Unleashing the power of information technology innovation, as three federal agencies have, can help the federal government reduce the federal deficit by as much as $220 billion, according to a leading public-private partnership group.

In a report released Tuesday, the ACT-IAC Institute for Innovation explained how initiatives at the IRS, the Department of Veterans Affairs, and the Centers for Medicare & Medicaid Services (CMS) exemplify how the government can achieve higher higher levels of cost efficiencies through innovative IT practices.

The efforts at those agencies serve as a model for at least partially bridging the government funding gap, while helping to maintain the delivery of essential mission services, the report said.

The report is one of series of calls to action aimed at senior government leaders, issued by the American Council of Technology and the Industry Advisory Council.

While overall 2012 federal outlays exceed $ 3.5 trillion, the federal government spends approximately $80 billion, or less than 3% of total outlays annually, on information technology products and services to support its missions and programs. Much of the current federal IT budget goes to operate and maintain outdated technologies rather than future capability investments.

Consequently, the federal government is in a unique position to strategically apply IT investments to reduce federal outlays and the federal deficit, while having the additional benefit of providing jobs and much needed tax revenue, the report said.

The report made three recommendation and outlined how each could save tens of billions of taxpayer dollars annually:

1. Accelerate the use of data analytics to identify opportunities to reduce government costs.

The federal government already collects and stores great quantities of data. Moving deliberately to match this data with the power of emerging analytical technologies provides new opportunities to create actionable information and insight to inform decision-making across federal programs. The information created can help expose operational inefficiencies and identify operational and programmatic redundancies.

New data analytical technologies are particularly critical in the analysis of healthcare costs. McKinsey Global Institute estimates that “if US healthcare could use big data creatively and effectively to drive efficiency and quality…the potential value from data in the sector could be more than $300 billion every year.” Approximately $70 billion of that would be reduced federal spending.

The report specifically recommended making big data analytics a central part of healthcare cost control; promoting smaller scale data analytics demonstration projects and focusing on increasing the quality, quantity and timeliness of data.

2. Invest in technology to increase productivity and reduce costs.

IT and business process innovation are central to commercial industry productivity. The public sector lags significantly behind the private sector in IT and business process innovation, resulting in slower productivity growth and declining services to a citizenry that increasingly takes online mobility and information for granted. Based on commercial industry best practices, the government could potentially save up to $100 billion a year in federal outlays.

Using Best Practices –
10 Year Potential
Streamline Government Supply Chain $500B
Monetize Government Assets $150B
Consolidate Infrastructure $200B
Reduce Field Operations/Self Serve $50B
Shared Mission Support $50B
Reduce Energy Usage $20B

The report cited efforts by the VA, with its paperless Veterans Benefits Management System (VBMS), scheduled for nationwide implementation in 2013, and the VA Blue Button Initiative, which allows veterans to access and download medical and health information, as examples of where government is already benefitting from IT innovation.

3. Use technology to combat fraud, waste and abuse.

Federal payment and tax collection programs are complex and touch every person and company in the United States, involving trillions of dollars in transactions. But inefficiencies have created a climate where fraud, waste and abuse inevitably occurs, amounting to $385 billion annually in uncollected taxes and more than $100 billion in improper payments made by the federal government a year, according to the IRS. Accelerating the modernization of key IT tools could drive a 10% reduction in these losses to the U.S. Treasury, potentially decreasing the deficit by almost $50 billion a year.

Among more specific measures to combat fraud, waste and abuse, the report recommended:

Adopt new approaches to modernizing IT systems and capabilities. IRS and other agencies should modernize to industry standards and leverage private sector technology and resources through such potential funding sources as: Cooperative Research and Development Agreements (CRADA), Technology Transition Plans (TTP), Rapid Technology Application Programs (RTAP) and other forward-thinking development programs.

Establish analytical shared centers of excellence (COE) focused on enterprise-level operations. These COEs, whether dedicated to an agency, or shared among agencies, will enable sophisticated modeling and simulation of historical data, e.g., to identify anomalous thresholds based on multivariate factor analysis, disparate data fusion to include advanced geospatial analytics, testing of new means, methods, and tools, etc.

Proactively screen to reduce fraud, waste, and abuse prior to payment. Key to this approach is the effective use of third party data sources at enterprise levels to screen incoming filings and outgoing transactions against more advanced analytical efforts.

The report was prepared by a group of more than 100 volunteers from government and industry to address some of the nation’s most pressing challenges, as part the ACT-IAC Institute for Innovation’s Quadrennial Government Technology Review. (Breaking Gov is a sponsoring member of the Institute for Innovation.)