VA blue button experience to further increase citizen access to services and their federal records; b) ensure that VA and DOD continue to work collaboratively to share our service members’ health and other data seamlessly; c) set-up a governance framework to leverage the efficiencies of the VistA electronic health record as it is adopted by organizations outside of VA; and d) set government-wide goals for the digitization of all federal forms so claim and other data can be processed more efficiently and effectively.

ACT-IAC estimates that smart investments in IT for productivity improvements within the federal government could result in a reduction in outlays of $ 100B per year.
Use technology to combat fraud, waste and abuse.
Politicians tirelessly campaign against fraud, waste and abuse for a reason: there are plenty of government programs than can provide us with examples. And fraud, waste and abuse will continue to occur in federal programs without the appropriate systems and proper management controls. One of the most significant areas for improvement lies in curtailing improper payments; that is, payments made to individuals that are ineligible for the benefits they claim. The FBI estimates that between 3% and 10% of healthcare expenditures was lost to fraud.2 Another area of substantial focus is the “tax gap” where the Internal Revenue Service (IRS) reported, just in 2006, approximately $385B of uncollected taxes.

Clearly the use of technology to combat fraud, waste and abuse can yield dramatic results. The estimates are that for every 10% gain made in reducing improper payments and uncollected taxes we can reduce the deficit by $50B per year.

First we need to understand that the agency processes over 230 million individual tax returns as well as millions of informational returns from financial institutions, businesses and local government agencies. And most of these come in different formats and structures. Furthermore, taxpayers can file as early as January and yet some of the information needed to reconcile the returns is not received by the IRS until weeks or months later. As a result of these complexities there are millions of cases of underpayment or over-refund each year.

The IRS has taken some very significant steps already to close the tax gap through IT innovation. In FY2011 they were able to stop over $14B in fraudulent returns as part of its IT investment strategy.3  In its “IRS Strategic Plan 2009-2013,” the agency includes promising initiatives such as: 1) the Currency & Banking Retrieval System giving field agents and law enforcement online access to Bank Secrecy Act information; 2) the Customer Account Data Engine-2 (CADE-2) database that has substantially sped up returns processing; and 3) Virtual server technology deployment and IRS2GO Smartphone App, both of which have received kudos from the GAO.

In moving forward, the paper recommends that the IRS and other agencies: a) adopt new approaches to modernizing it systems/capabilities; b) establish analytical shared centers of excellence (COE) focused on enterprise-level operations to reduce fraud, waste, and abuse and strengthen program integrity; and c) proactively screen to reduce fraud, waste, and abuse prior to payment.

ACT-IAC estimates that using IT to combat fraud, waste and abuse, specifically through the enhancement of program integrity and increased tax collection, could reduce the deficit by $ 50B per year.
In short, while there are some big problems on the financial front for the federal budget, there are also big opportunities to make a dent on the problem through innovation and smart use of information technology. The paper prepared for the Quadrennial Government Technology Review (QGTR) commissioned by the ACT-IAC Institute for Innovation points the way in a number of important areas.


*This is one of six articles addressing the six papers offering input to the new administration that resulted from the Quadrennial Government Technology Review (QGTR) commissioned by the ACT-IAC Institute for Innovation. The American Council for Technology (ACT) - Industry Advisory Council (IAC) is a non-profit educational organization and a unique public-private partnership dedicated to helping government use technology to serve the public.  (www.actgov.org.) The QGTR initiative’s purpose was “to take a strategic look at the role that technology can play in achieving federal government objectives and missions.”  More information can be obtained at http://www.actgov.org/quadrennial.

A Steering Committee provided guidance and governance to the QGTR and the papers were prepared by teams drawn from IAC member companies.

Unleashing the Power of Information Technology Innovation to Reduce the Budget Deficit was prepared by the following team:
Bill Bennett, Microsoft (Member)
Patricia Healy, CGI Federal (Member)
Lee Holcomb, Lockheed Martin (Topic Lead)
Kavita Kalatur, NetImpact Strategies (Member)
Val Lunz, NASA (Government Liaison)
Kristin Oelke, Oceus Networks (Marketing Communications Liaison)
Greg Prince, Performix Consulting LLC (Member)
Travis Totten, NASA, (Government Liaison)
Roxanne Rucker (Member)
All six papers can be downloaded from the following link: http://www.actgov.org/quadrennial

End Notes:

  1. McKinsey Global Institute, May 2011, Big Data: The next frontier for innovation, competition and productivity by Manyika, J; Chui, M; Brown, B et al.
  2. Federal Bureau of Investigation, Financial Crimes Report to the Public (2010-2011)
  3. IRS Oversight Board Annual Report to Congress 2011.

SOURCE: IT Innovation and the Budget Deficit: Some Thoughts for the New Administration*

  • Dr. Ramon BarquinDr. Ramon Barquin

    Dr. Barquin is the President of Barquin International, a consulting firm, since 1994. He specializes in developing information systems strategies, particularly data warehousing, customer relationship management, business intelligence and knowledge management, for public and private sector enterprises. He has consulted for the U.S. Military, many government agencies and international governments and corporations.

    He had a long career in IBM with over 20 years covering both technical assignments and corporate management, including overseas postings and responsibilities. Afterwards he served as president of the Washington Consulting Group, where he had direct oversight for major U.S. Federal Government contracts.

    Dr. Barquin was elected a National Academy of Public Administration (NAPA) Fellow in 2012. He serves on the Cybersecurity Subcommittee of the Department of Homeland Security’s Data Privacy and Integrity Advisory Committee; is a Board Member of the Center for Internet Security and a member of the Steering Committee for the American Council for Technology-Industry Advisory Council’s (ACT-IAC) Quadrennial Government Technology Review Committee. He was also the co-founder and first president of The Data Warehousing Institute, and president of the Computer Ethics Institute. His PhD is from MIT. 

    Dr. Barquin can be reached at rbarquin@barquin.com.

    Editor's note: More articles from Dr. Barquin are available in the BeyeNETWORK's Government Channel


  • Lee HolcombLee Holcomb
    As Vice President of Strategic Initiatives, Lee Holcomb leads the Lockheed Martin Center for Cyber Security Innovation (CCSI) and manages cyber, cloud and mobile technology solution development, process excellence, talent development and strategic technology partnerships. In this capacity, Holcomb shapes technology initiatives with a significant focus on strategic research and development. Previously Holcomb served as Vice President of Advanced Solutions for Lockheed Martin Business Process Solutions, where he supported program managers in identifying competitive solutions and utilizing state-of-the-art technology to bring best value to Lockheed Martin customers.
    Prior to joining Lockheed Martin in 2006, Holcomb retired from government where he served as Chief Technology Officer for the Department of Homeland Security. In that role, he led the development of the Homeland Security Enterprise Architecture including the initial foundation for the merger of 22 Federal agencies to form the Department of Homeland Security. Prior to joining DHS, Holcomb served as the Chief Information Officer for the National Aeronautics and Space Administration where he led the implementation of the Outsourcing Desktop Initiative, an agency-wide desktop computing outsourcing project involving 30,000 computers to achieve lower cost, increased interoperability and improved service delivery.

    Holcomb holds a Bachelor of Science degree from the University of California at Los Angeles, a Master of Science in mechanical engineering from California Institute of Technology, and an MBA from Massachusetts Institute of Technology Sloan School of Management.

Recent articles by Dr. Ramon Barquin, Lee Holcomb



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