Post-Hearing Questions Related to Agency Implementation of the
Improper Payments Information Act (16-SEP-05, GAO-05-1029R).
On July 12, 2005, we testified before the Subcommittee on Federal
Financial Management, Government Information, and International
Security, Senate Committee on Homeland Security and Governmental
Affairs at a hearing entitled "Improper Payments: Where Are Truth
and Transparency in Federal Financial Reporting?" At that
hearing, we discussed our findings on federal agencies'
implementation of the Improper Payments Information Act of 2002
(IPIA) based on our review of agencies' fiscal year 2004
Performance and Accountability Reports (PAR). Our review focused
on the extent to which agencies have performed the required
assessments to identify programs and activities that are
susceptible to significant improper payments, and the annual
amount estimated for improper payments by federal agencies. This
report responds to an August 24, 2005, Congressional request that
we provide answers to follow-up questions relating to our July
12, 2005, testimony.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-1029R
ACCNO: A37158
TITLE: Post-Hearing Questions Related to Agency Implementation
of the Improper Payments Information Act
DATE: 09/16/2005
SUBJECT: Accountability
Erroneous payments
Financial management systems
Overpayments
Program abuses
Regulatory agencies
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GAO-05-1029R
United States Government Accountability Office Washington, DC 20548
September 16, 2005
The Honorable Tom Coburn
Chairman, Subcomittee on Federal Financial Management, Government
Information, and International Security Committee on Homeland Security and
Governmental Affairs United States Senate
Subject: Post-Hearing Questions Related to Agency Implementation of the
Improper Payments Information Act
Dear Mr. Chairman:
On July 12, 2005, we testified before your subcommittee at a hearing
entitled "Improper Payments: Where Are Truth and Transparency in Federal
Financial Reporting?" At that hearing, we discussed our findings on
federal agencies' implementation of the Improper Payments Information Act
of 2002 (IPIA) based on our review of agencies' fiscal year 2004
Performance and Accountability Reports (PAR). Our review focused on the
extent to which agencies have performed the required assessments to
identify programs and activities that are susceptible to significant
improper payments, and the annual amount estimated for improper payments
by federal agencies.
This report responds to your August 24, 2005, request that we provide
answers to followup questions relating to our July 12, 2005, testimony.
Your questions, along with our responses, follow.
1. Pursuant to the Improper Payments Information Act of 2002 (P.L.
107-300), OMB provided implementation guidance to agencies, and provided
the Social Security Administration with supplemental guidance on improper
payments reporting. This guidance establishes a distinction between
"avoidable" and "unavoidable" payments. Are you concerned with this
supplemental guidance? What are the implications of making this
distinction? Is it GAO's understanding that agencies would not be required
to report improper payment information to the Congress if they are
considered to be "unavoidable" under OMB's guidance?
On August 28, 2003, the Office of Management and Budget (OMB) advised
Social Security Administration (SSA) on improper payment reporting. Under
this advice, SSA could exclude from its estimate of improper payments
those payments that it made following constitutional, statutory, or
judicial requirements even though those payments are
GAO-05-1029R Post-Hearing Questions on Improper Payments
subsequently determined to be incorrect. These payments were deemed by OMB
to be "unavoidable" improper payments, as there are no administrative
changes SSA could implement that would eliminate such payments nor would
SSA be likely to receive other relief from such requirements.
IPIA defines an improper payment as a payment that should not have been
made or that was made in an incorrect amount (including overpayments and
underpayments) under statutory, contractual, administrative, or other
legally applicable requirements, and includes any payment to an ineligible
recipient, any payment for an ineligible service, any duplicate payment,
any payment for services not received, and any payment that does not
account for credit for applicable discounts.
While the definition of improper payments does not use the terms
"avoidable" or "unavoidable," we agree with OMB that a payment that was
made following a legal requirement to make the payment subject to
subsequent judicial or administrative determinations that the payment is
not due should not be included in an agency's estimate of its improper
payments. We agree with OMB's conclusion not because it is an
"unavoidable" payment but rather because it does not meet the definition
of an improper payment under the act.
For example, SSA has cited that it is required by statute to continue
making a payment, even if SSA concludes that the recipient is no longer
eligible, until certain due process requirements have been met. In this
example, SSA, because of the statutory requirement, must make the payment.
Because SSA is continuing to make the mandatory payment, the amount is not
incorrect under IPIA. The statute requires SSA to make the payment until
applicable due process requirements result in a determination that the
person is ineligible; therefore, the mandatory payments have not been made
to an ineligible recipient. Accordingly, the facts would not support
inclusion of these payments as improper payments as defined under IPIA.
While we recognize that OMB's advice is only applicable to SSA, we are
concerned that other agencies might rely on it, particularly in light of
the justification OMB provided for not including the above, and similar,
payments. In its February 13, 2004, response to the Senate Committee on
Finance inquiry, OMB discussed in detail its advice to SSA and its
rationale for establishing a distinction between "unavoidable" and
"avoidable" improper payments. While we concur with OMB's result for the
SSA examples cited in its response to the committee inquiry, we are
concerned that the result is based on a principle that might not always be
applicable in other fact situations. We would caution OMB against
concluding that any payment that is unavoidable - that is, the agency
cannot do anything about it - should not be included as an improper
payment under IPIA. Rather, the exclusion of payments should be made
individually on a fact-specific basis using the definition provided in
IPIA. In addition, we believe that agencies should track and monitor
theses types of payments as part of their debt collection efforts and have
the ability to readily report this type of information upon request.
Page 2 GAO-05-1029R Post-Hearing Questions on Improper Payments
2. Is SSA the only agency where "unavoidable" and "avoidable" improper
payment distinctions arise? If not, which other agencies have raised these
issues, and what is GAO's concern with such a distinction?
Many of the government programs with improper payments are benefit
programs like those of SSA, which involve recipients and providers of
services. Although there could be other agencies that also face having to
make payments as a result of legal or regulatory requirements, we are not
aware of other agencies having raised the issue of "unavoidable" and
"avoidable" improper payments. It is our understanding that OMB's advice
was specific to SSA.
3. In its report, entitled "Financial Management: Challenges in Meeting
Requirements of the Improper Payments Information Act," GAO reported,
based on information provided by OMB from PARs collected, that all
programs and activities in the Department of Defense had been assessed for
risk of making improper payments. Only two programs within the Department
of Defense reported improper payment information: the Military Retirement
Fund and Military Health Benefits. Please comment on the following:
o Whether or not GAO believes that all programs in the Department of
Defense have been adequately assessed for risk of improper payments.
In its fiscal year 2004 PAR, the Department of Defense (DOD) reported it
had assessed all programs and activities for susceptibility to significant
improper payments, that is, improper payments exceeding $10 million and
2.5 percent of program payments, pursuant to criteria OMB included in its
implementing guidance. While we have provided data on DOD's and other
agencies' implementation efforts to meet certain requirements under IPIA,
we have not analyzed DOD's assessments of its programs nor its improper
payment estimates.
o Any other programs within the Department of Defense that GAO suspects
to be at risk for making "significant" improper payments.
Based on GAO's most recent high-risk series work1 and an August 2005 DOD
Office of Inspector General (OIG) report on DOD's identification and
reporting of erroneous payments,2 we believe DOD may have other programs
and activities that are at risk of making significant improper payments.
In our January 2005 High-Risk Update, we identified 25 high-risk areas. Of
the 25, 14 areas involve DOD, including 6 governmentwide high-risk areas
(see table 1).
1GAO, High-Risk Series: An Update, GA0-05-207 (Washington, D.C.: January
2005). 2Department of Defense Office of Inspector General, Financial
Management: Identification and Reporting of DoD Erroneous Payments,
D-2005-100 (Arlington, Va.: Aug. 17, 2005).
Page 3 GAO-05-1029R Post-Hearing Questions on Improper Payments
Table 1: GAO Designated DOD High-Risk Areas
DOD high-risk areas Year designated
Approach to Business Transformation 2005
Personnel Security Clearance Program 2005
Support Infrastructure Management 1997
Business Systems Modernization 1995
Financial Management 1995
Contract Management 1992
Supply Chain Management (formerly Inventory 1990
Management)
Weapon Systems Acquisition 1990
Total 8
Governmentwide high-risk areas
Establishing Appropriate and Effective
Information-Sharing Mechanisms to Improve Homeland 2005
Security
Management of Interagency Contracting 2005
Managing Federal Real Property 2003
Implementing and Transforming the Department of
Homeland Security 2003
Strategic Human Capital Management 2001
Protecting the Federal Government's Information
Systems and the Nation's Critical Infrastructure 1997
Total 6
Grand total 14
Source: GAO.
For years, GAO has reported on inefficiencies and lack of adequate
transparency and appropriate accountability across DOD's major business
areas, resulting in billions of dollars of wasted resources annually. In
addition, DOD's financial management deficiencies represent the single
largest obstacle to achieving an unqualified opinion on the U.S.
government's consolidated financial statements. Among other things, these
deficiencies adversely affect the department's ability to control costs,
ensure basic accountability, and prevent fraud. DOD's financial management
problems have negatively affected its business operations, including
activities related to military pay, travel, property, contract payments,
and automated systems. Based on this, we believe that programs related to
these areas may be at risk of making significant improper payments.
In its August 2005 report, the DOD OIG reported that DOD estimated
approximately $977.5 million in erroneous payments associated with DOD
fiscal year 2004 operations. DOD also identified the military pay activity
as being at high risk of erroneous payments. Because DOD did not complete
its preliminary estimates or identify high-risk areas until January 2005,
none of this information was reported in DOD's fiscal year 2004 PAR. As
Page 4 GAO-05-1029R Post-Hearing Questions on Improper Payments
stated in our response to the first part of question 3, we have not
analyzed DOD's assessments of its programs nor its improper payment
estimates.
We are sending a copy of this report to the Director of OMB and other
interested parties. This report is also available on GAO's home page at
http://www.gao.gov. Should you have any questions on matters discussed in
this report or need additional information, please contact me at (202)
512-6906 or at [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Major contributors to this report include Carla Lewis,
Assistant Director; Verginie Amirkhanian; and Donell Ries.
Sincerely yours,
McCoy Williams
Director, Financial Management and Assurance
(195069)
Page 5 GAO-05-1029R Post-Hearing Questions on Improper Payments
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