Financial Management: Billions in Improper Payments Continue to Require
Attention (Letter Report, 10/27/2000, GAO/GAO-01-44).
As the steward of taxpayer dollars, the federal government is
accountable for how its agencies and grantees spend funds and is
responsible for safeguarding against improper payments, which include
payments that should not have been made or were made for incorrect
amounts irrespective of whether the agency had effective controls in
place. Reported estimates of improper payments total billions of dollars
annually, an inefficient use of taxpayers' funds. With billions of
dollars at risk, agencies will need to continually and closely safeguard
those resources entrusted to them and assign a high priority to reducing
fraud, waste, and abuse. In their fiscal year 1999 financial statement,
12 federal agencies reported improper payments totalling $20.7 billion.
A first step for some agencies will involve assessing programs at risk
and developing mechanisms to identify, estimate, and report the nature
and extent of improper payments annually. Without this fundamental
knowledge, agencies cannot be fully informed about the magnitude,
trends, and types of payment errors occurring within their programs. As
a result, most agencies cannot make informed cost-benefit decisions
about strengthening their internal controls to minimize future improper
payments or effectively develop goals and strategies to reduce them.
Consulting with congressional oversight committees on the development of
these goals and strategies is also important to obtaining consensus on
how to address this multibillion dollar problem.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GAO-01-44
TITLE: Financial Management: Billions in Improper Payments
Continue to Require Attention
DATE: 10/27/2000
SUBJECT: Federal aid programs
Internal controls
Overpayments
Financial management
Accountability
IDENTIFIER: USDA Child and Adult Care Food Program
Civil Service Retirement System
Foreign Service Retirement and Disability Fund
Food Stamp Program
Old Age Survivors and Disability Insurance Program
Treasury Offset Program
Supplemental Security Income Program
Medicare Fee-for-Service Program
Unemployment Insurance Program
Earned Income Tax Credit
DOD TRICARE Program
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GAO-01-44
A
Report to the Chairman, Committee on Governmental Affairs, U. S. Senate
October 2000 FINANCIAL MANAGEMENT
Billions in Improper Payments Continue to Require Attention
GAO- 01- 44
Letter 5 Appendixes Appendix I: Executive Departments and Agencies Covered
by the CFO Act 52 Appendix II: Agencies and Programs With Reported Improper
Payments Included in the Agencies' Fiscal Year 1999 Financial Statements 54
Appendix III: Assessment of Financial Management Plans and Performance Plans
for Those Agencies Reporting Improper Payments 62
Appendix IV: Assessment of Performance Reports for Those Agencies Reporting
Improper Payments 64
Appendix V: Comments From the Office of Management and Budget 65
Appendix VI: GAO Contact and Staff Acknowledgments 67 Related GAO Products
68 Tables Table 1: Agencies and Programs That Reported Improper
Payments in Their Fiscal Year 1999 Financial Statements 20 Figures Figure 1:
Trends in Certain Federal Expenditures:
Fiscal Years 1979 Through 2005 14 Figure 2: Internal Control Weaknesses
Continue to
Cause Improper Payments 27 Figure 3: Program Design Issues Continue to
Contribute
to Improper Payments 32 Figure 4: Reporting Improper Payments Within the
Framework
of the CFO Act and GPRA 41 Figure 5: Degree to Which 21 Programs Addressed
Improper
Payments in Agency Financial Management Plans 43 Figure 6: Degree to Which
19 Programs Addressed Improper
Payments in Agency Performance Plans 44 Figure 7: Discussion of Improper
Payments in Agency
Performance Plans and Performance Reports 45
Abbreviations
BDR Budget Data Request CACFP Child and Adult Care Food Program C& P
Compensation and Pension Program CCC Commodity Credit Corporation CFO Chief
Financial Officer CSRS Civil Service Retirement System DCIA Debt Collection
Improvement Act DI Disability Insurance DOD Department of Defense DOE
Department of Energy DOJ Department of Justice DOL Department of Labor EITC
Earned Income Tax Credit FASAB Federal Accounting Standards Advisory Board
FBI Federal Bureau of Investigation FCIC Federal Crop Insurance Corporation
FECA Federal Employees' Compensation Act FEGLI Federal Employees' Group Life
Insurance FEHBP Federal Employees' Health Benefits Program FERS Federal
Employees' Retirement System FHA Federal Housing Administration FICA Federal
Insurance Contributions Act FMFIA Federal Managers' Financial Integrity Act
FNS Food and Nutrition Service FSP Food Stamp Program FSRDF Foreign Service
Retirement and Disability Fund GMRA Government Management Reform Act HCFA
Health Care Financing Administration HHS Department of Health and Human
Services HUD Department of Housing and Urban Development IG inspector
general IRS Internal Revenue Service JFMIP Joint Financial Management
Improvement Program NFC National Finance Center NIH National Institutes of
Health OASI Old Age and Survivors Insurance OMB Office of Management and
Budget OPM Office of Personnel Management PCIE President's Council on
Integrity and Efficiency PHA Public Housing Authority
PMO Priority Management Objective SECA Self- Employment Contributions Act
SSA Social Security Administration SSI Supplemental Security Income STAR
Systematic Technical Accuracy Review TOP Treasury Offset Program USDA
Department of Agriculture VA Department of Veterans Affairs VBA Veterans
Benefits Administration VHA Veterans Health Administration WCP Workers'
Compensation Program
Lett er
October 27, 2000 The Honorable Fred Thompson Chairman, Committee on
Governmental Affairs United States Senate
Dear Mr. Chairman: The federal government- the largest and most complex
organization in the world- annually expends approximately $1. 7 trillion
dollars for a variety of grants, transfer payments, and procurement of goods
and services. As the steward of taxpayer dollars, the federal government is
accountable for how its agencies and grantees spend those funds and is
responsible for safeguarding against improper payments.
In our view, improper payments include payments that should not have been
made or were made for incorrect amounts irrespective of whether the agency
had effective controls in place. 1 Specifically, improper payments would
include inadvertent errors, such as duplicate payments and calculation
errors; payments for unsupported or inadequately supported claims; payments
for services not rendered or to ineligible beneficiaries; and payments
resulting from outright fraud and abuse. 2 However, improper payments do not
necessarily include all losses suffered by the government, such as defaults
on student loans made to individuals who met program criteria.
While we cannot estimate the number or dollar amount of improper payments
attributable to specific categories, reported estimates of improper payments
total billions of dollars annually. Viewed in the simplest context, improper
payments are an inefficient use of taxpayers' funds. Specifically, for
programs with legislative or regulatory eligibility criteria, improper
payments indicate that agencies are spending more than necessary.
Conversely, for programs with fixed funds, any waste of federal funds
translates into serving fewer recipients or accomplishing less
programmatically than could be expected.
1 Even if an agency has effective controls, it may not be able to preclude
improper payments if fraudulent activity, such as collusion, is perpetrated
against the agency. 2 This report does not address situations in which the
federal government made underpayments, which could be considered improper
payments as well.
Last year, at your request, we prepared a report 3 detailing the extent of
improper payments reported in agencies' fiscal year 1998 financial
statements prepared pursuant to the Chief Financial Officers (CFO) Act of
1990, 4 the reported causes of improper payments, and the extent to which
improper payments were addressed in agencies' fiscal year 2000 performance
plans under the Government Performance Results Act of 1993 (GPRA). 5 Because
of your continued interest and concerns regarding financial management in
the federal government, you asked us to update certain aspects of our 1999
report. Specifically, you requested that we (1) quantify, where possible,
the amount of improper payments reported in agencies' fiscal year 1999
financial statement reports, (2) determine the extent to which the Office of
Management and Budget (OMB) has implemented the recommendations made in our
prior report, (3) assess the extent to which agencies' fiscal year 1999
financial management plans, fiscal year 2001 performance plans, and fiscal
year 1999 performance reports address improper payments, and (4) identify
other actions that might encourage agencies to better report the extent of
their improper payments. At your request, in July of this year, we prepared
a letter that responded to your first objective covering financial
statements issued through mid- July, 2000. 6 This report incorporates
information from our July letter and responds to all of the objectives
detailed above.
Results in Brief In their fiscal year 1999 financial statement reports, 12
of the 24 CFO Act agencies (appendix I contains the names of executive
departments and
agencies covered) took the initiative to collectively report improper
payment estimates of $20. 7 billion. While nine of these agencies reported
known improper payments, three went further. These three reviewed a
statistical sample of payments to quantify the extent of improper payments
3 Financial Management: Increased Attention Needed to Prevent Billions in
Improper Payments( GAO/ AIMD- 00- 10, October 29, 1999). 4 The CFO Act, as
expanded by the Government Management Reform Act of 1994, requires 24 major
departments/ agencies to prepare agencywide financial statements and have
them audited. See appendix I for a list of the 24 CFO Act agencies.
5 GPRA requires agencies to prepare annual performance plans that include
performance goals and measures, strategies, and resources required to
achieve performance goals and procedures to verify and validate performance
information.
6 Financial Management: Improper Payments Reported in Fiscal Year 1999
Financial Statements( GAO/ AIMD- 00- 261R, July 27, 2000).
for at least one of their major programs, resulting in the disclosure of
important information for oversight and decision- making. 7 These improper
payment estimates include $4. 4 billion of receivables 8 that these agencies
expect to collect and relate to 21 9 major programs 10 that expended more
than half of the government's net outlays in fiscal year 1999. 11 The
programs and related improper payment estimates include
Medicare Fee- for- Service claim payments ($ 13.5 billion), Supplemental
Security Income ($ 1.6 billion), Old Age and Survivors Insurance ($ 1.3
billion), Disability Insurance ($ 1. 1 billion), Food Stamps ($ 1. 3
billion),
7 Improper payments reported by the Department of Health and Human Services
(HHS) for Medicare Fee- for- Service claim payments, the Department of
Agriculture for the Food Stamp program, and the Department of Housing and
Urban Development for Housing Subsidy programs are estimates made using
statistical sampling. In some instances, these estimates are based on prior
year activity. According to the HHS Office of Inspector General, the
majority of the improper payments for Medicare Fee- for- Service claim
payments were detected through medical record reviews. Once an improper
payment is identified for Medicare Fee- for- Service claims payments, the
provider has the option to appeal the decision and provide more
documentation to support the payment. It should be noted that the Health
Care Financing Administration upheld 99 percent of the overpayments
identified in their 1998 sample and recovered about 87 percent; the
remaining 13 percent have not been collected due to an ongoing
investigation.
8 Improper payments reported as receivables represent the outstanding
balance of overpayments made over multiple fiscal years, including 1999. 9
In our report, Financial Management: Improper Payments Reported in Fiscal
Year 1999 Financial Statements( GAO/ AIMD- 00- 261R, July 27, 2000), we
identified 20 programs that
reported improper payments in their fiscal year 1999 financial statements.
Subsequent to issuing this report, we received a copy of the Commodity
Credit Corporation's fiscal year 1999 financial statements, which included a
reference to improper payments. Accordingly, we have incorporated this
program into the discussion of improper payments in this report.
10 For purposes of this report, we have defined major programs as those that
disburse $1 billion or more annually with one exception- the State
Department. We initially assessed the State Department as a major program in
our July 27 report based on State's fiscal year 1999 financial statements.
Subsequent to issuing our report, the State Department released updated
financial statements that revised its disclosure related to overpayments.
The revised disclosure specifically noted reported overpayments related to
the Foreign Service Retirement and Disability Fund. While this fund does not
have disbursements that exceed $1 billion annually, we are including this
program in our report to be consistent with our July 27 report. See appendix
II for a description of the 21 major programs or their agencies.
11 This amount primarily consists of programs' fiscal year 1999 net outlays.
However, no outlay amount was included for the Federal Housing
Administration because its activities primarily relate to guaranteeing
loans.
Housing subsidies ($ 935 million), Medicare Fee- for- Service cost report
settlements ($ 600 million), 12 and Unemployment Insurance, federal employee
health and retirement
benefits, and others ($ 364 million). Our audits and those of agency
inspectors general (IG) continue to demonstrate that the extent of the
problem is much more widespread than has been disclosed in agency financial
statement reports. The methodologies used by some agencies to estimate
improper payments do not always result in complete estimates, and many other
agencies have not attempted to identify or estimate improper payments. As a
result, the government does not have a reasonable basis for gauging the
extent of its improper payments.
Ascertaining the extent of improper payments is the first step in assessing
the need for and extent of corrective actions required. Self- assessments,
such as those contemplated under the Federal Managers' Financial Integrity
Act (FMFIA) for assessing internal controls, may be helpful in identifying
significant programs at risk for improper payments. Determining the extent
of these payments gives agencies baseline information for assessing causes
and making cost- effective decisions about enhancing controls to minimize
future improper payments. By analyzing the characteristics of cases
identified as having improper payments, agencies can then identify the
circumstances and root causes leading to improper payments. This provides a
foundation for developing sound strategies to mitigate improper payments in
their programs.
OMB has stated its intention to expand its focus on improper payments. It
also agreed with our recommendation in our October 1999 report on improper
payments, calling for guidance to assist agencies in developing and
implementing a methodology for annually estimating and reporting improper
payments for major federal programs and developing goals and strategies to
address improper payments in their annual performance plans. OMB officials
said that they expect agencies to include goals or objectives for reducing
improper payments in their strategic plans if the level of improper payments
was determined to be mission- critical- that is,
12 The cost report settlement process represents the value of final outlays
to providers based on fiscal intermediary audits, reviews, and final
settlements of Medicare cost reports. By not performing full- scope audits
on all cost settlements, the Health Care Financing Administration estimated
that it may have overpaid providers by as much as $600 million.
those which prospectively and realistically threaten achievement of agency
missions, objectives, or strategic goals.
In this regard, OMB has expanded the administration's Priority Management
Objective (PMO) 13 related to error reduction in the distribution of
benefits. As expanded, this PMO now commits OMB to issuing guidance to
agencies in 2000 to ensure that the right person is getting the right
benefit. In addition, the PMO calls for the administration to assist federal
agencies in estimating the extent of, and addressing the underlying causes
of, improper payments. OMB has also undertaken a project to develop guidance
to provide uniform reporting and disclosure of improper payments by agency
management. To assist in this project and on other efforts related to
improper payments, OMB is working through interagency councils such as the
CFO Council and the President's Council on Integrity and Efficiency (PCIE).
At the same time, only 4 of the 12 agencies reporting improper payments-
many of which we identified in our High- Risk and Performance and
Accountability series issued in 1999 14 -comprehensively addressed these
payments in either their fiscal year 1999 financial management plans and/ or
their fiscal year 2001 performance plans. In addition, we found that in all
but one instance, those agencies that addressed improper payments in their
performance plans discussed improper payments in their performance reports.
Last year, we made specific recommendations to OMB designed to strengthen
agency management and reporting of improper payments. We are encouraged that
OMB has begun to move forward on this issue. Expeditious completion of its
current efforts and action to implement all of our recommendations will help
strengthen accountability over federal funds. Delays in implementing these
recommendations will perpetuate the
13 Priority Management Objectives focus the administration's efforts to meet
some of the government's biggest management challenges. These include
specific management initiatives covering a range of concerns- from
streamlining the Social Security Administration's disability claims process
to strengthening the Health Care Financing Administration's management
capacity.
14 High- Risk Series: An Update( GAO/ HR- 99- 1, January 1999) and
Performance and Accountability Series: Major Management Challenges and
Program Risks (GAO/ OCG- 99- 22SET, January 1999). These two series of
reports outline actions needed to improve the performance and accountability
of, and manage the risk relating to, our national government.
government's inability to reasonably gauge the extent of improper payments
and act to effectively prevent them. Therefore, we are reaffirming our prior
year recommendations to the Director of OMB directed at developing and
implementing a methodology for annually estimating and reporting improper
payments and for addressing improper payments in agencies' annual
performance and strategic plans and performance reports.
In tandem with OMB, there are opportunities for Congress to leverage its
oversight function to improve agency management and reporting of improper
payments. Past congressional oversight has been a powerful tool for
implementing key federal management reforms and could be an impetus for
instituting change related to agency management and reporting of improper
payments. Such oversight actions could include consultations with agency
management and hearings that focus on OMB's leadership role and agency
progress related to improper payments on both a governmentwide and
individual program level.
In commenting on a draft of this report, OMB agreed that efforts to reduce
improper payments require continued attention. OMB stated that it plans to
issue guidance shortly that provides an overall framework for agencies to
assess the risk of improper payments in their programs, take action to
reduce the risk by strengthening controls where needed, and measure and
report on progress. OMB said that issuing this guidance is a step in a
longterm process to minimize improper payments. OMB noted that several
agencies have made efforts in the area of estimating, reporting, and
minimizing improper payments but is concerned that legislative requirements,
competing priorities, and program structure limit agencies' ability to
estimate and reduce the level of improper payments. In this regard, until
agencies begin to comprehensively estimate and report improper payments,
they will lack essential baseline information on which to develop and refine
their strategies for minimizing improper payments. Sustained progress in
achieving the requisite accountability over federal resources will require
reliable information on the nature and extent of improper payments, detailed
analysis to discern underlying causes, and continual efforts to strengthen
internal controls. We agree with OMB that removing or mitigating the effects
of any impediments are fundamental efforts that agencies need to work
through.
Background Annually, the federal government expends approximately $1. 7
trillion for a variety of grants, transfer payments, and procurement of
goods and
services. Because of its size, program complexity, historically weak payment
control environment, and insufficient preventive controls, the federal
government risks disbursing improper payments. Agency- specific studies and
audits continue to indicate that improper payments are a widespread and
significant problem. They occur in a variety of programs and activities,
including those involving contract management, financial assistance
benefits- such as Supplemental Security Income (SSI) benefits- and tax
refunds. However, some overpayments, by their nature, are not considered
improper payments, such as routine contract price adjustments. 15
Furthermore, the government has numerous programs in which benefits are paid
in advance. These payments are made assuming that the beneficiary's
circumstances remain the same during the period for which payment was
rendered. However, changes in a beneficiary's circumstances, such as income
and asset levels or death, during the payment period can lead to
overpayments, which are subject to recovery. For example, the Social
Security Administration (SSA) disburses SSI payments to recipients at the
beginning of the month, based on the income and asset levels a recipient
expects to maintain during the month. If an SSI recipient obtains employment
during the month that consequently reduces the amount of benefits to which
he or she is entitled, an overpayment has occurred. In our view, these
payments are not improper at the time they were made. However, any
subsequent unadjusted payments to that recipient would be considered
improper payments. Some agencies, such as SSA, include these amounts in
their disclosures related to overpayments, while others may not. These
disclosures do not contain detailed information regarding this aspect of
overpayments. Therefore, we have included all amounts reported as
overpayments in our report.
In addition, legal requirements may place constraints on agency management
of improper payments. For example, SSA stated that precedents set by certain
court decisions 16 and language in the Social
15 For example, a routine contract price adjustment allows for the payment
of an expense at a provisional rate until the actual cost information is
available and audited. When the actual cost is lower than that provisionally
paid, an overpayment has occurred. These amounts may be offset in future
payments or returned directly to the government. This type of overpayment is
not considered an improper payment.
16 Cardinale v. Mathews, 399 F. Supp. 1163 (D. D. C. 1975), and Goldberg v.
Kelly, 397 U. S. 254 (1970).
Security Act (42 U. S. C. sect.423 (g)) permit individuals to continue receiving
SSI and disability insurance benefits pending a hearing process to determine
eligibility. We could not determine from SSA's financial statement
disclosures the amount of overpayments that resulted from this legal
restriction. Therefore, we have included all amounts reported as
overpayments in our report.
Legislative efforts have focused on improving the federal government's
control environment. For example, under FMFIA agency managers are
responsible for ensuring that adequate systems of internal controls are
developed and implemented. An adequate system of internal controls, as
defined by the Comptroller General's internal control standards, which are
issued pursuant to FMFIA, should provide reasonable assurance that an agency
is effectively and efficiently using resources, producing reliable financial
reports, and complying with applicable laws and regulations. 17 Accordingly,
cost- effective internal controls should be designed to provide reasonable
assurance regarding prevention of, or prompt detection of, unauthorized
acquisition, use, or disposition of an agency's assets.
Legislation enacted over the past 10 years has provided an impetus for
agencies to systematically measure and reduce the extent of improper
payments. For example, with the advent of the CFO Act, the Government
Management and Reform Act (GMRA), and GPRA, agencies are challenged to
increase attention to identifying and addressing improper payments. The CFO
Act, as expanded by GMRA, requires 24 major departments/ agencies to prepare
and have audited agencywide financial statements, which are intended to
report on the agencies' stewardship over their financial resources-
including how they expended available funds. OMB's Bulletin 97- 01, Form and
Content of Agency Financial Statements, provides implementing guidance on
these CFO Act requirements. In addition, the CFO Act sets expectations for
agencies to routinely produce sound cost and operating performance
information. Effective implementation of this requirement would enable
managers to have timely information for day- today management decisions. The
CFO Act also requires OMB to prepare and annually revise a governmentwide 5-
year financial management plan and status report that discusses the
activities the executive branch plans to undertake and has undertaken to
improve financial management in the federal government. Additionally, each
agency CFO is responsible for
17 Standards for Internal Control in the Federal Government( GAO/ AIMD- 00-
21.3.1, November 1999).
developing annual plans to support the governmentwide 5- year financial
management plan.
GPRA seeks to improve the effectiveness and efficiency of the federal
government by requiring that agencies develop strategic and annual
performance goals and report on their progress in achieving these goals.
Each agency's strategic plan is required to include the agency's mission
statement; identify long- term general goals, including outcome- related
goals and objectives; and describe how the agency intends to achieve these
goals. Agencies are required to consult with Congress when developing their
strategic plans and consider the views of other interested parties. In their
annual performance plans, agencies are required to set annual goals,
covering each program activity in an agency's budget, with measurable target
levels of performance. Agencies are also required to issue annual
performance reports that compare actual performance to the annual goals.
Consequently, one would expect to find a discussion of issues, such as
mission critical improper payments, in the annual performance reports of
those agencies that identified related goals and strategies in their annual
performance plans. Together, these plans and reports are the basis for the
federal government to manage for results. GPRA is supported by the
development of federal cost accounting standards under the CFO Act, which
require agencies to identify the costs of government activities. 18 These
standards can lead to and support linking costs with achieving performance
levels. This can give managers information for assessing the full costs of
goods, services, and benefits compared to program outputs and results. Such
information can provide the basis for agencies to develop performance goals
to monitor and track improper payments as well as strategies for preventing
such future disbursements.
The risk of improper payments and the government's ability to prevent them
will continue to be of concern in the future. Under current federal budget
policies, as the baby boom generation leaves the workforce, spending
pressures will grow rapidly due to increased costs of Medicare,
18 Statement of Federal Financial Accounting Standards No. 4, Managerial
Cost Accounting Standards; Managerial Cost Accounting System Requirements,
Federal Financial Management System Requirements8, Joint Financial
Management Improvement Program (JFMIP), February 1998; and The Managerial
Cost Accounting Implementation Guide, CFO Council and JFMIP, February 1998.
Medicaid, and Social Security. 19 Other federal expenditures are also likely
to increase. Thus, absent improvements over internal controls, the potential
for additional or larger volumes of improper payments will be present.
Figure 1 illustrates the reported and projected trends in federal
expenditures, excluding interest on the public debt, for fiscal years 1979
through 2005.
Figure 1: Trends in Certain Federal Expenditures: Fiscal Years 1979 Through
2005
Dollars in billions 2,400 2,200
Other Social Security 2,000
Defense 1,800
Medicare 1,600
Medicaid 1,400 1,200 1,000
800 600 400 200
0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Fiscal year
Note: Expenditures for fiscal years 2000- 2005 are projections. Source:
Actual and projected amounts are from the Budget of the United States
Government, Fiscal Year 2001, Historical Tables.
Historically, the recovery rates for certain programs identified as having
improper payments have been low. Therefore, it is critical that adequate
attention be directed to strengthen controls to prevent improper payments.
19 Medicare Reform: Issues Associated With General Revenue Financing (GAO/
T- AIMD- 00- 126, March 27, 2000), Medicare Reform: Leading Proposals Lay
Groundwork, While Design Decisions Lie Ahead( GAO/ T- HEHS/ AIMD- 00- 103,
February 24, 2000), Federal Debt: Answers to Frequently Asked Questions- An
Update( GAO/ OCG- 99- 27, May 28, 1999), and Medicare and Budget Surpluses:
GAO's Perspective on the President's Proposal and the Need for Reform( GAO/
T- AIMD/ HEHS- 99- 113, March 10, 1999).
Scope and This report is based on our review of the 24 CFO Act agencies',
and certain
Methodology subcomponents', fiscal year 1999 financial statement reports
prepared
under the CFO Act, as expanded by GMRA. We reviewed these financial
statement reports to identify amounts of reported improper payments. We also
identified and reviewed recent GAO reports to identify additional agencies/
programs at risk. We supplemented our review with IG reports from CFO Act
agencies. For the 12 agencies that reported having made improper payments in
their financial statement reports, we also reviewed the agencies' (1) fiscal
year 1999 financial management plans, 20 (2) GPRA performance plans for
fiscal year 2001, and (3) GPRA performance reports for fiscal year 1999 to
determine the extent to which these documents addressed improper payments.
Because of the nature of improper payments, our review would not capture all
reported instances of such payments. 21 We met with OMB officials and
reviewed documents regarding OMB's progress in implementing recommendations
made in our prior report. We also identified and analyzed options for
managing and reporting improper payments based on discussions with federal
government financial managers and our prior work, and the work of IGs, in
this area.
To gather information on existing financial statement, financial management,
and performance reporting criteria, we reviewed relevant professional
literature, including the American Institute of Certified Public
Accountants' Codification of Statements on Auditing Standardsand the
20 Agencies used a variety of means to report their financial management
plan information. For example, certain agencies included this information in
their annual budget submissions. 21 For example, to the extent that
individuals who owe the federal government for certain programs and/ or
activities receive other federal benefits and payments, such amounts
constitute missed opportunities for collection. If outstanding amounts are
owed to the government for one type of program or activity, these amounts
could be collected through offsetting other federal benefits and payments.
Along these lines, the Debt Collection Improvement Act (DCIA) of 1996 calls
for the centralization and aggressive pursuit of delinquent nontax federal
receivables, including delinquent loans and other forms of payment owed the
federal government. The Treasury Offset Program (TOP) offsets federal
payments such as tax refunds, vendor and miscellaneous payments, and federal
retirement payments against federal nontax debts, states' child support
debts, and certain states' tax debts. For fiscal year 1999, most of the TOP
offsets were from tax refunds. However, it was beyond the scope of this
report to consider the magnitude of payments that might otherwise be offset
to recover other delinquent amounts owed or to review Treasury's efforts to
implement DCIA. See Debt Collection: Treasury Faces Challenges in
Implementing Its Cross- Servicing Initiative( GAO/ AIMD- 00- 234, August 4,
2000) and Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty
Assessments Are Owed( GAO/ AIMD/ GGD- 99- 211,
August 2, 1999). In addition, we did not include information on improper
payments that resulted in underpayments by the federal government.
Federal Accounting Standards Advisory Board's Statements of Federal
Financial Accounting Concepts and Standards. In addition, we reviewed OMB
Bulletin 97- 01, Form and Content of Agency Financial Statementsand OMB
Circular A- 11, Part 1, Preparation and Submission of Budget Estimates 22
and Part 2, Preparation and Submission of Strategic Plans, Annual
Performance Plans, and Annual Program Performance Reports.
We performed our work from May 2000 through September 2000. Our work was
conducted in accordance with generally accepted government auditing
standards. We requested written comments on a draft of this report from the
Director of the Office of Management and Budget or his designee. The Deputy
Director for Management provided us with written comments. These comments
are discussed in the “OMB Comments and Our Evaluation” section
and reprinted in appendix V.
Improper Payments Agency- specific studies performed by GAO, IGs, and others
indicate that
Are Widespread Across improper payments continue to be a widespread and
significant problem.
However, efforts by agencies to develop estimates have varied. Twelve
Government, but the
agencies took the initiative to disclose improper payments for 21 of their
Full Extent Remains
programs in their fiscal year 1999 financial statement reports. While nine
of Unknown
these agencies reported known improper payments, three went further. These
three reviewed a statistical sample of payments to quantify the extent of
improper payments for at least one of their major programs resulting in the
disclosure of important information for oversight and decision- making. 23
At the same time, the methodologies used by some agencies to estimate
improper payments did not always result in complete estimates. For example,
the methodology used by the Department of Health and Human Services (HHS) is
not intended to and would not detect all potentially fraudulent schemes
perpetrated against the Medicare Feefor- Service program. While it would be
impractical to expect any methodology to detect all fraudulent activity, the
Health Care Financing Administration (HCFA)- the HHS agency responsible for
overseeing the Medicare program- is working to enhance the fee- for- service
improper
22 We reviewed OMB Circular A- 11, Part 1, Preparation and Submission of
Budget Estimates, for criteria for preparing agency financial management
plans. 23 Several agencies prepare program wide estimates of improper
payments, but do not include this information in their financial statements.
For example, the Department of Labor's Benefit Accuracy Measurement Program
samples from over 91 percent of the unemployment compensation benefits paid
to determine their accuracy.
payment measurement effort, where practical. It has also begun a new
initiative to arrive at a more comprehensive measurement 24 that could help
it better target management improvement efforts.
Many other agencies have not attempted to identify or estimate improper
payments and some only do it for certain of their programs. As a result, the
full extent of improper payments governmentwide remains largely unknown,
hampering efforts to reduce such payments. Agency selfassessment is
necessary to identify significant programs at risk for improper payments and
to determine efficient, effective, and cost beneficial means of estimating
improper payments. Ascertaining the full extent of improper payments
governmentwide and determining related causes would give agencies baseline
information for making cost- effective decisions about enhancing controls to
minimize improper use of federal resources.
Twelve Agencies Reported Twelve of the CFO Act agencies that had issued
their fiscal year 1999
Improper Payments, but audited financial statements as of the end of our
fieldwork 25 acknowledged
Estimates Are Incomplete that at least some improper payments were made in
their programs. Last
year, we reported that 8 of these 12 agencies reported improper payments in
their fiscal year 1998 financial statements. This year, we identified four
additional agencies- the Departments of Defense (DOD), Energy (DOE), Justice
(DOJ), and State- that reported improper payments in their fiscal year 1999
financial statements. Another agency- the Agency for International
Development- which reported making improper payments in its fiscal year 1998
financial statements, did not report any improper payments in its fiscal
year 1999 financial statements.
In fiscal year 1999, three agencies made proactive attempts to quantify
improper payments for at least one of their major programs. Specifically,
the Departments of HHS, Agriculture (USDA), and Housing and Urban
Development (HUD) collectively reported improper payment estimates of $16. 3
billion 26 in their financial statement reports. HHS' estimated improper
24 Medicare Improper Payments: Challenges for Measuring Potential Fraud and
Abuse Remain Despite Planned Enhancements( GAO/ T- AIMD/ OSI- 00- 251, July
12, 2000). 25 HHS' Indian Health Service had not issued its audited
financial statements as of the end of our fieldwork. Therefore, the
statements were not available for our analysis. 26 These estimates do not
reflect any actual or anticipated recoveries.
Medicare Fee- for- Service claim payments constitute $13.5 billion of this
amount, which represents approximately 8 percent of the $164 billion
Medicare Fee- for- Service benefit costs for fiscal year 1999. USDA
disclosed $1. 3 billion in food stamp overissuances, approximately 6.8
percent of its annual program cost of $19.1 billion. HUD's excess housing
subsidy payments totaled $935 million, 5 percent of its rental assistance
payments for this $18. 6 billion program. These agencies continue to
estimate and report improper payments for these programs by implementing
methodologies that use statistical sampling. However, implementing a
statistically valid methodology will pose challenges for certain other
programs. For example, HCFA will need to gain the cooperation of state and
local government officials to develop a methodology for estimating improper
payments nationwide for the Medicaid program.
The disclosure methods used by HHS, USDA, HUD, and the other nine agencies
varied. Some agencies, such as SSA, reported improper payments at year- end
as receivables that they expect to collect and provided explanatory
disclosures in the notes accompanying their financial statements. Other
agencies disclosed explanatory information in other sections of their
financial statement reports, such as in management's discussion and
analysis.
Reporting within agencies for different programs also varied. Some agencies
disclosed the amount of improper payments for some programs, but not others.
For example, USDA disclosed improper payments of $1. 3 billion for the Food
Stamp Program. At the same time, USDA acknowledged making improper payments
without providing a specific amount for its Federal Crop Insurance
Corporation. Furthermore, certain agencies only addressed some aspects of
improper payments within specific programs. HHS disclosed improper payments
of $13.5 billion for its Medicare Fee- for- Service claim payments, but did
not report any improper payment estimates for Medicare managed care
payments.
Three of the 12 agencies reported improper payments as costs for 3 programs,
while 5 agencies reported them as accounts receivable for 11 programs. Seven
agencies acknowledged making improper payments, primarily by disclosure in
the notes to their financial statements, but did not quantify the dollar
amounts for seven programs. Twelve of the CFO Act agencies did not report
any information related to improper payments in their financial statement
reports. Nondisclosure of improper payment estimates may indicate the
absence or, in the agency's view, an insignificant level of improper
payments. On the other hand, some agencies may have
been unable to determine, or did not attempt to estimate, the amount of
improper payments. Such inconsistent financial reporting makes it difficult
to quantify the full extent of the problem governmentwide and indicates a
need for more guidance.
Table 1 lists the 12 agencies and the manner in which they reported improper
payments in their fiscal year 1999 financial statement reports for the 21
programs identified. See appendix II for a description of these agencies
and/ or their programs.
Table 1: Agencies and Programs That Reported Improper Payments in Their
Fiscal Year 1999 Financial Statements
(Dollars in millions)
Estimated amount reported as Amount reported as part of Department or agency
Program/ component a cost of operations multiyear accounts receivable
Department of Agriculture Commodity Credit Corporation $0.0 a Federal Crop
Insurance
0.0 b Corporation Food Stamp Program $1, 290. 0
Department of Defense Military Retirement Fund 25. 3 Department of Energy No
specific program identified 0. 0 b Department of Health and
Medicare Fee- for- Service Human Services c Claim Payments 13, 500. 0
Cost Reports 600.0 Medicaid 0.0 d Department of Housing and
Housing Subsidy programs 935. 0 Urban Development Federal Housing
Administration 0.0 b
Department of Justice Federal Bureau of Investigation 0.0 b Department of
Labor (DOL) Federal Employees'
19. 2 Compensation Act Unemployment Insurance 142. 3
Office of Personnel Management Federal Employees' Group Life 0.2 Insurance
Federal Employees' Health
93. 0 Benefits Retirement 84. 0
Social Security Administration Disability Insurance 1, 118.0 Old Age and
Survivors
1, 325.0 Insurance Supplemental Security Income 1,578. 0
Department of State Foreign Service Retirement and 0.0 b Disability
Department of the Treasury -
Drawbacks and refunds 0.4 e Customs Department of Veterans Affairs Veterans
Benefits programs 0. 0 b
Total $16, 325. 0 $ 4, 385. 4
a In the notes to its financial statements, the Commodity Credit Corporation
(CCC) reported $43 million in gross receivables related to improper
payments, but did not disclose how much of those receivables it expects to
collect. USDA reported $41 million in receivables it expects to collect for
CCC
overpayments in USDA's consolidated financial statements. However, the CCC
statements, issued subsequent to USDA's financial statements, superseded
this information. b The agencies administering these programs acknowledged
making improper payments as part of
their discussion of accounts receivables in their fiscal year 1999 financial
statements but did not disclose specific dollar amounts for the improper
payments. The appropriate segments of these accounts receivable- such as
receivables with the public- ranged from $1 million at USDA to $581 million
at the Department of Veterans Affairs. However, there was no indication of
how much of these accounts receivable had stemmed from improper payments. c
Within its financial statement footnotes, HHS also acknowledged that various
programs under the
Administration for Children and Families, the Health Resources and Services
Administration, and the Substance Abuse and Mental Health Administration may
have made improper payments. However, HHS stated that it did not believe
that these amounts would be material to the agency's financial statements. d
HHS acknowledged making improper payments related to the Medicaid Program as
part of its
management's discussion and analysis in its fiscal year 1999 financial
statements but did not disclose a specific dollar amount. e Customs stated
that a portion of these receivables is the result of provisional payments
and that
annual reviews it performed indicate that the current error rate for
Drawbacks and Refunds is less than 0.5 percent.
Source: GAO analysis based on a review of the CFO Act agencies' fiscal year
1999 financial statement reports.
The extent of the problem for some of these agencies' programs is unknown
because not all agencies are performing comprehensive internal studies or
reviews to estimate the range and/ or identify rates of improper payments,
as the following examples illustrate.
SSA reported $2.6 billion in gross receivables as overpayments related to
its SSI program- a $28. 1 billion program annually providing cash assistance
to about 7 million financially needy individuals who are aged, blind, or
disabled. SSA anticipates collecting approximately $1. 6 billion of these
receivables, which consist of amounts specifically identified over multiple
years based on SSA's discussions with recipients and the results of its
efforts to match data provided by recipients with information from other
federal and state agencies, such as IRS 1099 information, Department of
Veterans Affairs (VA) benefits data, and state- maintained earnings and
employment data. SSA reports a statistically based accuracy rate for new SSI
awards of 92.5 percent. 27 However, this accuracy rate does not consider the
medical eligibility of
27 This represents the fiscal year 1997 initial payment accuracy rate as
reported in SSA's fiscal year 1999 Accountability Report, the most current
information reported for this measure by SSA.
recipients. 28 Since the majority of SSI program dollars are historically
directed to recipients with medical disabilities, refining the methodology
to factor in any questions concerning medical risk is critical to
determining improper payments within this program. According to SSA's year
2001 performance plan, SSA continues to work on developing a measurement
system which includes medical and nonmedical factors in assessing the
overall accuracy of payment outlays for disability- based benefit payments.
However, no timing for implementation has yet been determined. HHS does not
currently have a comprehensive quality assurance
program or other methodology 29 in place for estimating improper Medicaid
payments. Administered by HCFA and state agencies, Medicaid provided $109
billion in health care services to approximately 41. 9 million low- income
individuals in fiscal year 1999. The IG recommended 30 that HCFA work with
the states to develop a methodology to determine the range of improper
payments in the Medicaid program. However, developing a statistically valid
methodology to estimate Medicaid improper payments poses a challenge. To
work toward this goal, HCFA has established a working group to evaluate
payment accuracy rates used by states and assess the feasibility of
developing a methodology suitable for measuring improper payments by all
states. 31 Other state- administered or intergovernmental programs also face
difficulties in developing estimates due to the variable nature of the
programs and the need to gain the cooperation of state and local government
officials nationwide. While DOD reported improper payments related to the
Military
Retirement Fund, it had not reported other improper payments that it has
disbursed. For example, between fiscal year 1994 and fiscal year 1999, DOD
contractors returned nearly $1. 2 billion that DOD's Defense
28 Although the accuracy rate does not consider the medical eligibility of
the recipient, SSA performs continuing disability reviews (CDR) to determine
whether individuals receiving disability benefits have medically improved so
that they are no longer considered disabled and thus no longer eligible for
benefits. SSA increased the number of CDRs performed annually from
approximately 500, 000 in fiscal year 1996 to over 1. 7 million in fiscal
year 1999.
29 Report on the Financial Statement Audit of the Department of Health and
Human Services for Fiscal Year 1999( A- 17- 99- 00002, February 2000). 30
See previous footnote. 31 Statement of Penny Thompson, Program Integrity
Director, HCFA, Before the House Budget Committee Health Care Task Force,
July 12, 2000.
Finance and Accounting Service erroneously paid them as a result of
inadvertent errors, such as paying the same invoice twice or misreading
invoice amounts. Further, in its fiscal year 1999 financial statements DOD
reported $3. 6 billion in uncollected debt that relates to a variety of
contract payments problems. Of this amount, we determined that at least $225
million relates to duplicate payments, overpayments, and payments for goods
not received- all of which we consider improper payments. DOD has not yet
made a comprehensive estimate of improper payments to its contractors, and
there are likely more overpayments that have yet to be identified and
returned. With an annual budget of over $130 billion in purchases involving
contractors, DOD would benefit from estimating the magnitude of improper
payments. We have ongoing work to assess the amount of overpayments DOD
disbursed to its largest contractors in fiscal year 1999 and will report on
this at a later date.
Other Programs and Previous audits conducted by GAO and IGs have identified
other agencies
Activities Have Improper and programs that had improper payments. For
example, the Internal
Payments or Are at Risk Revenue Service's (IRS) Earned Income Tax Credit
(EITC) program- a
refundable tax credit available to low- income, working taxpayers- continues
to be vulnerable to high rates of invalid claims. During fiscal year 1999,
IRS reported that it processed EITC claims totaling about $30 billion,
including approximately $26 billion (87 percent) in refunds. 32, 33 Of
573,000 tax returns with EITC claims and indications of errors or
irregularities that IRS examiners reviewed, most ($ 1.08 billion or 86
percent of the $1. 25 billion reviewed) were found to be invalid during
fiscal year 1999. IRS has not disclosed estimated improper payments in its
financial statement reports.
IRS examinations of tax returns claiming EITC are important control
mechanisms for detecting questionable claims and providing a deterrent to
future invalid claims. However, because examinations are often performed
after any related refunds are disbursed, they are less efficient and
effective than preventive controls designed to identify invalid claims
before refunds are made. In addition, the high rate of invalid EITC claims
found during IRS
32 EITC claims do not always result in refunds; they may also reduce tax
assessments. 33 Financial Audit: IRS' Fiscal Year 1999 Financial Statements(
GAO/ AIMD- 00- 76, February 29, 2000).
examinations suggests that invalid EITC claims continue to be significant.
For example, IRS research on tax year 1997 EITC claims revealed that net of
recoveries from IRS enforcement actions, an estimated $7.8 billion in EITC
claims were erroneously paid to taxpayers. 34
In fiscal year 1998, IRS began implementing a 5- year EITC compliance
initiative intended to minimize losses in this area. This initiative is
intended to increase taxpayer awareness, strengthen enforcement of EITC
requirements, and research sources of EITC noncompliance. EITC compliance
efforts include a significant focus on prerefund fraud/ error prevention and
detection. For example, the EITC compliance initiative includes
recalculation of erroneous overclaims, identification of questionable
returns, and initiation of many EITC audits, which should occur prior to
issuing refunds. We will be issuing a report shortly on financial management
issues at IRS, identified as part of our audit of IRS' fiscal year 1999
financial statements, that will include a discussion of controls over
issuing EITC refunds.
The Department of Education is another agency with improper payments.
Education's student financial assistance programs have been designated as
high risk 35 since our governmentwide assessment of vulnerable federal
programs began in 1990. Education's Student Financial Assistance office
reported that it provided over $46 billion in aid to more than 8 million
students in fiscal year 1998. 36 As discussed in our January 1999
Performance and Accountability Series, 37 Education- administered student
financial aid programs have a number of features that make them inherently
risky. They provide grants to a population composed largely of students who
would not otherwise have access to the funds necessary for higher education.
Education IG reports 38 repeatedly note that systematic
34 Compliance Estimates for Earned Income Tax Credit Claimed on 1997
Returns, Department of the Treasury, Internal Revenue Service (September
2000). 35 High- Risk Series: An Update( GAO/ HR- 99- 1, January 1999).
36 This is the last year for which complete data were available, per U. S.
Department of Education Student Financial Assistance Fiscal Year 1999
Financial Statements. 37 Major Management Challenges and Program Risks:
Department of Education (GAO/ OCG- 99- 5, January 1999). 38 U. S. Department
of Education Office of Inspector General Semiannual Report to Congress No.
40( October 1, 1999 - March 31, 2000) and U. S. Department of Education
Office of Inspector General Semiannual Report to Congress No. 39( April 1 -
September 30, 1999).
weaknesses and individual instances of fraud, such as underreporting of
income by student aid applicants (and their parents), cost federal taxpayers
millions of dollars annually in financial losses, including overpayments of
Pell grants and awards to ineligible recipients.
Other types of federal programs and activities also risk making improper
payments. Internal control deficiencies and other problems similar to those
prevalent in programs that have acknowledged improper payments suggest that
additional federal financial assistance programs, contract management
activities, and other miscellaneous programs may also be particularly
vulnerable to disbursing improper payments. For example, USDA's IG reported
39 numerous instances of improper payments in the Child and Adult Care Food
Program (CACFP). According to examples noted by the IG, the owner of 16 day
care centers defrauded USDA of approximately $27 million dollars by
inflating meal counts for reimbursement. In another case, seven persons
conspired to illegally obtain more than $1. 1 million in CACFP funds over a
period of about 10 years through a combination of false reimbursement claims
and fictitious provider homes. CACFP, which disbursed over $1.5 billion in
fiscal year 1999, provides reimbursements to state agencies for meals served
to preschool and other children, as well as certain adults. The IG
identified control weaknesses in oversight and monitoring and eligibility
verification as well as program design issues, which impair CACFP's ability
to prevent and detect fraud and improper payments. 40 Without a measurement
of the full extent of improper payments, it is difficult to assess the
appropriate level of management attention needed to mitigate these program
risks.
Once agencies have implemented methodologies to estimate the amount of
improper payments, they can use this information to develop error rates.
Agencies may find it useful to compute the dollar amount of errors as a
percentage of program outlays and the number of transaction errors as a
39 United States Department of Agriculture Office of Inspector General Audit
Report: Food and Nutrition Service Child and Adult Care Food Program
National Report on Program Abuses( USDA OIG Audit Report # 27601- 7- SF,
August 23, 1999). 40 USDA and others are taking a number of steps to improve
the integrity of CACFP. The Agriculture Risk Protection Act of 2000 (P. L.
106- 224) contained program integrity measures, such as site visits, and in
a September 2000 proposed rule, USDA laid out revisions to existing criteria
for approving and renewing institution applications. In addition, the Food
and Nutrition Service (FNS) is undertaking comprehensive evaluations of all
state agencies' effectiveness in managing the CACFP and has provided
management improvement training to FNS and state agency staff.
percentage of the total number of transactions processed. Management could
then use these error rates to evaluate whether further action is needed to
address improper payments.
Internal Control In our prior report, we described in detail how
deficiencies in internal
Weaknesses and Program control across the federal government result in the
payment of federal
Design Issues Contribute to funds for purposes other than those originally
intended. For example,
Improper Payments certain agencies face challenges in ensuring adequate
controls for
assessing beneficiaries' initial and continued eligibility due to
ineffective data sharing and sources of information. 41 Also, some agencies
have insufficient oversight and monitoring mechanisms, such as site visits
and reviews of appropriate documentation, to ensure the validity of
payments- particularly for federal financial assistance programs. Systems
deficiencies also contribute to improper payments when accurate, timely data
are not available for payment decisions. Figure 2 illustrates our
categorization of internal control weaknesses that continue to contribute to
improper payments within the programs for which agencies reported improper
payments.
41 Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
Integrity (GAO/ HEHS- 00- 119, September 13, 2000).
Figure 2: Internal Control Weaknesses Continue to Cause Improper Payments
Fiscal year 1998 Fiscal year 1999 Programs
21 14
10 9
7 7 7
0 Insufficient
Inadequate eligibility System deficiencies
oversight/monitoring controls
Note: For fiscal year 1998, 6 of 17 programs reporting improper payments had
two or more internal control weaknesses reported in this chart. For fiscal
year 1999, 7 of the 21 programs reporting improper payments had two or more
internal control weaknesses reported in this chart.
Source: GAO analysis based on prior agency, IG, and GAO reports and work
performed on these programs.
Our analysis of GAO and IG reports showed that insufficient federal
monitoring and oversight of program expenditures exist in 14 of the 21
programs for which agencies reported improper payments in their fiscal year
1999 financial statements. In comparison, for those 17 programs that
reported improper payments in their fiscal year 1998 financial statements,
we identified 7 programs with monitoring and oversight- related weaknesses.
Effective federal monitoring assesses the quality of performance over time
and includes regular management and supervisory activities, such as periodic
comparisons of expected and actual results and reconciliation of data to
their source. Activities such as site visits, reviews of progress and
financial reports filed by contractors and grantees, and reviews of
contracts and grant agreements are also techniques federal officials often
use to oversee and monitor programs.
The lack of sufficient oversight and monitoring controls can lead to
improper payments by fostering an atmosphere that invites waste, fraud, and
abuse. For instance, we have reported 42 that HCFA's insufficient oversight
of the Medicare program hampered it from preventing improper Medicare
payments. To fulfill its primary mission of providing health care coverage
for approximately 40 million eligible individuals, Medicare pays contractors
to process claims for health care services. These contractors are
responsible for all aspects of claims administration and serve as HCFA's
front line of defense against fraud and abuse. Yet, vulnerabilities in
contractors' procedures for paying Medicare claims have created
opportunities for unscrupulous providers to obtain unjustified payments. 43
These activities include billing for services never rendered,
misrepresenting the nature of services provided, duplicate billing, and
providing services that were not medically necessary. HCFA has recognized
these weaknesses and taken a number of steps to strengthen oversight of its
contractors and the integrity of the Medicare program. 44 Nevertheless,
HCFA's most recent estimate of improper payments in its $164 billion
Medicare Fee- for- Service program did not consider improper payments made
as part of the $37 billion Medicare Managed Care program. 45 Therefore,
Medicare- related improper payments could be more extensive than current
estimates indicate.
Other programs at risk of making improper payments have similar issues. For
example, we identified oversight and monitoring of grant recipients at the
National Institutes of Health (NIH)- with over $17 billion appropriated in
fiscal year 2000 to conduct and sponsor biomedical research- as an area in
need of strengthening. We found that NIH did not effectively use
42 Medicare Contractors: Further Improvements Needed in Headquarters and
Regional Office Oversight( GAO/ HEHS- 00- 46, March 23, 2000 ); Medicare
Contractors: Despite Its Efforts, HCFA Cannot Ensure Their Effectiveness or
Integrity( GAO/ HEHS- 99- 115, July 14, 1999); and Medicare: Improprieties
by Contractors Compromised Medicare Program Integrity (GAO/ OSI- 99- 7, July
14, 1999). 43 Medicare Financial Management: Further Improvements Needed to
Establish Adequate Financial Control and Accountability( GAO/ T- AIMD- 00-
118, March 15, 2000) and Improper Fiscal Year 1999 Medicare Fee- for-
Service Payments( Department of Health and Human
Services' Office of Inspector General Audit Report CIN: A- 17- 99- 00199,
February 17, 2000). 44 Medicare Contractors: Further Improvements Needed in
Headquarters and Regional Oversight( GAO/ HEHS- 00- 46, March 23, 2000).
45 Medicare beneficiaries have the option of enrolling in prepaid health
care plans (typically health maintenance organizations) that are commonly
referred to as managed care plans.
available information for deciding on grantees' eligibility for grant funds,
and discrepancies existed between the data in its management, payment, and
accounting systems that affect the accuracy of grant award amounts. These
deficiencies could result in NIH's erroneously awarding grants to ineligible
grant recipients and in funds being used for improper purposes. 46
Our reviews of GAO and IG reports also highlighted that ensuring adequate
controls over determining beneficiaries' eligibility often proves difficult
for many agencies. Initial and/ or continued eligibility determination
problems were noted for 9 of the 21 programs that reported improper
payments- down slightly from the 10 programs we identified as having similar
deficiencies as part of our prior year report. For instance, the VA IG
reported 47 that concurrent payments of VA Compensation and Pension (C& P)
and the DOL- administered Workers' Compensation Program (WCP) compensation
benefits were being paid for the same injury. The C& P program is VA's
largest, with $21 billion in benefits paid to more than 3.3 million veterans
and their survivors in fiscal year 1999. VA's fiscal year 1999 payments for
WCP costs were approximately $129 million. WCP benefits are paid to federal
employees and certain others when they are temporarily or permanently
disabled due to injury or disease sustained while performing their duties.
WCP and VA regulations prohibit concurrent payments for the same injury or
disability; therefore, the claimant would be ineligible to receive benefits
from both programs. However, through an automated analysis of WCP cases in
VA's Workers' Compensation Management Information System and beneficiary
claims in VA's C& P system, the IG identified 1,251 claimants who were
potentially receiving dual benefits. The annual VA C& P award costs for
these cases is estimated to be about $8. 5 million.
Enhanced data sharing could improve agencies' efforts to make timely and
accurate initial and/ or continued eligibility determinations. However,
legal restrictions designed to protect individual privacy, as well as
management, administrative, and technological challenges, such as
coordination among programs and agencies, and access to shared information
and systems limit the ability of federally funded benefit and loan programs
to effectively
46 NIH Research: Improvements Needed in Monitoring Extramural Grants (GAO/
HEHS/ AIMD- 00- 139, May 31, 2000). 47 Audit of High- Risk Areas in the
Veterans Health Administration's (VHA) Workers' Compensation Program (WCP),
(VA OIG Audit Report Number 99- 00046- 16, December 21, 1999).
share information with one another. For example, a number of laws have been
enacted over the past 25 years that limit access to sensitive data sources
(or restrict how such data may be used) in an effort to protect individual
privacy and the confidentiality of sensitive information or to address
concerns about taxpayer compliance with tax laws. These statutes include
section 6103 of the Internal Revenue Code, which governs the disclosure of
taxpayer information; provisions in the Social Security Act that restrict
access to the Office of Child Support Enforcement's National Directory of
New Hires; and the Privacy Act (including the Computer Matching and Privacy
Protection Act amendments of 1988), which balances the government's need to
collect and maintain sensitive information about individuals against their
right to privacy. 48
In addition, deficiencies in agencies' automated systems, or the lack of
systems, prevent personnel from accessing reliable and timely information,
which is integral to making disbursement decisions. As a result, improper
payments frequently occur because agency personnel lack needed information,
rely on inaccurate data, and/ or do not have timely information. Once again,
in fiscal year 1999, agency systems deficiencies have been identified for
seven programs reporting improper payments. For example, we reported 49 that
in USDA's Food Stamp Program, over 3,000 disqualified individuals in four
states reviewed were improperly counted as members in households that
received food stamp benefits during calendar year 1997. The disqualified
participation was due, in part, to (1) states not checking USDA's national
database of disqualified individuals to determine if household members had
been disqualified by another state or (2) delays in updating information in
the database. Furthermore, USDA's database is incomplete and contains
errors; therefore, even if state agencies check the database, they may not
receive full and accurate disqualification information. Because USDA's most
current annual estimate indicates that food stamp overissuances account for
over 6. 8 percent of the program's $19.1 billion in annual benefit costs,
strengthening systems and related controls is a critical issue for USDA.
Other programs at risk of making improper payments demonstrate system
deficiencies. For example, USDA's National Finance Center (NFC)
48 Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
Integrity (GAO/ HEHS- 00- 119, September 13, 2000). 49 Food Stamp Program:
Households Collect Benefits for Persons Disqualified for Intentional Program
Violations( GAO/ RCED- 99- 180, July 8, 1999).
develops and operates administrative and financial systems, including
payroll/ personnel, administrative payments, accounts receivable, property
management, and accounting systems for both USDA and more than 60 other
federal organizations under cross- servicing or franchising agreements. NFC
processed more than $19 billion in payroll payments for more than 450,000
employees from federal organizations, serviced more than $1 billion in
accounts receivable, and processed more than 450 million accounting
transactions in fiscal year 1998. NFC is also responsible for maintaining
records for the world's largest 401( k)- type program, the federal Thrift
Savings Program. Serious access control weaknesses affected NFC's ability to
prevent and/ or detect unauthorized changes to payroll and other payment
data and computer software, control electronic access to Thrift Savings
Program account information, and restrict physical access to sensitive
computing areas. These weaknesses increased the risk that users could cause
improper payments. NFC management recognized the seriousness of the
weaknesses we identified and expressed its commitment to improving
information system controls. 50
The nature of a program can also contribute to the disbursement of improper
payments. Many programs have complex program regulations, and several
emphasize expediting payments or have high volumes of transactions to
process. Absent compensating safeguards, these program design issues
inherently increase the potential for improper payments. However,
strengthening business practices and developing targets or goals for
reducing improper payments can mitigate the risk of improper payments
occurring. Also, measuring progress in relation to such targets or goals may
serve as a measure of the effectiveness of an agency's improper payment
reduction program. According to our analysis of GAO and IG reports, program
design issues continue to be present in programs with improper payments, as
illustrated in figure 3.
50 USDA Information Security: Weaknesses at National Finance Center Increase
Risk of Fraud, Misuse, and Improper Disclosure( GAO/ AIMD- 99- 227, July 30,
1999).
Figure 3: Program Design Issues Continue to Contribute to Improper Payments
Fiscal year 1998 Fiscal year 1999 Programs
21 11 11
8 7 6
4 0
Complex regulations Speed of service Large volume of transactions
Note: For fiscal year 1998, 5 of the 17 programs had 2 or more program
design issues. For fiscal year 1999, 8 of the 21 programs had 2 or more
program design issues.
Source: GAO analysis based on prior agency, IG, and GAO reports and work
performed on these programs.
Complex program regulations continued to be the most frequently cited
program design issue contributing to the risk of improper payments. Previous
GAO and IG reports disclosed this condition for 11 of the programs reporting
improper payments in fiscal years 1998 and 1999. For example, the complexity
of state Medicaid programs provides challenges for federal oversight because
of the variations in managing these programs on a state- by- state basis.
Medicaid- the primary source of health care for 12 percent of the U. S.
population- provides matching grants to states based on formulas
encompassing states' per capita income. States have a variety of options for
program administration; they can elect to administer the program at the
state or county level. Also, they can operate a fee- forservice program, a
managed care program, or some combination of the two. States may also elect
to operate their claims processing systems directly or contract with private
vendors. Because of the size of this program- it disbursed approximately
$109 billion in federal funds during
fiscal year 1999- it is critical that HCFA comprehensively estimate its
improper payments to assess its risk and determine appropriate actions to
strengthen oversight controls. Such actions would help to ensure that HCFA
is fulfilling its stewardship responsibilities for this program.
Another program, DOD's health care program, TRICARE, also has complex
regulations that can lead to claims processing errors. DOD spends about $16
billion on health care for over 5 million beneficiaries, including
activeduty personnel, military retirees, and dependents. TRICARE provides
health care in military- operated hospitals and clinics worldwide and is
supplemented by civilian providers. Of the many programs that TRICARE
contractors administer- including Medicare and private plans- TRICARE is
unique and the most complicated, contributing to claims processing
difficulties.
In addition, speed of service issues, coupled with resource constraints, can
affect improper payments. Many programs' missions emphasize speed of
service. As a result, errors are more likely to occur, resulting in improper
payments. We considered this condition to exist for 8 of the 21 programs
with reported improper payments- up from the 6 programs we identified as
having this issue in our prior report. For example, we noted this condition
in the SSI program- the nation's largest cash assistance program paying
$28.1 billion of benefits in fiscal year 1999. As we previously reported, 51
SSA and its Disability Determination Services staff said that they do not
always follow procedures designed to deny or terminate benefits when program
fraud and abuse is detected in the SSI program because they believe these
procedures conflict with agency work incentives that stress speed in
processing claims.
Speed of service issues also occur in agencies that had improper payments
but did not report them. For example, IRS' ability to successfully meet the
financial management challenges it faces must be balanced with the competing
demands placed on its resources by its customer service and tax law
compliance responsibilities. IRS is mandated to process tax refunds within
45 days of receipt of a tax return. If the refund is not processed within
this time, IRS must remit interest payments to the taxpayer. However, IRS'
systems were not designed to handle this volume of
51 Supplemental Security Income: Additional Actions Needed to Reduce Program
Vulnerability to Fraud and Abuse( GAO/ HEHS- 99- 151, September 15, 1999).
information within the 45- day time frame. Further, we reported 52 that IRS
lacks critical preventive controls, such as comparing the information on tax
returns to third- party data such as W- 2s (Wage and Tax Statements) and
1099s, because of the high volume of tax returns and the impact this could
have on promptly processing tax returns and issuing refunds. As a result,
the agency is unable to identify and correct discrepancies between these
documents that allow duplicate refunds to be issued. Although IRS has
compensating detective (post- refund) controls in place, they often occur
months after the returns are submitted and processed and have significant
gaps in their effectiveness. Insufficient preventive controls expose the
government to potentially significant losses due to inappropriate
disbursement of refunds. As we previously reported, the magnitude of
improper payments disbursed by IRS is unknown but could be in the billions
of dollars.
We recognize that delivering services expeditiously while ensuring that the
right amount is paid to the right person poses a significant challenge for
many agencies. Without state- of- the- art information management systems
and appropriate sharing of data, agency personnel cannot readily access
needed information for payment decisions and thus are hampered from
preventing improper payments. Due to the diverse nature of programs,
consulting with congressional oversight bodies would assist agencies when
establishing targets and goals to reduce improper payments without impairing
service delivery and would be an important means of obtaining agreement with
Congress as to the expected results for each program.
A significant volume of claims or payments is also a factor that contributes
to improper payments, especially when compounded with resource constraints
and/ or control weaknesses. Large volumes of claims were identified in 7 of
the 21 programs with reported improper payments. For example, in a single
year, Medicare contractors process approximately 870 million claims with
limited time for processing, while SSA processes monthly payments to
approximately 51 million individuals. IRS is another agency with large
volumes of activity. IRS processed approximately 210 million tax returns,
with 94 million involving refunds in fiscal year 1999 alone. Given the high
volume of transactions, inadvertent clerical errors are more likely, and
they could result in improper payments.
52 Financial Audit: IRS' Fiscal Year 1999 Financial Statements( GAO/ AIMD-
00- 76, February 29, 2000).
For most of the agencies and programs we reviewed, multiple deficiencies in
internal controls and program design issues resulted in improper payments.
As a result, it is impractical to identify the dollar amount of improper
payments stemming from each type of internal control weakness or design
issue.
OMB Has Begun to To address the issues we identified relating to agencies
identifying and
Implement reporting on improper payments, in last year's report we
recommended
that OMB Recommendations to Help Agencies
develop and issue guidance to executive agencies to assist them in Estimate
and Manage
(1) developing and implementing a methodology for annually estimating and
reporting improper payments for major federal programs and
Improper Payments (2) developing goals and strategies to address improper
payments in
their annual performance plans and require agencies to (1) include a
description of steps being taken to
address improper payments in their strategic and annual performance plans
when the level of improper payments is mission- critical and (2) consult
with congressional oversight committees, as appropriate, on the projected
target levels and goals for estimating and reducing improper payments, as
presented in the agencies' annual performance plans.
OMB agreed that its focus on improper payments should be expanded. It also
agreed with our recommendation calling for guidance to assist agencies in
developing and implementing a methodology for annually estimating and
reporting improper payments for major federal programs and developing goals
and strategies to address improper payments in their annual performance
plans. OMB also said that it expects agencies to include goals or objectives
in their strategic plans if the level of improper payments was determined to
be mission- critical.
To expand its focus on improper payments, OMB has broadened the
Administration's PMO 53 related to error reduction to better focus its
efforts to meet this governmentwide challenge. As such, the PMO now commits
53 Priority Management Objectives focus the administration's efforts to meet
some of the government's biggest management challenges. They are specific
management initiatives covering a wide range of concerns- ranging from
streamlining SSA's disability claims process to strengthening HCFA's
management capacity.
OMB to issuing guidance to agencies in 2000 to ensure that the right person
is getting the right benefit. In addition, the PMO calls for the
administration to assist federal agencies in estimating the extent of, and
addressing the underlying causes of, improper payments.
OMB has also undertaken a project to develop guidance to provide uniform
reporting and disclosure of improper payments by agency management. As a
first step, OMB sent out a Budget Data Request (BDR) to all CFO agencies to
gather data it intends to use in formulating decisions about which programs
should have improper payments estimates and where they should be reported.
Specifically, the BDR requested information regarding
the extent to which federal agencies are estimating and reporting improper
payments, methodologies used for estimating improper payments, and obstacles
or constraints to estimating improper payments.
OMB officials are currently evaluating agency responses and are working
through inter- agency councils, such as the CFO Council and the PCIE to
assist in their efforts related to improper payments.
In a previous report, 54 we noted that OMB planned to require agencies to
develop and implement procedures to estimate and report the nature and
extent of material improper payments in annual financial statements and have
such information audited. However, OMB officials recently stated that they
now plan to fully evaluate the BDR data before making a final determination
of where OMB believes improper payments should be reported. In making this
decision, OMB officials stated that they would consider requiring that
improper payments be reported in agency performance reports, FMFIA reports,
annual financial statements, or in a combination of these documents. We
agree with OMB that each of these is an appropriate mechanism for reporting
improper payments. However, at a minimum, we believe improper payments
should be separately disclosed in
54 Financial Audit: 1999 Financial Report of the United States Government
(GAO/ AIMD- 00- 131, March 31, 2000).
agency financial statements, to the extent they are material, and in FMFIA
reports when they represent a material weakness. 55
In the meantime, OMB continues to work with agencies individually to address
the issue of improper payments in the way most appropriate to the individual
programs. For example, OMB has worked with Education to reduce improper
payments and improve collections of defaulted student loans and over- awards
to grant recipients through data sharing efforts- including data matches
with IRS and Office of Child Support Enforcement- to verify income and other
eligibility factors of student aid applicants. In a related effort, OMB has
drafted guidance to improve data sharing efforts among executive branch
agencies.
We previously testified that OMB may need additional targeted resources to
carry out its management functions. 56 We are encouraged by OMB's actions in
seeking additional resources to carry out its work in this area. We believe
that committing sufficient resources to this issue is integral for OMB to
fulfill its leadership responsibilities in the area of improper payments.
Most Agency Financial As previously discussed, 12 agencies acknowledged
making improper
and Performance Plans payments in 21 programs for fiscal year 1999. Based on
our review of these
agencies' fiscal year 1999 financial management and fiscal year 2001 Do Not
performance plans, prepared under the CFO Act and GPRA, we found that
Comprehensively
most agencies are not comprehensively addressing improper payments. Address
Improper
Where improper payments may be material, and in the case of GPRA, where they
are deemed to be mission critical management problems,
Payments agency financial and performance plans should comprehensively
address
improper payments. Therefore, these plans should include goals and
strategies to strengthen key internal controls and mitigate related
weaknesses that may lead to improper payments. Also, in their
55 OMB Circular A- 123, Management Accountability and Control, defines an
FMFIA material weakness as a deficiency that an agency head determines to be
significant enough to be reported outside the agency (meaning included in
the annual Integrity Act Report to the President and Congress). This
designation requires a judgment by agency managers as to the relative risk
and significance of deficiencies. In our view, such a material weakness
would significantly impair the fulfillment of an agency's mission; deprive
the public of needed services; violate statutory or regulatory requirements;
or significantly weaken safeguards against fraud, waste, and abuse.
56 Office of Management and Budget: Future Challenges to Management (GAO/ T-
GGD/ AIMD- 00- 141, April 7, 2000).
performance reports, agencies should report the results of their efforts to
achieve these goals. As would be expected, our work shows that most agencies
that addressed improper payments in their performance plans also reported on
these payments in their performance reports. Appendix III contains our
assessment of the extent to which each agency reporting improper payments
addressed them in its financial management and performance plans. Appendix
IV contains our assessment of whether improper payments are discussed in
performance reports.
Self- assessments, such as those contemplated under FMFIA for assessing
internal controls, may be helpful in identifying significant programs at
risk for improper payments. For programs at risk, the first step in
addressing improper payments is to determine the magnitude of these
payments. Agencies can then analyze the characteristics of these cases to
identify the circumstances and root causes leading to the improper payments.
Using this analysis, agencies can make cost- benefit decisions on systems
and other internal control improvements to mitigate the risk of improper
payments and establish and work toward performance goals to manage for
results.
The use of appropriate performance goals relating to improper payments can
focus management attention on reducing such payments. For example, HCFA has
reported a national estimate of improper payments in its Medicare Fee- for-
Service benefits since fiscal year 1996. Analysis of improper Medicare
payments, as part of the financial statement preparation and audit process,
led HCFA to implement several initiatives intended to enhance identification
and reduction of improper payments. HCFA has also initiated efforts to
prevent future improper payments. These initiatives included prepayment
reviews of selected claims, an increase in the overall level of prepay and
postpay claims reviews, and medical reviews of providers identified as
having nonstandard billing practices. Annual estimates of improper payments
in future audited financial statements as well as HCFA's annual performance
report will provide information on the results of such efforts.
Without a systematic measurement of the extent of the problem, management
cannot determine (1) if the problem is significant enough to require
corrective action, (2) how much to invest in internal controls, or (3) the
success of efforts implemented to reduce improper payments. For example, in
fiscal year 1999, VA implemented a measurement system to determine the
accuracy of veterans' benefit payments- the Systematic Technical Accuracy
Review (STAR) system. Using the STAR system, the
Veterans Benefits Administration (VBA)- a component of VA- determined that
in 1999 its regional offices were accurate only 68 percent of the time when
making initial benefit decisions- a 4 percent increase over its 1998 rate
identified during VBA's pilot of STAR. While this measure notes that VBA's
regional offices have slightly increased their accuracy in making initial
benefit decisions, it also indicates that VBA should focus additional
attention on ensuring that correct decisions are made the first time.
Acknowledging the need to improve the accuracy rate, VBA currently has a
goal of achieving an 81- percent accuracy rate for its core workload in
fiscal year 2000 and a long- term strategic goal to achieve a 96- percent
accuracy rate. Although it is too early to determine whether VBA's efforts
to meet its accuracy improvement goal will be met, the new STAR system
represents an important step forward by VBA in identifying and correcting
the causes of errors and establishing a baseline against which to measure
results and progress.
Currently, there is no governmentwide guidance on how to develop mechanisms
for identifying and estimating improper payments, which would help agencies
to identify whether a need exists to address improper payments in their
financial management, strategic, and performance planning processes. As
previously discussed, OMB has initiated efforts to develop such guidance.
Developing mechanisms to assess programs at risk and estimating improper
payments would enable each agency's management to better understand the full
extent of its problem. With these mechanisms in place, appropriate cost-
beneficial corrective actions could be designed and implemented.
Although no governmentwide guidance currently exists for identifying and
estimating improper payments, the CFO Act and GPRA provide a framework for
OMB and agencies to report on efforts to minimize improper payments. Under
the CFO Act, OMB is required to prepare and annually revise a governmentwide
5- year financial management plan and status report that discusses the
activities the executive branch has undertaken to improve financial
management in the federal government. Each agency CFO is responsible for
developing annual agency- specific plans to support the governmentwide 5-
year financial management plan. The CFO Act also requires OMB to provide the
governmentwide 5- year plan and status report to appropriate congressional
committees. This reporting process keeps the appropriate congressional
committees informed of agencies' efforts to improve accountability and
stewardship over federal funds.
As discussed earlier, under GPRA, agencies are required to prepare strategic
plans that identify goals and objectives at least every 3 years.
Complementing the strategic plans are annual performance plans that set
annual goals with measurable target levels of performance and annual
performance reports that compare actual performance to the annual goals. As
such, agencies' annual performance reports should include a discussion of
issues, such as improper payments, for those programs that identified
related goals and strategies in their annual performance plans. GPRA also
requires that OMB annually prepare a governmentwide performance plan as a
part of the President's budget. The agency performance plans are the
foundation for OMB's governmentwide plan.
The framework afforded by the CFO Act and GPRA suggests that agencies have a
variety of mechanisms for reporting on improper payments, depending upon the
magnitude or significance of those payments. OMB calls 57 for mission-
critical management problems- those which prospectively and realistically
threaten achievement of major program goals- to be discussed in agencies'
strategic plans and also in their annual performance plans under GPRA. For
programs providing financial assistance benefits, such as the Supplemental
Security Income program, maintaining integrity and accuracy in the payment
of benefits is critical to the missions of the programs. Ultimately, this is
a decision for management to make considering the agency's other objectives
and program goals. For those agencies where these payments are not deemed
mission- critical, a vehicle for managing significant improper payments
would be agency 5year financial management plans developed under the
auspices of the CFO Act or other vehicles, such as action plans. Figure 4
shows how the CFO Act and GPRA provide a broad structure under which
agencies can report the status of their efforts to reduce improper payments.
57 Preparation and Submission of Strategic Plans, Annual Performance Plans
and Annual Program Performance Reports, OMB Circular A- 11 Part 2, OMB/
Executive Office of the President (Washington, D. C., as revised).
Figure 4: Reporting Improper Payments Within the Framework of the CFO Act
and GPRA
Assess extent of improper
payments
Planning Under CFO Act Reporting Under CFO Act
Develop goals and strategies to Incorporate results and revised plan into
resolve improper payments in governmentwide Federal Financial
agency's 5-year financial Management Status Report, financial
management plan or other agency- statement report, and 5-year financial
specific action plan. management plan or report as
appropriate for vehicle used. Are improper
No
payments mission- No further reporting
critical management under GPRA.
problems?
Yes Planning Under GPRA
Address improper payments in the agency
Reporting Under GPRA
strategic plan in consultation with congressional oversight committees.
Report measures and results in agency's annual performance report. Develop
goals and strategies to address
improper payments in agency's annual performance plan.
Note: The planning and reporting stages become iterative as management
assesses the relative success of internal controls employed to minimize
improper payments.
Source: GAO analysis of GPRA and CFO Act reporting requirements.
We evaluated the extent to which the 12 agencies that reported improper
payments in their financial statement reports also addressed improper
payments in their fiscal year 1999 financial management plans,
fiscal year 2001 performance plans, and fiscal year 1999 performance
reports. 58
Based on our review of the 12 agencies' financial management plans, we found
that only HHS, the Office of Personnel Management (OPM), and SSA
comprehensively addressed improper payments using this framework for the
Medicare Fee- for- Service, Federal Employees' Group Life Insurance, and Old
Age and Survivors Insurance programs. These 3 programs represent 56 percent
of the total program dollars for the 21 programs. In contrast, agency
financial management plans for 11 59 of the 21 programs did not or only
cursorily addressed improper payments, while financial management plans for
the remaining 7 programs addressed improper payments in a moderate (that is,
less than comprehensive) manner. Figure 5 illustrates our categorization of
the degree to which the 21 programs addressed improper payments in agency
financial management plans.
58 We did not evaluate the extent to which DOJ and the Department of State
addressed improper payments in their fiscal year 2001 performance plans and
fiscal year 1999 performance reports because we do not believe that the
acknowledged overpayments are mission- critical to these agencies. However,
we did evaluate the extent to which their financial management plans
addressed improper payments.
59 Insignificant improper payments do not need to be discussed in agency
financial management plans. The State Department is one agency that
considered the amount of its improper payments to be insignificant. However,
since we do not know the full extent of improper payments for each of the 12
agencies with improper payment disclosures, we reviewed the financial
management plan information for each of these agencies.
Figure 5: Degree to Which 21 Programs Addressed Improper Payments in Agency
Financial Management Plans
Comprehensive 14% (3 programs)
None 43% (9 programs)
Moderate 33% (7 programs)
Cursory 10% (2 programs)
Legend:
None: Agency financial management plan does not address the issue of
improper payments for this program.
Cursory: Agency financial management plan addresses the need to minimize
improper payments but does not provide any substantive goals or strategies
to minimize improper payments in this program.
Moderate: Agency financial management plan has either goals to address
improper payments or strategies to minimize improper payments in this
program, but not both, or lacks a comprehensive approach.
Comprehensive: Agency financial management plan has goals and strategies
that address key internal control weaknesses to minimize improper payments
in this program.
Source: GAO analysis based on review of agency fiscal year 2000 financial
management plans.
Similarly, four agencies- HHS, SSA, VA, and OPM- comprehensively addressed
improper payments in their fiscal year 2001 performance plans. These
agencies included both performance goals and strategies for minimizing
improper payments for the Medicare Fee- for- Service, Old Age and Survivors
Insurance, Veterans Benefits, and Federal Employees' Life Insurance programs
as they had in their fiscal year 2000 performance plans. As shown in figure
6, these four programs represent 21 percent of those that reported improper
payments, excluding the Departments of Justice and State, as discussed
above. Agencies did not or only cursorily addressed improper payments for
seven programs (37 percent) in their performance
plans. For eight programs (42 percent), the respective agencies addressed
improper payments in a moderate manner.
Figure 6: Degree to Which 19 Programs Addressed Improper Payments in Agency
Performance Plans
Comprehensive 21%
None (4 programs)
32% (6 programs)
Moderate Cursory 42%
5% (8 programs)
(1 program) Legend:
None: Agency performance plan does not address the issue of improper
payments for this program.
Cursory: Agency performance plan addresses the need to minimize improper
payments but does not provide any substantive performance goals or
strategies to minimize improper payments in this program.
Moderate: Agency performance plan has either performance goals to address
improper payments or strategies to minimize improper payments in this
program, but not both, or lacks a comprehensive approach.
Comprehensive: Agency performance plan has performance goals and strategies
that address key internal control weaknesses to minimize improper payments
in this program.
Source: GAO analysis based on review of agency fiscal year 2001 performance
plans.
Those agencies that addressed improper payments in their performance plans
generally discussed improper payments in their performance reports as well.
As shown in figure 7, 12 of the 13 programs for which agencies included at
least a cursory discussion of improper payments in their fiscal year 2001
performance plans also discussed improper payments in their fiscal year 1999
performance reports. Likewise, for the six programs with no discussion of
improper payments in the agency fiscal year 2001 performance plans, there
was also no discussion of improper payments in their 1999 performance
reports.
Figure 7: Discussion of Improper Payments in Agency Performance Plans and
Performance Reports
Fiscal year 2001 performance plans Fiscal year 1999 performance reports
Programs 19
13 12 6 7
0 Discussion of
No discussion of improper payments
improper payments Source: GAO analysis based on review of agency performance
plans and performance reports.
Because some agencies are not comprehensively addressing improper payments
in their financial management plans, performance plans, and/ or performance
reports, they may not consider the prevention of improper payments a
priority or focus adequate attention on this issue. OMB Circular A- 11, Part
1, includes guidance and criteria for agencies to follow in preparing and
submitting their annual financial management plans. Specifically, the
circular notes that agencies should include goals and strategies for
implementing governmentwide financial management improvements.
OMB Circular A- 11, Part 2, which serves as implementing guidance for
agencies in preparing and submitting GPRA strategic and performance plans,
states that agency plans should include goals for resolving missioncritical
management problems. Circular A- 11 also directs agencies to describe
actions taken to address and resolve these issues in their performance plans
by developing performance goals and discussing
strategies. We have also advocated 60 that agencies address mission-
critical management problems in their performance plans by developing
performance goals and discussing strategies. Similarly, we previously
recommended that OMB ensure that agencies incorporate PMOs- such as
“verify that the right person is getting the right benefit”- in
their performance plans to better guarantee attention and accountability. 61
Our prior report indicates that additional guidance on improper payments may
be helpful to agency managers. Without an appropriate methodology in place
for estimating and reporting improper payments, agency managers cannot
effectively establish performance and financial management goals for
managing improper payments, and Congress and the public are not informed of
the full extent of this problem.
Options to Improve Proactive leadership at the highest levels of government
is one of the most
Managing and important factors in prompting attention and action on critical
stewardship
issues. The administration, through OMB, is responsible for taking a
Reporting of Improper
leadership role in focusing attention and resources on the federal Payments
government's biggest management challenges, such as improper payments. Last
year, we made specific recommendations to OMB designed to strengthen agency
management and reporting of improper payments. These recommendations were to
develop and issue guidance to executive agencies to assist them in (1)
developing and implementing a methodology for annually estimating and
reporting improper payments for major federal programs and (2) developing
goals and strategies to address improper payments in their annual
performance plans and require agencies to (1) include a description of steps
being taken to
address improper payments in their strategic and annual performance plans
when the level of improper payments is mission- critical and (2) consult
with congressional oversight committees, as appropriate, on the projected
target levels and goals for estimating and reducing
60 Agency Performance Plans: Examples of Practices That Can Improve
Usefulness to Decisionmakers( GAO/ GGD/ AIMD- 99- 69, February 26, 1999). 61
The GPRA: Assessment of the Governmentwide Performance Plan for Fiscal Year
1999 (GAO/ AIMD/ GGD- 98- 159, September 8, 1998).
improper payments, as presented in the agencies' annual performance plans.
We are encouraged that OMB has initiated action on the first recommendation
and is working to secure additional resources necessary for this effort.
Expeditiously completing its current efforts and taking action to implement
all of our recommendations will help to strengthen accountability over
federal funds. Delays in implementing these recommendations will perpetuate
the government's inability to reasonably gauge the extent of improper
payments and take action to effectively prevent them.
In tandem with OMB, there are opportunities for Congress to leverage its
oversight function to improve agency management and reporting of improper
payments. For example, you recently sent a letter to the Federal Financial
Accounting Standards Advisory Board requesting that it determine financial
statement reporting and disclosure requirements for improper payments. Such
action can facilitate improvements in this area. In addition, our experience
in working with Congress on key federal management reforms, such as the CFO
Act and GPRA, has shown that congressional oversight and related legislation
provide momentum to achieve results, especially during presidential
transition years.
Congressional consultations similar to those your office conducted as part
of its review of agency performance plans prepared under GPRA, and related
correspondence, have served to elevate attention and facilitate corrective
action on major management challenges. Similar consultations could also
improve agency management of improper payments. For example, for those
agencies with mission- critical improper payments, Congress may consider
encouraging agency consultation with oversight committees, such as those
contemplated under GPRA. These consultations could focus on the projected
target levels and goals for estimating and reducing improper payments and
for addressing mission- critical improper payments in agency financial
statements and performance plans.
To determine the progress made in managing improper payments, Congress could
also consider holding regular oversight hearings. These hearings could be
held by congressional oversight, appropriations, and authorization
committees and focus on OMB's leadership role as well as agency progress
related to improper payments on both a governmentwide and individual program
level. These hearings could serve to highlight those agencies that
are successfully managing improper payments and identify best practices to
assist other agencies in this area.
Your Committee has suggested that it may take legislative action to improve
agency reporting of improper payments. Legislative action may be ultimately
required if Congress determines through its oversight that sufficient
progress has not been made.
Conclusions Reported amounts of improper payments totaled $20.7 billion in
fiscal year 1999, resulting in the disclosure of important information for
oversight and
decision- making about some of the government's major programs. Twelve
agencies took the initiative to report improper payments; however, in some
instances, these estimates did not include all applicable programs and/ or
aspects of these programs. In addition, many agencies, including some of the
12, have yet to systematically identify, estimate, and report the nature and
full extent of improper payments. As a result, the magnitude remains largely
unknown. Compounding this problem, some agencies have not recognized the
need to address and resolve improper payment problems in their financial
management plans and, when these problems are missioncritical, incorporate
and/ or report on appropriate goals and strategies to resolve improper
payments in their performance plans and reports.
Economic and demographic projections indicate that federal expenditures in
certain programs will grow significantly. With billions of dollars at risk,
agencies will need to continually and closely safeguard those resources
entrusted to them and assign a high priority to reducing fraud, waste, and
abuse. A first step for some agencies will involve assessing programs at
risk and developing mechanisms to identify, estimate, and report the nature
and extent of improper payments annually. Without this fundamental
knowledge, agencies cannot be fully informed about the magnitude, trends,
and types of payment errors occurring within their programs. As a result,
most agencies cannot make informed cost- benefit decisions about
strengthening their internal controls to minimize future improper payments
or effectively develop goals and strategies to reduce them. Consulting with
congressional oversight committees on the development of these goals and
strategies is also important to obtaining consensus on how to address this
multibillion dollar problem.
While we are encouraged by OMB's efforts to address one of our prior year
recommendations, it is critical that OMB act quickly to implement all of
these recommendations. Therefore, we continue to support our prior year
recommendations. Furthermore, Congress has opportunities for applying its
oversight function to institute lasting improvements in agency management
and reporting of improper payments.
OMB Comments and In commenting on a draft of this report, OMB agreed that
efforts to reduce
Our Evaluation improper payments require continued attention. OMB said it
plans to issue
guidance shortly that provides an overall framework for agencies to assess
the risk of improper payments in their programs, take action to reduce the
risk by strengthening controls where needed, and measure and report on
progress.
As OMB observed, issuing guidance is one step in a long- term process to
minimize improper payments. OMB also mentioned its concerns that legislative
requirements, competing priorities, and program structure tend to limit
agencies' ability to estimate and reduce the level of improper payments. In
this regard, until agencies begin to comprehensively estimate and report
improper payments, they will lack essential baseline information on which to
develop and refine their strategies for minimizing improper payments.
Sustained progress in achieving the requisite accountability over federal
resources will require reliable information on the nature and extent of
improper payments, detailed analysis to discern underlying causes, and
continual efforts to strengthen internal controls. Data sharing and removing
or mitigating the effect of any impediments are fundamental efforts that
should be part of an ongoing initiative to enhance program integrity.
OMB further stated that, in its opinion, our report discussed deficiencies
in agencies' efforts to minimize improper payments even though this was not
a stated objective. OMB further expressed its belief that our report did not
sufficiently balance criticism of agencies with information on agency
efforts to deal with the problem of overpayments. We agree with OMB that it
was not the specific intent of this report to identify deficiencies in
agency efforts to minimize improper payments. We do offer data for key
decisionmakers on the nature and extent of this problem, including
characterizing the causes of improper payments, which have been extensively
reported on in the past. Further, our report acknowledges that certain
agencies have made proactive efforts to quantify improper payments and
include this information in their financial statement reports. We
specifically mentioned USDA's Food Stamp program and others. We are
encouraged by DOL's use of its benefit accuracy measurement tool in its
Unemployment Insurance programs and have added a reference to that
effort in this report. Including the results of such useful and relevant
information in the DOL's financial statements could be valuable to the users
of those statements.
OMB's comments are reprinted in appendix V. OMB also provided informal
technical comments, which we have incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of
this report earlier, we will not distribute this report until 30 days from
its date. At that time, we will send copies of this report to Senator Joseph
I. Lieberman, Ranking Minority Member, Senate Committee on Governmental
Affairs; Representative Dan Burton, Chairman, and Representative Henry A.
Waxman, Ranking Minority Member, House Committee on Government Reform;
Senator Pete V. Domenici, Chairman, and Senator Frank R. Lautenberg, Ranking
Minority Member, Senate Committee on the Budget; Representative John R.
Kasich, Chairman, and Representative John M. Spratt, Jr., Ranking Minority
Member, House Committee on the Budget. We will also send copies to the
Honorable Jacob J. Lew, Director of the Office of Management and Budget, and
the heads of the 24 CFO agencies and their respective agency CFOs and
Inspectors General. Copies will also be made available to others upon
request.
This report was prepared under the direction of Gloria L. Jarmon, Director,
who may be reached at (202) 512- 4476 or by e- mail at jarmong. aimd@ gao.
govif you or your staff have any questions. Staff contacts and other key
contributors to this report are listed in appendix VI.
Sincerely yours, Jeffrey C. Steinhoff Managing Director Financial Management
and Assurance
Appendi xes Executive Departments and Agencies Covered
Appendi xI
by the CFO Act Department of Agriculture Department of Commerce Department
of Defense Department of Education Department of Energy Department of Health
and Human Services Department of Housing and Urban Development Department of
the Interior Department of Justice Department of Labor Department of State
Department of Transportation Department of the Treasury Department of
Veterans Affairs Agency for International Development Environmental
Protection Agency Federal Emergency Management Agency General Services
Administration National Aeronautics and Space Administration National
Science Foundation Nuclear Regulatory Commission
Office of Personnel Management Small Business Administration Social Security
Administration
Agencies and Programs With Reported Improper Payments Included in the
Agencies'
Appendi xII
Fiscal Year 1999 Financial Statements Department of Agriculture Commodity
Credit
The Commodity Credit Corporation (CCC), a federal agency, was Corporation
established by Executive Order in October 1933 and transferred to the
Department of Agriculture (USDA) under the President's Reorganization Plan
of 1939. CCC stabilizes, supports, and protects farm income and prices;
assists with maintaining a balanced and adequate supply of agricultural
commodities; and facilitates the distribution of these commodities. In
fiscal year 1999, CCC's net cost of operations totaled approximately $24
billion.
Federal Crop Insurance The Federal Crop Insurance Program was established in
1938 by the
Corporation Federal Crop Insurance Act to protect crop farmers from
unavoidable risks
associated with adverse weather, plant diseases, and insect infestations.
The USDA Risk Management Agency administers the Federal Crop Insurance
Program through the Federal Crop Insurance Corporation (FCIC), a government-
owned corporation. The federal government retains a portion of the insurance
risk for all policies and pays private insurance companies a fee that is
intended to reimburse them for the reasonable costs associated with selling
and servicing crop insurance to farmers. In fiscal year 1999, FCIC had
nearly 1. 3 million crop insurance policies in force, with total premiums of
$2. 3 billion.
Food Stamp Program The Food Stamp Program (FSP), enacted by the Food Stamp
Act of 1964, is the nation's principal food assistance program. FSP enables
low- income households to obtain a more nutritious diet by issuing monthly
allotments of coupons or electronic benefits redeemable for food at retail
stores. Eligibility and allotment amounts are based on household size and
income as well as on assets, housing costs, work requirements, and other
factors. In fiscal year 1999, 18.2 million individuals per month were
provided food stamps for total annual program costs of $19.1 billion.
Department of Defense Military Retirement Fund The Military Retirement Fund
(the Fund) was established by the
Department of Defense (DOD) Authorization Act, 1984, for the accumulation of
funds to finance the liabilities of DOD under military retirement and
survivor benefit programs. The military retirement system administered by
DOD applies to members of the Army, Navy, Marine Corps, and Air Force and is
a funded, noncontributory defined benefit plan that provides nondisability
retired pay, disability retired pay, retired pay for reserve service, and
survivor annuity programs to military retirees and survivors. During fiscal
year 1999, the Fund paid out approximately $32 billion in benefits to
military retirees and survivors.
Department of Energy The Department of Energy (DOE) was created by Congress
in 1977 under the Department of Energy Organization Act, which consolidated
the major
federal energy functions into one cabinet- level department. DOE promotes
secure, competitive, and environmentally responsible energy systems that
serve the needs of the public. The agency manages a variety of energy
programs through business lines that encompass energy resources, national
security, environmental quality, science and technology, and corporate
management. In fiscal year 1999, DOE incurred net costs of over $32 billion.
Department of Health and Human Services- Health Care Financing
Administration
Medicaid Medicaid, established in 1965 by Title XIX of the Social Security
Act, is a federal- state matching entitlement program that pays for medical
assistance for certain vulnerable and needy individuals and families with
low incomes and resources. In fiscal year 1999, it provided health care
assistance to an estimated 41.9 million persons, at a cost of about $109
billion dollars to the federal government. The Health Care Financing
Administration (HCFA) is responsible for the overall management of Medicaid;
however, each state is responsible for managing its own program. Within
broad federal statutory and regulatory guidelines, each state (1)
establishes its own eligibility standards, (2) determines the types and
range of services, (3) sets the rate of payment for services, and (4)
administers its own program.
Medicare Fee- for- Service Authorized by Title XVIII of the Social Security
Act in 1965, Medicare is the nation's largest health insurance program,
covering an estimated 40 million elderly and disabled at a cost of about
$201 billion annually. The Medicare Program is administered by HCFA. While
some beneficiaries participate in Medicare's $37 billion Medicare+ Choice,
its managed care program, most receive their health care from the $164
billion Fee- for- Service portion of Medicare. HCFA contracts with over 50
insurance companies to process fee- for- service claims; however, HCFA is
responsible for overseeing these contractors and for ensuring that claims
are paid accurately and efficiently.
Department of Housing and Urban Development
Housing Subsidy Programs The Department of Housing and Urban Development's
(HUD) Public Housing and Section 8 programs were established by the U. S.
Housing Act of 1937 and the Housing and Community Development Act of 1974
(revising Section 8 of the U. S. Housing Act of 1937), respectively. These
programs help eligible low- income families obtain decent, safe, and
sanitary housing by paying a portion of their rent.
HUD's Public Housing Program is operated by approximately 3, 200 public
housing authorities (PHA), which operate under state and local laws and are
funded by HUD. Public housing provides affordable shelter for lowincome
families consisting of citizens or eligible immigrants. Through the
operating subsidy program, HUD provides an annual subsidy to help PHAs pay
some of the cost of operating and maintaining public housing units. In
fiscal year 1999, approximately 1. 3 million public housing units were under
management, with a net cost of about $2. 9 billion.
The Section 8 programs assist low- income families. Residents in subsidized
units generally pay 30 percent of their income for rent, and HUD pays the
balance. Section 8 has two assistance programs: tenant- based and
projectbased assistance. Tenant- based assistance is linked to specific
individuals; the project- based assistance is linked to housing units. In
fiscal year 1999, the Section 8 programs assisted approximately 1. 4 million
households and had net costs of $15. 7 billion.
Federal Housing Established under the National Housing Act enacted in 1934,
the Federal
Administration Housing Administration (FHA) was merged into HUD when HUD was
created in 1965. FHA administers a wide range of activities to make mortgage
financing more accessible to the home- buying public and insures private
lenders against loss on mortgages that finance single family homes,
multifamily housing projects, health care facilities, property improvements,
and manufactured homes. FHA's mortgage insurance program had approximately
$551 billion in outstanding unamortized loan guarantees as of the end of
fiscal year 1999.
Department of Justice Federal Bureau of
Established in 1908 by the Attorney General, who directed that Department
Investigation
of Justice (DOJ) investigations be handled by its own staff, the Federal
Bureau of Investigation (FBI) is the principal investigative arm of DOJ. The
FBI's mission is to investigate violations of federal criminal law; to
protect the United States from foreign intelligence and terrorist
activities; and to provide leadership and law enforcement assistance to
federal, state, local, and international agencies. Net program costs for
fiscal year 1999 were approximately $3 billion.
Department of Labor Federal Employees'
Enacted in 1916, the Federal Employees' Compensation Act (FECA) Compensation
Act
provides workers' compensation coverage to federal employees for workrelated
injuries or disease. FECA, administered by the Department of Labor (DOL),
authorizes the government to compensate federal employees when
they are temporarily or permanently disabled due to injury or disease
sustained while performing their duties. In fiscal year 1999, DOL received
over 166,000 federal injury reports and issued benefit payments of more than
$2. 5 billion.
Unemployment Insurance Unemployment Insurance, enacted by Title IX of the
Social Security Act of 1935, as amended, is the nation's response to the
adverse effects of unemployment. The program's mission is to provide
unemployed workers with temporary income support and to facilitate
reemployment. By doing so, the program helps stabilize the economy. In
fiscal year 1999, 7. 1 million unemployed workers received approximately $
20.5 billion from the program.
The program is administered by the states through a network of local claims
offices and central offices in each state. These offices also are
responsible for the collection of taxes from all subject employers. The
program is financed through collections of taxes from employers by both the
federal and state governments. In addition, each state is responsible for
determining eligibility requirements and levels of compensation, including
the length of time benefits are paid.
Office of Personnel Management
Federal Employees' Health The Federal Employees' Health Benefits Program
(FEHBP) was
Benefits Program established by the Federal Employees Health Benefits Act of
1959 for the
purpose of making basic hospital and medical protection available to active
federal employees, annuitants, and their families through plans offered by
carriers participating in FEHBP. In fiscal year 1999, there were 2. 3
million federal civilian employees and 1.8 million annuitants enrolled in
FEHBP. In total, FEHBP covers about 9 million individuals. The Office of
Personnel Management's (OPM) fee- for- service and health maintenance
organization program costs for fiscal year 1999 were approximately $17.6
billion.
Federal Employees' Group The Federal Employees' Group Life Insurance (FEGLI)
Program was
Life Insurance Program established in 1954 by the Federal Employees' Group
Life Insurance Act to
provide federal employees and annuitants with group term life insurance. The
program is administered pursuant to a contract with a life insurance
company. In fiscal year 1999, FEGLI covered 90 percent of eligible employees
and annuitants, as well as many of their family members, and paid claims in
excess of $1.6 billion.
Retirement Program The Retirement Program is a defined benefit retirement
plan and includes two components: (1) the Civil Service Retirement System
(CSRS), created
in 1920 by the Civil Service Retirement Act, and (2) the Federal Employees'
Retirement System (FERS), established in 1986 by the Federal Employees'
Retirement System Act. CSRS is a stand- alone retirement plan intended to
pay benefits for long- service federal employees and their survivors. CSRS
covers most federal employees hired before 1984 and is closed to new
members. FERS covers most employees first hired after December 31, 1983, and
provides benefits to FERS annuitants and their survivors. Using Social
Security as a base, FERS provides an additional defined benefit and a
voluntary thrift savings plan. OPM administers only the defined benefit
component of FERS. In fiscal year 1999, OPM had almost $44 billion in
outlays, with over 2.3 million annuitants in CSRS, and approximately 109,000
in FERS.
Social Security Administration
Old Age and Survivors In 1935, the Social Security Act established a program
to help protect aged
Insurance Americans against the loss of income due to retirement. The 1939
amendments added protection for survivors of deceased retirees by creating
the Old Age and Survivors Insurance (OASI) Program. Employee and employer
payroll tax contributions under the Federal Insurance Contributions Act
(FICA) and the Self- Employment Contributions Act (SECA) finance this
program. Administration of the program lies with the Social Security
Administration (SSA). In fiscal year 1999, SSA directly disbursed $332.4
billion to 38 million beneficiaries under this program.
Disability Insurance In 1956, the Social Security Act was amended to protect
disabled workers against loss of income due to disability through creation
of the Disability
Insurance (DI) Program. In 1958, amendments to the act expanded benefits to
include dependents of disabled workers. As a result, the DI Program provides
a continuing income base for eligible workers who have qualifying
disabilities and for eligible members of their families before those workers
reach retirement age. As authorized by the act, workers are considered
disabled if they have severe physical or mental conditions that prevent them
from engaging in substantial gainful activity. The condition must be
expected to last for a continuous period of at least 12 months or to result
in death. Once DI beneficiaries reach age 65, they and their families are
converted to the OASI Program. The DI Program is financed by employee and
employer payroll tax contributions under FICA and SECA. SSA, using
assistance from 54 state Disability Determination Services to make required
medical and vocational decisions, is responsible for administering the DI
Program. In fiscal year 1999, SSA disbursed approximately $50. 4 billion in
monthly cash payments to 6. 5 million beneficiaries.
Supplemental Security In 1972, amendments to the Social Security Act
established the
Income Supplemental Security Income (SSI) Program. SSI provides cash
assistance
to financially needy individuals who are aged, blind, or disabled. General
tax revenues finance this program. Many states supplement the federal SSI
payment, choosing either to have SSA administer the supplement or to pay it
directly. In fiscal year 1999, SSA disbursed approximately $28.1 billion in
federal SSI payments to 6.6 million recipients. SSA also disbursed
approximately $3. 2 billion in state supplemental payments during fiscal
year 1999.
Department of State Foreign Service Retirement
The Department of State was established in 1789 to advise the President on
and Disability Fund
the formulation and execution of foreign affairs. It is the lead agency for
the conduct of American diplomacy and is responsible for carrying out U. S.
foreign policy at home and abroad. The Foreign Service Retirement and
Disability Fund (FSRDF) is a State Department- administered trust fund that
provides pensions to retired and disabled members of the Foreign Service. In
fiscal year 1999, FSRDF disbursed over $500 million in benefits to
annuitants.
Department of the Treasury
Customs Refunds are payments made to importers/ exporters for overpayments
or
Drawbacks/ Refunds duplicate payments of duties, taxes, and fees when goods
are originally
imported into the United States. A drawback is a refund of duties and/ or
excise taxes already paid to Customs on imported goods which were either (1)
never entered into the commerce of the United States because they were
either exported or destroyed under Customs' supervision or (2) used (or
substituted) in a process to manufacture articles which were exported from
the United States or destroyed under Customs' supervision without being
used.
Congress initially passed legislation authorizing drawbacks in 1789, citing
the need to facilitate American commerce and manufacturing. Drawback
privileges are provided by the Tariff Act of 1930. The rationale for
drawbacks has always been to encourage American commerce or manufacturing,
or both. It permits the American manufacturer to compete in foreign markets
without the handicap of including in the costs, and consequently in the
sales price, the duty paid on imported merchandise. Drawbacks are generally
processed in Customs' port offices across the nation. In fiscal year 1999,
payments related to drawbacks and refunds were over $1.1 billion.
Department of In 1930, Congress consolidated and coordinated various
veterans'
Veterans Affairs programs with the establishment of the Veterans
Administration. The
Department of Veterans Affairs (VA) was established as a Cabinet- level
department in March 1989. VA's mission is to administer the laws providing
benefits and other services to veterans and their dependents and the
beneficiaries of veterans. The Veterans Benefits Administration (VBA)
administers VA's nonmedical programs, which provide financial and other
assistance to veterans, their dependents, and survivors. The compensation
and pension (C& P) program is VBA's largest, and in fiscal year 1999 VA paid
approximately $21 billion in C& P benefits to more than 3.3 million veterans
and their survivors.
Assessment of Financial Management Plans and Performance Plans for Those
Agencies
Appendi xI II
Reporting Improper Payments Degree to which fiscal year 1999 financial
management
Degree to which fiscal year plan addressed improper
2001 performance plan Department or agency Program/ component
payments addressed improper payments
Department of Agriculture Commodity Credit Corporation None None Federal
Crop Insurance
None Moderate Corporation Food Stamp Program Moderate Moderate
Department of Defense Military Retirement Fund None None Department of
Energy Not specifically identified None None Department of Health and
Medicare Fee- for- Service Comprehensive a Comprehensive Human Services
Medicaid Cursory Moderate
Department of Housing and Housing subsidy programs Moderate Moderate Urban
Development Federal Housing Administration None None
Department of Justice Federal Bureau of Investigation None Not Applicable
Department of Labor Federal Employees'
Moderate a Moderate Compensation Act Unemployment Insurance Cursory a
Cursory
Office of Personnel Management Federal Employees' Group Life Comprehensive b
Comprehensive b Insurance Federal Employees' Health
None None Benefits Retirement Moderate Moderate
Social Security Administration Disability Insurance Moderate Moderate Old
Age and Survivors
Comprehensive b Comprehensive b Insurance Supplemental Security Income
Moderate Moderate
Department of State Foreign Service Retirement and None Not Applicable
Disability Fund Department of the Treasury -
Drawbacks and refunds None None Customs Department of Veterans Affairs
Veterans Benefits Moderate Comprehensive
Legend:
None: Agency plan does not address the issue of improper payments for this
program.
Cursory: Agency plan addresses the need to minimize improper payments but
does not provide any substantive goals or strategies to minimize improper
payments in this program.
Moderate: Agency plan has either goals to address improper payments or
strategies to minimize improper payments in this program, but not both, or
lacks a comprehensive approach.
Comprehensive: Agency plan has goals and strategies that address key
internal controls to minimize improper payments in this program.
a The financial management plan addressed improper payments by including a
pointer to the performance plan. Therefore, our assessment for the financial
management plan was supplemented by our review of the performance plan. b
Although the agency plans did not include strategies for these programs, we
assessed them as
comprehensive because the related payment accuracy rates were over 99
percent for both the Old Age and Survivors Insurance and Life Insurance
programs. Therefore, it may not be cost beneficial for these agencies to
design and implement additional strategies to mitigate improper payments.
Source: GAO analysis based on a review of agencies' fiscal year 1999
financial management plans and fiscal year 2001 agency performance plans.
Assessment of Performance Reports for Those Agencies Reporting Improper
Appendi xI V
Payments Discussion of improper payments included in most recent annual
Department or agency Program/ component
performance report
Department of Agriculture Commodity Credit Corporation No Federal Crop
Insurance Corporation Yes Food Stamp Program Yes Department of Defense
Military Retirement Fund No Department of Energy Not specifically identified
No Department of Health and Human Services Medicare Fee- for- Service Yes
Medicaid Yes Department of Housing and Urban
Housing subsidy programs No Development Federal Housing Administration No
Department of Labor Federal Employees' Compensation Act Yes Unemployment
Insurance Yes Office of Personnel Management Federal Employees' Group Life
Insurance Yes
Federal Employees' Health Benefits No Retirement Yes Social Security
Administration Disability Insurance Yes
Old Age and Survivors Insurance Yes Supplemental Security Income Yes
Department of the Treasury - Customs Drawbacks and refunds No Department of
Veterans Affairs Veterans Benefits Yes
Source: GAO analysis based on a review of agencies' fiscal year 1999
performance reports.
Comments From the Office of Management
Appendi xV and Budget
Appendi xVI
GAO Contact and Staff Acknowledgments GAO Contact Debra Sebastian, (202)
512- 9385 Acknowledgments Staff making key contributions to this report were
Ray Bush, Kevin Carey,
Roy Hutchens, Kelly Lehr, Meg Mills, Marie Novak, Ruth Sessions, and David
Shoemaker as well as many other staff throughout GAO who contributed to
selected sections of this report.
Related GAO Products The following lists prior GAO products that were issued
after October 29, 1999, and deal with improper, excess, erroneous, or
overpayments. Related GAO products issued before October 29, 1999, can be
found in Financial Management: Increased Attention Needed to Prevent
Billions in Improper Payments( GAO/ AIMD- 00- 10, October 29, 1999).
Financial Management: Financial Management Challenges Remain at the
Department of Education( GAO- T- AIMD- 00- 323, September 19, 2000).
Medicare Improper Payments: While Enhancements Hold Promise for Measuring
Potential Fraud and Abuse, Challenges Remain (GAO/ AIMD/ OSI- 00- 281,
September 15, 2000).
Medicare: HCFA Could Do More to Identify and Collect Overpayments (GAO/
HEHS/ AIMD- 00- 304, September 7, 2000).
Medicaid: State Financing Schemes Again Drive Up Federal Payments (GAO- T-
HEHS- 00- 193, September 6, 2000).
Health Care Fraud: Schemes to Defraud Medicare, Medicaid, and Private Health
Care Insurers( GAO/ T- OSI- 00- 15, July 25, 2000).
Department of Defense: Implications of Financial Management Issues (GAO/ T-
AIMD/ NSIAD- 00- 264, July 20, 2000).
Medicare: Refinements Should Continue to Improve Appropriateness of Provider
Payments( GAO/ T- HEHS- 00- 160, July 19, 2000).
Medicaid: HCFA and States Could Work Together to Better Ensure the Integrity
of Providers( GAO/ T- HEHS- 00- 159, July 18, 2000).
Federal Health Care: Comments on H. R. 4401, the Health Care Infrastructure
Investment Act of 2000( GAO/ T- AIMD- 00- 240, July 11, 2000).
Medicare Payments: Use of Revised “Inherent Reasonableness”
Process Generally Appropriate( GAO/ HEHS- 00- 79, July 5, 2000).
Defense Health Care: Opportunities to Reduce TRICARE Claims Processing and
Other Costs( GAO/ T- HEHS- 00- 138, June 22, 2000).
IRS' 2000 Tax Filing Season: IRS Measures Show Tax Processing Systems
Performed Slightly Better Than in 1999( GAO/ GGD- 00- 146, June 16, 2000).
Debt CrossServicing Collection: Treasury Faces Challenges in Implementing
Its Initiative( GAO/ T- AIMD- 00- 213, June 8, 2000). Contract Management:
DOD's Use of Recovery Auditing (GAO/ NSIAD- 00- 134, June 5, 2000).
NIH Research: Improvements Needed in Monitoring Extramural Grants (GAO/
HEHS/ AIMD- 00- 139, May 31, 2000).
Financial Management: Education's Financial Management Problems Persist(
GAO/ T- AIMD- 00- 180, May 24, 2000).
Social Security: Government and Other Uses of the Social Security Number Are
Widespread( GAO/ T- HEHS- 00- 120, May 18, 2000).
Department of Defense: Progress in Financial Management Reform (GAO/ T-
AIMD/ NSIAD- 00- 163, May 9, 2000).
Medicare Home Health Care: Prospective Payment System Will Need Refinement
as Data Become Available( GAO/ HEHS- 00- 9, April 7, 2000).
Natural Resources Conservation Service: Additional Actions Needed to
Strengthen Program and Financial Accountability( GAO/ RCED- 00- 83, April 7,
2000).
Office of Management and Budget: Future Challenges to Management (GAO/ T-
GGD/ AIMD- 00- 141, April 7, 2000).
Medicare: Improper Third- Party Billing of Medicare by Behavioral Medical
Systems, Inc.( GAO/ T- OSI- 00- 9, April 6, 2000).
Medicare: Concerns About HCFA's Efforts to Prevent Fraud by Third- Party
Billers( GAO/ T- HEHS- 00- 93, April 6, 2000).
Medicaid in Schools: Improper Payments Demand Improvements in HCFA
Oversight( GAO/ HEHS/ OSI- 00- 69, April 5, 2000).
Medicaid in Schools: Poor Oversight and Improper Payments Compromise
Potential Benefit( GAO/ T- HEHS/ OSI- 00- 87, April 5, 2000).
Auditing the Nation's Finances: Fiscal Year 1999 Results Continue to
Highlight Major Issues Needing Resolution( GAO/ T- AIMD- 00- 137, March 31,
2000).
Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year
2001( GAO/ OCG- 00- 8, March 31, 2000).
Medicare: Improper Third- Party Billing of Medicare by Behavioral Medical
Systems, Inc.( GAO/ OSI- 00- 5R, March 30, 2000).
Health Care Financing Administration: Three Largest Medicare Overpayment
Settlements Were Improper( GAO/ T- OSI- 00- 7, March 28, 2000).
Managing for Results: Using GPRA to Help Congressional Decisionmaking and
Strengthen Oversight( GAO/ T- GGD- 00- 95, March 22, 2000).
Medicare: HCFA Faces Challenges to Control Improper Payments (GAO/ T- HEHS-
00- 74, March 9, 2000).
Food Stamp Program: Better Use of Electronic Data Could Result in
Disqualifying More Recipients Who Traffic Benefits( GAO/ RCED- 00- 61, March
7, 2000).
Financial Management: Education Faces Challenges in Achieving Financial
Management Reform( GAO/ T- AIMD- 00- 106, March 1, 2000).
Internal Revenue Service: Results of Fiscal Year 1999 Financial Statement
Audit( GAO/ T- AIMD- 00- 104, February 29, 2000).
HCFA: Three Largest Medicare Overpayment Settlements Were Improper (GAO/
OSI- 00- 4, February 25, 2000).
Congressional Oversight: Opportunities to Address Risks, Reduce Costs, and
Improve Performance( GAO/ T- AIMD- 00- 96, February 17, 2000).
Medicare: Methodology to Identify and Measure Improper Payments in the
Medicare Program Does Not Include All Fraud( GAO/ AIMD- 00- 69R, February 4,
2000).
Medicare: Lessons Learned from HCFA's Implementation of Changes to Benefits(
GAO/ HEHS- 00- 31, January 25, 2000).
Tax Administration: IRS' 1999 Tax Filing Season( GAO/ GGD- 00- 37, December
15, 1999).
Skilled Nursing Facilities: Medicare Payment Changes Require Provider
Adjustments But Maintain Access( GAO/ HEHS- 00- 23, December 14, 1999).
Financial Management: Financial Management Weaknesses at the Department of
Education( GAO/ T- AIMD- 00- 50, December 6, 1999).
Food Assistance: Efforts to Control Fraud and Abuse in the Child and Adult
Care Food Program Should Be Strengthened( GAO/ RCED- 00- 12, November 29,
1999).
Supplemental Security Income: Incentive Payments Have Reduced Benefit
Overpayments to Prisoners( GAO/ HEHS- 00- 2, November 22, 1999).
(916355) Lett er
GAO United States General Accounting Office
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Appendix I
Appendix I Executive Departments and Agencies Covered by the CFO Act
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Appendix II
Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix II Agencies and Programs With Reported Improper Payments Included
in the Agencies' Fiscal Year 1999 Financial Statements
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Appendix III
Appendix III Assessment of Financial Management Plans and Performance Plans
for Those Agencies Reporting Improper Payments
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Appendix IV
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Appendix V
Appendix V Comments From the Office of Management and Budget
Page 66 GAO- 01- 44 Improper Payments
Page 67 GAO- 01- 44 Improper Payments
Appendix VI
Page 68 GAO- 01- 44 Improper Payments
Related GAO Products Page 69 GAO- 01- 44 Improper Payments
Related GAO Products Page 70 GAO- 01- 44 Improper Payments
Related GAO Products Page 71 GAO- 01- 44 Improper Payments
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