Financial Management: Status of the Government Efforts to Address
Improper Payment Problems (17-OCT-03, GAO-04-99).
Improper payments are a longstanding,widespread,and significant
problem in the federal government.This past April, the Office of
Management and Budget (OMB)estimated these payments to be about
$35 billion annually for major federal benefit programs.
Importantly, this estimate does not account for all federal
programs and activities and considers less than half of the $2.3
trillion net cost of the federal government for fiscal year 2002.
Because of its continued interest and concerns regarding
financial management in the federal government, Congress asked
GAO to follow-up on the implementation of the recommendations
contained in our August 2002 report (GAO-02-749). Our 2002 report
recommended that Chief Financial Officers Act (CFO Act) agencies
take actions to minimize improper payments in their programs and
activities and for OMB to assist agencies in developing methods
to identify and implement those actions. OMB described our report
as largely fair and accurate. It characterized the
administration's current efforts to reduce erroneous payments as
the most comprehensive assessment of the government's payment
processes in history.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-99
ACCNO: A08737
TITLE: Financial Management: Status of the Government Efforts to
Address Improper Payment Problems
DATE: 10/17/2003
SUBJECT: Accounting procedures
Chief financial officers
Cost control
Erroneous payments
Financial management
Internal controls
Program evaluation
Reporting requirements
Risk management
Risk assessments
President's Management Agenda
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GAO-04-99
United States General Accounting Office
GAO Report to the Subcommittee on Government Efficiency and Financial
Management, Committee on Government Reform, House of Representatives
October 2003
FINANCIAL MANAGEMENT
Status of the Governmentwide Efforts to Address Improper Payment Problems
a
GAO-04-99
Highlights of GAO-04-99, a report to the Subcommittee on Government
Efficiency and Financial Management, Committee on Government Reform, House
of Representatives
Improper payments are a longstanding, widespread, and significant problem
in the federal government. This past April, the Office of Management and
Budget (OMB) estimated these payments to be about $35 billion annually for
major federal benefit programs. Importantly, this estimate does not
account for all federal programs and activities and considers less than
half of the $2.3 trillion net cost of the federal government for fiscal
year 2002.
Because of its continued interest and concerns regarding financial
management in the federal government, the Subcommittee asked GAO to
follow-up on the implementation of the recommendations contained in our
August 2002 report (GAO-02-749).
Our 2002 report recommended that Chief Financial Officers Act (CFO Act)
agencies take actions to minimize improper payments in their programs and
activities and for OMB to assist agencies in developing methods to
identify and implement those actions.
OMB described our report as largely fair and accurate. It characterized
the administration's current efforts to reduce erroneous payments as the
most comprehensive assessment of the government's payment processes in
history.
www.gao.gov/cgi-bin/getrpt?GAO-04-99
To view the full product, including the scope and methodology, click on
the link above. For more information, contact McCoy Williams at (202)
512-6906 or [email protected].
October 2003
FINANCIAL MANAGEMENT
Status of the Governmentwide Efforts to Address Improper Payment Problems
The ultimate success of the governmentwide effort to reduce improper
payments hinges on each federal agency's diligence and commitment to
identify, estimate, determine the causes of, take corrective actions on,
measure, and report progress in reducing all improper payments.
While each of the 23 CFO Act agencies has assigned responsibility for the
improper payment program to a senior official, GAO's discussions with
officials at these agencies revealed a wide disparity in the progress made
in implementing actions to perform risk assessments, identify and take
actions to address internal control problems identified during the risk
assessments, and publicly report the results of actions to reduce improper
payments. Generally, the 14 CFO Act agencies that OMB Circular A-11
required to report erroneous payment information in their initial budget
submissions were more active in conducting risk assessments, implementing
corrective actions, and reporting on improper payments than the 9 CFO Act
agencies not cited in the circular.
Officials at the 14 agencies noted that their agencies had completed risk
assessments for 15 of the 44 programs cited in the circular. Of the 9 CFO
Act agencies not cited in the circular, officials at only one agency
stated that they had completed risk assessments of all of the agency's
programs.
Not all agencies have implemented control activities to address internal
control weaknesses identified through risk assessments designed to
identify improper payments. While officials generally acknowledged that
they had not fully assessed all of their programs and activities to
identify program risks of improper payments, some stated that they had
considered those risks when designing or modernizing their program's
general internal control systems. Specifically, officials stated that
their agencies were relying on general internal control activities already
in place to manage improper payments.
Officials at each of the 23 CFO Act agencies stated that their agency
would meet the reporting requirements in OMB's guidance on the
implementation of the Improper Payments Information Act of 2002. This
guidance calls for agencies to report significant amounts of improper
payment information in their annual Performance and Accountability
Reports. Depending on the agency and program, this reporting can begin as
early as the fiscal year 2003 report but not later than the fiscal year
2004 report.
OMB has taken actions to address each of our recommendations. It has met
with officials from each of the CFO Act agencies to provide assistance and
has issued guidance for agencies' use in implementing their improper
payment program including the performance of risk assessments, the
identification of the causes of improper payments, and the issuance of
reports on the results of the actions taken to reduce these payments.
Contents
Letter 1
Results in Brief 4
Background 7
Recent Legislation Targets Improper Payments 8
Executive Agency Actions to Implement Recommendations 9
OMB's Actions to Implement Recommendations 20
Conclusions 26
OMB's Comments and Our Evaluation 27
Appendixes
Appendix I:
Appendix II:
Appendix III: Appendix IV: Appendix V:
Scope and Methodology 29
CFO Act Agencies and Related Programs for Which OMB Circular A-11 Requires
Erroneous Payment Information 31
CFO Act Agencies Included in This Review 33
Comments from the Office of Management and Budget 34
GAO Contacts and Staff Acknowledgments 35 GAO Contacts 35 Acknowledgments
35
Abbreviations
CFO Chief Financial Officer
CFO Act Chief Financial Officers Act
CFOC Chief Financial Officers Council
COO Chief Operating Officer
DCI Data Collection Instrument
IG Inspector General
IRS Internal Revenue Service
OMB Office of Management and Budget
PCIE President's Council on Integrity and Efficiency
PMA President's Management Agenda
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A
United States General Accounting Office Washington, D.C. 20548
October 17, 2003
The Honorable Todd R. Platts
Chairman
The Honorable Edolphus Towns
Ranking Minority Member
Subcommittee on Government Efficiency and Financial Management
Committee on Government Reform
House of Representatives
Improper payments are a longstanding, widespread, and significant
problem in the federal government and few would argue that the goal of
reducing them is not a worthy one. This past April, the Office of
Management and Budget (OMB) estimated these payments to be about $35
billion annually for major federal benefit programs. Importantly, this
estimate does not account for all federal programs and activities and
considers less than half of the $2.3 trillion net cost of the federal
government for fiscal year 2002. In addition to these annual costs, the
risk
of improper payments and the government's ability to prevent them has
important long-term implications. As the baby boom generation leaves the
workforce, spending pressures will grow rapidly due to increased costs of
programs such as Medicare, Medicaid, and Social Security. Other federal
expenditures are also likely to increase.
Improper payments include amounts that should not have been made or
were made for incorrect amounts. Specifically, they include inadvertent
errors, such as duplicate payments and calculation errors; payments for
unsupported or inadequately supported claims; payments for services not
rendered or rendered to ineligible beneficiaries; and payments resulting
from fraud and abuse. Measuring improper payments and designing and
implementing actions to reduce or eliminate them will not be easy.
Agencies can have success in this area, but that success will be dependent
on the design, development, and implementation of better internal
controls. This will require strong support and active involvement from
agency management, the administration, and the Congress. Once
committed to a plan of action, all parties must remain involved and
committed to the end goals and their support must be transparent to all.
Our August 2002 report1 called for a coordinated approach to address the
governmentwide improper payment problem and recommended actions to be
taken by federal agencies and OMB. Specifically, we recommended that the
heads of all Chief Financial Officers Act (CFO Act) agencies assign
responsibility for managing improper payments to a senior official, such
as the Chief Financial Officer (CFO) or the Chief Operating Officer (COO),
and that those responsibilities include
o establishing policies and procedures for assessing agency and program
risks of improper payments;
o taking actions to reduce those payments; and
o reporting the results of the agency actions to agency management for
oversight, and other actions, as deemed appropriate.
We also recommended that the Director of OMB
o develop information on improper payments and issue specific guidance to
agencies that provides a comprehensive approach to reducing improper
payments, including providing the transparency in reporting that is
crucial to addressing the problem;
o work with agency officials to provide reasonable assistance in
implementing corrective action plans developed to reduce improper
payments;
o work with agency officials and the Congress to identify and help
eliminate or reduce the barriers that restrict agency actions to reduce
improper payments; and
o require agencies to report improper payment information in a specific,
publicly available document.
Because of your continued interest and concerns regarding financial
management in the federal government, you asked us to follow-up on the
implementation of the recommendations contained in our 2002 report.
1U.S. General Accounting Office, Financial Management: Coordinated
Approach Needed to Address the Government's Improper Payments Problems,
GAO-02-749 (Washington, D.C.: Aug. 9, 2002).
Specifically, you requested that we determine the actions taken by the CFO
Act agencies and OMB in designing and implementing programs to address our
recommendations, including
o assigning responsibility for agency improper payment activities to a
senior official,
o developing detailed action plans to determine the nature and extent of
possible improper payments,
o identifying and implementing cost-effective control activities to
address identified risk areas, and
o publicly reporting the results of their efforts.
Based on the results of our initial meetings with CFO Act agency
officials, it became clear that many agencies were in the initial stages
of designing and implementing actions to address the recommendations.
Therefore, we limited our efforts to interviewing agency officials and
obtaining documentation, when available, that identified and discussed
agency actions on the recommendations. Again, because of the early stages
of many of the agency actions, we did not assess the effectiveness of the
agencies' efforts or independently validate the data they provided. We
plan to concentrate on specific agency actions in future improper
payments-related assignments. We also interviewed key OMB officials to
determine the status of their actions to address the recommendations and
the improper payment-related guidance that OMB issued in May 2003.2
Appendix I contains further details on our scope and methodology.
2OMB Memorandum M-03-13, Improper Payments Information Act of 2002 (Public
Law 107-300), May 21, 2003.
Results in Brief The ultimate success of the governmentwide effort to
reduce improper payments hinges on each federal agency's diligence and
commitment to identify, estimate, determine the causes of, take corrective
actions, and measure progress in reducing all improper payments. Our 2002
report recognized the significance of the governmentwide improper payment
problem and addressed recommendations to the 23 CFO Act agencies3 and OMB
to focus attention on and take actions to reduce the problem. Subsequent
to the issuance of our report, the Improper Payments Information Act of
20024 (Improper Payments Act) was enacted. This legislation required many
of the same actions that we previously recommended to federal agencies and
OMB and that you asked us to address in this report.
We recommended that each CFO Act agency assign responsibility for managing
improper payments to a senior official and noted that this individual
should be responsible for establishing policies and procedures for
assessing risks of improper payments, taking actions to reduce improper
payments, and publicly reporting the results of the actions taken. Based
on discussions with officials at each of the 23 CFO Act agencies, a senior
official, either the COO or the CFO, is now responsible for improper
payment activities at each agency. The communication of the delegation of
this responsibility varied by agency with 14 agencies issuing some type of
agencywide announcement and 9 agencies assigning responsibility but making
no official announcement of the action.
While officials at each of the 23 CFO Act agencies told us that they had
assigned improper payment program responsibilities to a senior official,
our discussions revealed a wide disparity in the progress made in
performing risk assessments, identifying and taking actions to address
internal control problems identified during the risk assessments, and
publicly reporting on the results of actions taken to reduce improper
payments. The 2002 version of OMB Circular A-11, Preparation, Submission,
and Execution of the Budget, section 57, Information on
3We originally made recommendations to 24 CFO Act agencies. We
subsequently omitted the Federal Emergency Management Agency, a CFO Act
agency that became part of the Department of Homeland Security in March
2003.
4Pub. L. No. 107-300, 116 Stat. 2350 (2002).
Erroneous Payments, required 14 CFO Act agencies5 to report erroneous
payment information in their initial budget submissions to OMB for 44
programs beginning with their fiscal year 2003 budget submissions. (GAO
considers the terms "improper payments" and "erroneous payments" to be
synonymous.) In general, these 14 agencies were more active in conducting
risk assessments, implementing corrective actions, and reporting on
improper payments than the 9 CFO Act agencies that were not cited in the
circular. Despite this, discussions with officials at the 14 agencies
revealed that the agencies had completed risk assessments for only 15 of
the 44 programs cited in the circular. Further, these officials provided
us with supporting documentation of these risk assessments for only 7 of
the 15 programs. Of the 9 CFO Act agencies that were not cited in the
circular, officials at only one agency stated that they had completed a
risk assessment of the agency's programs.
Another activity the agency improper payment designee should oversee is
the identification and implementation of actions to address the internal
control deficiencies identified by risk assessments. Not all agencies have
implemented control activities to address internal control weaknesses
identified through risk assessments designed to identify improper
payments. Officials at the 14 agencies cited in OMB Circular A-11 told us
that they have developed and implemented some internal control activities,
such as data-matching and recovery auditing, based on the risk assessment
results for 15 of the 44 programs cited in the circular.
While officials generally acknowledged that they had not fully assessed
all of their programs and activities to identify program risks of improper
payments, some stated that they had considered those risks when initially
designing or modernizing their general program internal control systems.
Specifically, officials stated that their agencies rely on general
internal control activities already in place, and that they will make
appropriate modifications to their control systems once risk assessments
are completed.
Our earlier review of agency fiscal year 2002 Performance and
Accountability Reports showed that the type and amount of improper payment
information reported were inconsistent across federal agencies. Public
reporting of this information is critical to change and, under OMB's
5 The circular required certain improper payment-related actions by 15
federal agencies-14 CFO Act agencies and the Railroad Retirement Board.
guidance for implementing the Improper Payments Act, agencies are to
publicly report the results of their actions to reduce improper payments.
This guidance calls for agencies with significant amounts of improper
payments to report improper payment-related information in their annual
Performance and Accountability Reports. Depending on the agency and
program, this reporting can begin as early as the fiscal year 2003 report
but not later than the fiscal year 2004 report. Officials at each of the
23 CFO Act agencies stated that their agencies will meet the reporting
requirements.
OMB has taken several actions to address our recommendations. It has
issued guidance for agencies' use in implementing their improper payment
programs including the performance of risk assessments, determining the
causes of improper payments, and reporting on the results of the actions
taken to reduce improper payments. In addition, OMB officials stated that
they have met with officials from each CFO Act agency to provide improper
payment-related assistance and to ensure that agencies (1) understand the
requirements set forth in the guidance implementing the Improper Payments
Act, (2) have started to inventory their programs and activities to
identify those at significant risk of improper payments, (3) understand
the risk assessment process, and (4) understand the reporting
requirements.
OMB officials also noted that they are working with agency officials and
the Congress to identify and eliminate barriers that restrict agency
actions to reduce improper payments, such as restricted access to data for
eligibility verification and limited funding for the costs of eligibility
reviews and other stewardship integrity activities. They further told us
that, based on these discussions, they have initiated several actions,
such as proposing legislation designed to improve certification of
eligibility and allocating funds in the federal budget, to help measure,
reduce, and recover improper payments.
In commenting on this report, OMB stated that the report provided an
assessment of the administration's initiative to reduce erroneous payments
that is largely fair and accurate. The response further noted that the
administration's initiative to reduce improper payments is the most
comprehensive assessment of the government's payment processes in its
history. It further suggested changes to the report to reflect the
progress made, or the benefits that have been, or will be, achieved when
the administration's initiative is fully implemented.
Background As the steward of taxpayer dollars, the federal government is
accountable for how its agencies and grantees spend hundreds of billions
of dollars and is responsible for safeguarding those funds against
improper payments. Our work over the past several years has demonstrated
that improper payments are a significant and widespread problem in federal
agencies. In addition, reports such as the Senate Committee on
Governmental Affairs' Government at the Brink,6 the administration's
President's Management Agenda, Fiscal Year 20027 (PMA), and the House
Committee on Government Reform's The Federal Government's Continuing
Efforts to Improve Financial Management8 highlight the impact of improper
payments on federal programs and the need for actions to strengthen the
system of internal control over areas where improper payments occur.
Our past reports have shown that relatively few agencies report improper
payments in their financial statements, even though our audits and those
of agency offices of the Inspector General (IG) continue to identify
serious improper payment problems and related internal control issues.
Federal agency financial statements for fiscal years 2000, 2001, and 2002
reported improper payments of about $20 billion each year. In April 2003,
OMB estimated that improper payments amount to about $35 billion annually
for major federal benefit programs. Importantly, this estimate does not
account for all federal programs and activities and considers less than
half of the $2.3 trillion net cost of the federal government for fiscal
year 2002.
The PMA includes five governmentwide initiatives-one of which is improved
financial management. This initiative calls for the administration to
establish a baseline on the extent of erroneous payments. Under it,
agencies were to include, in their 2003 budget submissions to OMB,
information on improper payment rates, including actual and target rates,
where available, for benefit and assistance programs over $2 billion. The
PMA also notes that, using this information, OMB will work with agencies
6Senator Fred Thompson, Committee on Governmental Affairs, United States
Senate, Government at the Brink, Volume I, Urgent Federal Government
Management Problems Facing the Bush Administration (Washington, D.C.: June
2001).
7Executive Office of the President, Office of Management and Budget, The
President's Management Agenda, Fiscal Year 2002 (Washington, D.C.: Aug.
2001).
8Dan Burton, Committee on Government Reform, United States House of
Representatives, The Federal Government's Continuing Efforts to Improve
Financial Management
(Washington, D.C.: Oct. 2002).
to establish goals to reduce improper payments identified in their
programs.
In July 2001, as part of its efforts to advance the PMA initiative, OMB
revised Circular A-11 to require 16 federal agencies (15 CFO Act agencies
and the Railroad Retirement Board) to submit erroneous payment data,
assessments, and action plans for about 50 programs to OMB with their
initial budget submissions. Specifically, the circular required that
agencies submit information including estimated erroneous payment rates,
target rates for future reductions in these payments, the types and causes
of these payments, and variances from targets or goals established. In
addition, agencies were to provide a description and assessment of the
current methods for measuring the rate of erroneous payments and the
quality of data resulting from these methods. Based on an August 2001
memorandum from the Deputy Controller, OMB, to the CFOs and budget
officers of executive departments and agencies, agencies were to first
include this erroneous payment information in their initial fiscal year
2003 budget submissions. A June 2002 revision to the circular reduced the
number of CFO Act agencies required to submit erroneous payment data to 14
(OMB removed the Agency for International Development from the list) and
reduced the number of programs for which improper payment information was
required to 44. (Appendix II lists the agencies and programs.) In July
2003, OMB revised the circular by eliminating the requirement for
information on improper payments. Despite this action, OMB officials have
stated that they will require the agencies cited in the earlier version of
the circular to report their efforts to reduce improper payments in the
programs previously identified in the circular.
Recent Legislation Targets Improper Payments
In November 2002, the Congress passed the Improper Payments Act. The
requirements of the act correspond to the recommendations in our 2002
report. Specifically, it requires agency heads to annually review all
programs and activities that they administer and identify those that may
be susceptible to significant improper payments. Once agencies identify
their susceptible programs, the act requires them to estimate the annual
amount of improper payments in those programs and activities. For programs
for which estimated improper payments exceed $10 million, agencies are to
report to the Congress on the actions they are taking to reduce those
payments. The report is also to include a discussion of the causes of the
improper payments identified, actions taken to correct those causes, and
the results of the actions taken to address those causes. It further
requires
OMB to prescribe guidance for federal agency use in implementing the act.
OMB issued this guidance in May 2003.
Executive Agency Actions to Implement Recommendations
While all 23 CFO Act agencies have assigned responsibility for improper
payment activities to a senior official, we found limited progress in the
performance of risk assessments, the design and implementation of actions
to address improper payment problems identified, and public reporting of
improper payment amounts. Of the 23 CFO Act agencies, OMB Circular A-11
(2002)9 required 14 agencies to report improper payment information in
their initial budget submissions to OMB beginning with their fiscal year
2003 submissions. However, even though the requirements have existed for
two years, the applicable agencies have only conducted risk assessments
for 15 of the 44 programs listed in the circular. In addition, these
agencies had implemented more of our recommendations than the 9 CFO Act
agencies not cited in the circular.
Assign Responsibility to a Officials at each of the 23 CFO Act agencies
told us that a senior official
Senior Official now has responsibility for managing improper payments. The
communication of that responsibility varied by agency with 14 agencies
issuing some type of announcement of the designation and 9 agencies making
no formal announcement of the assignment.
Recommendation: The head of each CFO Act agency should assign
responsibility to a senior official, such as the COO or the CFO, for
establishing policies and procedures for assessing agency and program
risks of improper payments, taking actions to reduce those payments, and
reporting the results of the actions to agency management for oversight
and other actions as deemed appropriate.
By focusing their attention on and communicating their intent to reduce
improper payments throughout an organization and to all affected
organizational units and individuals, top-level officials set the stage
for change. They instill a culture of accountability by adopting a
positive and supportive attitude toward improvement and the achievement of
established program outcomes. They also establish a transparent
environment in which their expectations for program improvement are
9Unless noted otherwise, when referring to OMB Circular A-11 in this
report, we are referring to the circular as revised in June 2002.
clearly defined and accountability for achieving these improvements is
set. The actions of these officials should include setting and maintaining
the ethical tone, delegating roles and responsibilities, and implementing
human capital initiatives clearly communicating the need for change.
Based on our discussions with officials at the 23 CFO Act agencies and
review of documents that they provided, 21 agencies have assigned
responsibility for managing improper payments to the agency CFO and 2 have
assigned the responsibility to the COO. This assignment of responsibility
was communicated to agency personnel by various means. Fourteen of the
agencies made either oral or written announcements of the designation and
9 made no formal announcement. Specifically, agency officials described
the communication of the assignment as follows.
o Nine agencies communicated the assignment by issuing written
communications or sending e-mail to bureau CFOs or office directors.
o Four agency officials told us that the agency had communicated this
assignment agencywide through staff meetings.
o One agency communicated the assignment orally through high-level
meetings held with executive management or department CFOs.
o Officials at five agencies told us that, while the role was assigned to
an agency official, there was no official communication or documentation
of the assignments.
o Officials at four agencies informed us that job descriptions in the
agency personnel manual, agency policies, directives, and delegations of
authority-which usually give a broad range of financial management
responsibility to the CFO/COO but do not specifically mention improper
payments-sufficiently covered the assignment and the agencies did not
issue any formal or official communication to agency staff regarding the
designated agency official's improper payment responsibilities.
Regardless of the method used to delegate improper payment
responsibilities and communicate that delegation, successful
implementation of an improper payment program depends on the ability of
the individual given the responsibility to set the tone that the
organization regards improper payments as unacceptable. This may require a
change in organizational culture for some agencies and programs. In the
organizations we studied in our executive guide,10 the pressures for
change applied by top management were instrumental as change agents. These
officials not only defined and communicated a need for improved program
operations but, most important, they redefined the organizational culture.
Further, by being transparent in redefining the culture, top management
set expectations and obtained buy-in on the need for and importance of
change from individuals throughout the organizations. This culture of
accountability was essential to begin the critical next step in managing
improper payments-the risk assessment process.
Status of Actions to Determine the Nature and Extent of Improper Payments
Based on our discussions with officials at the 23 CFO Act agencies, 9 of
the 14 CFO Act agencies cited in OMB Circular A-11 had not yet developed
action plans to conduct or had conducted risk assessments for all of their
programs and activities cited in the circular. Officials at 8 of the 9 CFO
Act agencies not cited in the circular stated that their agencies were in
the initial stages of developing action plans to perform risk assessments.
Officials at the other agency stated that the risk assessments have been
completed.
Recommendation: Develop detailed action plans to determine the nature and
extent of possible improper payments for all agency programs and/or
activities spending federal funds.
Agencies demonstrate a strong control environment and interest in
addressing improper payment issues by taking appropriate actions to
address risks. An essential element of developing an action plan is the
completion of a risk assessment, which can be used to prioritize time and
resources and set error rate reduction targets. A risk assessment is a key
step in gaining assurance that programs are operating as intended and are
achieving their expected outcomes. It entails a comprehensive review and
10U.S. General Accounting Office, Strategies to Manage Improper Payments:
Learning From Public and Private Sector Organizations, GAO-02-69G
(Washington, D.C.: Oct. 2001).
analysis of program operations to determine where risks exist, what those
risks are, and the potential or actual impact of those risks on program
operations. The specific risk assessment methodology used can vary by
organization because of differences in missions and the methods used in
assigning risk levels. The information developed during a risk assessment
forms the foundation or basis upon which management can determine the
nature and type of corrective actions needed. It also gives management
baseline information for measuring progress in reducing improper payments.
The performance of risk assessments will make information on the causes
and extent of improper payments available to agency officials, program
managers, and others with oversight and monitoring responsibilities. While
no requirement to perform assessments to identify the risk of improper
payments for all agency programs and activities existed prior to the
Improper Payments Act, OMB Circular A-11 required that 14 CFO Act agencies
perform these assessments for 44 selected programs. Specifically, the
circular required the agencies to
o determine program-wide estimates for each listed program for which
erroneous payments are currently being estimated,
o provide the implementation status of action plans to perform risk
assessments or develop baseline estimates for programs that are not
currently estimating erroneous payments,
o provide the status of action plans for preventing and/or reducing
erroneous payments for all programs cited in the circular, and
o report the results of these assessments in agency initial budget
submissions to OMB.
The Improper Payments Act and the related OMB guidance to implement the
act extended the improper payment requirements to programs and activities
beyond those cited in OMB Circular A-11. The act requires all agencies
o to review all programs and activities and identify those that are
susceptible to significant improper payments;
o to identify programs where the risk of improper payments is
significant, estimate the annual amount of improper payments, and submit
those estimates to the Congress;
o that identify programs with estimates of improper payments that exceed
$10 million, to include, with the improper payment estimates, a report
discussing the causes, actions taken, and results of actions taken to
address those causes. The report should also include a statement regarding
the capability of the agencies' information systems and infrastructure to
reduce improper payments or a description of the related resources needed
to do so, as well as a description of the steps the agency has taken to
ensure that agency managers are held accountable for reducing improper
payments.
Although the act did not quantify "significant improper payments," OMB's
May 2003 guidance on implementing the act-which we will discuss later in
this report-defined the term as "annual erroneous payments in the program
exceeding both 2.5 percent of program payments and $10 million."
As a result of OMB Circular A-11, improper payment-related identification
and reporting requirements existed at 14 of the CFO Act agencies before
such requirements existed at the remaining 9 CFO Act agencies. Because of
this earlier requirement, we will summarize and present the results of our
interviews and documentation reviews for the 14 agencies cited in the
circular separately from the 9 CFO Act agencies not cited.
We found that, according to agency officials, 9 of the 14 CFO Act agencies
cited in OMB Circular A-11 had not yet developed action plans to conduct
or had conducted risk assessments for all of their programs and activities
cited in the circular.
o While the agencies identified in OMB Circular A-11 are responsible for
additional programs and activities other than those identified in the
circular, agency officials told us that the focus at those agencies has
been on the programs cited in the circular. They further stated that their
primary attention was on programs of higher risk or those constituting
larger dollar amounts.
o Agency officials told us that they had completed risk assessments for
15 of 44 programs cited in the circular. Officials could provide us with
supporting documentation of these risk assessments for only 7 of the 15
programs.
o We found that three of the agencies that had not completed
comprehensive risk assessments of a circular program had estimated and
reported improper payment amounts in those programs in their annual
Performance and Accountability Reports. Another agency was able to report
improper payment estimates because, according to agency officials, it had
assessed a portion of its programs listed in the circular. However, they
further told us that they were still assessing other aspects of their
programs for the risk of improper payments and would consider additional
controls and revise their estimate based on the assessment results.
o Officials at five of the agencies stated that the significance of the
risk of improper payments in their programs-including some of the OMB
Circular A-11 programs-that were not yet assessed was unknown. Officials
at two CFO Act agencies identified in the circular told us that they
believed the risk of improper payments in the programs not yet assessed
was insignificant, but acknowledged that they had not performed detailed
risk assessments to confirm that view.
Prior to the passage of the Improper Payments Act, the nine CFO Act
agencies not cited in the circular had no requirement to perform the
improper payment-related activities called for in the legislation. In
general, we found that most of these agencies were in the initial stages
of developing action plans to perform risk assessments, as indicated
below.
o Seven agencies were in the process of planning and developing action
plans for conducting risk assessments of their programs and activities.
o One agency had completed its risk assessments and provided us with
supporting documentation. The agency requires department managers to
submit quarterly reports on improper payments and then, based on a review
of those reports, may require corrective actions such as automating a
previous manual process or providing training to individuals processing
payments. According to agency officials, these detailed reports allow
agency leaders to continually monitor payment performance.
o One agency had no plans to conduct a risk assessment because the agency
only made administrative payments, such as payroll and commercial and
travel payments, and did not consider those payments to be susceptible to
improper payments.
While we found that most improper payment-related risk assessments
conducted focused on the OMB Circular A-11 programs, under the
requirements of the Improper Payments Act, all agencies are now required
to annually assess all of their programs and activities for improper
payments. OMB's guidance for agency implementation of the Improper
Payments Act states that agencies are required to annually review all
programs, identify those susceptible to significant erroneous payments,
and maintain documentation to support the review and the results.
Agency Actions to Identify and Implement Control Activities to Reduce
Improper Payments
By identifying programs and activities with improper payments and the
causes of these payments, risk assessments set the stage for the
identification, design, and implementation of control activities to
address the causes of the problems. We found that, although most agencies
acknowledged that they had not fully assessed all of their programs and
activities to identify the magnitude of improper payments, if any, some
stated that they had addressed those risks when initially designing or
modernizing their general program internal control systems. Specifically,
the agency officials we interviewed said that they rely on general
internal control activities already in place to minimize improper
payments. These general internal control activities include data-sharing,
computer-editing techniques, on-site visits, manual claims reviews,
prepayment accuracy reviews, inspector general reviews, and postpayment
recovery audits. Further, some agency officials indicated that, with the
diverse missions of their programs and the different processes used in the
administration of those programs, developing an agencywide methodology for
assessing risk and accumulating the resulting data might take considerable
time. Rather than waiting for comprehensive risk assessments to be
completed, some agency officials told us that they had begun to implement
additional pre-and postpayment controls designed to help identify and
reduce improper payments resulting from duplicate payments, split
purchases, and miscalculations. They noted that, as additional data become
available from the risk assessments, control system weakness can be
remedied.
Recommendation: Identify cost-effective control activities to address
identified risk areas.
Control activities are the policies, procedures, techniques, and other
mechanisms designed to help ensure that management's decisions and plans
are carried out and program objectives are met. The control activities
used by organizations to address improper payments vary
according to the specific risks incurred. As noted in our executive guide,
the types of payment activities identified as presenting the most
significant risk of improper payments and the kinds of data and other
resources available dictate the specific changes in internal control
systems needed to adequately guard against improper payments.
Not all agencies have implemented control activities to address internal
control weaknesses identified through risk assessments designed to
identify improper payments. Officials of programs already required by OMB
Circular A-11 to report improper payment information in their initial
budget submissions to OMB told us that they understand some of the causes
of their improper payments and have begun implementing actions, as
demonstrated below.
o According to officials at 6 of the 14 agencies, their control
activities include monitoring and reviewing the results of Single Audit
Act11 and IG audits and reviews for questionable costs or other potential
improper payment activity.
11The Single Audit Act, as amended, requires nonfederal entities that
expend $300,000 ($500,000 for fiscal years ending after December 31, 2003)
or more in a year in federal awards to have a single or program-specific
audit conducted for that year and provide a copy of the audit report to
the Federal Audit Clearinghouse. The Clearinghouse will forward a copy of
the report to the awarding agency when the report discloses audit findings
relating to that agency's programs.
o Officials at three agencies reported that they are analyzing payment
data for potential improper payments and are using data-mining techniques
as a postpayment procedure to review and analyze diverse data for
relationships that have not previously been discovered.12
o Officials at five agencies stated that they perform data-sharing or
data-matching with other government agencies to compare information from
different sources to verify that accurate eligibility information is
reported to help ensure that payments are appropriate before they are
made.
o Officials at four agencies mentioned their use of recovery auditing-the
examination of agency payments to identify duplicate payments, errors on
invoices, payments for items not received, errors in determining payment
amounts and executing payments, and the failure to account for credits for
applicable discounts or returned merchandise.
Officials at most of the 9 agencies not cited in OMB Circular A-11 stated
that they are generally still assessing their programs for risks and have
not identified cost-effective controls designed to target improper payment
activities. They rely on their general internal control procedures already
in place to ensure payments are correct. However, like the 14 CFO Act
agencies that were cited in the circular, some plan to implement, have
begun to implement, or have implemented pre- and postpayment controls
designed to help identify and reduce improper payments resulting from
duplicate payments, split purchases, and miscalculations.
o Officials at one agency told us that they have initiated recovery
auditing programs, as required by legislation, to identify errors made in
paying contractors and to recover amounts erroneously paid to contractors.
o Officials at two agencies cited plans to begin a recovery auditing
program. Officials at one of these agencies stated that the agency has
12 The central repository of data commonly used to perform data-mining is
called a data warehouse. Data warehouses store historical and current data
and consist of tables of information that are logically grouped together.
The data warehouse allows program and financial data from different
nonintegrated systems throughout an organization to be captured and placed
in a single database where users can query the system for information. The
information can then be "mined" or searched according to specific criteria
to identify associations, sequences, patterns, and clusters between
different pieces of information- relationships that are often hidden in
separate databases.
begun a recovery auditing pilot program while the other agency was still
meeting with outside auditors to discuss contracting the effort.
o Officials at two agencies mentioned that a portion of their funds were
cross-serviced by another federal government agency. For these funds, they
are relying exclusively on the internal controls of the agency service
provider in detecting and preventing improper payments.
Although comprehensive risk assessments and action plans to perform them
may not be completed, some agency officials reported that they are
developing and performing risk assessments and, at the same time, are
beginning to develop additional control activities to reduce improper
payment activity in their programs. As further risk assessments are
completed and potential improper payments are identified, additional
controls can be developed and implemented to target these problem areas.
Public Reporting on Improper Payments and Progress in Reducing Them
Improper payments are a significant problem and information on federal
actions and the results of those actions is a critical element in the
overall process of reducing those payments. Currently, few agencies
publicly report the amounts of their improper payments or other
information such as barriers to identifying and/or reducing improper
payments, targets and goals set for improvement, and progress in
identifying, minimizing, and recovering improper payments. For example,
for fiscal years 2000 through 2002, agencies reported improper payment
information in their annual Performance and Accountability Reports
totaling about $20 billion each year. However, the type and amount of
information reported was inconsistent across federal agencies. Some
agencies estimated amounts for one or some of their programs but not
others, while others acknowledged making improper payments but did not
report specific improper payment amounts. Some agencies reported amounts
in their Performance and Accountability Reports one year but not the next.
One agency did not update its annual estimate one year and reported the
same estimated amount from the prior year.
Recommendation: Agencies should periodically report, through publicly
available documents, to the agency head, OMB, and the Congress on the
progress made in achieving improper payment reduction targets and future
action plans for controlling improper payments.
Minimizing improper payments often requires the exchange of relevant,
reliable, and timely information between individuals and units within an
organization and with external entities with oversight and monitoring
responsibilities or interests. As we reported in our executive guide, it
is important that the results of the actions taken be openly communicated
or available not only to the Congress and agency management but also to
the general public. This transparency demonstrates the importance that the
government places on the need for change and openly communicates
performance results. It also acts as an incentive for agencies to be ever
vigilant in their efforts to address the wasteful spending that results
from lapses in controls that lead to improper payments.
An August 2001 memorandum from the Deputy Controller, OMB, to the CFOs and
budget officers of executive departments and agencies noted that "Public
reporting of progress in meeting goals for minimizing erroneous payments
enhances accountability and we expect agencies to do so." OMB strengthened
its position on the importance of public reporting when, in May 2003, it
issued guidance on implementing the Improper Payments Act and required
agencies to report improper payment information in their annual
Performance and Accountability Reports. Depending on the agency and
program, this reporting can begin as early as the fiscal year 2003 report
but not later than the fiscal year 2004 report.
To determine the extent that agencies were already reporting improper
payment information publicly, we reviewed agency fiscal year 2002
Performance and Accountability Reports. Of the 14 CFO Act agencies that
were required to report improper payment rates, estimates, and other
information for 44 programs in their initial budget submissions to OMB, 4
reported improper payment estimates for all required programs in their
fiscal year 2002 financial statements. (Financial statements are an
integral component of the annual Performance and Accountability Reports.)
Another 3 agencies reported partial estimates for some of their programs.
The remaining 7 agencies-accounting for 20 of the 44 programs-did not
report current estimates of improper payments in their fiscal year 2002
Performance and Accountability Reports.
In our discussions with agency officials about public reporting, officials
at one agency reported that the agency makes improper overpayment and
underpayment rate information available for one of its programs, but that
it does not report annual dollar estimates. An official at another agency
told us that when required to do so, the agency will publicly report all
improper
payment information; however, it feels that this is sensitive information
and is concerned that the information may be used inappropriately.
Further, officials at some agencies stated that they consider disclosure
of improper payment information in public hearings or in federal budget
documents submitted to OMB to be public reporting. In making our
recommendation, we envisioned a more transparent medium such as agency
annual Performance and Accountability Reports where not only the Congress
but the public and others with oversight and monitoring interests could
obtain and use the information to hold agencies accountable for achieving
target rates or otherwise implementing specifically planned actions to
reduce improper payments.
Eventually, agencies will provide public reporting since current OMB
guidance, which resulted from the Improper Payments Act, calls for
agencies to report significant amounts of improper payment-related
information in their annual Performance and Accountability Reports. This
reporting can begin as early as the fiscal year 2003 report but not later
than the fiscal year 2004 report. Officials at each of the 23 CFO Act
agencies stated that their agency will meet the reporting requirements.
OMB's Actions to Implement Recommendations
As the President's agent for managing and implementing policy, OMB issues
guidance and oversees the administrative organization and operations of
federal agencies. Its role in managing, implementing, and overseeing
governmentwide administrative policy, its interagency perspective, and its
leadership role on interagency councils make it a key player in the
government's effort to reduce improper payments. OMB, which has shown
leadership in the improper payments area, has issued guidance to federal
agencies on the design and implementation of improper payment programs and
has initiated contact and is working with agency officials to address
improper payment-related issues. OMB Circular A-11's improper
payment-related requirements, the OMB guidance issued for implementing the
Improper Payments Act, and OMB contacts with agency and congressional
officials have fulfilled the intent of the majority of our OMB-related
recommendations. It is important to remember, however, that the
effectiveness of the governmentwide effort to reduce improper payments is
largely dependent on individual agency assessments of the extent of their
improper payment problems, the causes of those problems, and the
implementation of actions to reduce their problems.
Issue Specific Guidance on OMB has issued two key guidance documents that,
in addition to an Approach to Reduce addressing our recommendations, have
provided agencies with Improper Payments instructions for identifying,
measuring, and reporting their improper
payments.
Recommendation: Issue specific guidance to agencies that provides a
comprehensive approach to reducing improper payments.
The PMA established priorities for five crosscutting initiatives to
improve the management and performance of the federal government. One of
the initiatives, to improve financial performance, focuses special
attention on addressing improper payments. To assist agencies in
implementing the PMA initiatives, in June 2001 OMB revised Circular A-11,
adding Section 57, Information on Erroneous Payments, which provided some
degree of guidance to agencies by
o defining the term "erroneous payments,"
o establishing a formula for determining error rates and amount
estimates, and
o setting the format for agency reporting.
While this guidance was a good first start, the circular was not
applicable to all agencies or all programs and activities and the required
reporting was limited to the agency's initial budget submissions to OMB.
Since these submissions are not publicly disclosed, the improper payment
information contained in them is not routinely or consistently available
for congressional or public review and analysis, or for holding federal
agencies accountable for improvement. OMB updated the guidance in June
2002 and required a more in-depth analysis of improper payment information
from agencies, but the reporting mechanism continued to be the initial
budget submissions.
In May 2003, OMB included a requirement for public reporting in its
guidance on implementing the Improper Payments Act. This guidance defines
key terms used in the law, addresses the specific reporting requirements
provided by the act, and lays out the steps necessary for agencies to meet
those requirements. For example, it
o defines annual improper payments to include both over-and
underpayments;
o defines the term "programs and activities" to include "activities or
sets of activities recognized as programs by the public, OMB, or Congress
as well as those that entail program management or policy direction;"
o defines "significant erroneous payments" as annual erroneous payments
in the program exceeding both 2.5 percent of program payments and $10
million,
o denotes that "grants" include competitive and block/formula grant
programs, regulatory activities, research and development activities,
direct federal programs, all procurements including capital assets and
service acquisition, credit programs, and agency activities that support
its programs;
o sets statistical sampling confidence and precision levels for
estimating improper payments; and
o requires agencies with estimated improper payments exceeding $10
million in any program or activity to include, along with the estimated
amount, a discussion of the amount of actual improper payments the agency
expects to recover and how it will go about recovering them in the
management discussion and analysis section of their annual Performance and
Accountability Report.
The guidance provides information for agency use that had not previously
been available. However, as with any legislation or implementing guidance,
the ultimate success or failure of the Improper Payments Act hinges on
each agency's diligence and its commitment to identify, estimate,
determine the causes of, take corrective actions on, measure, and report
progress in reducing all improper payments.
Work With Agencies to According to officials at OMB, they have been
working with agency
Reduce Improper Payments officials and interagency councils to provide
assistance to agencies as they begin to address their improper payment
problems.
Recommendation: Work together with agency officials to provide reasonable
assistance in implementing corrective action plans developed to reduce
improper payments.
As part of the PMA initiative to improve financial performance, officials
at OMB told us they have met with officials from all relevant agencies to
provide assistance and to ensure that agencies (1) understand the
requirements set forth in the guidance implementing the Improper Payments
Act, (2) have started to inventory their programs and activities for
significant risk of improper payments, (3) understand the risk assessment
process, and (4) understand the reporting requirements under the Improper
Payments Act.
OMB officials also told us that they have been working with a joint work
group of members of the Chief Financial Officers Council (CFOC) and the
President's Council on Integrity and Efficiency (PCIE)13 to address
improper and erroneous payments. The work group periodically convenes to
discuss and develop best practices and other methods to reduce or
eliminate, where possible, improper and erroneous payments made by federal
government agencies. It has issued reports and other outputs to the
CFOC/PCIE, reflecting work group deliberations and determinations. For
example, the following guidance documents are available through the
website www.ignet.gov/pande/audit.html#sub.
o Report on improper payment indicators-lists events or conditions that
either demonstrate that an erroneous payment has been made or suggest that
erroneous payments are likely to occur. The report includes a list of
methods used to identify erroneous payments, possible indicators of
erroneous payments, and limitations or obstacles to agencies' use of
indicators to identify and prevent improper payments.
13The PCIE is an interagency council comprising principally the
Presidentially appointed and Senate-confirmed IGs, which were established
by Executive Order No. 12301 in 1981 to coordinate and enhance the work of
the IGs.
o Report on benchmarks-discusses the process of continually measuring
performance and comparing against the best performing organizations to
gain information on best practices that will help organizations improve
performance.
o Critique on the effectiveness of the differing processes used to
determine improper payment rates-identifies and discusses the
effectiveness of the methodologies used by 9 federal agencies and 17
different programs, ranging from entitlement programs to grant and credit
programs, to determine improper payment rates.
The work group is considering further best practices guidance to assist
agencies in implementing the Improper Payments Act.
In July 2003, OMB and the joint CFOC/PCIE Erroneous and Improper Payments
Working Group hosted an Improper Payments Act kick-off meeting. This
meeting provided agencies with information on the legislation and the
guidance and presented information on various ways agencies could begin to
address their improper payment problems.
OMB officials also told us that the meetings with agency officials, along
with meetings of the joint CFOC/PCIE Erroneous and Improper Payments
Working Group, have provided OMB with the opportunity to explicitly
encourage information sharing across agencies, offer assistance to
agencies in measuring their improper payments and developing action plans,
and discuss actions to reduce or eliminate barriers that restrict agency
actions to reduce improper payments.
Work With Agencies to OMB and agency officials told us that they have
jointly identified and Address Barriers to discussed barriers that
restrict agency actions to better manage their Reducing Improper improper
payments. OMB further told us that, based on these discussions,
it has initiated several actions, such as proposing legislation designed
to
Payments improve certification of eligibility and allocating funds in the
Budget of the United States Government, Fiscal Year 2004, to help measure,
reduce, and recover improper payments.
Recommendation: Work with agency officials and the Congress to identify
and help eliminate or reduce, to the extent practicable, the barriers that
restrict agency actions to reduce improper payments.
Examples of agency barriers that OMB stated it has begun to contend with
include restricted access to data for verification of benefit eligibility
and the lack of agency funding to perform analysis of payment accuracy
and/or implement corrective actions. To address these barriers, OMB stated
that it has proposed data-sharing legislation to the Congress to address
restricted agency access to needed data and has acted as an advocate for
agencies' needs in requesting funding for improper payment-related efforts
to implement the PMA's call for actions to better manage improper
payments.
For example, the Budget of the United States Government, Fiscal Year 2004,
includes the following improper payment-related provisions.
o A proposal allows the Internal Revenue Service (IRS) to match income
data reported in the Department of Education's student aid applications
with the applicant's tax data to ensure that students do not receive
awards in excess of the amount for which they are eligible. The proposal
is projected to save $638 million in Pell Grant costs over 2003-2004.
o Allocate $20 million in Health Care Fraud and Abuse Control funding to
help finance an initiative for the Health and Human Services agency to
develop a methodology to measure Medicaid and State Children's Health
Insurance Program improper payments, including producing error rates.
o Increase the IRS budget by $100 million to lower erroneous earned
income tax credit payments.
Transparency in Reporting OMB has set a requirement for the 14 CFO Act
agencies identified in OMB Circular A-11 to begin annual reporting of
improper payment information in their fiscal year 2003 Performance and
Accountability Reports and for all other agencies to begin annual
reporting in their fiscal year 2004 Performance and Accountability
Reports.
Recommendation: Require all federal agencies to report the information
called for by OMB Circular A-11 on improper payments in a specific,
publicly available document.
In May 2003, OMB issued guidance implementing the Improper Payments Act
that states that information on the results of improper payment-related
efforts must be reported in agency Performance and Accountability Reports
for fiscal years ending on or after September 30, 2004. (These reports
should be available in November 2004.) Moreover, the guidance requires the
14 CFO Act agencies already required by OMB Circular A-11 to report
improper payment information in their initial budget submissions to OMB to
also include that improper payment information in their fiscal year 2003
Performance and Accountability Reports. This should result in publicly
available information on improper payments for about 44 major federal
programs, such as Medicare and Food Stamps, about one year earlier than
the reporting date for all other federal programs and activities. These
actions will help ensure transparency in reporting for those agencies with
programs and activities with significant risks for improper payments.
While OMB has shown progress in developing the framework and issuing
guidance to agencies to implement the requirements of the Improper
Payments Act, additional or supplemental guidance may be necessary to
ensure consistency in measuring and reporting among agencies. Importantly,
commitment from the CFO Act agencies and OMB's continued leadership and
support will be needed as agencies begin to scrutinize their programs and
activities for improper payments and design and implement actions to
address the causes of the improper payments identified.
Conclusions The governmentwide effort to identify and assess the magnitude
of improper payments, to take actions to reduce those payments, and to
publicly report the results of those efforts is generally in its infancy
stages. All CFO Act agencies have assigned improper payment evaluation and
reduction responsibilities to a senior level official. However, while some
agencies have taken significant actions to identify improper payments in
selected programs, officials at only one of these agencies indicated that
they have completed assessments of all agency programs and activities to
determine if improper payments are occurring, their magnitude, and the
need for actions to address the problems identified. Further, although OMB
Circular A-11 has required 14 CFO Act agencies to report selected improper
payment information on 44 programs to OMB beginning with their fiscal year
2003 budget submissions, those agencies have completed
risk assessments for only 15 of the programs. Based on discussions with
officials at the 23 CFO Act agencies, risk assessments have either not
begun or are in progress for the other programs cited in the circular and
all other agency programs and activities.
By legislatively requiring assessment of significant improper payments,
corrective action, and reporting responsibilities, the Improper Payments
Act could result in a focused governmentwide approach to clearly defining
the magnitude of the improper payment problem and to actions to reduce or
eliminate the problem. However, as we stated in our 2002 report, measuring
improper payments and designing and implementing actions to reduce or
eliminate them are not simple tasks. They will require strong support and
active involvement from agency top management, the administration, and the
Congress. As important as this OMB and congressional involvement is,
however, the ultimate success of the govenrmentwide effort to reduce
improper payments hinges on each federal agency's diligence and commitment
to identify, estimate, determine the causes of, take correction actions
on, measure, report progress on, and hold officials accountable for
reducing all improper payments.
The public reporting of improper payment information called for in the
Improper Payments Act will begin with the fiscal year 2003 Performance and
Accountability Reports for selected agencies and programs and for all
other agencies beginning no later than their fiscal year 2004 Performance
and Accountability Reports. Review and evaluation of the information in
these reports should help clarify the actual magnitude of the
governmentwide improper payments problem, the actions taken to address
them, and future planned efforts in this area. The reports will also
provide a clearer picture of the level of effort and importance that each
agency has placed on the identification and reduction of improper payments
within their programs and activities. As such, they will provide useful
information for continuing coordination and communications among the
agencies, the administration, and the Congress.
OMB's Comments and We received written comments from OMB on a draft of
this report, which are reprinted in appendix IV. In its response, OMB
stated that the report
Our Evaluation provided an assessment of the administration's initiative
to reduce erroneous payments that is largely fair and accurate. The
response further noted that the administration's initiative to reduce
improper payments is the most comprehensive assessment of the government's
payment processes in its history. It further suggested changes to the
report to reflect
the progress made, or the benefits that have been, or will be, achieved
when the administration's initiative is fully implemented.
We recognize that OMB has shown leadership in the improper payments
area, however, as we stated in our report, the ultimate success of the
governmentwide effort to reduce improper payments is largely dependent
on the specific actions taken by each of the agencies. Until the
administration's initiative is fully or significantly implemented and the
results of agency actions to address improper payments are made public, it
would be premature to assess the achievement of actual or potential
benefits. We considered all of OMB's comments and made changes to the
report as appropriate.
We are sending copies of this report to the Chairman and Ranking Minority
Members of the Senate Committee on Governmental Affairs, the House
Committee on Government Reform, the Senate Committee on the Budget,
the House Committee on the Budget, and other appropriate congressional
committees. We will also be sending copies to the Director of the Office
of
Management and Budget and the heads of the CFO Act agencies. Copies
will also be made available to others upon request. In addition, the
report
will be available at no cost on the GAO Web site at http://www.gao.gov.
This report was prepared under the direction of McCoy Williams, Director,
Financial Management and Assurance, who may be reached at (202) 512-
6906 or [email protected] if you or your staff have any questions. Staff
contacts and other key contributors to this report are listed in appendix
V.
McCoy Williams
Director
Financial Management and Assurance
Appendix I
Scope and Methodology
The Government Management Reform Act of 1994 expanded the requirements of
the Chief Financial Officers Act of 1990 by requiring, among other things,
the annual preparation and audit of organizationwide financial statements
of 24 executive departments and agencies. Since March 2003, when the
Federal Emergency Management Agency was incorporated into the Department
of Homeland Security, 23 agencies are subject to this act.
To obtain information on the status of agency actions on the
recommendations contained in our 2002 report, we developed a data
collection instrument (DCI) that contained a standardized set of questions
for each recommendation. Using this instrument, we interviewed officials
at each of the 23 CFO Act agencies and OMB to obtain information on the
status of their implementation of the recommendations and to discuss
implementation of the Improper Payments Information Act of 2002 and the
related OMB implementation guidance. A list of the CFO Act agencies, which
accounted for about 89 percent of the government's net cost in fiscal
years 2001 and 2002, is presented in appendix III. We also requested that
the agency officials provide all available documentation to support their
statements about the status of agency actions to implement the
recommendations. At one agency's request, we conducted the interview by
telephone. In addition, we reviewed relevant agency documents including
strategic plans, agency performance plans and reports, and reports from
agency program partners.1
We completed DCIs for all 23 CFO Act agencies and OMB. We reviewed the
completed DCIs and all accompanying documentation. To facilitate our
analysis, we developed a database to sort agency responses and categorize
them across several dimensions. Where necessary, we contacted agencies to
clarify responses, request additional information, and update the initial
responses. Because the agencies are generally in the initial stages of
their implementation efforts, we did not determine the validity of
representations made or the documentation provided.
We performed our work in Washington, D.C. between January and September
2003 in accordance with generally accepted government auditing standards.
We requested written comments on a draft of this
1Program partners can include other agencies or intermediaries responsible
for carrying out different aspects of the program and might include
federal agencies, states or localities, grant recipients, participating
financial institutions, regulated bodies, and contractors.
Appendix I
Scope and Methodology
report from the Director of the Office of Management and Budget. The
comments are discussed in the section entitled OMB Comments and Our
Evaluation and are reprinted in appendix IV. We considered all of OMB's
comments and made changes to the report as appropriate.
Appendix II
CFO Act Agencies and Related Programs for Which OMB Circular A-11 Requires
Erroneous Payment Information
1. Department of Agriculture
1 Food Stamps
2 Commodity Loan Program
3 National School Lunch and Breakfast
4 Women, Infants, and Children
2. Department of Defense
5 Military Retirement 6 Military Health Benefits
3. Department of Education
7 Student Financial Assistance 8 Title I
4. Department of Health and Human Services
9 Head Start
10 Medicare
11 Medicaid
12 TANF
13 Foster Care - Title IV-E
14 State Children's Insurance Program
15 Child Care and Development Fund
5. Department of Housing and Urban Development
16 Low Income Public Housing
17 Section 8 Tenant Based
18 Section 8 Project Based
19 Community Development Block Grants (Entitlement Grants, States/Small
Cities)
6. Department of Labor
20 Unemployment Insurance 21 Federal Employee Compensation Act 22
Workforce Investment Act
7. Department of the Treasury
23 Earned Income Tax Credit
8. Department of Transportation
24 Airport Improvement Program 25 Highway Planning and Construction 26
Federal Transit - Capital Investment Grants 27 Federal Transit - Formula
Grants
9. Department of Veterans Affairs
28 Compensation
29 Dependency and Indemnity Compensation
30 Pension
31 Insurance Programs
Appendix II CFO Act Agencies and Related Programs for Which OMB Circular
A-11 Requires Erroneous Payment Information
(Continued From Previous Page)
10. Environmental Protection Agency
32 Clean Water State Revolving Funds 33 Drinking Water State Revolving
Funds
11. National Science Foundation
34 Research and Education Grants and Cooperative Agreements
12. Office of Personnel Management
35 Retirement Program (Civil Service Retirement System and Federal
Employees'
Retirement System) 36 Federal Employees Health Benefits Program 37 Federal
Employees' Group Life Insurance
13. Small Business Administration
38 7(a) Business Loan Program
39 504 Certified Development Companies
40 Disaster Assistance
41 Small Business Investment Companies
14. Social Security Administration
42 Old Age and Survivors' Insurance
43 Disability Insurance
44 Supplemental Security Income Program
Source: GAO.
Appendix III
CFO Act Agencies Included in This Review1
CFO Act Agencies With Prior Improper Payment Reporting Requirement
1. Department of Agriculture
2. Department of Defense
3. Department of Education
4. Department of Health and Human Services
5. Department of Housing and Urban Development
6. Department of Labor
7. Department of the Treasury
8. Department of Transportation
9. Department of Veterans Affairs
10. Environmental Protection Agency
11. National Science Foundation
12. Office of Personnel Management
13. Small Business Administration
14. Social Security Administration
CFO Act Agencies With No Prior Improper Payment Reporting Requirement
15. Department of Commerce
16. Department of Energy
17. Department of the Interior
18. Department of Justice
19. Department of State
20. Agency for International Development
21. General Services Administration
22. National Aeronautics and Space Administration
23. Nuclear Regulatory Commission
Source: GAO.
1This list, previously comprising 24 agencies, has been revised to omit
the Federal Emergency Management Agency, a former independent CFO Act
agency that became part of the Department of Homeland Security in March
2003.
Appendix IV
Comments from the Office of Management and Budget
Appendix V
GAO Contacts and Staff Acknowledgments
GAO Contacts Tom Broderick, (202) 512-8705
Bonnie McEwan, (202) 512-4668
Acknowledgments In addition to those named above, Donell Ries made
important contributions to this report.
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